I want to wish you a very Welcome to this presentation of the Fourth Quarter and Full-Year report from Sandvik for 2011. I hope that we have an international audience online as well. Thank you very much. As you might have noticed, Sandvik celebrated 150th birthday yesterday. So this is the first day of our next 150 years' journey, right? And we will do that today according to the same procedure as we normally do, that is, got presentation from Olof, and then we will continue with Q&A session.
We have one hour to spend on this. Just a little notice before that: we'll come from nothing to close to SEK 100 billion in 150 years. If we continue with that growth rate for 150 more years, we will end up with SEK 34,000 billion in sales. Just a short guidance for the in the long-term prospects. Thank you very much. Okay, Olof, hand over to you for guiding on those 150 years.
Thank you, Jan. I'm not going to give any long-term guidance for the 150 years, but it's interesting thought anyway if we can continue that, that growth, right? Anyway, this 150th year celebration will be a fantastic thing, I think, for us in the company all year. For those of you attending our AGM in Sandvik in May, we will also have some extra events around that in conjunction with our celebration, so. I hope to see many of you up there for that event as well. If we then look at the fourth quarter and the end of 2011, to start with, we had the highest invoicing ever in a quarter in the company's history in the fourth quarter. So, I guess we are at least so far continuing the journey here that we have had.
Overall, I would say we have a market picture of stable demand, and I think the picture that we were describing after the third quarter is very, very similar to the one that we're also describing today, one quarter later. We see strong demand from the tooling business area for the tooling business area products and also within the mining sector. Construction continues to see weaker demand, and really, construction was an area that has not really recovered since the financial crisis, so it's stable at a quite weak level. For materials technology, we have a bit, bit of a mixed picture there with certain segments where we have weakening demand and then other areas like oil and gas and so where we have a more stable market picture. This quarter is also marked heavily by one-off costs.
As you all know, we launched a new strategy for Sandvik on the 2nd of September last year, and that's led to a reorganization and a number of restructuring activities. We have certain redundancy programs running in the company and so on. We had a large amount of one-offs in the third quarter, and we also have a large amount of one-offs now in the fourth quarter here, so that's heavily affected the results.
Before these one-off items, we had an adjusted EBIT of SEK 3.24 billion. If you look at 2011 as a whole, without the one-off items, it's actually the second best result we've ever done in the company's history. So we are a strong company performing on a high level, and the reduction in the reported result is mainly due to these one-off items that we see here.
Return on capital employed was 16%, but if you look excluding these one-off items, it was 19%, here, after the fourth quarter. We have updated our financial targets. I'll get back to that. We have then now continued with the acquisition of Seco Tools. Out of Sandvik shares there, and we have now announced recently here that we now own 99.6% of the shares, so we've had a very, very good success rate in that transaction now and a very, very high acceptance level there. Looking then at the invoicing picture and how that has developed compared to the same quarter one year ago, well, the strongest market where we've seen the strongest recovery is still North America, which I think throughout 2011 really has been the area that has been surprising on the positive side.
We have a positive development in all regions, but you can say in Europe and Asia, the recovery rates have been a bit slower than in North America. Europe now represents 36% of our total sales, and a year ago it was 38%, so the internationalization of our business and where we actually sell our products and globalization of our business continues, we're continuing with that trend in the company. Looking at the customer segments, it was a long time since we had a blue segment, which actually means that we feel we have a lower invoicing compared to the same quarter one year ago, but now we do in the consumer-related area feel that we do have a lower invoicing rate than we had a year ago. Otherwise, we're still seeing growth year-on-year in all the other sectors.
Looking quarter-on-quarter here or the previous quarter into the fourth quarter, we see in many areas quite flat demand with some positive trends in mining equipment and aerospace, and a somewhat negative trend in the consumer-related sectors. That gives a bit of a picture of our market environment, and I think this picture of a quite stable demand compared to the previous quarter I think is a, is a correct one. Invoicing, as I said, you can see it is the highest invoicing we've ever had in a quarter in the company's history, so, I think that was, a very strong, positive thing that we saw in the fourth quarter 2011. Looking at the order intake, it looks like we have a significant drop compared to the fourth quarter one year ago.
The biggest differences we see in the order intake here is mainly our projects business within the mining area, which is a type of business where we get very big orders and it can shift quite a lot between the quarters. We were over SEK 3 billion in the fourth quarter one year ago with orders into that area, and in the fourth quarter 2011, now we only had around SEK 1 billion of orders. So that's, I think, is the main difference in the order intake we saw one year ago compared to this fourth quarter. But also, SMT, our materials technology business, has seen a weakening order intake, so that is also influencing it, but not in the same magnitude as the projects business within the mining area.
So we don't feel that this is any sign really of a deteriorating market, so we're not drawing those conclusions from our perspective at this point in time. Looking then at the EBIT and return on capital employed, as I said, before one-off items, 2011 was a year with the second highest result that we've ever had in the company's history, only exceeded by 2007, which was an extremely strong year. Also, the return on capital, adjusted for these one-off items, was around 19% for the company.
With the one-off items, the result is considerably lowered, and we had a very large impact, as you can see both for the Q3 and Q4 results of these one-off items, so that brings the reported results down considerably to an EBIT of SEK 1,649 million for the fourth quarter, and then a return on capital of 16% with the one-off items. Net working capital, as a percentage of sales, improved somewhat in the fourth quarter. It's still slightly above our target of 25%, and we are maintaining our ambition to be below the 25%, so this is still an aim we have in the company. This trend of some inventory reductions in SMT and a quite stable working capital with increased invoicing also resulted in a fairly good cash flow for the company in the quarter.
Looking then at the cash flow, you can see for being a fourth quarter, it's historically a very good quarter from a cash flow perspective for the group. These low cash flows that we had in the beginning of 2011, which were mainly influenced by the increases in working capital, have now been, the increases have stopped, and that means that we are now getting an increased free cash flow from the company. Looking then at the bridge analysis with increase we had of a bit over SEK 2 billion on sales up to a bit over SEK 25 billion.
We had operational leverage of about 18% on those additional volumes. But then we had an effect of about -SEK 200 million, which is different from the picture or the guidance we gave after the third quarter when we were expecting at those current rate currency rates that we had then about zero in currency effects, but as the currencies moved during the quarter, it resulted instead in a quite significant negative effect on currencies. And then we had the one-off items of SEK 1.7 billion here, taking the result to the 1,649, though. Looking then specifically at the various business areas, for Sandvik Tooling, we have continued strong demand, especially driven by automotive, aerospace, and the energy sectors. The adjusted EBIT before one-off items was SEK 1,650 million, and this is a very, very strong result for Sandvik Tooling.
We have had increased volumes and also a positive price effect within this business area. There were some not very significant one-off items in Sandvik Tooling in the quarter, about SEK 200 million, and reported EBIT after these one-off items was SEK 1,441 million, though. We also had negative currency effects of about SEK 50 million. Cash flow was strong, and also return on capital at 28.4%, I think, was also strong.
Looking at Mining and Construction, we had an EBIT of SEK 1,450 million before one-off items. We had a larger number of one-off items in the Mining and Construction area here, affecting the result by roughly SEK 500 million. Return on capital employed was 27.4%, so also quite a high number here. And we have as of the fourth quarter 2011 consolidated our latest acquisition in this area, a Chinese company called Shanbao Manufacturing Crushers, into the SMC accounts.
And then looking finally at Sandvik Materials Technology, we've seen this picture of quite mixed demands. This is, say, the same, I would say, as the picture we were describing after the third quarter, with strong demand in several areas, especially in the energy sector, oil and then particularly in the oil and gas sector, while we have a number of other sectors which are clearly weaker, like consumer-related sectors and more standard products within the business. North America has been a good market with good demand for materials technology, while Europe and Asia have displayed weaker demand for the business area.
Adjusted EBIT came in at SEK 70 million, and of course that's lower than what we would hope longer term, and we have a quite strong turnaround program going on with the materials technology to lift the profitability. This is also the area, as a consequence of that, where we see the biggest one-off items affecting the result by about SEK 900 million in the quarter, taking it down to a negative SEK 841 million, though.
On top of this, Materials Technology also experienced a negative metal price effect of SEK 125 million. Inventories in this business area decreased somewhat, so this was a positive trend that we saw in the materials, or a positive part of the development within Materials Technology here. Coming back at the total picture of the one-off costs as a consequence of the restructuring efforts that we're doing right now within the company, we took just over 1,700 or SEK 1.7 billion in the third quarter, and we had about SEK 1.6 billion in the fourth quarter.
Out of the total estimated SEK 3.5 billion, that means that we have been quite successful in managing to get as much of the one-off items into the 2011 result, which was our ambition, that we also stated in conjunction with the third quarter. The only remaining part is a certain smaller part of restructuring within the tooling business area, which will come in the beginning of this year instead, though, of around SEK 200 million. You can see there is a number of items, total SEK 3.5 billion, there's only a certain part of that which is cash flow, affecting the cash flow, for example, costs for redundancy programs and so on, that's about SEK 1.2 billion.
We state here after the 1.6 that it's around SEK 1 billion in the quarter that's affecting cash flow, but of course, that cash flow, that negative cash flow has not happened yet, so the redundancy payments and so for people leaving the company will come during predominantly, I would say, the first half of 2012, when actually people do leave the Sandvik Group and we do pay, for example, redundancy payments. This SEK 1 billion cash flow effect will come, to a great extent in 2012 instead of 2011. The EBIT effect, then, has come already in the fourth quarter. We have reviewed the financial targets, and to start with, we've decided only to have financial targets on a group level, which we feel is more appropriate when we have now five business areas.
We will, every now and then, have more clear targets, maybe for various business areas, like we have with the step change program for materials technology right now, but on a general level, we will not have business area targets. The growth rate has been maintained at 8%, but this is now including both acquisition-based growth and organic growth for the company. Well, we feel this is still a very ambitious target when it comes to growth, but more appropriate for the developments going forward when we're looking at it.
We're also in this considering that we have two business areas in terms of materials technology and Sandvik construction, where we are more in a turnaround mode and less likely to focus on growth, and the growth will mainly be focused on the areas where we have a proven profitability and where we feel we can get the margins that we want from the business.
We are maintaining the return on capital target of 25%. It's a bit over the 19% that we had after the fourth quarter, but we are doing a lot of efforts to improve the profitability of the company, and we feel that it's an appropriate ambition level for us to have in the group and a realistic target for us to have. Dividends, we're, I would say, more or less not changing. We've said at least 50% in the past.
We're saying 50% now as the target for the dividend payout level. We have, on the net debt to equity, taken a more conservative approach where we have lowered the maximum target for net debt to equity from 1 to 0.8, and we've taken away the floor of having a minimum level, so to say, of net debt to equity that we had in our previous targets here from 2007. So these are the new financial targets that we have decided from the board of the Sandvik Group. So to sum up the fourth quarter, it's been an important and eventful quarter for the company.
We are taking a lot of steps in terms of our new strategy, setting our new organization into place, and this has, of course, caused a lot of one-off costs and taken, I guess, a fair amount of energy also in the organization. But we've been moving as quickly as we can to really get this new organization into place so we can get back focused on developing our business instead of being internally focused in the company.
We have made our offer and got the acceptance from the Seco shareholders to buy out the minority there, so we will now, in the future, manage Seco as a wholly-owned subsidiary of the Sandvik Group, even though Seco will continue to have a significant degree of independence, as a company, even within the Sandvik Group. And we have updated our financial targets as a company here.
From a market point of view, I feel we have stable demand on a high level, and we also had a good cash flow in the quarter and the one-off items I already mentioned. And then if we look at 2011 as a whole, we've had the highest ever order intake and invoicing in the company's history, and also the second highest profits in the company's history, excluding the one-off items. So all in all, I must say, 2011 has been a very strong year for the Sandvik Group. Of course, we've had lots of changes. I was appointed, actually, today, one year ago, on the day, 1st of February last year, and we've made a number of changes in the executive management, which I think have been very important for the company's future development.
We have a much more international team today than we've had in the past, and I think that, for example, is very, very important, considering the global nature of the business, to have this broad level of experience from many parts of the world. And I also feel the people we have appointed in the new roles also are people with very sound and long experience from the various areas they're representing in the group and group management here.
We have a new strategy and a new organizational setup in place with the five business areas instead of the previous three that we've had in the company, updated our financial targets, and then, of course, bought out the minority and Seco. So a lot has happened during 2011, a lot about planning and talking about what we want to do in the future.
I think now 2012 and 2013 are much more about for us to actually delivering on these targets that we've set up for us, as a company and as, as an organization. The dividend is proposed to be increased somewhat from SEK 3 to SEK 3.25, and this, if you consider our result before one-off items, I would say is in line with our, our, target in the company. I would say this is what mainly is influencing the board's view on the company. We have a good result, a stable development, and the effects of the one-offs are one-off items and have not been sort of reflected in the, in the dividend level, so the proposal is to, to increase it somewhat to SEK 3.25.
That was all I was gonna say, and with that, I'll ask Olof to join me up here, and then we'll open up for some, some questions here. Yes, we do. I hope that we have a good connection with the international audience and, and some people prepared to raise questions there. We will have a couple of microphones here in on the floor in Stockholm, to assist you, so please, if you want to raise a question, raise your hand and you'll get a microphone so we get it out on the in the air as well. Should we start with a question from, the floor here in Stockholm, please?
Thank you. So Andreas Brock from Cheuvreux. Just a question there. You're in 2011. You have found you have expanded into mining in China, Shanbao, etc. through your acquired Seco Tools. How much are those two actions a response to a change in the competitive environment? I'm thinking Caterpillar, Joy Global, the acquisition, Iscar, etc.
Well, Seco, I think, I mean, I still foresee Seco being an independent brand in the market and operating as a quite independent company, but they get access to a lot of things within being part of the Sandvik Group, which they haven't had in the past. For example, our distribution network, basic R&D, we will have a much greater exchange on knowledge on production processing and these kind of things. So that, I think, will both help Seco to be more competitive and grow in the future and also actually support Sandvik since we will be a bigger family of brands within the machining solutions area here.
The Shanbao and Shandong acquisitions with JVs that we've done, they, I think, are very important because those are steps into China. And if you look at our markets, and where the outlook is in terms of growth in Europe and maybe also North America going forward, it's likely that the growth prospects in Asia and these other areas are going to be better than in our traditional home markets, and we are weaker in these areas. So, getting a manufacturing base, getting a stronger presence, for example, in the Chinese markets is very, very important for Sandvik to really continue to be a strong global company with really leading market positions in the product areas where we operate.
Thank you.
Thank you. One more from the floor, yes?
Yeah, hi. It's Frederick Roli here from UBS. Can I ask you about your CapEx guidance? I think guiding for SEK 5 billion-SEK 6 billion for 2012, and that's up year over year, so I was just wondering what you're thinking there, what you're investing in and where. And the second question was regarding SMT. I note that even underlying margins are weak here and that the business seems to be very dependent on the C products, what you call C products before, for the profitability, despite having good demand and good revenues from the higher margin products. So if you could provide us with some color there on what you're doing within your changes within SMT, what are you doing to address the dependence on the low margin bulk products?
Mm-hmm. Well, firstly, the investment levels. As often with investments, it's a bit difficult to predict exactly how payments will fall between years, and it depends on how projects are developing. We ended up, I would say, a bit at the low end of our expectations in 2011, which means payments that might have ended up in 2011 are moved into 2012 and instead. So I would say my feeling is that more or less we have the same ambition level when it comes to investments in 2012 and 2011, and it's, we're not trying to mark any significant changes, any major significance in terms of the CapEx levels in the company.
But we will try to be more focused going forward on how we use our CapEx in terms of, really putting it into the, the most profitable areas and, and, and developing, those areas where we see the strongest market position. When it comes to materials technology and, and their, product portfolio, well, to start with, one part, of improving the business is that we're trying to reduce the cost level quite significantly, and, we are focusing on a number of significant, cost reductions, which will increase our competitiveness also in products where we have a weaker market position. So that's one element. Longer term, of course, our focus is still to gradually improve our, our product portfolio, and, this is a step-by-step, process that is going on all the time.
For example, the investments in Sandvik now and the closure of the wire production in Hallstahammar is a typical step to where we are actually, and this is rebuilding actually the wire factory that burned down last year in Sandvik. And when we are rebuilding that, we are actually rebuilding only for a certain part and specific part of the high-value products in the product portfolio and exiting the simpler products where we don't feel that we have a reasonable level of profitability. So we are continuously taking those steps to improve our mix, and it's a very, very conscious process that's going on with the materials technology.
But we're, we're absolutely not where we need to be yet, so, I mean, we're, we're not happy with the mix yet, and I think we still have a significant need for a significant change in our product mix before we really get to where we want to be. Yep. Thank you. I would like to invite the international audience into this game as well. Operator, can we have some assistance?
If you have a question, please press zero one on your telephone keypad and your entry cue. The first question comes from Mr. Nico Dil from JP Morgan. Please go ahead, sir.
Good afternoon, gentlemen. Three questions, please. First of all, as far as I understand from your comments, Olof, the outlook is for relatively stable demand. What I struggled with a little bit is the phenomenal orders in Europe in tooling. They were up about 20% sequentially, while industrial production seemed to be slightly down in Europe. In the past, there was a slightly better correlation between the orders in tooling in Europe, and IP. Sort of wondering whether you've investigated this and whether, you know, how do you explain the discrepancy between the sequential uptick in tooling orders and the sequential downtick in European IP?
The second question is around the SMT margin. Underlying margins remain quite weak at about 4%, which is sequentially still a little bit weaker than Q3. Could you clarify what happened here in the quarter and how long it will take until we see a little bit of improvement here, frankly? The last question is around the corporate costs. Was hoping that Olof could explain a little bit what happened here. Seems to be a step up towards SEK 280 million here in the quarter versus a run rate of around SEK 150 million in the past. I'm hoping to get a bit of a clarification on what happened there.
Well, I mean, to start with, I mean, the sectors, well, we have a strong exposure in tooling. We feel it's been strong, and that's what's resulted in the good order intake. Maybe that's not corresponding exactly to the development of the industrial production in Europe, but yeah. This is anyway from Sandvik's world and from our perspective on the business, how we see the markets. I would just wanted to clarify also, I mean, we're not guiding for stable demand, and we don't give sort of long-term guidance from Sandvik.
I mean, we saw stable demand in Q4, and as far as we can see as the year has started today, that picture has not changed. So, that's the picture we want to give. The SMT margin, well, making an adjusted EBIT of SEK 70 million in SMT in a quarter is, of course, not a profit level that we are happy with the business, and that just shows the necessity of running a quite tough turnaround or profit improvement step change program as we are doing in the business today, so. And, I think that's been presented and discussed a number of times, and last May we had our capital markets day last year, what the elements of that program is.
That's, it's about cost savings, improving pricing, improving product mix, developing on some of the growth investments that we have already invested in the business. But, we're not happy with where SMT is at today, and we feel we have a quite firm and ambitious program to improve the situation at SMT. And if I continue with your question on corporate cost, the reason behind that increase is the one-off costs that we have taken in the fourth quarter. So that's the explanation to that increase. So that could refer back to, let's say, SEK 150 million run rate over the coming couple of quarters? Well, the increase is basically the one-off costs that we had in the fourth quarter.
We are not guiding on the level of corporate costs for the coming quarters, but the reason for the increase was the one-off costs. Okay. Thank you. Thank you. Let's continue with one more question internationally.
The next question comes from Mr. Ben Maslen from Merrill Lynch. Please go ahead, sir. Good afternoon, everyone.
It's Ben Maslen from Merrill Lynch. A couple of questions, please, on the Mining and Construction business. Can you talk a bit about the demand trends you see in both Mining and Construction , and particularly with regard to the weaker project orders, just what the level of tendering activity is like at the moment?
And then secondly, if I look on the new divisional split you put on your website, it looks like the margins for the quarter were weaker in both Mining and Construction , I understand, but can you maybe explain why the mining margins, sorry, were weaker during the fourth quarter relative to last year and the Q3, Q2 this year, please? Thank you.
Well, firstly, with the demand trends for Mining and Construction , construction has been clearly weaker, and we have a number of areas where it's been actually very weak, like Europe and China during 2011. Mining, we still feel we have a very strong demand, and the only area where we've had a lower order intake is in the projects business, but that's a business which can vary a lot between quarters.
And, I mean, the SEK 1 billion order intake we had in the fourth quarter last year more or less consisted of two orders, so that gives you a picture of how much that can how quickly that number can shift between quarters since it's only so few projects. Yeah. Our exploration business, which we often use as a barometer of the development in the mining sector, has actually been quite okay, and we don't see anything in that area in the fourth quarter that would give us a feeling of concern. And, I think my picture generally of what I'm getting of the global mining CapEx for 2012 still looks like a quite positive picture.
So, I think this lower order intake in projects is not at this point yet, anyway, anything that's given me any concerns about that we're seeing a sort of downturn and that market, or so, yeah. Okay. Then the margins, well, we had an unforeseen or unexpected CapEx currency effect that we had not guided for, and we said expected roughly 0, and that was about SEK 70 million for the SMT business area. We have integrated the Shanbao acquisition, which has had a negative impact on margins and so for the business when that came into the business area. And then, we have a number of other smaller items, and organizationally, of course, Mining and Construction is the area that is facing the biggest organizational change.
There are, I think, certain costs which have not been able to attribute as one-off items that we have had in, in the business. Since the magnitude we have such a large magnitude of change there, of course, during the fourth quarter, we may have had a greater degree of sort of internal focus on this reorganization than, and driving certain costs in, in the business than we, than we've had in other business areas in the company.
Thanks. If I can follow up on that, I mean, these extra costs or these one-off costs, how do you characterize them? Are they, kind of duplication? You know, when you're parallel running factories, you're gonna close, or is it consultancy? What is the nature of these extra costs that you're incurring at the moment? Thank you.
They could be consultancy costs, yeah, certain other types of restructuring costs that we have in the business, increased level of travel, yeah, many, many different items that cost items that have been driven by making a quite significant organizational change in this part of the company.
Okay. Thank you.
Okay. Thank you. We take your question from the floor in Stockholm, please.
Yes. Thank you. Peder Frölén , Handelsbanken Capital Markets. If I may continue on the Mining and Construction side, if you look at the projects order taken over the past, say, two years, has been quite significant. A large part of that is still to be invoiced in order to grasp the project relation on the invoicing ahead, all else equals.
And also on the organic leverage on the additional volumes and price for Mining and Construction , it seems even taking these extra costs, Olof, into account, it seems to be quite a weak leverage. Could you please help us to see if that is mainly on the construction side and the mining's doing all right or whether there's equally spread among the two segments? Finally, on production in tooling, I guess with the profitability like that, you produced in line with demand or even better given the order intake.
What do you think we could expect here in the first quarter, given an extreme order intake, very high level in absolute terms of demand? Would you try to take a cautious stance here when it comes to production, or will you continue to expect a gradual improvement in activity and i.e., continue to produce at a very, very high level?
Shall I start with the projects and the project orders? As Olof was talking about, the project order tends to come on a rather erratic pattern in a way. We are keeping the invoicing of project orders somewhere between 10%-15% of the SMT invoicing. So that's a more stable picture in terms of invoicing than it is on order intake. Yeah.
But if you look at the orders placed the last two years, or and given the fact that they were more heavily into 2010 and the beginning of 2011, how large chunk of that is still to be invoiced? That should not be a signal that the project order is, or the project business is actually going, or decreasing or something.
No. I'm not reading it as it's more of a sign that this type of orders comes rather erratically than anything else. Okay. Yeah. Well, looking at these margins, as I said, we have a number of items, currency, the Shanbao integration into SMT, extra costs so affecting these margins in the way they have. So, that's sort of what adds up, we feel, to the difference between the poor operational leverage that we've seen in the quarter and where it normally should be.
And on tooling production rate?
Yeah. Sorry. Yeah. Well, tooling, the only guidance I can give is how the year has started with the sort of insert sales the first few weeks in January, and we feel that market trend that we've seen in Q4 has continued. And what I should recognize with tooling, it is we don't have a very large order stock in that business, and if European manufacturing companies or so start reducing production significantly, that will quite quickly hit on tooling. But so far into January, we've not seen any indication of any change in the market conditions we saw in Q4 going into Q1 here.
But do you think it would produce a bit in the fourth quarter given the sort of angle of the demand?
No. And, I mean, we haven't had any major inventory movements or so on in the business in Q4, so we haven't been building significant inventories or so in Q4, so.
Thank you.
Thank you. Let's go back to the international audience, please.
The next question comes from Mr. Martin Prozesky from Bernstein. Please go ahead, sir.
Good afternoon, everyone. Just two questions, please, both on demand outlook. The first, starting with SMT. The order intake was, I think, 4.1 in the quarter. That's about 20% below kind of the recent average and a pretty low level compared to history. It's given some color on why that is. Can you just give us a sense for where you think this is now at trough level? What signs are you seeing of potential pickup in demand here in some of the weaker areas like electronics and consumer, or, you know, should investors expect to, you know, this is gonna be the demand level that this business operates at for the kind of foreseeable few quarters, you know, in 2012?
And then back to the question on the tooling demand. I mean, the 21% order growth rate is very, very strong, and it's, you know, there was an earlier question on, you know, how that connects with industrial production. To what extent do you benefit from, you know, the new automotive model introductions, you know, retooling there, that that gives you an additional boost to your sales as automotive manufacturers shift to new models? Is that an effect of the strong demand you're seeing, or was it pure investment demand that's supporting this growth?
Well, for starters, tooling. I mean, of course, I mean, we work a lot with introducing more productive systems for our customers to produce new products. So, we really try to be part of that development with our customers. So, introducing new models and so does help the market normally for us. And, for many customers, we're seen really as a partner in helping them to define and design their manufacturing processes for example, a new car model. So, that has been one driver, I guess, for us. But, I mean, we've seen a general strong demand for tooling. Automotive is just one of many sectors we sell into, and for example, Europe, so.
SMT, well, we have a low level of order intake, influenced partially by the weaker market. We also have a very low level of order intake when it comes to nuclear tubes, and we had still some order intake in Q4 2010. And that's also one element that is influencing order intake between the two fourth quarters, 2010 and 2011. I think in the quarter, my feeling is anyway, we've seen some leveling off in the worst affected segments. But it's always very difficult to judge because people go on holiday over Christmas and New Year's, and then you really need to get a bit into the quarter before you really get the picture about how business is picking up again in the new year.
So, I don't really have any further guidance to give you there on where things are going so far this year, when it comes to SMT.
Thank you.
Thank you, Martin. Let's continue on the international arena, please.
The next question comes from Mr. Colin Gibson from HSBC. Please go ahead, sir.
Hi there. Good afternoon, everyone. Three questions, please, if I can. My first question is about your new long-term growth target. You now target 8% growth all-in versus 8% organic previously. On my arithmetic, you managed about 6% organic growth in the past cycle, that's 2003 to 2009. Would you be expecting to maintain roughly that rate of organic growth going forwards, and then the extra two percentage points to be coming from acquisitions?
Or can you give us any kind of idea of how that 8% you see in your mind splitting between organic and acquisitive? So that's question number one. Question number two, could you please comment just really from what you see about the ongoing restructuring at SMT? Are you confident the unit will achieve its targets? Are you confident that you will be retaining this business, or do you see a material risk of a divestment? And then my third question, please. Can you give us an indication of how far in the money the options are that you're granting to managers as part of the new incentivization program? I'm trying to guess really how geared they will be to improvements in the stock price. Thanks.
Okay. The 8% growth target, I mean, we haven't given a split between acquisitions and organic growth, and I think that will be something that we will continuously evaluate if we see making acquisitions or making organic investments, which is the best way for us to grow and develop the business. But I'm quite sure that we will use both means of growth as we have historically within the SAMIC group to develop the company.
One could interpret that we have a somewhat more modest growth target, since we now have all in, so both acquisition and organic growth in the 8%. But one should also consider that against that, we are now, when it comes to SMT and construction, mainly focusing on a turnaround and not as much on growing these businesses until we can really display a reasonable level of profitability there.
So I think that's, since we're changing our stance a bit on those two parts of the business, that, that's also affecting our growth for the future. So we want to fix the profitability first, though. When it comes to SMT, well, I think, when it comes to the cost-saving targets we've set up, we are well on track with that, and I feel comfortable that we are on track on achieving those targets that were set up as that part of the step change program that Jonas Gustavsson has launched. Then, of course, this product mix issue and pricing and so, which was also part of the program, these are more difficult processes and so, and we're still working a lot with that.
But, there's a lot of energy going into improving these areas, and then we have a number of other initiatives going, but the only one that we really can see really, I think, in the very reasonable near-term tangible effects from will be the cost-saving programs, which, I mean, with the redundancy programs and so that are ongoing right now. With the LVS program, the options that the management had from the first round of this that was issued after the AGM 2011, the bulk of the options have a strike price which is 10% above the average price of trading 10 days after the AGM, that year. Is it 114 or something? 100, yes. The strike price was 129, so take back 10% of that. So it's about 117 at the average price that this stock was. Yeah.
And then on top of that, there were certain matching rights for the most senior managers where you had to make an investment, and then you got an option for the similar amount of shares. And they had a strike price of 75% of the share price on that 10-day average. So that gives you a picture of the first year of that, that program. And I think all managers invested the maximum amount they could, which it is quite, I, I think it's a good program in that sense because it does require quite a significant investment. It's 10% of your pre-tax salary that you have to invest yourself, as a senior manager in the company.
And when you're paying well over 50% tax in Sweden, that means that it's more than 20% of your net salary in a year that you're actually investing in shares in your company. So, then, of course, you get the matching rights to that, but I think that does give a strong commitment to the share price and the share price development by for the management. So, I, my personal feel it's a good setup in the program anyway.
Yeah. And the proposal is from the board to the AGM that this same program is prolonged one more year now then, so it will be decided on an annual basis if this long-term incentive program will be continued then, so. But, it's likely that we will continue this for one more year if the AGM decides to support that, so. Thank you. We continue with the international audience.
The next question comes from Mr. James Small from Redburn. Please go ahead, sir.
Yeah. Good afternoon, everybody. It's James at Redburn. Three questions, if I could. On SMT, could you say what proportion of revenues in 2011 you will have exited by 2013 to improve the mix? There's always been an ABC mix story in SMT, and we all get the sense that you're trying to push that a bit harder. But can you give us a feel for what proportion of current revenues really need to come out in a short timeframe?
Secondly, you gave some guidance for currency in the first quarter. If we stay at current currency rates, do you have a sense for what the full year 2012 FX impact to EBIT could be? Finally, on savings, you've talked a lot about the costs and the cash, and the write-off charges. Could you say a little bit about what the savings potential from all of that is, and by division, just trying to get a sense for what the ramp-up is of that as well?
Yeah. Well, to start a bit with SMT, we are actually reviewing this definition of A, B, and C products, and I think, in a way, in the past, maybe we give a bit too optimistic a view of the share because it looks like we have a very, very large share of A and B products already in the mix. But we only have a quite small share of C products.
But, I think maybe we've been a bit too generous in the definition there, and we will review that in the future. I don't have a percentage to give you, but, I mean, obviously, from the profitability level we're at now in SMT, we need to make quite a significant step up if we're gonna achieve a reasonable return from this business in the future. Currency, we don't have a full-year number, so beyond what we've set for the quarter, we don't have anything else to offer. And that's, of course, an assumption that we have the currency rate we have now for the rest of the year. So you can start looking 12 months ahead if it comes to a quite, maybe not very useful number, but we know what often happens with all the currencies.
Then with the savings, SMT have said at least SEK 500 million, second. We're aiming for at least SEK 1 billion to be achieved across the group in terms of savings from the programs that we have ongoing now in the company. So those were your three ex questions, so, yeah.
That's very helpful. Sorry. Just one other, if I could, on tooling. I know everybody's tried to ask this question, but you grew 27% like-for-like in orders in Europe. Whereas, the Kennametal comparable business grew at similar rates. Industrial production was way below that, and you've mentioned there's been discussion of product and platform changes amongst the car makers.
Well, I look at the Kennametal guidance for 10%-12% organic sales growth for the full year 2012, which is well in excess of what everybody has for Sandvik Tooling for 2012. Can you help us a little bit within that range? Is the Kennametal guidance valid for Sandvik Tooling for 2012? Do you have any visibility on future mix issues like platform changes that could drive a premium to industrial production?
No, we don't give that kind of long-term guidance from Sandvik's side, so I don't have any numbers to share with you on that, so.
Okay. Thanks.
Thank you. Sorry, James. You have to wait like this sometimes. Nice try. Do we have a question here in Stockholm? Yes?
Okay. Anders Svensson from Swedbank. I have a question regarding the nuclear power segment in SMT. Have you seen any signals or signs of a better market situation? And given the actual situation, what will you do with the ramp-up of production in that area?
Well, to start with, with the market, I mean, there was a big drop after Fukushima, which led to weaker market development than what we were hoping and expecting pre the Fukushima accident. I would say that, and there were some quite, I mean, in Germany, very dramatic reactions to that when one was gonna totally exit nuclear power. I think that discussion has become maybe a bit more sensible. The Chinese started a major review of all their planned nuclear installations after the Fukushima accident, and I think they're coming to the point where they're prepared to start up certain of the projects again that they have delayed there.
So, the nuclear situation is not getting any worse. If anything, I think, we're coming back to a certain, positive development in that market. But I think that we had this kind of trend development. It's a somewhat, slower pace despite that the market is coming back that we will see the coming years, compared to, to what we had in the past. So, yeah. Thank you. We take one more question from the floor here.
Okay. Thank you, Mats Eriksson from Swedbank also. Just a couple questions. First, regarding production, the daily production rate, what will happen in the three business areas there, sequentially from the fourth quarter to the first? And secondly, about pricing. Have you had any impact of pricing, well, maybe, especially within the tooling area, triggering pre-buying for customers or something like that?
When it comes to, I mean, production, I don't really have any guidance for the Q1 to give you. We don't have any major inventory issues. I mean, we haven't been building inventories in the fourth quarter, and we have started to approach our 25% target, so we're getting more or less in line with our working capital of what we feel it should be, so. So will you keep the daily production rate unchanged within tooling, for instance? Well, I mean, that's continuously adapted, and for example, in Gimo, we have a very flexible setup when it comes to working time, so we can quite rapidly, using a time bank there, adapt our production to market conditions. So it's. I don't really have any guidance to offer you. It's very much related, of course, to the demand situation.
As you saw from the graph on the working capital development, we are in the right direction there and closing into the 25% target. So there are no main, major, you know, adjustments of the inventory levels that we see going forward.
Okay. Thank you. And definitive pricing issue there? Pricing, we have had a slight positive pricing trend during the quarters. You haven't seen any customer, well, choosing to pre-buy ahead of those price increases?
No, I don't think we've seen that kind of behavior, no. Thank you. We need to start to wrap up. I would like to end this session with one more international question, please.
We have a question from Mr. Alexander Virgo from Berenberg Bank. Please go ahead, sir.
Hi. Thanks. Good afternoon, gentlemen. Just a quick one, actually, on the timing of the restructuring benefits, given that you were able to take, probably a little bit more than I think people expected in Q4 on the cost side. Can you give us any feel for when the benefits will start coming through?
When it comes to the redundancy side of the cost savings, people will be leaving the company during, I'd say, mainly the first half year of 2012 here. So, gradually over the first six months, we should see the bulk of the cost saving effects from these redundancy programs.
Okay. Thank you.
Thank you very much. We need to ramp up. Our time is out, even if this is the first day for the next 150 years or so. I wanna thank you all for coming and also the ones listening into this conference. I also want to remind you that we are from the 1st of January operating in a new setup with a new organization, five business areas instead of three.
You'll find more information, financial information, on our website, as pro forma and restated numbers are gradually developed. They're always already available on a quarterly basis with some historical review as well. I understand we had more questions coming in here. I want to just send a message that please call some of us in investor relations for more handling of those questions. And next time we will appear here will be on the 27th of April when we reveal our Q1 numbers according to the new organizational setup. So with that said, thank you very much for today. Thank you. Thank you.