Sandvik standing strong
2018 was a record year for Sandvik. We reported the best earnings in the history of the company and a record-high operating margin. For the first time ever, sales exceeded 100 billion SEK. Our strong cash flow, together with successful divestments, strengthened our balance sheet, and we carried out growth-orientated acquisitions in all three of our business areas.
The positive economic climate, with favorable demand in all of our segments and on all continents, has, without a doubt, helped us prosper. But the record year was also an effect of intensive work in recent years to turn Sandvik into a decentralized and more streamlined company with decision-making moved closer to the customers.
Leading market positions
Our clear strategy is to be number one or two in the markets in which we operate. Leading market positions enable economies of scale in both manufacturing operations and product development and provide us with closer links to our customers. We will continue to challenge all of our operations based on this strategy.
During the year, we continued to review our structure to ensure that we truly focus on our core business. In July, we completed the sale of Sandvik Hyperion and during the year we also divested the operations for stainless wire and welding wire in two separate transactions.
Prepared for growth
The order of priorities is clear in our strategic agenda: stability and profitability before growth. Several divisions have achieved a good profitability, where the best way to continue to generate value is to grow. The focus will remain on organic growth, driven by innovations and new products. We have also seized acquisition opportunities in all three of our business areas, in order to safeguard our leading market positions or to strengthen our technology offering.
The acquisition of Metrologic Group is an important step towards helping our customers in metal cutting create a seamless manufacturing chain. The acquisition of Inrock strengthens our offering in the segment for horizontal directional drilling while the acquisition of Custom Electric Manufacturing has further improved our position in industrial heating. We also strengthened our position within round tools with the acquisitions of Dura-Mill and Kunshan Ousike Precision Tools.
Business units that have achieved the stability and profitability criteria will continue to consider acquisition alternatives as a tool for growth, or to consolidate a position as number one or two in the market.
Equipped for the future
The fact that Sandvik can look back at a record year is no reason to be complacent. There are always operations in our decentralized structure that need improving and the political landscape and economic trends in our external environment can change very rapidly. This is not a new situation for us, considering our long experience of international trade and our presence in most major markets. Sandvik has rarely been better equipped for the future, regardless of the prevailing market situation.
All of our operating units have been tasked with preparing plans for how they are to act in the event of a downturn in the market. Every unit has its own unique conditions and must plan on the basis of a minor or more substantial downturn in its market, and all units have an obligation to the Group to adapt their operations as required.
Our strong cash flow and the completed divestments have strengthened our balance sheet. Our net debt/equity ratio decreased to 0.2 and our balance sheet offers us a high degree of flexibility to address both challenges and growth opportunities.
Sandvik’s financial targets applied between 2016 and 2018 and we exceeded the targets by a wide margin for profit growth, improvements in return on capital employed, and the net debt/equity ratio. New targets will be presented in the spring of 2019.
Sustainability as a business opportunity
Sandvik is ambitious in terms of sustainability. We have continued to support the principles of the UN Global Compact and contribute toward fulfilling the UN’s Sustainable Development Goals. During the year, we received awards and were included in several sustainability indices and lists, such as the prestigious Dow Jones Sustainability Index and Global 100 Most Sustainable Corporations.
Sustainability provides an essential business opportunity for us and this involves being more efficient and systematic in our work and helping our customers improve their processes in areas such as energy efficiency, safety and reduced environmental impact. One practical example of this is offered by our electric mining equipment and automation solutions that help to reduce emissions for mining customers and improve safety in the workplace. Other examples include advanced materials in fuel cells for hydrogen propulsion, productivity-enhancing turning techniques and the buy-back programs for cemented-carbide tools from customers.
Sustainability is already an integrated part of our operations and will be linked even more clearly with our strategic targets and plans in the future.
Sustainability is crucial when young people choose an employer. Our ambitions to reduce our environmental footprint, improve health and safety, promote diversity, offer fair and just working conditions and a sustainable supply chain are qualities that young talent will consider when evaluating us. Ethics, a culture of doing things right and development opportunities are other critical factors. Building a strong brand is another important element in attracting the right expertise and we have launched several initiatives in this area during the year.
The substantial earnings improvements we have achieved at Sandvik in recent years would not have been possible without world-class employees. I would like to thank you all who share your expertise and energy every day and who act as ambassadors for the generous culture of knowledge-sharing that has made Sandvik so successful.
This culture is crucial for the continued development and improvement of the company, as is our open job market, where employees can transfer between divisions and business areas and contribute with their experiences.
Sandvik stands strong and is well-positioned for the future. I look forward to taking full advantage of the opportunities that lie ahead of us.
Stockholm, February 2019
President and CEO