Sandvik’s order intake rate gradually declined in April-May to a level that was 40-50% lower than the year-earlier period in terms of volume. Generally low demand from end customers, combined with continued inventory reductions among most customer segments, led to invoicing in terms of volume having declined to a level 30-40% lower than the year-earlier period. In order to avoid increased obsolescence, this generates a need for Sandvik to further reduce inventories. Accordingly, the production rate has fallen below the rate of order intake by about 10% during the second quarter.

As a result of the dramatic decline in the market situation since October 2008, extensive actions to reduce Sandvik’s cost base have been initiated. To date, the global staff has been reduced by about 6000 people, and agreement to decrease work time by 15-20% (with a corresponding cut in salary costs) will affect about 12,000-14,000 people as of June. In addition, decisions have been taken to permanently close 10 production sites. The action program has steadily increased in scope, and implemented and approved actions will have a gradually increasing effect during the year. For the full year, the implemented and planned measures are expected to lead to cost reductions of nearly SEK 6 billion (approximately $764 million) compared with 2008.

Sandvik’s business model with far-reaching vertical integration means that low sales and production rates will have a significantly adverse affect on earnings, primarily in the form of a lower gross profit and the under-absorption of fixed costs. During the second quarter, changed metal prices, restructuring costs, impairments and an increased provision for obsolescence are expected to have a significantly negative effect on earnings.

As a result, an operating loss of between SEK 2200 million and SEK 2500 million (~ $280 million to $318 million) is expected to be posted, of which underlying result amounts to about negative SEK 1000 million (~ $127 million), including effects of reduced metal prices by about SEK 350 million (~ $45 million).

“The current market situation is very weak, which has a substantial effect on a business like Sandvik’s,” said Lars Pettersson, president and CEO. “Implemented and approved actions will have a gradual effect, but the weak volume trend in the second quarter and probably also the third quarter will have a significantly negative effect on earnings. At the same time, it is satisfying that the favorable trend in cash flow, inventory reductions and demand in parts of the energy sector that we observed in the first quarter are continuing.”

Additional information is available at www.sandvik.com.