INTERVIEW: Europe Construction Sector Clouds Sandvik Outlook

Sandvik AB (SAND.SK) Tuesday said that Europe's sovereign debt crisis is clouding an otherwise robust trading outlook for the Swedish engineering group in the second quarter with demand in the region for Sandvik's construction-related activities slackens.

"Europe continues to be a dark cloud on the horizon," Chief Executive Olof Faxander said in an interview.

Second-quarter demand has largely been in line with trends in the first three months of the year for most of Sandvik's operations but government spending on infrastructure in Europe is under pressure amid worries about a possible default by Greece and the country's possible exit from the euro zone, Faxander said.

"Greece is not that an important market for us as such, but these worries of course impact economic activity in Europe," Faxander said.

Faxander was speaking on the sidelines of an investor briefing a little more than a year after taking the reins at one of Sweden's biggest and oldest engineers. Sandvik struggled during the aftermath of the 2008 financial crisis but has since shaken up senior management with Faxander launching a new strategy last fall to boost profitability and growth by cutting costs and disposing of non-core assets.

Greece itself accounts for a small part of Sandvik's business, generating sales of around 79 million Swedish kronor ($11 million) last year compared with around SEK94 billion for the company as a whole.

Sandvik's construction-related activities account for nearly 10% of revenue but, along with the group's specialist-steel unit, it generates relatively poor returns for Sandvik as a whole. The group's mining-equipment and machine-tools operations are the major contributors to revenue and profit.

Still, Faxander said for now the slowdown shouldn't be exaggerated. "We are just a few weeks into the second quarter and it's no dramatic change that we have seen," he said.

Faxander said that otherwise trends so far this quarter are consistent with what Sandvik saw in the first three months of the year, with strong demand in North and South America, and slowing growth in China.

"We have seen a continued strong recovery in North America. There is big optimism and positivism for the future and a good pace in the manufacturing sector," Faxander said.

Demand for mining equipment remains buoyant despite indications from mining companies that they scale back planned capital spending as demand for raw materials, from China in particular, softens.

"Mining capex for 2013 is expected to be somewhat lower than 2012, but this is still at a continued high level," Faxander said.

Earlier Tuesday, Sandvik said it has appointed Emil Nilsson as chief financial officer. The former Ericsson executive replaces Ola Salmen who Sandvik said is leaving the company at the end of the year to pursue "other opportunities."

Sandvik shares were 1.7% higher at EUR96.45 around 1500 GMT, underperforming other Nordic engineering stocks Tuesday.

-By Katarina Gustafsson, Dow Jones Newswires [phone]; [e-mail]; Twitter: @DowJonesNordics