Sandvik Ab Business Information, Profile, and History

Company Perspectives

Sandvik shall develop, manufacture and market highly processed products, which contribute to improving the productivity and profitability of our customers. Operations are primarily concentrated on areas where Sandvik is--or has the potential to become--a world leader.

History of Sandvik Ab

Sandvik AB is an industrial engineering group based in Sandviken, Sweden, with an international network of more than 200 companies in 130 countries. About 95 percent of Sandvik's sales are from outside Sweden, with 48 percent stemming from Europe as a whole, 20 percent from North America (including Mexico), 21 percent from the Australasian region, 6 percent from Africa and the Middle East, and 5 percent from South America. Originating from a steelworks using the Bessemer method in the 1860s, the company has developed into a group with three main business units, each of which holds world-leading positions in several niches. Sandvik Tooling specializes in tools and tooling systems for metalworking applications, with the products made of cemented carbide and other hard materials such as synthetic diamond, ceramics, and high-speed steel. Sandvik Mining and Construction is a leading global supplier of rock-working equipment, tools, and services for mining and civil engineering. Sandvik Materials Technology is a world leader in the manufacture of products made of stainless steel and of titanium, nickel, and zirconium alloys and in the production of metallic and ceramic resistance materials in the form of wire, strip, and electric heating elements.

Steelworks Beginnings

The origins of Sandvik can be traced back to the formation of the Högbo Stål & Jernwerks AB in 1862. The company was set up to build a new steelworks at Sandviken, 150 miles north of Stockholm, the capital of Sweden, by Göran Fredrik Göransson. Sandvik claims that Göransson, who obtained a license to use the Bessemer process, was the first to get the new process to work on an industrial scale. The Bessemer method, unlike earlier methods, allowed the production of heavy castings and forgings in one piece from one melt. In the process, air is blown through molten pig-iron and a vigorous combustion results from the reaction of the blast and the hot iron in the converter. Sandviken is located in the southeastern corner of the region of Sweden where iron products had been produced for hundreds of years prior to the formation of the new company. The original iron industry was based on local deposits of iron and the ready availability of wood to make charcoal.

Johan Holm, the main financial backer of Göransson's company, however, got into financial difficulties that resulted in his and the company's downfall. The company was declared bankrupt in 1866; after financial restructuring, Sandvikens Jernwerks (Steelworks) Aktiebolag was founded in May 1868. Anders Henrik Göransson, the son of the founder, became the manager of the new company and set Sandvik on the course that would lead to its future success. By international standards, Sweden offered a small home market for the new company. From the start Sandvik exported products that, because of the company's location far from the main industrial markets, had to be highly upgraded steel products. The high quality of Swedish iron ore and the Bessemer process urged the company in the same direction. Even during the first years of the new company, Anders Göransson traveled widely in Europe, taking orders for products and establishing agencies.

By the 1890s the company was making some manufactured products, such as saws, from the steel it produced. In the latter part of the 19th century, the company's specialties included boiler tubes for installation in steamships and railway engines, rock drilling steels, and wire for umbrellas. By the outbreak of World War I, exports accounted for up to 80 percent of Sandvik's output. In 1901, meantime, Sandvik shares were listed on the Stockholm Stock Exchange.

By 1914 employment at Sandviken exceeded 2,200. During World War I the export share shrank, but was offset by the booming domestic market for steel. In the interwar period the company was hit hard by recession, in the early 1920s and again in the early 1930s. The workforce declined, but by 1937 had risen again to 5,380. During this period, the production of steel by the open-hearth process and electro process replaced the Bessemer process that had been instrumental in the foundation of the company. Sweden's cheap hydroelectric power provided an advantage for steelmakers using the electro process.

Between 1918 and 1939 exports as a proportion of sales varied between 60 and 70 percent. Throughout this period, steel was the dominant product group; manufactured products such as saws, conveyor belts, complete conveyors, and razor blades accounted for only 6 percent of sales. Within the area of steel products, tube products were increasingly important; these included seamless stainless tubes for the food, pulp and paper, and chemical industries.

From 1920 until 1958 the dominant figure in the company was Karl Fredrik Göransson, grandson of the company's founder. When he returned to Sweden in 1901 after studying in the United States, he brought with him the company's, and probably Sweden's, first microscope for metallurgical studies. He was managing director from 1920 until 1948 and chairman from 1929 until 1959.

By the beginning of World War II, Sandvik's production amounted to 90,000 tons of steel ingots a year and 65,000 tons of finished products. In terms of ingots, the company accounted for about 10 percent of Sweden's output, but because the final products were highly upgraded this understated the company's relative importance in terms of the value of output. During World War II, exports collapsed again and output was diverted to the home market. During this period, however, an event of immense importance for the development of the company occurred.

Increasing Importance of Cemented-Carbide Products: 1940s-60s

In 1942 the company entered the cemented-carbide trade. Cemented-carbide is a powder-metallurgical product of which tungsten carbide is the main constituent. It may also contain carbides of other metals such as titanium, tantalum, and niobium. Powders prepared from the various metal carbides are mixed with fine-grained powdered metal, most commonly cobalt. The mix is pressed to the desired shape and is treated at a high temperature; the cobalt melts and functions as a binding agent for the carbide grains which are sintered in. The sintered product has multiple advantages: hardness, ductility, and resistance to wear. A sintered blank can be ground to high edge sharpness, affixed to a holder, and used as a tool for metal cutting.

Fried. Krupp AG, the German steel and engineering company (which was later subsumed into Thyssen Krupp AG), had invented cemented-carbide tools in the 1920s and was the leading supplier before World War II. The war separated Krupp from many of its markets and provided opportunities for new entrants to the trade.

Sandvik used the name Coromant for its new venture, which was initiated by production manager Carl Sebart. Previously, cemented-carbide had been sold in the form of blanks to be fashioned and sharpened into tools by the users. Sandvik's new approach, to supply ready-made tools, was first applied to rock-drills, which were developed and marketed in collaboration with Atlas Copco AB, another Swedish company, and were an immediate success. The cooperative arrangement with Atlas Copco continued until 1988. Michael Porter, author of The Competitive Sources of Power, suggested that one reason for Sweden's success in producing internationally competitive rock drilling equipment is that its rock is among the hardest in the world. Cemented-carbide metalworking tools were slower to achieve popularity, but development after 1956 was rapid. Sandvik Coromant expanded by building new factories in Sweden and other countries and by acquiring existing producers. Wilhelm Haglund, who had managed the development of Sandvik's cemented-carbide operation from the start in 1942, was appointed managing director of Sandvik in 1957 by K. F. Göransson, and held the position until 1967.

The Göransson family was the company's major shareholder and controlled Sandvik until 1957, when additional capital was raised by an issue of shares, and the investment company Kinnevik acquired a stake in the company. In 1967 Hugo Stenbeck, chairman of Kinnevik, became chairman of Sandvik, and Arne Westerberg, a former manager of a subsidiary of Kinnevik, took over as managing director.

An important change of corporate strategy occurred in 1967 at about the time of the changeover in management from Wilhelm Haglund as managing director and Gustaf Söderlund as chairman to Hugo Stenbeck and Arne Westerberg, respectively. Hitherto, the company's policy had been to market products made by the parent company or by its subsidiaries starting from products made by the parent company. Between 1962 and 1966, parent company sales represented 78 percent of group sales. From 1967 more products, particularly cemented-carbide products, were manufactured by the company's overseas subsidiaries.

In 1971 sales of cemented-carbide products exceeded those of steel products for the first time. In 1972 this was acknowledged by a change in the company's name from Sandvikens Jernwerks Aktiebolag to Sandvik AB.

Expansion Through Acquisition: 1970s-80s

Sandvik's other divisions were also making progress in developing products and markets while the carbide-tool business took off; they certainly could not afford to be idle in the intensely competitive environment of the steel and engineering industries during the 1970s and 1980s. While other steel companies faced repeated if not terminal crises, Sandvik succeeded as a result of its policies of investment in the latest technology and by developing specialty products to be sold in world markets. In world terms, Sandvik was a small-scale producer of steel; it survived in spite of the existence of large economies of scale for steel production by concentrating on the production of types of specialty steel and making high quality special products, such as surgical needles, scalpels, and probes that require special strength and resistance to corrosion, bone pins, artificial hip-joints, cladding in nuclear reactors, and springs.

The pace of expansion through acquisitions in Sweden and abroad was stepped up after 1967. In 1968 a joint venture, the Saeger Carbide Corporation, was set up in the United States with the Greenleaf Corporation. Between 1970 and 1973, manufacturers of rock drilling equipment in France and Spain were acquired. In 1972 the U.S. rock drilling manufacturing operation of another Swedish steel company, Fagersta, was purchased. In 1973 the U.K.-based Wickman-Wimet group was acquired, and during 1978 and 1979 tool manufacturers in Germany and France were bought. Between 1971 and 1974 the steel division made acquisitions in Spain, West Germany, and the United Kingdom; saw, hand-tool, and conveyor manufacturers were also taken into the group.

Although it was better placed than many other Swedish steel producers, Sandvik took part in the successive rationalizations of the Swedish special steels industry during the early 1980s. The result of the rationalizations was that there were only two principal special steel manufacturers in Sweden, Sandvik and Avesta, with Sandvik specializing in strip, wire, and tube products.

Following the second oil crisis in 1980, Sandvik suffered from the effects of the recession in many of its major markets. In 1983 the company's profits were reduced by SEK 219 million ($30 million) owing to an exchange rate loss brought about by unauthorized foreign-exchange speculation by an employee. In the aftermath of this disaster, Skanska AB, a construction company with diversified interests, acquired Kinnevik's holding and built up a 37 percent stake in Sandvik. In October 1983 Percy Barnevik, the chief executive officer of the Swedish electrical giant ASEA AB, was appointed chairman of Sandvik in succession to Arne Westerberg. In 1984 Per-Olof Eriksson was appointed president. In 1989 Percy Barnevik remained chairman while Per-Olof Eriksson became president and CEO of Sandvik, and Skanska AB controlled 26 percent of shareholders' votes. Meantime, in 1984 the company restructured its operations into six core business areas: Sandvik Coromant, Sandvik Rock Tools, Sandvik Hard Materials, Sandvik Steel, Sandvik Saws and Tools, and Sandvik Process Systems.

Acquisitions continued to be made during the 1980s. An important one was the Carboloy Division of the General Electric Company, of the United States, in 1987. In 1989 Metinox Steel Ltd., a small British company making medical products out of stainless steel, was acquired.

During the years 1987 to 1989, Sandvik's operating profit, after charging depreciation, represented more than 15 percent of sales. Expenditure on research and development was more than 4 percent of sales, while capital expenditure averaged more than 5 percent of sales.

Strengthening and Focusing on Three Core Areas: 1990s

The early 1990s were difficult years for Sandvik as recession gripped much of the world from 1990 through 1993. Despite declining sales, the company remained profitable thanks to management's heeding signs of the downturn as early as mid-1989. Eriksson began cutting staff around the world, reducing the workforce by 20 percent by the end of 1992. He also held off on making any significant acquisitions in 1989 or 1990, returning the company to its more acquisitive nature starting in 1991, but at a slower pace than in the past. During 1991 Sandvik spent SEK 358 million to acquire ten enterprises in whole or in part. The largest of these was the December purchase of the Bahco Tools Group, which had annual revenue of SEK 700 million and about 1,700 employees. The addition of Bahco bolstered Sandvik Saws and Tools. In late 1992 and early 1993 Sandvik acquired CTT Tools from AB SKF in a two-step transaction. CTT Tools, which was formed in 1990 through the merger of SKF Tools and the German firm Günther & Co., was the world leader in the manufacture of high-speed steel tools for metalworking, such as drills, thread-cutting tools, milling cutters, and reamers. CTT Tools and Sandvik Coromant were grouped into a new Sandvik Tooling business area.

In 1993 Sandvik formed a subsidiary in China, Sandvik China Ltd., which began construction of a cemented-carbide tools factory in Langfang City. The following year Eriksson turned over the reins to a new president and CEO, Clas Åke Hedström. In February 1994 Sandvik reached an agreement to acquire the cemented-carbide operations of Krupp Widia GmbH (the original producer of cemented-carbide products) from Fried. Krupp AG Hoechst-Krupp. German antitrust authorities, however, concluded that Sandvik would gain too dominant a position in particular product segments of the German market and squelched the deal.

From 1993 through 1995 Sandvik recorded steadily rising revenues and profits as the business climate was generally favorable worldwide. With the late 1990s difficulties experienced in Japan, other parts of Asia, Russia, and Latin America, net profits declined from SEK 3.73 billion in 1995 to SEK 2.10 billion in 1998. Revenues, however, moved in the opposite direction, increasing from SEK 29.7 billion to SEK 42.4 billion during the same period, aided by several major acquisitions. During 1997 alone, Sandvik took full control of Tamrock, Kanthal, and Precision Twist Drill. Finland-based Tamrock, which Sandvik acquired in two phases in 1996 and 1997, was a world-leading maker of rock-drilling equipment. The three main operations of Tamrock were combined with Sandvik Rock Tools to form a new Sandvik Mining and Construction business area. This area included four separate business sectors: the newly named Sandvik Tamrock, producer of drilling rigs, loaders, trucks, hydraulic hammers, and cemented-carbide products; Voest-Alpine Eimco, maker of equipment and tools for the mining of coal and other soft minerals; Driltech Mission, maker of drilling rigs and cemented-carbide tools for rotary and down-the-hole drilling; and Roxon, provider of equipment for conveyors and systems for handling of bulk materials.

Also acquired in two steps in 1996 and 1997 was Kanthal AB, a leading maker of high-temperature metallic and ceramic materials in the form of wire, strip, and electric heating elements. Kanthal had strong ties to Sandvik Steel and the two units were grouped within a new business area called Sandvik Specialty Steel. In September 1997 Sandvik acquired Crystal Lake, Illinois-based Precision Twist Drill Co. for SEK 1.06 billion. With annual sales of more than $110 million, Precision was one of the leading manufacturers of high-speed steel twist drills in the world. It became part of CTT Tools.

In mid-1997 Skanska sold the bulk of its significant holding in Sandvik. Skanska sold part of its stake to AB Industrivärden, a Swedish investment company that held an 11.7 percent voting stake at the end of 1998. In April 1999 Sandvik announced that it would sell Sandvik Saws and Tools to Kenosha, Wisconsin-based Snap-On Incorporated. The SEK 3.3 billion ($400 million) deal was completed in September of that year, with Sandvik recording a capital gain of about SEK 1.6 billion. Sandvik Saws and Tools was renamed Bahco Group AB and continued to be based in Sandviken, Sweden. With this divestment pending, Sandvik in May 1999 announced that it would restructure its operations into three main areas. The first was Sandvik Tooling, which continued to include Sandvik Coromant and CTT Tools and also gained Sandvik Hard Materials, producer of cemented-carbide blanks, components, and rolls. The second was Sandvik Mining and Construction. The third was Sandvik Specialty Steels, which comprised Sandvik Steel and Kanthal as well as the newly added Sandvik Process Systems, maker of steel belts and steel-belt-based process plants. Sandvik was now well-positioned for the 21st century, as the firm held leading global positions in specific niches within each of these areas.

Further Acquisitions and Leadership Changes: Early 2000s

Sandvik posted strong sales gains in both 2000 and 2001, but profits began to decline in the latter year and then fell further the next two years amid the generally weak worldwide economy. Sales were flat in both 2002 and 2003. During this period the company closed a number of plants as part of a drive to improve efficiency and productivity. Sandvik also completed a few significant, complementary acquisitions. Over 2001 and 2002 the company purchased a 94 percent controlling stake in the German firm Walter AG, which specialized in tools for metalworking, software systems for tool management, and numerically controlled grinding machines. Walter, whose annual revenues totaled approximately SEK 2.5 billion, became part of Sandvik Tooling. Another addition was made to this same unit in August 2002, when Sandvik acquired Valenite, the North American metal-cutting tools business of Milacron Inc., for SEK 1.65 billion. Valenite was based in Madison Heights, Michigan; maintained manufacturing plants in South Carolina, Michigan, and Texas; and generated annual sales of SEK 1.85 billion. Sandvik touted the acquisition as one that broadened its base, especially in the automotive industry. The deals for Walter and Valenite increased Sandvik's share of the world tool business from 20 percent to 25 percent.

The Valenite deal was the first acquisition completed under Sandvik's new chief executive, Lars Pettersson. Pettersson was promoted to the top position in May 2002, having previously served as executive vice-president and having joined the company in 1979. Hedström was named chairman, succeeding Barnevik. During Barnevik's 19 years as chairman, Sandvik's sales increased 500 percent, its earnings surged 1,000 percent, and its stock price skyrocketed 2,000 percent. Sandvik rounded out 2002 with its first acquisition in Japan. In November, Sandvik Mining and Construction acquired Mazda Earth Technologies and its Toyo brand, thereby gaining a leading maker of machinery and equipment for the Japanese mining and construction industries.

Sandvik started out 2003 by changing the name of its Sandvik Specialty Steels unit to Sandvik Materials Technology. The change was made to highlight the unit's focus on high-value-added products. Among other initiatives during the year, Sandvik continued its push into emerging markets. Sandvik Mining and Construction opened a new plant in India for the assembly of crushers, feeders, and screens, and Sandvik Materials Technology inaugurated a new plant in China for manufacturing process systems and press plates. In 2004 Sandvik rode the stronger world economy to record levels, achieving its highest profits (SEK 6.47 billion) and revenues (SEK 54.61 billion) ever. This trend continued well into 2005 as sales for the first three quarters were up 17 percent over 2004 levels and net profits jumped 26 percent.

Principal Subsidiaries

Dormer Tools AB; Edmetson AB; Gusab Holding AB; Gusab Stainless AB; Industri AB Skomab; AB Sandvik Antenn; AB Sandvik Automation; AB Sandvik Bruket; AB Sandvik Calamo; AB Sandvik Coromant; Sandvik Coromant Norden AB; Sandvik Export Assistance AB; AB Sandvik Falken; Sandvik Försäkrings AB; AB Sandvik Hard Materials; Sandvik Hard Materials Norden AB; AB Sandvik Information Technology AB; Sandvik Intellectual Property HB; AB Sandvik International; AB Sandvik Materials Technology; Sandvik Mining and Construction Sverige AB; Sandvik Mining and Construction Tools AB; AB Sandvik Process Systems; Sandvik Raiseboring AB; AB Sandvik Service; AB Sandvik Skogsfastigheter; Sandvik Smith AB; Sandvik Stål Försäljnings AB; Sandvik Systems Development AB; AB Sandvik Tranan; AB Sandvik Vallhoven; AB Sandvik Västberga Service; Sandvik Örebro AB; AB Sandvik Örnen; Seco Tools AB (60%); Sandvik Australian Ltd. Partnership (99%); Dormer Tools S.A. (Brazil); Sandvik do Brasil SA. (Brazil); Sandvik Bulgaria Ltd.; Sandvik China Ltd.; Sandvik International Trading (Shanghai) Co. Ltd. (China); Sandvik Mining and Construction (China) Ltd.; Sandvik Process Systems (Shanghai) Ltd. (China); Sandvik CZ s.r.o. (Czech Republic); Sandvik GmbH (Germany); Sandvik Holding GmbH (Germany); Sandvik A.E. Tools and Materials (Greece); Sandvik KFT (Hungary); Sandvik Asia Ltd. (India; 97%); Sandvik SMC Distribution Ltd. (Ireland); Sandvik Sorting Systems S.p.A. (Italy); Sandvik K.K. (Japan); Sandvik Kenya Ltd. (96%); Sandvik Korea Ltd.; Sandvik Méxicana S.A. de C.V. (Mexico); Sandvik Maroc SARL (Morocco; 94%); Sandvik Finance B.V. (Netherlands); Sandvik del Perú S.A.; Sandvik Baildonit S.A. (Poland); Sandvik Polska Sp.z. o.o. (Poland); Sandvik Slovakia s.r.o.; Minas y Metalurgia Española SA (Spain); Sandvik Endüstriyel Mamüller Sanayi ve Ticaret A.S. (Turkey); Sandvik (Private) Ltd. (Zimbabwe).

Principal Competitors

Atlas Copco AB; Kennametal Inc.; Iscar Tools; Gildemeister AG.

Chronology

• Key Dates
• 1862 Göran Fredrik Göransson forms Högbo Stål & Jernwerks AB to build a new steelworks at Sandviken, Sweden.
• 1866 Company is declared bankrupt.
• 1868 Company is reestablished as Sandvikens Jernwerks Aktiebolag, with Anders Henrik Göransson, son of the founder, as general manager.
• 1901 Shares in the company are listed on the Stockholm Stock Exchange.
• 1920 Karl Fredrik Göransson, grandson of the founder, becomes managing director.
• 1942 Company enters the cemented-carbide trade.
• 1957 Control of the company passes out of the hands of the Göransson family; investment company Kinnevik acquires stake in the firm.
• 1967 Hugo Stenbeck, chairman of Kinnevik, becomes company chairman; Arne Westerberg, formerly of Kinnevik, becomes managing director.
• 1971 Sales of cemented-carbide products exceed those of steel products for the first time.
• 1972 Company changes its name to Sandvik AB; the U.S. rock drilling manufacturing operation of Fagersta is purchased.
• 1983 Skanska AB acquires Kinnevik's holding and builds up a 37 percent stake in the company; Percy Barnevik, chief executive of ASEA AB, is appointed chairman.
• 1984 Company's operations are restructured into six core business areas: Sandvik Tooling, Sandvik Rock Tools, Sandvik Hard Materials, Sandvik Steel, Sandvik Saws and Tools, and Sandvik Process Systems.
• 1987 The Carboloy Division of General Electric Company is acquired.
• 1991 Bahco Tools Group is acquired and added to Sandvik Saws and Tools.
• 1993 Company completes acquisition of CTT Tools from AB SKF.
• 1997 Sandvik takes full control of Tamrock, Kanthal, and Precision Twist Drill; Skanska sells the bulk of its stake in Sandvik, with large portion sold to AB Industrivärden.
• 1999 Company's operations are concentrated around three core business areas: Sandvik Tooling, Sandvik Mining and Construction, and Sandvik Specialty Steels; Sandvik Saws and Tools unit is sold to Snap-On Incorporated.
• 2002 Sandvik acquires the German firm Walter AG and the U.S.-based Valenite.
• 2003 The Sandvik Specialty Steels unit is renamed Sandvik Materials Technology.