During Sandvik’s Capital Markets Day on May 24 in Sandviken, Sweden, Björn Rosengren, President and CEO of Sandvik and Tomas Eliasson, Executive Vice President and CFO of Sandvik, discussed the fundamentals of Sandvik’s strategy and identified a range of new financial targets for the group.
“We will run our businesses with focus on stability, profitability and growth – with our different businesses currently at different stages. Through increased decentralisation of our business model, decisions are made closer to the customers and we will improve the speed in responding to our customers’ requirements and to changed market activity,” stated Rosengren.
“Within the business areas, each product area will have total ownership and accountability of the respective operations, which will generate improved transparency. This creates an entrepreneurial environment, developing strong leaders. There will be no quantum leaps, but I expect each business to achieve constant improvements”.
“Despite the relatively short time I have been with Sandvik we have already announced consolidation of business areas as well as identified some non-strategic operations. That said, the review of the business portfolio is ongoing and continuous,” added Rosengren.
Each of Sandvik’s business area presidents presented the strategy and mid-term focus for their respective operations:
Sandvik Machining Solutions, Jonas Gustavsson
- Defend and strengthen the core offering: 11,000 new products to be launched in 2016, including the first intelligent tool
- Drive and acquire growth both in core and adjacent areas
- Focus on digital manufacturing and intelligent tools
- Launch of a new product area, Powder and Blanks Technology, to capture the growth potential in the round tools segment
- Operational excellence through supply chain optimisation and cost efficiency in the whole organisation
Sandvik Mining and Rock Technology, Lars Engström
- Implement decentralised business model with eight product areas based on the product offering. The decentralised business model enables an even clearer focus and faster response to our customers
- Grow the aftermarket business by the global roll-out of customer service centres, new or improved customer offerings such as new e-solutions and increased productivity through data-driven predictive maintenance
- Improve profitability through e.g. product launches and technologies supporting value based pricing, grow the aftermarket business, ongoing supply chain optimization program, focus on cost efficiency
Sandvik Materials Technology, Petra Einarsson
- Maintain the decentralised business model with nine separate business units within the three product areas
- Further strengthen the leading position for strategic growth products – and improve profitability in the core and standard product offering by operational excellence and a more lean business model
- Contingency plans are in place to manage different market scenarios
- Long-term market fundamentals remain solid, and several new products and materials are being launched to meet the energy and climate challenges
Sandvik also introduced a range of new financial targets to be set until 2018, with the 2015 outcome as a starting point.
“Previous targets were based on a different macro environment than what we currently have. In my view, our new targets are appropriate and ambitious for Sandvik in times of change as well as in expectations of a continued muted macro environment, yet signaling my strong belief that the new decentralized business model will result in a more cost efficient organization with higher pace. Targets can be achieved both through support from top-line growth as well as internal performance improvement,” stated Rosengren.
- ≥7% EBIT growth (Compound Annual Growth Rate)
Target is based on adjusted operating profit in 2015 for new business area structure and excluding metal price effects in Sandvik Materials Technology. Improvement excludes potential nonrecurring items, impact from changed exchange rates for Sandvik Group as well as metal price effects in Sandvik Materials Technology.
- ≥3%-points improvement of return on capital employed (ROCE)
Target is based on adjusted operating profit and capital employed in 2015. Improvement excludes potential non-recurring items.
- Net debt / Equity ratio of <0.8
The absolute ratio remains unchanged, however this implies a strengthening of the balance sheet as the net debt calculation will include net pension liabilities, which previously were excluded.
- 50% dividend payout ratio, of reported earnings per share
The target remains unchanged.
Previous targets were stated as being: 1) 8% growth, combined organic and acquired, 2) 25% ROCE, 3) net debt / equity ratio of <0.8