Business report
Seco Tools in brief 1
President’s comments 2
Business mission, vision, goals and strategies 4
Organisation and employees 6
Seco Tools Code of Conduct 8
Environment and quality 12
Research and development 14
Market overview 16
Products and services 18
The Seco Tools share 20
Direct customer partnerships 23
Seco Tools in China 26
Seco Tools in India 28
Seco Tools in Central and Eastern Europe 30
Administration report and financial statements
Administration report 33
List of notes 37
Consolidated income statement 38
Consolidated balance sheet 40
Consolidated statement of changes in equity 42
Consolidated cash flow statement 44
Parent Company income statement 46
Parent Company balance sheet 47
Parent Company statement of changes in equity 49
Parent Company cash flow statement 50
Accounting policies and notes 51
Proposed appropriation of profits 72
Audit report 73
Corporate governance
Corporate governance report 75
Picture gallery
Board of Directors and auditors 82
Group Executive Management and Group Executive Council 84
Addresses 86
Annual General Meeting 89
Definitions of key financial ratios 89
Contents
Seco Tools
Annual Report
2006
The Seco Tools Group, headquartered in Fagersta, Sweden, has over 4,000 employees worldwide and annual revenue of approximately SEK 5,500 million.
Seco Tools’ business mission is to develop, manufacture and globally market metal cutting products and
solutions that satisfy customer requirements on quality, service, and cost-efficiency. The product portfolio consists of solutions for milling, turning, hole making and holding products. Seco Tools also offers a range of complementary services within the Seco Tools Service Solutions concept.
More than 90 per cent of the Group’s revenue is generated in markets outside Sweden.
Seco Tools is represented in some 50 countries and has more than 40 wholly owned foreign subsidiaries. The company also collaborates closely with a large number of agents and distributors around the world.
Production is based primarily in Sweden, the Czech Republic, France and India.
Seco Tools AB, SE-737 82 Fagersta, Sweden. Tel +46 223-400 00 www.secotools.com
SE C O T O O LS
nA n n u A L R Ep O R T 20 06
This annual report has been produced by Seco Tools in association with Hallvarsson & Halvarsson. © Seco Tools AB. Photos: Magnus Fond, Kenneth Sundh, etc. Printing: Strokirk-Landströms, Lidköping, Sweden, 2007. Translation: GH Language Solutions
Business report
Seco Tools in brief 1
President’s comments 2
Business mission, vision, goals and strategies 4
Organisation and employees 6
Seco Tools Code of Conduct 8
Environment and quality 12
Research and development 14
Market overview 16
Products and services 18
The Seco Tools share 20
Direct customer partnerships 23
Seco Tools in China 26
Seco Tools in India 28
Seco Tools in Central and Eastern Europe 30
Administration report and financial statements
Administration report 33
List of notes 37
Consolidated income statement 38
Consolidated balance sheet 40
Consolidated statement of changes in equity 42
Consolidated cash flow statement 44
Parent Company income statement 46
Parent Company balance sheet 47
Parent Company statement of changes in equity 49
Parent Company cash flow statement 50
Accounting policies and notes 51
Proposed appropriation of profits 72
Audit report 73
Corporate governance
Corporate governance report 75
Picture gallery
Board of Directors and auditors 82
Group Executive Management and Group Executive Council 84
Addresses 86
Annual General Meeting 89
Definitions of key financial ratios 89
Contents
Seco Tools
Annual Report
2006
The Seco Tools Group, headquartered in Fagersta, Sweden, has over 4,000 employees worldwide and annual revenue of approximately SEK 5,500 million.
Seco Tools’ business mission is to develop, manufacture and globally market metal cutting products and
solutions that satisfy customer requirements on quality, service, and cost-efficiency. The product portfolio consists of solutions for milling, turning, hole making and holding products. Seco Tools also offers a range of complementary services within the Seco Tools Service Solutions concept.
More than 90 per cent of the Group’s revenue is generated in markets outside Sweden.
Seco Tools is represented in some 50 countries and has more than 40 wholly owned foreign subsidiaries. The company also collaborates closely with a large number of agents and distributors around the world.
Production is based primarily in Sweden, the Czech Republic, France and India.
Seco Tools AB, SE-737 82 Fagersta, Sweden. Tel +46 223-400 00 www.secotools.com
02575533 ST20076107 GB
This annual report has been produced by Seco Tools in association with Hallvarsson & Halvarsson. © Seco Tools AB. Photos: Magnus Fond, Kenneth Sundh, etc. Printing: Strokirk-Landströms, Lidköping, Sweden, 2007. Translation: GH Language Solutions
South America NAFTA
E
O
Seco Tools in brief – market overview
SECO TOOLS IN BRIEF
The previous strong growth trend slowed somewhat in 2006. The bulk of revenue is attributable to Brazil. Overall revenue declined by 4 per cent at fi xed exchange rates during the year.
3%+
Oth the mai The the Revenue, % of Group total
Revenue 2006 was a successful year in the North
American markets. Revenue growth at fi xed exchange rates was 8 per cent for NAFTA as a whole and even higher in Canada. The region accounted for more than one sixth of the Group’s total revenue.
3%+
Revenue, % of Group total
Revenue
The Group generates three fourths of its revenue in Western Europe
and the NAFTA region, but has seen the highest growth in the markets
of Central and Eastern Europe (CEE) and Asia. Business operations are
focused on milling, turning, hole making and holding products.
Asia Europe
Other markets
SECO TOOLS IN BRIEF
Asia showed substantial revenue growth for the year with a 14 per cent increase at fi xed exchange rates, driven mainly by vigorous growth in the fast-growing markets of China and India
3%+
3%+
Western Europe is the Group’s single largest market region and accounted for more than half of total revenue in 2006. Revenue was up by 11 per cent at fi xed exchange rates during the year and all countries showed positive growth. The CEE area continued to gain importance for the Group and generated around 10 per cent of total revenue. In 2006, CEE revenue increased by 14 per cent at fi xed ex- change rates. The market position was strongest in the Czech Republic, but is also showing gradual improvement in the other countries.
Revenue, % of Group total
Revenue
Revenue, % of Group total
Revenue
Other markets include regions where the Group is represented by agents, mainly in the Middle East and Africa.
The exception is South Africa, where the Group has its own subsidiary.
3%+
Revenue, % of Group total
Revenue
Milling
Turning
Seco Tools offers a powerful and comprehensive range of high performance products for milling, hole making and turning. These products are used in the engineering industry, for example in the manufacture of power generation products for electric power, oil prospecting and wind power. Seco Tools uses innovative technology and custom tooling solutions engineered through in-depth development collaboration with its customers. This close partnership enables Seco Tools to consistently deliver products on target with customer needs.
Hole making Seco Tools’ offering
Seco Tools’ business mission is to develop, manufacture and globally market metal cutting products and solutions that satisfy customer require- ments on quality, service, and cost-efficiency. The product portfolio consists of solutions for milling, turning, hole making and holding products.
Seco Tools also offers a range of complementary services within the Seco Tools Service Solutions concept.
Financial overview 2002 – 2006
2006 2005 2004 2003 2002
Revenue, SEK M 5,451 4,936 4,333 3,917 4,040
Operating profit, SEK M 1,266 1,100 840 677 689
Profit after financial items, SEK M 1,235 1,094 812 630 641
Operating margin, % 23.2 22.3 19.4 17.3 17.1
Profit margin, % 22.7 22.2 18.7 16.1 15.9
Earnings per share before dilution, SEK 6.00 5.39 3.97 3.01 3.08
Earnings per share after dilution, SEK 6.00 5.39 3.93 2.99 3.06
Regular dividend, SEK 3.80
1)3.40 3.00 2.80 2.80
Extra dividend, SEK 2.20
1)2.00 2.00 – –
Return on capital employed, % 40.9 40.5 31.9 25.3 26.3
Return on equity, % 39.4 37.0 29.7 22.7 21.8
Equity, SEK M 2,221 2,207 2,028 1,809 2,007
Cash and cash equivalents, SEK M 243 226 268 339 261
Cash flow, SEK M 36 –74 – 59 103 – 80
Cash flow from operating activities, SEK M 1,004 802 877 611 740
Equity/assets ratio, % 49 53 55 48 53
Capital expenditure on fixed assets, SEK M 426 377 248 254 282
Number of employees at year-end 4,224 4,036 3,910 3,882 3,916
1)
Board proposal.
The key financial ratios have been calculated according to the recommendations of the Swedish Financial Accounting Standards Council through the end of 2003,
and in compliance with IFRS from 2004 onwards. For definitions of key ratios, see page 89. To obtain comparable figures, the key ratios per share have been
restated as if the share split had been carried out at an earlier date.
2 SECO TOOLS n AnnuAL REpORT 2006
Successful creation of customer value
2006 was an outstanding year for Seco Tools when both revenue and operating profit reached an all-time high. But it is at least equally significant that our growth outpaced the total market, partic- ularly in Europe and the important emerging markets of China and India.
Other regions also grew in pace with the market or faster.
Market conditions in 2006 remained favourable. Demand in Europe strength- ened and growth in North America was stable. The CEE area and Asia also showed sustained strong development and brisk growth.
Other key success factors are a com- prehensive range of high performance products, targeted ventures in growth markets, rationalisations in manufactur- ing and improved partnering capacity.
Allow me to elaborate on these aspects in more detail.
Customer closeness and partnerability
In the past year we expanded our sales force by around one hundred people, a major marketing investment of the type that has brought us closer to our custom- ers over the past few years. Resources have mainly been channelled to the fast- growing markets of Central and Eastern Europe (CEE) and Asia, but increases have also been made in Western Europe and North America. Today our global sales force stands more than one thou- sand strong.
Emerging markets play a central role in the company’s growth strategy. Here, the ambition is to double our revenue in the emerging markets of Asia over a period of three years and in the CEE area over four years relative to 2004. Opera- tions in China and India have a special status in light of our ambitious global production restructuring, and it is enor- mously satisfying to see our strong devel- opment in these countries.
Seco Tools’ ability to serve as a total supplier to a large share of its customer base has also been reinforced, for exam- ple through:
n
ongoing integration and extended collaboration with previously acquired product areas in end mill- ing, reaming and tooling systems.
n
an improved capacity to provide custom tools.
n
development of total solutions for component engineered tooling.
Verification and documentation of realised cost savings in customer produc- tion with the help of our own Productiv- ity Cost Analysis software is another central element of our customer strategy.
Our ongoing commitment to customer closeness, in- creased ability to enhance customer competitiveness and focus on growth markets have strongly contributed towards increasing the company’s market shares. Our excellent performance in 2006 was underpinned by the combined effects of rationalisations in manufacturing and a strong market position.
pRESIDEnT’S COMMEnTS
Similarly, Tool Management Systems have been developed to support customers in effectivising their tool usage.
The aim is to be seen as vital link in our customers’ efforts to boost competi- tiveness. By continuing on our chosen path to prioritise customer closeness and a solution-oriented approach, we will increase our ability to function as a partner – our partnerability.
New products
In 2006 more than 40 per cent of the Group’s revenue derived from products younger than five years old, which is clear proof of our fast-paced development and innovative power. In terms of perform- ance and breadth of range, Seco Tools currently has what is probably the strong- est offering in the company’s history.
We introduced the new generation of Duratomic grades that are optimised for stainless steel turning, and customer trials show that we are at the absolute cutting edge performance-wise.
Aside from considerable expertise in metallurgy, we have refined our develop- ment process and project management and further coordinated our aggregate product development resources, all of which contributed to the year’s positive trend.
Rationalisations in product sourcing
Capacity utilisation in the Group’s pro- duction units was high in 2006, a factor that naturally reflected in the year’s robust earnings. Another bright spot was a decrease in seasonal demand variations in the third quarter compared to earlier years. The rate of investment in machin- ery and equipment is high and has averaged at around 8 per cent of annual revenue in the past two years.
As part of the rationalisation of our global cemented carbide manufacturing, we were forced to close our factory in Warren, USA, with around one hundred employees. This production volume has been transferred primarily to the plant in the Czech Republic, which has been successively given a more prominent role in the Group’s cemented carbide sourc- ing. In the future, production of carbide inserts will be concentrated in Sweden and the Czech Republic, in addition to a slight increase in India.
In August a newly built plant was open in Pune, India, for production of ISO turning toolholders in steel, to function as a sourcing unit for the entire Group. Full-scale production capacity will be reached in 2007. On the whole, I believe the Group now has a strong global production structure that com-
bines technologically advanced and cost- efficient manufacturing.
Other operational development initiatives have concentrated on further improvements in delivery service, shorter lead times in production and implemen- tation of a centralised global purchasing organisation.
Profitability and return
Operating profit for 2006 was up by 15 per cent and the corresponding margin was 23.2 per cent. With respect to current market conditions, this is in line with the Group’s financial target to maintain an average margin of 20 per cent over a busi- ness cycle. Return on both equity and capital employed was also highly satisfac- tory at levels of around 40 per cent.
The company’s solid financial posi- tion gives us scope to combine our charted course of continued organic expansion and possible acquisitions with an active dividend policy.
The share
The share performed well during the year, also in comparison with the OMX Stockholm Index. Over the past ten years, our share has delivered an average annual yield of 19 per cent including reinvested dividends.
Outlook 2007
In light of the company’s global orienta- tion, improved partnerability, competitive and high performance products, good momentum in growth regions and ongo- ing operational development, I feel strong optimism for the year ahead.
I will end by thanking all of Seco Tools’ employees around the world for their invaluable efforts in the past year. I look forward to an exciting 2007.
Kai Wärn President & CEO
pRESIDEnT’S COMMEnTS
SECO TOOLS n AnnuAL REpORT 2006
Business mission and vision
Seco Tools’ business mission is to develop, manufacture and globally market metal cutting products that satisfy customer requirements for quality, service, and cost- efficiency. The product portfolio consists of solutions for milling, turning, hole making and holding products.
Our vision is for our customers to see us as the most dedicated partner in total solutions for metal machining. We aim to realise this vision through a personal commitment to maximising our custom- ers’ competitiveness by offering solutions built on high-performance products and services.
Financial targets
The overall target for the Seco Tools Group is to provide the shareholders with an attractive yield and value growth over time. The dividend payout ratio (regular dividend) should be at least 50 per cent.
Revenue growth should be at least 6 per cent over a business cycle.
Operating margin over a business cycle should be 20 per cent.
Average return on capital employed over a business cycle should be at least 20 per cent.
Strategy
Seco Tools actively contributes to improv- ing its customers’ productivity, and thereby also their competitiveness in metal cutting machining. Customer closeness is seen as one strategic corner- stone; verifiable and documented improvements in the customers’ total cost of production is another. Seco Tools values long-term relationships where it is possible to gain a better understanding of the customers’ problems and actively contribute to their development. A comprehensive range of cutting tools is a third cornerstone of Seco Tools’ strategy.
In addition to its own end-user sales, Seco Tools optimises its market penetration through long-term partnership with distributors.
Customer benefit
Seco Tools has two main approaches to ensuring superior customer productivity and support. The first is by offering a range of high performance products, and the second is by delivering service solu- tions that allow customers to maximise the full productivity potential of these products.
The service solutions include analysis software tools that help customers to cut costs and find the right solution to their machining needs. Seco Tools offers a high level of expertise and the capacity to develop custom solutions when needed.
The opportunities for productivity improvements are good, since the attributes of the cutting tools are often decisive for the performance of the machines in which they are used.
Customer closeness
Closeness to the customers is vital in understanding their business and effec- tively addressing their needs with the best possible solution. Close contact enables Seco Tools’ to pick up signals about new needs in the market, providing critical input for the Group’s product develop- ment. Direct contact with customers is essential for effective use of resources and marketable results in research and development.
Another aspect of this closeness is for customers to feel that Seco Tools is easy to work with, has a high service level and makes a significant contribution to boosting their productivity. One way to achieve customer closeness is by having a large in-house sales force with a high level of expertise and relationships that can be cemented and deepened over time. Consequently, long-term customer relationships are the foundation for success.
Partnership with distributors Close collaboration with distributors provides good access to and an effective interface with customers where the Group has no direct contact. These include small businesses and markets traditionally dominated by distributors
Business mission, vision, goals and strategies
2EVENUE
$IVIDEND
EXTRA
4ARGET
REGULAR
$IVIDEND
REGULAR
2ETURN 4ARGET
BuSInESS MISSIOn, vISIOn, GOALS AnD STRATEGIES
Revenue growth
Dividend payout ratio, %
Return on capital employed, %
rather than manufacturer direct sales.
Our ambition is to continuously strength- en distributor partnerships, for example through training activities.
Targeting new markets
The Group can increase its growth opportunities by leveraging the potential of geographical markets that offer partic- ularly good potential for growth, primari- ly in Asia and Eastern Europe. Growth in these regions is considerably higher than in Western Europe and North America, and is expected to remain so in the foreseeable future.
Product development
Products of a high quality and superior performance are crucial for success in the market. In each new product genera- tion, Seco Tools must offer customers significant improvements in machining performance. Another priority is ongoing improvement in ease of use.
Part of the product development strategy is to continuously streamline the internal processes and speed up time to market. In a mid-term perspective, the goal is to develop new products at such a pace that 50 per cent of the Group’s
revenue will derive from products young- er than five years old.
Control over the value added chain The Group strives to control the entire value added chain from purchasing of raw materials, mainly tungsten and other carbides, to delivery of finished tools.
This control provides a platform for both product quality and cost-efficiency, and ultimately also for the Group’s profitabil- ity.
Skills development
The professional expertise of the employ- ees is crucial in meeting the Group’s ambitious goals. Systematic and continu- ous learning initiatives are aimed at enhancing both technical and sales- related skills.
Acquisitions
The Group strives primarily for organic growth but is also prepared, when the opportunity arises, to strengthen growth through acquisition of, or collaboration with, companies in closely related areas.
BuSInESS MISSIOn, vISIOn, GOALS AnD STRATEGIES
6 SECO TOOLS n AnnuAL REpORT 2006
Organisation and employees
Changed global production structure
The further enhance the global competi- tiveness of Seco Tools’ products and services, the number of global produc- tion units for cemented carbide tools has been reduced at the same time that scope to serve local demand for customer engineered tools has increased.
As a consequence of this, cemented carbide production in Warren, USA, was wound up at mid-year 2006, affecting just over 100 employees. Global production has thus been concentrated at the cemented carbide units in the Czech Republic and Sweden.
Activities in the administrative and warehouse units in the USA will continue as earlier. Production of holding tools for the NAFTA market in Lenoir City, Ten- nessee, is also unaffected.
More employees
In 2006 Seco Tools recruited new employ- ees, primarily in sales/engineering and R&D. The year’s hiring mainly pertained to Asia, with an increase of 20 per cent, and in Eastern Europe, where the increase was 17 per cent. These staff reinforcements are directly connected to Seco Tools’ positive development and customer demand for technically quali- fied staff.
In the NAFTA area, however, the number of employees was reduced by 20 per cent through the wind-up of produc- tion in Warren, USA, although selective investments have been made in the US sales force.
The number of employees increased by a total of 188 in 2006 and amounted to 4,224 at year-end 2006.
Systematic skills development is essential for ongoing growth and good long-term profitability.
ORGAnISATIOn AnD EMpLOYEES
Age structure Seco Tools AB
Term of employment Seco Tools AB
ORIGINAL
ORIGINAL
Equality
“We strive for equality in the work- place. By this we mean that:
• no person is discriminated against on the basis of gender,
• women and men are given equal opportunity for employment, training, promotion and profes- sional development,
• women and men are given equal pay for equal work,
• workplaces, work methods, the work organisation and work con- ditions are otherwise structured in a way that is suitable for both women and men, and that
• we strive for a more even gender distribution in vocational areas where career choices and recruit- ment are traditionally gender- related”.
Excerpt from “Equality policy for Seco Tools AB”.
Management succession
Management succession is an important part of Seco Tools business operations.
The Group needs managers whose leadership is based on proven ability, professional knowledge and social com- petence.
In 2006 routines were established to ensure the Group’s future management succession.
The human resources of the Parent Company and all major subsidiaries have been analysed and a central database has been created to monitor the succession planning situation for critical positions in different parts of the Group.
Reviews are carried out by the boards of all subsidiaries once a year. The results of these provide a platform for in-depth yearly mapping of key staff at the group level and thereby contribute to effective succession planning for critical manage- ment positions at Seco Tools.
The goal is to regularly follow up some 200 individuals identified as possi- ble future leaders in the Group.
Meeting the future through learning
The single most important security factor for all employees is good long-term profitability. This requires competent and highly motivated employees working in an efficient organisation with a viable business mission, well defined strategies and objectives and market-driven prod- ucts.
A systematic approach to continuous skills development is vital for the Group’s future growth and profitability. Individual development within the framework of employment at Seco Tools is a valuable tool in meeting recruitment needs, improving efficiency and promoting adaptability.
Employee development also takes place naturally as the organisation and its employees continuously adapt to the changes and development that are essential for Seco Tools to maintain its market leadership. For that reason, Seco Tools is striving to increase internal mobility between functions and units in the Group.
ORGAnISATIOn AnD EMpLOYEES
SECO TOOLS n AnnuAL REpORT 2006
Seco Tools Code of Conduct
The Code is an expression of the values to be applied in areas such as business ethics, environmental considera- tions and working conditions.
SECO TOOLS CODE OF COnDuCT
1. General statement
Seco Tools is committed to increasing its value to customers, employees, share- holders and other stakeholders by profit- ably providing products and services to global markets. At the same time Seco Tools shall uphold a high level of ethical standards and be a good citizen world- wide.
Seco Tools, and its employees, shall comply with the laws of all countries in which it operates, as well as Seco Tools’
Code of Conduct. Seco Tools shall con- duct its business operations in accord- ance with OECD Guidelines for Multina- tional Enterprises.
It is the responsibility of all employees to ensure, by seeking advice when appro- priate, that they are aware of all relevant laws, practices and agreements.
Seco Tools’ employees at all levels play an important role in Seco Tools’
financial, environmental and social improvement efforts. They shall be properly trained, and they are accounta- ble, within the scope of their responsibili- ties, for Seco Tools’ sustainable perform- ance.
Responsibilities in the event of non-compliance
Complaints about non-compliant behav- iour can be made to the nearest supervi- sor, or if there is reason to believe that
this will be ineffective, to next level of management or to Seco Tools’ Central Human Resources Department. All complaints will be taken seriously and investigated where appropriate. There must be no retaliation for good faith reporting of code violation or participa- tion in the Company’s investigation of a complaint.
It is the responsibility of each Seco Tools manager to report any case of fraud or other wrongful conduct to the manag- er of Seco Tools’ Central Human Resources Department. In the case of non-compliance with the Seco Tools’
Code of Conduct, there will be prompt disciplinary action ranging up to and including dismissal.
2. Accuracy of records and finance
Seco Tools shall have accurate record keeping consistent with all applicable standards. This applies to each and every detail of the business. All employees are responsible for maintaining accurate books and records to efficiently manage our business.
3. Business operations
Seco Tools’ products and services shall be marketed and sold fairly and honestly on the basis of their quality, performance, price, service level and other relevant factors.
“Surveys show that our custo-
mers have a high level of con-
fidence in Seco Tools, which is
something we are committed to
preserving and fostering.”
SECO TOOLS CODE OF COnDuCT
Business courtesies
Seco Tools’ employees may not give or accept gifts, favours, entertainment or other inducements unless they:
n
are consistent with common business practices
n
are not excessive in value and cannot reasonably be construed as a bribe or payoff
n
do not violate applicable laws
n
will not embarrass the Company or the employee if publicly disclosed.
Bribery
Seco Tools’ employees shall not, directly or indirectly, offer, promise, request, demand or accept a bribe or other improper benefit in order to obtain or retain business.
Antitrust and competition law
Seco Tools shall comply fully and in good faith with the applicable antitrust and competition laws and regulations in the countries where we operate.
Supplier/subcontractor relations Subcontractors will be evaluated and selected on their ability to do the required job competitively and meet the Seco Tools’ Code of Conduct.
4. Labour
Health and safety
Seco Tools shall provide a safe and healthy working environment and shall take reasonable steps to prevent acci- dents and injuries.
Workplace violence, including threats, threatening behaviour, harass- ment, intimidation, assaults and similar conduct, will not be tolerated. Firearms are not permitted at any Seco Tools facility.
Equal opportunity
Seco Tools shall ensure equal employ- ment opportunities for all qualified individuals, without distinction or dis- crimination due to age, race, colour, national origin, religion, gender, disabil- ity or other characteristics protected by applicable law.
Drugs and alcohol
Seco Tools employees are not allowed to distribute, possess, use or work under the influence of drugs or alcohol on any Seco Tools premises, or in connection with Seco Tools’ business, without local authorisation.
Unlawful harassment
All employees shall treat one another with courtesy, dignity and respect, regard- less of gender.
Seco Tools shall not tolerate sexual or other unlawful harassment involving the solicitation of sexual favours, the initia- tion of sexual advances by one employee toward another or other unwelcome conduct that creates an offensive or intimidating work environment.
Seco Tools managers, supervisors and executives shall be alert to the possible presence of unlawful harassment in the workplace and shall take appropriate steps to prevent any form of such harass- ment.
Compensation
Seco Tools shall ensure that:
n
wages paid at least meet the legal or industry minimum standards and covers the fundamental needs of the employees
n
information about wages and benefits is communicated clearly and regularly to each employee
n
wages and benefits are rendered in full compliance with all applicable laws
n
labour hire arrangements and
apprenticeships are not undertaken
to evade the Group’s obligations to its
personnel under the applicable laws
or under social security legislation
and regulations.
0 SECO TOOLS n AnnuAL REpORT 2006 SECO TOOLS CODE OF COnDuCT
Working hours
Seco Tools shall comply with applicable laws and industry standards on working hours.
Forced labour Seco Tools shall:
n
guarantee that working hours and working conditions comply with all statutory requirements. All employees shall be treated with respect and no employee shall be subject to corporal punishment or coercion of any type.
n
not engage in or support the use of forced labour.
Freedom of association
Seco Tools respects the right of employ- ees to form and join labour unions within the law of the country where they reside.
Child labour
Seco Tools shall neither tolerate the use of child labour when conducting busi- ness, nor accept products from suppliers and subcontractors that utilise child labour in their contracting, subcontract- ing or other business arrangements for the manufacture of their products.
5. Environment
Matters pertaining to the environment, health and safety are an integral part of Seco Tools’ total operations. Continuous improvements are achieved in these areas through management by objectives. We believe that the greatest effect is achieved through preventative action.
n
We adhere to an approach that leads to long-term sustainable develop- ment. Consequently, we strive for high efficiency in the use of energy and natural resources, promote systems for recovery and recycling of materials and work to prevent and minimise contamination.
n
We strive to offer working conditions that encourage employees to perform effectively, assume responsibility and continue to develop in their personal and professional pursuits.
n
We shall comply with or exceed the environmental requirements set by applicable laws, ordinances and international agreements. We feel that common and environmentally effective requirements and standards should be established at an interna- tional level.
6. Community involvement Local involvement
Wherever Seco operates, good relations shall be regarded as fundamental to long- term success. Knowing that each local community is different, Seco Tools’
policy is that every Seco Tools company shall strive to understand and interact constructively with its local community and assist in its development. To meet this policy, Seco Tools encourages its employees to participate in community programmes and initiatives that benefit the people in the community where Seco Tools operates.
Political contributions
Seco Tools will not contribute financially to political parties or politicians.
Seco Tools will not make any contri- bution, directly or indirectly, to any candidate for public office, political parties or other political organisation.
Employees may not be given paid leave for political activity, although unpaid leave may be possible if consistent with local policies and laws.
Sponsorship and endowments Seco Tools believes that its most impor- tant contribution to the communities where it operates is to perform its basic business activities as effectively as possible following the principles of the Code of Conduct. Seco Tools’ sponsorship and donation initiatives shall be delivered through local business units, focusing on programs supporting culture, education, sports or other proactive social and humanitarian programmes.
Implementing the Code of Conduct
In February 2005, the Seco Tools Code of Conduct was adopted by the Board of Directors to apply to the entire Group. In 2005 the Code was communicated to all managers and employees.
The purpose of the Seco Tools Code of Conduct is to guide all Seco Tools Group employees in their daily work. The Code of Conduct is a set of policies and rules that provide a framework for Seco Tools’ management systems and continu- ous improvements in the company’s financial, environmental and social performance.
In 2006 the Seco Tools Code of Con- duct was well received by the employees, subcontractors and customers.
The Code of Conduct is a natural part of the Group’s working relation- ships with suppliers and subcontractors.
For Seco Tools, it is vital that the entire supply chain embraces the same busi- ness ethics contained in the Code. All suppliers and subcontractors are there- fore required to observe similar ethical rules. If Seco Tools finds indications that any practices that are inconsistent with the Code of Conduct, the collaboration will be terminated. To ensure compli- ance with this, the company performs regular supplier assessments according to an established plan.
In 2006, all of the Group’s quality auditors were given special training in the Code of Conduct. When the internal quality auditors examine the subsidiaries, they also look at how the Code of Con- duct is introduced to the Group’s new employees. At the beginning of 2007, the same type of training will be carried out with the Group’s internal financial auditors.
The Code of Conduct is not a static
document but is, and will remain, a
continuous and dynamic process at
Seco Tools.
SECO TOOLS CODE OF COnDuCT
2 SECO TOOLS n AnnuAL REpORT 2006
Environment and quality
Environment
Environmental policy
Seco Tools works actively to promote sustainable development, minimise environmental impact, comply with laws and other applicable requirements and pursue continuous improvements and preventive measures in the environmen- tal area. Operations are conducted with consideration to both the environment and human health.
Environmental goals
The following environmental goals were formulated for 2006:
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Reduced environmental impact from transports. At least 70 per cent of the companies that transport products to or from the Group’s warehouses must be certified or work according to ISO 14001. At year-end 2006 this share was 76 per cent.
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Reduced electricity usage. Electricity usage per produced tonne will be reduced by 5 per cent. No reduction was achieved in 2006.
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Reduced waste volumes. The volume of waste per produced tonne was reduced by 8 during the year, com- pared with the targeted reduction of 3 per cent.
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Reduced use of chemicals. An audit of the Group’s chemical usage will be carried out and a group-wide system for registration of chemicals imple- mented.
At the end of 2006, the following goals were set for the Group in 2007:
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The goal to reduce electricity usage in the Group will be replaced by a wider objective to reduce overall energy usage, including electrical energy, energy for heating and energy in the form of fuel for company cars.
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The volume of waste per produced tonne will be reduced by 3 per cent.
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The process of identifying all the chemicals used in the Group will continue. The chemicals included on observation and restriction lists will be replaced when possible.
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The transport companies used by the Group must be certified or work according to ISO 14001. This goal applies primarily to the Parent Com- pany, since the majority of transport services are procured there.
A general review of the scope and defini- tions in the environmental goals for 2007 will be carried out during the year.
Environmental management
The Parent Company Seco Tools AB has been certified to the ISO 14001 standard since 2000. In 2006 all of the Group’s production units and distribution centres worldwide were certified according to ISO 14001.
The certification means that the Group has a structured and methodical management system for continuous environmental improvement throughout its global operations. Seco Tools is one of few Swedish companies to have imple- mented a global certification of this type.
In 2006 Seco Tools achieved global environmental certi- fication of all production units and distribution centres according to ISO 14001.
EnvIROnMEnT AnD QuALITY
Key environmental ratios
2006 200
Electricity usage per produced tonne, MWh/tonne 51.6 50.6
Total waste per produced tonne, tonne/tonne 2.56 2.77
Approved transports, % 76 68
Total water usage (drinking water and “industrial water”), m
3443,442 521,042
Monitoring
Environmental performance is moni- tored through quarterly reviews by the Group Executive Management and through internal and external audits.
External audits by Det Norske Veritas are carried out at least once a year at each unit.
Permits
A new permit application for the produc- tion unit in Fagersta according to the Swedish Environmental Code was sent to the Environmental Court in 2006. The application refers to increased produc- tion of carbides and powders.
Energy usage
The goal for reduction in energy usage was not attained in 2006. Determined and continuous efforts are being made to reduce energy usage during 2007.
Waste
The volume of waste per produced tonne was reduced by 8 per cent during the year.
Systematic efforts in accordance with ISO 14001 were carried out during the year to achieve more efficient usage of grinding fluids and handling of used grinding fluids. Several units have now installed evaporators to reduce the volume of waste from grinding fluid equipment.
Transports
To reduce the environmental impact of Seco Tools’ transports, the goal in 2006 was for 70 per cent of the companies that
transport products to or from the Group’s warehouses to be certified or work according to ISO 14001. The result at year-end was 76 per cent.
Occupational health and safety Seco Tools strives to constantly improve the work environment and minimise risks in all of the Group’s facilities. One priori- tised area for several years has been to minimise the risk for inhalation of tung- sten carbide and cobalt. In recent years, these risks have been reduced through measures like improved ventilation, more closed systems for handling of the materi- als, extra cleaning, frequent clothing changes and increased information to the affected employees. As in earlier years, average levels of tungsten carbide and cobalt at year-end were well below the official limits.
Efforts to increase safety and reduce the risk of fire continued during the year with the implementation of a risk mitiga- tion plan for the entire Group. This work will continue to the end of 2008, and will include measures such as installation of a sprinkler system at the production facility in Fagersta over a three-year period. A sprinkler system was installed at the distri- bution centre in Belgium during the year.
Chemical products
The goal to audit Seco Tools’ chemical usage and create a group-wide system for registration of chemical products has been achieved and efforts are continuing with the substitution of chemicals.
Quality
Seco Tools’ quality policy states an ambi- tion to offer products and services that meet customer expectations. Based on a customer focus and a commitment to total quality, Seco Tools pursues continu- ous improvement of processes with the active involvement of employees and suppliers. This is achieved by:
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defining quality goals that are contin- uously monitored and reported,
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setting standards that satisfy customer requirements and consistently meet- ing norms,
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continuously evaluating the quality management system and meeting the criteria in ISO 9001, and
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continuously informing and educat- ing the employees to make quality the responsibility of every individual in the company.
One key project during the year was aimed at reducing handling times for product returns to less than 10 days.
Handling times did not exceed 9 days during any month of the year.
In 2007 a global quality improvement project will be started in order to coordi- nate the continuous improvement initia- tives already under way in many parts of the Group and to both create and certify a global management system according to ISO 9001 for all Group units.
EnvIROnMEnT AnD QuALITY
SECO TOOLS n AnnuAL REpORT 2006
Research and development are core competencies for Seco Tools. In order for a new product generation to succeed in the market, it must offer an enhance- ment of at least 20 per cent in machining performance over earlier generations, and thereby deliver corresponding productivity gains in a customer’s manu- facturing process.
The performance of a cutting tool is affected mainly by improvements in three areas: in the actual hard metal material of which the tool is made, known as the substrate, in the surface coating and in the tool geometry, or shape.
Organisation
Around 170 of the Group’s employees are active in R&D. Most of the Group’s research and development, around 80 per cent, is carried out in the Parent Company. In pace with expansion of the product range and an increased share of tool manufacturing at facilities outside Sweden, more of the Group’s product development is also taking place outside the Parent Company.
The rate of new product development has accelerated in recent years, placing higher demands on the effectiveness of Seco Tools’ product development organi- sation. This is due partly to an expanded
Research and development
Seco Tools pursues continuous research and develop- ment where the aim is to improve its existing products and develop new ones. The guiding principles are to carry out development work in response to market needs and in close collaboration with customers.
RESEARCH AnD DEvELOpMEnT
Duratomic
TM“By using newly developed
process technology, we can
manipulate the coating at the
atomic level.”
product range, but above all to increas- ingly short product life cycles.
2006
The Group’s R&D expenditure in 2006, including quality control, was equal to 4 per cent of revenue. More than 40 per cent of the Group’s total revenue derives from products younger than five years old.
Seco Tools’ research and development engineers combine consummate expertise in defined core technologies with a well structured process in which cross-function- al teams work together to drive new products from idea to product launch.
The development of new technologies in the cemented carbide area is providing a platform for new generations of high performance grades. One such example is the new Duratomic coating technology that was introduced with the TP2500 turning grade, the first of a whole new generation of turning and milling prod- ucts. Through an advanced process, the coating is manipulated at the atomic level to create significantly better toughness and heat/wear resistance compared to conventional technologies.
New products in 2006
The successful QuattroMill family of facemills was extended with face mills and cutters designed for greater depth of cut and heavier cutting data. New mills for high output cast iron machining were introduced on the market and Jabro Tools in the Netherlands introduced a range of solid carbide end mills engi- neered for high metal removal in preci- sion machining applications like finish- ing tools.
The reaming range was extended with the new Precimaster system featur- ing quick change replaceable heads. A large-scale product development project in the oil pipe threading area was also carried out during the year.
Development initiatives have driven improvements at several stages of the manufacturing process to meet rigorous customer demands on product specifica- tions and quality.
A toolholder programme based on the Seco-Capto range of modular tooling systems was introduced at the end of the year, designed for use with the modern Seco Turbo tools family. The Seco-Capto line offers greater versatility in equipping
new machines and creating tooling solu- tions for a wide range of applications.
The new Duratomic TP2500 grade, a versatile turning insert that is optimised for stainless steel machining, was enthusi- astically received by customers in the markets where it was introduced in the fourth quarter and is expected to be highly successful when launched globally at the beginning of 2007.
2007
Seco Tools will continue advancing its positions in materials research and development of new cutting tools. R&D investments will be geared up to meet increasingly stringent customer demands and thereby contribute to strengthening the Group’s market position. More resources will be allocated to develop- ment activities in the the Czech Republic and India and these will be integrated with the Group’s global R&D operations.
The focus on environmental aspects in development of new products will be strengthened through the implementa- tion of a more comprehensive environ- mental sequence in the development process.
RESEARCH AnD DEvELOpMEnT
16 SECO TOOLS n annuaL rEpOrT 2006
“The year’s advance in market positions is a source of satisfaction for Seco Tools.”
Market overview
Market
A robust global market for cemented carbide cutting tools in 2006 led to powerful demand in Western Europe and the USA, at the same time that growth in Eastern Europe and Asia remained strong.
A positive demand trend was noted in all product areas and customer segments, but was particularly pronounced in the aerospace, automotive and power gener
ation industries.
Seco Tools’ wide range of products and services in combination with an in
house sales organisation enabled the Group to increase its market shares in several areas. Employee training was emphasised as a means for further strengthening customer relationships.
The use of cutting tools is changing successively and milling is growing somewhat faster than the other product
areas. This, in pace with improved machining centres, is making it possible to use milling for multiple machining operations. In addition, metal cutting with high hardness materials like Cubic Boron Nitride (CBN) can in many cases replace grinding as a means for saving time and improving environmental performance. Furthermore, customers are increasingly demanding that inserts and tools be used for multiple operations in order to reduce the number of tool changes and shorten cycle time.
Customers
Seco Tools focuses on six main customer segments – the automotive, aerospace, medical technology, mould and die, power generation and general engineer
ing industries – all of which have rigorous requirements on cutting tool perform
ance.
Global demand for cemented carbide cutting tools was strong in 2006 and Seco Tools increased its market shares in a number of areas.
MarKET OVErVIEW
Subsidiaries and representation offices
The automotive industry’s long manufacturing series demand superior tool life and wear resistance. Seco Tools has longstanding experience in collabo
rative product development for this industry.
The aerospace industry is character
ised by challenging machining applica
tions. This, in turn, is due to the use of materials that are durable enough to withstand severe conditions but are at the same time as lightweight as possible. As a result, customers in the aerospace industry commonly require highly specialised tools.
The materials used in medical technology are often hard and difficult to machine, for example in prosthetic hip and knee joints, and the end products demand extreme precision.
Injection mould and die castings are used in a wide range of areas, such as manufacturing of auto bodies and aircraft fuselages. Other examples are plastic mouldings for telephones, computers, white goods, etc. The common denominator is that finishing is highly exacting in term of surface
evenness. The tools that are used must therefore combine rapid and precise machining. Demand in this customer group is largely driven by stricter design requirements for the final products.
Customers in the power generation industry use cutting tools in applications such as manufacturing of turbine blades.
Seco Tools has developed specially adapted tools for these areas.
The general engineering industry demands a high level of flexibility and versatility, since the tools are often used for several different machining steps in diverse materials.
Seco Tools serves customers through direct sales and via distributors. The relative proportion of sales in these two channels differs considerably between markets depending on varying market traditions and Seco Tools’ market position. In 2006, the company strength
ened its partnerships with a number of large international distributors.
Competitors
The market for cemented carbide cutting tools is dominated by a small number of
vendors that operate globally, offer compre
hensive product programs and conduct metallurgical research and technologically advanced product development. Seco Tools belongs to this group of companies. Aside from these, there are a large number of smaller companies that serve the local market in selected product or customer niches.
MarKET OVErVIEW
ORIGINAL
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