Good day and welcome to today's Sandvik Conference call. Today's Conference will be recorded. At this time, I would like to turn the conference over to your host today, to Mr. Jan Lissåker. Please go ahead.
Thank you very much. Very welcome to all of you listening in to this extra conference call from Sandvik, to which we have invited you, just to give you a chance to chat and to raise questions with our CEO, Olof Faxander. We had our ordinary presentation and Q&A session on Tuesday this week where we presented the first quarter results and so on. But since Olof did not have the possibility to join then, we thought it would be a good idea to invite you to raise questions with him directly this way. Just to make it clear, we don't webcast this. We don't audiocast this. It's just a clean conference call. So, it's not. It will not be, I think, possible to listen in afterwards.
From Sandvik, it's me, Jan Lissåker, Head of Investor Relations, and of course, CEO Olof Faxander, at this end of the table. But before we start with the actual Q&A Q1 focus, Olof, you've been on the job now for approximately three months. You've been traveling around, meeting Sandvik people all over the world. Do you have any particular comments or impressions to convey after that?
Well, hello, everybody. Thank you all for dialing in. As Jan said, we actually mainly planned this session as an opportunity for you to ask some questions. I'll just try to make some brief comments here to start with, and we'll try to leave as much time as possible for your questions. Then we do need to wrap up by 2:00 P.M. Central European Time. As said, I joined the company really in the middle of this quarter here on the 1st of February. It's been a hectic time. I've been traveling a lot, trying to meet as many people as I can, and trying to, of course, get to know the business as quickly as possible here.
What really strikes me when you travel around the Sandvik Group is that there's a fantastic level of competence, technical know-how in this organization. Also, we have a long range of products where we have very, very strong positions on the global market. We are a very engineering-driven business, but there is a strong tradition of not doing research for the sake of research, but actually successfully turning that into products and solutions that our customers need and are willing to pay for. And I think that gives us a fantastic ground to continue to build on for the future. One also feels that there's a very, very high level of pride in the organization for working for Sandvik, not only in Sweden but all over the world.
I also see and feel that we have a very strong and positive values in the organization, which I also think is very sound and a good basis for us moving into the future.
Good. Have you sort of reflected about around any particular strong points? You mentioned a few, but also the weak points or areas where we should be able to do better than we are doing?
Yeah, of course, we have lots of challenges. I think one of the biggest ones we need to face up to for the future is that I think we need to grow more aggressively in the emerging markets. We've possibly been lagging a bit, at least compared to other Swedish industrial companies there in the expansion into places like China and India and other fast-developing economies. To really continue to maintain our global position, we need to make sure we have strong positions in the markets where the largest economic growth is.
Good. So with that said, should we start with focusing a bit more on the Q1 report then? Would you like to give a brief overview, your comments on the report and what you feel about the market and the performance from Sandvik?
Well, to start with, we, it was a strong quarter, and, we have a, a strong continued recovery in the business. Operating profit was 72% above the corresponding quarter a year ago. And, both order intake and especially invoicing, increased quite strongly. And invoicing was up 27%. So, we see a continued positive trend in the market and a and a strong demand, really, in all sectors. And specifically in this quarter, the, the strongest areas have been the mining, energy, and, I would say vehicle sector, meaning that both, both heavy vehicles and automotive are, are, recovering strongly. So, we, we look positively at the market development and, and, are making significant profits in, in the company again.
We also had some disruptions in terms of events in the world around us, like the earthquake in Japan and some other natural disasters, flooding in Australia in the beginning of the quarter, that affected the mining side of the business. And of course, for Japan has raised some question marks about the nuclear industry and that what effects that possibly could have. Succession is of course a key topic, which also the board stated as one of the reasons for making a change at the top of the company at the time. They did now.
We have taken the first step there since Peter Gossas, who's been heading the Materials Technology business for, I think it's nine years now, has been succeeded by Jonas Gustavsson, who, I think is an excellent leader and has done a very good job in the Wire and Heating business within SMT, improving the business performance and results there. So I think he will add lots of energy to the organization and really will give it the push it needs for going into the future here. We also appointed a new head of HR in the company, Anna Vikström Persson, who has been working with me at SSAB before I came to Sandvik here.
Anna is a very strategically oriented human resource person and I think has done an excellent job on talent management and recruitment and developing of talent within SSAB and built a much stronger organization there for the future. I think that's a good and strong addition for Sandvik as people are the ones who really turn all our plans into concrete results. I should maybe also mention that currency had a big influence on our result in the first quarter. It reduced the result by SEK 450 million. If you look at the full year and stable currencies from where we were at the end of April, the impact will be of the magnitude SEK 1.5 billion-SEK 2 billion.
So the strong strengthening of the Swedish kronor, the weak dollar, and also to some extent the euro is affecting our results negatively with quite significant numbers there. So that was some general comments about the Q1.
Yeah. Yeah. Good. To add to that, what we stressed a bit on Tuesday was also the joint venture agreement with Shandong Energy Machinery in China. And that together with the Shanbao acquisition ongoing should definitely, at least, support Mining and Construction in their ambitions to increase the expansion in the Chinese market, I suppose.
Yeah. So I think those were very important steps for us, since, as I said earlier, China, India, and these other emerging markets is where the biggest economic growth is likely to be in the future. And these are good examples of steps we're taking to continue to develop in this emerging market.
Good. Do you think we should open up for questions?
Yes.
Operator, can we have some assistance with a Q&A session?
Thank you. If you would like to ask a question at this time, please press the star asterisk key followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone to signal.
We will take our first question today from Colin Gibson from HSBC. Please go ahead.
Hi there. Good afternoon, gentlemen. A couple of questions from my side, if that's okay. First thing, I wanted to ask was, over what timeframe do you think we might expect that you would announce your views on the strategic direction of Sandvik? Obviously, you have your traditional Capital Markets Day in the middle of September every year. I'm wondering really whether we will hear something before that or in time for that or what you think about the strategic direction. That was the first question. The second question, I have to ask this because it's so topical. We've seen ThyssenKrupp add about EUR 1 billion or SEK 9 billion to its market capitalization today by announcing a series of divestments. Some of them, which very broadly speaking overlap some areas where Sandvik is present, although not strictly speaking.
And I wonder, having seen the, you know, investors' immediate, positive verdict on, on spinoffs, whether you're tempted to consider similar options. And then I'll lie and I'll put in a third question as well, but this is a quick one. And that is, the very, very first thing I think you announced after taking over as CEO was the recruitment of your old HR supremo, which you alluded to already. Is that a comment on Sandvik's management culture? Thank you.
Thank you. I'll answer the first and the last question. Then I would just like you to clarify what I haven't read, the comments regarding ThyssenKrupp, so it's maybe a bit more difficult to comment on that. But timeframe regarding the strategy, of course, I mean, one of the tasks for me as a new CEO is to review the strategic direction of the company. Now, I'm not. I mean, we should, of course, be clear where we want to head and what direction. And we will surely give more flavor to that at the Capital Markets Day in September. But I think also one should not look at the strategy as a sort of magic bullet that you just announce once and then it's over and done with.
It's something that continuously needs to evolve, of course, influenced by how the world around you develops as a company and organization. So we will, well, of course, perform this strategic review and talk about possible changes in our direction or so as and when we can. But I think in September we'll surely have some things to share with you. Regarding the HR head, management culture, I think, as said, I think the values in the organization and the culture in Sandvik are very strong and positive. But we do have a significant succession issue, especially at the top management. And a large proportion of the group executive team will retire in the not too distant future.
So, like it or not, I mean, I will have a number of succession issues to deal with, quite rapidly here in the beginning of my tenure as CEO. And having a good HR person that has a good strategic perspective on recruitment and developing management and succession planning and so in the company is very important for me. ThyssenKrupp, I'll make an initial comment. I mean, businesses that you think are a burden in your company or that can develop better on their own, of course, things that one should consider selling. I think ThyssenKrupp is maybe more pushed into the need of making divestments on Sandvik as I understand it. They, I mean, it was a big thing that they lost their investment grade rating last year.
They have had more pressure, I think, on their balance sheet to do such changes than Sandvik has. We are actually at the bottom end of our net gearing range in this company. So we don't really have financial pressures to make divestments. So if we would do anything, that would be more that we feel it's not the strategic area for us to be in anymore or that that business can create more value with some other home. But I don't have any such concrete plans that I could share with you at this point in time. I don't know what areas they were divesting, if you could comment on that. I don't know if I could.
Yeah. I'd very briefly, they're talking about, I think, spinning off, the, some parts of the auto parts business and then also, perhaps spinning out the stainless steel business. So I was speaking pretty loosely when I said areas that overlapped yours. I just wanted to come back to you very quickly. I'm sure there's lots of other people waiting for the question, so I'll try and keep it quick. But, very quickly, on, on your point, about pressure to, to, restructure or pressure to change, how much pressure do you feel from Industrivärden or any of other or any of Sandvik's other major shareholders to, to make changes?
Well, I mean, a company needs to continuously evolve and develop. Sandvik is not a company in any way in a crisis. So, there is no reason to rapidly do unthought through, dramatic changes, just because you have a very weak financial situation or something. Sandvik is not at all in that situation. On the other hand, at the same time, I think there are a number of areas where we need to increase our pace and, where, of course, the people investing in Sandvik want to see a good financial performance. And we are, share price-wise, still clearly below our previous peak, valuations of the company and so there is definitely some work to be done there to continue to create more value out of this company.
But I think the foundation is very sound and it's something very, very strong that we have to build on.
Okay. Thank you.
Yeah. Thank you.
Our next question comes from Erik Karlsson from AKO Capital. Please go ahead.
Yes. Hello. I just had a question on the mining business. Demand has continued to improve for quite a while now. Is your feel that we're at some point will reach a plateau in demand and it will kind of more remain at a good level? Or do you think we're still in the early phases of the upcycle? I appreciate this is kind of, this might change over time. But what, what's your feel right now about the demand there?
Well, with current metal prices, it's of course very attractive for the mining companies to invest in significant capacity expansions. The key to this boom we see on raw materials is especially China. I mean, if the Indian economy continues to grow also at high numbers, that's gonna prolong the development and the strong need of raw materials. But the biggest factor there is, as long as a strong demand from China continues, there is likely to be a very big need for investments in the mining sector since the urbanization of that country requires a lot of raw materials, metals, and so. In the near term, I guess there's been also a need for catching up a bit with investments since mining companies did stop a lot of investment projects during 2009.
We're probably at the time when the crisis started, not expecting it to bounce back as quickly as it did. So there is still a bit of a lag there to catch up with the demand curve in many areas there.
I think I mean, it's to some degree becoming a little bit similar as it was in 2007 and 2008 when demand was extreme, prices were high, mining companies wanted to invest, and all of a sudden, we started to see constraints in the supply chain from different actors along the line. Could be Sandvik, could be Atlas Copco, could be subsuppliers of hydraulics or engines or tires or whatever. That will or is starting to have a somewhat slowing effect, I think, on the possibility to increase growth in the mining market, already now. Not to the extent that we see a plateau, but we see a more controlled growth, I think. And maybe that's even healthy for the business as such.
It has not yet overheated in the same way as it did, in 2007, 2008.
No. It's not the same situation, but we see a little bit longer lead times and so on in different supplies.
Thank you.
Thank you, Eric.
Our next question comes from Ben Maslen from Bank of America. Please go ahead.
Yeah. Good afternoon, Olof, Jan. Three questions, please. Firstly, just, can you say whether you're happy currently with the targets that the group has or whether they are part of your strategic review? Do you think the balance of, of kind of growth and, and cash flow royalty generation is, is currently right at Sandvik? Secondly, just to, to you mentioned growing faster in emerging markets. Can you talk a little bit more about how you plan to accelerate that? Is that something that you need to do organically, or via a multi-brand strategy, or you think, kind of M&A is ultimately what you'll use to, to drive that? And then finally, just coming a kind of ally to that, coming back to the, the Shandong JV, it seems like a change in strategy for Sandvik given that you've, I think, Sandvik's normally just wholly owned its operations in China.
Can you talk a bit about the rationale for the deal and how you balance the growth opportunity with the risks of a technology transfer? Thank you.
Well, I don't really have anything to share with you in terms of any changed targets. We, I mean, that's something we continuously need to look at. What will be important for me is that the statements we make and the targets we set out and publish are things that we do achieve and that they get the confidence in all of you investors in Sandvik that what we say we will actually do on and deliver. And, I mean, this is something we of course will discuss in the process of reviewing the strategy. The question on sort of acquisition-based organic growth, how develop in emerging markets, I think the answer there is that we very likely have to do both. Sandvik has a long tradition of growing both organically and through acquisition.
And I don't really see that that will be likely to change. We will probably need to use both ways to develop the company. The Shandong and also the Shanbao acquisition, the Shandong JV and the Shanbao acquisition are both really entrants into the tier two market in China. And that is a bit of a shift in direction. We haven't done that in an extensive way previously in China. And this is a way for us to more actively take part of the growth and opportunities in that market. Shandong is also owned by one of the larger mining companies in China.
So, the JV partner will not only be a partner in the manufacturing of these machines, but also their mother company will be a large customer to the JV, which in itself gives a good opportunity and a security with this investment that we have, an offtake of those products into the market there.
To some degree, Ben, you can say that we're starting to apply the same kind of growth strategy in China as we have done in other parts of the world, which means a combination of acquisitions and organic growth. Traditionally, we have had, as you rightly pointed out, only fully owned units in China. We have been a bit cautious when it comes to expanding our footprint when in manufacturing and so on in China. I think we are coming, at least in mining and construction, and we'll see what happens in the other two, to a conclusion that if we are going to grow faster, which we aim to do, we need to take a broader market approach both when it comes to how we set up our businesses and also how we define our markets.
Going into the tier two segment is one way to do that. And sooner or later, there will be a much less clearly defined border between the premium segment and the tier two segment since the what we used to call tier two is gradually improving also into closer and closer to premium segment. And I think that's a place where we need to be. We need to have a stronger footprint in it.
Very, very clear. Thank you. Have a nice weekend.
Thank you. Same to you.
Our next question comes from James Moore from Redburn Partners. Please go ahead.
Yeah. Hi, everybody. It's James at Redburn. I wonder if I could also ask three questions on your emerging market footprint. You say you're a bit behind some of your Swedish peers, but you're about 50% of your sales outside of the West, which is the same as Atlas and SKF. But you are a bit light in India. I think you're 2.5% there, 4%. And in China, you're 7%, and they're 11%. So specifically, those two regions are where you are perhaps a touch light. Is that what you mean about the specific area of focus for emerging growth? And is it one of China or India specifically?
SMT, I'm trying to understand how much this is a sacred cow and just has to be kept or whether it really can be sold as a whole or split up if that's what you want to do. I'm thinking the fact that it's in Sandvik is always a challenge and the fact that that many of the business units share some of the smelting rolling capacity is always a challenge for how much it could be split and what your thoughts are on that. Then finally, a new CEO is often an opportunity for the board to resolve frustrations. Could you say what you see your key targets as from the board on areas of change? You mentioned that achieving financial performance is important.
Do I sense from that that there are concerns of having missed financial performance in the past as part of frustration?
Well, the emerging market, China and India are, I would say, the absolute key areas. I mean, there are other emerging markets. Our presence that has grown, I agree, in other parts of the world as well has been mainly driven by maybe the mining regions that have sort of brought up our positions in places like Africa, Australia, and South America. But we need also with other business areas to grow and develop in these markets. And simply because of the size of the populations, China and India offer much greater opportunities than really any other countries in the world in the future. SMT, I mean, you cannot have sacred cows in companies. Every part of the company has to be there on their merit and based on an expectation of future financial performance.
So, there are no things that are carved in stone. But I mean, you continuously need to look at a company with a large portfolio like Sandvik on all parts. And they have to be there on their own merit. And then the board and what sort of changes. I mean, one reason for the timing of the change was, as we talked about, that there will be, due to natural causes or people leaving in retirement, significant succession in the top management of Sandvik. So they felt that the new CEO should be leading that work. But I think it was, I mean, a big challenge we have in Sandvik is that we, for example, made a quite significant loss in 2009.
Actually, many, if I take Swedish industrials, again, managed through the financial crisis without losing money. So, that's one area, which I think is a good example where we need to look at what we can do to become less sensitive to that kind of volatility in the future. And I mean, we haven't seen the last recession in the history of man, of course. So, the economy will move up and down. The challenge as a company is to be flexible and be able to deal and adapt with these kind of changes in the world around you. And make sure that we regain and hold leading positions in the areas where we want to be.
Okay. I'm sorry to take up so much time. I wondered if I could just follow up on that. I mean, you are a very fixed-cost company. And some of that is a function of the business model of, for instance, Tooling, buying lots of raw materials, and making the product from scratch. And you're not an assembly business. So how can you make your P&L more flexible to protect margins in downturns with that business model? What can you do to address that?
Yeah. Well, I don't have any clear answers to share with you right now. But, I think we're not likely to make very dramatic changes in terms of, for example, Tooling with an integrated model because we feel that a lot of the unique knowledge we have and the strength we have within Tooling is that we have an integrated production flow. And actually, we've increased that integration by the acquisition of Wolfram Bergbau und Hütten. But, these are the kind of things that we will ongoingly review in our strategic processes with the company within the company.
That's very helpful. Thank you very much.
Thank you, James.
Our next question comes from Johan Trocmé from Nordea. Please go ahead.
Hi. Johan Trocmé here from Nordea. Question for you, Olof, if that's okay, on materials technology. How much patience do you think you are prepared to have with the performance of that business given that, the very strong demand recovery we've seen has really helped, both SMC and Tooling, progress very well towards previous profitability levels, whereas SMT has been burdened continuously by problems of its own? I guess there must be some sort of limit to the timeline you can see before you expect the overall contribution from SMT to be, acceptable from management's point of view. Any thoughts on, what kind of level of patience you are prepared to show?
Yeah. I mean, to start with, we have a new manager as of the 1st of May in SMT. So, we should, of course, give Jonas Gustavsson a chance to now review the business and look at it with fresh eyes and then well launch his strategies for the business. We do have a somewhat improving trend. Sandvik has invested a lot of money in SMT, especially in the tubular business to strengthen our position in the energy sector. And that's, I must say, still an area where I feel quite optimistic about the potential. So we have a lot of things ongoing in SMT. But well, to start with, we need to give Jonas a chance now as new manager. And he's only been there six days as a new head of SMT.
But I think he has a great opportunity as a newcomer in the business to take a fresh look at things. And he and I will ongoingly discuss how we can move the business forward.
He has some good experiences also from the turnaround he did in wire and heating.
Yeah.
Which was, which was successful.
Yeah.
Very rapid and very successful. So if we can apply the same kind of performance into to materials technology as a business area, we should definitely see the trend of improvement more clearly going forward.
Okay. Thank you.
Thank you.
Our next question comes from Mats Eriksson from Swedbank. Please go ahead.
Yeah. Hi, Mats Eriksson, Swedbank. Just a couple of easy ones, I guess. First, regarding project ordering and what's your view on that, Olof? Some of your competitors are less interested in taking on project orders and more focused on being equipment supplier. That's, yeah. Start with that one.
Well, project orders, I mean, they're not very capital-intensive. They also have a lower EBIT margin. But they give a high return on capital. So that's the reason for our interest in that area. Well, so far, we have at least continued. And we took a very large order that we announced in conjunction with the report for SEK 1.2 billion in South America. So I don't see that changing immediately anyway. But again, I mean, these all are areas that we continuously will look at and review if we feel they're fit for the strategy.
Yeah. And secondly about these joint ventures, I guess you've got sort of a follow-up there. Are there any areas that you're not sort of prepared to make these joint ventures within? I mean, this most recent one is an area which maybe there are well, the difference between the tier two and the premium brands are smaller. And, are there anything within Sandvik which.
Well, we've chosen to do this within the tier two market segments. And, I struggle to see that it would be sensible for us to make JVs in our really core unique areas where we have a unique market position. So, that focus will be, it's much, much more unlikely that we would do anything in a core tier one area, so to say. But, from the tier two market perspective, there's an enormous volume out there. We can come in. We can work with other companies. And it's a very nice opportunity for us to enter into the market, build our brand and presence. And.
I think also if you look at the kind of setup we are planning for this joint venture, the critical components of these equipment will be supplied directly from Sandvik. And then they will be assembled in the Shandong JV.
Yeah. Well, exactly. We'll manufacture those in places like Sweden and Austria and so and ship them into China. So we, we are quite cautious with our, our IP even in, in these Tier two JVs.
That's hardly a setup we would consider when it comes to premium, cemented carbide tools or oil and gas or nuclear tubes or so, I suppose.
Yeah, finally, about the steel operation. I guess it's a small, mid-size operation. How do you see it from your past experiences in SSAB maybe of niche being a niche manufacturer and sort of be able to, well, maybe reach EBIT margins clearly above current levels?
Well, I think SMT's strategic direction of trying to develop a niche and move into high-margin products is definitely the right one. And that's the best way to increase and maximize the margins in the business. So I don't really see that we could change that direction. But we just need to continuously refine that model and see how we can do it in the best way. But I mean, stainless steel in general is a very tough market. And there's significant global overcapacity. And well, obviously, ThyssenKrupp announced they were selling their business. And ArcelorMittal has been considering the same. And so it is a challenging area. And our way to success will have to be to differentiate as much as we can and move into niche-specific areas where we have unique knowledge and can develop a more unique market position.
Okay. Thanks.
Thank you, Mats.
Our next question comes from Nico Dill from JP Morgan. Please go ahead.
Good afternoon, gentlemen. I'd like to ask three questions, please. One is on the strategic opportunities. You highlighted the emerging markets. Could you perhaps highlight some of the other strategic opportunities that you've come across in the company in the last couple of months? Second question is around the materials technology area. Whether you can perhaps highlight to us where you see the big problems occurring in the last quarter or perhaps over the last couple of quarters. And then lastly, could you perhaps highlight where specifically you see some of the bottlenecks arising in mining? Thank you.
Well, other strategic opportunities. As I said, in general, my impression is that there's a fantastic, genuine technical knowledge in the Sandvik Group. We have a very high-level investment in R&D. And we have a very market-focused orientation in the R&D area. So continuing to build on that strength is really, I think, the key opportunity in Sandvik. And then emerging markets is more about applying that in different geographies. So, that's really how I see the basic strengths we have in Sandvik. And, we will continue to see a rapid pace in technical development. There will surely be emerging market players, developing in many different product areas. And, the key for us will be to have a very high pace in that technical development. SMT had a number of production-related and quality-related problems in the first quarter.
It is a complex production process with many, many production steps. And, that, that of course makes, makes it a challenging operation and maybe also is a reason why there's been a history of people maybe being a bit disappointed with the results coming out of SMT because we, we often get, have got these kind of disturbances in, in the operations. But I mean, operations, that's a, a long-term focused effort if you want to improve that by focusing on continuous improvements and standardizing processes. And, and so these quality problems that we've had in the first quarter, they won't disappear overnight. But we're aware of, of them. And we have a focused efforts to, to start to deal with them. And then the SMC bottlenecks, well, we don't really have any specific points. And I would say they're more of a minor character so, so far, these bottlenecks.
It's nothing like we had before, the financial crisis. And something we need to monitor going forward here.
Thank you.
More or less in the same areas, I would say, also, when it comes to these bottlenecks. But they are, as Olof says, much lighter than they were pre-crisis. And it's also a consequence of the fact that we have broadened our supply base for different components from that moment in time.
Okay. Thank you.
Yeah.
Thank you.
As a reminder, ladies and gentlemen, to ask a question, please press star one. Our next question comes from Guillaume Peigneux from Morgan Stanley. Please go ahead.
Hi. Good afternoon, gentlemen. Just, maybe a couple of questions. First, with SMT quality-related issues, are those, concerning somehow to, steam pipes going to nuclear? Or is it too early, to assess that? And then secondly, when you look at mining, some of your peers are actually thinking about investing in other areas, other products. I was wondering whether you are sort of looking at other areas, in terms of regions or minerals, that could be interesting, for the mining franchise?
If I take the first one regarding the problems, it's not related to nuclear tubes. That's a separate operation. And we would never jeopardize that. So that will be given the highest priority in every respect. Yeah. When it comes to mining, I don't know really what you mean by other areas there. But we have an extremely strong position, especially in underground mining. And what we are continuing to build on that position, into coal, for example, where we are not as strong. And this Shandong JV is into the Chinese coal market where we have quite a weak presence today. So that's, I think, a good example of how we're trying to broaden our exposure but still build on existing competence in the company.
Okay. Then when I basically, when you've been traveling, and this is a question for Olof. Thank you. When you were traveling around the world, I guess you also saw customers. And I was wondering whether you saw some of your, let's say, nuclear customers and how were their feelings or how were they thinking about the tragic events of Japan and whether sort of you felt any reluctance when it comes to growth and when it comes to orders that they already announced, you know, that you build the nuclear capacities?
I haven't personally met any of our direct nuclear customers. But my own view is, of course, the accident in Fukushima will cause a lot of discussions about the future of the nuclear industry. So far, we have not seen any delays or cancellations to our own order book. But I mean, this accident is not at its endpoint yet. And we're in this case dealing with politicians who may take decisions based more on emotional factors than on pure monetary terms or financial terms. But still, I would say looking into the future, there's a focus on reducing dependence on fossil fuels, reducing emissions of greenhouse gases. And the biggest country investing in nuclear at the moment is China.
And I don't really see that currently is an option where nuclear wouldn't play a role in the future supply of energy to mankind here. So, my personal view is that you could possibly see some delays or so. But I don't think that this is likely to lead to sort of a total shift away from nuclear energy and the future planned investments in nuclear.
Thank you.
Thank you.
We'll take a final question today from Peder Frölén from Handelsbanken Capital Markets. Please go ahead.
Yes. Good afternoon. Good morning. I have a couple of questions as well, unfortunately. And the first one would relate to the emerging markets, sort of catching up. When it comes to the mining, you talk about the mid-range exposure. And I would say, is that also function of the mid-range pricing? You mentioned that you will produce the parts elsewhere in assembly. Is the mid-range strategy also addressing a mid-range pricing of product? That's my first question. The other question relates to emerging markets. It would include, I mean, here you have great market shares. But the advanced metal cutting market is maybe not that developed as such. In order to reach the mid-range, you might have to go sort of further down the quality and productivity ladder.
Is it something you could consider given sort of a Sandvik product heritage, especially in Tooling? Finally, just on SMT, I will try to put my question in another way. Do you think given the pretty low confidence of this division, as such, do you think that the market underestimates the mix, potentially here, basically coming from the nuclear and a final catch-up effect, so to speak? Those are my three questions. Thank you.
emerging markets and the mid-range, I don't know. When you say pricing, do you mean unit cost, if I understand it the way that you're talking about?
I mean, really, to really address the mid-range, you might also have a sort of a clearly lower price on your product. And not just trying to address yeah.
Okay. Yeah. The mid-range products will, of course, be sold at lower prices than the tier one products. And manufacturing and assembling these products in China, we, of course, expect to have a lower unit cost for these machines. So, yeah. To be more aggressive in a market with lower prices to maintain the similar type of profitability, we need to have a much more cost-effective production. And we think we can achieve that in this JV in China.
But isn't it so that you might also need to have some component manufacturing then since much of the value in the products is actually from what you produce elsewhere than this assembly?
No. But I mean, a lot of parts for these machines will be coming locally in China. The only thing we will be bringing in is a number of critical common components in the machine where we don't want to necessarily source those in China. But I mean, there will be a lot of parts for that assembly plants coming locally from Chinese sub-suppliers.
That's very clear. Thank you.
Yeah. The Tooling, the mid-range, I mean, we have been working for a long time with multiple brands in, in the Tooling area. So I think that's, an experience we, we have in the company already today, even though we don't have a clear mid-range, brand for the Chinese Tooling market, as we look at it today. But it's multi-dimensional. I mean, where we really add the most value to our customers is when they move into more advanced machines and manufacturing. I think a lot of industry in China is actually moving in that direction. And they're becoming more and more interested in, in productivity. So, not only.
So the question is really.
Not only thinking about the mid-range there. I think it's also important for us to maybe educate the market in terms of the benefits they can get from using also the tier one products. Because in Tooling, more specifically, I mean, actual tungsten carbide indexables are a small part of the overall production cost. So it's a bit different dynamic in that market than if you take mining machines, for example, where the actual machine is a big part of the investment.
But my worries are really if to wait for the market to develop, it might be sort of too late. So could you consider to acquire, if possible, an available company with, call it very low productivity products in your wording, just to get the market in Tooling I'm talking about now?
Well, I mean, that's something we need to continuously review. I don't have anything to share with you on that right now. But I think one interesting example I was discussing with some of our people at Coromant, and we were saying we have 400 people for Coromant in China. But then I asked, how many do we have in Sweden? And we have 80 in Sweden selling the Coromant range. So then if you put those 400 in perspective to the size of the market, we actually have quite a small presence compared to what we have in Sweden. So I think there's a great opportunity to really invest in human resources there to go out and really work this market. And very much, I mean, the Coromant model has been educating the market.
I mean, we have a fantastic expertise in this area and knowledge within our company. So actually, building a network that can reach out to the customers and help them understand how much more effective they can be by using our products, that's, I think, really key in that market. But that's gonna take manpower to do that.
Okay. Clear.
And then SMT, does the market underestimate? I mean, the honest answer so far, the market has been overestimating the SMT business. I mean, and that, I think, was the case also in this report. So, I don't see a track record of underestimating SMT so far. But I mean, we're gonna look at this business properly now. We have a new head of the SMT operations. And, hopefully, we come to a point in the future where we can come with positive surprises instead of something else here, so.
Okay. Thank you so much.
Thank you very much. Well, to wrap up, thank you all for calling in. I think you've had good and relevant and interesting questions. I hope to meet all of you also in the future here, in our future conference call, well, quarterly calls and roadshows that we are doing. Thank you very much for your attention anyway. Have a nice weekend. Thank you.
Thank you very much, Olof.
Thank you.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.