Louise Tjeder: A warm welcome to Sandvik's presentation of the Q3 results 2026. My name is Louise Tjeder, I am the Head of Investor Relations, and beside me, I have our CEO, Stefan Widing, and CFO, Cecilia Felton. We will, as we usually do, start with the presentation. Stefan and Cecilia will take you through the highlights of this quarter, and after that, we will move on to the Q&A session. With a short introduction, it is over to you, Stefan.
Stefan Widing: Thank you, Louise, and also from my side, hello everyone, and welcome to the Q3 report. If we summarize the quarter, we think this was a very good quarter. We see broad-based demand. We have strong operational execution. The profit margin is above our target range, and we also have a record high cash flow in the quarter. Total order intake grew by 20%, and the organic order intake growth was 17%. Total revenue growth was 29%, and the organic revenue growth was 25%. Adjusted EBITA came in around SEK 8.5 billion, and this corresponds to a margin of 22.5%, up from 19% in the prior year period. The rolling 12 months EBITA margin is now at 21.3%.
Stefan Widing: Adjusted profit for the period amounted to SEK 5.8 billion, and the free operating cash flow then came in at SEK 7.2 billion, up from SEK 5.6 billion, and corresponding to a cash conversion of 87% in the quarter. If we focus a bit on some of the key strategic highlights in the quarter, starting with rock processing, a good product launch in the screening business, on the compact screen size. We usually have engineered products in screening, but these are standard products that are pre-engineered. This means that we can deliver faster and also reduces the amount of time we have to spend on each order. So a good product launch from them. On the mining side, we had our Future of Mining event with over 600 customers in the quarter. There we launched our concept Surface Drill Rig, which showcases the future of surface mining.
Stefan Widing: This is a fully automated and battery electric machine combining AI, robotics, electrification, and digital connectivity. It shows our vision for how we think surface mining will develop in the future. Those of you that will attend our Capital Markets Day in Finland in November, you will get to see this machine performing live in our surface test mine outside of Tampere. Intelligent Manufacturing had a milestone also this quarter. We participated, both Intelligent Manufacturing and Machining, at the IMTS trade show in Chicago. This is one of the largest manufacturing trade shows in the world that happens every second year. Here, for the first time, we showcased our digital solutions under the Sandvik brand umbrella for the first time.
Stefan Widing: We also launched a new solution called Manufacturing Lifecycle Management, where we connect the dots between design, Machining, and quality data across the entire lifecycle for the first time. Also this, we will showcase more to those of you that will attend the Capital Markets Day in November. Also to show that we also, of course, innovate in our core product range. Walter released a new portfolio of solid carbide end mills in the quarter. These are products that are tailored for the aerospace sector, and especially hard materials such as titanium and special grade stainless steel. So important innovation in the core business as well. If we shift the focus on the market development, we continue to see a robust development, both upstream and also downstream. High commodity prices continue to underpin a strong activity, and we see a good demand both for equipment and aftermarket.
Stefan Widing: High utilization rates and an aging fleet, of course, drives consumption demand for parts and services also this quarter. We continue to see a good interest and demand for our digital and automation solutions. We also see now a bit of an increased activity in downstream mining, even though we do not see it in the order book yet, but we do see an increased activity, which is positive. Infrastructure market also continues to develop positively. We should highlight demolition and recycling, and also North America, which is where we see the most positive market sentiment, but also slightly positive in aggregates and in Europe. If we look at the industrial segments, starting with general industry, we see a quite broad-based demand picture here, up across all regions. Aerospace and defense is very strong, also across all regions. Light vehicles continues to be subdued.
Stefan Widing: We could say that Europe and North America are stable at low levels, while China deteriorated in the quarter. India is really the only larger market where we see a positive development in the quarter. For the other segments, mining, energy and transportation, medical and electronics, we overall see a positive development with some specific highlights around the power generation and some of the transportation segments. If we look at our organic order intake for cutting tools in the period, that of course, broadly or in most cases, align well with the underlying market I showed. A few deviations. If you look at general industry, you can see negative China. Here, we see a positive development in the premium cutting tools, but we have a business around blanks.
Stefan Widing: This is a product that sits between the powder and the finished cutting tool, selling sort of half-finished products on the Chinese market. Here we saw significant pre-buys or stocking up earlier in the year, driven by tungsten price dynamics. Now with stable tungsten prices, customers are simply using the inventory they bought earlier. So that has a negative impact in the quarter for that business. Otherwise, light vehicles, also, you can see they are negative in China. Europe is up high single digits, but there is of course a lot of price in there, so the volumes are actually down. North America also slightly down on volumes. Otherwise, I think there are no specific things to call out in this picture. If you go to orders and revenues, orders close to SEK 37 billion in the quarter. Revenues SEK 37.7 billion, book to bill of 98%.
Stefan Widing: As you recall, we typically have a H2 of the year with higher deliveries, and usually a slightly negative book to bill below 100%. So this is nothing unusual for the season. If we look at this from another angle, organic and structural growth, I think a key thing to highlight here, it is the sixth quarter in a row with double-digit order intake growth and solid organic growth across this period. This was also a quarter where we started to meet a bit higher comps. We grew 16% in the same period last year and now 17% this year. So I think strong order growth on top of a strong quarter last year. Revenues, of course, we continue to ramp up and very solid execution there with a 25% revenue growth in the quarter. Going into our business areas then, starting with mining.
Stefan Widing: Again, very solid demand across both equipment and aftermarket. We have good organic order intake growth driven by strong growth across all our aftermarket divisions and summing up to 16%. Equipment, 23% growth if we exclude major orders. As you recall, we grew equipment by 75% last year, driven by large orders. I think the large orders this quarter are okay at SEK 700 million, but very tough on the comp side. So I do not see this as anything that is concerning in any way. Profitability was strong at SEK 4.3 billion, profit margin of 21.8%, good organic leverage of 31%. Then a little bit of a mixed impact from currency where it had an absolute positive impact. But since the top line was even more positive, it had a slightly dilutive effect on the margin in the quarter.
Stefan Widing: You can also see the split, brownfield 55%, greenfield 13%, and replacement 32%. This is fairly in line with what it has been in the past couple of years. Maybe slightly stronger brownfield at the expense of greenfield, a couple of percentage points if you look at the average over the past couple of years. Rock processing then, robust underlying demand in mining, and also, as mentioned, a positive market sentiment in demolition and recycling. Total order intake though decreased by 2% and the organic drop was 8%. Here we had no major orders this quarter, while we had a couple of large orders last year. This was more flattish if we exclude for that. We also see a very strong demand in aftermarket, which is positive, shows the activity levels in the business.
Stefan Widing: But orders on the equipment side in this a little bit smaller business area are lumpier, and that we also see in this quarter. Adjusted EBITA SEK 418 million, a solid margin then of 15%, basically the same as last year, down 10 basis points. We have a negative operating leverage in the quarter. Since the revenue growth organically was flat. It is very small numbers we are talking about here, and we are investing in the frontline as we see a positive demand picture going forward, which means we have a little bit of higher cost there in the quarter that is not yet met with higher revenues. But again, overall small numbers in that bullet point. Currency also a small impact accretion of 10 basis points.
Stefan Widing: Machining then, positive demand, as mentioned across the board except for light vehicles, total order intake growth by 35% organically, or at fixed exchange rate 33% and also organically 33%. Cutting tools grew by 19%. In that number, we would say underlying volume improvement around 5%. On top of that, a couple of more percentage points driven by pre-buys, and then the remaining part is essentially price. We continue to see development continuing in the same way now into Q4. EBITA was high, SEK 3.7 billion, a margin of 25.7% up from 19%. Here we then have positive contribution from the higher volumes, from the powder business and also from our savings programs, which are contributing SEK 82 million in the quarter.
Stefan Widing: The temporary timing effect coming from tungsten came in at SEK 104 million, which is about SEK 100 million lower than our guidance, and this corresponds then to an in-quarter effect of 70 basis points. The leverage was very good in the quarter, 45%, and currency had a slight positive impact of 10 basis points. Intelligent Manufacturing had a very solid, and I would say uneventful quarter, broad demand across the board, strongest coming from aerospace and defense. We have a double-digit order intake growth in both licenses and subscriptions. If we normalize for the negative 2% that comes from the transition towards subscriptions, the order intake growth was 14% underlying in the quarter. Profits were also good, SEK 258 million, leverage of 33%, and a margin of 27.1%, which is very strong.
Stefan Widing: Neutral from currency in absolute terms, slight dilution on the margin. Also, a very positive effect from our acquisitions year over year. With that, I hand over to you, Cecilia.
Cecilia Felton: Thank you, Stefan. All right, let's dive into the numbers in a bit more detail together. As Stefan said, strong growth on both orders and revenues, which resulted in order intake just short of SEK 37 billion and revenues of SEK 37.7 billion. Earnings came in at SEK 8.5 billion, corresponding to a margin of 22.5%. This is the second consecutive quarter where we are above our margin corridor. Net financial items came down compared to last year. As you can see here, tax rate, excluding items affecting comparability and also on a normalized basis, was 24.3%, so in line with guidance. Net working capital continues to gradually come down. We are now at 27.2%, and this is on a 12-month rolling basis. You can see that it is an improvement of 2.1 percentage points compared to last year.
Cecilia Felton: As Stefan mentioned, it was a strong cash flow quarter, SEK 7.2 billion corresponding to a cash conversion of 87% in the quarter. Returns also improving year over year, reaching 19.1%, and if we exclude PPA, we are at 20.4%. Adjusted EPS grew by 65% compared to last year and reached SEK 4.64. Good earnings growth and also margin improvement compared to last year, and this is primarily driven by higher volumes, good profitability in powder solutions, and also our ongoing savings program. As Stefan mentioned, the temporary timing effect from the tungsten price development came in a bit lower than what we guided at SEK 104 million. This is due to, as you might have seen, tungsten prices came down slightly towards the end of the quarter, which resulted in a revaluation of our inventory, and hence the slightly lower outcome.
Cecilia Felton: However, at a group level, this corresponds to an in-quarter impact of 30 basis points. It was all in all, a good leverage of 37%. The currency was slightly dilutive, 20 basis points. As you can see here in the graph on a 12-month rolling basis, the margin is now at 21.3%. If we continue with the bridge, as usual, we will start with the organic column. The good leverage of 37% resulted in a margin accretion of 3.6 percentage points. Currency was positive, as you can see here, both on top line and on EBITA, but the top-line impact was bigger, and hence there is a slight margin dilution of 20 basis points. Structure was slightly accretive, and all in all, that brings us from a margin of 19% last year to 22.5% this year.
Cecilia Felton: If we continue down in the P&L, looking at net financials, as usual, starting with the interest net. Here you can see that it came down, but very slightly compared to a year ago. This is the net impact of, on the one hand, lower borrowed volumes. As you can see here at the bottom of the table, we also have a higher borrowing yield. Last year we had a negative impact in FX and other asset classes, whereas this was slightly positive this year, and these are the main explanations for the reduction in the finance net. Tax rate, as you can see here, very uneventful in the quarter, 24.3% on a normalized basis, which is in line with our guided range. Here you can see that net working capital in relative terms continues to trend down. As I said, we are now at 27.2%.
Cecilia Felton: On the right-hand side, you can see that this is primarily driven by mining and rock processing. So a good development and achievement so far, but also a continued focus area for us going forward. If we then continue with free operating cash flow, as you can see in the bars here, it was a strong cash flow quarter, SEK 7.2 billion corresponding to a cash conversion of 87%. You can also see that on a 12 month rolling basis, cash conversion is now at 75%. Looking at the year-over-year development, you can see that EBITA adjusted for non-cash was significantly higher compared to Q3 of last year. CapEx was a bit higher, and then you can see the impact of the net working capital buildup. All in all then, ending up with a free operating cash flow of SEK 7.2 billion.
Cecilia Felton: Financial net debt remains at SEK 30 billion. It is the same level as we had in Q2, and net debt also remains at SEK 37 billion. Our balance sheet targets, however, came down slightly. We were at 1 at the end of Q2, we are now at 0.9, and this is driven by a higher 12 month rolling EBITA. Looking then at outcome versus guidance. Currency came in at SEK 158 million. The temporary timing effect from tungsten price, as I mentioned, 104. On a year-to-date basis, CapEx is now at SEK 2.8 billion, interest net at SEK 0.5 billion, and the normalized tax rate at 24.2%. Looking ahead then at Q4 and full year, we expect a continued positive currency impact of around SEK 0.6 billion in Q4.
Cecilia Felton: In terms of the temporary timing effect from the tungsten price development, here we expect a limited impact in Q4, and this is based on the tungsten prices as of last of September. We will also have a tariff refund in Machining in Q4, and this will be of around SEK 400 million, which will then negatively impact both order intake and revenues for Machining. As we have received these tariff refunds, we have booked them as a liability on our balance sheet, and this means that there will be no impact on absolute EBITA. Then for the full year, we have left the guidance for CapEx and tax rate unchanged, but we have increased the guidance for interest net slightly to SEK 0.7 billion.
Louise Tjeder: And with that, I will hand back over to you, Stefan.
Stefan Widing: Yes. Thank you. I just want to clarify when we talk about the tariff refund, that we have already received that refund, and now we are talking about that we will give this back to our customers, just so there is no misunderstanding there.
Louise Tjeder: Yes.
Stefan Widing: On the conclusions, if we start on the macro side, we have said already continue to see a strong demand in upstream mining, and also an increased activity downstream. We see a positive demand picture in cutting tools and the supply constraints and high market activity continues to support a strong tungsten demand as well. We have a strong financial performance, order intake growing double digits, and a strong execution led to 26% revenue growth in total. Our profit margin is above our target range, and we deliver a record cash flow. As Cecilia mentioned, the EPS is up 65% in the quarter, which I think is a quite remarkable number, especially that we should consider that there is no one-time sort of effects in the comp or in the current period of any material size. The strategic progress is also very solid.
Stefan Widing: We continue to launch important innovations in both digital and also surface mining, as I have talked about. We continue to show good innovation progress also on the digital side, and it was really a milestone that we could start to show bigger common solutions now at IMTS. We also closed the acquisition of Diemme Filtration, which also meant that we now have a 24th division in the group. We continue to deliver consistently each quarter, while we also invest into our long-term strength. There is a volatile market out there, but I think we continue to show that we have the agility and speed in adjusting to meet all the different developments that we see out in the world. And I think we have again proven the strength of Sandvik’s business portfolio, our strategy, and our operating model. So thank you for listening. Let us go to the Q&A.
Louise Tjeder: Thank you, Stefan and Cecilia. Yes, indeed. It is time for the Q&A session. Operator, we can take the first question, please.
Operator: We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from the line of Alex Jones, Bank of America. Please go ahead.
Alex Jones: Good morning. Thanks very much for taking my questions. Two, if I can, please. First, on cutting tools, you call that a benefit from pre-buying for the last few quarters. You talked in the prepared remarks in China as though that is unwound a little bit given the stabilization in tungsten prices there. With European tungsten prices now also seeming to have stabilized, are you seeing any signs of the pre-buying outside of China slowing, ending or even unwinding? If not, is that something that you would expect to happen in the coming quarters, please? Then secondly, just on the large orders in Mining, I think if I take the past four quarters, it has averaged just over SEK 1 billion per quarter. How should we think about that run rate moving forward?
Alex Jones: Does the pipeline give you confidence that that could be similar or potentially even higher as we move into Q4 in 2027? Thank you.
Stefan Widing: Thank you. On the cutting tool and pre-buys, we saw, as I said, in this quarter about a 2% sort of boost from pre-buys, driven by price increases in the quarter that didn't fully unwind within the quarter. The Chinese impact was, if we talk about the pre-buy effect back in the H1 of the year, significantly larger. It was very, let's say, unusual type of pre-buy numbers there. I think it's very clear that the purchasing decisions and tactics there are very different. So if we look at China year to date, it's still a good positive figure, but a lot of pre-buy in the H1 and then starting to a large extent unwinding now for a couple of months. The pre-buy effect we have seen outside of China has been much more limited.
Stefan Widing: In Q2, we said that orders and revenues and so on, they were fairly balanced. We still carry sort of a pre-buy effect orders versus revenues from Q1 that we're still having with us. So I cannot fully predict. I think to some extent, some of this will stay at higher inventory levels as we are also seeing an underlying demand pickup. It's quite usual that we see that in an upcycle. Maybe some of it will slightly unwind. That is a possibility. But nothing we sort of can predict. But again, it is not very big numbers we're talking about here, so I'm not so concerned about it. On the large orders in mining, the reason we call out the large orders is because they are a little bit lumpy quarter by quarter.
Stefan Widing: In the previous, in Q2, it was SEK 1.6 billion or so, if I remember correctly. Now it was SEK 700 million. You talked about the average around SEK 1 billion plus. I will not guide going forward, but we continue to see high commodity prices, very strong demand. Underlying in the way our equipment is being used, customer activities, order pipelines and so on. I see no reason for why current demand picture will change, and therefore on average, why large orders would go in any negative direction. But again, it's not a guidance, it's just what we see in the market right now.
Alex Jones: Thank you.
Operator: The next question is from John Kim, Deutsche Bank. Please go ahead.
John Kim: Hi. It's actually John Kim from Deutsche. Thanks for the opportunity. I'm wondering if you could flesh that out a little bit. I previously spoke about seeing some better activity potentially in downstream. I have another question for later.
Stefan Widing: Yeah. We know downstream is a little bit more late cycle. Typically, customers are running the processing plants at a lower utilization rate than a max capacity, which means that when things are picking up, they can do without incremental investments for a while. They also tend to make those investments in larger chunks. With mining equipment upstreams, you can add one or two or three loaders or drill rigs. When you come to the processing plants, you need to take bigger steps, which means that they take a bit longer before they are ready to commit to that. But we are seeing in terms of how we look at RFQs, customer engagements, and so on, that we feel that the engagement is picking up, and it should be supportive going forward, even though we didn't see it in the order intake in this particular quarter.
John Kim: Okay. Helpful. If we shift gears back to tungsten, please. We've seen a pretty strong deviation between the Chinese and the European pricing. Have you seen any change in behavior on finished tools or products from Chinese OEMs into domestic or export markets as a result?
Stefan Widing: No, not really. We have always for some years seen the Chinese here and there, but quite limited outside of China. They are competing in the mid-market. We tend, as you know, to be primarily in the premium segment. In the mid-market, there has always been a price-driven competition. This is nothing new. I cannot say that we are seeing things getting better or worse from this dynamic at the moment.
John Kim: Okay. Thank you.
Operator: The next question is from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind: Hi. Thank you. Hi, Stefan and Cecilia. Klas at Citi. My first question is on the tungsten impact, which came in at SEK 100 million versus SEK 200 million guided, and you guide for a flattish impact into Q4. I had a question on the absorption impact, the profitability in the mine at these prices is good. You get good fixed cost absorption in powder. With scrap prices coming down, and we start to see APT leveling off a bit as well, how should we think about this line going forward? Your margin is still 25% underlying, including this effect, but curious what could happen here ahead. I will start here. Thank you.
Cecilia Felton: Yeah. As you say, tungsten prices, they came down slightly towards the end of the quarter. That resulted in the inventory revaluation effect. In Q4, we guide a limited temporary impact. Then of course, depending on how tungsten price develops going forward, it impacts the profitability and powder solutions, but we also have offsetting impacts in the cutting tool business over time. That is how we also create resilience across the group. Then it is a bit of a complicated picture because it is, as you know, for our production, we use virgin material from our own mine. We source material externally. We also source scrap material, and we also buy back from our customers used cutting tools for recycling. So you need to take all of these factors into consideration.
Cecilia Felton: But overall, we see that we have good margin resilience across the powder solution business and the cutting tools business.
Klas Bergelind: That leads me into my second question on price cost in cutting tools. Then you talk, Cecilia, about the resilience. The pricing on orders when I back it out, was up around 11% in Machining, not too different versus the second quarter. But we understand that you are now raising prices quite a lot more than that as the tungsten impact and cutting tools start to now increase here a lot given the 9-month lag from when tungsten increased a lot in November last year. So how should we think about pricing in the P&L in the fourth quarter? I calculate that we could be up 15% to 20%, right? You raised prices a lot here at the end of the quarter on orders. Then thinking about when you guide flat impact overall in the fourth quarter. So price cost positive in absolute terms against powder weakening and offsetting that.
Klas Bergelind: Any more clarity on price cost and prices would be very useful. Thank you.
Cecilia Felton: Yeah, sure. We made, as you said, a price increase towards the end of the quarter. With this price increase now, it is set, so it will offset the impact of the current tungsten price levels. There is, of course, also, just like usual, we will make price increases. We also look at how we think more general inflation will develop going forward. There, typically, we have a slight accretion initially when we make price increases as we have this temporary timing impact between price and the normal inflationary development coming into our P&L. Then in terms of breaking this down further, we are a bit careful with doing that for commercial and competitive reasons. The best guidance we can give is that net, we see a limited impact in Q4 in terms of what should be considered a temporary effect.
Cecilia Felton: No temporary boost or the opposite in Q4.
Klas Bergelind: Okay. Absolute final one on Mining. On the aftermarket, the 16% growth, still very strong numbers. You have a big mine planning business, sort of in digital, that is where growth should be linked to the strong exploration activity. I think you also have some tungsten pass through steel in rock tools. If we zoom in on just parts and rebuilds, which are more comparable to some of your peers, Stefan Widing, what was the growth in these segments on orders? Did growth here accelerate versus Q2? Thank you.
Stefan Widing: Yeah. I think all components of aftermarket, actually, this quarter, were growing at a relatively similar pace. Parts and services was also up there in the high teens.
Klas Bergelind: Okay. That's great. Okay. Thank you.
Stefan Widing: Yep.
Operator: The next question is from Chitrita Sinha, JPMorgan. Please go ahead.
Chitrita Sinha: Yeah. Hi, good morning, Stefan and Cecilia. I just have a follow-up on the pricing dynamics in Machining, please. I just wanted to know broadly how customers are reacting to prices falling, and do you see your ability to retain pricing into 2027 as unchanged, obviously, in the scenario that prices keep falling? Thank you.
Stefan Widing: Yeah, I can take that one. Customers are never happy when you raise prices, but I would say this has been one of the more straightforward ones. It was the same in May because it is very clear, the underlying reasons, and we are not alone either, we can say. I think this is something that the industry recognizes. The reasons are clear, and therefore, they also accept these increases. This is, of course, why we are so clear and focused on that we do this to protect our margins, but we are not doing more than that, even though there currently is, to some extent, a shortage of tungsten. Yeah. That's how it went down now. For that same reason, we do not see why, in general, price increases are not sustainable. Of course, it will depend on what happens with tungsten prices.
Stefan Widing: But if we assume a main scenario there, we see no reason why these prices are not sustainable.
Chitrita Sinha: I am sorry, if I could follow up. Do you expect maybe competitors to lower their pricing in order to get market share gains? Is there any signs of that that you have seen so far, or do you see any risk of that kind of behavior?
Stefan Widing: I cannot really comment on what they might or will do, but let us remind ourselves that from a competitive position, we have the best competitive position here with our own mine, and over 50% of the input material coming from scrap. Scrap prices are lower than virgin material prices since there is a limited recycling capacity, especially outside of China. So that builds a further competitive position for us. And on top of that, at least publicly traded competitors do not really have a margin profile that means that they can sacrifice further margin to try to gain market share, especially knowing that our cost base is probably the most competitive across the board. So I feel quite confident that the competitive situation is to our favor rather than the other way around.
Chitrita Sinha: Very clear. Thank you.
Operator: The next question is from Magnus Kruber, Nordea. Please go ahead.
Magnus Kruber: Stefan, Cecilia, Louise. Magnus here from Nordea. A couple of questions from me. You will be opening up the books for 2027 on powder solutions in Q4, and given the momentum we have in the pricing within there, could you comment a little bit on the mix impact on pricing we could see in Machining in Q4? Or potentially at least help us explain what the mix was between powder orders and cutting tool orders in Q4 last year.
Stefan Widing: That we probably have to come back to. I actually don't remember the split in Q4 or how much we disclosed back in Q4. I will have to come back to that.
Magnus Kruber: But is the thinking right? You should probably have a positive mix impact in Q4, at least from a pricing perspective in Machining.
Stefan Widing: You mean from the fact that we're going to open up the books for orders for powder?
Magnus Kruber: Exactly. Yep.
Stefan Widing: Yeah, that I cannot really guide on. Let's comment a little bit broadly on that. As we have stated in previous quarters, the order intake that you see also this quarter in powder is primarily a reevaluation of the order book to current or to the price levels we actually deliver on, where the actual orders were booked in Q4 or to some extent Q1, typically a 12 months order. We have kept the order book closed now for a couple of quarters. Because of this dynamic, we want to make sure that we take the learnings from this year, as we open up the order books, that the price models and everything is aligned with how the market operates currently. It's true, yes, we will then open it up in Q4.
Stefan Widing: But I expect also there's to be conversations with customers, on sort of updated, maybe pricing models or what have you. So I think it's a little bit uncertain how much will end up in Q4 and how much will end up in Q1. It's not only that we don't guide for that, I don't know how it will land. We will of course, make sure we, first of all, that we protect the business by making sure that we get quality orders into the order book, even if it takes a little bit longer to have those conversations. So I can only say it's going to be tricky to predict that element in Q4, unfortunately.
Magnus Kruber: Yeah, it will.
Stefan Widing: That's how it is.
Magnus Kruber: It will. That's good. Okay, finally, could you explain a little bit, the year-over-year delta, the magnitude of that within the cutting tools part of Machining specifically? Could be very helpful to see what's going on there.
Cecilia Felton: You mean pricing versus the tungsten development?
Magnus Kruber: No, just the margin delta year-over-year, if you can scope that to some degree in cutting tools.
Cecilia Felton: Yes. If I take Machining as a whole, then I will also cover the cutting tools there. The key drivers for the margin improvement is good leverage in the cutting tools business. Also, we have the ongoing savings program. Then we have good profitability in powder solutions, sort of underlying at these tungsten levels, and then it is a temporary timing impact. Those are really the biggest drivers for the margin improvement year-over-year.
Magnus Kruber: Got it. Thank you so much.
Operator: The next question is from Ed Hussey, UBS. Please go ahead.
Ed Hussey: Hi Stefan and Cecilia. Thanks for taking my questions. Just two from me, maybe just taking them one at a time. The first question is just on Machining volumes. Earlier in the call, I think you were referring to a kind of net pre-buy effect. Just on that, if we think on a monthly basis, does that mean that you had a pre-buy positive effect in the first two months and then a negative volume effect in the third month? Is that the way to think about it?
Stefan Widing: Yeah, basically. Yeah.
Ed Hussey: Okay.
Stefan Widing: Because you get the pre-buy up until the price increase, then you see a little bit of a drop afterwards. The net 2% we refer to is simply then that our estimate of what the drop should be based on the pre-buys in the first couple of months was not fully compensating them for what we consider to be the pre-buy component.
Ed Hussey: Okay. That's very helpful. Thanks. Then just another question, you've included a really useful slide on the tungsten price dynamics in Machining, and you've spoken about this before, but you showed that the cutting tool cost has a nine-month lag to the tungsten price. My question here is that you have. If I look at Q4 2025, Q1 2026, you already had prices going up in Machining, by 4%, 7% I've calculated. The question here is, why were you already putting up prices by that level if there's a nine-month lag to the cost, for the cost going up? On top of that, I think you've also said before that there's a dilutive price cost impact, within Machining.
Ed Hussey: I guess the question as a whole is, how does that kind of work if there is a 9-month lag to costs, but you were already putting up prices in Q4 and Q1?
Cecilia Felton: Yeah. Here, the picture that we show in the appendix, first of all, it is a bit of a simplified model. It is the best that we can give you. We are talking about averages, on the one hand. Then for cutting tools, internally, you also need to remember that when we do pricing, it is both the APT price and scrap price developments that we need to take into consideration, for how we do pricing. That is also true when we look at this from an internal perspective. Ultimately, I think the best way I can answer this, what we are aiming to do is to offset or sort of protect the margin, and that is how we have set the price increase now in Q3. Then it is impossible to get the timing exactly right, because we cannot make price increases every month.
Cecilia Felton: Sometimes we can be a little bit ahead and sometimes we can be a bit behind. But with this price increase that we have done now, that should protect our margin for the cutting tools at current tungsten price levels. I think that is the best answer I can give.
Stefan Widing: Yeah, absolutely. Just to comment, you referred to the, let us call it, the first price increase here earlier this, or actually at end of 2025. We usually have a cycle where price adjustments are done in the beginning of the year. Now coming up to the fall of 2025, tungsten prices started to increase late spring, early summer, actually, last year, even though most people did not notice, unless you were in the industry, because the levels were not at the level they are now. We could already in the fall see that we need to compensate for these higher tungsten prices. Then the question is, do we wait until the normal cycle or do we pull it in earlier, to not be exposed unnecessarily?
Stefan Widing: That one we pulled in earlier, and that one is also then containing, as Cecilia mentioned, maybe compensation for general inflation expected and so on. That was our best guess for what we needed to do to compensate in 2026. Then of course, they continued to go up. Therefore, we have then subsequently done additional price increases, but always with the intent that we try to hit this, let's compensate and protect the margin as good as we can predict.
Ed Hussey: Okay. That's very helpful. Maybe just following up on that question, is there any reason why we might be seeing the cost come through faster than nine months in Machining? For example, the way that you account for inventory for tungsten, is that sort of weighted average cost and that might be why there's a possibility that we basically see the cost coming through sooner than with a nine-month delay. Does that make sense?
Cecilia Felton: Yeah. The nine months, it's an average. It's not true for every product and every assortment, but it's an average. It depends on the mix, for instance, in terms of what we sell. It's not a strict one-to-one correlation to these nine months, but it's an average.
Stefan Widing: If you have a high runner, you might actually deliver a product after three months with a higher tungsten price content, for example. But yeah, this is why we have to work with averages, in the sense how we create the model.
Ed Hussey: Okay. Very helpful. Thank you very much.
Operator: The next question is from James Moore, Rothschild Redburn. Please go ahead.
James Moore: Yes, good morning, everybody. Stefan, Cecilia, I wonder if you could say what the powder volumes, excluding price, did year-on-year in both orders and sales in the quarter. Maybe start there.
Stefan Widing: They are down double digits on both.
James Moore: Okay. Thank you. Can you say what the cutting tool margin, you talked about the year-on-year development, but could you talk about how that developed Q-on-Q?
Cecilia Felton: Quarter on quarter. I think we need to come back on that.
James Moore: Okay.
Cecilia Felton: On the margin break, you mean a sequential?
Louise Tjeder: Yeah, sequential. We need to come back on that, James.
James Moore: Yeah. Okay. Thanks.
Louise Tjeder: Just keep in mind that there is seasonality, as you know, in Machining, with Q3 having vacations, and then as Stefan Widing and Cecilia Fälth have talked about, we have done further price increase in the third quarter.
James Moore: Right. Last, if I could you say what the percentage price assumptions were that you used in the quarter for Argus and APT?
Cecilia Felton: Price assumptions, you mean for the price increase that we have done or?
James Moore: No, for the input prices of scrap price and APT. I believe you use those two prices, there are multiple sources of scrap prices. Given the movements, it would be helpful to know what number you are using, really.
Cecilia Felton: Mm-hmm. The answer there is also for us, it is a mixture. It depends on what type of scrap we source. So also for us, it is varying input prices, depending on what type of scrap material we get hold of and how that is priced in the market. So it is quite a complex picture.
Stefan Widing: Argus, to my knowledge, is the only one that is sort of, let us say, a public, even though I know it is some kind of paid service, but it is still a number that you can refer to and you can go and look. Then, as Cecilia Fälth says, there are various scrap prices that are simply sort of the dealer price. There are no public data on it. It is just what you get when you do the deals. So I think Argus is the only thing we can refer to. Then we can just acknowledge, as you say, that there is a spread also here in reality.
James Moore: Okay. Yeah. Thank you very much.
Cecilia Felton: Thank you.
Operator: The next question is from Daniela Costa, Goldman Sachs. Please go ahead.
Daniela Costa: Hi. Good morning. Thank you. I will have 2 questions, but I just wanted to follow up, sorry to the lot of questions on the Machining part, but back when you had the last CMD, you were targeting 22% to 24% margin. You, at the time, had about 20%. Should we assume that you have got all of the actions that you had back then, which was pre the big jump in tungsten prices, that you captured all of that and that your underlying margin is somewhere within that territory and anything else above that is just tungsten? Or would you say there has been other structural things that make this 25% plus now be equivalent to what you envisioned at the time of 20% to 24%? Basically trying to get again at how much was that underlying from the actions that you were targeting back then before tungsten price increases.
Cecilia Felton: Yes. You are right. So for the margin corridor that we set for Machining at the last Capital Markets Day, that was before we saw the tungsten dynamics. So that was not factored in to when we set the margin corridor of 22% to 24%. Having said that, though, the margin corridor is a long-term target. We have said, like with all margin corridors, it can be periods of time where we are a little bit higher than the margin corridor. We will also come back to this in a bit more detail at the Capital Markets Day in November and explain our thinking here a little bit more. So, it will be a cliffhanger until then.
Daniela Costa: Okay. Got it. In terms of the aftermarket in mining, and the strength that we have carried on seeing in there for a while, would you say this is mainly because production levels are very healthy? Or how would you divide that between what is pure fleet age penetration of market share being higher versus healthy production levels?
Stefan Widing: I think there are a number of factors. One was mentioned, of course, high production levels, in combination with an aging fleet, which drives even more demand for service and aftermarket, and in combination with the fact that our fleet has increased over the last couple of years due to strong demand for new equipment. If you factored all those in, those are 3 important contributors. On top of that, we have a structural contribution from the fact that the machines we deliver and have delivered in the past 3 to 4 years, are more advanced. They are all automation-ready, have a much more advanced control system, they have more sensors, et cetera, which means that the total amount of service needed per machine has also structurally increased.
Stefan Widing: On top of that, with these more advanced machines, we tend to get a higher share of that service, because you cannot do it yourself, or you cannot bring in some third party local firm to do it. You basically need to have the tools and knowledge that we have. So that is also a structural element to this that contributes.
Daniela Costa: Got it. Thank you.
Operator: The next question is from Bruno Gjani, Morgan Stanley. Please go ahead.
Bruno Gjani: Thank you for taking my questions. If I could just start off with Machining and pricing, if we were just to take a step back and without getting into very specific terms, could you give us a flavor of just where we are in terms of the overall price level of Machining today and where you need to take that in the coming months to offset the where price of tungsten prices in the market today? Are we 70%, 80% of the price level increase that is needed? Just some color here would be useful.
Cecilia Felton: Yeah. As we said, with the price increase that we did now in this quarter, that is set so that we can protect our margins at these current tungsten price levels. It also contains an element of compensating for normal general inflation, which is normal when we do price increases.
Stefan Widing: To add to that, when we do the price increase and it happens during the quarter, of course, it does not happen like this, and it is 100% in all orders we take. You will see, of course, it is a gradual implementation of the price increase, even if we communicate it at one date. Certain contracts need to be negotiated and so on. There is a lag effect until it has come through fully.
Cecilia Felton: Yes. There's also a lag on the cost side.
Bruno Gjani: Yes.
Cecilia Felton: Yes. For cutting tools.
Bruno Gjani: Mm-hmm. I guess if we zoom into the mid-market versus premium for cutting tools, I'd assume that tungsten as a cost of COGS for these mid-market players is larger, and therefore the price hike needed by them would be larger as well to compensate. I guess, how different is your pricing now from these mid-market players? Has it narrowed, and is that inspiring a move into more premium cutting tools in the market?
Stefan Widing: Yeah, I think I mentioned this. It was probably 2 quarters ago, exactly the dynamic you mentioned. That, of course, mid-market cutting tools, higher COGS, meaning relatively they have to increase prices more, and that narrows the delta between premium and mid-market. On top of that, of course, the value proposition from a premium tool, meaning it lasts longer, also becomes more important for customers. So it sort of pushes you in the direction of the premium business model. This is why I've said that I think overall this dynamic has been good for us. Is good for us.
Bruno Gjani: In powder, given we have seen that large divergence in carbide scrap and APT prices, I was wondering if you could provide greater color on the production process of powder. We understand scrap has been around 55% of feedstock, but how flexible is this? Could you take this up to 75% or 80% if you wanted to in time? What is the bottleneck preventing you from doing so? Is it technology? Is it just the process? Some color here would also be good.
Stefan Widing: Yeah, there is a limit. I am not sure. Let us come back on the exact percentage points. But it is so that we can increase from 55%, but I will not speculate. Let us come back with the exact number, but there is a limit where you need an element of virgin material to get the exact recipe and mix right. Because with scrap, you get what you get. Then you need to top up with virgin material to get it to what you want to. But let us come back on the percentage on that.
Bruno Gjani: If you increased, would then your pricing change, or do you sort of leave your contractual terms unchanged for the mix of your production and feedstock? If you understand what I mean. If you move to scrap or greater scrap, that means that essentially your margin would also benefit from that. Or do you then just actually give that back to the overall customer?
Cecilia Felton: This looks-
Louise Tjeder: Short answer.
Cecilia Felton: Yeah.
Louise Tjeder: We need to wrap up.
Cecilia Felton: Yes.
Louise Tjeder: Please.
Cecilia Felton: Okay. Right. Thanks, Britt. It varies from customer to customer. This is down to the specific commercial agreements that we have with different customers. This will vary. That's the short answer.
Louise Tjeder: Yeah. All right. Thank you very much. We are at the end of the webcast. Before we close, though, I want to repeat, Stefan and Cecilia, we have our Capital Markets Day, 24 November and 25. If you haven't signed up, please do. It's still time. With this, thank you all for calling in, and wish you a good rest of the day.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
