The Sandvik World 07/08

Transcription

1 The Sandvik World 07/08 THE SANDVIK GROUP 2007/2008

2 A world of possibilities Sandvik is a global industrial group with advanced products and world-leading positions in selected areas tools for metal cutting, machinery and tools for rock excavation, stainless materials, special alloys, high-temperature materials and process systems. The Group had approximately 47,000 employees in 2007, representation in 130 countries and sales of more than SEK 86,000 M. The Sandvik World is a current presentation of the Sandvik Group distributed to shareholders in April 2008 in conjunction with the Annual Report, for shareholders who have ordered a printed copy. In addition to descriptions of operations, fi nancial key fi gures, goals, business concept, strategy and more, The Sandvik World provides an in-depth look at a number of key areas. For more detailed fi nancial information, a description of corporate governance, risk management and other areas, refer to the 2007 Sandvik Annual Report, which is also available on the Group s website CEO LARS PETTERSSON PAGE 4 THE SANDVIK SHARE PAGE 6 BUSINESS CONCEPT AND STRATEGY PAGE 8 OPERATIONS AND GOALS PAGE 10 BUSINESS AREAS PAGE 12 CUSTOMER VALUE PAGE 14 CEMENTED CARBIDE PAGE 16 2

3 CONTENTS CRUSHING PAGE 18 MEDICAL TECHNOLOGY PAGE 20 PRODUCT DEVELOPMENT PAGE 22 ENERGY PAGE 24 ACQUISITIONS PAGE 26 EMPLOYEES PAGE 28 SUSTAINABLE DEVELOPMENT PAGE 30 BOARD OF DIRECTORS AND GROUP EXECUTIVE MANAGEMENT PAGE 32 TEN-YEAR OVERVIEW AND FINANCIAL CALENDAR PAGE 34 earlier years in accordance with previous GAA ,338 72,289 63,370 54, ,394 12,068 9,532 7, ,877 3

4 Strong global demand and profitable growth in 2007 Sandvik continued to develop favorably in Sales increased by 19% in value to SEK 86 billion and profit after financial items rose 17% to SEK 13 billion. A strong contributory factor to this development is our ability to create value for our customers. The distinct customer focus means that the possibilities for continued profitable growth are favorable, but the Group s cash flow must improve in 2008, which implies that increased capital efficiency is a prioritized goal. Strong demand Demand for Sandvik s products was strong within all customer segments. Key figures Order intake SEK 92,059 M +18% 1) Invoiced sales SEK 86,338 M +18% 1) Profi t after fi nancial items SEK 12,997 M +17% Earnings per share SEK % Return on capital employed 27.0% Return on shareholders equity 34.4% Operating cash fl ow SEK 5,476 M Number of employees, 31 Dec ,123 1) At fi xed exchange rates for comparable units. Invoicing by customer segment Materials handling Other Mining Engineering Invoicing by market area Asia South America Africa, Middle East Australia NAFTA Automotive Aerospace Construction Consumer-related Energy/process Europe Demand was driven by the economic development in the world, the shift in the energy sector, Sandvik s entry into new product areas and the company s geographic expansion. Sandvik continues to grow at a more rapid pace than the market in many parts of the world, including Asia, Russia and Eastern Europe. The customers conversion to modern technology in their manufacturing processes represented a strong driving force. Sandvik invested heavily in production equipment and capacity, and expanded its network of sub-suppliers. Company acquisitions continue to be a vital element of the strategy for profitable growth. During the year, we made key acquisitions in all three business areas and grew through these into new, profitable product segments and markets. Activities to integrate these acquisitions into Sandvik s operations are proceeding as planned. Successful business areas The ability to develop, manufacture and market our products in an efficient manner, thereby capturing market shares, is of decisive importance for the long-term development of our three business areas. Sandvik Tooling s leading position in metal cutting was strengthened by increased demand and successful product launches. The brand strategy involving a differentiated customer offering continued to be successful and substantial investments were made in improved production technology and increased capacity. Through the acquisition of Diamond Innovations, Sandvik s knowhow in metal cutting was combined with expertise in super-hard metals. The comprehensive reorganization and rationalization program aimed at increasing profitability continued in Sandvik Materials Technology. The product mix continued to be tailored toward more value-added and specialized products. The business area is well-positioned in several expanding markets, including oil and gas extraction, the energy sector, petrochemicals and medical technology. Sandvik has long been a familiar brand as a supplier of specialized material for medicaltechnology products. Through the acquisition of Doncasters Medical Technologies, Sandvik has established itself as a supplier of implants and surgical instruments. Today, the products are marketed under the Sandvik brand. During the year, the price of nickel alloy fluctuated significantly, with a dramatic drop in price in the summer of The total negative earnings effect for the Group as a result of these changes in metal prices was estimated at about SEK 450 M in The nickel price trend will also impact Sandvik s earnings in Fiscal 2007 was also a successful year for Sandvik Mining and Construction. A sharp rise in demand for metals and the vast expansion of infrastructure taking place in many developing countries meant that the business area s markets continued to grow strongly. A large number of product launches, combined with increased demand for mechanization, automation and services from customers, contributed to the strong growth. Crushing is a key operation in the mining and construction industries. In the mining industry, crushing is conducted to facilitate the transport of ore, and in the construction industry to produce aggregate, which is in short supply, for construc- 4

5 CEO LARS PETTERSSON tion projects. Through company acquisitions, Sandvik has, in a goal-oriented manner, developed a product range for crushing and is now one of the few global players in this industry, which is rapidly moving toward consolidation. Overall view Today, for a leading and global company such as Sandvik, it is not enough to be financially successful. An increasing number of stakeholders demand an overall view that encompasses financial, environmental and social responsibilities. Sandvik has a sharp focus on these three areas of responsibility and endeavors to achieve favorable, long-term business development, while assuming responsibility for all three areas. In addition to the goals we have established for our own operations and processes as regards the external environment and work environment, it is also worth emphasizing the influence of environmental effects on our product development and the substantial environmental improvements that occur in customer operations when these new products are applied. This relates to such measures as reduced energy consumption, lower noise levels, the potential to use less raw material and improved safety for operators. The strong emphasis on improving productivity in the customers processes is our greatest contribution to a better environment, since it results in more efficient resource utilization for our customers. research and development. The focus on creating value for customers forms the basis for Sandvik s successful development. It is interesting to note that this development started exactly 150 years ago with the founder s Göran Fredrik Göransson successful experiment using the so-called Bessemer process to manufacture steel. This laid the foundation for what would later become Sandvik and represents the first example in our history of the significance of research and development, goal orientation and customer focus. We continue to work with these success factors! The emphasis on customer value also helped to generate an average annual total return of 27% over the most recent five-year period. The proposed dividend for 2007 provides a high direct return and is an expression of Sandvik s efforts to continuously create value for its shareholders. Sandviken, January 2008 Lars Pettersson President and CEO Customer focus generates shareholder value Sandvik s business concept is to improve customers productivity and profitability and this is also the guiding principle for the Group s extensive investments in

6 High total return The main financial goal of the Sandvik Group is to generate an attractive return and value growth for those who invest in the Sandvik share. The dividend shall amount to at least 50% of the earnings per share over an extended period. Proposal for higher dividend A dividend of SEK 4.00 per share is proposed for The dividend corresponds to an increase of 23% compared with a year earlier, and consequently, the increase in dividends has averaged 11% annually since The dividend comprises 52% of earnings per share in 2007, which increased by 19% to SEK In total, this means that the Board is proposing a distribution of about SEK 4.7 billion to the shareholders for Long-term shareholder value In 2007, the Sandvik share price rose 12% (14% adjusted for the redemption), compared with the decline on the Stockholm Stock Exchange of 6%, measured as the OMX Stockholm All-Share Index (OMXS). The share price at year-end was SEK , corre sponding to a market capitalization of SEK 132 billion (118). In terms of market capitalization, Sandvik was ranked the sixth (twelfth) largest company on the Nordic Exchange in Stockholm. During the year, Sandvik shares were traded at a total value of SEK 275 billion, making it the seventh (tenth) most actively traded share. In 2007, the rise in the share price and dividends of the Sandvik share corresponded to a total return of 18%. In the most recent five-year period, Sandvik s total return, that is, the share price in - cluding reinvested dividends, rose an average of 27% annually. The comparable index, OMX Stockholm Benchmark (OMX SB), rose 16% annually during the same period. Close contact with investors and analysts It is of the utmost importance that the value of Sandvik as a company is always based on relevant and correct information. To achieve this, a clear strategy for financial communications is required and regular contact by the company with the various players in the financial market. This is primarily conducted through pre sentations in conjunction with the four interim reports, but also by organizing capital markets days, visits to various Sandvik plants and attendance at conferences and seminars. Contacts with the financial markets are coordinated by Sandvik s Investor Relations Group staff function. During the year, more than 300 meetings were conducted with investors and analysts throughout the world. The annual Capital Markets Day was held in Sandviken in September. In addition, the Group arranged a capital markets day in the US and investor visits to Sandvik s plants in such countries as Sweden, the US, India, China, Brazil and the Czech Republic. Redemption procedure implemented During May June 2007, the mandatory redemption procedure, which was approved at the Annual General Meeting in April 2007, was implemented. Accordingly, shareholders received an extra distribution of SEK 3.00 per share, corresponding to about SEK 3.6 billion. 89,000 shareholders Sandvik is listed on the Nordic Exchange in Stockholm and is one of the Stockholm Stock Exchange s oldest companies, with a listing already back in Sandvik s share price can also be followed on the Nordic exchanges in Helsinki and Copenhagen. The Sandvik share can be traded in the US in the form of ADRs (American Depositary Receipts). In 2007, interest in the Sandvik share continued to increase, both in and outside Sweden, and the number of shareholders increased by nearly 15,000 to some 89,000. Sandvik has shareholders in approximately 75 countries. For further information, see Sandvik s website Sandvik s Capital Markets Day in Sandviken in September 2007 focused on the Group s growth opportunities. 6

7 THE SANDVIK SHARE The Sandvik share Number of shares at year-end (millions) 1,186 1, Number of shares at year-end, recalculated for split (millions) 1,186 1,186 1,186 1,235 1,250 Market capitalization at year-end (SEK billions) Number of shareholders 88,950 74,124 55,966 59,382 61,063 Ordinary dividend (SEK/share) 4.00 * Dividend as a % of earnings per share Total return (price increase + dividend), % Proportion of shares in Sweden (%) Proportion of shares owned by the ten largest shareholder groups (%) * Proposed dividend. Total return, %, price performance, including reinvested dividends Owners of Sandvik AB, 31 December 2007 Alecta Pension Insurance, 3.1% Handelsbanken Pension Foundation, 4.0% AB Industrivärden, 11.5% Swedish private persons, 10.4% Swedbank Robur Funds, 2.3% Other Swedish institutions, 29.1% Handelsbanken funds, 2.1% Owners outside Sweden, 37.5% The Sandvik share The Stockholm Stock Exchange OMXS30 Earnings and dividends per share, SEK Number of shareholders 90,000 85,000 80,000 75,000 70,000 65,000 60, * 55, Earnings Dividends Years recalculated after 5:1 split. * Proposed dividend. 7

8 Sandvik s business model World-class manufacturing Cost Price Productivity gap Conducting core operations, such as manufacturing, on a proprietary basis, ensures that Sandvik s products adhere to the Group s high and globally standardized performance and quality parameters. Sandvik s production organization is strongly integrated with research and development and demon strates world-class effi ciency. This creates favorable conditions for the continuous launch of new products and is a key competitive advantage for the Group. Productivity and profi tability as business concept Sandvik develops, manufactures and markets products and services with a high technology content that contribute to enhancing the productivity and profi tability of customers. This is Sandvik s business concept. All industrial companies must enhance effi ciency in production so that rising costs for raw materials, wages, energy and other items, are kept in balance with the gains provided through higher prices. Sandvik s customer offering helps to close the productivity gap in customer operations. Signifi cant customer value Sandvik creates customer value by offering products that result in cost savings and reliable and cost-effi cient processes. Through a strong global presence, customers worldwide are offered optimal solutions that encompass products, services and technical support. Sandvik aims to be a valued partner and the customer s obvious fi rst choice. Comprehensive research and development Comprehensive and goal-oriented research and development is a prerequisite for continued profi table growth. R&D activities are customer oriented and projects are managed in close cooperation with the customer. To ensure maximum customer value, the Group s R&D is based on leading, unique technology and active patent work. R&D also enhances manufacturing processes and facilitates more effi cient production lines. Sandvik invests nearly SEK 3 billion annually in R&D and slightly more than 2,300 employees work in the area. The Group has some 4,800 active patents and intellectual properties are owned and managed in a separate company for maximum value creation. Advanced logistics Sandvik s distribution system is based on a small number of large and strategically located Distribution Centers in major market areas. In this manner, the Group can offer rapid deliveries and an extensive product offering. Effi cient inventory management and advanced logistics enhances delivery reliability and ensures fi rst-rate customer service. 8

9 BUSINESS CONCEPT AND STRATEGY Sandvik Tooling Sandvik Materials Technology Sandvik Mining and Construction Specialized and decentralized organization Sandvik has a decentralized organization. Decisions relating to the operational business are made in the Group s three business areas: Sandvik Tooling, Sandvik Mining and Construction and Sandvik Materials Technology. The business areas have specialist expertise within materials technology and in-depth knowledge of the customers processes. To develop the best solutions, work is conducted in close cooperation with the customers. In terms of technology and the market, Sandvik is the leader in its areas of operations industrial tools, mining equipment, special alloys and ceramic materials. The acquisition of complementary companies strengthens positions within areas of high growth and favorable profi tability. Well-defi ned corporate governance Effective and transparent corporate governance generates increased confi dence in Sandvik among various stakeholders and creates a clear focus on customer and shareholder value. Corporate governance defi nes roles and responsibilities for owners, the Board of Directors and executive management. It also covers the Group s control and management system. 10% Sustainable Long-term approach and shareholder value Sandvik s business philosophy is based on a long-term approach and continuity, but also on fl exibility and the ability to continuously improve. The Group always endeavors to create value for its shareholders. Sandvik has achieved approximately 10% annual growth over the past 20 years, attributable equally to organic growth and acquisitions. In the past fi ve-year period, Sandvik s total return averaged 27% per year. development Sandvik has a strong corporate culture. The Group works in a goal-oriented manner with its three core values: Open Mind, Fair Play and Team Spirit. There is a clearly defi ned code of conduct to guide employees in their business activities. Sandvik works to ensure longterm sustainable development based on environmental and social goals for its own operation. 9

10 Goal-oriented operations Environmental Social Financial Customeroriented Sandvik is a global industrial group with advanced products and world-leading positions in selected areas. The Group has customers in 130 countries and has about 47,000 employees and sales of more than SEK 86 billion. Operations are based on unique expertise in materials technology and knowledge of the customer s processes. The Group has a decentralized organization with customer-oriented, financial, social and environmental goals. Sandvik operates with a focus on uniform core values and a clearly defined code of conduct. Customer-oriented goals Sandvik s business concept is to actively contribute to improve the productivity and profitability of our customers. The Group s products and services shall create added value for the customer by delivering performance, quality, reliability and cost efficiency. Sandvik aims to be the customers obvious first choice. We want them to regard Sandvik as a productivity partner. Sandvik strives to be the market leader in prioritized market segments. Financial goals Sandvik s overriding financial goal is based on the Group s world-leading positions in the various product areas, a strong global presence, substantial investments in research and development and efficient production and logistics. The goal for Sandvik s organic growth is 8% annually compared with the underlying average market growth of 4 6% within Sandvik s areas of operations. The higher goal is based on: Increased market shares in existing and new markets. New products. New application areas with significant growth potential. As shown in the table, the financial goals differ for the various business areas. Social targets Sandvik s social responsibility covers the employees work environment and employment terms, as well as fundamental respect for human rights and a constructive social commitment. The Group s policy for social responsi bility is part of the code of 10

11 OPERATIONS AND GOALS Long-term Outcome Average Average goals Sandvik Group Organic growth 8% 18% 16% 13% Return on capital employed 25% 27% 27% 22% Payout ratio, % of earnings per share 50% 52% 51% 62% Net debt/equity ratio Sandvik Tooling Organic growth 7% 9% 9% 8% Return on capital employed 30% 34% 34% 32% Sandvik Mining and Construction Organic growth 9% 26% 22% 18% Return on capital employed 25% 31% 31% 26% Sandvik Materials Technology Organic growth 8% 20% 18% 14% Return on capital employed 20% 15% 16% 13% conduct and can be viewed on the Group s website Based on this policy, Sandvik has formulated a number of social targets that are relevant on an overall and detailed level. The social targets are as follows: Reduce the number of lost days injuries, lost days injury frequency and the number of lost working days due to lost days injuries by 50% before year-end 2008 (base year: 2005). Reduce the number of lost working days due to illness by 50% before year-end 2010 (base year: 2005). Increase the number of female employees to 25% before year-end All employees shall have annual formal review discussions. All major production, service and distribution units shall be certified in accordance with OHSAS (or an equivalent standard) before year-end Environmental targets Respect for the environment is a natural part of operations within Sandvik. Most of the environmental work is conducted locally in the various operations and in close cooperation with the concerned authorities. At a Group level, a number of environmental objectives have been established and these have been based on the primary environmental aspects of operations the consumption of energy, raw materials, water, environmentally hazardous chemicals, manufacture of products and generation of waste from production. In addition to these objectives, a number of environmental targets exist: Reduce electricity consumption in relation to sales volume by 10% before year-end 2010 (base year: 2004). Replace all chlorinated organic solvents with other solvents or techniques before year-end Complete the phasing-out of trichloroethylene, TCE, before year-end Reduce carbon-dioxide emissions from internal use of fossil fuels by 10% in relation to sales volume be fore yearend 2010 (base year: 2004). The outcome of the social targets and environmental targets can be viewed in Sandvik s Sustainability Report, which is included in the Annual Report. 11

12 Three world-leading business areas Key figures % of Group Customer offering SANDVIK TOOLING Invoiced sales SEK 24,732 M 29% Operating profi t SEK 5,989 M 42% Number of employees 16,440 35% Tools and tooling systems for cutting operations, as well as cemented-carbide wear parts and components. Highly effi cient product solutions of cementedcarbide and other hard materials, such as synthetic diamond, cubic boron nitride, ceramics and highspeed steel. Global market leader with a portfolio of international brands, including Sandvik, Sandvik Coromant, Walter, Valenite, ValeniteSafety, Titex, Dormer, Prototyp, Precision and Diamond Innovations. SANDVIK MINING AND CONSTRUCTION Invoiced sales SEK 33,073 M 38% Operating profi t SEK 4,979 M 35% Number of employees 15,173 32% Equipment, tools, service and technical solutions for exploration, excavation and processing of rock and minerals in the mining and construction industries. Extensive range of products for drilling, mechanical rock excavation, loading and transport of minerals, crushing and screening as well as demolition and recycling, and handling of rock and minerals. The operation is divided into fi ve customer segments: Underground Hard Rock Mining, Underground Soft Rock Mining, Surface Mining, Exploration and Construction. SANDVIK MATERIALS TECHNOLOGY Invoiced sales SEK 22,486 M 26% Operating profi t SEK 2,435 M 17% Number of employees 9,098 19% High-value-added products based on advanced metallic materials. Process equipment based on steel belts. Production of orthopedic implants and instruments. Systems to generate, control, measure or protect against heat. The product areas are Tube, Strip, Wire, Kanthal, Process Systems and MedTech. 12

13 BUSINESS AREAS Strength factors Commercial driving forces Market potential Market leader with a complete product portfolio of international brands. Strong global presence and extensive expansion in rapidly growing markets. Considerable expenditure in R&D in close cooperation with customers generates a large number of annual product introductions and a high proportion of sales attributable to new products. A world leader in production and distribution. Integrated value chain from raw material to fi nished product for cemented carbide and super-hard materials. Focus on the enhancement of customers overall production economy. Increased consumption of tools as a result of shorter product cycles and growing demand for lighter components in more diffi cult-to-machine materials. Growing awareness of the crucial signifi cance of tools to the customers total production economy. International customers prefer suppliers with a global presence. The industrial expansion in Asia and Eastern Europe. Increased environmental awareness creates a greater demand for more durable tools that reduce the impact on the environment and tools that can operate without the use of cutting fl uids or can eliminate other processes. The size of the world market for metal-cutting tools is estimated at more than SEK 115 billion, of which sales of cemented carbide account for about SEK 85 billion and sales of high-speed steel tools account for some SEK 30 billion. The market potential for other components and wear parts of hard materials totals approximately SEK 30 billion. Rapidly growing markets, such as China, India and Russia, enhance the growth potential. Average annual growth in the cemented-carbide market is estimated at 4 5%. Total solutions for customers based on the most extensive product program in the market. Advanced special equipment and tools developed in close cooperation with customers. Product portfolio with considerable technology content and an increasing share of tools, spare parts and service. Highly developed global organization with greater focus on the after-market. Market leader in the development of new technologies for rock excavation, such as automated mining. Using advanced equipment and tools, customers are seeking to improve productivity, effi ciency and profi tability. Customers prioritize service and maintenance, which creates a substantial after-market for tools, spare parts and service. Strong expansion and increased investment in mining and construction industry in both traditional markets and new emerging markets. Increased requirements with regard to mechanization, safety, environment, mobility and ergonomics. The size of the world market for the business area s products and service for the mining and construction industries is valued at more than SEK 220 billion. Average annual growth for equipment, tools and spare parts is about 4 6%, while it is higher for service. In recent years, the total market growth has clearly exceeded 5% annually, due to substantial investments in the mining sector and in infrastructure in Asia. World-leading position focusing on product niches and customers with exacting demands on productivity, safety and performance. Products and material developed in close cooper ation with customers based on cuttingedge expertise of alloyed materials and materials technology and process technology. The material research facilities are among the world s foremost. Strong international sales organization and effi - cient global distribution. Customers are increasingly demanding products and materials that are durable and can cope with stringent requirements in terms of safety, productivity and cost effectiveness. A higher level of automation, combined with demands for energy-effi cient products and processes, as well as a general increase in environmental awareness are driving the demand for more advanced materials and products. Focus on a number of strategic customer segments with higher growth and profi tability than the market average. The market potential for the business area s products exceeds SEK 150 billion. The underlying annual market growth amounts to 4 5%, but is higher for such segments as medical and energy. Rapidly emerging markets, such as China and India, enhance the growth potential. 13

14 14 Sandvik specialists are on site throughout the world to understand the challenges of customers and offer optimal solutions that increase productivity.

15 CUSTOMER VALUE It s so much more expensive! But you ll save 30 million The driving force behind Sandvik is to help customers increase productivity and profitability, as well as improve safety and the environment. Its offering is based on world-class products, manufacturing, logistics and service. Sandvik s success is based on the success of customers. The more profitable they are, the more profitable Sandvik will be. A few examples of how the Group creates customer value in practice are presented below in a refinery, a tunneling project and a rolling mill. Expensive tubes that save SEK 30 million By tradition, the refinery in question used standard stainless steels in its heat exchangers. As a result of the corrosive environment, the tubes had to be replaced every year. The cost was about SEK 2 M each time, in addition to indirect costs for the production loss. Was there any way to find a more cost-efficient solution? Following detailed discussions, regarding the application environment, Sandvik could convince the customer to choose zirconium instead of conventional stainless steel tubes. Indeed, zirconium tubes are 4 5 times more expensive, but they last for 20 years or more. The financial gain: Stainless 18/8 Zirkonium Purchase price SEK 2 M SEK 8 10 M Useful life 1 year >20 years Cost, 20 years SEK 40 M < SEK 10 M Saving > SEK 30 M In this manner, the customer can save more than SEK 30 M over a 20-year period. Furthermore, the costly downtime that must be endured on an annual basis is avoided. It pays to think a little further ahead. Lower speeds, higher productivity At a construction site for a subway tunnel, work was progressing too slowly. When the speed of the tunneling machine, known as a road header, was increased, the tools broke down. How could productivity be increased? Sandvik offered an unconventional solution to the problem a new type of road header that actually works at a slower rate, but provides faster penetration into the rock. The machine is computer controlled and programmed for the rock hardness and tunnel geometry. It combines slower cutting speeds with higher feed and consistent cutting depth. This is particularly important in hard rock types, where it is difficult for the operators to manually regulate the performance of the machine. The result was a doubling of the former speed. By proceeding cautiously but consistently, the tunnel was completed within the projected time. Sandvik s computer-controlled road header offers productivity in tunnel boring. Sandvik s cemented-carbide rolls reduce downtime and increase revenues for customers. How to increase revenues by more than SEK 100 M per year Rolling mills throughout the world have a common problem: productivity is reduced as a result of the constant need to change rolls. Traditionally, cast-iron rolls are used, which must be changed every fi fth hour and each change takes at least a quarter of an hour. During this time, the milling plant is at a standstill and production time is lost. Sandvik s cemented-carbide rolls have entailed a substantial improvement. They only require changing every third day, which offers significant savings. Cemented- Cast-iron carbide rolls rolls Fall in production/year 450 hours 36 hours Lost production/year 45,000 tons 3,600 tons Extra production/year >40,000 tons Increased revenues/year SEK 110 M Calculated on a production of 100 tons per hour Accordingly, by making the transition to cemented-carbide rolls from Sandvik, a rolling mill can increase revenues by more than SEK 100 M per year an appreciated customer value. 15

16 The cutting geometry is protected by patent number SE and SE The GC 1044 cutting insert is protected by patent number SE The PVD layer on the insert is protected by patent number SE In addition to the four patents that protect the various parts of the insert, there are a further two patents that relate to the associated drill body SE and SE In reality, the insert in the picture is 9 mm in size and is included in the CoroDrill 880 insert drill from Sandvik Coromant. The product was awarded the Sandvik Innovation Prize in 2005 and the insert has been developed to machine material in an effi cient manner using a method known as step technology. 16

17 CEMENTED CARBIDE More than 3,000 patents and counting Cemented carbide was invented 85 years ago. By sintering (melting together) a powder mix of hard tungsten carbide at high pressure and temperature using cobalt as the bonding agent, a new material is created that combines durability and hardness in a unique manner. Today, cementedcarbide tools for metal cutting play a decisive role in productivity development in the world s engineering companies. The first cemented-carbide tool Sandvik is one of the pioneers in manufacturing of cemented carbide for metal cutting. The first cemented-carbide tool launched in the 1940s comprised a steel shaft to which a cemented-carbide plate with a cutting edge was welded. Sandvik subsequently launched a more flexible and efficient solution the insert which meant that the cemented-carbide plate could be easily rotated, turned and changed. In this manner, instead of resharpening the cutting edge, several edges could be used on the same cementedcarbide plate. The first insert was com - pletely flat. By gradually developing the insert s geometric design, an increasing level of control has been gained over the waste metal chips. Such inserts have furt her enhanced the productivity of customers. The major breakthrough In 1969, Sandvik was the first in the world to launch cemented-carbide inserts coated with thin, durable layers of titanium carbide. This was a decisive step in the evolution that has taken place to raise the performance of inserts. Sandvik has subsequently developed ad - vanced chemical and physical processes that make it possible to coat the insert with several different sub-layers, known as a multi-layer coating. A multi-layer coating can contain between 2 and 1,000 sub-layers and can be designed so that the properties of the cutting edge can be completely controlled. Even sharper inserts In parallel with the refinement of technology used to apply layers over cemented carbide, development has also taken place of the actual cemented carbide. For example, by adding small amounts of suitable alloy materials to the cementedcarbide powder, more fi ne-grained cemented carbide can be manufactured on an industrial scale. Smaller particle size entails harder and more durable cemented carbide. The development work has resulted in some 15 patent applications. In other words, cemented carbide continues to demonstrate improvement potential. Further successes and breakthroughs in the development of cemented carbide can be expected. Hard, harder, diamond Demand for more efficient and environmentally friendly solutions is continuously increasing. In the aerospace and automotive industries, development is progressing toward new, stronger and lighter materials, such as fiber-reinforced plastics and light aluminum alloys. Cemented-carbide tools function relatively well in these difficult-to-machine materials, but they do not give optimal performance. To achieve this, an even harder tool material is required diamond, the hardest material that exists. Sandvik has been active in this area for some time and with the acquisition of Diamond Innovations in 2007, Sandvik s expertise within metal cutting has been combined with additional skills in super-hard materials. The Group now has an integrated flow from raw material to finished product, for both cemented carbide and diamond. This provides an entirely unique position and new development opportunities. By integrating a diamond plate into the cementedcarbide insert, a tool with unique performance is created. A continuous flow of ideas Sandvik Tooling has more than 3,000 valid patents. Some 70% of the products sold are patent protected. Approxi ma tely 700 specialists work with research and development in metal cutting. A tangible result of their efforts is the submission of more than one new patent application each week. The work is based on the customers need for improved performance and increased productivity. Thousands of sales engineers are at hand at the customers facilities and use their applications expertise to ensure that these needs are satisfied. Sandvik is the customers innovative productivity partner. 17

18 The art of transforming rock into stones and sand Crushing is a key operation in the mining and construction industry. In mining, the extracted ore must be coarsely crushed directly after excavation to facilitate transport. In the following refining, a fine crushing is initially conducted followed by grinding to be able to extract minerals. In construction operations, various types of aggregate materials are key building blocks for such projects as roads, bridges, harbors and buildings. It is often the case that there is no access to natural stone and sand and, accordingly, rock must be first crushed. Rapid growth It is impossible to obtain exact figures of how much material is currently crushed throughout the world according to data compiled, it may amount to 12 billion tons per year. However, this information is far from comprehensive in many countries where crushing is most common. A realistic estimate indicates that the global market for crushing is probably closer to 20 billion tons per year! This rapid growth is driven by the increase in the mining of minerals and the substantial expansion of infrastructure that is taking place in many developing countries. The underlying driving forces are the rapid increase in the standard of living, mainly in Asia, South America, Eastern Europe and Africa, and the increasing restrictions imposed on the use of natural stone and sand. One process in several steps No one has yet succeeded in inventing a crushing machine that can reduce a stone block to a cubic meter of stone and sand in one step. Therefore, the majority of crushing is conducted in stages, in which the original material is crushed into smaller dimensions step-by-step. Naturally, it is ideal if all crushing is conducted as close to the mining site as possible. In historical terms, this has not been feasible or financially justifiable. Accordingly, crushing must be combined with efficient transport solutions between the various stations, either in the form of conveyor belts or using trucks. A modern solution is to use mobile crushers. 18

19 CRUSHING Sandvik s modern mobile crushers are rolling computer centers. They can rapidly enter and exit a work site and require no installation. They are easy to operate and generate maximum operational economy. When the job is done, they move to the next site. In this manner, transport costs are reduced and the entire process becomes more ecofriendly. Sandvik is world leading Through company acquisitions, Sandvik has purposefully, step-by-step, built up its product range within the area of crushing. At present, the comprehensive range encompasses jaw crushers, impact crushers and cone crushers. Through the breadth of its range, Sandvik has a leading position in all areas of crushing. The Group is one of the few global players in a fragmented industry that is rapidly proceeding toward consolidation. The customer is offered the combination of crushers that best matches the specific need. The choice must be adapted to the type of rock and the conditions at the extraction site. Accordingly, Sandvik often works together with the customer to tailor a solution that is adapted to the prevailing conditions in an optimal manner. The complete range in the mining and construction area is also a crucial competitive advantage. This means that such associated equipment as conveyors can be packaged in an appropriate manner for each customer. Sandvik s expertise extends from exploration all the way along the chain. The future is here Development within crushing moves at a rapid pace. It is easy to believe that this area is unsophisticated and that power is all that is needed. Nothing could be further from the truth. Crushing is high-tech in the real sense of the term. Sandvik is a leader in development of durable material and automated crushing. By controlling equipment with computers, productivity can be significantly increased. Sensor systems continuously monitor production and when there are variations in the raw material, crushing is adapted in an optimal manner. Computer technology has definitely made its mark in the area of crushing. Mobile crushing is another area in which development is proceeding at a rapid pace. Substantial financial gains are achieved by fitting crushers with tracks or wheels. A stationary facility creates dependence on transports to the crusher. A mobile facility can always be moved to the relevant location for work. Sandvik is leading the rapid development that is currently taking place. The Group has the resources and the global presence required to further strengthen its position within crushing. Sandvik s stationary crushers are robust and designed to be highly productive. In particular, the material inside the crushers is made from durable alloys, which means that stoppages are uncommon and brief. In this application, good use can be made of Sandvik s materials expertise. 19

20 Spinal implant Shoulder implant Hip implant Hip implant Knee implant Knee implant From being exclusively a supplier of material, Sandvik has also established itself as a contract manufacturer of implants and surgical instruments.

21 MEDICAL TECHNOLOGY Sandvik under the skin Each year, nearly one million patients worldwide receive new hip joints and at least as many have new knee joints surgically implanted. Old, worn-out joints are replaced with metallic or ceramic implants. In this manner, many of these people can return to a normal, active life without pain and problems. The number of implant operations is increasing rapidly. The baby boom during the latter part of the 1940s means that many people have now reached the age in which these types of operations are most frequent. In addition, hip replacements are becoming increasingly common at younger ages, due to new surgical techniques and the improvement in the useful life of the implant. Conservative estimates indicate that the market for orthopedic implants is growing by about 10% annually. It is against this background that Sandvik has increased its presence in the rapidly growing medical technology area. Founded on material expertise For some time now, Sandvik has been a well-known name as a supplier of advanced materials required in the medical technology area. The Group s high-alloy stainless materials and titanium alloys meet the stringent and An important part of Sandvik s operation in medical technology is, in its capacity as a contract manufacturer, to produce various types of advanced instruments used in surgical operations. specific demands that customers impose on materials for such products as implants. The materials are also important for pacemakers, stents (used to open clogged arteries), surgical wire and instruments. Consequently, Sandvik s material plays an important role in modern surgery. The rigorous demands placed on im plants also means that the price is high. For example, an artificial hip joint costs tens of thousands of Swedish krona, but with the human body as its working area, only the best is good enough. Quality must therefore be optimal. In addition to material for medicaltechnology products, Sandvik develops, manufactures and markets tools for the machining of such items as implants. A step forward in the value chain Sandvik is currently making a goaloriented effort to strengthen its positions in medical technology. Through several company acquisitions in 2007, the company has taken a decisive step in terms of forward integration. From being exclusively a supplier of material, Sandvik has also established itself as a contract manufacturer of implants and surgical instruments. Accordingly, Sandvik is a supplier and strategic partner to globally leading medical technology companies, which in turn sell directly to hospitals and clinics. Semi-finished goods for im plants and instruments are manufactured in accordance with our customers specifications. Presently, the market of suppliers in this area is highly fragment ed. Development is also progressing toward an increasing number of medical technology companies outsourcing a growing share of their production to large, specialized manufacturers. This strengthens Sandvik has developed advanced cutting tools for machining implant material. Sandvik s conviction that this is an area with considerable potential for continued rapid growth. In total, more than 700 of the Group s employees work in the production of medical products and a research and development group is also in place to work with material and surface technology for these products. Core competence in materials technology, precision casting, precision forging, powder technology, advanced surface technology and machining, combined with knowledge of contract manufacturing of medical technology products and a focus on large-scale production, is a strong competitive advantage for Sandvik. The Group s ambition is also to be a leading supplier in this area. 21

22 New, innovative productivity boosters 90 square shoulder, 25% higher productivity duction of smaller batches in which rigorous demands are placed on precision. Due to the new geometry of the insert and a new type of cemented carbide, the milling process is made easier and requires less energy. Furthermore, productivity is increased by up to 25%. Material for demanding environments Stringent demands are imposed on tube products that are installed in refineries and in various types of chemical and petrochemical industries. The environment is highly corrosive and aggressive with high levels of chlorides and temperatures that reach several hundred degrees Celsius. Sandvik has developed a material that can withstand these Face and square shoulder milling are extremely common types of machining in the engineering industry. Two as pects are particularly important: the shoulders must be completely right-angled and the face must be extremely flat. Sandvik Coromant s new CoroMill 490 milling tool is specially designed to meet these requirements. It is tailor-made for prodifficult conditions a duplex stainlesssteel material called Sandvik SAF 2707 HD. It was originally designed for heat exchangers in refi neries, where it offers a significant increase in uptime compared with conventional steel, but it also opens possibilities for solving problems in other application areas. Lower noise level, higher productivity Conveyor belts in the mining industry can run at speeds of more than 10 meters per second and transport up to 50,000 tons an hour. This places considerable demands on the assembly s components, especially the rollers on which the belt rests. Sandvik s HM150 formed rollers have a new and innovative design. Energy consumption per roller is reduced by nearly 3 W (and a conveyer belt has several thousand rollers), while the noise level is reduced by up to 20 db. The serv ice life of the rollers is significantly increased, productivity is boosted by an increase in the speed, power consumption is reduced and downtime is minimized. 22

23 PRODUCT DEVELOPMENT High precision, high performance In paper machines, the paper is given its final finish in what is known as calendering. By tradition, this is achieved by feeding the paper through two steel rolls. An entirely new method has now been developed for calendering. This method is based instead on passing the paper between a roll and a steel belt from Sandvik. This steel belt has a thickness tolerance of ± 10 μm (as a comparison, a human hair has a diameter of 40 μm). Sandvik supplies belts in pre-welded loops of meters. The result: capacity in the paper machine can be raised by 20 40%. Less raw material is used and the quality of the paper is enhanced. Stable tool, stable performance In many industries, such as oil and gas, exacting demands are imposed on precision. This is particularly true for the turning of threads on bolts and other types of equipment. The quality must be high and uniform in each individual detail. Sandvik Coromant s new CoroThread 266 threading tool provides unique stability for the user. The results are clear: enhanced surface finish, more uniform quality, increased productivity and reduced downtime. Easier, quicker, safer and more productive Rod Handler is a new, patented system from Sandvik for automatic handling of drill rods in mineral exploration. In pace with drilling at greater depths, rods with lengths of up to six meters must be continuously added. In the past, this was done manually, with all the problems and risks that it involved. With the Rod Handler, the operator can now perform the work using a joystick or a remote control. All functions are carried out automatically from the loading of rods to their actual addition to the drilling string. This means that the process is much quicker and safer, with enhanced productivity as a result. 23

24 Today s and tomorrow s energy Next to food, access to energy is probably the most important factor for quality of life. Approximately 100,000 TWh is consumed worldwide on an annual basis. Naturally, it is difficult to accurately predict future energy requirements, but according to forecasts, the population of the earth will increase by 50% over the next 40 years. An increasing number of people will demand a higher, and therefore, more energy-intensive standard of living. More energy will be used in the future than is used today, irrespective of the increasing efficiency of energy consumption. Sandvik s expertise in hightechnology applications plays a key role when addressing the major challenges faced by the energy industry. Furthermore, the Group supplies products that generally enhance efficiency in energy consumption of the customers manufacturing processes. These offerings cover all types of energy, including alternative solutions currently under development. Increased investments in oil/gas Oil is the largest source of energy today. Combined with natural gas, it currently accounts for more than half of the world s supply of energy. The search for additional oil wells continues and during the period , expenditure in the area is estimated to be 15% higher than the current ten-year period with a further 10% increase forecast for the period. Production of oil is declining slightly in the US and in the North Sea, and a slowdown is expected soon in Southeast Asia. Meanwhile, it is rising in all other parts of the world. In many regions, extraction is taking place at greater depths and in increasingly corrosive environments, which places demands on more advanced solutions. Sandvik holds a leading position within a number of key areas in oil and gas extraction. High-strength production tubes are used to transport oil and gas from sources in deep waters to the surface. Sandvik is also market leader with regard to tubes for umbilicals, which connect various production units on the ocean floor. In addition, the Group has a strong position in the area of wirelines, which are used for such applications as the service and inspection of oil wells. Hydraulic and instrumentation tubes, connections in riser systems, heatexchanger tubes and equipment for the process industry used in oil refining are examples of other parts of Sandvik s customer offering. China driving development in coal energy Coal currently supplies nearly one quarter of the world s total energy needs. At the current rate of consumption, this type of energy is expected to last for more than 200 years. The annual growth rate for the mining of coal is higher than other types of energy it is estimated at nearly 3% over the next ten years. Oil and gas are the largest sources of energy today. 24

25 ENERGY The largest coal reserves are located in China, the US, Russia and Australia. At present, China is the largest producer of coal. The country mines about one third of the world s coal, the bulk of which is used within the country. China s aim is to utilize domestic resources to the maximum degree, which will entail increased investments in coal mining. Sandvik has a broad range of equipment for coal mining. It ranges from tube material, machines and tools for tunneling and continuous mining to crushing, screening and conveyers of various types. Coal is a relatively soft material and mining imposes special demands on safety and the environment. Through Sandvik s turnkey solutions, efficient systems for the mining of coal can be developed solutions that increase productivity and safety. Increased activity in the nuclear power industry Nuclear power accounts for slightly less than one fifth of the world s power supply. There are more than 400 nuclear reactors in operation worldwide. In recent years, only a small number of reactors have been added, while a few have been shutdown. Despite this, the production of electricity from nuclear power has increased. This has been made possible through improved operation and increased output and reliability at existing reactors. Presently, nearly 30 reactors are under construction. A minimum of 60 additional reactors are planned or have been ordered. The comprehensive approach to safety of the nuclear power industry places considerable demands on material suppliers. Sandvik s products comply with exacting demands on economic operation, safety and function and can be found in nearly one quarter of all nuclear power plants. The product range includes steam generator tubes, zirconium alloy cladding tubes for the reactors uranium fuel and strip, tube and rod products for a number of important components. Extensive experience, advanced production technology, a comprehensive quality assurance system and integrated production provides Sandvik with a strong position in this area. The Group s expertise will play a central part in the rebuilding Uranium is highly rich in energy. One kilo of uranium can generate 50,000 kwh of electricity. As a comparison, one kilo of oil can generate 5 kwh and one kilo of coal 3 kwh. and new construction projects now being undertaken by the nuclear power industry. Energy of the future Sandvik s expertise is also a key component in the expansion of carbon-neutral energy sources sun, wind and water. Many believe that the sun is one of the most important energy sources of the future. Each year, the surface of the earth is struck with 10,000 times more solar energy than we use in fossil fuel. Consequently, significant potential exists. One way of converting solar energy to electricity is by using solar cells. Sandvik is part of this process the Group manufactures furnaces for producers of solar cells. Interest in solar energy is increasing. The industrial development of solar cells is well under way and the growth potential is considerable. In global terms, electricity production from wind power is still of marginal significance, but investments in this type of energy are growing rapidly. Sandvik s tools for metal cutting are important for manufacturers of wind power plants in their efforts to produce units that are more efficient. At present, hydroelectric power is being substantially built out, primarily in Asia and South America. Sandvik has a broad offering of tools for machining turbines and other central components. The Group also has the market s most complete program of equipment for surface and underground work. Expertise within this area will be put to good use in large infrastructure projects involving new hydroelectric power plants. 25

26 Additions to the Sandvik family During the period , Sandvik carried out a total of some 50 company acquisitions worldwide. Sales of these companies at acquisition were about SEK 25 billion and the number of employees about 17,000. They also account for a significant part of Sandvik s current sales. The acquisitions are in line with Sandvik s aggressive strategy: to strengthen and advance positions within the Group s prioritized areas. The acquired operations add new products and new know-how, strengthen existing business, provide breakthroughs into new markets and open possibilities for a stronger presence in areas with high growth and favorable profitability. The map illustrates some of Sandvik s company acquisitions since The information about sales and number of employees is rounded off and pertains to the date of acquisition. Company acquisitions carried out in 2007 are indicated. UK: RGB, steel distributor. SEK 300 M, 130 employees Extec, mobile crushing and screening. SEK 1,800 M, 450 employees (2007) Fintec, mobile crushing and screening. SEK 560 M, 325 employees (2007) Doncasters Medical Technologies, orthopedic implants and instruments to the medical industry. SEK 500 M, 430 employees (2007). US: Precision Twist Drill, highspeed steel and cemented-carbide tools. SEK 1,000 M, 1,600 employees Drillmaster, rock-drilling tools. SEK 60 M, 50 employees MRL, furnace cassettes for electronics industry. SEK 160 M, 130 employees Sandvik Smith, rock-drilling tools. SEK 360 M, 200 employees Valenite, metal-cutting tools. SEK 2,000 M, 1,300 employees Technical Tooling, precision tools for machining of aluminum cans. SEK 50 M, 50 employees Rexam EMD, acquisition of machinery and equipment for production of cemented-carbide tools used in manufacture of aluminum cans. SEK 50 M (2007) Diamond Innovations, products in synthetic diamond and cubic boron nitride for machining, etc. SEK 1,000 M, 600 employees (2007) JKB Medical Technologies, contract manufacturer of spinal implants and medical instruments. SEK 90 M, 90 employees (2007) Med tronic, unit in Memphis for manufacture of medical instruments for spinal surgery. SEK 140 M, 110 employees (2007). Chile: Bafco, service to mining industry. SEK 85 M, 180 employees Implementos Mineros, consumables for rotary drilling and mineral exploration. SEK 90 M, 90 employees. Brazil: Hurth Infer, cemented-carbide tools. SEK 65 M, 75 employees MGS, material handling systems. SEK 240 M, 65 employees. 26

27 ACQUISITIONS Sweden: Kanthal, metallic and ceramic resistance materials. SEK 2,000 M, 1,700 employees Metso Powdermet, powder metallurgical components. SEK 90 M, 13 employees Svedala Industri, crushers, feeders and screens. SEK 1,400 M, 900 employees Hagby -Asahi, tools and machinery for mineral exploration. SEK 160 M, 100 employees. Finland: Tamrock, machinery and equipment for the mining and construction industries. SEK 6,500 M, 4,700 employees. Germany: Poppe & Potthoff, tube production. SEK 160 M, 80 employees Hindrichs Auffermann, steel belts. SEK 120 M, 70 employees Walter, cemented-carbide tools. SEK 2,700 M, 2,000 employees. Poland: Sandvik Baildonit, cementedcarbide metal-cutting tools. SEK 80 M, 175 employees. China: Gesac, cemented-carbide powder. SEK 500 M, acquisition of minority share (10% of share capital). Japan: Mazda Earth Technologies, machinery and equipment for the mining and construction industries. SEK 500 M, 30 employees. South Korea: Suh Jun Trading, drilling equipment and tools. SEK 80 M, 20 employees. India: Sandvik Choksi, tube production. SEK 30 M, 200 employees. Austria: BPI, drill rigs. SEK 120 M, about 40 employees. Australia: Beltreco, service within the mining industry. SEK 450 M, 400 employees SDS Corporation, tools for mineral exploration. SEK 650 M, 500 employees UDR Group, machinery and equipment for mineral exploration. SEK 275 M, 100 employees Shark Abrasion Systems, wear parts for underground loader buckets. SEK 70 M, 10 employees (2007) Hydramatic Engineering, specialized drilling and bolting machines for the mining industry. SEK 330 M, 290 employees (2007). 27

28 Global, leading-edge expertise The illustration shows the approximate breakdown among various categories of employees in the Sandvik Group. Each individual corresponds to about 1,000 employees. Red represents those who work in the front line with marketing and sales. Yellow symbolizes specialists within R&D. Blue denotes employees in production, while orange corresponds to those working in such functions as Finance, Information Technology (IT) and Human Resources (HR), who support Sandvik s various operations. Sandvik is growing rapidly, both organically and through acquisitions. This imposes heavy demands on all elements of operations, particularly the HR function. An important part of operations HR issues have been assigned high priority in the Group and comprise a strategically important and integral element of business operations. At present, comprehensive and global reorganization and rationalization work is under way in the HR area involving the introduction of common processes and IT support. The coordination of administrative resources ensures that all parts of the Group receive the best possible service in the HR area, where skills provision is the primary element. Sandvik s employees and their skills create the customer value that is decisive for continued growth. It places substantial demands on the Group s ability to attract new employees, integrate them in the company and utilize and offer possibilities to strengthen the skills of each individual. The Group s competitiveness is highly dependent on how well the right skills can be secured today and in the future. This is particularly relevant in view of the fact that the labor market in which Sandvik operates is characterized by intense competition. Active work with skills and leadership development, in addition to various reward instruments, strengthens efforts to attract, develop and retain employees with the desired skills. All managers shall receive solid support in their work to satisfy the skills requirements. The aim is to appoint an employee with the right qualifications to each position and to give each individual the opportunity to grow with the work assignment. 28

29 EMPLOYEES To ensure expertise within Sandvik s areas of operations, the Group is running a number of special training courses for various types of employees. The picture shows participants in the Sandvik International Mining School, who are studying the International Mining Engineer university program. Skills provision a project at many levels Based on Sandvik s business goals and strategies, an annual inventory is taken of the Group s collective needs. What type of skills development is required? Within what areas must the company recruit? What is the status of the Group s replacement planning? The process results in specific goals and action plans to fulfill the requirements that have been identified. Requirements are primarily matched against the global internal labor market, which was established by Sandvik a number of years ago. The stated goal is , that is, 70% of recruitment shall be conducted internally within the relevant business area, 20% shall be internal, but across business area boundaries, and 10% shall be recruited externally. In addition, the Group s goal is that the proportion of women in the company shall be not less than 25% by year-end The high level of ambition relating to internal recruitment imposes large demands on skills development. There is a continuous focus on reviewing the substance of the work and placing this in relation to the current and future demands on the operation. When possible differences are identified, specific development plans are prepared. The aim is to allow employees to grow within Sandvik instead of changing employer. The Group represents an extensive labor market, which contains many opportunities for new, stimulating work assignments. In the past year, the method and substance of work has changed for many employees in pace with the ongoing structural development in the various business areas. To meet future challenges, change and flexibility are key features of the Group s HR work. A particular emphasis is Sandvik s model for HR support HR Advisor: The HR function within Sandvik is now completely integrated with the Group s business operation and focused on supporting the organization so that it achieves its strategic goals. Via the HR Advisor, discussions are conducted as to how HR matters support the operation in the best manner. placed on the development of leadership skills in the Group. Of course, external recruitment to the Group must also take place. Far-reaching and systematic work is conducted to show that the Group is an attractive and exciting workplace with unique career possibilities, both for recently graduated and already established professionals. In certain countries, Sandvik is establishing its own schools for the purpose of training employees in the required expertise. Diversity provides versatility About 75% of Sandvik s employees work outside Sweden. Employees in subsidiaries are active in many countries and represent a range of nationalities and cultures. Accordingly, there is great diversity in the Group. This is entirely in line with Sandvik s philosophy diversity is important to ensure that the right competence is available at the right time and in the right place, based on the demands placed by customers. A high level of diversity is ensured by offering equal terms and opportunities for all employees, irrespective of age, ethnic origin, skin color, nationality, religion, gender or functional impairment. HR Self Service: HR Service Center: A portal that contains fundamental This function provides further information relating to HR in support to self-service. It includes Sandvik policies, guidelines, tools, a call center function that is open etc. The managers in Sandvik can offi ce hours and can be reached receive assistance here with regard by telephone, or fax. to transfer of personnel, promotions or recruitments. Employees receive updated personal information and can apply for jobs. 29

30 A distinct responsibility Sandvik s largest manufacturing plants are in Sandviken. Through a range of measures, major savings have been achieved in terms of energy consumption, and emissions to air and water have been reduced. Today, for a leading company like Sandvik, it is not enough to be financially successful. It is also important to be successful as regards assuming long-term responsibility, both for the environment and in a social respect. Sandvik s viewpoint is that sustainability issues are part of the Group s business operations. If a company wants to be aggressive in the market, it must also be proactive in sustainability issues. Accordingly, Sandvik has a strong focus on this area. The Group s work with sustainable development and social and environmental responsibility is an important factor to enable the company to continue to develop positively. Sandvik s customers, employees, owners and society in general place demands on the Group in these respects and Sandvik in turn imposes demands on suppliers. 10% as guiding principle Since Sandvik has a global operation and manufacturing units in many countries, environmental issues are complex. The Group must comply with all the local regulations that apply in various parts of the world and has its own specific, detailed environmental goals both in the long and shortterm perspective. In the short term, the target is to reduce electricity consumption in relation to sales volume by 10% before year-end 2010 compared with 2004 level. During the same period, the aim is also to reduce carbon-dioxide emissions from internal use of fossil fuels by 10% in relation to sales volume. These targets, together with the Group s other environmental and social targets, are presented on pages 10 and 11. This section presents three specific examples of how Sandvik s work with sustainability issues is conducted. Reduced energy consumption The Group s manufacturing plants in Sandviken account for approximately 50% of Sandvik s total energy consumption. Over the past number of years, extensive efforts have been made to enhance efficiency in energy consumption. These have resulted in many definite measures. Some of the changes are minor such as the introduction of presence-detection lighting in staff rooms, the reduction of the chill-mold water pressure or the adjustment of the control system for the wire drawing machine. Other measures are of greater significance a total inspection and review of the ventilation system and adjustment of the indoor temperature in the buildings. These efforts yielded a 30

31 SUSTAINABLE DEVELOPMENT combined effect of GWh since 2004, which entails a reduction in carbon-dioxide emissions of 2,600 3,100 tons. This corresponds to the energy consumed to heat up about 3,000 standard homes. By replacing existing oil-fired boilers with modern electric boilers in the wastewater treatment plant and utilizing waste heat, energy consumption has been reduced by 0.7 GWh per year, which corresponds to a reduction in carbon-dioxide emissions of 240 tons per year. Plans are in place for further measures that can yield savings of approximately 800 tons of oil per year, corresponding to about 2,000 tons of carbon dioxide per year. Used inserts become new In the engineering industry, demands are placed that necessitate reducing the load on the environment. Through the Sandvik Group s cemented-carbide recycling concept, customers receive assistance in this area. The principle Rudinei Barbosa, at Sandvik s Brazilian subsidiary, is project leader in the work to help Mercedes- Benz in Brazil recycle cemented-carbide inserts. is simple customers collect all used cemented-carbide inserts and products of cemented carbide in special recycling containers, which Sandvik supplies. Customers are paid for the worn-out inserts and Sandvik subsequently takes care of the logistics. The cemented carbide is sent to Chiplun, to the south of Bombay, in India, where Sandvik has a facility for recovering tungsten and cobalt. The cemented carbide is broken down into its constituent components and reused. The facility is certified in accordance with ISO 9001, ISO and OHSAS and was put into operation in The aim is to recycle approximately 50% of all cementedcarbide products sold, and the proportion is already more than 25%. The system has many advantages: the environmental impact is lessened, the consumption of a limited raw-material resource is reduced and Sandvik receives cost-efficient access to the raw material. Investment in the environment, health and safety yields results In 2007, a coordination of the environment, health and safety (EHS) work was conducted in Sandvik Mining and Construction. At year-end, almost all major production plants were certified in accordance with OHSAS and the majority were certified in accordance with ISO In 2008, the double certification will be fully implemented at all plants. The systematic work environment and safety efforts in the business area have meant that the lost time injury frequency (number of injuries per million working hours) in global terms has decreased by 20% over the year. Efforts were particularly successful at the plant in Zeltweg, Austria, which manufactures road headers and In only a short period, through intensive efforts involving the work environment and safety, Sandvik s production plant in Zeltweg, in Austria, has dramatically reduced injuries at the workplace. machines for mining soft minerals. Following a comprehensive inventory conducted by an independent EHS specialist, it was possible to identify safety-critical stages in production. To date, measures have been taken to remedy approximately one third of these and the number of injuries have been reduced dramatically. This work will now continue throughout the world with the continued mapping of common injury causes, regular training of personnel, monitoring and a continuous exchange of know ledge between the various plants. Read more at Sandvik s website Sandvik s Sustainability Report is included as part of Sandvik s Annual Report and provides a detailed description of the work with sustainability issues in the Group. Visit the Group s website 31

32 Sandvik Board of Directors Clas Åke Hedström, Chairman since 2002, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 225,000. Lars Pettersson, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 113,443. Georg Ehrnrooth, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 55,000. Sigrun Hjelmquist, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 5,000. Fredrik Lundberg, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 3,300,000, through L E Lundbergföretagen AB 12,900,000, through AB Industrivärden 136,431,200. Anders Nyrén, Director of Sandvik AB since Vice Chairman. Shareholding in Sandvik (own and closely related persons): 4,500. Egil Myklebust, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 5,000. Hanne de Mora, Director of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 0. Tomas Kärnström, Director of Sandvik AB since (Employee representative). Shareholding in Sandvik (own and closely related persons): 2,865. Göran Lindstedt, Director of Sandvik AB since (Employee representative). Shareholding in Sandvik (own and closely related persons): 9,460. Bo Westin, Director of Sandvik AB since (Employee representative). Shareholding in Sandvik (own and closely related persons): 0 Mette Ramberg, Director of Sandvik AB since (Employee representative). Shareholding in Sandvik (own and closely related persons): 825. DEPUTY DIRECTOR DEPUTY DIRECTOR Percy Barnevik, Honorary Chairman. Board Chairman of Sandvik AB

33 BOARD OF DIRECTORS AND GROUP EXECUTIVE MANAGEMENT Sandvik Group Executive Management Lars Pettersson, President and CEO of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 113,443; employee stock options: 0. Peter Larson, Executive Vice President of Sandvik AB since 2002, Head of IT since 2004, and Head of HR since December Shareholding in Sandvik (own and closely related persons): 22,325; employee stock options: 10,000. Per Nordberg, Executive Vice President and CFO of Sandvik AB since Shareholding in Sandvik (own and closely related persons): 500; employee stock options: 0. Anders Thelin, President of Sandvik Tooling business area since Shareholding in Sandvik (own and closely related persons): 15,918; employee stock options: Lars Josefsson, President of Sandvik Mining and Construction business area since Shareholding in Sandvik (own and closely related persons): 25,000; employee stock options: 5,000. Peter Gossas, President of Sandvik Materials Technology business area since Shareholding in Sandvik (own and closely related persons): 120; employee stock options: 5,000. Information as of 1 January For information regarding education, work experience and other Board assignments, refer to Sandvik s Annual Report, which is available at the website 33

34 Sandvik in a 10-year perspective KEY FIGURES (From 2004 in accordance with IFRS, earlier years in accordance with previous GAAP.) Invoiced sales, SEK M Change, % of which organic, % of which structural, % of which currency, % Operating profi t, SEK M as % of invoicing Profi t after fi nancial items, SEK M as % of invoicing Consolidated net profi t for the year, SEK M Shareholders equity, SEK M ) ) Equity ratio, % Net debt/equity ratio, multiple Rate of capital turnover, % Cash and cash equivalents, SEK M Return on shareholders equity, % ) 11.9 Return on capital employed, % ) 16.3 Investments in property, plant and equipment, SEK M Total investments, SEK M Cash fl ow from operations, SEK M Cash fl ow, SEK M Number of employees, 31 December ) Total equity, including minority interest. 2) Excluding items affecting comparability. PER-SHARE DATA, SEK (From 2004 in accordance with IFRS. Earlier years in accordance with previous GAAP. All historical fi gures are adjusted taking into account the 5:1 split.) Basic earnings 1) Diluted earnings 2) Equity Dividend (2007 as proposed) Direct return 3), % Payout percentage 4), % Quoted prices, Sandvik share, highest lowest year-end No. of shares at year-end, million Average no. of shares, million P/E ratio 5) Quoted price, % of equity 6) ) Profit for the year per share. 2) Profit for the year per share after dilution. 3) Dividend divided by the quoted price at year-end. 4) Dividend divided by basic earnings per share. 5) Market price of share at year-end in relation to earnings per share. 6) Market price of share at year-end, as a percentage of equity per share. DEVELOPMENT BY BUSINESS AREA INVOICED SALES OPERATING PROFIT AND OPERATING MARGIN SEK M SEK M SEK M SEK M % SEK M % SEK M % Sandvik Tooling Sandvik Mining and Construction Sandvik Materials Technology Seco Tools* * Seco Tools, an independent, exchange-listed group of companies that markets tools for metal cutting, is part of the Sandvik Group. 34

35 FINANCIAL CALENDAR Events during 2008/2009 Annual General Meeting The Annual General Meeting will be held at Jernvallen, Sandviken, Sweden on Tuesday, 29 April 2008 at 5.00 p.m. Shareholders wishing to attend the Meeting must notify the Company either by letter to Sandvik AB, Legal Affairs, SE Sandviken, Sweden or by telefax , or by telephone from 9.00 a.m. to noon and 1.00 p.m. to 4.00 p.m. on weekdays, or via the Internet on the Group s website ( Notification must reach Sandvik AB not later than Wednesday, 23 April In order to qualify for attendance, shareholders must also have been entered in the Share Register kept by VPC AB not later than Wednesday, 23 April 2008 to establish their right to attend the Meeting. Shareholders whose shares are registered as held in trust must have them temporarily re-registered with the VPC in their own names not later than Wednesday, 23 April 2008 to establish their right to attend the meeting. Note that this procedure also applies to shareholders using a bank s shareholder deposit account and/or trade via the Internet. In notification of your intent to attend the Meeting, please state your name, personal or corporate registration number, address and telephone number, and details of any assistants. If you plan to be represented at the Meeting by proxy, notice must be given to Sandvik AB prior to the Meeting. Payment of dividend The Board and the President propose that the Meeting declare a dividend of SEK 4.00 per share for The proposed record date is Monday, 5 May If this proposal is adopted by the Meeting, it is expected that dividends will be paid on Thursday, 8 May Dividends will be sent to those who, on the record date, are entered in the Share Register or on the separate List of Assignees, etc. To facilitate the distribution, shareholders who have changed address should report their change of address to their bank in sufficient time prior to the record date. Sandvik s Annual Report Sandvik s Annual Report for 2007 comprises the formal financial reporting, that is, the Board of Directors report, income statements and balance sheets, with accompanying notes, etc., and is printed separately in a reduced number of copies for the shareholders who have ordered the printed reports. The general information that was previously included in the annual report is now printed separately under the title The Sandvik World and is distributed to all shareholders. The formal Annual Report is available on the Group s website ( and can be ordered in printed form. Key dates 2008/2009 Annual Report 2007 April 2008 The Sandvik World 2007/2008 April 2008 First-quarter Report 29 April 2008 Annual General Meeting 29 April 2008 Second-quarter Report 18 July 2008 Third-quarter Report 30 October 2008 Report on Operations in February 2009 Annual Report 2008 April 2009 The Sandvik World 2008/2009 April 2009 First-quarter Report 28 April 2009 Annual General Meeting 28 April 2009 Financial information can be ordered from: Sandvik AB Group Communications SE Sandviken, Sweden Telephone

36 We make it possible SANDVIK AB SE SAN DVIKEN SWEDEN TEL KI-SV07/08 ENG