Progress in our strategic focus areas in 2017
In its business strategy, Sandvik has defined seven focus areas that have
been identified as essential to ensure stability and drive profitable growth.
Focus on core capabilities and to be number one or two in chosen segments and markets
Sandvik divested four businesses that were not core or did not support our goal to be number one or two in chosen segments and markets. The divestments of Sandvik Process Systems and Sandvik Mining Systems were completed and agreements to divest the welding wire business and Sandvik Hyperion were signed. The divestments correspond to 10 percent of Group revenues and will generate an assumed cash flow of about 9 billion SEK. This was part of our continuous efforts to obtain a more consolidated portfolio focused on core.
Technology leadership and innovation
Our research and development investments remained at a high level. We focused on product innovations to improve energy efficiency, increase safety and leverage the opportunities for potential growth through digitalization. These are some examples of the innovations that are making us a technology leader:
- Sandvik Machining Solutions launched PrimeTurning™, a completely new methodology that enables turning in all directions and cuts conventional turning time for customers, increasing their productivity. Commercialization of additive manufacturing (3D printing) and establishment of a Digital Center of Excellence are other examples of strategic importance.
- Sandvik Mining and Rock Technology launched My Sandvik Digital Service Solutions where data is gathered from the customers' machines, analyzed and made available for improved customer productivity. New, intelligent mining trucks for automated haulage, Sandvik TH551i and Sandvik TH663i, and a totally new generation of Ranger™ surface drill rigs are other examples of product launches during the year.
- Sandvik Materials Technology introduced the intelligent tube system Sentusys™. It helps customers control the status of the tubes inside their processes with the help of cloud-based computing. The business area also manufactures a wide range of powders including Osprey® gas atomized metal powders, which are being used in several applications, for example additive manufacturing.
Accountability and decisions close to customers
Sandvik’s decentralized structure, initiated in 2016, was in effect in 2017, for more accountability and increased cost control. The new structure ensures that decisions are made closer to customers, greater product area ownership and accountability for performance and results.
- We improved our performance-management follow up and implemented a common scorecard system.
- Support functions, such as the Human Resources and Finance service functions, were decentralized to individual business areas/product areas. Costs relating to almost 700 full-time employees were relocated in 2017.
Stability and profitability before growth
Sandvik reached its financial targets and had a strong focus on cost efficiency in 2017. Operational results increased significantly with sharp margin improvements in Sandvik Machining Solutions and Sandvik Mining and Rock Technology. While Sandvik had a number of loss-making product areas in 2016, there were none in 2017. This has created a solid platform for future growth. The business areas performed as follows:
- Sandvik Machining Solutions showed record-high margins and improved its operating profit by 21percent. Round tools, digital solutions, software and metrology are prioritized growth areas.
- Sandvik Mining and Rock Technology improved profitability and grew due to a strong market demand. The key priority going forward is to profitably grow the aftermarket and automation business.
- Sandvik Materials Technology showed less satisfactory earnings in parts of the business. The key priority is to restore profitability short term through cost actions, and in the mid- to long term by trimming the portfolio while growing sales of high-value products, for example from product areas Kanthal and Powder.
Efficiency and cost reductions
- Sandvik has set up a target to improve productivity by at least 3 percent annually (revenues per employee). In 2017, productivity improved by 8 percent.
- Savings from announced programs, launched in 2013, amounted to 355 million SEK compared with last year. Additional five units closed during 2017.
- Cash flow from operations increased 19 percent to 14,286 million SEK (12,032).
- ROCE improved to 19.4 percent (14.7), calculated on adjusted EBIT. Reported ROCE was 23.9 percent (14.7).
- Net working capital (12 month average) improved by 3 percentage points to 24 percent.
Culture of doing things right
- Continued roll-out of The Sandvik Way, our Group governance system.
- Training on our Code of Conduct reached a record high of 93 percent of employees including long time contractors. About 25 percent of our employees also received more in-depth training on one or more of our four compliance programs.
- The Sandvik whistleblower system, Speak Up, managed a total of 224 (265) cases with a 55 percent substantiation rate.
- We ramped up the roll-out of the data privacy program to meet the new European GDPR regulations.
- In 2017, the Lost Time Injury Frequency Rate (LTIFR)decreased to 1.6 (1.7), a record-low.
We continued programs to promote leadership and develop key competences. About 500 people participated in Sandvik’s leadership training programs in 2017.
During 2017, about 3,800 open positions were filled, of which a majority was posted on the open internal job market.
- We leveraged on the strength of social media platforms and new functionality made it possible to target potential employees more efficiently. This is vital as new market demands require new competencies.
- We strengthened our focus on diversity and inclusion in the business.