Sandvik CEO Aims to Fix Stragglers to Reach New Profit Target

  • Company targets for annual Ebit growth of 7% in 2016-2018
  • CEO Rosengren expects no help from challenging end-markets

Sandvik AB, the world’s largest cutting-tool maker, aims to fix under-performing businesses by giving their management teams more responsibility rather than contemplate disposals for now.

Sandvik will keep the Varel unit, which makes drilling products for the oil-and-gas sector, while the product area that makes mobile crushers for the construction industry will be given one year to improve profitability, Chief Executive Officer Bjoern Rosengren said at the company’s capital markets day in Sandviken, Sweden.

“We think that there’s a lot of important businesses here that have a lot of potential,” Rosengren said. “We need to give the management full accountability for the business. We have to give them the chance.”

Rosengren has initiated a slew of changes during his first six months in charge. He’s launched a 600 million-krona ($75 million) cost-savings program. The company will exit its Process Systems and Hyperion units.

Sandvik is also in the process of selling its Mining Systems unit, and Rosengren has repeatedly said that there are no “sacred cows” as he seeks to find an optimal structure for the company. That led to some expectations that he’d axe more units to improve the group’s performance, which in recent years has been lagging competitors like mining-equipment rival Atlas Copco AB.

Profit Outlook

At its capital markets day in the company’s native town of Sandviken, Rosengren said that with the changes he’s implementing, Sandvik should increase its operating profit by at least 7 percent per year in 2016 to 2018, and that the company should have an operating margin of 15 percent.

“We don’t believe in any major topline improvement so we have to drive efficiency in our operations,” Rosengren said in an interview. “We do not expect that we will get any help from the market.”

The former Wartsila Oyj boss is facing tough end-markets as investments in the mining, oil and gas sectors have plummeted in the wake of falling commodity prices. After years of underperformance, Sandvik shares have gained 4.6 percent return since Rosengren’s arrival in November 2015. That’s better than Atlas Copco as well as the wider Stockholm index, which has lost 6.9 percent in the same period.

The decentralization of the company that Rosengren is pushing for aims to bring decision-making closer to customers and increase accountability of managers in the company’s different product areas, Sandvik said in a statement.

“Where we have failed is in keeping our sales and administration costs under control,” Rosengren said. “I’m convinced that that’s a consequence of centralization.”

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