Annual Report • Dec 31, 2013
Annual Report
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| YEAR IN BRIEF | 1 |
|---|---|
| LETTER FROM THE PRESIDENT AND CEO | 2 |
| THIS IS SANDVIK | 4 |
| STRATEGY | 8 |
| MARKET AND VALUE CHAIN | 14 |
| DRIVEN BY CUSTOMER VALUE | 16 |
| Sandvik's mining equipment goes for gold | 18 |
| Crankshafts with "super" qualities | 20 |
| Connecting Europe and Asia by rail tunnel | 22 |
| The future makes its entrance | 24 |
| Pioneering innovation at the bottom of the North Sea 25 | |
| Taking aircraft to new heights | 26 |
| Cemented-carbide knives maximize productivity | 27 |
| GLOBAL RESEARCH FOR FUTURE PROFITABILITY | 28 |
| OUR EMPLOYEES BUILD TOMORROW'S SANDVIK | 32 |
| TOWARD ATTRACTIVE RETURN AND VALUE | |
| GROWTH | 34 |
| REPORT OF THE DIRECTORS | |
| Market conditions | 37 |
| Group summary review | 38 |
| Development in business areas | 40 |
| Research and development | 46 |
| Development in business areas | 40 |
|---|---|
| Research and development | 46 |
| People | 48 |
| Environment | 53 |
| Integrated risk management | 54 |
| Financial risk management | 57 |
| Corporate governance report | 63 |
| Internal control of fi nancial reporting | 69 |
| CONSOLIDATED FINANCIAL STATEMENTS | |
| Contents | 71 |
| Income statement | 72 |
| Balance sheet | 73 |
| Changes in equity | 75 |
| Cash-fl ow statement | 76 |
| PARENT COMPANY FINANCIAL STATEMENTS | |
| Contents | 77 |
| Income statement | 78 |
| Balance sheet | 79 |
| Changes in equity | 81 |
| Cash-fl ow statement | 82 |
| SIGNIFICANT ACCOUNTING POLICIES | 83 |
| DEFINITIONS | 92 |
| NOTES – CONTENTS | 93 |
| NOTES | 94 |
| BOARD STATEMENT ON DIVIDEND PROPOSAL | 121 |
| PROPOSED APPROPRIATION OF PROFITS | 122 |
| AUDITOR'S REPORT | 123 |
| BOARD OF DIRECTORS AND AUDITOR | 124 |
|---|---|
| GROUP EXECUTIVE MANAGEMENT | 126 |
| ANNUAL GENERAL MEETING AND DIVIDEND | 128 |
| FINANCIAL KEY FIGURES | 128 |
The formal Annual Report comprises the pages 37–122. In some cases, tables and calculations do not always agree exactly
Report on the fi rst quarter 2014 25 April 2014 Annual General Meeting 13 May 2014 Report on the second quarter 2014 17 July 2014 Capital Markets Day 2014 30 September 2014 Report on the third quarter 2014 27 October 2014 Report on the fourth quarter 2014 January/February 2015
Financial information may be ordered from: [email protected] or phone: +46 (0)26-26 00 00 www.sandvik.com The Annual Report is available online at www.sandvik.com, where a printed copy can also be ordered.
INVOICED SALES –7%*
MSEK 84,072 87,328
MSEK
* At fi xed exchange rates for comparable units.
PROFIT AFTER FINANCIAL ITEMS
EARNINGS PER SHARE
SEK 4.00 3.50
PROPOSED DIVIDEND
SEK
| Change | ||||||
|---|---|---|---|---|---|---|
| MSEK | 2013 | 2012 | 2011 | 2010 | 2009 | 2013/2012, % |
| Order intake | 84,072 | 97,948 | 99,078 | 93,285 | 71,285 | –10* |
| Invoiced sales | 87,328 | 98,529 | 94,084 | 82,654 | 71,937 | –7* |
| Profi t/loss after fi nancial items | 6,753 | 11,516 | 8,179 | 9,412 | –3,472 | –41 |
| Earnings per share, SEK | 4.00 | 6.51 | 4.63 | 5.59 | –2.24 | –39 |
| Return on capital employed, % | 12.6 | 19.8 | 16.0 | 17.4 | –1.3 | — |
| Return on shareholders' equity, % 1) | 15.3 | 25.3 | 18.2 | 22.1 | –7.9 | — |
| Cash fl ow from operations | 5,133 | 11,892 | 7,764 | 12,149 | 11,792 | –57 |
* At fi xed exchange rates for comparable units.
1) As of 2011, comparative fi gures adjusted due to amended accounting policies. Refer to Note 35 for further information.
We are continuing to position ourselves to meet tomorrow's challenges. Growth ambitions, innovative capacity and sustainable business are central focal points as we strengthen Sandvik's core – to deliver maximum productivity for our customers.
T he change program progressed according to plan in 2013. It was particularly pleasing to observe the success achieved by Sandvik Materials Technology under its improvement program.
The demand scenario for the Group was generally stable albeit at a relatively low level. New investment fi gures for the international mining industry were, however, very low; a situation that Sandvik Mining addressed by implementing a far-reaching cost-savings program and continuing investments in service and aftermarket.
Our efforts to make the Group fl exible and less sensitive to fl uctuations continued to bear fruit. Implemented savings programs and effective control of stock levels ensured that the Group maintained a strong cash fl ow and achieved a good result.
In 2013, Sandvik's invoiced sales amounted to 87,328 million SEK (98,529) and profi t after fi nancial items to 6,753 million SEK (11,516). Profi t was negatively impacted by 1,080 million SEK as a result of exchange rate effects and by 2,140 million SEK due to nonrecurring costs. A ruling in a tax dispute in Sweden – for which a provision was already made in the balance sheet for the potential earnings impact – yielded a negative nonrecurring effect on cash fl ow of 5,800 million SEK.
We continued to implement the new strategy during the year. Sandvik will be faster, and more global and customer oriented. Research and development and sustainable business will be the factors that determine our success, opening new opportunities for growth and greater profi tability.
In practical terms, this requires us to maintain our focus on products and solutions that boost customer productivity and that have the potential to set new industry standards. We will create synergies in the Group by deploying a fl at organization, simple decision-making processes and clear performance-management framework. Production will be subject to further coordination and effi ciency- enhancement measures. In 2013, we took the decision to reduce the number of facilities from 150 to 125 over the next three to four years.
Research and development is part of Sandvik's history and future. We have always enjoyed close cooperation with industry and the academic world. Now we are bringing development even closer to customers in the local markets where we are growing strongly. For example, we are building up new R&D centers in India and China and establishing new
research collaborations with universities in emerging economies.
In 2013, Sandvik launched a long list of products, several of which set a new industry standard. For example, Sandvik Mining launched a new modular drill rig in the Pantera series and Sandvik Machining Solutions launched a new revolutionary insert for steel-turning applications, the GC4325.
Another side of this development is Sandvik's broadening of its products and services with offerings in the mid-market segment. Since the core of our expertise has always been to deliver productivity to customers, it is natural for us to also use this know-how outside the premium segment. The expansion of the product offering and clear brand profi ling enable Sandvik to capture new market shares and increase growth, primarily in the high-growth markets of Asia, Latin America and Africa.
Those who assume responsibility today will lead development tomorrow. This is the motivation behind Sandvik's ambition to rank among the top of the world's most sustainable companies in its industry, with close links between business strategy, our brands and the Group's various initiatives in the sustainability sphere.
Safety is our highest priority. The workplaces of Sandvik's approximately 47,000 employees in more than 130 countries should be safe and secure environments. The lost time injury frequency rate declined signifi cantly at Sandvik in 2013. Regrettably, however, we also experienced misfortune during the year. I am sad to report that we had three workrelated fatalities, two of whom were subcontractors and one a Sandvik employee, which is deeply tragic for their families,
Olof Faxander, Sandvik's President and CEO, standing in front of the shank adapter straightening machine at Sandvik Mining Rock Tools in Sandviken, Sweden. New investments were made in the robot cell in 2013, resulting in a signifi cant improvement in employee safety and a major reduction in lead times for customers.
relatives and colleagues. We intend to further intensify our efforts in the area of safety.
With respect to our environmental work, we are working on a broad front to conserve resources, minimize emissions and help customers to reduce their impact on the environment. We also assume responsibility for suppliers and partners through our Codes of Conduct and monitoring practices.
Today, Sandvik has a management team that better refl ects the Group's diversity profi le, with a more international character and a better gender balance than before. Sandvik will be a company where everybody has the same prerequisites, regardless of gender or nationality.
Each year, we carry out a number of activities worldwide for students and professionals to convey what we represent as an employer and what prospective employees can expect of Sandvik. We
have been a future-oriented company for more than 150 years and we intend to continue in this way.
I, and many along with me, want to work at a company we can be proud of. I am convinced that sustainable business, diversity, inclusion and a strong innovative capacity represent key factors that will attract tomorrow's best employees to Sandvik.
To summarize the above, we are building a Sandvik that is positioned to address rapid changes. We have laid the foundation for further growth, no matter whether the economy remains weak or if there is a recovery.
We combine this favorable ability to adapt with our strong innovative capacity. In 2013, Sandvik was once again included in the analysis company Thomson Reuters' list of the 100 most innovative companies in the world and the Group was also ranked in the corresponding list drawn up by the business magazine Forbes. This is confi rmation that we are heading in the right direction.
Through growth, solid expertise, the right product offering and cost effi ciency, we will continue to deliver healthy and long-term value to our shareholders.
I would also like to take this opportunity to thank all of our employees for their hard work in 2013. We will continue to move forward together toward securing our position as one of the world's leading industrial companies.
OLOF FAXANDER, FEBRUARY 2014 PRESIDENT AND CEO
Sandvik is a high-tech and global industrial Group offering products and services that enhance customer productivity, profi tability and safety. In 2013, the Group had about 47,000 employees and sales of just over 87 billion SEK in more than 130 countries. The Group invests sub stantially in research and development and maintains close cooperation with its customers and suppliers. The business is organized into fi ve business areas: Sandvik Mining, Sandvik Machining Solutions, Sandvik Materials Technology, Sandvik Construction and Sandvik Venture.
Tools and tooling systems for metal cutting as well as components in cemented carbide and other hard materials.
Equipment and tools for the mining and construction industries as well as various types of processing systems.
High value-added products in advanced stainless steels, special alloys and titanium as well as metallic and ceramic resistance materials.
MACHINING SOLUTIONS
SANDVIK MATERIALS TECHNOLOGY
SANDVIK VENTURE
Sandvik Mining specializes in equipment, tools and service for the mining industry. The business area is active in exploration, rock drilling, rock cutting, crushing, and loading and hauling solutions for surface and underground applications.
Equipment, tools, service and technical solutions for mineral exploration, mining and processing of rock and minerals in the mining industry. The business area off ers the most complete product program in the market for drilling and mechanical cutting, as well as for loading and hauling, crushing and screening, demolition, recycling and handling of rock and minerals.
The products are primarily deployed in mines worldwide. In 2013, the global market was valued at approximately 185 billion SEK. The underlying average annual growth for equipment, tools and spare parts is 4–6%, while it is slightly higher for services.
Sandvik Machining Solutions primarily focuses on tools and tooling systems for metal cutting. The products are sold under a number of international brands, such as Sandvik Coromant, Seco, Walter, Pramet, Safety, Impero, Dormer and Carboloy.
Market leader for advanced, productivity-enhancing products and solutions for metal cutting. The focus is on increasing customer productivity by providing products, services and applications knowhow.
Customers include companies in the general engineering, aerospace and automotive industries, the energy sector, as well as the electronics and medical technology industries.
In 2013, the global market for metal -cutting tools was valued at approximately 150 billion SEK. The underlying average annual growth is 4–5%.
Sandvik Materials Technology specializes in high value-added products made from advanced stainless steel grades and special alloys for the most demanding industries. Its cutting-edge expertise is based on an integrated production platform and world-leading metallurgy and R&D. Product areas: Tube, Strip, Wire High value-added products based on advanced stainless steels, special alloys and titanium, furnace resources.
products, heating systems and resistance materials. The products make industrial processes safer and more effi cient, while consuming less Customers are active in, for example, the energy, aerospace, automotive, chemical and petrochemical industries – industrial segments in which exacting demands are imposed on safety, productivity, cost effi ciency and a long lifecycle.
In 2013, the global market was valued at more than 100 billion SEK. The underlying average annual growth is 4–6%, although growth is normally higher in the energy segment.
The products are deployed in construction operations worldwide. In 2013, the value of the global market was estimated at about 140 billion SEK. The underlying average annual growth for equipment, tools and spare parts in the construction industry is 4%.
Sandvik Construction specializes in equipment, tools and service for the breaking, drilling and crushing niches in the construction industry.
and Heating Technology, and Primary Products.
Products and solutions for niche construction industry applications, for example, breaking contracting, crushing and screening contracting, rock-drilling contracting, tunneling and underground civil engineering, surface civil engineering, road construction, aggregates and limestone quarrying.
Sandvik Venture generates value by promoting profi table growth of small and medium-sized businesses of particular interest to the Sandvik Group. The product areas, which are operated as standalone companies are Sandvik Process Systems, Sandvik Hyperion* and Wolfram Bergbau und Hütten.
*Operational as of 1 January 2014. Sandvik Hyperion is a merger of the previously independent product areas Diamond Innovations and Sandvik Hard Materials.
Sandvik Process Systems supplies steel belt-based processing equipment and high-performance steel belts; Sandvik Hyperion off ers products and solutions based on hard and super-hard materials; and Wolfram Bergbau und Hütten manufactures tungsten-oxide, tungsten-metal and tungstencarbide powders.
Customers are for example active in oil and gas, composites, metal cutting and specifi c consumer niches.
| YEAR IN BRIEF | INVOICED SALES* | OPERATING PROFIT** | NUMBER OF EMPLOYEES*** |
|---|---|---|---|
| • Focus on R&D and improved time to market. • Adjustment to prevailing market conditions. • New long-term strategy established. |
35 % 30,744 MSEK |
32 % 2,743 MSEK |
12,965 |
| • Stable market conditions with signs of improved demand. • Strong cash fl ow. • New long-term growth strategy established. |
33 % 28,543 MSEK |
60 % 5,205 MSEK |
19,055 |
| • Step Change Program delivers results. • High activity in energy segment. • Well positioned for growth in attractive segments. |
16 % 14,035 MSEK |
15 % 1,270 MSEK |
7,113 |
| • 37 new product launches. • Cost savings implemented and continued streamlining of the supply chain. • Volatile market with signs of stabilization toward the end of the year. |
10 % 8,601 MSEK |
1 % 110 MSEK |
3,147 |
| • Launch of a new leading product area. • Supply chain optimization. • Acquisition of TechnoPartner Samtronic GmbH. |
6 % 5,394 MSEK |
7 % 606 MSEK |
2,635 |
* Share of the Group's total invoiced sales. ** Share of the Group's total operating profi t. Group activities -15%.
*** Restated to Full Time Employees (FTEs) at 31 December 2013. 2,423 employees are involved in Group activities and are thus not employed in any of the business areas. Read more about Sandvik's business areas in the Report of the Directors on pages 40-45.
Productivity, innovation and adaptability have been engrained in Sandvik's dna for more than 150 years. Now the company has taken a further step toward increased growth in a world facing many challenges.
Sandvik was founded in 1862. Early on, the company established a world-leading position in the areas of metallurgy and materials technology and has played a central role in the development of industry and society since its foundation. The focus on growth and fl exibility has become embedded in Sandvik's genetic structure. This has involved maintaining the Group's position on the leading edge of techno logy, being where development is taking place in purely geographic terms and evolving in a sustainable manner.
Sandvik's business concept is to develop, manufacture, market and sell high-tech products and services that enhance customer productivity, profi tability and safety. Manufacturing includes advanced industrial tools, mining and construction equipment and products of high-alloy materials.
Sandvik should already hold, or should have the potential to establish, worldleading positions in its selected lines of business. This applies to research, technology, working methods and, not least, market presence. Sandvik works closely with its customers and local opportunities for market adaptations are continuously expanded.
All activities carried out within the company are based on a holistic approach, taking economic, environmental and social responsibility into consideration.
Sandvik was born out of a technical innovation and has been responsible for a number of key accomplishments over the years. Conducting far-reaching and targeted research and development is key to the Group's continued growth.
This is why Sandvik invests about 3 billion SEK annually in research and development (R&D). More than
2,700 employees work in the area and activities are often pursued in close cooperation with business partners, both locally and globally. The Group has about 8,000 active patents and other intellectual property rights.
Sandvik is a global engineering Group with employees from the majority of the world's cultures. The human resources strategy is designed to support the Group's business, with a focus on skills development and performance management. Sandvik places great importance on attracting, developing and retaining competent employees as part of its work to achieve its objectives. Diversity enables the company to engage with its customers in the right way and in the right place. All employees should feel that they are realizing their full potential and Sandvik therefore offers many different career paths and development opportunities.
To retain and strengthen its world-leading position, Sandvik works according to a long-term strategy summarized in the phrase "One Sandvik to be number one."
The Group's strengths are:
Financial strength.
Strengthened sustainability program, both internally and in relation to customers and suppliers.
Proceeding from the "One Sandvik to be number one" strategy launched in 2011, the Group stands on a strong foundation and has made signifi cant progress:
Based on the 2011 strategy foundation, Sandvik has developed a long-term strategic direction for the Group, including clarifi cation of the company's operating model. Sandvik operates through fi ve independent business areas with a central enabling Group function. It holds a strong mandate to drive prioritized Group-wide processes aimed at supporting the business areas.
During 2013, Sandvik worked to develop the strategy in an increasingly competitive market.
The Group decided to commit a strong focus on growth, requiring Sandvik to be a high-performing organization that continuously strives to improve its offering and create unique added value for its customers.
A new vision was launched and the Group's core values were further developed, thereby building on the foundation required to enable Sandvik to fulfi ll its growth ambitions.
The Sandvik 160D drill rig, launched in May 2013, was specially developed for the mid-market segment in India. Engineering, sourcing and manufacturing were also carried out in India. The 160D is a fi rst-of-its-kind drill from Sandvik's assembly center in Pune, with optimized features tailored to improve productivity, enhance safety and ensure eco-sustainability for Indian customers.
Sandvik's vision means that we set the benchmark for others to follow. Sandvik will achieve this not only through technology and expertise, but equally importantly through the people working for the Group and the relationships they build with customers and stakeholders. Setting the industry standard requires a high level of innovative thinking within the company across all processes and within how we operate in our day-to-day business. The vision reinforces and enhances the importance of constantly striving toward being the leader in the industry and in our chosen segments.
We constantly strive to exceed our customers' expectations and enable them to excel in their business.
We shape the future by creating pioneering solutions throughout our operations.
We conduct business in a sustainable and responsible manner.
We are passionate about making our company number one.
For Sandvik, sustainable business means reducing the Group's negative economic, social and environmental impact from operations, while capitalizing on the opportunities that arise from integrating sustainability aspects into the Group's core operations.
Sandvik's ambition is to become one of the world's most sustainable companies in its industry; an ambition that is built on the conviction that this represents a key business opportunity. The Group's products and solutions should contribute to making the world a more sustainable place, where consideration is shown for people and the environment. Accordingly, sustainability activities will become an even more integrated component of Sandvik's business strategy and brand. The opportunities that are generated as a result of this work should be leveraged in, for example, research and development activities, but also as a part of Sandvik's customer offering and attractiveness as an employer.
The Group's program for sustainable business is based on the ten principles of the UN Global Compact with respect to human rights, working conditions, environment and anti-corruption, and the OECD's Guidelines for Multinational Enterprises. The ambition is to support customers to become more sustainable by offering energy-effi cient and safe products. The leverage generated by the Group's sustainable offering is considerable due to the global geographic spread of its customers. It is therefore important for Sandvik to assume responsibility for the effect the Group has on stakeholders, the surrounding communities and the value chain.
At Sandvik, tools and systems are being continuously developed to satisfy requirements in the sphere of sustainable business and to live up to the high ambition the company has set. In 2013, coordination
teams were established at Group level and in certain countries (India, China, Mexico and Brazil) tasked with ensuring mutual learning and generating synergies between all elements of a complex sustainability agenda. The coordination teams therefore include representatives from for example treasury, risk management, EHS (environment, health and safety), purchasing, communication, diversity and inclusion, and anti-corruption.
Read more in Sandvik's Sustainable Business Report at www.sandvik.com/sustainability.
"OUR AMBITION IS TO BE AMONG THE MOST SUSTAINABLE COMPANIES IN OUR INDUSTRY, WITH CLOSE LINKS BETWEEN OUR BUSINESS STRATEGY, BRAND VALUE AND SUSTAINABILITY OPERATIONS."
OLOF FAXANDER PRESIDENT AND CEO
Sandvik is active in more than 130 countries. The Group's signifi cance to the market and the interaction between the company and the market can be illustrated by a value chain. It encompasses all of the company's activities, from R&D and manufacturing to the daily use of products, and the subsequent reentry of the materials into the cycle of the value chain via reuse and recycling.
Higher living standards are increasing consumption worldwide.
High-growth economies are driving global development .
Long-term growth in demand for raw materials.
Demand for energy effi ciency, energy-saving products and safety.
Shorter product lifecycles give rise to greater need for more effi cient cutting tools.
Higher degree of automation and digitizing in mining operations for health and safety, environmental and effi ciency reasons.
Sandvik's overarching strategy for its continued business development is to leverage the various drivers that infl uence society. This includes globalization and higher living standards with the resulting rise in consumption and, not least, intensifi ed focus on energy effi ciency, enhanced resource management and improved safety.
Product development/R&D Tens of thousands of new products are launched each year. Extensive and targeted R&D in close collaboration with customers. Investment: more than 3 billion SEK annually. More than 2,700 people work in the fi eld and the Group has about 8,000 active patents and other intellectual property rights.
Purchasing Raw materials, consumables, capital and investment goods, components, service and support capabilities are procured by the business areas, product areas and local companies.
Production Proprietary manufacturing is carried out globally and is focused on high value-added products for expanding niche markets and demanding applications.
Marketing and sales Sandvik collaborates closely with customers via thousands of sales representatives worldwide. New off erings in the cemented- carbide area are introduced, supported by practical demonstrations and training of customers and internal staff . The share of direct sales in the Group, usually via digital channels, is about 80%. Selected distributors and agents serve as a complement in certain markets.
Distribution A small number of large and strategically positioned distribution centers are located in the largest market areas. Standard products in the cemented-carbide range are usually delivered within 24 hours.
Service/aftermarket Close collaboration with customers yields high availability. For example, Sandvik employees are often posted on the worksites of major mining customers to guarantee optimal service.
Products in action Material and components from Sandvik are everywhere in our daily lives. In the home and the human body as well as in cars, buses, trains, aircraft, power plants, mines and a long list of industries.
Reuse and recycling 81% of the Group's metallic raw materials are derived from recovered material.
Shareholders Approximately 117,000 owners in 86 countries. Nearly 30% of the owners are outside Sweden. Largest shareholder (31 December 2013): Investment company Industrivärden, 11.6% of shares.
Employees/prospective employees
The number of employees is 47,338, of whom 19.1% are women (31 December 2013). Communicating the Sandvik brand and marketing the Group as a good employer is an integral part of Employer Branding activities to reach out to prospective employees.
Customers Customers in more than 130 countries. Customer areas in order of size: Mining industry, engineering industry, construction industry, automotive industry, energy sector, aerospace industry and consumer-related industry.
Suppliers Suppliers and sub-suppliers of raw materials, consumables, capital/ investment goods, components,
services and support capabilities across the globe.
Society Sandvik has about 150 sites – plants, service centers, warehouses, etc. – that are highly important to the surrounding communities across the globe.
Research institutes, universities and institutes of higher education Col-
laboration takes place in various fi elds of research. Sandvik works proactively to reach out to the company's recruitment base of university students studying such subjects as economics and engineering and to contribute to the skills development of employees.
Finance market Sandvik's extensive communication with investors and analysts in the international fi nance market is coordinated by the Investor Relations Group function.
Business partners Sandvik maintains contact and cooperates with various private and state-owned companies. One example is the Swedish Export Credit Corporation relating to the fi nancing of international transactions.
Media Sandvik is a global business with a strong local base in the form of large sites in many locations. This generates local, national and international media interest, also from a fi nancial perspective.
Authorities The Group has signifi cant contacts with authorities and institutions across the globe. These may relate to export and import activities and taxes and duties, various forms of inspection and so forth.
Organizations Stakeholder groups include employee, employer, industry and other interest organizations, local, regional and international coordinating bodies, etc.
Where business and society are evolving – that's where you'll fi nd Sandvik. The Group's products and solutions are used by customers worldwide and by most industries. Sandvik's offering improves effi ciency, productivity and safety, which in turn boost profi tability for customers.
Equipment and system solutions raise productivity and safety in the mining industry, for both underground and surface mines. Sandvik delivers drill rigs, rock-drilling tools, mobile and stationary crushers, conveying systems, loaders, tunneling equipment and various solutions to increase automation.
Sandvik's tools and tooling systems for metal cutting and advanced materials and components are used in engineering industries worldwide, improving productivity and increasing profi tability.
Machinery and process solutions from Sandvik are used for such applications as drilling, crushing, screening, materials handling, demolition and recycling. Examples of projects include roads, bridges, power plants, airports, tunnels, harbors and terminals.
11% *
The focus is on conserving energy and reducing emissions. Sandvik's cementedcarbide tools and systems for turning, milling and drilling in metals raise productivity in the manufacture of such items as engines and transmissions. Materials from Sandvik can be found in such items as safety belts, airbags, brakes and various instruments.
High standards are applied to safety, effi ciency and environmental performance. Weight and energy usage are the focal points. Sandvik's cemented-carbide tools enhance effi ciency when machining composite materials and lightweight metals. Advanced highalloy materials from the Group are also used in many aircrafts.
4%
*
AEROSPACE
11% *
Sandvik offers solutions for all forms of 11%
energy; from fossil fuels and nuclear power to renewable sources such as solar and wind power. These include tools and systems to satisfy the industry's metal-cutting needs as well as fi nished products and materials.
*
MISCELLANEOUS
*
Cutting tools and tooling systems are used in the manufacture of consumer goods. Materials from Sandvik can also be found in such products as watches, razors, fridges, freezers, microwave ovens, computers, tablets and mobile telephones.
Sandvik offers a world-leading range of equipment for the mining industry. Customers can choose from a broad range to meet their specifi c requirements for rock drilling, rock excavation, crushing, loading, transportation and aftermarket. The Australian mining industry has a world-class reputation and Sandvik has built up a strong brand there. One of the country's gold mines chose Sandvik's products when it wanted to increase extraction rates and profi tability in order to become one of Australia's most cost-effective mines.
T he focus of the mining industry in Australia has long been safety and high productivity, a combination that fi ts Sandvik like a glove. Investment in the Australian mining industry is of strategic importance for the Group, and Sandvik's own expansion has been a result of both organic growth and acquisitions.
One Australian mining company, Northern Star, has plans to become one of the country's leading gold producers in the near future. Its fl agship operation is the Paulsens gold mine, located in the iron-ore mining-intensive Pilbara region of Western Australia.
Bill Beament, the Managing Director of Northern Star, is a qualifi ed mining engineer with signifi cant industry experience in a range of positions, from underground operator to various management
Paulsens gold mine
AUSTRALIA
positions. One of the machines he gained experience in operating was a Sandvik jumbo drill rig, and his assessment is: "When it comes to underground drills, no-one comes close to Sandvik."
This experience stayed with him when his career eventually led him to his managerial post at Northern Star and the robust growth of Paulsens gold mine. The extraction rate from the mine had been low and it had a projected life of just six more months. However, Bill Beament saw the mine's potential and, to increase productivity and improve margins, Northern Star decided to establish its own drill fl eet consisting of Sandvik equipment in preference to leasing machinery and manpower from an external supplier.
The initiative was a success. According to Bill Beament, the machine operators are extremely positive. Comfort and functionality are outstanding, allowing them to focus on their work at the rock face. Another aspect is the effi cient service and maintenance Sandvik provides, ensuring that machines are always used at their maximum capacity.
Today, the mine's projected life has been extended by at least fi ve years and the volume of gold ore extracted annually has reached record levels. Within seven months of investing in the Paulsens mine, production had doubled and the production cost had been reduced by 20%. This enabled Northern Star to quickly repay the cost of investment.
The new Sandvik RH460 hammer takes down- thehole (DTH) drilling to new levels. It has been developed for superior productivity in variable ground conditions. Higher impact energy is achieved at lower air consumption, maximizing productivity and lowering costs.
Sandvik has a long history of delivering metal-cutting tools to the automotive industry. Its clear emphasis on research and development has helped the Group establish a strong position in the sector as the demands on functionality and performance have become more stringent. When it comes to crankshafts, Sandvik is a global leader.
The crankshaft is the heart of any internal combustion engine, from mopeds to heavy trucks. The performance of the crankshaft is central to the vehicle's function. The crankshaft converts the up and down motion of the piston into circular motion that ultimately turns the wheels. This places extreme requirements on the crankshaft material, which has to cope with the forces generated by violent acceleration and breaking while also dealing with signifi cant torque. When calls for lower energy consumption drive demand for ever-lighter vehicles, the need for crankshafts with "super" qualities becomes even greater, meaning a product that combines low weight with high durability. A crankshaft's design varies depending on the purpose of the engine, and this also means that several different manufacturing tools are required in its production.
Only a handful of companies in the world have the capacity to deliver complete solutions for the manufacture of crankshafts, and even fewer have the ability to be on the technological leading edge. Sandvik holds this position and its customers include global companies involved in the production of automotive components. Functionality, strength and service life are just a few of the factors in focus as these companies develop their products.
Stefan Knecht is in charge of Sandvik's global crankshaft offering and works at
the Competence Center in Düsseldorf, Germany.
"Over the past three years, we have managed major projects for end customers, such as the Chinese company Changan, which uses tools from Sandvik in its crankshaft production. In parallel, we have developed new technology in collaboration with the major machine manufacturers. One concrete example is our use of a new system to cut retooling time in a machine from 20 to ten minutes. These are ten important minutes for the customer during which the machine can be in operation and be profi table."
The Sandvik Competence Center in Düsseldorf is structured to off er customers a full range of engineering services, including design, process and application engineering, product management and commercial services – all under one roof.
Düsseldorf GERMANY
The GC4325 is a new steel-turning grade using a new, advanced technology programmed at the nano level, known as Inveio. The atoms of the coating are more tightly packed than in other grades, thereby signifi cantly increasing the insert's wear resistance and tool life.
New high-speed trains will soon operate on the Ankara-Istanbul route in Turkey, cutting travel time from seven to three hours. The trains' route includes sections through new tunnels, the longest of which is approximately 10 kilometers. Sandvik's drill rigs were used in the challenging construction project.
Senbay-Özgün, a Turkish joint venture that is part of the Bayburt Group, uses seven large jumbo rigs from Sandvik to construct tunnels at various places along the more than 500-kilometer stretch of rail line between the capital Ankara and Istanbul in Turkey. Approximately 1.4 million cubic meters of rock is being excavated from the bedrock and removed from the tunnels. It is a complicated task due to the signifi cant variation in rock quality. The Bayburt
Group chose drill rigs from Sandvik because they are trouble-free and easy to operate and maintain.
Sandvik is working to build a stronger brand in the construction sector. In Turkey, the underlying factors driving demand for the Group's solutions have been referrals from other major projects, short delivery lead times, good customer relations and increasingly effi cient management of aftermarket requirements.
The project, which connects Europe and Asia, is one of the most prestigious in Turkey's history. However, it is also an important piece of the puzzle in a larger context. Other tunnel projects are under way further east along the Silk Route, making it possible to have an uninterrupted train journey all the way from London to Beijing.
The tunneling project will cut out a sharp bend around the city of Sakarya, making the alignment more suitable for high-speed trains and shortening the route between Ankara and Istanbul from 576 km to 533 km.
rail tunnels for high-speed trains that travel up to 250 km/h.
The Sandvik R32 drill bit, used in the Turkish tunneling project, off ers great versatility, higher penetration rates and straighter holes than other alternatives in the market. It also features longer bit life and lower energy consumption.
Most people agree that the greenhouse effect must be stopped and that actions have to be taken – now. Reducing vehicle emissions is a key part of the solution. Sandvik has taken the strategic decision to pursue sustainable business activities and has spent the past few years building up a strong position in the area of fuel cells.
Afuel cell converts chemical energy into electric energy, which is subsequently used to power an electric motor, for instance. Because the conversion of energy takes the form of a chemical reaction, the degree of effi ciency is higher than in combustion-based energy systems, such as regular gasolinepowered car engines. The most common example is that a fuel cell uses hydrogen and oxygen, with the resulting emissions consisting of plain water. A car can be refueled in the same way as before and can be driven as far on one tank of hydrogen gas as with one tank of gasoline. Another environmental benefi t is noise – the motor of an electric car is essentially silent.
Hydrogen can be manufactured in several ways, including by electrolysis of water, which does not generate any greenhouse gases. The costly part will be to build up the infrastructure necessary to manage the switchover from gasoline and diesel.
Sandvik has spent the past few years developing technology for the material in the plates that connect the electric cells in the fuel cells. The plates are made from stainless steel and feature a special coating that is corrosion resistant and ensures a high degree of electrical effi ciency from the cells. Since the plates are connected in series, forming stacks, the technology is scalable, enabling a power output from just a few watts up to hundreds of megawatts. Sandvik can also offer a range of coatings depending on the type of fuel cell.
Aside from the automotive industry, fuels cells are also used for mobile and stationary electricity needs. Examples of mobile devices are chargers for mobile phones and computers. Stationary units include electricity for radio base stations, which connect mobile networks and can be found in a large number of locations across the globe. These are currently often powered by diesel-electric generating sets.
The Group is therefore well positioned to establish a leading presence in an industry that could potentially change the world. The material is not just a product on the drawing board. Through collaboration with a number of companies in the global fuel-cell industry, test results have also shown that Sandvik's solutions deliver on their promises in practical application. Furthermore, the advantage over other possible competitors not only relates to the material concept; Sandvik can already offer large-scale production capacity.
A fuel cell largely functions in the same way as a battery that does not need to be replaced or recharged. Instead, a fuel cell uses oxygen from the air as well as hydrogen to produce energy in the form of heat and electricity. It will continue to produce electricity as long as there is a supply of oxygen and hydrogen. Because the fuel is directly converted into electricity, a fuel cell can achieve a much higher degree of effi ciency than a conventional combustion-based engine. Since a single fuel cell produces a small electrical current, it is common practice to place several fuel cells in a series, so called stacks. Although there are several diff erent types of fuel cells, all are essentially based on the same technology.
The demands placed on the material properties of the components used in the energy sector are extremely rigorous. Safety, durability and reliability are central themes. Sandvik has for many years been a leading manufacturer of tubes for extraction of oil and gas from below the sea fl oor. Drilling operations are being performed at ever greater depths and increasing pressures, thus raising the requirements for the materials used.
F or the oil and gas exploration industry, Sandvik offers an extensive range of products made from corrosion-resistant alloys, such as duplex stainless steels, nickel alloys and other advanced materials for extremely critical environments. The locations where oil and gas companies operate impose increasingly rigorous demands. In addition to operating in deeper waters, it is now also possible to extract more from existing drilling sites. Locations previously considered diffi cult and uneconomical have suddenly become attractive and profi table. Through unique expertise in materials technology and research, combined with world-class product development, Sandvik has been able to satisfy the stringent requirements of customers for lighter and more durable products.
One of the latest in a range of applications developed by Sandvik is manufactured in a new material for the oil and gas industry. It goes under the name Sandvik SAF 3207™ and is a hyper-duplex stainless steel. The fi rst contract was for a well site in the North Sea, where the tubes will be used downhole to enhance oil and gas recovery. The new material has also been developed to be used in the long umbilicals that control subsea oil and gas wells.
The new grade is vastly superior to previous materials. Its excellent resistance to corrosion also enables the tubes to be used to inject the wells with seawater during extraction, which signifi cantly boosts productivity.
Sandvik has developed a new material that is now being used for the fi rst time to extract oil and gas in the North Sea; a steel grade that off ers superior benefi ts compared with previous materials.
Technology advances have been extremely important to the aerospace industry ever since the days of the Wright brothers. Today, more than a century later, the emphasis is on fi ne-tuning the performance of the aircraft to reduce energy consumption and CO2 emissions; all aimed at boosting profi tability and minimizing the environmental footprint. Sandvik delivers solutions that do precisely that.
To reduce aircraft weight, it is common practice to use composite and composite metal matrix materials, as well as metals with special properties, such as titanium and aluminum. Sandvik offers complete solutions for the machining of various types of advanced materials. Examples of solutions include diamond-coated and tipped cemented carbide tools. The products are customized depending on the type of composite material, the requirements on tool life and the proposed lifecycle of the component. Tailored solutions enable customers to better utilize their machines, maintain consistent component quality and reduce maintenance costs.
Applying customized tools for advanced materials and applications is just one of the many ways to enhance productivity for the aerospace industry. Michael Standridge is one of Sandvik's specialists at the company's Aerospace
Application Center in Fair Lawn, New Jersey, in the US, where customer solutions are tested and developed. He explained about a value-added service that supports and enhances the implementation of the cutting tool.
"To provide the most value to our customers and to ensure optimal performance within the manufacturing environment, Sandvik has packaged a combination of tooling solutions and applications know-how. This applications know-how is provided in the form of machining recommendations, machine tool specifi cations and fi xture design solutions. To ensure safety, repeatability and quality in the manufacturing process, we need to work on all parameters."
This is exemplifi ed by a recent project where a customer was experiencing profitability problems in connection with the production of engine casing components. The customer needed to reduce the cycle
Sandvik has Application Centers worldwide for development and testing of customer solutions. Three of the centers – Fair Lawn, Birmingham and Orléans – mainly focus on aerospace components.
Orléans, France
Fair Lawn, USA
Birmingham, UK
"Firstly, a team of our people spent several weeks familiarizing themselves with the customer's processes. In due course, we were able to propose a turnkey solution containing everything from fi xture design of the component to the selection of tools and the regeneration of the CAM program. In turn, this helped to reduce the number of setups. The method was tested at the application center and when it was clear that major effi ciency gains were possible, work pushed on with integrating the solution in the customer's processes. The result was a 40% reduction in production time, and we were able to meet the tolerance requirements as well as the fi nancial conditions of the investment."
Manufacturers of absorbent hygiene products often deal with many different types and sizes of products. It is not uncommon for a baby diaper factory to manufacture 1,000 products per minute on a single production line that runs 24/7. When switching between products and models, it is vital to have maximum fl exibility and the minimum amount of downtime. The cutters must be reliable, easy to adjust and have a long service life to maximize productivity.
Kimberly-Clark has competence and design offi ces in Neenah, Wisconsin, for the development of healthcare and hygiene products, which are then produced across the globe at more than 30 manufacturing sites.
Kimberly-Clark manufactures baby diapers and regards ensuring that its products have a good fi t as a key aspect. In intense competition with other suppliers, the company chose Sandvik as its supplier of rotary-cutting solutions fi tted with cemented-carbide knives for its production. Sandvik has now supplied hundreds of units across the globe that cut the diaper sections that fi t around the leg. Sandvik has trained the operators at Kimberly-Clark to run the cutting units effi ciently and has been on-site at the customer's facilities before and after start-up to ensure a smooth process and reliable performance.
Greg Evers, Senior Procurement Consultant at Kimberly-Clark in Neenah, Wisconsin, in the US, explains how they chose supplier:
"When deliberating about which cutters to use, we had decided that three factors were paramount: they needed to be easy to use and maintain, robust and function at high speed. Other important aspects were that waste was to be kept to a minimum. We chose Sandvik because they outperformed the competitors in all of these areas. Sandvik's cutters are clearly superior."
Because Kimberly-Clark is a global company with 30 production plants for healthcare and hygiene products throughout the world, it is important for them to work with a partner of a similar size.
"Sandvik's network of sales and service centers allows us to tap into its expertise regardless of whether it's a matter of hardware, training or service and support. They can match our footprint across the globe, which is a major benefi t for us. Another advantage is that Sandvik is always willing to take on new development challenges, providing our engineers with the opportunity to focus on product enhancements. Sandvik's products are also covered by guarantees, which reduces our overall performance risk viewed over a full lifecycle."
When asked about his experience of the people at Sandvik, Greg Evers is equally positive. He appreciates that a technical salesperson has been assigned as his account contact, thus saving a considerable amount of time and energy.
Rotary cutters from Sandvik are used for cutting out the leg openings in a baby diaper. They are also used to make other kinds of cuts in a diaper for such features as the elastic side panels and the front panels.
Research and development (R&D) is prioritized at Sandvik and plays a key role in the Group's efforts to retain and strengthen its competitiveness. The strategy builds on collaboration, proactive patent activities and close cooperation with customers, thereby raising their productivity, reducing the environmental impact and improving the work environment.
Each business area is responsible for its own R&D activities. A Group-wide R&D Board is in charge of setting the strategic direction of Sandvik's research and development, creating synergies between the business areas and coordinating joint projects. The Group has the ambition to increase the new sales ratio (newly developed products as a percentage of total invoicing) from the current 30% to 45% in the next few years. Because new products are more competitive, this move will strengthen Sandvik's position in the market.
Sandvik is involved in a number of collaborations with universities, institutes of higher education and research institutes across the globe, covering such research areas as metallurgy, material physics, metal cutting, rock mechanics, mining processes and production technology.
R&D is carried out throughout the world. As Sandvik becomes ever more global and in parallel with its robust
growth in Asia, investments are increasing in this region in particular. One example of this is the establishment of new Group-wide R&D centers in India and China.
Sandvik has a very strong patent program to ensure that the Group leverages its successes and converts R&D investments into long-term profi table products and solutions. Intellectual property rights are identifi ed at an early stage in a research project and are addressed both locally and globally to ensure that the best possible position is occupied for the future.
Confi rmation of the Group's innovative excellence in 2013 was that Sandvik was once again listed as one of the world's 100 most innovative companies by the analysis fi rm Thomson Reuters and also by the US business magazine Forbes.
Katarina Dahl has a Master of Science Degree. She has worked at Sandvik for 15 years, alternating between various roles. She is currently project coordinator for the Group's strategic research projects. Together with colleagues from all over the world, she works to identify tomorrow's solutions.
"I coordinate a number of R&D projects aimed at advancing Sandvik's position, but that are not part of the daily R&D activities in the business areas. Together with the R&D Board, I have also been assigned to systematically search for new technologies and strategic areas that could strengthen Sandvik's position for future products and expand its core business."
Bo Rogberg was awarded professor Gunnar Wallqvist's gold medal by KTH Royal Institute of Technology, Stockholm, Sweden, in 2013. The medal is only awarded every tenth year to an individual who has made a major contribution to engineering. Throughout his 32 years at Sandvik, Doctor Bo Rogberg has ensured the company's consistent development of new methods for continuously cast steel.
"It's a pat on the back for all my hours of hard work. My guiding principle is to combine theory with production in order to generate positive results, such as higher productivity and better products. It demonstrates that Sandvik's re search is extensive and reliable, that quality is our number-one priority and that we work with systematic and tactical methods all the way to product development."
Ever since Sandvik was founded, technical experts have been invaluable to the company, and as of 2013, these individuals also have an established career path. During the year, two internationally recognized employees were appointed as Sandvik's fi rst Group Experts. They have been tasked with developing and strengthening the R&D capabilities in Sandvik's strategic areas.
Jan-Olof Nilsson has enjoyed a long career at Sandvik as well as in the academic research community. He earned his Ph.D in 1979 and began working at Sandvik in the same year. He was also an adjunct professor at Chalmers University of Technology, Gothenburg, Sweden, for several years. He is now one of Sandvik's fi rst Group Experts with physical metallurgy as his fi eld of expertise.
"Together with my colleagues, I work with fundamental research into the microstructure of the material, which
means that we try to understand the signifi cance of microscopic components for the material's properties. Among other things, physical metallurgy helps us identify tomorrow's metal alloys."
"In May 2013, I published my book –The Sandvik Handbook of Physical Metallurgy – which is being used by other similar-minded people within the Sandvik family. I am very happy and proud of my book and I am delighted to have the opportunity to pass on my knowledge of physical metallurgy."
"I hope to be a role model – a mentor – for younger people and transfer my enthusiasm to them. I have always enjoyed working with problem-solving. When you spend a lot of time working with a problem, fi nding a solution gives inner satisfaction. And doing it together with others adds another dimension. Sandvik has incredible breadth and it is fantastic to be able to work with people from all of Sandvik's business areas, whose specializations, ages and backgrounds are different from my own. I consider my role as a mentor in this context to be an honor and a privilege.
Ph.D in Materials Science from the Royal Institute of Technology (KTH), Stockholm, Sweden. She currently works as a Sandvik Group Expert in Carbide Hard Materials and shares her time between Sandvik, and her position as an adjunct professor in tribology at the Ångström Laboratory at Uppsala University, Sweden.
"My research focuses on the hard materials used for metal cutting and rock drilling. I am currently involved in an exciting project involving new, super-hard diamond materials – initiated at the request of the Sandvik R&D Board – together with people from four different business areas at the Group. Combining great minds and perspectives in a project like this gives us energy and drive. It leads to better results and greater understanding."
"I consider it an honor and highly enjoyable. No matter what research and development projects we are involved in, I think it's important that we are always looking forward and thinking about the products that our results might be used for. We should know why we are involved in research. This also makes it so much more interesting and enjoyable, and helps us see the benefi ts of what we are doing. I hope I can contribute to even better collaboration between Sandvik's business areas and that I can bring people together who might benefi t from contact with each other."
"We have a wonderful mix of people and expertise. I learn something new from my colleagues every day. There are so many people who know so much about various things – the combined expertise in this company is huge. The strong sense of team spirit to which everybody contributes, from interaction with customers to material and product design at atomic level, ensures high quality and value for our customers."
Sandvik is preparing for the future. A global market leader must be able to attract, recruit, develop and retain the right talent. Sandvik is therefore working strategically with Employer Branding to continuously improve the company's image as an attractive employer.
Sandvik works actively to strengthen its employer brand by building relationships with motivated students and generating interest in the Group. During the year, Sandvik participated in career fairs and student events at universities and colleges across the globe. The Group also invited students to visit and experience Sandvik from the inside. A few examples are presented below:
In 2013, Sandvik started to sponsor a professorship at the Indian School of Mines in Dhanbad, one of the country's leading mining institutes, where Sandvik recruits top talents. The initiative is an optimal platform for Employer Branding since it positions Sandvik as a technology leader and attracts the right talents to the organization.
the Group in 2013. The aim is to attract and The program, which will be launched in intended for recently graduated top stube recruited for the fi rst program.
DIVERSITY AND INCLUSION GENERATE GROWTH FOR SANDVIK IN MEXICO
By embracing diversity and promoting an inclusive work environment, Sandvik's capacity for innovation and effi ciency will grow. Arturo Montiel, Sandvik's Country Manager in Mexico, explains:
"Diversity and inclusion make it possible for us to develop our already talented employees and create growth in the operations. It's about moving from 'Good to Great' through our own people and increasing everyone's accountability for our business. Let me give you an example. In the metal industry, production has
always been seen as a man's job, while customer service is for women. We started a program to increase the mix and improve communication between the areas in order to serve our customers better – in processes such as machine operation, quality control and Lean activities. The employees involved in the project have really contributed to improving Sandvik's offering, as well as their own everyday situation. This has taught us the importance of listening to different voices."
In 2013, Sandvik participated in the Battle of the numbers project together with nine other global Swedish companies. The project develops practices aimed at increasing the number of women in operational management positions. The name "Battle of the numbers" expresses two overall At Sandvik, the project has led to ambitious targets with specifi c action plans. Group Executive Management has played an active role in the process, which was led by a project group comprising ten selected female managers. Their recommendations to Group Executive Management were based on their own experiences of building a career at Sandvik.
A safe workplace that embraces diversity and inclusion and offers a range of development opportunities. This is what Sandvik must offer to be an attractive employer, both today and tomorrow. Three employees give us their views on Sandvik and what motivates them at work.
Tony Tripi is EHS (Environment, Health and Safety) Manager at Sandvik in Palm Coast, Florida, USA. He started his career at Sandvik in 2010 and, prior to this, had gained extensive experience of environmental compliance and waste management. He also has several years' experience of health and safety compliance and training. Communication is key to success and one of several initiatives is weekly safety tips to employees.
"Our main challenge regarding safety is changing the culture from one where just a few people are responsible for safety, to one in which all employees are accountable and play a role in developing and maintaining safety programs. My approach to safety is to build relationships with employees. Through my actions I demonstrate that I genuinely care about their health and welfare and want to help them work safely as well as productively."
Johan Ekbäck is a Product Development Engineer, at the Exchangeable Drill Tips department at Sandvik in Sandviken, Sweden. He began working at Sandvik in 2012 after completing his thesis for Chalmers University of Technology at Sandvik Coromant in Fair Lawn, New Jersey, USA. His view of a developing job has several dimensions:
"First of all, I want my work to be challenging. I also want the expectations and tasks linked to my performance to require my personal development. I also want my work to be varied and offer means and incentives that inspire me to continue developing. I see good opportunities for this at Sandvik. Whether I want to grow in my present role or change departments, functions, business areas or even continents, these opportunities are available. I can also actively infl uence the direction of my development."
Holly Wu is Corporate Communications Director at Sandvik China in Beijing. She has many years' experience in working for multinational companies as a communication expert specializing in branding, PR, internal communication, external events and sustainability. At Sandvik, she is responsible for strengthening the profi le and recognition of the Sandvik brand in China, as well as for motivating employees and facilitating change through wellplanned and well-executed communication activities.
"Leadership is crucial to the company's successful development and acts as a beacon for employees to focus on and follow. If the light doesn't lead clearly, the focus and momentum needed to win can easily be lost. Talent development is crucial, since a successful company needs talent that adopts the company's values and lives by them. It is also important to have well-designed programs and control measures to retain and develop talents."
development and improve capital alloca-
The term "total shareholder return" shows the real development of a stock investment and consists of the change in share price, including reinvested dividends. During 2013, the total shareholder return for the Sandvik share was -9%. Over the past fi ve years, the total shareholder return has
TOTAL SHAREHOLDER RETURN
Sandvik strives to generate an attractive return and value growth for investors in the Sandvik share. Communication with players in the fi nancial market in 2013 mostly related to the prevailing economic climate and future rationalizations in the Group.
tion in the company.
averaged +17% annually.
In 2013, the number of shareholders increased to a total of about 117,000 (111,000). Sandvik has shareholders in
At 31 December 2013, members of Sandvik's Group Executive Management owned a total of 93,577 shares in Sandvik. Members of the Board of Sandvik, excluding the President, owned a total of 6,573,568 shares in Sandvik, corresponding to 0.5% of the capital and voting
LONG-TERM GOAL AND DIVIDEND
Sandvik endeavors to ensure that the Sandvik share generates an attractive return and value growth for the owners. The goal is that the dividend will amount
to 50% of earnings per share.
SANDVIK'S OWNERS
86 countries.
rights.
PROPOSAL
Sandvik's share price decreased 12%, while the OMXS index on NASDAQ OMX Stockholm rose 23%. At year-end 2013, the Sandvik share was quoted at SEK 90.70.
The Group's market capitalization decreased 16 billion SEK during the year to 114 billion SEK (130), ranking Sandvik as the 13th (9th) largest company on NASDAQ OMX Stockholm. During the year, Sandvik shares were traded for a total value of 119 billion SEK (118), making it the 7th (5th) most actively traded share.
In 2013, more than 300 meetings were arranged throughout the world to give Sandvik's various stakeholders in the fi nancial markets the opportunity to have personal contact and to receive responses to questions about the Group's business and future. The prevailing economic climate and particularly the market situation in the mining industry were major topics of interest during the year. In the latter part of the year, communication was largely based on the theme "Building an even better Sandvik," which aims to describe the future-oriented actions presented by the Group in conjunction with the Capital Markets Day in September. The measures aim to, for example, streamline Sandvik's supply chain, attain additional leverage from research and
25%
Return on capital employed <0.8 Net debt/ equity ratio
Payout ratio as a percentage of earnings per share
The Board has decided to propose a dividend of 3.50 SEK (3.50) per share to the 2014 Annual General Meeting, corresponding to approximately 4.4 billion SEK and a dividend yield of 3.9% based on the share price at year-end.
Over the past fi ve years, Sandvik's dividend has averaged 2.85 SEK per year. During the same period, an average of approximately 77% of earnings per share has been distributed to the shareholders.
Sandvik's share is listed on NASDAQ OMX Stockholm and is one of the stock exchange's oldest companies, with a listing dating back to 1901. The Sandvik share can be traded in the US in the form of American Depositary Receipts (ADR).
Sandvik is included in the FTSE4Good Series, an international index for global companies that assume social responsibility. The purpose of the index is to assist investors in their analysis of sustainability aspects in a company. Sandvik's inclusion in the index serves as confi rmation of the Group's compliance with FTSE criteria in relation to environmental, fi nancial and social responsibility issues.
Sandvik's ambition is to ensure that the value of the company's share is always assessed on the basis of relevant, correct and current information. Realization of this ambition requires a clear strategy for fi nancial communication, creating confi dence in information and regular contacts with the various stakeholders in the fi nancial markets.
Aside from daily communication, focused contacts with the fi nancial markets are carried out in the form of presentations in conjunction with interim reports and meetings with analysts,
investors and journalists on capital market days, conferences and seminars, as well as visits to Sandvik's various sites. Communication is coordinated by Sandvik's Investor Relations (IR) Group function.
Further information can be found at www.sandvik.com/ir.
Sandvik signs major Mining Systems order with Sasol
Sandvik to acquire Canadian drilling solutions provider
Sandvik secures major materials handling orders
Sandvik launches new delivery model for global fi nance transactions
Sandvik to adjust capacity and order backlog for nuclear steam generator tubing
Sandvik acquires TechnoPartner Samtronic GmbH
Sandvik acquires remaining shares in Precorp Inc., USA
Sandvik outlines positive development for the years ahead at its Capital Markets Day
Sandvik secures major materials handling order
Sandvik implements initial phase of supply chain optimization
Jan Wäingelin, freelance journalist, working at Swedish business daily Dagens industri for 32 years as a reporter, London correspondent and news editor.
"Tumultuous, but necessary. Sandvik was the last remaining major company in Sweden that clung on to its mill traditions and environment. The relocation of the head offi ce to Stockholm was the defi nitive break with the old order."
"Next year will continue to be diffi cult, particularly for iron-ore mines and steel producers. Capital expenditure will continue to decline in the mining sector in 2014 – by about 25% compared with the peak year of 2012, when global investments totaled approximately 210 billion USD. However, a recovery is expected already in 2015, which is expected to last until 2020, due primarily to China. Signals from across the globe are indicating an upturn for the engineering industry. This signifi es an improved market climate for Sandvik Machining Solutions, which completed its acquisition of the US company Precorp Inc. during the year, thereby consolidating its position in the aerospace segment. Meanwhile, Sandvik Coromant and Seco Tools continue to launch new products. Sandvik strengthened its position in another highgrowth segment through the agreement to acquire Varel International Energy Services Inc. – focused on the oil and gas industry – in early 2014. The world will continue to require oil and gas for many decades to come."
"The outlook for Sandvik is almost certainly favorable. In global terms, Sandvik is viewed as an innovative, cost-effi cient and customer-oriented company. A major challenge to be addressed is the new markets in Africa, South America and Asia; markets that demand less expensive and sophisticated systems, machinery and tools for reasons related to fi nances and levels of expertise. This requires product developers and marketers to think in innovative ways."
| 2013 | 2012 | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| Number of shares at year-end (millions) |
1,254 | 1,254 | 1,186 | 1,186 | 1,186 |
| Market capitalization at year-end | |||||
| (SEK billion) | 114 | 130 | 100 | 156 | 102 |
| Number of shareholders | 117,062 | 110,787 | 112,959 | 112,194 | 109,401 |
| Share price at year-end, SEK | 90.70 | 103.50 | 84.45 | 131.10 | 86.40 |
| Earnings per share, SEK | 4.00 | 6.51 | 4.63 | 5.59 | –2.24 |
| P/E ratio at year-end | 22.7 | 15.9 | 18.2 | 23.5 | — |
| Change in share price during | |||||
| the year, % | –12 | +23 | –36 | +52 | +76 |
| Regular dividend, SEK/share | 3.50* | 3.50 | 3.25 | 3.00 | 1.00 |
| Dividend as a percentage of | |||||
| earnings per share | 88 | 54 | 70 | 54 | — |
| Total dividend yield | |||||
| (price increase + dividend), % | –9 | +27 | –34 | +53 | +83 |
| Proportion of shares in Sweden, % | 72 | 64 | 68 | 69 | 67 |
| Proportion of shares owned by the | |||||
| ten largest shareholder groups, % | 39 | 39 | 38 | 36 | 35 |
* Proposed dividend.
| 2013 | 2012* | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| AB Industrivärden | 11.6 | 11.4 | 12.2 | 11.7 | 11.4 |
| Alecta Pension Insurance | 4.5 | 2.9 | 3.6 | 3.4 | 2.5 |
| Handelsbanken's Pension Foundation |
3.8 | 3.8 | 4.1 | 4.0 | 4.0 |
| Swedbank Robur Funds | 3.4 | 4.7 | 4.6 | 5.0 | 4.7 |
| JPM Chase** | 3.1 | 4.9 | 3.6 | 3.6 | 2.8 |
| AMF – Insurance and Funds | 3.0 | 2.0 | 1.5 | 2.0 | 1.8 |
| SSB CL Omnibus** | 2.8 | 3.6 | 3.3 | 3.0 | 2.5 |
| Nordea Investment Funds | 2.6 | 1.9 | 1.5 | 1.8 | 1.4 |
| L E Lundbergföretagen AB | 2.4 | 2.2 | 2.3 | 2.0 | 1.2 |
| Göranssonska Foundations | 2.0 | 2.0 | 2.1 | 2.1 | 2.1 |
* The total number of shares in Sandvik AB increased in 2012 in conjunction with the acquisition of the shares outstanding in Seco Tools.
** Administrates shares held in trust.
* Proposed dividend.
The Board of Directors and President of Sandvik AB hereby submit the report for the company's and Group's operations in 2013.
The market environment varied across the different business areas and regions. Weaker market conditions persisted in the mining and construction industries, while growth was noted in other key areas, such as the automotive, energy and aerospace segments.
Despite favorable long-term prospects for the mining industry, demand for Sandvik Mining was subdued throughout 2013. In response to low and volatile commodity prices, many customers were cautious and postponed investment projects. Weak market trends were noted across all geographic regions. However, toward the end of the year, stabilization of demand at a new, lower level was noted.
While the general engineering market was bleak at the outset of 2013, it appeared to have bottomed out around mid-year. Demand for Sandvik Machining Solutions was subdued but stable for the remainder of 2013.
The market environment was fragmented for Sandvik Construction. While conditions improved at the start of the year with increasing demand, the market deteriorated during the second half of 2013. Overall demand declined, although pockets of growth were noted in such regions as Russia, the former Soviet Republics and Northern Europe. The positive develop ment was sustained throughout the year in the Middle East and Asia.
Although Sandvik Machining Solutions benefi tted from the recovery of the automotive industry in the US, the high growth rate previously reported in the automotive industry in the BRIC countries slowed down. Market conditions in Europe remained weak for much of 2013, although there were indications of a slight improvement toward the latter part of the year.
In the energy sector, high activity was recorded in the oil and gas segment throughout the year, positively impacting Sandvik Materials Technology. Sandvik
Machining Solutions also benefi tted from the positive market trend. As a consequence of the Fukushima accident in Japan in 2011, market conditions in the nuclear power sector were weak for Sandvik Materials Technology.
A slight improvement was noted in the aerospace industry, which positively impacted Sandvik Machining Solutions.
The petrochemical industry recovered during the year, which contributed to the positive development for Sandvik Materials Technology.
| MSEK | 2013 | Share, % | 2012 | Change, % | Change, %* |
|---|---|---|---|---|---|
| Europe | 32,126 | 38 | 33,680 | –5 | –3 |
| NAFTA | 15,397 | 18 | 16,923 | –9 | –5 |
| South America | 7,821 | 10 | 8,578 | –9 | 1 |
| Africa, Middle East | 7,585 | 9 | 10,227 | –26 | –17 |
| Asia | 15,091 | 18 | 19,607 | –23 | –18 |
| Australia | 6,052 | 7 | 8,933 | –32 | –25 |
| Group total | 84,072 | 100 | 97,948 | –14 | –10 |
* Change compared with the preceding year at fi xed exchange rates for comparable units.
| MSEK | 2013 | Share, % | 2012 | Change, % | Change, %* |
|---|---|---|---|---|---|
| Europe | 32,919 | 38 | 33,302 | –1 | 0 |
| NAFTA | 15,576 | 18 | 17,882 | –13 | –9 |
| South America | 7,152 | 8 | 8,443 | –15 | –7 |
| Africa, Middle East | 8,141 | 9 | 9,803 | –17 | –7 |
| Asia | 16,225 | 19 | 18,271 | –11 | –6 |
| Australia | 7,315 | 8 | 10,828 | –32 | –25 |
| Group total | 87,328 | 100 | 98,529 | –11 | –7 |
* Change compared with the preceding year at fi xed exchange rates for comparable units.
The year was characterized by a weaker level of business activity compared with 2012, a trend that was most pronounced for Sandvik Mining. Sandvik's order intake declined by 10% at fi xed exchange rates for comparable units, while invoiced sales were down 7% at fi xed exchange rates for comparable units.
Sandvik's fi nancial targets are based on assessments of the company's strength and how it is positioned for the future. The Group's targets and target fulfi llment are presented in the table below.
The outcome since 2004 corresponds to average annual growth of 7% and return on capital employed of 18%. The fi nancial crisis in 2008 and the subsequent recession had a signifi cant negative impact on average growth and return. In 2013, growth was –7% and the return on capital employed was 13%. At the end of 2013, the net debt/equity ratio was 0.7.
The weaker business activity during the year resulted in a decrease of 4,852 million SEK in operating profi t for 2013, which was charged with 2,140 million SEK (1,200) as a result of restructuring measures and impairment losses, as well as –294 million SEK related to movements in metal prices.
The operating margin was also impacted and declined 3.8% to 9.9% of invoiced sales. Changes in foreign exchange rates since the beginning of the year negatively affected earnings by about 1,080 million SEK compared with the preceding year. Net fi nancial items amounted to –1,885 million SEK (–1,974). Profi t after fi nancial income and expenses was 6,753 million SEK (11,516). Income tax had a total impact of –1,745 million SEK (–3,409) on earnings, or 26% (30) of
profi t before taxes. Profi t for the year attributable to equity holders of the Parent Company was 5,013 million SEK (8,105). Earnings per share amounted to 4.00 SEK (6.51). Return on capital employed was 12.6% (19.8) and return on equity was 15.3% (25.3).
Cash fl ow from operating activities amounted to 5,133 million SEK (11,892). Cash fl ow after investments, acquisitions and divestments was 609 million SEK (7,961). Cash fl ow for the year was negatively impacted by the tax payment made totaling 5,800 million SEK as a result of the ruling of the Administrative Court of Appeal in the dispute concerning the ownership and management of intellectual property rights. At the end of the year, cash and cash equivalents amounted to 5,076 million SEK (13,829). Interest bearing liabilities, excluding net provisions for pensions, less cash and cash equivalents yielded a net debt of 25,184 million SEK (21,132). Sandvik had two credit facilities of 650 million EUR and 5,000 million SEK that were unutilized at year-end. Under the Swedish bond program of 15,000 million SEK, bonds corresponding to a nominal amount of 6,836 million SEK were outstanding at yearend. Under the European bond program of 3,000 million EUR, a nominal amount of 1,282 million EUR was utilized. In addition, there were bonds issued in the US for a nominal amount of 740 million USD. The remaining maturity of bonds averaged 4.6 years for Swedish bonds, 7.0
| Sandvik Group | Target 2013 | Outcome 2013 | 2004–2013 |
|---|---|---|---|
| Annual growth, % | 8 | –7 | 7 |
| Return on capital employed, % | 25 | 13 | 18 |
| Net debt/equity ratio, times | <0.8 | 0.7 | — |
| Payout ratio, % of earnings per share | 50 | 88 | 62 |
years for European bonds and 6.0 years for US bonds. At year-end, the international credit-rating agency Standard & Poor's had a rating of BBB+ for Sandvik's long-term borrowings, and A-2 for shortterm borrowings.
The volume of net working capital declined by 1,672 million SEK compared with the preceding year, primarily due to reduced accounts receivables resulting from lower invoicing levels. Inventory levels also declined, partially due to lower sales. Changed currency rates reduced net working capital by 594 million SEK compared with the preceding year. Working capital at the end of the year amounted to 23,281 million SEK (25,170). Relative working capital in the fourth quarter of 2013 was 27% (27) of invoiced sales. The carrying amount of inventories at the end of the year was 23,318 million SEK (25,508). Capital tied up in inventories was 27% (27) of invoiced sales. At yearend, trade receivables totaled 12,682 million SEK (13,579), which was 14% (14) of invoiced sales.
Equity at year end amounted to 33,610 million SEK (32,536), or 26.70 SEK (25.90) per share. The equity ratio was 36% (31).
On account of the tentative market situation, investment levels were adjusted accordingly. Investments in property, plant and equipment were reduced by 13% compared with the preceding year. The total purchase consideration for corporate acquisitions completed during the year (less acquired cash) was 489 million SEK (39). Proceeds from the sales of companies and shares (less cash and cash equivalents in the divested operation)
amounted to 0 million SEK (692). Investments in internally generated intangible assets increased to 665 million SEK (504).
A number of businesses were acquired during the year. Sandvik Machining Solutions acquired the outstanding 51% of the shares in Precorp Inc., a company headquartered in Spanish Fork, Utah, in the US. The acquisition was completed on 1 October 2013 and Precorp Inc. was consolidated on the same date into the Sandvik Machining Solutions business area. Sandvik has been a minority shareholder (49%) in Precorp Inc. since 2008. In 2012, the company reported sales of approximately 230 million SEK and had about 200 employees.
Sandvik Venture acquired the German company TechnoPartner Samtronic GmbH, (TPS), a manufacturer of feed/ scattering machines and double belt presses. The company's core capabilities are reinforced Tefl on belt-based double belt press machines. In 2012, TPS posted sales of approximately 13 million EUR and had about 35 employees. The head offi ce and manufacturing facilities are based in Göppingen, Germany.
Sandvik Mining acquired the drilling solutions business and operations of the Canadian company Cubex Limited (CUBEX). In 2012, the acquired business of CUBEX reported sales of about 270 million SEK with about 110 employees. The head offi ce and manufacturing facility are based in Winnipeg, Canada.
The uncertainty surrounding the market situation and economic performance continues to characterize the beginning of 2014. Over the next three to four years, the Group will focus on rapidly growing markets, a high rate of return and reduced profi t volatility. In addition, Sandvik intends to increase supply chain effi ciency and reduce the number of production units from the current total of 150 to about 125.
The Parent Company's invoicing for 2013 amounted to 15,873 million SEK (16,990) and the operating result was –687 million SEK (–483). The operating result in 2013 was negatively impacted by non-recurring items. Income from shares in Group companies consists primarily of dividends and Group contributions from these and amounted to 14,158 million SEK (11,769). Interest-bearing liabilities, less cash and cash equivalents and
interest -bearing assets, amounted to 19,462 million SEK (20,388). The Parent Company's total assets increased by 2,458 million SEK (from 66,362 million SEK to 68,820 million SEK). As a result of the Administrative Court of Appeal's ruling in the dispute concerning intellectual property rights, full-year earnings were negatively impacted by 5,787 million SEK3). Investments in non-current assets amounted to 1,257 million SEK (1,338).The number of employees in the Parent Company and the subsidiaries operating on commission for Sandvik AB at 31 December 2013 was 7,984 (8,032).
In January 2014, Sandvik reached an agreement to acquire Varel International Energy Services Inc. (Varel). The acquisition price was about 740 million USD. The acquisition is subject to standard regulatory approvals and certain environmental due diligence before it can be completed.
| Capital expenditure | 2013 | 2012 |
|---|---|---|
| Investments in non-current assets, MSEK | 4,185 | 4,820 |
| as a % of invoiced sales | 4.8 | 4.9 |
as a % of scheduled depreciation 108 121
| Earnings and return | 2013 | 2012 |
|---|---|---|
| Operating profi t, MSEK | 8,638 | 13,490 |
| as a % of invoiced sales | 9.9 | 13.7 |
| Profi t after fi nancial income and expenses, MSEK | 6,753 | 11,516 |
| as a % of invoiced sales | 7.7 | 11.7 |
| Return on capital employed, % | 12.6 | 19.8 |
| Return on equity, %* | 15.3 | 25.3 |
| Basic earnings per share, SEK | 4.00 | 6.51 |
| Diluted earnings per share, SEK | 4.00 | 6.51 |
* Comparative year adjusted due to amended accounting policies. Refer to Note 35 for further information. Defi nitions, page 92.
| MSEK | Invoiced sales | Profi t after fi nancial items |
Net margin, % | |
|---|---|---|---|---|
| 2012 | Q1 | 24,838 | 3,371 | 14 |
| Q2 | 25,939 | 3,667 | 14 | |
| Q3 | 23,424 | 2,852 | 12 | |
| Q4 | 24,328 | 1,627 | 7 | |
| 2013 | Q1 | 22,098 | 2,078 | 9 |
| Q2 | 23,043 | 2,466 | 11 | |
| Q3 | 20,416 | 2,144 | 11 | |
| Q4 | 21,770 | 66 | 0 | |
| Financial position | 2013 | 2012 |
|---|---|---|
| Cash fl ow from operating activities, MSEK | 5,133 | 11,892 |
| Cash fl ow after capital expenditures, acquisitions and divestments, MSEK |
609 | 7,961 |
| Cash and cash equivalents and short-term investments at 31 December, MSEK |
5,076 | 13,829 |
| Net debt at 31 December, MSEK* | 25,184 | 21,132 |
| Net fi nancial items, MSEK | –1,885 | –1,974 |
| Equity ratio, %** | 36 | 31 |
| Net debt/equity ratio, times** | 0.7 | 0.6 |
| Equity at 31 December, MSEK** | 33,610 | 32,536 |
| Equity per share at 31 December, SEK** | 26.70 | 25.90 |
* Comparative year adjusted due to changed defi nition.
** Comparative year adjusted due to amended accounting policies. Refer to Note 35 for further information.
Defi nitions, page 92
1) Comparative year adjusted due to amended accounting policies. Refer to Note 35 for further information.
2) The Parent Company includes subsidiaries operating on commission for Sandvik AB. These are presented in Note 15.
3) Refer to page 55 and Note 28 for further information.
Sandvik's operations in 2013 compised fi ve business areas: Sandvik Mining, Sandvik Machining Solutions, Sandvik Materials Technology, Sandvik Construction and Sandvik Venture.
Sandvik's order intake totaled 84.1 billion SEK (97.9), a reduction of 10% at fi xed exchange rates for comparable units. Invoiced sales amounted to 87.3 billion SEK (98.5), down 7% at fi xed exchange rates for comparable units. The operating margin was 10% (14) of invoiced sales, and was impacted by lower invoiced sales, non-recurring items and unfavorable exchange rates.
In September 2013, Sandvik announced its intention to optimize the supply chain and reduce the number of
production sites over the next three to four years. Non-recurring costs had a negative impact of 2.1 billion SEK (1.2) on earnings for the year, largely due to the supply chain optimization program.
Exchange rate movements had a negative impact of 1.1 billion SEK on the operating profi t in 2013, while changed metal price effects had a negative impact of 0.3 billion SEK.
Sandvik Mining and Sandvik Construction were markedly impacted by the weaker market conditions, resulting in lower
invoicing levels. Consequently, the operating profi t of these business areas declined to 9% (16) and 1% (8) of invoiced sales respectively.
Although Sandvik Machining Solutions was also negatively affected by market developments at the start of 2013, growth was noted in the latter part of the year. The reported operating profi t corresponded to 18% (21) of sales.
Sandvik Materials Technology on the other hand reported an improved operating margin during the year, from 6% to 11%, excluding metal price effects, mainly driven by the Step Change Program. Including the effects of metal prices, the operating margin was 9% (4).
In 2013, Sandvik Venture's operating margin declined to 11% (19).
| MSEK | 2013 | 2012 | Change, % | Change, %* |
|---|---|---|---|---|
| Sandvik Mining | 27,882 | 38,289 | –27 | –21 |
| Sandvik Machining Solutions | 28,715 | 29,914 | –4 | 0 |
| Sandvik Materials Technology | 13,415 | 14,708 | –9 | –5 |
| Sandvik Construction | 8,521 | 9,013 | –5 | –1 |
| Sandvik Venture | 5,535 | 6,021 | –8 | –6 |
| Group activities | 4 | 3 | — | — |
| Group total | 84,072 | 97,948 | –14 | –10 |
* Change compared with the preceding year, at fi xed exchange rates for comparable units.
| Group total | 87,328 | 98,529 | –11 | –7 |
|---|---|---|---|---|
| Group activities | 11 | 42 | — | — |
| Sandvik Venture | 5,394 | 5,963 | –10 | –5 |
| Sandvik Construction | 8,601 | 9,683 | –11 | –7 |
| Sandvik Materials Technology | 14,035 | 15,366 | –9 | –6 |
| Sandvik Machining Solutions | 28,543 | 29,713 | –4 | 0 |
| Sandvik Mining | 30,744 | 37,762 | –19 | –12 |
| MSEK | 2013 | 2012 | Change, % | Change, %* |
* Change compared with the preceding year, at fi xed exchange rates for comparable units.
| % of invoiced | % of invoiced | |||||
|---|---|---|---|---|---|---|
| MSEK | 2013 | sales | 2012 | sales | Change, % | Change, % |
| Sandvik Mining | 2,743 | 9 | 6,004 | 16 | –54 | –46 |
| Sandvik Machining Solutions | 5,205 | 18 | 6,374 | 21 | –18 | –12 |
| Sandvik Materials Technology | 1,270 | 9 | 592 | 4 | 114 | 140 |
| Sandvik Construction | 110 | 1 | 748 | 8 | –85 | –72 |
| Sandvik Venture | 606 | 11 | 1,120 | 19 | –46 | –45 |
| Group activities | –1,296 | — | –1,348 | — | — | — |
| Group total | 8,638 | 10 | 13,490 | 14 | –36 | –28 |
* Change compared with the preceding year, at fi xed exchange rates for comparable units.
During the year, Sandvik Mining took several steps in the business area's ambition to become the industry leader and drive the development of tomorrow's mining operations. A new long-term strategy was developed that places a major focus on the customer and organizational effi ciency.
Demand for new equipment from the global mining industry remained weak during the year. In September, the Sandvik Mining business area announced that production levels would be adjusted in response to the market slowdown noted in the fi rst half of 2013. Further cost reductions of 500–700 million SEK are planned as part of the adjustment to these market conditions, with measures to be implemented by mid-2014.
A number of large materials handling contracts were secured during the year. In March, the business area won a major materials handling contract for the design and supply of conveying systems for customers in South America and Australia, with a combined contract value in excess of 950 million SEK. In October, Sandvik Mining was awarded a materials handling contract for a surface mine in South America with a value in excess of 650 million SEK.
In March, an agreement was signed with drill rig manufacturer Cubex Ltd to acquire its drilling solutions business and operations, which focus on the design and manufacture of underground in-thehole (ITH) and geotechnical drilling equipment.
Since the creation of the business area two years ago, one area of focus has been to speed up product development and time to market. Considerable achievements have been made in this area and examples include the two new Pantera DI6400 (DTH) and Pantera DP2000 (TH) drill rigs introduced in September, which were developed to capitalize on the ongoing shift in the mining industry toward fully autonomous operation. Development time for these machines was halved compared with previous similar products. Earlier in the year, the business area also rolled out a blasthole drill rig,
the Sandvik 160D, the fi rst of its kind specially developed for the mid-market segment. The drill rig was engineered, sourced and manufactured in Pune, India, for the Indian market.
During the year, the business area completed a fundamental review, designed to develop its long-term strategy extending to 2020. The objective is to maximize performance and increase value creation. The business area will continue to focus on core geographies and applications, but will also strengthen the aftermarket business, simplify the organization, increase effi ciency and develop its operations in emerging markets and for the mid-market segment. A new organizational structure went into effect on 1 October 2013, the aim of which is to improve customer service and support the long-term strategy.
| MSEK | 2013 | 2012 | Change, % | Change, %* |
|---|---|---|---|---|
| Order intake | 27,882 | 38,289 | –27 | –21 |
| Invoiced sales | 30,744 | 37,762 | –19 | –12 |
| Operating profi t | 2,743 | 6,004 | –54 | –46 |
| Operating profi t as a % of invoiced sales | 8.9 | 15.9 | –7.0 | — |
| Adjusted operating profi t** | 3,993 | 6,174 | –35 | — |
| Adjusted operating profi t as a % of invoiced sales** | 13.0 | 16.3 | –3.3 | — |
| Number of employees*** | 12,965 | 14,054 | –8 | — |
* Change in relation to the preceding year at fi xed exchange rates for comparable units.
** Operating profi t adjusted for non-recurring costs of approximately 1,250 million SEK for 2013 and approximately 170 million SEK for 2012.
Sandvik Machining Solutions noted a stable market during the year, with demand on a par with the preceding year, while a strong cash fl ow was achieved due to the successful reduction in working capital.
The Eurozone crisis continued to impact the global economy in 2013. The fi rst half of the year was characterized by slower growth, which persisted for a slightly longer period than anticipated. While some growth was reported in the latter part of the year, this was weaker than expected, particularly in the US and Asia. The overall trend was stable or unchanged in the developed economies, with the exception of the US, which displayed weaker performance compared with 2012. In highgrowth and developing markets, the trend was relatively solid.
Effective 1 January 2013, the Dormer product area was transferred from Sandvik Venture to Sandvik Machining Solutions.
The Sandvik Coromant product area successfully launched the GC4325 steel-turning insert.
During 2013, the re-launched Carboloy brand was established in China aimed at the country's mid-market segment.
During the year, processes were initiated to shutdown or reduce capacity at a number of production sites to address overcapacity, lower manufacturing costs and to better adapt the business area's supply chain geographically to global demand.
In September, the acquisition of the remaining 51% stake in Precorp Inc. was announced. The company is based in Spanish Fork, Utah, in the US, and offers polycrystalline diamond (PCD) and cemented-carbide tools (drills, micro tools, reamers and end mills) for highspeed metal-cutting operations. The products meet the requirements of highspeed machining of die-cast aluminum carbide parts and machining of advanced composite materials as well as many
other materials. The company serves customers worldwide, primarily in the automotive and aerospace segments.
A review was performed in the fi rst half of 2013, resulting in a revised growth strategy for the business area, which was presented in September. The strategy highlights the following areas as pillars for future success: Leading offering and technology, leading cost and productivity, broad mid-market launch, and increased focus on portfolio and mergers and acquisitions. To enhance the cost structure and productivity, the number of production sites will be reduced over the next three to four years.
| MSEK | 2013 | 2012 | Change, % | Change, %* |
|---|---|---|---|---|
| Order intake | 28,715 | 29,914 | –4 | 0 |
| Invoiced sales | 28,543 | 29,713 | –4 | 0 |
| Operating profi t | 5,205 | 6,374 | –18 | –12 |
| Operating profi t as a % of invoiced sales | 18.2 | 21.5 | –3.2 | — |
| Adjusted operating profi t** | 5,695 | 6,457 | –12 | — |
| Adjusted operating profi t as a % of invoiced sales** | 20.0 | 21.7 | –1.7 | — |
| Number of employees*** | 19,055 | 19,223 | –1 | — |
* Change in relation to the preceding year at fi xed exchange rates for comparable units.
** Operating profi t adjusted for non-recurring costs of approximately 490 million SEK for 2013 and approximately 83 million SEK for 2012.
Sandvik Materials Technology continued to improve its profi tability as a result of the Step Change Program, despite the headwinds experienced in the market. Demand was strong in strategic segments, such as oil and gas, while it remained tentative in other areas.
During 2013, Sandvik Materials Technology continued to improve its profi tability as a result of the Step Change Program. Since the launch of the improvement program in September 2011, it has contributed an EBIT effect of 1.4 billion SEK, including a structural reduction of 1,000 employees. Net working capital has been reduced by 1.6 billion SEK. During the year, efforts to improve safety intensifi ed, resulting in a 30% reduction in the number of lost time injuries compared with 2012.
Continued strong demand in the oil and gas segment generated several major orders during the year. As a result of weaker market conditions in the nuclear power industry, the order backlog for steam generator tubing was written down by 1.1 billion SEK in June and capacity will be adjusted in the second quarter of
Several major investments were made during the year, primarily related to enhancing safety and supporting growth in strategic areas. Investments in fi nishing will alleviate a major bottleneck for tubular and bar products primarily for the energy segment. Restructuring of the wire and strip operations, announced in 2012, is being implemented.
The new, high-alloy grade Sandvik SAF 3207TM for oil and gas applications gained market shares during the year, as did new applications for well intervention. During the year, Sandvik also secured major orders for powder technology-based solutions for the oil and gas segment.
During the year, a strategic review was carried out and, in October, a new strategic direction was announced that will establish Sandvik Materials Technology as a long-term value-creating business area with a more stable level of profi tability over a business cycle. The strategy outlines three important directions: sustained strong focus on safety, continued evolution of advanced materials for the most demanding industries, and growth in the energy segment. The ambition is to achieve a share of sales to the energy segment in excess of 50%. To achieve this, the business area will accelerate the development of strategic products. A more lean and cost-effi cient business model will be introduced for the standardized part of the product program. R&D resources and investments will be reallocated to strategic areas with favorable growth potential to support the anticipated expansion.
| MSEK | 2013 | 2012 | Change, % | Change, % * |
|---|---|---|---|---|
| Order intake | 13,415 | 14,708 | –9 | –5 |
| Invoiced sales | 14,035 | 15,366 | –9 | –6 |
| Operating profi t | 1,270 | 592 | 114 | 140 |
| Operating profi t as a % of invoiced sales | 9.0 | 3.9 | 5.2 | — |
| Adjusted operating profi t** | 1,564 | 1,541 | 1 | — |
| Adjusted operating profi t as a % of invoiced sales** | 11.1 | 10.0 | 1.1 | — |
| Number of employees*** | 7,113 | 7,307 | –3 | — |
* Change in relation to the preceding year at fi xed exchange rates for comparable units.
** Operating profi t adjusted for negative metal price eff ects totaling 294 million SEK for 2013 and negative metal price eff ects of 281 million SEK and approximately 667 million SEK in non-recurring costs for 2012.
The demand trend for Sandvik Construction was mixed in 2013 due to the global economic slowdown and unstable market. Meanwhile, growth was noted in certain sectors.
Order intake increased by 5% in North America and 32% in Africa and the Middle East. In Europe, order intake declined 10%, partly due to a 270 million SEK impairment of the order book in the fourth quarter. Demand in South America declined by 7% mainly as a result of a decline in the construction markets of Brazil and Peru. Asia grew by 9%, primarily due to higher demand in China and a modest increase in India. There is considerable potential for further development of the business area, which can be achieved through market growth and by capturing market shares, particularly in the US, China, India, Brazil, Mexico, Russia and Africa.
While the completion of the turnaround plan during 2012 resulted in a leaner and more effi cient organization, the focus in 2013 was primarily on the implementation of a plan to ensure profi table growth. Sandvik Construction's growth strategy is being further enhanced by increasing focus on fi ve areas: service as a business, sales boost, operational effi ciency, competitive footprint, and partnership.
The "service as a business" concept will improve capabilities, coverage and competitiveness by promoting the proactive selling of parts and services and making the combination of products and services a competitive advantage for the business area. "Sales boost" will focus on increasing global coverage, developing new distributor contracts and capitalizing on new product launches. "Operational effi ciency" and "competitive footprint" will increase supply chain competitiveness and develop lean processes as a way of working, supporting the objective of aligning Sandvik Construction's global footprint with the forecast market demand. "Partnership" will facilitate an accelerated growth path in and beyond current core business areas.
During the year, Sandvik Construction launched 37 new products. The CH550 is the fi rst cone crusher based on a new platform offering easier handling, a plastic-free crushing chamber, safer maintenance and cost-effi cient operation. The product launches also included: a drill bit for drilling in softer material such as limestone, a mobile crusher with recirculation screen and a mobile jaw crusher. In addition, SandlockTM was launched; a lifting device that makes changing of the mantle and the concave wear parts on cone crushers as simple and safe as possible. A large number of products were specifi cally developed for the mid-market segment. Among other items, a new range of hydraulic hammers was launched under the Bretec brand and, from the Shanbao joint venture in China, cone crushers, jaw crushers and horizontal impact breakers were launched.
By focusing on continuous improvements, Sandvik Construction has further shortened time-to-market and improved the environmental, health and safety aspects of launched products. R&D activities in China for the business area's surface drilling applications are now operational. Meanwhile, Shanbao's mid-market crushing and screening R&D team was signifi cantly strengthened, resulting in an increase in the number of new products.
| MSEK | 2013 | 2012 | Change, % | Change, %* |
|---|---|---|---|---|
| Order intake | 8,521 | 9,013 | –5 | –1 |
| Invoiced sales | 8,601 | 9,683 | –11 | –7 |
| Operating profi t | 110 | 748 | –85 | –72 |
| Operating profi t as a % of invoiced sales | 1.3 | 7.7 | – 6.4 | — |
| Adjusted operating profi t** | 310 | 748 | –59 | — |
| Adjusted operating profi t as a % of invoiced sales** | 3.6 | 7.7 | –4.1 | — |
| Number of employees*** | 3,147 | 3,289 | –4 | — |
* Change in relation to the preceding year at fi xed exchange rates for comparable units.
** Operating profi t adjusted for non-recurring costs of approximately 200 million SEK for 2013.
LAUNCH OF A NEW LEADING PRODUCT AREA
SUPPLY CHAIN OPTIMIZATION
ACQUISITION OF TECHNOPARTNER SAMTRONIC GMBH
Despite challenging market conditions, Sandvik Venture's focus has been to lay a stable foundation for profi table growth. This has included new product launches, selective capacity investments and supply chain optimization.
Sandvik Venture's mission is to grow businesses that can generate value for Sandvik – both strategically and fi nancially. The aim is to create an environment in which focus and resources can be directed toward small and mid-sized businesses while they can still benefi t from being part of the Sandvik Group. Sandvik Venture will also create a platform upon which future leaders can build new businesses and expand their leadership capabilities. The product areas are managed as standalone entities, accountable for their targets and business strategies. At yearend, the business area comprised Sandvik Process Systems, Sandvik Hyperion™ and Wolfram Bergbau und Hütten.
During the year, Sandvik Process Systems continued to implement its investment in leveling capacity for belt production in Sandviken. A major product launch during the year was the Rotoform® 4G, which is a high-capacity pastillation system. In September, Sandvik Process Systems acquired TechnoPartner Samtronic GmbH, a manufacturer of feed/scattering machines and double belt presses. The acquisition is a part of the product area's strategy to grow in the attractive composites segment.
In June, a new leading product area, Sandvik Hyperion, focusing on hard and super-hard materials, was created by merging the previously independent product areas Diamond Innovations and Sandvik Hard Materials. A key product launch in 2013 was an industry diamond solution for the electronics industry. During the year, it was also decided to optimize the supply chain by closing Sandvik Hard Materials' production unit in Mayfi eld, Australia, and consolidate
Diamond Innovations' two production facilities to the existing unit in Worthington, Ohio, in the US.
During the year, Wolfram Bergbau und Hütten continued to implement its investment in increased cemented- carbide recycling capacity in St. Martin, Austria. A milestone in this effort was the doubling of capacity for recycling of cementedcarbide scrap.
Sandvik Venture's main priorities going forward are growth in identifi ed focus segments, to determine, assess and commercialize new opportunities and continued effi ciency measures.
| MSEK | 2013 | 2012 | Change, % | Change, %* |
|---|---|---|---|---|
| Order intake | 5,535 | 6,021 | –8 | –6 |
| Invoiced sales | 5,394 | 5,963 | –10 | –5 |
| Operating profi t | 606 | 1,120 | –46 | –45 |
| Operating profi t as a % of invoiced sales | 11.2 | 18.8 | –7.6 | — |
| Adjusted operating profi t** | 806 | 1,120 | –28 | — |
| Adjusted operating profi t as a % of invoiced sales** | 14.9 | 18.8 | –3.9 | — |
| Number of employees*** | 2,635 | 2,668 | –1 | — |
* Change in relation to the preceding year at fi xed exchange rates for comparable units.
** Operating profi t adjusted for non-recurring costs of approximately 200 million SEK for 2013.
Strong innovation is driving Sandvik's research and development (R&D) forward. The strategic initiatives to boost the Group's R&D competitiveness are long-term and comprehensive. The innovative excellence is based on partnerships within R&D as well as with Sandvik's company for patents and trademarks. The subsequent difference for customers, such as higher productivity, reduced environmental impact and improved workplace health and safety, is the result of Sandvik's technical excellence in close collaboration with customers.
An R&D Board, led by the Senior Vice President and Head of Group R&D together with representatives from Sandvik's business areas, is responsible for the strategic direction of Sandvik's joint research activities. The R&D Board is also tasked with generating synergies and developing methods and processes to safeguard effi cient and innovative R&D work in Group-wide projects and initiatives. Each business area is responsible for its own R&D program.
The research and development strategy is closely aligned with Sandvik's business strategy, and aims to focus the research on priority areas for the Group. Identifi ed global trends are carefully monitored and underlie the Group's strategic initiatives.
One expression of the global strategy is the investment in global R&D centers in India and China, which will strengthen the Group's growth in these emerging markets. The focus of the center under development in India is on materials and process engineering, with cutting-edge expertise in modeling and simulation as well as research projects to defi ne possible future core activities. The center being built up in China will focus on environment and energy, with an emphasis on creating a technological platform for future business opportunities in these areas. Both of these centers enable the
adaptation of product offerings to regional customer requirements that reduce time-to-market and support all business areas in each fi eld of expertise.
During the year, three Centers of Excellence were created that gather the Group's specialists in materials characterization, powder metallurgy, and modeling and simulation to utilize the combined expertise and capabilities. They also provide a forum for sharing knowledge within the organization and support Sandvik's research units with R&D services. This enables customers to gain even greater leverage from Sandvik's combined innovative excellence.
Technical competence is a cornerstone for Sandvik's success. To attract, retain and develop these fi elds of competence, career paths are being introduced for employees and experts at R&D, providing totally new opportunities to leverage technical expertise. During the year, two Group Experts at the very highest level of expertise were appointed.
A milestone for Sandvik's long-term research is the Group's investment in additive manufacturing – or 3D printing – where a specialized team of 12–15 engineers and designers will devote the next few years to investigating potential applications for this materials and manufacturing technology in the Group's production processes.
A well-developed partnership with Sandvik's company for patents and trademarks safeguards the Group's product portfolio and thus its innovations and revenue. The head of the patent company is a member of the R&D Board and patent resources have been specifi cally assigned to the major R&D centers as a means of support. Sandvik has a portfolio of approximately 8,000 active patents and other intellectual property rights, most of which are in the US, followed by China. The patent portfolio is continuously reviewed to optimize business advantages.
Since Sandvik values its close relationships with the universities, colleges and research institutes that are producing tomorrow's technical expertise, it participates in a range of research programs. Within the framework of these partnerships, the Group also sponsors postgraduate students. In addition, Sandvik has adjunct professors, for example, at Chalmers, Gothenburg, Sweden, where Bo Jönsson is an adjunct professor in high-temperature corrosion. At Uppsala University, Sweden, Susanne Norgren is an adjunct professor in tribology. The Group Head of R&D, Olle Wijk, is also a visiting professor at Shanghai University in China.
| Business areas' R&D | |||
|---|---|---|---|
| Business area | Development and focus areas | Products | |
| Sandvik Mining | The business area was restructured to create glob ally coordinated product areas for R&D with harmo nized working methods, management and project models. Focus areas are automated mining solutions |
PANTERATM – Reliable and stable automated drill platform delivering increased drilling capacity and service life, lower fuel consumption, and improved safety and work environment compared with alternatives in the market. |
|
| for enhanced safety and energy effi ciency and alter native energy sources that reduce running costs for the customer. |
DD422i AXERATM – The fi rst of Sandvik's Next Generation underground drill rigs. The DD422i is a precision rig off ering a high degree of safety for auto mated mining operations and cost effi ciency. |
||
| TH551 and TH663 – High-performance trucks featuring 63 innovative safety functions that protect the operator, maintenance technicians and machine. Optimized load capacity and speed. |
|||
| Sandvik Machining Solutions Enhanced productivity and delivery capacity through more intimate collaboration between prod uct areas and production within basic research and |
GC4325 – Sandvik Coromant's ground-breaking cemented-carbide insert for the largest application area of metal turning. The grade boosts productiv ity and reliability for the customer. |
||
| strategic process development, as well as harmo nized methods and systems for product develop ment. The focus in order to retain the business area's |
BLAXX™ – High-performance and reliable milling concept from Walter that draws on unique internally developed production technology. |
||
| leading position is on safeguarding technical leader ship in core areas. |
MS2050 – Seco Tools' new concept for turning titanium. It increases produc tivity and service life for customers in the aerospace industry and the oil, gas and energy sectors. |
||
| Sandvik Materials Technology |
An R&D unit has been established in China to strengthen presence in Asia and enable technical support and product development to be adapted to |
Reverse Composite HT5/SANICRO™ 30 – Compound tube product for coal gasifi cation that promotes increased energy effi ciency from coal, greater fl exibility for fuel usage and reduced CO2 emissions per unit of energy. |
|
| local conditions. The business area also strength ened resources in the fi eld of materials development by investing in a new transmission electron micro |
SANDVIK SPRINGFLEX™ – A duplex steel for deployment in spring applica tions with superior resistance to fatigue and corrosion. |
||
| scope in Sandviken, Sweden, for the advanced study of materials. Increased strategic focus on R&D of products for the energy segment and special alloys, where the business area is developing new alloys mainly for the oil and gas industry. |
Electric process heaters – A new generation of explosion-proof electric process heaters tailor-made for customers. Especially suitable when steam of a suffi ciently high temperature is unavailable or when a compact heater is required. |
||
| Sandvik Construction | The focus on continuous improvements has short ened time to market and improved environmental, health and safety work. R&D is investing in the fi eld of |
CH550 – A new generation of cone crusher with signifi cantly enhanced per formance as well as easier and safer maintenance that results in a lower total operating cost. |
|
| wear and spare parts to strengthen the aftermarket for all product areas, and a pilot facility to accelerate research in wear parts was established. |
QS331 – A medium-sized mobile crusher that uses the CS430 cone crusher to open up a unique niche market with few competitors. |
||
| DD311 – A single-boom tunneling jumbo; ideal as an entry-level drill rig for emerging markets. |
|||
| Sandvik Venture | The Sandvik Hard Materials and Diamond Innovations product areas have been merged to |
ROTOFORM® 4G – Sandvik Process Systems' new granulation system features high capacity and improvements that enhance safety and quality. |
|
| form the Hyperion product area and R&D was restructured to align its operations with the cus tomer segments. The emphasis of research is on product renewal and development for growth in |
HYPERIONTM – An industrial diamond that is adapted on the basis of the cus tomer's requirements; used for such purposes as polishing glass surfaces in the electronics industry with high surface fi nishing requirements. |
||
| closely related customer segments. Processes are developed to promote enhanced product perfor mance and cost effi ciency in production. |
Process for recovery of cemented-carbide scrap – Wolfram Bergbau und Hütten's innovative processes are being introduced in an extensive invest ment to increase capacity for the recovery of cemented-carbide scrap. |
The global change program at Sandvik continued in 2013 with an intensifi ed focus on concluding the human resources (HR) transformation. This was aimed at securing improved HR support for the Group's managers and employees. As a result of these efforts Sandvik has developed a global HR organization with more distinct roles, responsibilities, and governance. Staffi ng of the new organization has been completed. In parallel with the change program, major progress has also been made in several key focus areas: Leadership Development, Succession Planning, Talent Development, Employer Branding, Diversity, and Securing internal career paths.
The HR strategy has been developed to ensure that all activities support the Group's business. Each business area has identifi ed important initiatives and challenges in the HR area on the basis of Sandvik's long-term business strategies. These areas have been assigned priority and represent an extension of Sandvik's HR strategy. On the basis of this work fi ve main areas have been identifi ed, each containing a number of key initiatives. The areas are Performance Culture, Leadership, Change Management, and Talent Development. The fi fth main area encompasses a number of initiatives necessary to secure quality, effi ciency and productivity development in Sandvik's HR activities.
Sandvik's core values form the basis for all the Group's activities and programs aimed at training employees in the area continued during the year. In 2013, a project to update the core values also commenced, the purpose of which is to refl ect Sandvik's strategy and raise growth ambitions in an increasingly competitive market.
Sandvik's EHS (Environment, Health & Safety) vision is Zero Harm and the Group's motto is "Safety First". This
Number of employees, 2009–2013*
44,355 47,064 50,030 48,742 47,338
* Restated to Full Time Employees (FTEs) at 31 December 2009–2013. 2009 2010 2011 2012 2013
vision will be achieved through global and local initiatives. Activities are harmonized and standardized across the entire Group. At the same time, the business areas will be empowered to implement innovative solutions for achieving Sandvik's EHS objectives. The Group has identifi ed critical success factors for achieving its vision: an active and visible EHS leadership, a sharing and learning culture, clear EHS communication, and accountability for the implementation of EHS plans.
Sandvik's work toward achieving its Zero Harm vision is coordinated by the EHS Council, which has a formal charter to advise Group Executive Management on EHS policy as well as long and shortterm targets. The Council also works to harmonize the manner in which Sandvik's business areas work with EHS. The new objectives and targets, which will apply between 2013 and 2015, focus more on preventative activities compared to earlier objectives and targets. In parallel, Sandvik will focus on monitoring the progress of performance indicators that reveal the outcome of the work performed, including Lost Time Injury Frequency Rate (LTIFR). Sandvik's LTIFR improved by 27% in 2013 and was 3.2 at year-end. The target of 3.7 was surpassed.
4HEdžVELARGESTCOUNTRIESINTERMSOFNUMBEROFEMPLOYEES RESTATED TO&ULL4IME%MPLOYEES&4%S AT\$ECEMBER
Sandvik strives to continuously develop and strengthen its Performance Culture, which is decisive if the company is to utilize the full potential of its employees and of the company.
In 2013, a Group-wide framework and system support for the performance dialog process was introduced and covers all employees. The emphasis in 2014 will be on the creation of a more effi cient method. This will cascade the objectives through the organization and ensure that this permeates the performance dialog process at all levels in the Group.
Within the framework of the HR strategy, initiatives will be taken to continue the work aimed at realizing a high-performing organization. This will include areas such as compensation strategy, culture and core values, diversity as a business advantage and the company's framework for performance management.
A prerequisite for succeeding with the continued globalization is the Group's dedication to its diversity and inclusion efforts. Introduction of the global diversity strategy commenced in 2012 and continued in 2013. Each business area has conducted situation analyses and identifi ed improvement areas in relation to the Group's long-term targets for diversity and inclusion. An action plan for managing these improvement areas has been compiled for 2013–2015. The action plan is continuously monitored by each management team within the framework of the business areas' quarterly follow-up procedures.
| Workplace: | A culture of inclusion. |
|---|---|
| Workforce: | A diverse workforce at all levels and in all functions. |
| Marketplace: | A high-performing organization, capitalizing on diversity and inclusion to remain competitive in the global market. |
During 2013, Sandvik continued to focus on globalization in the Group's key positions in terms of nationality, gender, and age distribution. At present, Group Executive Management includes three women, compared with one woman at the beginning of 2013. During the year, Petra Einarsson was appointed Sandvik's fi rst female business area president when
she took over as head of Sandvik Materials Technology. In terms of nationality, in addition to Swedes, Group Executive Management now has representatives from China and the UK. Dinggui Gao, President of Sandvik Construction, is Sandvik's fi rst business area president from Asia.
In 2013, Sandvik participated in a 12-month project called "Battle of the numbers" together with nine other Swedish companies. The project aimed to develop practices for increasing the share of women in operational management positions. The name, "Battle of the numbers", refers to increasing the share of women, as well as profi tability, in the
companies. Sandvik's participation in the project during the year resulted in plans and ambitious targets for how the number of women in operational management roles within the Group will be increased. Group Executive Management played an active role in the process, which was led by a project group comprised of ten selected female managers in the Group. The project group's recommendations to Group Executive Management were based on their own experiences of building a career at Sandvik.
Within the Group, the share of women in the management teams of the business areas continued to rise and is now 21%. This represents an increase of 9% since
| Objective | Target | Due | Status | Comment |
|---|---|---|---|---|
| Eliminate all fatalities and perma nently disabling injuries by identify ing and controlling extreme potential risk situations. |
Each business area is to complete a risk assessment to identify all Extreme Potential Hazards (EPH). |
2013 | Completed | All business areas have achieved the target. |
| Implement standards to control these risks. |
2015 | Ongoing | Progressing according to plan. | |
| Ensure that systems and culture are in place to further reduce the num ber and severity of work-related inju ries, illnesses and other incidents. |
All major production-related units (with more than 25 employees) will develop formal safety plans containing activities, which are to be approved in each business area. |
2013 | Completed | All business areas have achieved the target. |
| Activities in the formal safety plans to be implemented. |
2015 | Ongoing | Progressing according to plan. | |
| All other units are to develop general safety plans to ensure strong safety culture throughout the company. |
2013 | Ongoing | All units did not have plans in place at the end of the year. |
|
| Activities in the general safety plans implemented. |
2015 | Ongoing | Progressing according to plan. | |
| Achieve a Lost Time Injury Frequency Rate (LTIFR) of 3.7. |
2013 | Completed | The target was achieved and work toward attaining the long-term target (2015) is proceeding according to plan. LTIFR was 3.2 at the end of the year. |
|
| Establish culture and environment that support employee health and well-being. |
All employees are to have continued access to a health and well-being program through their own Sandvik company. |
2013–2015 | Ongoing | Delayed. About 60% of the units indicated that they had a program that had been fully implemented or that had only some work remaining at year-end. Other units stated that they did not have a program in place or that they had initiated work in the area. |
| Most employees should perceive the program available to be eff ective. |
2013–2015 | Not initiated | Planned to be included in the company's next employee survey. |
Sandvik's successful diversity efforts are conducted both globally and locally. In 2013, the Group created local diversity action plans in India, South Africa and Sweden. During the year, managers and employees in these countries also took part in training initiatives to highlight the business advantages of diversity. The training course focuses on how Sandvik's employees can be part of, and contribute to, a culture of inclusion that capitalizes on the potential of employees.
A new Head of Compensation & Benefi ts was employed. Group Executive Management introduced a compensation strategy that is currently being implemented across the entire Group. During the year, work also focused on the formation of the global Compensation & Benefi ts team. A range of other initiatives were also carried out in parallel, the aim of which is to support Sandvik's business. The Group also initiated a re-examination of Sandvik's external benchmark position in relation to other companies in all markets where the Group conducts operations. A review of the Group's sales incentive programs has also been initiated. This marks the beginning of a global compensation and benefi ts agenda. This is driven by the intention to reinforce the performance- oriented business culture needed for Sandvik to achieve its business objectives.
Sandvik's leadership initiatives will provide the Group with leaders who are able to develop their operations, their employees and themselves. Sandvik's leadership model was launched in 2012 and is designed to support the Group's strategic direction. The leadership criteria for all managers are reviewed annually in performance dialog. Employees use the same criteria to evaluate their managers in the internal empowerment survey.
A number of leadership programs, based on Sandvik's business strategy and leadership model, were introduced in 2013. These include ONE SGL (Sandvik's global leadership program), ONE SLP (Sandvik's leadership program for middle managers) and ELP (Sandvik's executive leadership program for senior management).
ONE SGL is a global leadership program that is being introduced worldwide and is now available in many countries. The program, which is delivered in local languages, comprises three modules and runs for about three months. Just over 700 managers were trained in 2013, and more than 900 managers have been trained since the program was introduced in 2012.
* Number of Lost Time Injuries per million work hours.
The ONE SLP leadership program comprises three modules that are linked to the fi ve different parts of the leadership model. Program participants represent all business areas, a mix of functions, geographical origin, gender and level of experience is a vital part of creating a highly diverse and dynamic group. Four programs were started in 2013, and a total of 60 participants completed the program.
In 2013, Sandvik's senior managers underwent a leadership program comprising three modules. The Executive Leadership Program (ELP) mainly focuses on strategy, leadership and change management. The plan is to convert the ELP into a continuous program for the Group's 350 senior managers. The fi rst program will be implemented at the end of March 2014, under the name of ONE ELP.
Sandvik's ability to attract, develop and retain talent is a key factor for ensuring performance and growth. The Group strives to be a leader in this area.
During the year, succession planning was carried out for all positions that have a direct impact on business goals and are therefore critical for the Group. People with the potential to fi ll these positions in both the long and short term were identifi ed, and action plans were drawn up. During the year, a sustained focus on Group-wide staffi ng forums for the appointment of key positions further strengthened the conditions for internal mobility.
In 2013, various activities to develop and motivate employees with high potential were initiated. Sandvik's global mentor pool, where senior managers mentor next-generation managers and experts, was launched. A talent development program was also initiated at a global level and in selected countries.
A strong employer brand is critical for Sandvik in order to meet the Group's strategy and objectives. To attract, develop, and retain the most talented people at Sandvik, the introduction of a
* The share is based on approximately 90% of the total number
̆ 2ESTATEDTO&ULL4IME%MPLOYEES (FTEs) at 31 December 2013.
global strategy to strengthen the Group's employer brand was introduced in 2013.
Several initiatives linked to Employer Branding were also initiated during the year. These included the launch of a new global career page on the Group's website sandvik.com and an increase in the use of social media. LinkedIn, the global networking website for professionals, is now one of the Group's main Employer Branding channels. The number of Sandvik's LinkedIn followers has increased by 164% over the past year. Sandvik also communicates its employer brand messages via Facebook, Twitter and Instagram.
In addition to these activities, Sandvik worked actively to continue building relationships with students at universities and institutes of higher education during the year. The Group also welcomed students to Sandvik where they could experience the company from within.
During the year, a decision was made to launch a global trainee program in autumn 2014.
Sandvik's employment conditions are based on the UN Universal Declaration of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.
Sandvik's performance management is also refl ected in the strategy for remuneration and compensation, which aims to support Sandvik's business objectives and contribute to maintaining Sandvik's status as an attractive company in which to work and develop. The Group's remuneration model comprises fi xed salary, performance-based annual variable salary, long-term performance-based salary for senior executives and specialists, pensions and other benefi ts. According to the Group's remuneration policy, fi xed salary is based on four cornerstones: the complexity and diffi culty of the position, individual performance, the salary situation in the relevant market and stimulation of the individual's professional development. Some of Sandvik's personnel are entitled to performance-based variable salary. Remuneration of these individuals is always based on predetermined goals. For remuneration of senior executives, refer to the adjacent columns and Note 3.5.
The Board proposes that the Annual General Meeting resolve to adopt the following guidelines for the remuneration of senior executives for the period extending until the 2015 Annual General Meeting.
The remuneration of Group Executive Management is to comprise fi xed salary, variable salary, pension and other benefi ts. The total remuneration package should be based on market terms, be competitive and refl ect the individual's performance and responsibilities as well as the Group's earnings trend.
The variable salary may comprise short-term incentives in cash and longterm incentives in cash, shares and/or share-based instruments in Sandvik AB. Variable salary in cash is conditional upon the fulfi llment of defi ned and measurable goals and should be maximized in relation to the fi xed salary. Long-term incentives in the form of shares and/or share-based instruments in Sandvik AB may be provided through participation in long-term incentive programs approved by the General Meeting. Terms and conditions for variable salary should be designed so that the Board, if exceptional economic circumstances prevail, has the option of limiting or refraining from payment of variable salary if such a measure is considered reasonable.
In specifi c cases, agreements may be reached regarding one-off remuneration amounts, provided that such remuneration does not exceed an amount corresponding to the individual's annual fi xed salary and maximum variable salary in cash, and is not paid more than once per year and individual.
Pension benefi ts should either be defi ned benefi t or defi ned contribution, or a combination thereof. The retirement age for the President is 60 and for other members of Group Executive Management the retirement age is 62.
Normally, severance payment is made when employment is terminated by Sandvik. Members of Group Executive Management generally have a period of notice of not more than 12 months in combination with severance pay corresponding to 6–12 months fi xed salary. An alternative solution may be applied to the President comprising a period of notice of 24 months and no severance pay. No severance payment will be made when employment is terminated by the employee.
The Board is to have the right to depart from the guidelines resolved on by the Annual General Meeting if, in an individual case, there are special reasons for this.
The sphere of senior executives encompassed by the guidelines comprises the President and other members of Group Executive Management.
For information concerning the current remuneration of senior executives, including ongoing long-term incentive programs, refer to Note 3.5.
Sandvik's operations have a signifi cant impact on the environment. This involves everything from how raw materials are selected and used, how energy is used in production, heating and transportation, how chemicals and waste are handled, to the extent of recycling and how the company's products are used by the customer.
Sandvik respects and observes environmental legislation in all countries where it operates. Moreover, the following four basic environmental principles that are detailed in the UN Global Compact, the OECD's Guidelines for Multinational Enterprises and ISO 26000 are fully integrated into Sandvik's work procedures:
The environmental impact from Sandvik's own operations is both direct and indirect. The signifi cant environmental aspects are:
Sandvik's emissions to the atmosphere comprise metal dust, organic substances, carbon dioxide and acidifying substances. These emissions are mainly caused by the company's production processes and combustion of fossil fuels in conjunction with heating and transportation, and
indirectly from purchases of electricity produced using fossil fuels.
Sandvik uses freshwater and discharges treated process wastewater. Economizing with freshwater is important, particularly in water-stressed regions. A survey has been carried out of the facilities' locations relative to various water-related stress factors. Five facilities in India and one in China will be more closely analyzed with the aim of enhancing the effi ciency of water use.
The indirect environmental impact relates to the parts of the value chain that are not owned by Sandvik, meaning in the supplier, distribution and customer stages and the phasing out or recycling of products. It is thus vital to consider the entire value chain when describing real changes in environmental impacts. In certain cases, the environmental impact from raw materials, production and the delivery of products, can be substantially offset by environmental savings in the user phase, for example, as a result of potential energy optimization in the customer stage.
Sandvik has approximately 150 sites worldwide that hold various types of environmental permits where required depending on legislation. Sandvik is entirely dependent on the environmental permits granted for these sites. The environ mental impact of Swedish operations is presented below.
In Sweden, Sandvik conducts licensed operations in accordance with the Environmental Code at 12 plants (Sandviken, Gimo, Stockholm - Västberga, Halmstad, Hallstahammar, Surahammar, Svedala, Köping, Fagersta, Arboga, Norrköping and Ludvika). The environmental permits for these sites relate to such activities as the manufacturing of steel and ingots/ CC-blooms/CC-billets, the further processing of steel for bar, tube, strip and wire
products, rock-drilling products, the manufacture of ceramics, metal powder, cemented- carbide products, castings and various equipment, and tools. All plants hold the requisite environmental permits for operations. The main environmental impacts are emissions to air and water, noise, environmental impacts due to energy use, waste production and older contaminated land.
The production permit for Seco Tools' facility in Fagersta needs renewal due to the expansion of powder production. The application process for this is ongoing. In 2013, an investigation to ascertain whether mercury emissions from the steelworks in Sandviken could be reduced was presented to the Land and Environment Court. A decision is expected in 2014 at the earliest. Sandvik Mining's facility in Svedala was granted a new permit under the Environmental Code, with two deferred issues regarding wastewater and solvent emissions.
No breaches of permissible manufacturing volumes or limit values prescribed in the permit conditions under the Environmental Code occurred during the year. A number of guideline values were exceeded for noise and emissions to air and water at the plants in Hallstahammar, Sandviken, Svedala and Köping. Actions are taken to comply with these target values, often in consultation with supervisory authorities. For plants holding permits in Sweden, public environmental reports are submitted annually to supervisory authorities. The plants in Sandviken and Hallstahammar are included in the EU's carbon emissions trading scheme. For 2013, emission rights corresponding to 90,780 tons of CO2 were assigned. In addition, the Group purchased a further 11,934 emission rights during the year.
Read more in Sandvik's Sustainable Business Report at www.sandvik.com/sustainability.
The aim of Sandvik's risk management is to minimize risks within the company and also to ensure that opportunities are leveraged in the best possible manner. Sandvik has a favorable risk spread with sales in more than 130 countries in about 20 product areas and a number of different industries.
The Sandvik Group applies a comprehensive program for risk management – Enterprise Risk Management (ERM).
The program covers all parts of operations, business areas as well as Group functions. ERM is an integral part of the control of Sandvik's operations and assists the company in taking action when changes occur in the external environment and market conditions.
The main components of risk management are identifi cation, evaluation, management, reporting, follow-up and control. An action plan is established for each risk to accept, reduce, eliminate or increase the risk. Also, this is now a requirement under the OECD's Guidelines for Multinational Enterprises regarding responsible business conduct. Formal procedures and processes are established for the reporting, monitoring and control of risks. A full, consolidated ERM Report is submitted to Group Executive Management twice a year and to the Board once a year.
Signifi cant uncertainty continued to characterize Sandvik's markets in 2013. Risk management was focused on the Group's business risks in order to effi ciently retain and balance capacity and personnel during periods of both economic upturn and downturn, and on risks associated with Sandvik's sustainability responsibility, in particular supplier audits and anti-corruption.
* Reporting twice per year, of which once to the Sandvik Board of Directors.
Each manager with operational responsibilities is to ensure that risks associated with the operations are appropriately identifi ed, evaluated and managed. Operational risks include market and country risks, R&D risks, product risks, production risks, health and safety risks, environmental risks, anti-corruption risks and human rights risks. Each unit's risks are regularly summarized in a report, which also details the actions that are being taken to manage the risks. Each risk is evaluated and assigned an action plan. All this information is consolidated at Group level.
On occasion, Sandvik is party to litigation and administrative proceedings related to its operations, including responsibility for products, the environment, health and safety. However, Sandvik does not deem that any of these ongoing proceedings and processes will signifi cantly affect the Sandvik Group.
To protect the return on the resources that Sandvik invests in research and development, the Group has a strategy for the active safeguarding of technical achievements against patent infringements and copying. Sandvik protects its intellectual property rights through legal proceedings when necessary.
In January 2014, the Supreme Administrative Court denied Sandvik leave to appeal in the dispute from 2005 concerning the reorganization and ownership of intellectual property rights. In line with the Administrative Court of Appeal's ruling in June 2013, Sandvik AB was thus taxed for a capital gain in 2005 of 18,063 million SEK, at the same time as amortization with respect to the intellectual property rights was granted in Sandvik Intellectual Property AB. Consequently, the ruling by the Administrative Court of Appeal resulted only in minor impact on the Group's earnings, as the additional capital gains tax of approximately 5 billion SEK in Sandvik AB essentially corresponds to the tax value of the increased amortization deductible for tax purposes in Sandvik Intellectual Property AB.
However, the reduced corporate income tax rate in Sweden, from 28% to 26.3% from 2009 through 2012, and to 22% effective from 2013, has a negative impact on the tax value of the amortization corresponding to the effect of the
reduced corporate income tax rate.
Sandvik is at times involved in discussions with the tax authorities concerning transfer pricing issues, meaning the prices applied on transactions between Sandvik companies globally. The Group keeps detailed transfer pricing documentation to support the transfer prices applied. If the tax authorities' opinion in a transfer pricing matter differs from Sandvik's position, it may have consequences for the Group's revenue recognition between countries.
Sandvik is globally engaged in many different areas and conducts its business within the framework of rules and regulations that apply in various countries, markets and factual areas. The Group is obliged to comply with laws governing environmental and labor issues, the operation of the business, taxation, terms of employment, marketing regulations, and so forth. The Group also has internally established regulatory systems and instructions as support for management and other employees in the company.
Operating companies within the Sandvik Group present reports on their fi nancial
performance and economic status on a regular basis in accordance with internal reporting rules and the accounting policies that Sandvik applies, the International Financial Reporting Standards (IFRS). The Group's controller function validates and analyzes the fi nancial information as part of the quality control of fi nancial reporting. See also the Corporate Governance Report on pages 63–68.
Through recurring updates conducted as part of the ERM work, specifi c changes in the business or in factors affecting the business are identifi ed. These may relate to the acquisition of a new company, a major investment, new legislation, sudden changes in market conditions, technical innovation, etc., whose implications must be individually assessed.
Sandvik has the customary insurance programs with respect to the Group's property and liability risks.
As a natural element of the Group's various activities, measures to limit the impact of damages are implemented continuously, often in cooperation with Sandvik's external insurance advisors. In such a context, standards for desired protection levels are established to reduce the probability of signifi cant material damages and to guarantee deliveries to customers.
Sandvik Financial Services is the functional organization responsible for managing the greater part of the Group's fi nancial risks. The primary objective of the function is to contribute to the creation of value by managing the fi nancial risks to which the Group is exposed in the ordinary course of business, and to optimize the Group's fi nancial net.
Through its comprehensive and international operations, Sandvik is exposed to fi nancial risks. The Board of Directors is responsible for establishing the Group's fi nance policy, which comprises the guidelines, objectives and limits for fi nancial management and the managing of fi nancial risks within the Group.
Sandvik Financial Services provides service to Group companies and its task is to support subsidiaries with loans, investment opportunities and foreign exchange deals, and to act as advisors in fi nancial matters. The function conducts internal banking operations and is based at the head offi ce in Stockholm. The internal bank is also responsible for the Group's cash management.
In addition, Sandvik Financial Services conducts operations for payment advice and trade fi nance, and is responsible for the Group's global policy for granting credit to customers in conjunction with sales. This activity is carried out mainly through the head offi ce in Stockholm and at several locations worldwide.
Finally, Sandvik Financial Services also manages the fi nancial risks associated with the company's defi ned-benefi t pension plans.
Only entities with a solid fi nancial position and high credit ratings are accepted as Sandvik's counterparties in fi nancial transactions.
The presentations comply with the reporting requirements stated in IFRS (IFRS 7 and IAS 39).
Sandvik's annual transaction exposure, meaning the Group's net fl ow of currencies, after full off setting of the countervalue in the exporting companies' local currencies, and measured at the average exchange rate, amounted to 11,800 million SEK (13,400) in 2013. The most important currencies for one year of exposure are shown in the diagram below.
Sandvik generally off ers customers the possibility to pay in their own currencies through the global sales organization. As a result, the Group is continuously exposed to currency risks associated with accounts receivables denominated in foreign currency and with future sales to foreign customers. Since a large percentage of production is concentrated to a few countries, while sales occur in many countries, Sandvik is exposed to a large net infl ow of foreign currencies. To reduce exposure to foreign currencies, currencies received are used to pay for purchases in the same currency.
A certain portion of the anticipated net fl ow of sales and purchases is hedged through fi nancial instruments in accordance with guidelines set in the Group's fi nance policy. In addition, major project orders are currency hedged to safeguard the gross margin. Under the fi nance policy, the CFO has a mandate to hedge the annual transaction exposure. At year-end, the total hedged amount was 3,470 million SEK (5,675). The average duration for the hedged volume of foreign currency was about four months (17). Unrealized gains from outstanding currency contracts for hedging of future net fl ows amounted to 229 million SEK (571) at year-end. Of this, 101 million SEK relates to contracts maturing in 2014 and 128 million SEK to contracts maturing in 2015 or later. Hedge accounting in line with IAS 39 is applied for the bulk of the hedge transactions. For a more detailed breakdown of the quarterly eff ects on cash fl ow of the transactions that have been recognized in the hedge reserve, see Note 29.
Sandvik's subsidiaries should normally not have any extensive translation risk in their balance sheets since the objective is that a subsidiary's receivables and liabilities in foreign currency are to be balanced (currency hedged).
Profi t/loss in a foreign subsidiary is translated to SEK based on the average rate for the period to which the profi t/ loss relates, which means that the Group's earnings are exposed to a translation risk.
Net assets, meaning the subsidiaries' shareholders equity, are translated into SEK at the rate applying on the balance sheet date. At 31 December, the Group's net assets in subsidiaries in foreign currency were 35,100 million SEK (33,500).
To avoid translation risk in the balance sheets of subsidiaries, they are fi nanced in local currency through the internal bank. The currencies required by the subsidiaries are shown in the adjacent diagram. External borrowing often takes place in a specifi c currency, as shown in the following diagram. The currency risk that arises in the internal bank as a result of this is managed using various derivatives, thus minimizing the translation risk.
Sandvik has chosen not to hedge future profi ts in foreign subsidiaries. Net assets are also not hedged, but the differences that arise due to changes in exchange rates since the preceding quarter are recognized directly in other comprehensive income. The fi nal diagram shows the distribution of net assets between various currencies.
| RISK | EXPOSURE | COMMENTS |
|---|---|---|
| EXCHANGE-RATE SENSITIVITY To gain a comprehensive understanding of how exchange-rate fl uctuations impact the Group's operating profi t, con sideration must be given to the transac tion exposure, the operating profi t of the subsidiaries in their respective curren cies and implemented hedges. The sensitivity of the Group's other comprehensive income to exchange rates depends on the size of net assets. Aside from net assets, other comprehen sive income is also exposed to exchange - rate risk, since certain derivative con |
If the exchange rates for the exposure currencies were to change by 5% in an unfavorable direction, total oper ating profi t over a 12-month period would change by approximately 1,500 million SEK (1,100), assuming that the composition is the same as it was at year-end. The net eff ect on other comprehensive income of a similar change to exchange rates would be approxi mately 1,800 million SEK (1,900). This net eff ect primar ily comprises translation exposure in equity. |
INTEREST-RATE RISK
year.
Interest-rate risk is defi ned as the risk that changes in market interest rates will have an adverse impact on the Group's net interest items. The impact on net interest items of a change in interest rates depends on the interest terms of assets or liabilities. Sandvik measures interest-rate risk as the change over the forthcoming 12 months given a 1 percentage point change in interest rates. Interest-rate risk arises in two ways:
tracts are subject to hedge accounting, which means that unrealized changes in the market value of these contracts are recognized directly in other comprehensive income instead of in profi t for the
If market rates were to rise by 1 percentage point across all terms at 1 January 2014, in relation to loans for which the interest rate will be reset during the coming year, net interest items would be impacted by –96 million SEK.
An interest-rate sensitivity analysis of interest-swap agreements valid at year-end, and to which hedge accounting was applied, shows that other comprehensive income would change by +174 million SEK as a result of a 1-percentage-point increase of the interest-rate curve.
| Including eff ects of interest-rate derivatives |
||||
|---|---|---|---|---|
| MSEK | Eff ective rate of interest, % |
Fixed-inter est term, months |
Recognized liability, MSEK |
|
| Bond loans, Swedish MTN | 4.3 | 36 | 6,858 | |
| Bond loans, European MTN | 4.6 | 66 | 10,462 | |
| Private placement | 3.6 | 61 | 5,462 | |
| Commercial papers | 0.0 | 0 | 0 | |
| Other loans from banks | 2.9 | 22 | 7,477 | |
| Total loans | 4.0 | 47 | 30,259 | |
| Interest eff ect of currency derivatives | 1.3 | |||
| Total incl. currency derivatives | 5.3 |
In the event that Sandvik has surplus liquidity, it is placed in bank deposits or in short-term money-market instruments (durations of up to 90 days), which means that the interest-rate risk (the risk of a change in value) is low.
The Group's interest-rate risk arises mainly in connection with borrowing. Interest-swap agreements are sometimes used to achieve the desired fi xed-interest term. The Group CFO has a mandate to vary the average fi xed-interest term of the Group's debt portfolio, provided that it does not exceed 48 months. The average fi xed-interest term on Sandvik's borrowing was 47 months (37) at year-end, with consideration given to interest-rate swap agreements entered into.
In line with the Group's fi nance policy, internal lending to foreign subsidiaries is hedged. Consequently, there is an interest rate eff ect in currency derivatives of 1.3% between the currencies the Group borrows and the currencies the Group lends. The Group's average interest expense, including other loans and eff ects of various derivatives, was 5.3% (5.4).
Hedge accounting is applied when an eff ective link exists between hedged loans and interest-rate swaps. Accordingly, changed market interest rates could also impact other comprehensive income, since the Group has interest-rate swap agreements to which it applies cash-fl ow hedging. This means that changes in the market values of these swaps are recognized directly in other comprehensive income instead of in profi t for the year. A presentation of all interest-swap agreements entered into, and information regarding their duration, can be found in Note 29.
Sandvik's loan conditions do not currently entail fi nancial covenants linked to key fi gures. Only under exceptional circumstances are assets pledged in connection with the raising of loans. Such pledging is disclosed in Note 28.
Liquidity and refi nancing risk is defi ned as the risk that fi nancing possibilities will be limited when loans must be refi nanced, and that payment commitments cannot be met as a result of insuffi cient liquidity.
| Currency | Recognized liability, MSEK |
Size of programs, MSEK |
Average remaining credit period (years) |
|
|---|---|---|---|---|
| Bond loans, Swedish MTN | SEK | 6,858 | 15,000 | 4.6 |
| Bond loans, European MTN | EUR | 10,462 | 26,935 | 7.0 |
| Private placement | USD | 5,462 | — | 6.0 |
| Commercial papers | EUR, SEK | — | 16,464 | — |
| Other loans from banks | Diverse | 7,477 | — | 3.3 |
| Total borrowing | 30,259 | 58,399 | 5.4 | |
The Group's commercial and fi nancial transactions give rise to credit risk in relation to Sandvik's counterparties. Credit risk or counterparty risk is defi ned as the risk for losses if the counterparty does not fulfi ll its commitments.
The credit risk to which Sandvik is exposed can be divided into three categories:
| MSEK | 2013 | 2012 |
|---|---|---|
| Trade receivables | 12,682 | 13,579 |
| Cash and cash equivalents |
5,075 | 13,829 |
| Unrealized gains on derivatives |
911 | 1,353 |
| Other receivables | 542 | 694 |
| Outstanding credits | 824 | 750 |
| Total | 20,034 | 30,205 |
According to the fi nance policy, the Group's capital employed excluding cash and cash equivalents should be fi nanced on a long-term basis and the short-term liquidity reserve should correspond to at least two weeks' operating expenses. At yearend, the Group's capital employed, excluding cash and cash equivalents, was 65,300 million SEK and long-term fi nancing, including share capital, pension liabilities, long-term tax liabilities, long-term provisions and guaranteed credit facilities, amounted to 72,800 million SEK. The short-term liquidity reserve amounted to 8,600 million SEK, comprising credit facilities and accessible cash and cash equivalents less loans that mature for payment over the next six months. This amount should be compared with two weeks' estimated operating expenses of 2,700 million SEK.
Sandvik has credit facilities totaling 650 million EUR and 5,000 million SEK. The facilities, which are the Group's primary liquidity reserve, were unutilized at year-end.
The aim of Sandvik's fi nancing strategy is to achieve a well-balanced maturity profi le for liabilities to thereby reduce the refi nancing risk. The share of long-term loans in relation to total borrowing was 77% at year-end 2013 compared with 92% one year earlier. The maturity structure for the Group´s fi nancial liabilities and derivatives is presented in Note 29.
At year-end, Standard & Poor's, the international credit rating agency, had assigned a BBB+ credit rating to Sandvik's long-term borrowing and A-2 for its short-term borrowing. For a continuous update on Sandvik's credit rating, refer to www.sandvik.com
Sandvik has entered into agreements with the banks that are most important to the company covering such matters as the right to off set receivables and liabilities that arise from fi nancial derivative transactions, so-called ISDA agreements. This means that the company's counterparty exposure to the fi nancial sector is limited to the unrealized positive results that arise in derivative agreements, and investments and bank balances. At 31 December 2013, the value of these amounted to 5,986 million SEK (15,182).
The Sandvik companies are exposed to the credit risk associated with outstanding trade receivables from ongoing sales. The use of payment terms and risk management are regulated in Sandvik's Group-wide credit policy. Credit risk is diversifi ed over a large number of customers in all business areas and satisfactorily refl ects the spread of sales. The credit quality of the trade receivables that have not fallen due for payment is good. Sandvik's customer bad debts amounted to –137 million SEK (–202), which corresponds to about 0.2% of sales. The total gross value of outstanding trade receivables was 13,559 million SEK (14,419) at 31 December. Total impairment of these was –878 million SEK (–840). Age analysis of trade receivables at 31 December is presented in Note 19.
Sandvik off ers short and long-term customer fi nancing through its own fi nancing companies and in partnership with fi nancial institutions and banks. Customer fi nancing usually takes place in conjunction with the sale of products from Sandvik Mining and Sandvik Construction, with the aim of supporting and promoting sales and enhancing competitiveness in the market. Customer fi nancing at Sandvik is being developed by expanding the partnership with the Swedish National Export Credits Guarantee Board (EKN) and other fi nancial institutions. At year-end, the value of outstanding credits was 844 million SEK (764), of which 20 million SEK was reserved for doubtful receivables.
Sandvik regularly provides buyback guarantees, that is, a promise to repurchase a machine at a price established in advance. At year-end, the outstanding buyback guarantees amounted to 133 million SEK (338).
In addition to the traditional fi nancing of equipment, Sandvik also off ers short-lease machinery. At year-end, the net carrying amount of this short-lease machinery was 491 million SEK (499).
| RAW MATERIALS PRICE | |
|---|---|
| EXPOSURE |
Sandvik's fi nancial risks related to raw materials are primarily concentrated to nickel and electricity. The price risk associated with these is partially hedged through the signing of fi nancial contracts. Operational risks that raw materials could give rise to are managed as described in the Integrated risk management section.
The price of nickel varied during the year, as shown in the Monthly average price of nickel during 2013 diagram on the right.
| 30,000 | |||||||
|---|---|---|---|---|---|---|---|
| 25,000 | |||||||
| 20,000 | |||||||
| 15,000 | |||||||
| 10,000 | |||||||
| 5,000 | |||||||
| 0 |
Net total consumption of nickel amounted to about 14,900 metric tons during the year. When Sandvik Materials Technology obtains a customer order at a fi xed price for nickel and molybdenum, the price of these materials is hedged by signing fi nancial contracts. This means that Sandvik's operating profi t is not impacted by movements in nickel and molybdenum prices relating to the aforementioned orders at a fi xed price.
The Group pursues an off set hedging strategy aimed at eliminating the metal price risk in connection with transactions conducted at a variable metal price. The measurement of inventory is not aff ected by off set hedging.
At year-end, the volume of hedged nickel inventory was 1,791 metric tons (3,391). The market value of commodity derivatives entered into was –11 million SEK (21).
For Sandvik's large production units in Sweden, the electricity price is continuously hedged through derivatives. Electricity consumption at these units normally totals some 900 GWh. The hedging horizon at year-end was about 20 months' (31) expected consumption. The market value of electricity derivatives was 485 million SEK (849) at yearend. The result of these derivative contracts amounted to –133 million SEK (–124). A change in the electricity price of SEK 0.10 per kWh is estimated to impact Sandvik's operating profi t and other comprehensive income by plus or minus 90 million SEK on an annual basis, based on the prevailing conditions at year-end 2013.
Hedge accounting in accordance with IAS 39 is applied to the majority of the raw materials and electricity derivatives. To see how recognized hedging transactions will impact profi t for the year, refer to Note 29.
To ensure the effi cient administration of the substantial pension plans and effi cient management of funds reserved for pension plans, Sandvik has established a separate entity for this purpose, the Sandvik Pensions Supervisory Board. In each country, local pension boards are also established that are responsible for compliance with legislation and local agreements.
The defi ned-benefi t pension plans are described in Note 22.
In 2013, managed capital totaled 15,200 million SEK and the corresponding pension commitments amounted to 17,700 million SEK, which is equal to a consolidation level of 86% (80). The return on Sandvik's pension assets was 8.6% (10.4). Unfunded pension plans amounted to 1,900 million SEK.
Sandvik has comprehensive pension obligations for its employees in the countries in which it operates. The pension solutions vary depending on legislation and local agreements. The most comprehensive agreements are found in Sweden, Finland, Germany, the UK, Canada and the US.
The average interest-rate duration for the Group's interest-bearing assets in the pension portfolio is 6.1 years, and 16.4 years for pension commitments. Since the durations of the assets and liabilities diff er, a change in interest rates of 1 percentage point would have a net impact of approximately 1,900 million SEK. A 20% movement in the stock market would change assets by about 1,050 million SEK.
If longevity assumptions are changed by one year, the pension liability would change by about 5%, which corresponds to 650 million SEK. The risk, measured as Value at Risk (VaR), meaning the highest amount Sandvik risks losing (with a confi dence interval of 95%) during one year given the market's current volatility and correlations, is approximately 3,150 million SEK.
Sandvik AB is domiciled in Stockholm and is the Parent Company of the Sandvik Group, with subsidiaries in more than 60 countries. Its operations are global with sales in more than 130 countries, and the Sandvik Group has about 47,000 employees. Sandvik AB is a public company listed on NASDAQ OMX Stockholm (the "Stock Exchange").
Corporate governance at Sandvik comprises the system, encompassing the principles, guidelines, structures and processes, through which the Group is managed and controlled. The aim is to ensure effi cient and value-creating decision-making by clearly specifying the division of roles and responsibilities among shareholders, the Board and Group Executive Management.
Corporate governance is based on applicable legislation, the rules and regulations of the Stock Exchange, the Swedish Code of Corporate Governance (the "Code") and internal guidelines and regulations. The Code is available from www.corporategovernanceboard.se. In 2013, Sandvik applied the Code without deviating from any of its regulations.
At 31 December 2013, Sandvik's share capital amounted to 1,505,263,107.60 SEK represented by 1,254,385,923 shares. Each share carries one vote at General Meetings of shareholders. According to the owner register, Sandvik had about 117,000 shareholders at 31 December 2013. AB Industrivärden was the largest owner with about 11.6% of the share capital. Of the total share capital at year-end, nearly 30% was owned by investors outside Sweden.
Pursuant to the Swedish Companies Act, the General Meeting of shareholders is the highest decision-making forum at which the shareholders exercise their voting rights. At the Annual General Meeting, resolutions are made relating to the Annual Report, dividends, election of the Board and, where applicable, appointment of auditor, and other matters stipulated in the Companies Act, the Articles of Association and, where applicable, the Code.
| AB Industrivärden | 11.6 |
|---|---|
| Alecta Pension Insurance | 4.5 |
| Handelsbanken's Pension Foundation | 3.8 |
| Swedbank Robur Funds | 3.4 |
| JPM Chase* | 3.1 |
| AMF – Insurance and Funds | 3.0 |
| SSB CL Omnibus* | 2.8 |
| Nordea Investment Funds | 2.6 |
| L E Lundbergföretagen AB | 2.4 |
| Göranssonska Foundations | 2.0 |
* Administrates shares held in trust.
All shareholders who have been entered in the share register and have informed the company of their attendance within the time limit stated in the notice are entitled to participate at Sandvik's General Meetings and vote according to the number of shares held. Shareholders are also entitled to be represented by a proxy at the Meeting. Notice of the General Meeting is published in Post- och Inrikes Tidningar and on the company's website.
As a component in the governance of the Sandvik Group, committees and other coordination and preparatory bodies have been established comprising representatives from business areas and Group functions. Examples of such bodies include the Finance Management Team, IT Board, R&D Board and Communication Management Team.
Confi rmation of the publication of the notice is published in Svenska Dagbladet and in a daily newspaper published in Sandviken or Gävle.
Shareholders representing 49.01% of the share capital and votes attended the Annual General Meeting held on 25 April 2013 in Sandviken, Sweden. Anders Lindblad, attorney-at-law, was elected to chair the meeting. Resolutions passed at the meeting included the following:
For additional information about the Annual General Meeting, including the minutes, see www.sandvik.com.
Sandvik's 2014 Annual General Meeting will be held on 13 May in Sandviken, Sweden. More information is available at www.sandvik.com.
The Nomination Committee is a preparatory body that prepares proposals for, among other things, the Board of Directors, auditors (where necessary) and fees for adoption at the General Meeting. The 2012 Annual General Meeting adopted an instruction for the Nomination Committee, which included a procedure for appointing the Nomination Committee, valid until a General Meeting resolves on a change. In accordance with this instruction, the Nomination Committee should comprise representatives of the four largest shareholders, in terms of the number of votes, on the fi nal business day in August plus the Chairman of the Board (convener).
For the Annual General Meeting to be held on 13 May 2014, the Nomination Committee consists of Anders Nyberg, Chairman (Industrivärden), Håkan Sandberg (Handelsbanken AB, Handelsbanken's Pension Foundation and Handelsbanken's Pension Fund), Kaj Thorén (Alecta), Anders Oscarsson (AMF and AMF Funds), and Anders Nyrén (Sandvik's Chairman of the Board). Up to the Annual General Meeting, the Nomination Committee will have met on at least fi ve occasions. Through Sandvik's Chairman of the Board, the Nomination Committee has received information concerning the Board's own evaluation and the company's operations, stage of development and overall status. The Nomination Committee has discussed the general criteria that Board members should fulfi ll, including the independence requirement, reviewed the number of Board assignments that each Board member has in
other companies, and addressed the issue of a more even gender distribution.
The Board of Directors is responsible for the company's organization and the management of the company's business. The Board is required to continuously monitor the company's and the Group's fi nancial position.
The Board is to ensure that the company's organization is designed in a way that ensures that the fi nancial statements, the management of assets and the company's fi nancial condition in general are controlled in a satisfactory manner.
The President is responsible for the daily operations pursuant to guidelines and instructions issued by the Board. The distribution of responsibilities between the Board and the President is laid down in written instructions.
The Board's Procedural Guidelines and instruction for work delegation between the Board and the President, as well as for fi nancial reporting, are updated and
approved each year. The update is based on such aspects as the Board's evaluation of the individual and collective work that the Board performs.
In addition to fi nancial reporting and the monitoring and follow-up of daily operations and profi t trend, Board meetings address the goals and strategies for the operations, acquisitions and signifi cant investments, as well as matters relating to the capital structure. Senior executives report business plans and strategic issues to the Board on an ongoing basis.
The respective committees prepare remuneration and audit matters.
Sandvik's Board of Directors comprises eight members elected by the Annual General Meeting. Pursuant to Swedish legislation, trade unions are entitled to representation on the Board and they have appointed two members and two deputies.
In accordance with the Nomination Committee's proposal, Olof Faxander, Jürgen Geissinger, Johan Karlström, Fredrik Lundberg, Hanne de Mora, Anders Nyrén, Simon Thompson and Lars Westerberg were re-elected at the 2013 Annual General Meeting. Anders Nyrén was re-elected Chairman of the Board. The trade unions appointed Tomas Kärnström and Jan Kjellgren as Board members and Alicia Espinosa and Thomas Andersson as deputies. Sandvik's General Counsel Bo Severin served as secretary of the Board, the Remuneration and Audit Committees as well as the Nomination Committee.
The Board members are presented in more detail on pages 124–125.
Anders Nyrén and Fredrik Lundberg are not regarded as independent in relation to major shareholders in the company and Olof Faxander is not regarded as independent in relation to the company and its executive management. The other fi ve members elected by the General Meeting are all independent in relation to Sandvik and its executive management, as well as
| Name | Function | Independent in acc. with the Code |
Shareholding, number3) 31 Dec 2013 |
Elected | Audit Committee |
Remuneration Committee |
|---|---|---|---|---|---|---|
| Thomas Andersson | Deputy* | 612 | 2012 | |||
| Alicia Espinosa | Deputy* | 7,759 | 2010 | |||
| Olof Faxander | Member | No1) | 32,660 | 2011 | ||
| Jürgen M Geissinger | Member | Yes | 0 | 2012 | ||
| Johan Karlström | Member | Yes | 5,000 | 2011 | Member | |
| Jan Kjellgren | Member* | 570 | 2008 | |||
| Tomas Kärnström | Member* | 2,889 | 2006 | |||
| Fredrik Lundberg | Member | No2) | 6,540,0004) | 2006 | ||
| Hanne de Mora | Member | Yes | 0 | 2006 | Chairman | |
| Anders Nyrén | Chairman | No2) | 4,500 | 2002 | Member | Chairman |
| Simon Thompson | Member | Yes | 0 | 2008 | Member | |
| Lars Westerberg | Member | Yes | 12,000 | 2010 | Member | |
* Employee representatives (both members and deputy members partake in Board meetings). Jan Kjellgren (member) and Alicia Espinosa (deputy) represent Unionen/Ledarna/ Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Thomas Andersson (deputy) represent IF Metall.
1) Not independent in relation to the company and its executive management.
2) Not independent in relation to major shareholders in the company.
3) Pertains to own and closely related persons' shareholdings.
4) In addition, shareholding in Sandvik via L E Lundbergföretagen AB totals 30,000,000, and shareholding via AB Industrivärden totals 145,274,257.
the company's major shareholders. Accordingly, the composition of the Board complies with the requirements of the Code that the majority of the members elected by the General Meeting be independent in relation to the company and its executive management and that a minimum of two of those members that are independent in relation to the company and its executive management are also to be independent in relation to the company's major shareholders.
During the year, the Board held nine meetings. The Board addressed strategic issues. The executive managements of all fi ve business areas presented their goals and strategies. The Board also addressed matters related to human resources, such as incentive programs, succession planning and EHS (Environment, Health & Safety), and issues concerning investments and the review of previously made investments, as well as acquisitions and divestments. The Remuneration and Audit Committees submitted reports from their respective meetings. In the autumn of 2013, the Board traveled to South America, which included a visit to the energy company Petrobras in Brazil and the El Teniente copper mine in Chile.
As resolved at the 2013 Annual General Meeting, the Chairman's fee is 1,650,000 SEK and the fee to each of the non-executive Board members elected by the General Meeting is 550,000 SEK.
In addition, 175,000 SEK was paid to the Chairman of the Audit Committee and 150,000 SEK to each of the other Committee members, in total 475,000 SEK. The Chairman of the Remuneration Committee was paid 125,000 SEK and each of the other Committee members 100,000 SEK, in total 325,000 SEK. For more detailed information on remuneration of the Board members, see Note 3.5.
To ensure the quality of the work of the Board of Directors and to identify the possible need for further expertise and experience, a systematic and structured process is implemented annually to evaluate the work of the Board and its members. The evaluations, which are led by the Chairman of the Board, are performed individually and the results are discussed in a plenary meeting. The Chairman of the Board presents the results of the evaluations at a meeting with the Nomination Committee.
| Member | Board | Audit Committee | Remuneration Committee |
|---|---|---|---|
| Total number of meetings | 9 | 5 | 5 |
| Thomas Andersson | 8 | ||
| Alicia Espinosa | 9 | ||
| Olof Faxander | 9 | ||
| Jürgen M Geissinger | 8 | ||
| Johan Karlström | 9 | 5 | |
| Jan Kjellgren | 9 | ||
| Tomas Kärnström | 9 | ||
| Fredrik Lundberg | 9 | ||
| Hanne de Mora | 8 | 4 | |
| Anders Nyrén | 9 | 5 | 5 |
| Simon Thompson | 9 | 5 | |
| Lars Westerberg | 9 | 5 |
The tasks of the Committees and their work procedures are stipulated in written instructions issued by the Board. The Committees' primary task is to prepare issues and present them to the Board for resolution.
During 2013, the members of the Remuneration Committee were the Chairman of the Board Anders Nyrén (Chairman of the Committee), Johan Karlström and Lars Westerberg. According to the instructions for the Remuneration Committee, the Committee is to undertake the tasks prescribed by the Code, which include preparing proposals regarding guidelines for remuneration of senior executives and long-term incentive programs for senior executives.
Based on the recommendations of the Remuneration Committee, the Board decides the remuneration of and terms of employment for Sandvik AB's President. The President decides on the remuneration to be paid to the other senior executives following consultation with the Remuneration Committee. For additional information, see Note 3.5.
During 2013, the Remuneration Committee held fi ve meetings. Activities included drafting a proposal for a revised incentive program for senior executives and key employees for 2014.
During 2013, the members of the Audit Committee were Hanne de Mora (Chairman of the Committee), Anders Nyrén and Simon Thompson. Areas addressed by the Audit Committee mainly related to: • Financial reporting.
• Planning, scope and follow-up of the internal and external audit for the year.
In 2013, the Audit Committee held fi ve meetings at which Sandvik's external auditor and representatives of the company's management were present.
At the 2011 Annual General Meeting, the audit fi rm KPMG AB was re-elected auditor of Sandvik AB for the period until the 2015 Annual General Meeting, with George Pettersson as the auditor-in-charge.
The progress of the audit is reported regularly during the year to the managements of individual companies and the business areas, to Group Executive Management, the Audit Committee and to the Board of Sandvik AB. The auditor meets with the company's Board at least once a year without the President or any other member of Group Executive Management attending.
The independence of the external auditor is governed by a special instruction decided by the Audit Committee setting out the non-audit services that the external auditors may provide to Sandvik.
Audit fees are paid continuously over the period in offi ce on an approved current account basis. For more detailed information on fees paid to the auditor, see Note 3.6.
The fi ve business areas – Sandvik Mining, Sandvik Machining Solutions, Sandvik Materials Technology, Sandvik Construction and Sandvik Venture – comprise Sandvik's operational structure. The presidents of the business areas report directly to the President of Sandvik AB
and are responsible for the business activities of their respective areas. In turn, the business areas are organized into various product areas or customer segments.
Visit www.sandvik.com for more detailed information relating to the Group's operational organization and business activities.
In 2013, Group Executive Management comprised Olof Faxander, President and CEO; Emil Nilsson (until 30 September 2013), Executive Vice President and CFO; Mats Backman (from 1 October 2013), Executive Vice President and CFO; Gary Hughes, President of Sandvik Mining; Andreas Evertz (until 31 January 2013), President of Sandvik Machining Solutions; Jonas Gustavsson (since 1 February 2013), President of Sandvik Machining Solutions, previously President of Sandvik Materials Technology; Petra Einarsson (since 1 February 2013), President of Sandvik Materials Technology; Andy Taylor (until 30 September 2013), Acting President of Sandvik Construction; Dinggui Gao (from 1 October 2013), President of Sandvik Construction; Tomas Nordahl, Executive Vice President and Head of IT, sourcing and strategy and President of Sandvik Venture; Bo Severin, Executive Vice President and General Counsel; Anna Vikström Persson, Executive Vice President and Head of Human Resources; Jan Lissåker (until 30 June 2013), Executive Vice President Group Communications; and Jessica Alm (from 1 July 2013), Executive Vice President Group Communications. In 2013, Extended Group Executive Management included Ajay Sambrani (until 14 January 2014), Country Manager India; Zhiqiang (ZZ) Zhang, Country Manager China; and
Olle Wijk, Senior Vice President and Head of Group R&D. The President, other members of Group Executive Management and Extended Group Executive Management are presented on pages 126–127.
Group Executive Management is convened each month and deals with the Group's fi nancial development, Groupwide development projects, leadership and competence sourcing, and other strategic issues. The members of Extended Group Executive Management participate at the meetings at which general strategic issues are discussed and specifi c expertise is required.
Sandvik has established Group functions responsible for Group-wide activities such as legal affairs, communication, fi nance, HR and IT, strategy and sourcing. In addition to Group Executive Management, business areas and Group functions, a number of committees and other coordination and preparatory bodies are commissioned to coordinate Group-wide strategic areas, such as environment, health and safety, research and development, purchasing, IT, fi nance and HR.
Each country in which Sandvik has a subsidiary has a Country Manager whose task includes representing Sandvik in relation to public authorities in the country, assuming responsibility for Group-wide issues, coordinating Group-wide processes and ensuring compliance with Group-wide guidelines.
For each country, a member of Group Executive Management, or another individual appointed by Group Executive Management, has been given the overriding responsibility for the business (Group Management Representative). This individual is, among other things, responsible for ensuring compliance with Group-wide guidelines in dialog with the Country Manager.
Remuneration of senior executives For guidelines, remuneration and other benefi ts payable to Group Executive Management, refer to page 52 and Note 3.5.
The Board has the overall responsibility to ensure that the Group's system for management and internal control is effective.
The guidelines for Sandvik's operations are assembled in Power of Sandvik, which is a collection of documents that regulate the governance of the Sandvik Group. Its contents include:
The Group's risk management complies with the ERM model that is integrated with the daily planning, monitoring and control within the framework of strategic and operational management. Effective risk management unites operational business development with demands from shareholders and other stakeholders for control and sustainable value creation.
Risk management also aims to minimize risks while ensuring that opportunities are leveraged in the best possible way.
With Sandvik's Sustainable Business strategy and Code of Conduct as the basis, risks and opportunities are analyzed. Objectives and targets are set to address the risks identifi ed by the Group and to effi ciently leverage the possibilities available.
Sandvik's Board of Directors adopts the Group's Code of Conduct and Group Executive Management establishes objectives and performance indicators for sustainability activities. Each business area assumes responsibility for ensuring compliance with the Code and that the goals are cascaded down in the organization. In addition, each business area is responsible for the assessment of sustainability risks (for example, environment, health and safety, anti-corruption, human rights, working conditions and supplier responsibility) in its operations, and specifi c organizations are appointed in each business area to coordinate issues and support the local management teams.
In 2012, a person responsible for sustainability matters was appointed in Group Executive Management in an effort to make the connection to business benefi ts clearer and to strengthen sustainability issues at a strategic level. In spring 2013, this work was further boosted with the naming of a Head of Sustainable Business tasked with coordinating sustainability matters, developing the company's strategic approach, establishing focus areas and setting targets for the Group's work with Sustainable Business. During the year, it was also decided to intensify efforts to ensure responsible purchasing practices.
At a Group level, the Head of Sustainable Business leads a sustainability coordination team mainly comprising representatives from various functions. The team holds regular meetings during which such activities as coordination, development of synergies, and drafting of policy documents and action programs are carried out. Equivalent coordination teams have been established in India, China Mexico and Brazil.
The various functions, such as purchasing, risk management, HR and EHS (environment, health and safety), are responsible for their respective areas, preparing policies and standards that are to be introduced in the organization. There are also a number of councils, committees and boards at Group level whose job is to coordinate the work of the business areas and draft joint policies, targets and key performance indicators for presentation to Group Executive Management.
The independent Group Assurance function monitors sustainability issues and is also in charge of ensuring the effectiveness of management systems, internal controls and risk management. Key performance indicators are reported on a quarterly basis to various Group functions, which analyze and present the results to Group Executive Management and, in certain instances, the Board. Group Assurance also examines internal compliance with the Code of Conduct.
The fi nancial statements are established in accordance with prevailing legislation, International Financial Reporting Standards (IFRS) and the listing agreement with the NASDAQ OMX Stockholm. This description of internal control over fi nancial reporting has been prepared in accordance with the Annual Accounts Act and constitutes an integrated part of the Corporate Governance Report.
Sandvik's fi nance organization manages a well-established fi nancial reporting process aimed at ensuring a high level of internal control. The internal control system applied complies with the conceptual framework of COSO, which is based on fi ve key components that jointly facilitate good internal control in large companies. The fi ve components are Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring and follow-up.
The internal control procedures cover all stages of the fi nancial reporting process, from the initial recording of transactions in each subsidiary and reporting entity, to the validation and analysis of each business area and further to the consolidation, quality assurance, analysis and reporting at Group level. The way Sandvik applies the COSO framework is described below.
Power of Sandvik is the primary source of the guidelines governing management and staff, internal control and conduct at Sandvik. Power of Sandvik contains the Sandvik Code of Conduct, delegation instruments, including signatory and authorization principles for decision-making and cost approvals and request and approval procedures regarding investments and acquisitions, among other items.
In the area of fi nancial reporting, the Sandvik Financial Reporting Policies and Procedures have been implemented. These documents contain detailed instructions regarding accounting policies and fi nancial reporting procedures to be
applied by all Sandvik reporting entities. In the 20 major countries where Sandvik operates, Country Financial Managers are appointed to support the local management and fi nance organizations and to provide a link between reporting entities and Group fi nance. At Group level, Group Financial Control manages the reporting process to ensure the completeness and correctness of fi nancial reporting and its compliance with IFRS requirements. Group Business Control performs the business analysis and compiles the report on operational performance. Both statutory and management reporting is performed in close cooperation with business areas and specialist functions such as tax, legal and fi nancial services to ensure the correct reporting of the income statement, balance sheet, equity and cash fl ow.
Enterprise Risk Management (ERM) at Sandvik, which is described on pages 54–56, also includes the area of fi nancial reporting. This means that risk management is a natural element of the daily work on and responsibility for fi nancial reporting. Specifi c activities have been established with the purpose of identifying risks, weaknesses and any changes needed to the fi nancial reporting process to minimize risks. The combination of roles and responsibilities, work descriptions, IT systems, skills and expertise creates an environment that is monitored continuously to identify and manage potential risks.
Control activities have been implemented in all areas that affect fi nancial reporting. The internal control activities follow the logic of the reporting process and the fi nance organization. In each reporting entity, the fi nance staff is responsible for the correct accounting and closing of books. The fi nance staff adheres to the Sandvik Financial Reporting Policies and Procedures and validates and reconciles local accounts before submitting them to business area management and Group fi nance for consolidation.
Controllers in the product and business areas perform analytical reviews and investigations, conduct business trend analyses and update forecasts and budgets. They investigate certain issues related to the fi nancial information when needed. All business areas present their fi nancial performance in written reports on a monthly and quarterly basis.
Group Financial Control, Group Business Control and Group Assurance all have key responsibilities for control activities regarding fi nancial reporting.
Financial reports setting out the Group's fi nancial position and the earnings trend of operations are submitted regularly to Sandvik's Board. The Board deals with all quarterly interim reports as well as the Annual Report prior to publishing and monitors the audit of internal control and fi nancial statements conducted by Group Assurance and the external auditors.
The business areas and major countries also have a system of internal Board meetings with a formal agenda, including fi nancial information, monitoring and decisions related to fi nancial and accounting matters.
Steering documents, such as policies and instructions, are updated regularly on the company's intranet and are available to Sandvik's employees. Reporting requirements are also updated on the company's intranet and are communicated through formal and informal channels, as well as at regular meetings and conferences.
Information to external parties is communicated regularly on Sandvik's website, which contains news and press releases. Quarterly interim reports are published externally and are supplemented by investor meetings attended by Group Executive Management. In addition, there is an established agenda for communicating information on shareholder meetings and other information to owners. The Annual Report is made available to shareholders and the general public, both as a printed version and on Sandvik's website.
Each business entity manager and their respective fi nance organization is ultimately responsible for continuously monitoring the fi nancial information of the various entities. The information is also
monitored at a business area level, by Group staff functions, Group Executive Management and by the Board. The Audit Committee at Sandvik is a key body in the monitoring of fi nancial reporting and various aspects thereof.
The quality of the fi nancial reporting process and internal controls is assessed by Group Finance every month as part of the quality assurance of reporting. Group Assurance, the Sandvik internal audit function, independently monitors the internal control system of fi nancial reporting as part of its audit plan.
The external auditors continuously examine the level of internal control over fi nancial reporting. They review the third-quarter interim report and study the fi nancial reports prepared for the other quarters. In conjunction with the close of the third quarter, the external auditors perform a more detailed examination of the operations, known as a hard-close audit, which includes the Parent Company's reporting and internal control, the business areas, subsidiaries and Group functions. Finally, the external auditors perform a standard examination of the annual accounts and the Annual Report.
The Group Assurance staff function ensures that the Group function has effective corporate governance, internal control and risk-management procedures.
Group Assurance is subordinated to the Board's Audit Committee and the head of the unit reports to the Audit Committee. In functional terms, the head of Group Assurance reports to Sandvik's CFO.
The internal audits are based on the Group's guidelines and policies for corporate governance, risk management and internal control with regard to such aspects as fi nancial reporting, compliance with the Code of Conduct and IT. The examination results in actions and programs for improvement. Findings are reported to Group Executive Management and business area management and to the Board's Audit Committee.
| Income statement | 72 |
|---|---|
| Balance sheet | 73 |
| Changes in equity | 75 |
| Cash-fl ow statement | 76 |
| MSEK | Note | 2013 | 2012* |
|---|---|---|---|
| Revenue | 1, 2 | 87,328 | 98,529 |
| Cost of sales and services | –58,848 | –63,826 | |
| Gross profi t | 28,480 | 34,703 | |
| Selling expenses | –11,184 | –11,935 | |
| Administrative expenses | –6,290 | –6,362 | |
| Research and development costs | 4 | –2,661 | –2,572 |
| Share of results of associated companies | 1 | 6 | |
| Other operating income | 5 | 531 | 242 |
| Other operating expenses | 6 | –239 | –592 |
| Operating profi t | 1, 3, 7, 8 | 8,638 | 13,490 |
| Financial income | 209 | 435 | |
| Financial expenses | –2,094 | –2,409 | |
| Net fi nancing cost | 9 | –1,885 | –1,974 |
| Profi t after fi nancial items | 6,753 | 11,516 | |
| Income tax | 11 | –1,745 | –3,409 |
| Profi t for the year | 5,008 | 8,107 | |
| Other comprehensive income | |||
| Items that cannot be reclassifi ed to profi t/loss for the year | |||
| Actuarial gains/losses on defi ned-benefi t pension plans | 22 | 1,039 | –1,417 |
| Tax relating to items that cannot be reclassifi ed to profi t/loss for the year | 11 | –361 | 348 |
| 678 | –1,069 | ||
| Items that can be reclassifi ed to profi t/loss for the year | |||
| Translation diff erences during the year | 142 | –1,584 | |
| Fair-value changes in cash-fl ow hedges | –71 | 9 | |
| Fair-value changes in cash-fl ow hedges transferred to profi t/loss for the year | –134 | 131 | |
| Tax related to fair-value changes in cash-fl ow hedges | 11 | 45 | –30 |
| –18 | –1,474 | ||
| Total other comprehensive income for the year | 660 | –2,543 | |
| Total comprehensive income for the year | 5,668 | 5,564 | |
| Profi t for the year attributable to: | |||
| Equity holders of the Parent | 5,013 | 8,105 | |
| Non-controlling interests | –5 | 2 | |
| Total comprehensive income for the year attributable to: | |||
| Equity holders of the Parent | 5,671 | 6,636 | |
| Non-controlling interests | –3 | –3 | |
| Basic earnings per share, SEK | 12 | 4.00 | 6.51 |
| Diluted earnings per share, SEK | 12 | 4.00 | 6.51 |
* Comparative year adjusted due to amended accounting policies. With the exception of other comprehensive income, the eff ects in the consolidated income statement were immaterial and did not entail any adjustment of the income statement. Refer to Note 35 for further information.
| ASSETS Non-current assets Intangible assets Patents and other intangible assets 13 2,968 2,738 2,773 Goodwill 13 8,979 8,685 9,034 Total 11,947 11,423 11,807 Property, plant and equipment Land and buildings 13 8,337 8,338 8,349 Plant and machinery 13 12,363 12,687 12,613 Equipment, tools, fi xtures and fi ttings 13 1,663 1,770 1,555 Construction in progress and advance payments 13 2,892 2,721 3,185 Total 25,255 25,516 25,702 Financial assets Investments in associated companies 1,16 211 356 456 Financial assets 80 80 80 Deferred tax assets 11 5,903 3,869 4,091 Non-current receivables 17 1,956 1,963 1,999 Total 8,150 6,268 6,626 Total non-current assets 45,352 43,207 44,135 Current assets Inventories 18 23,318 25,508 26,077 Current receivables Trade receivables 19 12,682 13,579 14,563 Due from associated companies 106 42 141 Income tax receivables 11 1,096 931 772 Other receivables 17 5,225 5,871 5,310 Prepaid expenses and accrued income 1,027 1,088 1,193 Total 20,136 21,511 21,979 Cash and cash equivalents 5,076 13,829 5,592 Assets held for sale — — 747 Total current assets 48,530 60,848 54,395 TOTAL ASSETS 93,882 104,055 98,530 |
MSEK | Note | 31 Dec. 2013 | 31 Dec. 2012* | 1 Jan. 2012* |
|---|---|---|---|---|---|
*Comparative years adjusted due to amended accounting policies. Refer to Note 35 for further information.
For information on contingent liabilities and pledged assets, refer to Note 28.
| MSEK | Note | 31 Dec. 2013 | 31 Dec. 2012* | 1 Jan. 2012* |
|---|---|---|---|---|
| EQUITY AND LIABILITIES | ||||
| Equity | ||||
| Share capital | 1,505 | 1,505 | 1,424 | |
| Other paid-in capital | 7,678 | 7,678 | 1,057 | |
| Reserves | 361 | 381 | 1,849 | |
| Retained earnings including profi t/loss for the year | 23,966 | 22,865 | 25,533 | |
| Equity attributable to equity holders of the Parent | 33,510 | 32,429 | 29,863 | |
| Non-controlling interests | 100 | 107 | 1,401 | |
| Total equity | 20 | 33,610 | 32,536 | 31,264 |
| Non-current liabilities | ||||
| Interest-bearing liabilities | ||||
| Provisions for pensions | 22 | 5,164 | 6,037 | 4,815 |
| Loans from fi nancial institutions | 4,669 | 8,681 | 4,485 | |
| Other liabilities | 25 | 18,544 | 23,582 | 20,282 |
| Total | 28,377 | 38,300 | 29,582 | |
| Noninterest-bearing liabilities | ||||
| Deferred tax liabilities | 11 | 950 | 632 | 917 |
| Provisions for taxes | 11 | 1,070 | 4,529 | 3,941 |
| Other provisions | 23 | 1,060 | 1,075 | 1,381 |
| Other non-current liabilities | 26 | 183 | 184 | 209 |
| Total | 3,263 | 6,420 | 6,448 | |
| Total non-current liabilities | 31,640 | 44,720 | 36,030 | |
| Current liabilities | ||||
| Interest-bearing liabilities | ||||
| Loans from fi nancial institutions | 2,633 | 1,008 | 4,095 | |
| Other liabilities | 25 | 4,414 | 1,690 | 1,853 |
| Total | 7,047 | 2,698 | 5,948 | |
| Noninterest-bearing liabilities | ||||
| Advance payments from customers | 1,980 | 2,723 | 2,751 | |
| Accounts payable | 6,676 | 6,585 | 8,133 | |
| Due to associated companies | 7 | 14 | 63 | |
| Income tax liabilities | 11 | 1,037 | 1,252 | 1,505 |
| Other liabilities | 26 | 4,117 | 5,000 | 4,322 |
| Provisions | 23 | 1,955 | 1,841 | 1,720 |
| Accrued expenses and deferred income | 5,813 | 6,686 | 6,686 | |
| Total | 21,585 | 24,101 | 25,180 | |
| Liabilities directly attributed to assets held for sale | 108 | |||
| Total current liabilities | 28,632 | 26,799 | 31,236 | |
| TOTAL LIABILITIES | 60,272 | 71,519 | 67,266 | |
| TOTAL EQUITY AND LIABILITIES | 93,882 | 104,055 | 98,530 |
*Comparative years adjusted due to amended accounting policies. Refer to Note 35 for further information.
For information on contingent liabilities and pledged assets, refer to Note 28.
| MSEK | Share capital |
Other paid-in capital |
Reserves | Retained earnings incl. profi t/ loss for the year |
Total | Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|
| Equity at 1 January 2012 | 1,424 | 1,057 | 1,849 | 28,160 | 32,490 | 1,401 | 33,891 |
| Adjustment for change in accounting policies | — | — | — | –2,627 | –2,627 | — | –2,627 |
| Adjusted equity at 31 January 2012 | 1,424 | 1,057 | 1,849 | 25,533 | 29,863 | 1,401 | 31,264 |
| Profi t for the year | — | — | — | 8,105 | 8,105 | 2 | 8,107 |
| Other comprehensive income/loss | — | — | –1,468 | –1,069 | –2,537 | –6 | –2,543 |
| Total comprehensive income/loss for the year | — | — | –1,468 | 7,036 | 5,568 | –4 | 5,564 |
| Non-cash issue | 81 | 6,621 | — | — | 6,702 | — | 6,702 |
| Acquisition of non-controlling interests, controlling interest previously held | — | — | — | –5,552 | –5,552 | –1,285 | –6,837 |
| Share-based payment regulated by equity instruments | — | — | — | 86 | 86 | — | 86 |
| Payment of options on treasury shares, hedging of options program 2012 | — | — | — | –199 | –199 | — | –199 |
| Dividends, hedged options program 2011 | — | — | — | 38 | 38 | — | 38 |
| Dividend | — | — | — | –4,077 | –4,077 | –5 | –4,082 |
| Equity at 31 December 2012 | 1,505 | 7,678 | 381 | 22,865 | 32,429 | 107 | 32,536 |
| Equity at 1 January 2013 | 1,505 | 7,678 | 381 | 22,865 | 32,429 | 107 | 32,536 |
| Profi t for the year | — | — | — | 5,013 | 5,013 | –5 | 5,008 |
| Other comprehensive income/loss | — | — | –20 | 678 | 658 | 2 | 660 |
| Total comprehensive income/loss for the year | — | — | –20 | 5,691 | 5,671 | –3 | 5,668 |
| Share-based payment regulated by equity instruments | — | — | — | –15 | –15 | — | –15 |
| Payment of options on treasury shares, hedging of options program 2013 | — | — | — | –226 | –226 | — | –226 |
| Dividends, hedged options program 2011 | — | — | — | 41 | 41 | — | 41 |
| Dividend | — | — | — | –4,390 | –4,390 | –4 | –4,394 |
| Equity at 31 December 2013 | 1,505 | 7,678 | 361 | 23,966 | 33,510 | 100 | 33,610 |
| MSEK | Note | 2013 | 2012 |
|---|---|---|---|
| Cash fl ow from operating activities | |||
| Income after fi nancial income and expenses | 6,753 | 11,516 | |
| Adjustment for depreciation, amortization and impairment losses | 4,690 | 4,322 | |
| Adjustment for non-cash items, etc. | 109 | 251 | |
| Income tax paid | –7,816 | –3,056 | |
| Cash fl ow from operating activities before changes in working capital | 3,736 | 13,033 | |
| Changes in working capital | |||
| Change in inventories | 1,908 | –382 | |
| Change in operating receivables | 1,109 | 18 | |
| Change in operating liabilities | –1,345 | –228 | |
| Cash fl ow from changes in working capital | 1,672 | –592 | |
| Investments in rental equipment | –499 | –663 | |
| Divestments of rental equipment | 224 | 114 | |
| Cash fl ow from operating activities | 5,133 | 11,892 | |
| Cash fl ow from investing activities | |||
| Acquisition of companies and shares, net of cash acquired | 32 | –489 | –39 |
| Acquisition of property, plant and equipment | –4,185 | –4,820 | |
| Proceeds from sale of companies and shares, net of cash disposed of | — | 692 | |
| Proceeds from sale of property, plant and equipment | 150 | 236 | |
| Net cash used in investing activities | –4,524 | –3,931 | |
| Net cash fl ow after investing activities | 609 | 7,961 | |
| Cash fl ow from fi nancing activities | |||
| Proceeds from borrowings | 3,075 | 10,472 | |
| Repayment of borrowings | –7,946 | –5,848 | |
| Acquisition of non-controlling interests | — | –53 | |
| Dividends paid | –4,394 | –4,082 | |
| Cash fl ow from fi nancing activities | –9,256 | 489 | |
| Cash fl ow for the year | –8,656 | 8,450 | |
| Cash and cash equivalents at beginning of year | 13,829 | 5,592 | |
| Foreign exchange diff erences on cash and cash equivalents | –97 | –213 | |
| Cash and cash equivalents at end of year | 5,076 | 13,829 | |
Supplementary information, Note 31.
| Income statement | 78 |
|---|---|
| Balance sheet | 79 |
| Changes in equity | 81 |
| Cash-fl ow statement | 82 |
| MSEK | Note | 2013 | 2012 |
|---|---|---|---|
| Revenue | 2 | 15,873 | 16,990 |
| Cost of sales and services | –12,137 | –13,007 | |
| Gross profi t | 3,736 | 3,983 | |
| Selling expenses | –514 | –633 | |
| Administrative expenses | –2,863 | –2,821 | |
| Research and development costs | 4 | –1,343 | –1,281 |
| Other operating income | 5 | 1,297 | 971 |
| Other operating expenses | 6 | –1,000 | –702 |
| Operating loss | 3, 8 | –687 | –483 |
| Income from shares in Group companies | 9 | 14,158 | 11,769 |
| Income from shares in associated companies | 9 | 10 | 0 |
| Interest income and similar items | 9 | 759 | 782 |
| Interest expenses and similar items | 9 | –2,353 | –2,039 |
| Profi t after fi nancial items | 11,887 | 10,029 | |
| Appropriations | 10 | –1 | 6 |
| Income tax | 11 | –5,310 | –325 |
| Profi t for the year | 6,576 | 9,710 |
Profi t for the year corresponds to total comprehensive income for the year.
| ASSETS Non-current assets Intangible assets Patents and other intangible assets 14 4 9 Total 4 9 Property, plant and equipment Land and buildings 14 809 768 Plant and machinery 14 4,634 4,684 Equipment, tools, fi xtures and fi ttings 14 435 533 Construction in progress and advance payments 14 1,551 1,322 Total 7,429 7,307 Financial assets Shares in Group companies 15 31,834 31,834 Due from Group companies 7,442 5,325 Investments in associated companies 16 4 4 Other investments 1 1 Non-current receivables 17 256 172 Deferred tax assets 11 544 804 Total 40,081 38,140 Total non-current assets 47,514 45,456 Current assets Inventories 18 3,638 3,809 Current receivables Trade receivables 623 781 Due from Group companies 15,477 14,511 Due from associated companies 105 41 Income tax receivables 11 169 189 Other receivables 17 373 480 Prepaid expenses and accrued income 921 1,070 Total 17,668 17,072 Cash and cash equivalents 0 25 Total current assets 21,306 20,906 TOTAL ASSETS 68,820 66,362 |
MSEK | Note | 31 Dec. 2013 | 31 Dec. 2012 |
|---|---|---|---|---|
| MSEK | Note | 31 Dec. 2013 | 31 Dec. 2012 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Non-distributable equity | |||
| Share capital | 1,505 | 1,505 | |
| Statutory reserve | 1,611 | 1,611 | |
| Total | 3,116 | 3,116 | |
| Distributable equity | |||
| Share premium reserve | 2,231 | 6,621 | |
| Profi t brought forward | 14,839 | 5,329 | |
| Profi t for the year | 6,576 | 9,710 | |
| Total | 23,646 | 21,660 | |
| Total equity | 20 | 26,762 | 24,776 |
| Untaxed reserves | |||
| Other untaxed reserves | 21 | 4 | 3 |
| Total | 4 | 3 | |
| Provisions | |||
| Provisions for pensions | 22 | 323 | 324 |
| Other provisions | 23 | 211 | 234 |
| Total | 533 | 558 | |
| Non-current interest-bearing liabilities | |||
| Loans from fi nancial institutions | 24 | 2,241 | 3,852 |
| Loans from Group companies | 24 | 580 | 361 |
| Other liabilities | 24 | 12,938 | 17,833 |
| Total | 15,759 | 22,046 | |
| Non-current noninterest-bearing liabilities | |||
| Other liabilities | 75 | 63 | |
| Total | 75 | 63 | |
| Current interest-bearing liabilities | |||
| Loans from fi nancial institutions | 1,575 | — | |
| Loans from Group companies | 13,796 | 11,191 | |
| Other liabilities | 4,373 | 1,667 | |
| Total | 19,744 | 12,858 | |
| Current noninterest-bearing liabilities | |||
| Advance payments from customers | 671 | 779 | |
| Accounts payable | 2,048 | 1,582 | |
| Due to Group companies | 831 | 353 | |
| Due to associated companies | 1 | 0 | |
| Other liabilities | 314 | 589 | |
| Accrued expenses and deferred income | 27 | 2,078 | 2,755 |
| Total | 5,943 | 6,058 | |
| TOTAL EQUITY AND LIABILITIES | 68,820 | 66,362 | |
| Pledged assets | 28 | — | — |
| Contingent liabilities | 28 | 13,339 | 15,265 |
| MSEK | Share capital | Statutory reserve | Distributable equity | Total equity |
|---|---|---|---|---|
| Equity at 1 January 2012 | 1,424 | 1,611 | 9,481 | 12,516 |
| Comprehensive income for the year | — | — | 9,710 | 9,710 |
| Dividend | — | — | –4,077 | –4,077 |
| Share-based payment regulated by equity instruments | — | — | 86 | 86 |
| Payment of options on treasury shares, hedging of options program 2012 | — | — | –199 | –199 |
| Dividends, hedged option program 2011 | — | — | 38 | 38 |
| Non-cash issues (remuneration received in the form of shares in Seco Tools | ||||
| AB), including share premium reserve | 81 | — | 6,621 | 6,702 |
| Equity at 31 December 2012 | 1,505 | 1,611 | 21,660 | 24,776 |
| Comprehensive income for the year | — | — | 6,576 | 6,576 |
| Dividend | — | — | –4,390 | –4,390 |
| Share-based payment regulated by equity instruments | — | — | –15 | –15 |
| Payment of options on treasury shares, hedging of options program 2013 | — | — | –226 | –226 |
| Dividends, hedged options program 2011 | — | — | 41 | 41 |
| Equity at 31 December 2013 | 1,505 | 1,611 | 23,646 | 26,762 |
| MSEK | 2013 | 2012 |
|---|---|---|
| Cash fl ow from operating activities | ||
| Profi t before tax | 11,886 | 10,036 |
| Adjustment for depreciation, amortization and impairment losses | 1,091 | 966 |
| Adjustment for non-cash items, etc. | –749 | –673 |
| Income tax paid | –5,029 | 0 |
| Cash fl ow from operating activities before changes in working capital | 7,199 | 10,329 |
| Changes in working capital | ||
| Changes in inventories | 170 | 214 |
| Changes in operating receivables | –3,632 | –4,362 |
| Changes in operating liabilities | 482 | –706 |
| Cash fl ow from operating activities | 4,219 | 5,475 |
| Cash fl ow from investing activities | ||
| Acquisition of companies and shares, net of cash acquired | — | –9,227 |
| Acquisition of property, plant and equipment | –1,258 | –1,338 |
| Proceeds from sale of companies and shares, net of cash disposed of | — | 58 |
| Proceeds from sale of property, plant and equipment | 53 | 36 |
| Change in non-current receivables | 145 | –144 |
| Net cash used in investing activities | –1,060 | –10,615 |
| Net cash fl ow after investing activities | 3,159 | –5,140 |
| Cash fl ow from fi nancing activities | ||
| Changes in advances/loans to/from Group companies, net | 2,797 | 4,703 |
| Proceeds from external borrowings | 1,715 | 7,291 |
| Repayment of external borrowings | –3,306 | –2,760 |
| Dividend paid | –4,390 | –4,077 |
| Net cash used in fi nancing activities | –3,184 | 5,157 |
| Cash fl ow for the year | –25 | 17 |
| Cash and cash equivalents at beginning of year | 25 | 8 |
| Cash and cash equivalents at end of year | — | 25 |
Supplementary information, Note 31.
The consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) as endorsed by the EU. In addition, the recommendation RFR 1 Supplementary Accounting Rules for Groups, issued by the Swedish Financial Reporting Board, has been applied.
The Parent Company has applied the same accounting policies as those applied in the consolidated fi nancial statements except as set out below in the section "Parent Company's accounting policies."
The fi nancial statements are presented on pages 37–122 in the printed Annual Report. The Parent Company's Annual Report and the consolidated fi nancial statements were approved for issuance by the Board of Directors on 20 February 2014. The Group's and the Parent Company's income statements and balance sheets are subject to adoption at the Annual General Meeting on 13 May 2014.
Assets and liabilities are stated on a historical cost basis except for certain fi nancial assets and liabilities, which are stated at their fair value. Financial assets and liabilities measured at fair value comprise derivative instruments and fi nancial assets held for sale. Receivables and liabilities and items of income and expense are offset only when required or expressly permitted in an accounting standard.
The preparation of fi nancial statements in conformity with IFRS requires management to make assessments, estimates and assumptions that affect the application of accounting policies and recognized amounts of assets and liabilities, income and expenses. Actual results may differ from these assessments. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Judgments made by management in the application of IFRS that have a signifi cant effect on the fi nancial statements, and estimates with a signifi cant risk of material adjustment in the next year, are further discussed below. Events after the balance sheet date refer to both favorable and unfavorable events that have occurred after the balance sheet date but before the date the fi nancial statements were authorized for issue by the Board of Directors. Signifi cant non-adjusting events, that is, events indicative of conditions that arose after the balance sheet date, are disclosed in the fi nancial statements. Only adjusting events, that is, those that provide evidence of conditions that existed at the balance sheet date, have been considered in the fi nal establishment of the fi nancial statements. The most signifi cant accounting policies for the Group, as set out below, have been applied consistently to all periods presented in these consolidated fi nancial statements except as specifi cally described. Moreover, the Group's accounting policies have been consistently applied in the statements of all members of the Group and also in the statements of associated companies, where necessary, by adaptation to Group policies.
The below amendments of standards and new and amended interpretations came into effect 2013 and were adopted by the EU.
Standards that have a material eff ect on Sandvik's accounting policies Revised IAS 19 Employee Benefi ts. The amendment entails discontinuation of the corridor method. Actuarial gains and losses are to be recognized in other comprehensive income. The return calculated on plan assets is to be based on the discount rate used for calculating the pension obligation. The difference between the actual and estimated return on plan assets is to be recognized in other comprehensive income, refer to Note 35 for further information.
UFR 9 Recognition of Tax on Returns. Tax on returns on provisions in the balance sheet is to be recognized in profi t/ loss on a continuous basis as it arises.
The standard will be applied at the same time as amended IAS 19 Employee Benefi ts will come into effect.
New standards published by IASB, but either not yet eff ective or not yet adopted by the EU
• IFRS 12 Disclosure of Interests in Other Entities. A new standard for disclosing investments in subsidiaries, joint arrangements, associates and unconsolidated structured entities.
The consolidated accounts are prepared in accordance with the Group's accounting principles and include the accounts of the Parent Company and all Group companies. Group companies are consolidated from the date the Group exercises control or infl uence over the company. Divested companies are included in the consolidated accounts until the date the Group ceases to control or exercise infl uence over them. In preparing Sandvik's consolidated fi nancial statements any Intra-Group transactions have been eliminated.
Subsidiaries are entities over which the Parent Company has a controlling infl uence. Controlling interest exists when the Parent Company has the power, directly or indirectly, to govern the fi nancial and operating policies of an entity to obtain economic benefi ts from its activities. In assessing controlling interest, potential voting rights that currently are exercisable or convertible are taken into account.
The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that the controlling infl uence commences until the date that control ceases.
For cases in which the subsidiary's accounting policies do not coincide with the Group's accounting policies, adjustments were made to the Group's accounting policies.
The consolidated fi nancial statements are prepared in accordance with the purchase method. In business combinations, acquired assets and assumed liabilities are identifi ed and classifi ed, and measured at fair value on the date of acquisition (also known as a purchase price allocation).
Transaction costs in conjunction with acquisitions are recognized directly in profi t or loss for the year.
Contingent considerations are recognized as fi nancial liabilities and at fair
value on the acquisition date. Contingent considerations are remeasured at each reporting period with any change recognized in profi t or loss for the year.
In step acquisitions, when a controlling interest is achieved, any net assets acquired earlier in the acquired units are remeasured at fair value and the result of the remeasurement is recognized in profi t or loss. If the controlling interest is lost upon divestment, net profi t is recognized in profi t or loss. Any residual holding in the divested business is then measured at fair value on the date of divestment and its effect is recognized in profi t or loss for the year.
Non-controlling interests are recognized as a separate item in the Group's equity.
Acquisitions of non-controlling interests are recognized as a transaction within shareholders' equity, meaning between the Parent Company's owners and non-controlling interests. Accordingly, goodwill does not arise in conjunction with such transactions. Gains or losses on disposals to non-controlling interests are also recognized in equity.
Associated companies are partly owned entities over which the Group commands a signifi cant infl uence, but not control, over the fi nancial and operating policies. Normally this means a shareholding of between 20% and 50% of the voting rights. Interests in associated companies are recognized in accordance with the equity method in the consolidated fi nancial statements. Under the equity method, the carrying amounts of interests in associated companies correspond to the recognized equity of associated companies, any goodwill and any other remaining fair value adjustments recognized at acquisition date. Sandvik's share of the associated company's income, adjusted for dissolution of acquired surplus or defi cit values, is recognized as a separate item in the consolidated income statement.
The Parent Company's functional currency is Swedish kronor (SEK), which is also the reporting currency of the Parent Company and the Group. Accordingly, the fi nancial statements are presented in SEK. All amounts are in million SEK unless otherwise stated.
Transactions in foreign currencies are translated into functional currency at the foreign exchange rate prevailing at the date of the transaction. The functional currency is the currency of the primary economic environment in which the Group entities operate. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to functional currency at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognized in profi t or loss for the year. Non-monetary assets and liabilities measured in terms of historical cost in a foreign currency are translated using the exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value are retranslated to the functional currency at the exchange rate prevailing at the date that the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated from the foreign operation's functional currency to the Group's reporting currency, SEK, at foreign exchange rates prevailing at the balance sheet date. Revenues and expenses of foreign operations are translated to SEK at average rates that approximate the foreign exchange rates prevailing at each of the transaction dates. Translation differences arising from the translation of the net investment in foreign operations are recognized in other comprehensive income and are accumulated in a separate component of equity, a translation reserve. When the foreign operation is divested, the accumulated translation differences attributable to the divested foreign operation are reclassifi ed from equity to profi t or loss for the year as a reclassifi cation adjustment at the date on
which the profi t or loss on the divestment is recognized. For cases in which divestments made include a residual controlling infl uence, the proportionate share of accumulated translation differences from other comprehensive income is transferred to non-controlling interests.
Monetary non-current receivables or monetary non-current liabilities to a foreign operation for which no settlement is planned or is not likely to take place in the foreseeable future are, in practice, part of the company's net investment in foreign operations. A foreign exchange difference arising on the monetary non-current receivable or monetary non-current liability is recognized in other comprehensive income and accumulated in a separate component of shareholders' equity, entitled translation reserve. When a foreign operation is divested, the accumulated foreign exchange differences attributable to monetary non-current receivables or monetary noncurrent liabilities are included in the accumulated translation differences reclassifi ed from the translation reserve in equity to profi t or loss for the year.
Financial instruments recognized in the balance sheet include assets, such as cash and cash equivalents, loan and trade receivables, fi nancial investments and derivatives, and liabilities such as loan liabilities, accounts payable and derivatives.
A fi nancial asset or a fi nancial liability is recognized on the balance sheet when the entity becomes a party to the contractual provisions of the instrument. Trade receivables are recognized upon issuance of the invoice. A liability is recognized when the counterparty has performed under the agreement and the company is contractually obliged to settle the obligation, even if no invoice has been received.
A fi nancial asset is derecognized when the rights under the agreement are realized or have expired, or when control of the contractual rights is lost. The same applies to a portion of a fi nancial asset.
A fi nancial liability is derecognized when the obligation specifi ed in the contract is discharged or otherwise expires.
A fi nancial asset and a fi nancial liability are offset and presented in a net amount in the balance sheet only if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
A non-derivative fi nancial instrument is initially recognized at fair value plus any transaction costs. The Group classifi es its fi nancial instruments based on the purpose for its acquisition. Management decides its classifi cation on initial recognition. The classifi cation of a fi nancial asset determines how it is measured after initial recognition, as described below.
Cash and cash equivalents comprise cash balances and bank deposits, and short-term investments that have a maturity of no more than three months from the date of acquisition, and are exposed only to an insignifi cant risk of changes in value.
Financial assets and fi nancial liabilities measured at fair value in profi t or loss.
Financial assets and fi nancial liabilities held for trading, which comprise all derivatives held by Sandvik to which hedge accounting is not applied. Derivative agreements are entered mainly to hedge the Group's foreign exchange and interest-rate risks. Derivatives with positive fair values are recognized as other short term or long term receivables (unrealized profi ts), while derivatives with negative fair values are recognized as other short term or long term liabilities (unrealized losses).
Loans and receivables are non-derivative fi nancial assets, with fi xed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
Group borrowings are classifi ed as short term liabilities and long term other liabilities. Borrowings are initially measured at fair value net of transaction costs. Subsequently, borrowings are measured at amortized cost. Any difference between the loan amount, net of transaction costs, and the repayable amount is allocated to profi t or loss for the year over the term of the loan using the effective interest method.
All derivatives are initially recognized at fair value excluding any transaction costs. After initial recognition, derivatives not qualifi ed for hedge accounting are measured at fair value and the change in value is recognized in profi t or loss either as other operating income or expenses or fi nancial income or expenses.
To meet the criteria for hedge accounting, there must be a clear-cut relation to the hedged item and the hedge must be expected to be highly effective and it must be possible to measure such effectiveness reliably. Moreover, the hedge must be formally designated and documented. Gains and losses on hedges are recognized in profi t or loss for the year at the same time that the gains and losses are recognized for the hedged items. Gains and losses on remeasurement of derivatives used for hedging purposes are recognized as described below under cash-fl ow or fair-value hedges.
Hedge accounting is applied when hedging a particular risk associated with highly probable future cash fl ows and forecast transactions. The effective portion of the change in fair value for the year, of derivatives that are qualifi ed as cash fl ow hedges, is recognized in other comprehensive income and the accumulated changes in a separate component of shareholders' equity. The ineffective portion of a gain or loss is immediately recognized in profi t or loss for the year. When the hedged item impacts profi t or loss for the year, the accumulated
changes in value of the hedging instrument are reclassifi ed to profi t or loss for the year.
The accumulated gain or loss recognized in equity is reclassifi ed into profi t or loss for the year in the periods during which the hedged item affects profi t or loss (for instance, when the forecast sales that are hedged take place). If the hedged forecast transaction subsequently results in the recognition of a non-fi nancial asset (for instance, inventories or an item of property, plant and equipment), or a nonfi nancial liability, the hedging reserve is dissolved and the gain or loss is included in the operating profi t.
When a hedging instrument is used to hedge the exposure to changes in fair value, changes in the fair value of the instrument are recognized in profi t or loss for the year. The gain or loss on the hedged item attributable to the hedged risk, adjusts the carrying amount of the hedged liability and the change for the period is recognized in profi t or loss.
Fair value hedges are used to hedge the fair value of fi xed rate funding recognized in the balance sheet, provided that the hedged item is otherwise recognized at amortized cost. The derivative instrument used is interest rate swaps to hedge fi xed interest rate risk on borrowings. If the hedge relationship is discontinued, the carrying amount of the hedged item is adjusted with the accumulated amount referring to the hedge relationship.
Foreign currency gains and losses are recognized net.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the fi nancial instrument to the net carrying amount of the fi nancial asset or fi nancial liability. The calculation includes all fees and points paid or received between contractual parties that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
Sandvik's business is organized in a manner that allows the Group's chief operating decision maker, meaning the CEO, to monitor results, return and cash fl ow generated by the various products and services in the Group. Each operating segment has a president that is responsible for day-to-day activities and who regularly reports to the CEO regarding the results of the operating segment's work and the need for resources. Since the CEO monitors the business's result and decides on the distribution of resources based on the products the Group manufactures and sells and the services it provides, these constitute the Group's operating segments.
The Group's operations are organized in a number of business areas based on products and services. The market organization also refl ects this structure. In accordance with IFRS 8, segment information is presented only on the basis of the consolidated fi nancial statements.
Segment results, assets and liabilities include only those items that are directly attributable to the segment and the relevant portions of items that can be allocated on a reasonable basis to the segments. Unallocated items comprise interest and dividend income, gains on disposal of fi nancial investments, interest expense, losses on the disposal of fi nancial investments, income tax expense and certain administrative expenses. Unallocated assets and liabilities include income tax receivables and payables, fi nancial investments and fi nancial liabilities.
Revenue from the sale of goods is recognized in profi t or loss for the year when the signifi cant risks and rewards of ownership have been transferred to the buyer, that is, normally in connection with delivery. If the product requires installation at the buyer, and installation is a signifi cant part of the contract, revenue is recognized when the installation is completed. Buy-back commitments may entail that sales revenue cannot be recognized if the agreement with the customer in reality implies that the customer has only rented the product for a certain period of time.
Revenue from service assignments is normally recognized in connection with the rendering of the service. Revenue from service and maintenance contracts
is recognized in accordance with the percentage of completion method. The stage of completion is normally determined based on the proportion of costs incurred on the balance sheet date in relation to the estimated total costs of the assignment. Only expenditures relating to work carried out or to be carried out are included in calculating the total costs.
Construction contracts exist to some extent, mainly in the business areas Sandvik Mining and Sandvik Construction and Sandvik Venture's product area Process Systems. Contract revenue and expenses are recognized in profi t or loss for the year in proportion to the stage of completion of the contract, if the customer contract is considered enforceable, contains a customer specifi c delivery and the proportion of stage of completion can be estimated reliably. The stage of completion is based on the input method and is determined based on the proportion that contract costs incurred to date bear to the estimated total contract costs. Expected losses are immediately recognized as an expense in consolidated profi t or loss for the year.
Revenue in the form of royalty is recognized on the basis of the fi nancial implications of the agreement.
Government grants are recognized as deferred income in the balance sheet when there is reasonable assurance that the grant will be received and that the entity will comply with the conditions attaching to them. Grants are recognized in profi t or loss for the year in the same way and over the same periods as the related costs that they are intended to compensate, on a systematic basis. Grants related to assets are presented by deducting the grant from the carrying amount of the asset.
Financial expenses consists of interest expense on borrowings, interest income and expenses on interest swaps that are recognized net as an interest expense.
Credit losses on fi nancial assets and foreign exchange gains and losses on hedging instruments are recognized in profi t or loss for the year.
Income tax comprises current and deferred tax. Income tax is recognized in profi t or loss for the year except when the underlying transaction is recognized in other comprehensive income. In these cases, the associated tax effects are recognized in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Current tax liabilities are offset against current tax receivables and deferred tax assets are offset against deferred tax liabilities when the entity has a legal right to offset these items.
Deferred tax is recognized based on temporary differences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and their value for tax purposes. Deferred taxes are measured at their nominal amount and based on the expected manner of realization or settlement of the carrying amount of the underlying assets and liabilities, using tax rates and fi scal regulations enacted or substantively enacted at the balance sheet date.
Deferred tax assets relating to deductible temporary differences and tax loss carry- forwards are recognized only to the extent that it is probable they can be utilized against future taxable profi ts.
Goodwill acquired in a business combination represents the excess of the cost of the business combination over the net fair value of the identifi able assets, liabilities and contingent liabilities recognized.
Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and an annual impairment test is made in the fourth quarter or when there is an indication of impairment. Impairment losses on goodwill are not reversed. Goodwill arising on the acquisition of an
associated company is included in the carrying amount of participations in associated companies.
Expenditure on research activities related to the obtaining of new scientifi c or technical knowledge is expensed as incurred. Expenditure on development activities, whereby the research results or other knowledge is applied to accomplish new or improved products or processes, is recognized as an intangible asset in the balance sheet, provided the product or process is technically and commercially feasible and the company has suffi cient resources to complete development, and is subsequently able to use or sell the intangible asset.
The carrying amount includes the directly attributable expenditure, such as the cost of materials and services, costs of employee benefi ts, fees to register intellectual property rights and amortization of patents and licenses. Other expenses for development are expensed as incurred. In the balance sheet, capitalized development expenditure is stated at cost less accumulated amortization and any impairment losses.
Other intangible assets acquired by the company are recognized at cost less accumulated amortization and any impairment losses. Capitalized expenditure for the development and purchase of software for the Group's IT operations are included here.
Intangible assets also include patents, trademarks, licenses and other rights. They are split between acquired and internally generated intangible assets.
Amortization is charged to profi t or loss for the year on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefi nite. Intangible assets with an indefi nite useful life are systematically tested for impairment annually or as soon as there is an indication that the asset may be impaired. Intangible assets with a fi nite useful life are amortized as from the date the asset is available for use.
The estimated useful lives are as follows:
Property, plant and equipment are recognized at cost less accumulated depreciation and any impairment losses.
In the consolidated fi nancial statements, leases are classifi ed as either fi nance leases or operating leases. Further details on how Sandvik recognizes leases are found below on pages 89-90.
Depreciation is based on cost less estimated residual value. The assets are depreciated over the estimated useful lives, as follows:
If an item of property, plant and equipment comprises components with different useful lives, each such signifi cant component is depreciated separately. Depreciation methods and estimated residual values and useful lives are reviewed at each year-end.
Impairment and reversals of impairment Assets with an indefi nite useful life are not amortized, but tested annually for impairment. Assets that are amortized or depreciated are tested for impairment whenever events or changed circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized in the amount by which the carrying amount of an asset exceeds its recoverable amount, which is the greater
of the net selling price and value in use.
In assessing value in use, the estimated future cash fl ows are discounted to their present value using a rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For an asset that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
In respect of items of property, plant and equipment and intangible fi xed assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized.
Borrowing costs attributable to the construction of qualifying assets are capitalized as a portion of the qualifying asset's cost. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. The Group considers a period in excess of one year to be a substantial period of time. For the Group, the capitalization of borrowing costs is relating to intangibles is mainly relevant for capitalized expenditure for the development of new data systems. For tangibles it relates to the construction of production buildings on a proprietary basis.
Inventories are stated at the lower of cost and net realizable value, with due consideration of obsolescence. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Cost is based on the fi rst-in/fi rst-out (FIFO) principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.
Dividends are recognized as a liability in the period in which they are resolved at a shareholders' meeting.
The calculation of basic earnings per share is based on the profi t or loss attributable to ordinary equity holders of the Parent Company and the weighted average number of ordinary shares outstanding during the year. When calculating diluted earnings per share, the weighted average number of shares outstanding is adjusted for the effects of all dilutive potential ordinary shares, which during reported periods relates to options issued to employees. The options are dilutive if the exercise price is less than the quoted stock price and increases with the size of the difference.
The Group sponsors a number of defi ned contribution and defi ned-benefi t pension plans, some of which with plan assets held by separate foundations or equivalent. A number of Group entities also provide post-employment medical benefi ts.
Whenever possible, Sandvik nowadays seeks defi ned-contribution pension solutions and in recent years defi ned-benefi t plans have as far as possible been closed for new entrants in connection with negotiations about defi ned-contribution pension arrangements. The Group's Swedish companies offer all newly hired salaried employees, regardless of age, the defi ned-contribution pension solution (ITP 1) resulting from the renegotiation of the ITP Plan between the Confederation of Swedish Enterprise and the Negotiation Cartel for Salaried Employees in the Private Business Sector.
A defi ned-contribution plan is a post-employment benefi t plan under which an entity pays fi xed contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. The size of the pension that the employee will ultimately receive in such case depends on the size of the contributions that the entity pays to the plan or an insurance company and the return that the contributions yield. Obligations for contributions to defi ned-contribution pension plans are recognized as an employee benefi t expense in profi t or loss for the year as the employee renders services to the entity.
The Group's net obligation in respect of defi ned-benefi t pension plans is calculated separately for each plan by estimating the amount of future benefi t that employees have vested in return for their service in the current and prior periods. This benefi t is discounted to its present value. The discount rate is the yield on high-quality corporate bonds, mortgage bonds – or if there is no deep market for such bonds, government bonds – that have maturity dates approximating the terms of the Group's obligations. The calculation is performed annually by a qualifi ed actuary. In addition, the fair value of any plan assets is assessed. This method of accounting is applied to the most signifi cant defi ned-benefi t plans in the Group. A number of plans, which neither individually nor in the aggregate are signifi cant in relation to the Group's total pension obligations, are still recognized in accordance with local regulations.
In measuring the present value of pension obligations and the fair value of plan assets, actuarial gains and losses may accrue either because the actual outcome differs from earlier assumptions (so-called experience adjustments) or the assumptions are changed. These actuarial gains and losses are recognized in the balance sheet and in profi t or loss under other comprehensive income.
When the benefi ts under a plan are improved, the portion of the increased benefi ts that relate to past service by employees is recognized in profi t or loss for the year. The amount of obligations recognized in the balance sheet for pensions and similar obligations refl ects the present value of the obligations at balance sheet date, less the fair value of any plan assets.
Actuarial assumptions are important ingredients in the actuarial methods used to measure pension obligations and they can signifi cantly affect the recognized net liability and the annual pension cost. One critical assumption – the discount rate – is essential for the measurement of both the expense of the year and the present value of the defi ned-benefi t obligations current year. The discount rate is used both for calculating the present value of the obligation and as an estimate for the return on plan assets. The discount rate is reviewed quarterly, which affects the net liability and annually, which also affects the expense for coming years. Other assumptions are reviewed annually, which can relate to demographic factors such as pension age, mortality rates and employee turnover. A lower discount rate increases the present value of the pension obligation and the annual pension cost.
When employment is terminated, a provision is recognized only when the entity is demonstrably committed either to terminate the employment of an employee or a group of employees before the normal retirement age or provide termination benefi ts as a result of an offer made to encourage voluntary redundancy. In the latter case, a liability and an expense are recognized if it is probable that the offer will be accepted and the number of employees that will accept the offer can be reliably estimated.
A share option program allows employees to acquire shares in the company. The fair value of options granted is recognized as an employee expense with a corresponding increase in equity. The fair value as measured at the grant date is spread over the vesting period. The fair value of the options is measured using the Black & Scholes formula, taking into account the terms and conditions upon which the options were granted. The amount recognized as an expense is adjusted to refl ect the actual number of share options vested.
In order to meet its commitments under the option program, Sandvik has entered
into an equity swap agreement with a fi nancial institution. Under the agreement, the fi nancial institution undertakes to distribute Sandvik shares to participants in the program when the date for allotment occurs in accordance with the terms and conditions of the program. The fair value of the Sandvik share when the swap agreement was signed is recognized as a fi nancial liability and as a reduction of equity in accordance with IAS 32.
Social costs relating to share-based payments to employees are expensed over the accounting periods during which the services are provided. The charge is based on the fair value of the options at the reporting date. The fair value is calculated using the same formula as that used when the options were granted.
A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outfl ow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, the provision is determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects the current market assessments of the time value of money and, where appropriate, the risks specifi c to the liability. The provisions are mainly related to warranty commitments, restructuring, environmental obligations, long term incentives and legal disputes and claims, such as value added tax issues, customer and supplier claims relating to ongoing or fi nished projects.
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighing of all possible outcomes with their associated probabilities.
A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. No provision is posted for future operating costs.
In accordance with the Group's published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land is recognized when land has become contaminated.
A provision for onerous contracts is recognized when the expected benefi ts to be derived by the Group are lower than the unavoidable cost of meeting its obligations under the contract.
A contingent liability is recognized when there is a possible obligation that arises from past events and whose existence will be confi rmed only by the occurrence or non-occurrence of one or more uncertain future events or when there is a present obligation that cannot be recognized as a liability because it is not probable that an outfl ow of resources will be required, alternatively because the amount of the obligation cannot be measured with suffi cient reliability.
There are two basic categories of leases, fi nancial and operating. Lease contract terms, under which the lessor has transferred the majority of the risks and rewards of ownership to the lessee, are classifi ed as fi nance leases. All other leases are classifi ed as operating leases.
Under a fi nance lease, the lessee recognizes the leased asset measured at the lower of its fair value and the present value of future lease payments. Simultaneously, a liability corresponding to future lease expenses is recognized. The asset is depreciated according to the proper accounting policy valid for the type of asset. However, depreciation may never exceed the lease term. The lease payments are recognized against the lease liability. Operating leases are not recognized in the balance sheet. Expenses attributable to an operating lease are
recognized in profi t or loss for the year on a straight line basis following the lease term.
Under a fi nance lease, the lessor recognizes a sale and a fi nancial receivable equal to the future lease installments and residual values that might have been guaranteed to the lessee. For the duration of the lease term, interest revenue is recognized in profi t or loss for the year, while amortization is recognized as a decline of the fi nancial receivable. Under an operating lease, the lessor recognizes the equipment as an asset, and revenue and depreciation are recognized on a straight line basis over the lease term.
The Parent Company has prepared its Annual Report in accordance with the Annual Accounts Act (1995:1554) and the standard, RFR 2 Reporting by a legal entity, issued by the Swedish Financial Reporting Board. Also the interpretations issued by the Financial Reporting Board valid for listed companies have been applied. Under RFR 2, the Parent Company in its Annual Report is to apply all the IFRS and IFRIC interpretations approved by the EU to the extent possible within the framework of the Annual Accounts Act, the Act on Income Security, and taking into account the close tie between fi nancial reporting and taxation. The standard specifi es what exceptions from or additions to the IFRS shall be made.
Unless otherwise stated below, the Parent Company's accounting policies in 2013 changed in accordance with the amendments described above for the Group's accounting policies.
The Parent Company's income statement and balance sheet adhere to the presentation included in the Annual Accounts Act. The differences compared with IAS 1 Presentation of Financial Statements applied when presenting the consolidated fi nancial statements mainly pertain to the presentation of fi nance income and expenses, non-current assets, equity and the presentation of provisions as a separate heading in the balance sheet.
The Parent Company recognizes shares in Group companies and associated companies in accordance with the cost model, meaning that transaction costs are included in the carrying amount of holdings in subsidiaries and associated companies. Transaction costs related to shares in Group companies are recognized directly in profi t or loss in the consolidated fi nancial statements when they arise. Contingent consideration is valued based on the probability that the consideration will be paid. Any changes in the provision/ receivable are added to/ deducted from the cost. Contingent consideration is measured at fair value in the consolidated fi nancial statements with changes in value recognized in profi t or loss. Dividends from subsidiaries are recognized in full as income in profi t or loss for the year.
The Parent Company recognizes all lease contracts according to the rules for operating leases.
The Parent Company recognizes all expenditure for research and development conducted on a proprietary basis as an expense in profi t or loss.
In the Parent Company, borrowing costs are expensed in the periods to which they relate. Borrowing costs for assets are not capitalized.
The Parent Company calculates expenses for defi ned-benefi t pension plans differently from the manner prescribed in IAS 19. The Parent Company applies the Act on Income Security and regulations issued by the Swedish Financial Supervisory Authority, which is a prerequisite for income tax purposes. Compared to IAS 19, the most signifi cant differences relate
to the determination of the discount rate, the fact that the obligation is calculated based on the current salary level disregarding assumptions about future levels.
The Parent Company recognizes untaxed reserves including the deferred tax component.
In the consolidated fi nancial statements, untaxed reserves are recognized in their equity and deferred tax components. Correspondingly, portions of appropriations are not allocated to deferred tax expenses in the Parent Company's income statement.
Group contributions that a Parent Company receives from a subsidiary are recognized in the Parent Company in accordance with the same policies as normal dividends from subsidiaries. Group contributions paid by the Parent Company to subsidiaries are recognized as investments in shares in the subsidiaries.
Anticipated dividends from subsidiaries are recognized in cases where the Parent Company unilaterally may determine the size of the dividend and provided that the Parent Company has made such a decision before it published its fi nancial statements.
The Parent Company applies a relaxation rule permitted by the Swedish Financial Reporting Board to the reporting of fi nancial guarantees as opposed to the rules stipulated by IAS 39. This relaxation rule pertains to fi nancial guarantee agreements issued for the benefi t of subsidiaries, associated companies and joint ventures. The Parent Company recognizes fi nancial guarantees as a provision in the balance sheet when the company has an obligation for which payment is probably necessary to settle the commitment.
Key sources of estimation uncertainty In order to prepare the fi nancial statements, management and the Board make various judgments and estimates that can affect the amounts recognized in the fi nancial statements for assets, liabilities, revenues and expenses as well as information in general, including issues with regard to contingent liabilities. The judgments and estimates discussed in this section are those deemed to be most important for an understanding of the fi nancial statements, considering the level of significant estimations and uncertainty. The conditions under which Sandvik operates are gradually changing meaning that the judgments also change.
Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill has been impaired, for example due to a changed business climate or a decision taken either to sell or close down certain operations. In order to determine if the value of goodwill has been impaired, the cash-generating unit to which goodwill has been allocated must be valued using present value techniques. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. This is further described in Note 13. As can be deduced from this description, changes in the conditions for these judgments and estimates can signifi cantly affect the assessed value of goodwill.
Sandvik's property, plant and equipment and intangible assets – excluding goodwill – are stated at cost less accumulated depreciation/amortization and any impairment losses. Other than goodwill, Sandvik has not identifi ed any intangible assets with indefi nite useful lives. The assets are depreciated or amortized over their estimated useful lives to their estimated residual values. Both the estimated useful life and the residual value are reviewed at least at each fi nancial year-end.
The carrying amount of the Group's non-current assets is tested for impairment whenever events or changes in circumstances indicate that the carrying amount will not be recovered. The carrying amount of intangible assets not yet available for use is tested annually. If such analysis indicates an excessive carrying amount, the recoverable amount of the asset is estimated. The recoverable amount is the higher of the asset's fair value less selling costs, and its value in use. Value in use is measured as the discounted future cash fl ows of the asset, alternatively the cash-generating unit to which the asset belongs. The rental fl eets of the Sandvik Mining and Sandvik Construction business areas are subject to special examination considering their dependence on the business climate in the mining industry and the risk that rental agreements may be cancelled. The carrying amount of the rental fl eets at the end of 2013 was 378 million SEK (499).
A call for an impairment test also arises when a non-current asset is classifi ed as being held for sale, at which time it must be remeasured at the lower of its carrying amount and fair value less cost to sell.
Signifi cant estimates are made to determine both current and deferred tax liabilities/ assets, not least the value of deferred tax assets. The company must then determine the possibility that deferred tax assets will be utilized and offset against future taxable profi ts. The actual results may differ from these estimates, for instance due to changes in the business climate, changed tax legislation, or the outcome of the fi nal review by tax authorities and tax courts of tax returns. At year-end 2013, Sandvik recognized deferred tax assets of 5,903 million SEK (3,869). Furthermore, the Group had additional tax loss carry-forward of about 527 million SEK (498) at the end of 2013 for which no deferred tax assets are recognized since utilization of these losses is not deemed probable. A change in the estimate of the possibility for utilization thus can affect results both positively and negatively. The expenditure recognized as a provision for ongoing tax
litigations is based on management's best estimate of the outcome, and amounted to 1,070 million SEK (4,529) at the end of 2013.
Sandvik is besides the tax litigation cases set out above – party to a number of disputes and legal proceedings in the ordinary course of business. Management consults with legal experts on issues related to legal disputes and with other experts internal or external to the Company on issues related to the ordinary course of business. It is management's best estimate that neither the Parent Company, nor any subsidiary, is involved in legal proceedings or arbitration that may be deemed to have a materially negative effect on the business, the fi nancial position or results of operations.
For additional information on risks related to disputes, refer to the Risks and Risk Management section.
Profi t/loss for the year attributable to equity holders of the Parent Company divided by the average number of shares outstanding during the year.
Shareholders' equity including noncontrolling interests in relation to total capital.
Interest-bearing current and non-current debts (excluding net provisions for pensions) less cash and cash equivalents divided by shareholders' equity excluding accumulated actuarial gains/losses on benefi t-based pension plans after tax and including non-controlling interests.
Invoiced sales divided by average total capital.
Average working capital divided by invoicing in the most recent quarter adjusted to annual rate.
Profi t/loss after fi nancial income and expenses, plus interest expenses, as a percentage of average total capital, less noninterest-bearing debts.
Consolidated net profi t/loss for the year as a percentage of average shareholders' equity during the year.
Profi t/loss after fi nancial income and expenses, plus interest expenses, as a percentage of average total capital.
Total of inventories, trade receivables, accounts payable and other noninterest-bearing receivables and liabilities, excluding tax assets and liabilities.
| 1. | Segment information | 94 |
|---|---|---|
| 1.1 Information on business segments/business areas | 94 | |
| 1.2 Information by country | 94 | |
| 2. | Categories of revenue | 95 |
| 3. | Personnel information and remuneration of management and auditors | 95 |
| 3.1 Average number of employees | 95 | |
| 3.2 Wages, salaries, other remuneration and social costs | 95 | |
| 3.3 Wages, salaries and other remuneration by market area | 95 | |
| 3.4 Gender distribution in senior management | 95 | |
| 3.5 Remuneration of the Board of Directors and senior executives | 95 | |
| 3.6 Fees and remuneration to the Group's auditors | 98 | |
| 4. | Research, development and quality assurance | 98 |
| 5. | Other operating income | 98 |
| 6. | Other operating expenses | 98 |
| 7. | Operating expenses | 98 |
| 8. | Fees for fi nance and operating leases | 99 |
| 9. | Net fi nancing cost | 99 |
| 10. | Appropriations | 100 |
| 11. | Income tax | 100 |
| 12. | Earnings per share | 101 |
| 13. | Intangible assets and property, plant and equipment, Group | 102 |
| 14. | Intangible assets and property, plant and equipment, Parent Company | 105 |
| 15. | Shares in Group companies | 106 |
| 16. | Investments in associated companies | 110 |
| 17. | Non-current receivables and other current receivables | 111 |
| 18. | Inventories | 111 |
| 19. | Trade receivables | 111 |
| 20. | Capital and reserves | 111 |
| 21. | Parent Company's other untaxed reserves | 112 |
| 22. | Provisions for pension and other non-current post-employment benefi ts | 112 |
| 23. | Other provisions | 115 |
| 24. | Non-current interest-bearing liabilities | 115 |
| 25. | Other interest-bearing liabilities | 115 |
| 26. | Other noninterest-bearing liabilities | 115 |
| 27. | Accrued expenses and deferred income | 116 |
| 28. | Contingent liabilities and pledged assets | 116 |
| 29. | Supplementary information – fi nancial risk management | 116 |
| 30. | Related parties | 118 |
| 31. | Supplementary information to the cash-fl ow statement | 118 |
| 32. | Acquisition and divestment of operations | 119 |
| 33. | Parent Company particulars | 120 |
| 34. | Information on shares, owners and rights | 120 |
| 35. | Eff ects of amendments to IAS 19 Employee Benefi ts | 120 |
Consolidated and Parent Company fi nancial statements (Amounts in tables in MSEK, unless otherwise stated)
| Sandvik Mining | Sandvik Machining Solutions |
Technology | Sandvik Materials |
Sandvik Construction |
Sandvik Venture |
Corporate | Eliminations | Group total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |
| Revenue | ||||||||||||||||
| External revenue | 30,744 37,762 28,543 29,713 14,035 15,366 | 8,601 | 9,683 | 5,394 | 5,963 | 11 | 42 | 87,328 | 98,529 | |||||||
| Internal revenue | 1 | 2 | 234 | 166 | 344 | 410 | 67 | 113 | 622 | 669 | 2 | 17 –1,270 –1,377 | ||||
| Group total | 30,745 37,764 28,777 29,879 14,379 15,776 | 8,668 | 9,796 | 6,016 | 6,632 | 13 | 59 –1,270 –1,377 87,328 | 98,529 | ||||||||
| Share of results of associated companies |
4 | 6 | 23 | 26 | –26 | –26 | — | — | — | — | — | — | 1 | 6 | ||
| Operating profi t/loss by business area |
2,743 | 6,004 | 5,205 | 6,374 | 1,270 | 592 | 110 | 748 | 606 | 1,120 –1,296 –1,348 | 8,638 | 13,490 | ||||
| Net fi nancing cost | –1,885 | –1,974 | ||||||||||||||
| Income tax expense for the year |
–1,745 | –3,409 | ||||||||||||||
| Profi t for the year | 5,008 | 8,107 | ||||||||||||||
| Other disclosures | ||||||||||||||||
| Assets | 21,335 24,641 23,688 23,607 16,415 16,794 | 7,687 | 8,093 | 7,724 | 7,475 | 2,050 | 1,770 | 78,899 | 82,380 | |||||||
| Investments in associates | 44 | 46 | 38 | 150 | 129 | 155 | — | — | — | — | — | 5 | 211 | 356 | ||
| Total assets | 21,379 24,687 23,726 23,757 16,544 16,949 | 7,687 | 8,093 | 7,724 | 7,475 | 2,050 | 1,775 | 79,110 | 82,736 | |||||||
| Unallocated assets | 14,772 | 21,319 | ||||||||||||||
| Group total | 93,882 | 104,055 | ||||||||||||||
| Liabilities | 7,665 | 9,293 | 4,140 | 3,781 | 3,665 | 3,893 | 2,164 | 2,432 | 1,162 | 1,088 | 1,830 | 1,877 | 20,626 | 22,364 | ||
| Unallocated liabilities | 39,646 | 49,155 | ||||||||||||||
| Group total | 60,272 | 71,519 | ||||||||||||||
| Capital expenditure | 832 | 854 | 1,760 | 1,850 | 997 | 1,188 | 244 | 275 | 363 | 248 | 227 | 132 | 4,423 | 4,547 | ||
| Depreciation/Amortization | –647 | –660 –1,674 –1,643 | –702 | –817 | –433 | –420 | –298 | –307 | –118 | –123 | –3,872 | –3,970 | ||||
| Impairment losses | –278 | –18 | –71 | –8 | –251 | –317 | –125 | –11 | –94 | –8 | 1 | 10 | –818 | –352 | ||
| Other non-cash expenses | 185 | 19 | 200 | –104 | –85 | –48 | 27 | –37 | 35 | –5 | –253 | 426 | 109 | 251 |
All transactions between the business areas are on market terms. For information regarding business combinations, see Note 32.
| Group | 2013 | 2012 |
|---|---|---|
| USA | 10,956 | 12,296 |
| Australia | 6,913 | 10,337 |
| China | 6,760 | 7,144 |
| Germany | 6,702 | 6,933 |
| South Africa | 3,526 | 5,250 |
| Brazil | 3,513 | 4,315 |
| Sweden | 3,416 | 3,820 |
| Russia | 3,392 | 3,660 |
| Italy | 3,175 | 3,097 |
| Canada | 2,866 | 3,304 |
| UK | 2,619 | 2,504 |
| France | 2,567 | 2,762 |
| India | 1,759 | 2,098 |
| Mexico | 1,754 | 2,283 |
| Japan | 1,725 | 2,286 |
| Other countries | 25,685 | 26,440 |
| Total | 87,328 | 98,529 |
Income is specifi ed by country based on where customers are located.
Non-current assets by country
| Group | 2013 | 2012 |
|---|---|---|
| Sweden | 13,632 | 13,336 |
| USA | 4,057 | 3,654 |
| Germany | 3,607 | 3,259 |
| Austria | 2,390 | 2,283 |
| UK | 1,998 | 2,110 |
| China | 1,878 | 1,857 |
| Finland | 1,626 | 1,450 |
| Australia | 1,187 | 1,698 |
| India | 907 | 917 |
| France | 874 | 851 |
| Czech Republic | 709 | 762 |
| Brazil | 538 | 670 |
| Japan | 512 | 727 |
| Canada | 485 | 430 |
| Italy | 448 | 448 |
| Other countries | 2,354 | 2,487 |
| Total | 37,202 | 36,939 |
Non-current assets are specifi ed by country based on where they are located.
| Group | Parent Company |
|||||
|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |||
| Sale of goods | 80,262 | 90,685 | 15,864 | 16,984 | ||
| Contract revenue | 2,773 | 4,709 | — | — | ||
| Rendering of services | 3,701 | 2,536 | 9 | 6 | ||
| Rental income | 592 | 599 | — | — | ||
| Total | 87,328 | 98,529 | 15,873 | 16,990 |
| Group | Parent Company | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||||||
| Number | Women, % | Number | Women, % | Number | Women, % | Number | Women, % | ||
| Sweden | 10,900 | 23 | 11,251 | 24 | 8,007 | 22 | 8,251 | 22 | |
| Rest of Europe | 15,289 | 19 | 15,695 | 19 | — | — | — | — | |
| Total Europe | 26,189 | 21 | 26,946 | 21 | 8,007 | 22 | 8,251 | 22 | |
| NAFTA | 5,327 | 17 | 5,551 | 17 | — | — | — | — | |
| South America | 3,026 | 14 | 3,259 | 13 | 2 | 50 | 2 | 50 | |
| Africa, Middle East | 3,030 | 14 | 3,107 | 20 | — | — | — | — | |
| Asia | 8,385 | 16 | 8,227 | 16 | — | — | — | — | |
| Australia | 2,083 | 16 | 2,295 | 15 | — | — | — | — | |
| Total | 48,040 | 18 | 49,385 | 19 | 8,009 | 22 | 8,253 | 22 |
| Group | Parent Company |
||||
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||
| Wages, salaries and other remuneration |
18,632 | 19,346 | 3,840 | 3,819 | |
| Social costs | 4,938 | 5,311 | 1,755 | 1,789 | |
| Employee profi t sharing | 29 | 250 | 24 | 212 | |
| Total | 23,599 | 24,907 | 5,619 | 5,820 | |
| Of which, pension costs recognized | |||||
| in social costs | 1,700 | 1,739 | 628 | 569 |
A total of 50 million SEK (49) of the Group's pension costs relates to Boards and presidents. The Group's pension liability to these persons amounted to 178 million SEK (205). Correspondingly, 12 million SEK (8) of the Parent Company's pension costs related to the Boards and presidents. The Parent Company's pension liability relating to these persons amounted to 52 million SEK (59).
To promote performance that is favorable to the Group's long-term development and also to stimulate continued employee loyalty, Sandvik has had a profi t-sharing system for all employees in wholly owned companies in Sweden since 1986. The Group's return during 2013 resulted in an allocation of 29 million SEK (250) to the profi t-sharing foundation.
| Group | Parent Company |
|||||
|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |||
| Sweden | 5,131 | 5,131 | 3,840 | 3,819 | ||
| Rest of Europe | 6,590 | 6,600 | — | — | ||
| Total Europe | 11,721 | 11,731 | 3,840 | 3,819 | ||
| NAFTA | 2,535 | 2,547 | — | — | ||
| South America | 825 | 1,067 | 0 | 0 | ||
| Africa, Middle East | 725 | 852 | — | — | ||
| Asia | 1,504 | 1,423 | — | — | ||
| Australia | 1,322 | 1,726 | — | — | ||
| Total | 18,632 | 19,346 | 3,840 | 3,819 | ||
| Of which, to Boards of Directors and presidents |
||||||
| Salaries and other remuneration | 490 | 496 | 45 | 44 | ||
| of which, variable salary | 73 | 77 | 3 | 10 |
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Proportion of women, % | 2013 | 2012 | 2013 | 2012 | |
| Gender distribution in | |||||
| senior management | 11 | 11 | 9 | 9 | |
| Other senior executives | 20 | 18 | 33 | 11 |
Fees to the Chairman and other external Board members are paid in accordance with the resolution at the Annual General Meeting. No Board fees are paid to the President and the employee representatives.
In accordance with the resolution of the 2013 Annual General Meeting, the total fee to the external directors elected at the Meeting amounts to 4,950,000 SEK on a annual basis. Of this amount, 1,650,000 SEK is payable to the Chairman of the Board (Anders Nyrén) and 550,000 SEK to each of the other external Board members (Jürgen M Geissinger, Johan Karlström, Fredrik Lundberg, Hanne de Mora, Simon Thompson and Lars Westerberg).
In addition to these amounts, the Annual General Meeting resolved that a fee for committee work should be paid to committee members elected by the Meeting, in an amount totaling 475,000 SEK to be divided between the members of the Audit Committee (Hanne de Mora 175,000 SEK, Anders Nyrén 150,000 SEK and Simon Thompson 150,000 SEK) and in an amount totaling 325,000 SEK to be divided between the members of the Remuneration Committee elected by the Meeting (Anders Nyrén 125,000 SEK, Johan Karlström 100,000 and Lars Westerberg 100,000 SEK).
The following guidelines approved by the Annual General Meeting for remuneration of senior executives have been applied since the Annual General Meeting in 2013:
The remuneration of Group Executive Management is to comprise fi xed salary, variable salary, pension and other benefi ts. The total remuneration package should be based on market terms, be competitive and refl ect the individual's performance and responsibilities as well as the Group's earnings trend. The variable salary may comprise short-term incentives in cash and long-term incentives in cash, shares and/or share-based instruments in Sandvik AB. Variable salary in cash is conditional upon the fulfi llment of defi ned and measurable goals and should be maximized in relation to the fi xed salary. Long-term incentives in the form of shares and/or share-based instruments in Sandvik AB may be provided through participation in long-term incentive programs approved by the General Meeting. Terms and conditions for variable salary should be
designed so that the Board, if exceptional economic circumstances prevail, has the option of limiting or refraining from payment of variable salary if such a measure is considered reasonable. In specifi c cases, agreements may be reached regarding one-off remuneration amounts provided that such remuneration does not exceed an amount corresponding to the individual's annual fi xed salary and maximum variable salary in cash, and is not paid more than once per year and individual. Pension benefi ts should either be defi ned benefi t or defi ned contribution, or a combination thereof. The retirement age for the President is a minimum of 60 and for other members of Group Executive Management the retirement age is a minimum of 62. Normally, severance payment is made when employment is terminated by Sandvik. Members of Group Executive Management generally have a period of notice of not more than 12 months, in combination with severance pay corresponding to 6–12 months fi xed salary. An alternative solution may be applied to the President comprising a period of notice of 24 months and no severance pay. No severance payment will be made when employment is terminated by the employee. The Board is to have the right to depart from the guidelines resolved on by the Annual General Meeting if, in an individual case, there are special reasons for this. The sphere of senior executives encompassed by the guidelines comprises the President and other members of Group Executive Management.
The motion for principles for remuneration that the Board intends to submit to the 2014 Annual General Meeting for resolution is presented in the Report of the Directors, in the "People" section.
Eff ective 1 January 2013, Sandvik's CEO and President, Olof Faxander, was paid an annual fi xed salary of 10,604,880 SEK and received the fringe-benefi t value of a car provided by the company. In addition, an annual variable cashbased salary of maximum 75% of the fi xed salary is payable. The variable salary for 2013 amounted to 2,007,703 SEK.
Olof Faxander is entitled to retire with pension at age 60. A premium of 37.5% of his annual fi xed salary is reserved annually.
In the event of termination of employment by the company, Olof Faxander has a notice period of 24 months with no severance pay.
For other members of Group Executive Management who are Swedish citizens, pension age is 62. For retirement prior to age 65 for other senior executives who are Swedish citizens and who are covered by the ITP 2 plan, Sandvik AB undertakes to pay a supplement of 8% of the salary portions in excess of 20 price base amounts. For one senior executive, an individual additional premium is also paid. For other senior executives who are Swedish citizens and who are covered by the ITP 1 plan, Sandvik AB undertakes to pay a supplement of 5% of the salary portions in excess of 7.5 income base amounts.
The pension from age 65 to the other members of Group Executive Management who are Swedish citizens is arranged through the ITP Plan and a supplementary defi ned-contribution plan under which the company each year contributes 20–30% (depending on age) of fi xed salary portions in excess of 20 price base amounts. Alternatively, this group may be encompassed by the ITP plan 1. In such a case, the previous system with the ITP 2 plan and the supplementary plan does not apply. Of the seven remaining members of Group Executive Management who are Swedish citizens employed on 31 December 2013, three are encompassed by the ITP 1 plan and four remain in the ITP 2 plan and a supplementary plan. Members of Group Executive Management who are not
Swedish citizens have defi ned-contribution plans under which the company contributes up to 15% of the fi xed annual salary.
Severance pay is paid in the event that the company terminates employment. The severance pay equals 6–12 months' fi xed salary in addition to the notice period, which is normally 12 months. Any other income from employment is normally deducted from the severance pay.
In 2010, the Board decided to implement a cash-based program for long-term variable salary (LTI - Long-Term Incentive). Some 400 Sandvik employees participated in the program on a global basis. The program applied for a three-year period. Under the program, there is a direct link between performance, added value, and remuneration. There is an annual maximum outcome related to the participant's fi xed salary in December 2012. The outcome of the LTI program is conditional upon meeting measurable goals, established by the Board, for certain key ratios that create shareholder value linked to the company's growth, profi tability and capital effi ciency over a three-year period. For members of Group Executive Management, the maximum payment from the LTI program is 40–50% of the annual fi xed salary.
Amounts attributable to the program are expensed and reserved continuously, based on assumptions regarding target achievement. The 2010 LTI program covering the years 2010–2012 resulted in maximum payment during the year, since the performance targets set by the Board of Directors were 100% met. A total of 5,716,205 SEK was paid to Group Executive Management.
The 2011, 2012 and 2013 Annual General Meetings approved the Board proposals to introduce a share-based LTI program for each year. The programs are aimed at about 400 senior executives and key individuals in the Sandvik Group and encompass a maximum total of 35,124,878 Sandvik shares.
The program participants have receiving an allotment of employee stock options that entitle the employee to acquire Sandvik shares after three years at a set exercise price ("performance shares"), on condition that certain performance targets linked to the Sandvik Group's growth in value – Sandvik Value Added (SVA) – are met. For the President, senior executives and certain toplevel executives, a personal investment in Sandvik shares ("saving shares"), corresponding to 10% of fi xed annual pre-tax salary for the year in which the investment in saving shares is made, is required in order to receive allotment of employee stock options. Provided that such a personal investment in Sandvik shares has been made, these executives also received allotment of rights ("matching rights") (one per saving share acquired) that entitle the executive to acquire Sandvik shares after three years at a set exercise price ("matching shares"). Employee stock options and matching rights are non-transferrable.
Each employee stock option entitles the employee to acquire one performance share not earlier than three years and not later than fi ve years following allocation of the employee stock option. The amount of the allotted employee stock options that will eventually provide entitlement to the acquisition of performance shares depends on the trend in SVA over the three fi scal years following approval of the program by the Annual General Meeting.
The exercise of the employee stock options to acquire performance shares requires continued employment at Sandvik. For those executives investing personally in Sandvik shares, exercise requires that all acquired saving shares are held for a three-year period after allotment of the employee stock options.
Other
Long-term
Pension
Annual
| SEK | |
|---|---|
| SEK | Board fee | variable salary 1) | benefi ts 2) | variable salary 3) | costs |
|---|---|---|---|---|---|
| Chairman of the Board | 1 925,000 4) | — | — | — | — |
| Other Board members | 3,825,000 | — | — | — | — |
| President and CEO | 11,123,015 5) | 2,007,703 | 125,750 | 578,995 | 4,019,558 |
| Other senior executives 6) 7) | 50,084,265 | 5,696,815 | 2,463,844 | 3,448,108 | 18,818,378 |
| Sum | 66,957,280 | 7,704,518 | 2,589,594 | 4,027,103 | 22,837,936 |
Fixed salary/
1) Amount pertaining to 2013 and expected to be paid in 2014.
2) Relates mainly to the fringe-benefi t value of housing and company car.
3) The amounts pertain to changes in provisions made for the 2011, 2012 and 2013 LTI programs.
4) Expensed during 2013 and will be paid in 2014. The amount includes a Board fee of 1,650,000 SEK, a Remuneration Committee fee of 125,000 SEK and an Audit Committee fee of 150,000 SEK.
5) Olof Faxander's fi xed salary as of 1 January 2013 amounts to 10,604,880 SEK, the remaining amount relates to vacation pay, etc. Board fees are not payable to executive Board members. 6) Pertains to the following persons in 2013: Jessica Alm (from July 2013), Mats Backman (from October 2013), Petra Einarsson (from February 2013), Andreas Evertz (January 2013), Dinggui Gao (from October 2013), Jonas Gustavsson, Gary Hughes, Jan Lissåker (January - June 2013), Emil Nilsson (January - September 2013), Tomas Nordahl, Bo Severin and Anna Vikström Persson.
7) The amounts also include severance pay for the former CFO of Sandvik AB and for the former President of the Sandvik Machining Solutions business area, who left their positions during the year.
35
Each matching right provides entitlement to acquire a matching share not earlier than three and not later than fi ve years after the allotment of the matching rights. The exercise of matching rights to acquire matching shares requires continued employment at Sandvik and that all acquired saving shares are held for a three-year period after the allotment of matching rights.
The exercise price to acquire a performance share or matching share comprises an amount corresponding to 110% and 75%, respectively, of the average volume-weighted price paid for the Sandvik share on the NASDAQ OMX Stockholm during a period of ten trading days immediately following the Annual General Meeting that approved the program. The average volume-weighted price paid was determined for 2011 at 117.20 SEK, for 2012 at 97.12 and for 2013 at 92.41 SEK.
The 2011 LTI program, encompassing the years 2011–2013, did not lead to any payment from the employee stock options, since the performance targets set by the Board of Directors were not met.
The number of allotted employee stock options and acquired matching rights under the 2012 and 2013 programs for the President and other members of Group Executive Management on 31 December 2013 corresponds to the number of outstanding employee stock options and matching rights at yearend. The number of alloted matching rights under the 2011 program corresponds to the number of outstanding matching rights at 31 December 2013.
The expected volatility was determined by analyzing the historical volatility of Sandvik AB and some comparable listed companies. When determining the expected maturity, assumptions were made regarding expected behavior patterns for exercising the employee stock options and acquired matching rights among the program participants.
In accordance with IFRS 2, the total expense for the 2013 LTI program amounted to 146 million SEK excluding social costs, of which 14 million SEK for the President and other senior executives. During the year, a provision of 49
million SEK, excluding social costs, was established for the 2013 LTI program, of which 4.6 million SEK for the President and other senior executives. During the year, a provision of 44 million SEK, excluding social costs, was established for the 2012 LTI program, of which 3.7 million SEK for the President and other senior executives. During the year, a provision of 108 million SEK, excluding social costs, was reversed for the 2011 LTI program, of which 4.2 million SEK for the President and other senior executives. The employee stock options and matching rights are expensed as an employee expense (excluding social costs) over the vesting period and are recognized directly against equity. The amount recognized is continuously revised throughout the vesting period of the employee stock options and matching rights. Social costs are expensed during the vesting period of the employee stock options and matching rights based on the change in value of the employee stock options and matching rights.
The Board's Remuneration Committee prepares issues relating to Group Executive Management's remuneration. The Committee met fi ve times during the year. Issues dealt with included the remuneration level in connection with completed recruitments, distribution between fi xed and variable salary, the magnitude of any pay increases and the long-term variable incentive program. The Board discussed the Remuneration Committee's proposals and made a decision, using the Committee's proposal as a basis.
Based on the Remuneration Committee's proposals, the Board decided on the remuneration of the President for 2013. The President decided on remuneration to other senior executives after consultation with the Remuneration Committee. The Remuneration Committee performed its task supported by expertise on remuneration levels and structures. For information on the composition of the Committee, refer to the Corporate Governance Report.
| Assumptions for determining the value based on the Black & Sholes model |
Program 2011 (on date of issue) |
Program 2012 (on date of issue) |
Program 2013 (on date of issue) |
|---|---|---|---|
| Share price | 117 SEK | 92.65 SEK | 94.65 SEK |
| Exercise price | 129/87.90 SEK | 106.80/72.80 SEK | 101.70/69.30 SEK |
| Expected volatility | 32% | 36.50% | 35% |
| Expected maturity | 3 years | 3 years | 3 years |
| Present value of forecasted future dividends1 | 13.10 SEK | 12.17 SEK | 12.22 SEK |
| Risk-free interest rate | 2.6% | 0.95% | 0.91% |
1) Based on analysts' combined expectations
| Number of employee stock options 2011 |
Matching rights 2011 |
Employee stock options 2012 |
Matching rights 2012 |
Employee stock options 2013 |
Matching rights 2013 |
|
|---|---|---|---|---|---|---|
| Outstanding at beginning of year | 10,070,250 | 52,394 | 11,131,800 | 131,844 | — | — |
| Allotted during the period | — | — | — | — | 11,606,280 | 142,835 |
| Forfeited during the year | –10,070,250 | –7,438 | –416,000 | –15,671 | –377,000 | –4,525 |
| Outstanding at year-end | — | 44,956 | 10,715,800 | 116,173 | 11,229,280 | 138,310 |
| Theoretical value when allotted | ||||||
| acc. to Black & Scholes, SEK | 17 | 33.10 | 13 | 24 | 14.30 | 26.30 |
| Exercise price, SEK | 129 | 87.90 | 106.80 | 72.80 | 101.70 | 69.30 |
| Number of employee stock options 2011 |
Matching rights 2011 |
Employee stock options 2012 |
Matching rights 2012 |
Employee stock options 2013 |
Matching rights 2013 |
|
|---|---|---|---|---|---|---|
| Outstanding at beginning of year | 1,152,750 | 23,384 | 1,595,000 | 33,691 | — | — |
| Allotted during the year | — | — | — | — | 2,140,000 | 50,311 |
| Forfeited during the year | –1,152,750 | — | — | — | –57,000 | — |
| Outstanding at year-end | — | 23,384 | 1,595,000 | 33,691 | 2,083,000 | 50,311 |
| Theoretical value when allotted | ||||||
| acc. to Black & Scholes, SEK | 17 | 33.10 | 13 | 24 | 14.30 | 26.30 |
| Exercise price, SEK | 129 | 87.90 | 106.80 | 72.80 | 101.70 | 69.30 |
| KPMG | Other | Total | |||||
|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||
| Audit | |||||||
| Parent Company | 12.0 | 10.3 | 0.0 | 0.0 | 12.0 | 10.3 | |
| Subsidiaries | 63.4 | 63.7 | 5.0 | 4.4 | 68.4 | 68.1 | |
| Group | 75.4 | 74.0 | 5.0 | 4.4 | 80.4 | 78.4 | |
| Tax consultancy services |
|||||||
| Parent Company | 0.2 | 0.9 | |||||
| Subsidiaries | 6.9 | 5.6 | |||||
| Group | 7.1 | 6.5 | |||||
| Other services | |||||||
| Parent Company | 11.6 | 4.6 | |||||
| Subsidiaries | 3.0 | 4.9 | |||||
| Group | 14.6 | 9.5 |
Audit refers to the statutory audit of the fi nancial statements, the accounting records and the administration of the business by the Board of Directors and the President, and auditing and other review procedures performed in accordance with agreements or contracts. This includes other procedures required to be performed by the company's auditors as well as other services caused by observations during the performance of such examination and other procedures.
Tax consultancy services relate to services in the tax area. Other services essentially comprise advice in areas closely related to the audit, such as advice on accounting issues and due-diligence services in connection with acquisitions.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Expenditure for | ||||
| research and development | 3,128 | 2,991 | 1,452 | 1,281 |
| quality assurance | 523 | 549 | 253 | 242 |
| Total | 3,651 | 3,540 | 1,705 | 1,523 |
| of which expensed, total | 3,184 | 3,121 | 1,596 | 1,523 |
| of which expensed relating to | ||||
| research and development | 2,661 | 2,572 | 1,343 | 1,281 |
Research and quality assurance expenditures are expensed as incurred. Expenditure for development is recognized as an intangible asset if it meets the criteria for recognition as an asset in the balance sheet.
Other operating income amounted to 531 million SEK (242), and mainly comprised foreign exchange gains on operating receivables and payables of 317 million SEK. In 2012, this consisted of a foreign exchange loss of 264 million SEK on operating receivables and payables, which was then included in other operating expenses. In addition to this amount, the fi gure includes the gains/ losses from step acquisitions, insurance compensation and a number of smaller items recognized under operating income.
The Parent Company's other operating income mainly pertains to intra-Group services and foreign exchange gains on operating receivables and payables.
Other operating expenses amounted to –239 million SEK (–592), and largely related to legal expenses and legal agreements as well as a number of smaller items recognized as operating expenses.
The Parent Company's other operating expenses pertain mainly to royalties between Group companies, losses on the sale of non-current assets and foreign exchange losses on operating receivables and payables.
| Group | 2013 | 2012 |
|---|---|---|
| Cost of goods and material | –28,986 | –34,113 |
| Employee benefi t expense | –23,599 | –24,907 |
| Depreciation and amortization | –3,872 | –3,970 |
| Impairment losses, inventories | –391 | –515 |
| Impairment losses, non-current assets | –818 | –352 |
| Impairment losses, doubtful receivables | –137 | –202 |
| Other expenses | –21,419 | –21,228 |
| Total | –79,222 | –85,287 |
There were no signifi cant reversals of earlier recognized impairment losses during 2013 or 2012.
Other expenses mainly relate to purchases of services and consumables.
The Group leases assets under fi nance lease agreements. At 31 December 2013, the planned residual value of such leased assets was 111 million SEK (132).
Variable fees recognized as expense were 2 million SEK (0).
Future minimum lease payments in respect of non-cancellable contracts fall due as follows:
| Nominal fee | Present value | ||||
|---|---|---|---|---|---|
| Group | 2013 | 2012 | 2013 | 2012 | |
| Within one year | 27 | 30 | 22 | 26 | |
| Between one and fi ve years | 51 | 59 | 34 | 42 | |
| Later than fi ve years | 38 | 46 | 19 | 24 | |
| Total | 116 | 135 | 75 | 92 |
The Group's investments in fi nance leases at year-end 2013 amounted to 809 million SEK (491). Variable fees recognized in profi t/loss, and unguaranteed residual values accruing to the benefi t of the lessor, were minor.
The gross investment and the present value of minimum lease payments fall due as follows:
| Nominal fee | Present value | ||||
|---|---|---|---|---|---|
| Group | 2013 | 2012 | 2013 | 2012 | |
| Within one year | 502 | 277 | 477 | 261 | |
| Between one and fi ve years | 307 | 214 | 275 | 188 | |
| Total | 809 | 491 | 752 | 449 |
Leasing fees for assets under operating leases, such as leased premises, machinery and major items of computer and offi ce equipment, are recognized within operating expenses. In 2013, the Group expensed 803 million SEK (598), including minimum lease payments of 795 million SEK (574), variable fees of 9 million SEK (27), and net of sublease income of –1 million SEK (–4). The Parent Company expensed 169 million SEK (175).
Future minimum lease payments under non-cancellable operating lease contracts fall due as follows:
| Group | Parent Company |
|||||
|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |||
| Within one year | 712 | 571 | 163 | 164 | ||
| Between one and fi ve years | 1,494 | 1,289 | 577 | 523 | ||
| Later than fi ve years | 662 | 596 | 334 | 235 | ||
| Total | 2,868 | 2,456 | 1,074 | 922 |
Future minimum lease payments under non-cancellable lease contracts that pertain to subleased items amounted to 0 million SEK (3).
The planned residual value of the Group's rental fl eet is 378 million SEK (499). Depreciation for the year amounted to 354 million SEK (409). The future minimum lease payments under non-cancellable leases amount to 250 million SEK (118). Variable fees amounted to 15 million SEK (33).
Future minimum lease payments under non-cancellable operating lease contracts fall due as follows:
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Within one year | 201 | 111 | 1 | 5 |
| Between one and fi ve years | 49 | 6 | — | 5 |
| Later than fi ve years | — | 1 | — | — |
| Total | 250 | 118 | 1 | 10 |
| Group | 2013 | 2012 |
|---|---|---|
| Interest income | 191 | 236 |
| Dividend | 7 | 8 |
| Other investments incl. derivatives | ||
| Net gain on remeasurement of fi nancial assets/ liabilities | 7 | 180 |
| Other fi nancial income | 4 | 11 |
| Financial income | 209 | 435 |
| Interest expense | –2 015 | –2 215 |
| Other investments incl. derivatives | ||
| Net loss on remeasurement of fi nancial assets/liabilities | –41 | –161 |
| Net foreign-exchange losses | –9 | –5 |
| Other fi nancial expenses | –29 | –28 |
| Financial expenses | –2 094 | –2 409 |
| Net fi nancing cost | –1 885 | –1 974 |
Net interest income/expense from fi nancial assets and liabilities not measured at fair value through profi t or loss amounted to –1,678 million SEK (–1,814). Hedging of fair values in 2013 had an eff ect of –2 million SEK (9) on the result. No inefficiencies in cash-flow hedges impacted profit for the year (0). For further information regarding valuation policies for fi nancial instruments, refer to Note 29.
| Income from shares in Group companies |
Income from shares in associ ated companies |
||||
|---|---|---|---|---|---|
| Parent Company | 2013 | 2012 | 2013 | 2012 | |
| Dividend, net of withholding tax | 11,461 | 9,624 | 10 | 5 | |
| Group contributions paid/ received |
2,697 | 2,177 | — | — | |
| Gain on sale of shares and participations |
— | –1 | — | –5 | |
| Impairment | — | –31 | — | — | |
| Reversed impairment | — | — | — | — | |
| Total | 14,158 | 11,769 | 10 | 0 |
| Interest income and similar items |
||||
|---|---|---|---|---|
| Parent Company | 2013 | 2012 | ||
| Interest income, Group companies | 757 | 409 | ||
| Other interest income | 2 | 1 | ||
| Derivatives, Group companies | — | 371 | ||
| Other | — | 1 | ||
| Total | 759 | 782 |
| Interest expense and similar items |
|||
|---|---|---|---|
| Parent Company | 2013 | 2012 | |
| Interest expense, Group companies | –710 | –483 | |
| Other interest expense | –1,280 | –1,271 | |
| Derivatives, Group companies | –348 | –268 | |
| Other | –15 | –17 | |
| Total | –2,353 | –2,039 |
35
| Parent Company | 2013 | 2012 |
|---|---|---|
| Country risk reserve | –1 | 6 |
| Total | –1 | 6 |
| Group Parent Company |
||||
|---|---|---|---|---|
| Income tax expense for the year | 2013 | 2012 | 2013 | 2012 |
| Current tax | –2,236 | –3,281 | 8 | 22 |
| Adjustment of taxes attributable | ||||
| to prior years | –1,701 | 101 | –5,058 | –17 |
| Total current tax expense | –3,937 | –3,180 | –5,050 | 5 |
| Deferred taxes relating to | ||||
| temporary diff erences and tax | ||||
| loss carry-forward | 2,192 | –229 | –260 | –330 |
| Total tax expense | –1,745 | –3,409 | –5,310 | –325 |
The Group recognized tax expense for the year of 1,745 million SEK (3,409) or 25.8% (29.6) of profi t after fi nancial items.
The Group's weighted average tax rate, based on the tax rates in each country, is 21.9% (25.9). The tax rate in Sweden is 22% (26.3). Reconciliation of the Group's weighted average tax rate, based on the tax rates in each country, and the Group's actual tax expense:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Group | MSEK | % | MSEK | % |
| Profi t after fi nancial items | 6,753 | 11,516 | ||
| Weighted average tax based on each | ||||
| country's tax rate | –1,477 | –21.9 | –2,987 | –25.9 |
| Non-deductible expenses | –377 | –5.6 | –224 | –1.9 |
|---|---|---|---|---|
| Tax-exempt income | 82 | 1.2 | 117 | 1.0 |
| Adjustments relating to prior years1) | 146 | 2.2 | 101 | 0.9 |
| Eff ects of tax loss carry-forward, net | –7 | –0.1 | –298 | –2.6 |
| Other | –112 | –1.6 | –118 | –1.0 |
| Total recognized tax expense | –1,745 | –25.8 | –3,409 | –29.6 |
1) The amount recognizes a net of items that are primarily attributable to the tax dispute concerning the reorganization of ownership of intellectual property rights from 2005. In the table "Recognized in profi t or loss" above, relevant items are included on a gross basis under "Adjustment of taxes attributable to prior years" and "Deferred taxes relating to temporary diff erences and tax loss carry-forward."
The deferred tax assets and liabilities recognized in the balance sheet are attributable to the following assets and liabilities (liabilities shown with a minus sign).
| 2013 | 2012-12-31* | 2012-01-01* | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Group | Deferred tax assets |
Deferred tax liabilities |
Net | Deferred tax assets |
Deferred tax liabilities |
Net | Deferred tax assets |
Deferred tax liabilities |
Net |
| Intangible assets | 421 | –666 | –245 | 45 | –562 | –517 | 30 | –517 | –487 |
| Property, plant and equipment | 140 | –950 | –810 | 106 | –1,210 | –1,104 | 107 | –1,279 | –1,172 |
| Financial non-current assets | 169 | –3 | 166 | 128 | –4 | 124 | 176 | –4 | 172 |
| Inventories | 1,320 | –74 | 1,246 | 1,261 | –76 | 1,185 | 1,236 | –72 | 1,164 |
| Receivables | 275 | –193 | 82 | 211 | –366 | –155 | 147 | –404 | –257 |
| Interest-bearing liabilities | 855 | –50 | 805 | 1,599 | –223 | 1,376 | 1,342 | –299 | 1,043 |
| Noninterest-bearing liabilities | 1,103 | –535 | 568 | 1,098 | –445 | 653 | 1,159 | –398 | 761 |
| Other | 37 | — | 37 | — | –65 | –65 | — | –31 | –31 |
| Tax loss carry-forward | 3,104 | — | 3,104 | 1,740 | — | 1,740 | 1,981 | — | 1,981 |
| Total | 7,424 | –2,471 | 4,953 | 6,188 | –2,951 | 3,237 | 6,178 | –3,004 | 3,174 |
| Off setting within companies | –1,521 | 1,521 | — | –2,319 | 2,319 | — | –2,087 | 2,087 | — |
| Total deferred tax assets and liabilities | 5,903 | –950 | 4,953 | 3,869 | –632 | 3,237 | 4,091 | –917 | 3,174 |
* Comparative years have been adjusted by the tax eff ects attributable to amended accounting policies introduced in connection with the transition to the updated standard for pensions, IAS 19. Refer to Note 35 for further information.
The Parent Company's eff ective tax rate exceeds the nominal tax rate in Sweden, which is mainly an eff ect of the Administrative Court of Appeal's ruling in the case concerning intellectual property rights.
Reconciliation of the Parent Company's nominal tax rate and actual tax expense:
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| Parent Company | MSEK | % | MSEK | % | |
| Profi t before tax | 11,886 | 10,035 | |||
| Tax based on the nominal tax rate for | |||||
| the Parent Company | –2,615 | –22 | –2,639 | –26.3 | |
| Tax eff ects of | |||||
| Non-deductible expenses | –191 | –1.6 | –62 | –0.6 | |
| Tax-exempt income | 2,616 | 22 | 2,550 | 25.4 | |
| Eff ect of changed tax rate | — | –157 | –1.6 | ||
| Adjustments relating to prior years | –5,120 | –43 | –17 | –0.2 | |
| Total recognized tax expense | –5,310 | –44.6 | –325 | –3.2 |
| 2013 | 2012* | |||||
|---|---|---|---|---|---|---|
| Group | Before tax |
Tax | After tax |
Before tax |
Tax | After tax |
| Actuarial gains/losses attributable to defi ned-benefi t pension plans |
1,039 –361 | 678 | –1,417 | 348 –1,069 | ||
| Translation diff erences for the | ||||||
| year | 142 | — | 142 | –1,584 | — –1,584 | |
| Fair-value changes in cash fl ow hedges for the year |
–71 | 16 | –55 | 9 | –2 | 7 |
| Fair-value changes in cash fl ow hedges carried forward to profi t/loss for the year |
–134 | 29 | –105 | 131 | –28 | 103 |
| Other comprehensive income | 976 –316 | 660 | –2,861 | 318 –2,543 |
* Comparative years have been adjusted by the tax eff ects attributable to amended accounting policies introduced in connection with the transition to the updated standard for pensions, IAS 19. Refer to Note 35 for further information.
33 34 35
| 2013 | ||||||
|---|---|---|---|---|---|---|
| Parent Company | Def erred tax assets |
Def erred tax liabili ties |
Net | Def erred tax assets |
Def erred tax liabili ties |
Net |
| Property, plant and equipment |
— | –28 | –28 | — | –28 | –28 |
| Inventories | 5 | — | 5 | 2 | — | 2 |
| Provisions | 31 | –16 | 16 | 32 | –15 | 17 |
| Noninterest-bearing assets and liabilities |
16 | — | 16 | — | –80 | –80 |
| Tax loss carry-forward | 536 | — | 536 | 893 | — | 893 |
| Total | 588 | –44 | 544 | 927 | –123 | 804 |
| Off setting | –44 | 44 | — | –123 | 123 | — |
| Total deferred tax assets and liabilities |
544 | — | 544 | 804 | — | 804 |
The Group has additional tax loss carry-forward of about 527 million SEK (498). Related deferred tax assets were not recognized since utilization of the tax losses against future taxable profi ts is not deemed probable in the foreseeable future.
Change of deferred tax in temporary diff erences and unused tax losses
| Group | Parent Company |
||||
|---|---|---|---|---|---|
| 2013 | 2012- 12-31* |
2012- 01-01* |
2013 | 2012 | |
| Balance at beginning of year, net | 3,237 | 3,174 | 2,078 | 804 | 1,135 |
| Recognized in profi t and loss | 2,192 | –229 | 855 | –260 | –331 |
| Acquisitions/disposals of subsidiaries |
–53 | 23 | –12 | — | — |
| Reclassifi cation of assets held for sale |
— | — | 25 | — | — |
| Recognized in other comprehensive income |
–316 | 318 | 164 | — | — |
| Government grants | — | — | –6 | — | — |
| Translation diff erences | –107 | –49 | 70 | — | — |
| Balance at end of year, net | 4,953 | 3,237 | 3,174 | 544 | 804 |
* Comparative years have been adjusted by the tax eff ects attributable to amended accounting policies introduced in connection with the transition to the updated standard for pensions, IAS 19. Refer to Note 35 for further information.
In addition to the deferred tax assets and liabilities, Sandvik reports the following tax liabilities and receivables:
| Group | Parent Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Other provisions for taxes | –1,070 | –4,529 | — | — |
| Income tax liabilities | –1,037 | –1,252 | — | — |
| Income tax receivables | 1,096 | 931 | 169 | 189 |
| Net tax liabilities/receivables | 59 | –321 | 169 | 189 |
Other provisions for taxes of –1,070 million SEK (–4,529) relate to ongoing disputes and assessed tax risks. The decrease in 2013 (–3,459 million SEK) mainly relates to reversal of items with respect to the tax disputes involving Sandvik Intellectual Property AB and Sandvik AB concerning the reorganization of ownership of intellectual property rights in 2005. As a result of the rulings in 2013, the provisions were reversed in the Group and partly off set against the tax expense in Sandvik AB. For additional information on the outcome of the disputes, refer to the section Integrated risk management.
| Basic | Diluted | |||
|---|---|---|---|---|
| SEK | 2013 | 2012 | 2013 | 2012 |
| Earnings per share | 4.00 | 6.51 | 4.00 | 6.51 |
The calculation of the numerators and denominators used in the above calculations of earnings per share is shown below.
The calculation of earnings per share for 2013 is based on the profi t for the year attributable to the equity holders of the Parent Company of 5,013 million SEK (8,105) and the weighted average number of shares (thousands) during 2013 of 1,254,386 (1,245,874). These two components have been calculated as follows:
| 2013 | 2012 | |
|---|---|---|
| Profi t for the year attributable to the equity holders of the Parent Company |
5,013 | 8,105 |
| Weighted average number of shares, basic | ||
| In thousands of shares | 2013 | 2012 |
| Total number of ordinary shares at 1 January | 1,254,386 | 1,186,287 |
| Eff ects of reacquisitions and redemption | — | — |
| Weighted average number of shares outstanding |
gram, refer to Note 3.5.
The calculation of diluted earnings per share for 2013 is based on the profi t attributable to the equity holders of the Parent Company of 5,013 million SEK (8,105) and the weighted average number of shares (thousands) during 2013 of 1,254,386 (1,245,874). The two components have been calculated as follows:
during the year, basic 1,254,386 1,245,874
| 2013 | 2012 | |
|---|---|---|
| Profi t for the year attributable to equity holders of the | ||
| Parent Company | 5,013 | 8,105 |
| Weighted average number of shares, diluted | ||
| In thousands of shares | 2013 | 2012 |
| Weighted average number of shares, basic | 1,254,386 | 1,245,874 |
| Eff ect of share options | — | — |
| Weighted average number of shares outstanding | ||
| during the year, diluted | 1,254,386 | 1,245,874 |
| The 2012 and 2013 Annual General Meetings approved a share-based LTI pro gram. This could entail future dilution eff ects. For information about the pro |
| Internally generated intangible assets | Patents, | Patents, | Acquired intangible assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capitalized R&D |
IT | licenses, trade marks, |
Capitalized R&D |
IT | licenses, trade marks, |
|||||||
| Cost | expenditure | software | etc. | Other Subtotal | expenditure | software | etc. Goodwill | Other Subtotal | Total | |||
| At 1 January 2012 | 1,778 | 1,106 | 236 | 57 | 3,177 | 0 | 332 | 709 | 9,034 | 1,492 | 11,567 | 14,744 |
| Additions | 419 | 73 | 12 | — | 504 | — | 10 | 8 | — | 24 | 42 | 546 |
| Business combinations | — | — | — | — | — | — | — | 8 | 14 | 1 | 23 | 23 |
| Divestments and disposals | –199 | –9 | –4 | — | –212 | — | –1 | –16 | –3 | –24 | –44 | –256 |
| Reclassifi cations | –12 | 47 | 9 | 42 | 86 | 8 | 76 | –60 | — | –124 | –100 | –14 |
| Translation diff erences for the year | –20 | –2 | –7 | –7 | –36 | — | –11 | –18 | –360 | –35 | –424 | –460 |
| At 31 December 2012 | 1,966 | 1,215 | 246 | 92 | 3,519 | 8 | 406 | 631 | 8,685 | 1,334 | 11,064 | 14,583 |
| At 1 January 2013 | 1,966 | 1,215 | 246 | 92 | 3,519 | 8 | 406 | 631 | 8,685 | 1,334 | 11,064 | 14,583 |
| Additions | 466 | 182 | 9 | 8 | 665 | 2 | 28 | 8 | — | 1 | 39 | 704 |
| Business combinations | — | — | — | — | — | — | 2 | 103 | 415 | — | 520 | 520 |
| Divestments and disposals | –40 | –8 | — | –14 | –62 | — | –1 | –32 | — | –8 | –41 | –103 |
| Impairment losses | — | — | — | — | — | — | — | — | –108 | — | –108 | –108 |
| Reclassifi cations | –79 | 67 | –31 | 47 | 4 | 15 | 39 | 41 | — | –71 | 24 | 28 |
| Translation diff erences for the year | 24 | 4 | 3 | 3 | 34 | 1 | 10 | 21 | –13 | 32 | 51 | 85 |
| At 31 December 2013 | 2,337 | 1,460 | 227 | 136 | 4,160 | 26 | 484 | 772 | 8,979 | 1,288 | 11,549 | 15,709 |
| Accumulated amortization and impairment losses |
||||||||||||
| At 1 January 2012 | 809 | 750 | 93 | 57 | 1,709 | 0 | 299 | 382 | — | 547 | 1,228 | 2,937 |
| Divestments and disposals | –180 | –9 | –2 | — | –191 | — | –1 | –104 | — | –15 | –120 | –311 |
| Impairment losses | 27 | — | — | — | 27 | — | — | — | — | — | — | 27 |
| Reclassifi cations | 1 | 17 | –12 | –1 | 5 | — | 55 | –46 | — | –21 | –12 | –7 |
| Amortization for the year | 186 | 119 | 9 | 27 | 341 | — | 19 | 75 | — | 122 | 216 | 557 |
| Translation diff erences for the year | –7 | –2 | 0 | –4 | –13 | — | –10 | –5 | — | –15 | –30 | –43 |
| At 31 December 2012 | 836 | 875 | 88 | 79 | 1,878 | 0 | 362 | 302 | — | 618 | 1,282 | 3,160 |
| At 1 January 2013 | 836 | 875 | 88 | 79 | 1,878 | 0 | 362 | 302 | — | 618 | 1,282 | 3,160 |
| Divestments and disposals | –25 | –5 | — | –14 | –44 | — | –1 | –32 | — | –2 | –35 | –79 |
| Impairment losses | 3 | — | — | 1 | 4 | — | — | 4 | — | 28 | 32 | 36 |
| Reclassifi cations | –9 | –1 | –33 | 0 | –43 | 15 | 28 | 30 | — | –6 | 67 | 24 |
| Amortization for the year | 213 | 117 | 14 | 32 | 376 | 1 | 21 | 72 | — | 110 | 204 | 580 |
| Translation diff erences for the year | 11 | 2 | — | 1 | 14 | — | 9 | 14 | — | 3 | 26 | 40 |
| At 31 December 2013 | 1,028 | 988 | 69 | 99 | 2,185 | 16 | 421 | 389 | — | 751 | 1,576 | 3,761 |
| Net carrying amounts | ||||||||||||
| 1 January 2012 | 969 | 356 | 143 | 0 | 1,468 | 0 | 33 | 327 | 9,034 | 945 | 10,339 | 11,807 |
| 31 December 2012 | 1,130 | 340 | 158 | 13 | 1,641 | 8 | 44 | 329 | 8,685 | 716 | 9,782 | 11,423 |
| 1 January 2013 | 1,130 | 340 | 158 | 13 | 1,641 | 8 | 44 | 329 | 8,685 | 716 | 9,782 | 11,423 |
| 31 December 2013 | 1,309 | 472 | 158 | 37 | 1,975 | 10 | 63 | 383 | 8,979 | 538 | 9,973 | 11,948 |
| Amortization for the year is included in the following lines in the 2012 income statement |
||||||||||||
| Cost of sales | — | –13 | — | –16 | –29 | — | –9 | –69 | — | –78 | –156 | –185 |
| Selling expenses | — | –10 | — | –3 | –13 | — | –3 | –2 | — | –43 | –48 | –61 |
| Administrative expenses | –186 | –96 | –9 | –8 | –299 | — | –7 | –4 | — | –1 | –12 | –311 |
| Total | –186 | –119 | –9 | –27 | –341 | — | –19 | –75 | — | –122 | –216 | –557 |
| Amortization for the year is included in the following lines in the 2013 income statement |
||||||||||||
| Cost of sales | –13 | –7 | — | –2 | –22 | — | –14 | –60 | — | –101 | –175 | –197 |
| Selling expenses | — | — | –5 | –4 | –9 | — | –2 | –7 | — | –8 | –17 | –26 |
| Administrative expenses | –200 | –110 | –9 | –26 | –345 | –1 | –5 | –5 | — | –1 | –12 | –357 |
| Total | –213 | –117 | –14 | –32 | –376 | –1 | –21 | –72 | — | –110 | –204 | –580 |
| Impairment losses | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Selling expenses | — | — | — | — | — | — | — | — | –108 | –28 | –136 | –136 |
| Administration expenses | –3 | — | — | –1 | –4 | — | — | –4 | — | — | –4 | –8 |
| Total | –3 | — | — | –1 | –4 | — | — | –4 | –108 | –28 | –140 | –144 |
See page 104 for further information.
| Cost | Land and buildings | Plant and machinery | Equipment, tools, fi xtures and fi ttings |
Construction in progress |
Total |
|---|---|---|---|---|---|
| At 1 January 2012 | 13,735 | 34,848 | 5,536 | 3,299 | 57,418 |
| Additions | 334 | 1,796 | 361 | 2,174 | 4,665 |
| Business combinations | –4 | –15 | — | — | –19 |
| Divestments and disposals | –156 | –1,383 | –352 | –5 | –1,896 |
| Reclassifi cations | 471 | 1,766 | 395 | –2,617 | 15 |
| Translation diff erences for the year | –449 | –994 | –161 | –16 | –1,620 |
| At 31 December 2012 | 13,931 | 36,018 | 5,779 | 2,835 | 58,563 |
| At 1 January 2013 | 13,931 | 36,018 | 5,779 | 2,835 | 58,563 |
| Additions | 402 | 1,415 | 273 | 2,036 | 4,126 |
| Business combinations | 18 | 202 | 6 | 10 | 236 |
| Divestments and disposals | –104 | –1,324 | –344 | –26 | –1,798 |
| Reclassifi cations | 395 | 901 | 191 | –1,972 | –485 |
| Translation diff erences for the year | –80 | –230 | –29 | –4 | –344 |
| At 31 December 2013 | 14,562 | 36,982 | 5,876 | 2,879 | 60,299 |
| Depreciation and impairment losses | |||||
| At 1 January 2012 | 5,386 | 22,235 | 3,981 | 114 | 31,716 |
| Divestments and disposals | –78 | –1,084 | –330 | — | –1,492 |
| Reclassifi cations | –12 | –17 | 22 | — | –7 |
| Depreciation for the year | 454 | 2,512 | 448 | — | 3,414 |
| Impairment losses | 22 | 284 | 3 | — | 309 |
| Reversal of earlier impairment losses | — | 16 | — | — | 16 |
| Translation diff erences for the year | –179 | –616 | –115 | — | –910 |
| At 31 December 2012 | 5,593 | 23,330 | 4,009 | 114 | 33,045 |
| At 1 January 2013 | 5,593 | 23,330 | 4,009 | 114 | 33,045 |
| Business combinations | 4 | 88 | 2 | — | 94 |
| Divestments and disposals | –52 | –1,052 | –316 | — | –1,420 |
| Reclassifi cations | –10 | –308 | –24 | –114 | –456 |
| Depreciation for the year | 467 | 2,387 | 439 | — | 3,293 |
| Impairment losses | 204 | 364 | 123 | 7 | 698 |
| Reversal of earlier impairment losses Translation diff erences for the year |
— 19 |
–3 –188 |
— –19 |
–20 — |
–23 –188 |
| At 31 December 2013 | 6,225 | 24,618 | 4,214 | –13 | 35,044 |
| Net carrying amounts | |||||
| 1 January 2012 | 8,349 | 12,613 | 1,555 | 3,185 | 25,702 |
| 31 December 2012 | 8,338 | 12,688 | 1,770 | 2,721 | 25,517 |
| 1 January 2013 | 8,338 | 12,688 | 1,770 | 2,721 | 25,517 |
| 31 December 2013 | 8,337 | 12,363 | 1,663 | 2,892 | 25,255 |
| Impairment losses/reversals of impairment losses per line in the income statement |
Land and buildings | Plant and machinery | Equipment, tools, fi xtures and fi ttings |
Construction in progress |
Total | 32 |
|---|---|---|---|---|---|---|
| Impairment losses | ||||||
| Administrative expenses | –3 | — | –8 | — | –11 | 33 |
| Cost of sales | –201 | –361 | –115 | 13 | –664 | 34 |
| Other operating expenses | — | — | — | — | — | |
| Total | –204 | –361 | –123 | 13 | –675 | 35 |
The most signifi cant impairments losses relate to:
• The co-location of production to a joint facility in Sandvik Venture, where the decision was taken in April to consolidate the two production facilities of the Diamond Innovations product area to the existing unit in Worthington, US. The impairment loss in connection with the co-location amounted to 75 million SEK.
• Adaptation of manufacturing capacity through the discontinuation of production of steam generator tubing at Sandvik Materials Technology, which amounted to 269 million SEK.
• Sandvik Mining's impairment losses of 153 million SEK related to measures within the scope of the restructuring activities, approved in the fourth quarter, to streamline the supply chain by reducing the number of production units.
Items of property, plant and equipment for a total of 201 million SEK (193) have been pledged as security for liabilities. In 2013, contractual commitments for the acquisition of property, plant and equipment amounted to 315 million SEK (124).
| Borrowing costs 2013 | Machinery |
|---|---|
| Borrowing costs included in the cost of assets during the year |
— |
| Interest rate for determining borrowing costs | |
| included in costs | — |
| Borrowing costs 2012 | |
| Borrowing costs included in the cost of assets | Machinery |
| during the year | 2 |
| Interest rate for determining borrowing costs |
Government grants during the year amounted to 35 million SEK.
Goodwill was impairment tested on the balance sheet date of 31 December 2013. As stated below, the carrying amount of goodwill in the consolidated balance sheet is 8,979 million SEK (8,685), essentially related to a number of major business combinations.
| Carrying amount | ||
|---|---|---|
| Goodwill by cash-generating unit | 2013 | 2012 |
| Sandvik Mining | ||
| Exploration | 296 | 447 |
| Business area level | 1,645 | 1,509 |
| Total | 1,941 | 1,956 |
| Sandvik Machining Solutions | ||
| Walter Group | 995 | 956 |
| Seco Tools | 239 | 254 |
| Business area level | 1,054 | 836 |
| Totalt | 2,288 | 2,046 |
| Sandvik Materials Technology | ||
| Business area level | 1,052 | 1,065 |
| Total | 1,052 | 1,065 |
| Sandvik Construction | ||
| Extec/Fintec | 1,143 | 1,116 |
| Shanghai Jianshe Luqiao | 82 | 80 |
| Business area level | 312 | 314 |
| Total | 1,537 | 1,510 |
| Sandvik Venture | ||
| Diamond Innovations | 691 | 689 |
| Wolfram | 1,372 | 1,317 |
| Business area level | 64 | 64 |
| Total | 2,127 | 2,070 |
| Other | 34 | 38 |
| Group total | 8,979 | 8,685 |
Consolidated goodwill is allocated to the cash-generating units stated above. The recoverable amount of all of the cash-generating units has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash fl ows using forecasts covering a fi ve-year period, which are in turn based on the three-year plans prepared annually by each of the business areas. These plans are founded on the business areas' strategies and an analysis of the current and anticipated business climate, and the impact this is expected to have on the market in which the business area operates. A range of economic indicators, which diff er for each market, and external and internal studies of these, are used in the analysis of the business situation. Under normal circumstances, a growth rate of 3% was applied for the remainder of the forecast of the fi ve-year period. The forecasts form the basis for how the values of the material assumptions are established.
The most material assumptions when determining the value in use include anticipated demand, growth rate, operating margin, working capital requirements and the discount rate. The factor used to calculate growth in the terminal period after fi ve years is 3% (3). Need of working capital beyond the fi veyear period is deemed to remain on the same level as in the fi fth year. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders' equity and was assumed to amount to 10% (10) before tax. These assumptions apply to all cash-generating units.
Production and marketing processes of acquired businesses have, in most cases, been integrated into other Sandvik operations to such an extent that it is no longer possible to identify the cash fl ows and assets of the originally acquired businesses. For such reason, the impairment tests were largely made at a higher level although in no case above segment level. At present, the activities of Exploration, Walter, Seco Tools, Extec/Fintec, Shanghai Jianshe Luqiao, Diamond Innovations and Wolfram are conducted in such a way that it has been possible to separately test goodwill allocated to these acquisitions.
Goodwill attributable to Exploration was impaired and 108 million SEK was charged to selling expenses in 2013. The recoverable amount for Exploration amounted to 1,096 million SEK. The discount rate applied in calculations of the impairment loss was 10%. Exploration is a product area within Sandvik and its drill line includes surface and underground diamond core and multi-purpose drills. Sandvik Exploration also off ers a complete range of tools and consumables for the exploration industry, including geological supplies for every stage of the project. Impairment of this goodwill was the result of declining demand in the markets in which Exploration's customers operate.
Other testing of goodwill values did not indicate any impairment requirement. Sensitivity in the calculations where impairment was not carried out implies that the goodwill value would be maintained even if the discount rate was increased by 2 percentage points or if the long-term growth rate was lowered by 2 percentage points.
Capitalized development projects that are not yet available for use were tested and resulted in an impairment loss of 3 million SEK (27).
| Patents and other Intangible assets intangible assets |
||||
|---|---|---|---|---|
| Cost | ||||
| At 1 January 2012 | 113 | |||
| Additions | 8 | |||
| Divestments and disposals | –15 | |||
| At 31 December 2012 | 106 | |||
| At 1 January 2013 | 106 | |||
| Additions | 0 | |||
| Divestments and disposals | –5 | |||
| At 31 December 2013 | 101 | |||
| Patents and other intangible assets |
|
|---|---|
| Accumulated amortization | |
| At 1 January 2012 | 96 |
| Reclassifi cations | 0 |
| Amortization for the year | 1 |
| At 31 December 2012 | 97 |
| Net carrying amount at end of year | 9 |
| At 1 January 2013 | 97 |
| Reclassifi cations | — |
| Divestments and disposals | 0 |
| Amortization for the year | 0 |
| At 31 December 2013 | 97 |
| Net carrying amount at end of year | 4 |
Amortization for the year is included in the following lines in the
| income statement | 2013 | 2012 |
|---|---|---|
| Administrative expenses | 0 | –1 |
| Total | 0 | –1 |
| Property, plant and equipment | Land and buildings | Plant and machinery | Equipment, tools, fi xtures and fi ttings |
Construction in progress |
Total |
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2012 | 1,220 | 11,601 | 1,118 | 1,779 | 15,718 |
| Additions | 31 | 365 | 63 | 871 | 1,330 |
| Divestments and disposals | –1 | –227 | –43 | –10 | –281 |
| Reclassifi cations | 24 | 1,077 | 217 | –1,318 | 0 |
| At 31 December 2012 | 1,274 | 12,816 | 1,355 | 1,322 | 16,767 |
| At 1 January 2013 | 1,274 | 12,816 | 1,355 | 1,322 | 16,767 |
| Additions | 10 | 235 | 19 | 993 | 1,257 |
| Divestments and disposals | –5 | –346 | –77 | 0 | –428 |
| Reclassifi cations | 69 | 600 | 95 | –764 | 0 |
| At 31 December 2013 | 1,348 | 13,305 | 1,392 | 1,551 | 17,596 |
| Revaluations | |||||
| At 1 January 2012 | 41 | — | — | — | 41 |
| At 31 December 2012 | 41 | — | — | — | 41 |
| At 1 January 2013 | 41 | — | — | — | 41 |
| At 31 December 2013 | 41 | — | — | — | 41 |
| Depreciation | |||||
| At 1 January 2012 | 511 | 7,491 | 765 | — | 8,767 |
| Divestments and disposals | 0 | –191 | –43 | — | –234 |
| Reclassifi cations | 0 | — | 0 | — | 0 |
| Depreciation for the year | 36 | 679 | 100 | — | 815 |
| Impairment losses | — | 153 | — | — | 153 |
| At 31 December 2012 | 547 | 8,132 | 822 | — | 9,501 |
| At 1 January 2013 | 547 | 8,132 | 822 | — | 9,501 |
| Divestments and disposals | –5 | –298 | –70 | — | –373 |
| Reclassifi cations | 0 | 0 | 0 | — | 0 |
| Depreciation for the year | 38 | 823 | 205 | — | 1,066 |
| Impairment losses | — | 14 | — | — | 14 |
| At 31 December 2013 | 580 | 8,671 | 957 | — | 10,208 |
| Net carrying amounts | |||||
| 1 January 2012 | 750 | 4,110 | 353 | 1,779 | 6,992 |
| 31 December 2012 | 768 | 4,684 | 533 | 1,322 | 7,307 |
| 1 January 2013 | 768 | 4,684 | 533 | 1,322 | 7,307 |
| 31 December 2013 | 809 | 4,634 | 435 | 1,551 | 7,429 |
35
1
NOTES
| Parent Company | ||||||
|---|---|---|---|---|---|---|
| Shares in Group Companies | 2013 | 2012 | ||||
| Cost | ||||||
| At beginning of year | 32,240 | 16,315 | ||||
| Additions | 0 | 9,198 | ||||
| Capital contributions | 2 | 103 | ||||
| Non-cash issue incl. share premium reserve | — | 6,703 | ||||
| Divestments | –2 | –79 | ||||
| Total | 32,240 | 32,240 | ||||
| Parent Company | ||||
|---|---|---|---|---|
| Shares in Group Companies | 2013 | 2012 | ||
| Accumulated impairment losses | ||||
| At beginning of year | –422 | –394 | ||
| Impairment losses for the year | — | –31 | ||
| Impairment reversed during the year | — | 3 | ||
| Total | –422 | –422 | ||
| Accumulated revaluations | ||||
| At beginning of year | 16 | 16 | ||
| Total | 16 | 16 | ||
| Carrying amount at year-end | 31,834 | 31,834 |
| Direct holdings | 2013 | 2012 | |||||
|---|---|---|---|---|---|---|---|
| Carrying | Carrying | ||||||
| According to balance sheet at 31 December; company, domicile | Corp. Reg. | number No. of shares | Holding, % 2) | amount 000s SEK |
No. of shares | Holding, % 2) | amount 000s SEK |
| SWEDEN | |||||||
| C.O. Öberg & Co:s AB, Sandviken | 556112-1186 | 2,000 | 100 | 0 | 2,000 | 100 | 0 |
| Dropler High Tech AB, Sandviken | 556332-0380 | 1,000 | 100 | 119 | 1,000 | 100 | 119 |
| Elasis Svenska AB, Sandviken | 556307-8947 | 100,000 | 100 | 110 | 100,000 | 100 | 110 |
| Förvaltningsbolaget Predio 4 KB, Sandviken | 916624-2181 | — | 03) | 0 | — | 03) | 0 |
| Gimo Utbildningsaktiebolag, Gimo | 556061-4041 | 1,000 | 91 | 2,591 | 1,000 | 91 | 2,591 |
| Gusab Holding AB, Sandviken | 556001-9290 | 1,831,319 | 100 | 53,474 | 1,831,319 | 100 | 53,474 |
| Gusab Stainless AB, Mjölby | 556012-1138 | 200,000 | 100 | 23,788 | 200,000 | 100 | 23,788 |
| Industri AB Skomab, Sandviken | 556008-8345 | 2,000 | 100 | 99,346 | 2,000 | 100 | 99,346 |
| Malcus AB, Sandviken | 556350-7903 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Rammer Svenska AB, Sandviken | 556249-4004 | 3,000 | 100 | 851 | 3,000 | 100 | 851 |
| Tamrock Svenska AB, Sandviken | 556189-1085 | 100 | 100 | 123 | 100 | 100 | 123 |
| AB Sandvik Antenn, Sandviken | 556350-7895 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Automation, Sandviken | 556052-4315 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Belts, Sandviken | 556041-9680 | 25,000 | 100 | 2,500 | 25,000 | 100 | 2,500 |
| AB Sandvik Bruket, Sandviken | 556028-5784 | 13,500 | 100 | 1,698 | 13,500 | 100 | 1,698 |
| AB Sandvik Communication, Sandviken | 556257-5752 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| AB Sandvik Construction Segment, Malmö 1) | 556659-6952 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Coromant, Sandviken 1) | 556234-6865 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Coromant Sverige AB, Stockholm 1) | 556350-7846 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Export Assistance AB, Sandviken | 556061-3746 | 80,000 | 100 | 0 | 80,000 | 100 | 0 |
| AB Sandvik Falken, Sandviken | 556330-7791 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| Sandvik Far East Ltd. AB, Sandviken | 556043-7781 | 10,000 | 100 | 10,000 | 10,000 | 100 | 10,000 |
| Sandvik Försäkrings AB, Sandviken | 516401-6742 | 1,500 | 100 | 15,000 | 1,500 | 100 | 15,000 |
| AB Sandvik Hard Materials, Stockholm1) | 556234-6857 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Hard Materials Norden AB, Stockholm | 556069-1619 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Besöksservice AB, Sandviken 1) | 556235-3838 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Intellectual Property AB, Sandviken | 556288-9401 | 1,000,000 | 100 | 3,499,950 | 1,000,000 | 100 | 3,499,950 |
| AB Sandvik International, Sandviken1) | 556147-2977 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Klangberget, Sandviken | 556135-6857 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Materials Technology EMEA AB, Stockholm | 556734-2026 | 501,000 | 100 | 50,100 | 501,000 | 100 | 50,100 |
| AB Sandvik Materials Technology, Sandviken1) | 556234-6832 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Construction AB, Sandviken1) | 556664-9983 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Mining and Construction Sverige AB, Sandviken1) | 556288-9443 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Mining and Construction Tools AB, Sandviken1) | 556234-7343 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Nora AB, Nora | 556075-0506 | 80,000 | 100 | 135,000 | 80,000 | 100 | 135,000 |
| Sandvik Powder Solutions AB, Surahammar | 556032-6760 | 600 | 100 | 143,051 | 600 | 100 | 143,051 |
| AB Sandvik Process Systems, Sandviken1) | 556312-2992 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Rock Tools, Sandviken | 556081-4328 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Rotary Tools AB, Köping | 556191-8920 | 101,000 | 100 | 150,177 | 101,000 | 100 | 150,177 |
| AB Sandvik Service, Sandviken | 556234-8010 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Skogsfastigheter, Sandviken | 556579-5464 | 1,000 | 100 | 51 | 1,000 | 100 | 51 |
| AB Sandvik Steel Investment, Sandviken | 556350-7853 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Stål Försäljnings AB, Stockholm1) | 556251-5386 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Systems Development AB, Sandviken1) | 556407-4184 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Machining Solutions AB, Sandviken1) | 556692-0038 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Machining Solutions Sverige AB, Sandviken1) | 556692-0053 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Tranan, Sandviken | 556330-7817 | 1,000 | 100 | 2,725 | 1,000 | 100 | 2,725 |
| Sandvik Utbildnings AB, Sandviken | 556304-8791 | 910 | 91 | 91 | 910 | 91 | 91 |
| Direct holdings | 2013 | 2012 | |||||
|---|---|---|---|---|---|---|---|
| According to balance sheet at 31 December; company, domicile | Corp. Reg. | number No. of shares | Holding, % 2) | Carrying amount 000s SEK |
No. of shares | Holding, % 2) | Carrying amount 000s SEK |
| AB Sandvik Vallhoven, Sandviken | 556272-9680 | 6,840 | 100 | 1,800 | 6,840 | 100 | 1,800 |
| Sandvik Västanbyn AB, Sandviken | 556590-8075 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Västberga Service, Stockholm | 556356-6933 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Örebro AB, Sandviken | 556232-7949 | 10,000 | 100 | 167 | 10,000 | 100 | 167 |
| AB Sandvik Örnen, Sandviken | 556330-7783 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| Sandvikens Brukspersonals Byggnadsförening upa, | |||||||
| Sandviken | 785500-1686 | — | 100 | 0 | — | 100 | 0 |
| Scandinavian Handtools AB, Sandviken | 556093-5875 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Steebide International AB, Sandviken | 556048-3405 | 15,000 | 100 | 1,000 | 15,000 | 100 | 1,000 |
| Dormer Tools AB, Halmstad | 556240-8210 | 80,000 | 100 | 25,145 | 80,000 | 100 | 25,145 |
| AB Trellbo, Sandviken | 556251-6780 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| Walter Norden AB, Halmstad | 556752-4698 | 15,000 | 100 | 1,500 | 15,000 | 100 | 1,500 |
| Sandvik Mining and Construction Köping AB1) | 556776-9525 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Wire Sandviken AB1) | 556779-3897 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik IT Services AB1) | 556788-9059 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Ascet, Sandviken | 556285-0882 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| Sandvik Venture AB1) | 556868-7155 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Credit AB | 556843-7296 | 10,000 | 100 | 50,000 | 10,000 | 100 | 50,000 |
| Seco Tools AB | 556071-1060 145,467,690 | 100 | 15,658,859 | 145,467,690 | 100 | 15,658,859 | |
| Svensk Export Flyg AB | 556934-7452 | 100,000 | 100 | 100 | — | — | — |
| According to balance sheet at 31 December; company | No. of shares Holding, % 2) | Carrying amount 000s SEK |
No. of shares Holding, % 2) | Carrying amount 000s SEK |
|||
|---|---|---|---|---|---|---|---|
| AUSTRALIA | Sandvik Australia Pty. Ltd. | — | 183.4) | 1,539,205 | — | 183.4) | 1,539,205 |
| Sandvik Australian Ltd. Partnership | — | 99 | — | — | 99 | — | |
| BRAZIL | Dormer Tools S.A. | 2,137,623,140 | 100 | 200,000 | 2,137,623,140 | 100 | 200,000 |
| Sandvik do Brasil S.A. | 1,894,797,190 | 100 | 577,468 | 1,894,797,190 | 100 | 577,468 | |
| Sandvik Materials Technology do Brasil S.A. | 10,877,380 | 100 | 116,677 | 10,877,380 | 100 | 116,677 | |
| Sandvik MGS S.A. | 14,999,998 | 100 | 198,290 | 14,999,998 | 100 | 198,290 | |
| Sandvik Mining and Construction do Brasil S.A. | 85,329,996 | 100 | 438,649 | 85,329,996 | 100 | 438,649 | |
| Walter do Brasil Ltda | 1,809,999 | 100 | 39,874 | 1,809,999 | 100 | 39,874 | |
| BULGARIA | Sandvik Bulgaria Ltd. | — | 100 | 0 | — | 100 | 0 |
| CHILE | Sandvik Credit Chile S.A. | 9,900 | 99 | 39,631 | 9,900 | 99 | 39,631 |
| CHINA | Sandvik China Holding Co Ltd. | — | 100 | 668,890 | — | 100 | 668,890 |
| Sandvik Materials Technology (China) Ltd. | — | 583) | 207,854 | — | 583) | 207,854 | |
| CZECH REPUBLIC | Sandvik CZ s.r.o. | — | 100 | 0 | — | 100 | 0 |
| DEMOCRATIC REPUBLIC OF |
|||||||
| CONGO | Sandvik Mining and Construction DRC S.P.R.L. | 9,990 | 100 | 66 | 9,990 | 100 | — |
| GERMANY | Sandvik Materials Technology Deutschland GmbH | — | — | — | — | 13) | 1,486 |
| Sandvik Holding GmbH | — | — | — | — | 13) | 367 | |
| HUNGARY | Sandvik Magyarorszag Kft. | — | 100 | 3,258 | — | 100 | 3,258 |
| INDIA | Sandvik Asia Ltd. | 16,030,246 | 17,5) | 277,028 | 16,030,246 | 175) | 277,028 |
| IRELAND | Sandvik Mining and Construction Logistics Ltd. | 100 | 100 | 5,508 | 100 | 100 | 5,508 |
| JAPAN | Sandvik K.K. | 2,780,000 | 100 | 224,701 | 2,600,000 | 100 | 224,701 |
| KENYA | Sandvik Kenya Ltd. | — | — | — | 35,000 | 96 | 0 |
| KOREA | Sandvik Korea Ltd. | 752,730 | 100 | 46,856 | 752,730 | 100 | 46,856 |
| MALI | Sandvik Mining and Construction Mali | 25,000 | 100 | 3,462 | 25,000 | 100 | 3,462 |
| MEXICO | Sandvik Méxicana S.A. de C.V. | 406,642,873 | 90,3) | 71,000 | 406,642,873 | 903) | 71,000 |
| MONGOLIA | Sandvik Mongolia LLC. | 400,000 | 100 | 2,682 | 400,000 | 100 | 2,682 |
| NETHERLANDS | Sandvik Finance B.V. | 18,788 | 100 | 7,093,582 | 18,788 | 100 | 7,091,729 |
| PERU | Sandvik del Perú S.A. | 6,562,795 | 903) | 26,025 | 6,562,795 | 100 | 26,025 |
| POLAND | Sandvik Polska Sp. z.o.o. | 3,211 | 100 | 93,197 | 3,211 | 100 | 93,197 |
| SLOVAKIA | Sandvik Slovakia s.r.o. | — | 100 | 1,238 | — | 100 | 1,238 |
| TURKEY | Sandvik Endüstriyel Mamüller Sanayi ve Ticaret A.S. | 125,154,588 | 100 | 3,200 | 125,154,588 | 100 | 3,200 |
| UAE | Sandvik Middle East FZE. | 1 | 100 | 19,886 | 1 | 100 | 19,886 |
| ZIMBABWE | Sandvik Mining and Construction Zimbabwe (Pty) Ltd. | 233,677 | 100 | 3,269 | 233,677 | 100 | 3,269 |
| Total | 31,833,762 | 31,833,596 |
1) Subsidiaries conducting business on behalf of the Parent Company.
2) Refers to voting rights, which also equals share of capital unless otherwise indicated. 3) Remaining shares are held by other Group companies.
4) Share of capital 94%.
5) Shares up to an ownership interest of 100% are held by other Group companies.
| Group holding, % | 2013 1) | 2012 1) | |
|---|---|---|---|
| SWEDEN | Sandvik Heating Technology AB | 100 | 100 |
| Sandvik SRP AB | 100 | 100 | |
| Sandvik Treasury AB | 100 | 100 | |
| Alfa Tool International AB | 100 | 100 | |
| ARGENTINA | Sandvik Argentina S.A. | 100 | 100 |
| Sandvik Mining and Construction Argentina S.A. | 100 | 100 | |
| AUSTRALIA | Sandvik Australia Pty. Ltd. | 100 | 100 |
| Sandvik Mining and Construction Pty. Ltd. Australia | 100 | 100 | |
| Sandvik Mining and Construction Australia (Production Supply) Pty. Ltd | 100 | 100 | |
| AUSTRIA | Seco Tools Australia Pty. Ltd. Walter Austria GmbH |
100 100 |
100 100 |
| Wolfram Bergbau und Hütten AG | 100 | 100 | |
| Sandvik in Austria Ges.m.b.H. | 100 | 100 | |
| Sandvik Mining and Construction GmbH | 100 | 100 | |
| Sandvik Mining and Construction Materials Handling GmbH & Co. KG | 100 | 100 | |
| Seco Tools Gesellschaft m.b.H. | 100 | 100 | |
| BELGIUM | Walter Benelux N.V./S.A. | 100 | 100 |
| S.A. Seco Tools Benelux N.V. | 100 | 100 | |
| BRAZIL | Seco Tools Indústria e Comérico Ltda | 100 | 100 |
| CANADA | Sandvik Canada Inc. | 100 | 100 |
| CHILE | Sandvik Chile S.A. | 100 | 100 |
| Sandvik Mining and Construction Chile S.A. | 100 | 100 | |
| CHINA | Sandvik International Trading (Shanghai) Co. Ltd. | 100 | 100 |
| Sandvik Mining and Construction (China) Co. Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Trading (Shanghai) Co. Ltd. | 100 | 100 | |
| Sandvik Hard Materials (Wuxi) Co. Ltd. Sandvik Process Systems (Shanghai) Co. Ltd. |
100 100 |
100 100 |
|
| Sandvik Tooling Round Tools Langfang Co., Ltd. | 100 | 100 | |
| Sandvik Tooling Production (Langfang) Co. Ltd. | 100 | 100 | |
| Sandvik Coromant Cutting Tools (Shanghai) Ltd. | 100 | 100 | |
| Sandvik (Qingdao) Ltd. | 100 | 100 | |
| Walter Wuxi Co. Ltd. | 100 | 100 | |
| Shanghai Jianshe Luqiao Machinery Co. Ltd | 80 | 80 | |
| Shandong Energy Machinery Group ZhongRui Mining Equipment Manufacturing Co., Ltd. | 502 | 502 | |
| Seco Tools (Shanghai) Co. Ltd. | 100 | 100 | |
| COLOMBIA | Sandvik Colombia S.A.S. | 70 | 70 |
| CZECH REPUBLIC | Sandvik Chomutov Precision Tubes s.r.o. | 100 | 100 |
| Walter CZ s.r.o. | 100 | 100 | |
| Seco Tools CZ s.r.o. | 100 | 100 | |
| Pramet Tools s.r.o. | 100 | 100 | |
| DENMARK | Sandvik A/S Seco Tools A/S |
100 100 |
100 100 |
| FINLAND | Sandvik Mining and Construction Finland Oy | 100 | 100 |
| Sandvik Mining and Construction Oy | 100 | 100 | |
| Seco Tools Oy | 100 | 100 | |
| FRANCE | Sandvik Mining and Construction Chauny S.A.S. | 100 | 100 |
| Sandvik Hard Materials S.A.S. | 100 | 100 | |
| Sandvik Materials Technology France S.A.S. | 100 | 100 | |
| Sandvik Mining and Construction Lyon S.A.S. | 100 | 100 | |
| Sandvik Mining and Construction France S.A.S. | 100 | 100 | |
| Sandvik Tooling France S.A.S. | 100 | 100 | |
| Gunther Tools S.A.S. | 100 | 100 | |
| Safety Production S.A.S. | 100 | 100 | |
| Walter France S.A.S. | 100 | 100 | |
| Seco Tools France S.A.S. | 100 | 100 | |
| GERMANY | SECO – E.P.B S.A.S. Sandvik Mining and Construction Crushing Technology GmbH |
100 100 |
100 100 |
| Prototyp-Werke GmbH | 100 | 100 | |
| Sandvik Materials Technology Deutschland GmbH | 100 | 100 | |
| Sandvik Mining and Construction Europe GmbH | 100 | 100 | |
| Sandvik Mining and Construction Supply GmbH | 100 | 100 | |
| Sandvik Tooling Deutschland GmbH | 100 | 100 | |
| TDM Systems GmbH | 100 | 100 | |
| Walter AG | 100 | 100 | |
| Walter Deutschland GmbH | 100 | 100 | |
| Werner Schmitt PKD-Werkzeug GmbH | 100 | 100 | |
| Seco Tools GmbH | 100 | 100 | |
| Pramet GmbH | 100 | 100 | |
| GHANA | Sandvik Mining and Construction Ghana Ltd. | 100 | 100 |
| HONG KONG | Sandvik Hong Kong Ltd. | 100 | 100 |
| HUNGARY | Walter Hungaria Kft. | 100 | 100 |
| Seco Tools Kft. | 100 | 100 | |
| INDIA | Walter Tools India Pvt. Ltd. Seco Tools India Private Limited |
100 100 |
100 100 |
| INDONESIA | PT Sandvik Indonesia | 100 | 100 |
| PT Sandvik Mining and Construction Indonesia | 100 | 100 | |
| PT Sandvik SMC | 100 | 100 | |
| IRELAND | Diamond Innovations International Sales | 100 | 100 |
| ITALY | Sandvik Italia S.p.A. | 100 | 100 |
| Walter Italia S.R.L. | 100 | 100 | |
| Seco Tools Italia S.p.A. | 100 | 100 | |
| JAPAN | Sandvik Tooling Supply Japan K.K. | 100 | 100 |
| Walter Tooling Japan K.K. | 100 | 100 | |
| Seco Tools Japan K.K. | 100 | 100 |
NOTES
Sandvik AB's holdings of shares and participations in subsidiaries. Indirect holdings in operating Group companies
| Group holding, % | 2013 1) | 2012 1) | |
|---|---|---|---|
| KAZAKHSTAN | Sandvik Mining and Construction Kazakhstan Ltd | 100 | 100 |
| KOREA | Sandvik SuhJun Ltd. | 100 | 100 |
| Walter Korea Ltd. | 100 | 100 | |
| Seco Tools Korea Ltd. | 100 | 100 | |
| MALAYSIA | Sandvik Malaysia Sdn. Bhd. | 100 | 100 |
| Sandvik Mining and Construction (Malaysia) Sdn. Bhd. | 100 | 100 | |
| MEXICO | Sandvik de México S.A. de C.V. | 100 | 100 |
| Sandvik Mining and Construction de México S.A. de C.V. | 100 | 100 | |
| Walter Tools S.A. de C.V. | 100 | 100 | |
| Sandvik Hard Materials de Mexico S.A. de C.V. | 100 | 100 | |
| NAMIBIA | Sandvik Namibia Pty Ltd | 100 | 100 |
| NETHERLANDS | Sandvik Benelux B.V. | 100 | 100 |
| NIGERIA | Jabro Tools B.V. Sandvik Mining and Construction Nigeria Ltd. |
100 100 |
— 100 |
| NORWAY | Sandvik Coromant Norge AS | 100 | 100 |
| Teeness ASA | 100 | 100 | |
| Sandvik Mining and Construction Norge AS | 100 | 100 | |
| Seco Tools AS | 100 | 100 | |
| NEW ZEALAND | Sandvik New Zealand Ltd. | 100 | 100 |
| PHILIPPINES | Sandvik Tamrock (Philippines) Inc. | 100 | 100 |
| POLAND | Walter Polska Sp. z.o.o. | 100 | 100 |
| Sandvik Mining and Construction Sp. z.o.o. | 100 | 100 | |
| Seco Tools (Poland) Sp. z.o.o. | 100 | 100 | |
| ROMANIA | Sandvik SRL | 100 | 100 |
| RUSSIA | LLC Sandvik | 100 | 100 |
| OOO Walter | 100 | 100 | |
| Sandvik Mining and Construction CIS LLC | 100 | 100 | |
| Sandvik-MKTC OAO | 100 | 100 | |
| Firma ALG LLC | 100 | 99 | |
| LLC Pramet | 100 | 100 | |
| LLC "Seco Tools" | 100 | 100 | |
| SINGAPORE | Sandvik Mining and Construction S.E. Asia Pte. Ltd. | 100 | 100 |
| Sandvik South East Asia Pte. Ltd. | 100 | 100 | |
| Walter AG Singapore Pte. Ltd. | 100 | 100 | |
| Seco Tools (SEA) Pte. Ltd. | 100 | 100 | |
| SOUTH AFRICA | Sandvik Mining and Construction RSA (Pty) Ltd. | 100 | 100 |
| Sandvik (Pty) Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Delmas (Pty) Ltd. | 100 | 100 | |
| Seco Tools South Africa (Pty) Ltd. | 100 | 100 | |
| SPAIN | Sandvik Española S.A. | 100 | 100 |
| Walter Tools Iberica S.A.U. | 100 | 100 | |
| Seco Tools España S.A. | 100 | 100 | |
| SWITZERLAND | Sandvik AG Santrade Ltd. |
100 100 |
100 100 |
| Walter (Schweiz) AG | 100 | 100 | |
| Seco Tools AG | 100 | 100 | |
| TAIWAN | Sandvik Hard Materials Taiwan Pty. Ltd. | 100 | 100 |
| Sandvik Taiwan Ltd. | 100 | 100 | |
| TANZANIA | Sandvik Mining and Construction Tanzania Ltd. | 100 | 100 |
| THAILAND | Sandvik Thailand Ltd. | 100 | 100 |
| Walter (Thailand) Co. Ltd. | 100 | 100 | |
| TURKEY | Walter Cutting Tools Industry and Trade LLC | 100 | 100 |
| UK | Dormer Tools Ltd. | 100 | 100 |
| Sandvik Construction Mobile Crushers and Screens Ltd. | 100 | 100 | |
| Sandvik Materials Technology UK Ltd. | 100 | 100 | |
| Sandvik Ltd. | 100 | 100 | |
| Sandvik Osprey Ltd. | 100 | 100 | |
| Walter GB Ltd. | 100 | 100 | |
| Seco Tools (U.K) Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Ltd. | 100 | 100 | |
| UKRAINE | Sandvik Ukraine | 100 | 100 |
| US | Diamond Innovations Inc. | 100 | 100 |
| Sandvik Wire and Heating Technology Corporation | 100 | 100 | |
| Sandvik Thermal Process Inc. | 100 | 100 | |
| Pennsylvania Extruded Tube Co. | 70 | 70 | |
| Precision Dormer LLC | 100 | 100 | |
| Sandvik Customer Finance LLC | 100 | 100 | |
| Sandvik Inc. | 100 | 100 | |
| Sandvik Mining and Construction USA LLC | 100 | 100 | |
| Sandvik Process Systems LLC | 100 | 100 | |
| Sandvik Special Metals LLC | 100 | 100 | |
| Walter USA LLC | 100 | 100 | |
| Seco Tools Inc | 100 | 100 | |
| Niagara Cutter, LLC Precorp Inc. |
100 100 |
100 — |
|
| ZAMBIA | Sandvik Mining and Construction Zambia Ltd. | 100 | 100 |
1) Refers to share of capital, which also corresponds to voting rights for the total number of shares, unless otherwise stated.
2) Share of votes 60% (60).
| Group | 2013 | 2012 |
|---|---|---|
| Accumulated share of equity | ||
| At beginning of year | 356 | 456 |
| Divestment of associates | –128 | –73 |
| Share of profi ts for the year | 1 | 6 |
| Less dividend received | –11 | –15 |
| Translation diff erences during the year | –7 | –18 |
| Carrying amount at end of year | 211 | 356 |
| Parent Company's shares in associated companies | 2013 | 2012 |
|---|---|---|
| Accumulated cost | ||
| At beginning of year | 4 | 66 |
| Divestments of associated companies | — | –62 |
| Carrying amount at end of year | 4 | 4 |
| 2013 | Country | Revenue | Profi t | Assets | Liabilities | Equity | Group's share, % |
|---|---|---|---|---|---|---|---|
| Owned directly by Sandvik AB | |||||||
| Oerlikon Balzers Sandvik Coating AB | Sweden | 91 | 21 | 75 | 9 | 66 | 49.0 |
| Owned indirectly by Sandvik AB | |||||||
| Eimco Elecon | India | 177 | 16 | 206 | 26 | 176 | 25.1 |
| Fagersta Stainless AB | Sweden | 1,203 | –48 | 651 | 389 | 263 | 50.0 |
| Fagersta Seco AB | Sweden | 0 | 0 | 3 | 2 | 1 | 50.0 |
| Fagerstahälsan AB | Sweden | 7 | 1 | 10 | 8 | 2 | 50.0 |
| S.C.I. Le Palatinat | France | 1 | 0 | 2 | 1 | 1 | 49.0 |
| Shanghai Innovatools Co. Ltd. | China | 11 | 1 | 11 | 2 | 9 | 40.0 |
| Bromma Business Jet AB | Sweden | — | — | — | — | — | 45.0 |
| 2012 | Country | Revenue | Profi t | Assets | Liabilities | Equity | Group's share, % |
| Owned directly by Sandvik AB | |||||||
| Oerlikon Balzers Sandvik Coating AB | Sweden | 108 | 23 | 80 | 16 | 64 | 49.0 |
| Carpenter Powder Products AB | Sweden | 168 | 11 | — | — | — | — |
| Owned indirectly by Sandvik AB | |||||||
| Bellataire LLC | USA | 1 | 0 | — | — | — | — |
| Eimco Elecon | India | 213 | 24 | 219 | 32 | 184 | 25.1 |
| Fagersta Stainless AB | Sweden | 1,415 | –62 | 628 | 313 | 315 | 50.0 |
| Precorp Inc. | USA | 181 | 18 | 188 | 65 | 123 | 49.0 |
| Fagersta Seco AB | Sweden | 0 | 0 | 3 | 2 | 1 | 50.0 |
| Fagerstahälsan AB | Sweden | 7 | 0 | 10 | 8 | 2 | 50.0 |
| S.C.I. Le Palatinat | France | 1 | 1 | 3 | 2 | 1 | 49.0 |
| Alfa Tool International AB | Sweden | 92 | 7 | — | — | — | — |
| Shanghai Innovatools Co. Ltd. | China | 5 | 4 | 10 | 2 | 8 | 40.0 |
The close of the reporting period for the associate Eimco Elecon is 31 March 2013. Dividend paid in 2013 is included in the calculation of the proportion of equity. No fi nancial statements as of a later date have been obtained. Other associates are recognized one month in arrears. The outstanding shares in the associated company Precorp Inc. were acquired in 2013.
| Corp. Reg. No. | Share of capital and voting rights, % | |
|---|---|---|
| 2013 | ||
| Oerlikon Balzers Sandvik Coating AB, Stockholm | 556098-1333 | 49 |
| 2012 Oerlikon Balzers Sandvik Coating AB, Stockholm |
556098-1333 | 49 |
33 34 35
Other noninterest-bearing receivables 204 184 Other interest-bearing receivables 111 2 Total 373 480
| Group | ||
|---|---|---|
| Construction contracts | 2013 | 2012 |
| Contract costs incurred and recognized profi ts | ||
| (less recognized losses) | 10,399 | 9,780 |
| Advances received | 3,245 | 1,525 |
| Amounts retained by customers | 99 | 71 |
| Gross amount due from customers | 1,320 | 1,520 |
| Gross amount due to customers | 1,705 | 2,407 |
Funded pension plans and other noninterest-bearing receivables for the Group relating to 2012 were adjusted to take into consideration the effects of changed accounting policies in connection with the transition to the updated standard for pensions, IAS 19. The updated standard is applied as of 1 January 2013, with full retroactive application. Refer to Note 35 for further information.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Raw materials and consumables | 5,790 | 6,493 | 1,357 | 1,518 |
| Work in progress | 4,263 | 4,883 | 1,620 | 1,530 |
| Finished goods | 13,265 | 14,132 | 661 | 761 |
| Total | 23,318 | 25,508 | 3,638 | 3,809 |
Cost of sales of the Group includes impairment of inventories of 391 million SEK (515) while cost of sales of the Parent Company includes impairment of 203 million SEK (219). There were no signifi cant reversals of impairment losses during 2013 and 2012.
Age analysis of trade receivables
| 2012 | ||||||
|---|---|---|---|---|---|---|
| Group | Gross | Allowance for bad debts |
Net carrying amount |
Gross | Allowance for bad debts |
Net carrying amount |
| Current receivables | 9,908 | –75 | 9,833 | 10,395 | –39 | 10,355 |
| Past due receivables 0–3 months |
2,248 | –53 | 2,195 | 2,677 | –103 | 2,574 |
| Past due receivables 3–12 months |
743 | –164 | 579 | 857 | –207 | 650 |
| Past due receivables >12 months |
661 | –586 | 75 | 490 | –490 | 0 |
| Total | 13,560 | –878 | 12,682 | 14,419 | –840 | 13,579 |
| Group | ||
|---|---|---|
| Details of reserves | 2013 | 2012 |
| Translation reserve | ||
| At beginning of year | 254 | 1,832 |
| Translation diff erences during the year | 140 | –1,578 |
| At end of year | 394 | 254 |
| Hedging reserve | ||
| At beginning of year | 127 | 17 |
| Cash-fl ow hedges recognized in other compre | ||
| hensive income | –160 | 110 |
| At end of year | –33 | 127 |
| Total reserves | ||
| Reserves at beginning of year | 381 | 1,849 |
| Changes in reserves: | ||
| Translation reserve | 140 | –1,578 |
| Hedging reserve | –160 | 110 |
| Reserves at end of year | 361 | 381 |
Relates to payments made by owners and includes share premium reserve transferred to the statutory reserve at 31 December 2005. Any share premium as from 1 January 2006 and onwards is also recognized as paid-in capital.
The translation reserve comprises all foreign exchange diff erences arising on the translation of the fi nancial statements of foreign operations stated in a currency diff erent from the Group's presentation currency. The Parent Company's and the Group's presentation currency is Swedish kronor (SEK).
The hedging reserve comprises the eff ective portion of the cumulative net change in the fair value of cash-fl ow hedging instruments related to hedged transactions that have not yet occurred. The entire change in cash-fl ow hedges transferred to profi t/loss for the year is attributable to operating profi t for both 2013 and 2012.
1
NOTES
Retained earnings including profi t or loss for the year comprises the earned profi t of the Parent Company and its subsidiaries and associated companies.
Financial goals
The Group's fi nancial goals are as follows:
| 2014 | 2013 | |
|---|---|---|
| Growth, total | 8% | 8% |
| Return on capital employed | 25% | 25% |
| Net debt/equity ratio | <0,8 | <0,8 |
| Dividend payout percentage | 50% | 50% |
Equity is defi ned as total shareholders' equity, including non-controlling interests.
| Equity | 2013 | 2012 |
|---|---|---|
| Share capital | 1,505 | 1,505 |
| Other paid-in capital | 7,678 | 7,678 |
| Reserves | 361 | 381 |
| Retained earnings including profi t for the year | 23,966 | 26,561 |
| Equity attributable to equity holders of the Parent | 33,510 | 36,125 |
| Non-controlling interests | 100 | 107 |
| Total equity | 33,610 | 36,232 |
The Board of Directors has proposed to the 2014 Annual General Meeting a dividend of 3.50 SEK per share (3.50). The proposal corresponds to approximately 88% of the recognized earnings per share.
No changes were made to the processes for managing capital during the year. Neither the Parent Company nor any of its subsidiaries have to comply with
externally imposed capital requirements.
According to the Articles of Association of Sandvik AB, the share capital shall amount to a minimum of 700,000,000 SEK and a maximum of 2,800,000,000 SEK . All issued shares are fully paid, have the same voting rights and are equally entitled to the company's assets.
Share capital has changed as follows over the past two years:
| No. of shares | Quotient value SEK/share | Share capital SEK | |
|---|---|---|---|
| Share capital at 31 December 2011 | 1,186,287,175 | 1.20 | 1,423,544,610 |
| Non-cash issue, 17 January 2012 | 66,889,974 | 1.20 | 80,267,969 |
| Non-cash issue, 6 February 2012 | 1,208,774 | 1.20 | 1,450,529 |
| Share capital at 31 December 2012 | 1,254,385,923 | 1.20 | 1,505,263,108 |
| Share capital at 31 December 2013 | 1,254,385,923 | 1.20 | 1,505,263,108 |
A dividend is proposed by the Board of Directors in accordance with the stipulations in the Swedish Companies' Act, and is approved at the Annual General Meeting. The proposed, not yet resolved, dividend for 2013 is estimated to amount to 4,390 million SEK (3.50 SEK per share). This amount has not been recognized as a liability.
No shares have been reserved for transfer under options or other agreements.
The Sandvik share is offi cially listed only on the NASDAQ OMX Stockholm. Shares can also be traded in the US in the form of ADRs (American Depositary Receipts).
Undistributable equity may not be paid to the shareholders in the form of dividends.
| 2013 | 2012 | |
|---|---|---|
| Country risk reserve | 4 | 3 |
| Total other untaxed reserves | 4 | 3 |
The purpose of the statutory reserve has been to tie up part of the net profi t that is not needed to cover an accumulated defi cit. The statutory reserve includes amounts that before 1 January 2006 were included in the share premium reserve.
Comprises the value of shares that have been issued at a premium, meaning the price paid was in excess of the share's quotient value. The amount received in excess of the quotient value was transferred to the share premium reserve.
Retained earnings comprise the distributable reserves recognized in the preceding year less any dividend declared. The total of such profi ts brought forward and the profi t for the year constitute the total distributable reserves, that is the maximum amount available for distribution to the shareholders.
Sandvik provides direct pension solutions and otherwise participates in a number of defi ned-benefi t, defi ned-contribution and other plans for longterm post-employment benefi ts to employees throughout the Group. The plans are structured in accordance with local regulations and practices. In recent years, Sandvik has sought to move from defi ned-benefi t based plans to pension solutions that are defi ned-contribution plans and, to an ever increasing extent, the total pension expense comprises the costs for such plans. In principle, the plans cover all employees. The Group's most signifi cant defi ned-benefi t pension plans are described below.
The Swedish pension plan is funded through a foundation and is based on salary at the time of retirement and is partly closed for new participants, meaning that only new employees born prior to 1979 have the option of joining the plan. Employees born after 1979 are encompassed by a defi ned-contribution plan.
There are no funding requirements for the defi ned-benefi t plan. Pension payments to retirees are made directly from Sandvik.
The commitment for family pension, also a defi ned-benefi t plan, is insured with Alecta. Suffi cient information to use defi ned-benefi t accounting for this plan was not available, which is why these commitments are recognized as a defi ned-contribution plan. At the end of 2013, Alecta reported a preliminary plan surplus of 149% (129).
The main pension plan in the UK is funded through a foundation, which is closed for new participants and the pension is based on salary at the time of retirement. The funding level is revalued every three years, and if this valuation indicates a requirement to increase the funding, the company pays money into the plan over a certain period of time. The plan is governed by Trustees who make investment decisions after having consulted with the company. Pension payments to retirees are made from the plan.
34 35
There are a number of pension plans in the US, including commitments for medical benefi ts. The largest pension plan covers approximately 75% of the total commitment in the US. The pension is based on salary at the time of retirement and is closed for new participants. The funding level is revalued every year with a target of restoring the funding level over a seven-year period. Pension payments to retirees are primarily made from the plan. In 2013, a lump sum of approximately 24 million USD was paid to about 1,000 paid-up policyholders who chose to accept the off er provided by the company.
In Finland, Sandvik sponsors a defi ned-benefi t pension plan funded in a foundation. The benefi ts off ered include an old-age pension and disability pension. In addition to the benefi ts guaranteed by the Finnish subsidiary, there is also a defi ned-contribution pension component. Pension payments to retirees are made from the plan.
In Germany, Sandvik has defi ned-benefi t pension plans. A few years ago, Sandvik formed a foundation, a Contractual Trust Agreement (CTA), which covers the current employees in most of Sandvik's German companies. The pension commitments for retirees and paid-up policyholders remain unfunded. The pension is based on salary at the time of retirement and other parameters. There are no funding requirements and employees in the plan are required to contribute a certain percentage of their salary to the plan. Pension payments to retirees are mainly made from the company.
There are a number of pension plans in Canada. The pension is based on average salary at the time of retirement and is closed for new participants for non-bargaining unit plans starting 2008. The funding level is revalued every year or up to every three years for the plans, and is based on the solvency ratio determined by actuaries. Pension payments to retirees are mainly made from the company. Employees who joined the company after 1 January 2008 are included in a defi ned-contribution plan.
| Information by country, 31 December 2013 | Sweden | UK | US | Finland | Germany | Canada | Other | Total |
|---|---|---|---|---|---|---|---|---|
| Amount in the balance sheet | ||||||||
| Present value of funded and unfunded pension obligations | 3,531 | 5,225 | 4,225 | 2,462 | 2,044 | 530 | 1,560 | 19,577 |
| Plan assets | 2,077 | 4,388 | 3,471 | 2,778 | 1,018 | 540 | 905 | 15,177 |
| Total surplus/(defi cit) | –1,454 | –837 | –754 | 316 | –1,026 | 10 | –655 | –4,400 |
| Funding level, % | 59% | 84% | 82% | 113% | 50% | 102% | 58% | 78% |
| Pension plans recognized according to local rules | — | — | — | — | — | — | — | –161 |
| Duration (remaining term of pension obligation), years | 22 | 15 | 15 | 16 | 10 | 12 | — | — |
| Amount in income statement/other comprehensive income | ||||||||
| Current service cost | –138 | –67 | –120 | –41 | –36 | –18 | –41 | –461 |
| Net interest | –53 | –33 | –50 | 11 | –38 | –3 | –21 | –187 |
| Actuarial gains/(losses) | 204 | 12 | 680 | 26 | –1 | 75 | 43 | 1,039 |
| Total cost of defi ned-benefi t pension plans before tax | 13 | –88 | 510 | –4 | –75 | 54 | –19 | 391 |
| Amount in cash fl ow | ||||||||
| Employer contributions to pension plans | — | –124 | –281 | –11 | –25 | –33 | –79 | –553 |
| Pension payments directly from the company | –97 | — | –17 | — | –64 | –2 | –38 | –218 |
| Key assumptions used in the valuation of the pension liability | ||||||||
| Life expectancy, years1 | 20 | 22 | 20 | 19 | 20 | 22 | — | — |
| Infl ation, % | 2.00% | 3.50% | 2.47% | 2.00% | 2.00% | 2.00% | — | 2.51% |
| Discount rate, % (weighted average) | 4.00% | 4.50% | 4.66% | 3.40% | 3.50% | 4.79% | — | 4.12% |
| Future salary increases | 3.00% | 3.66% | 3.10% | 2.50% | 3.00% | 3.00% | — | 3.13% |
1) Expressed as the expected remaining life expectancy of a 65 year old in number of years.
| Information by country, 31 December 2012 | Sweden | UK | US | Finland | Germany | Canada | Other | Total |
|---|---|---|---|---|---|---|---|---|
| Amount in the balance sheet | ||||||||
| Present value of funded and unfunded pension obligations | 3,556 | 4,950 | 4,643 | 2,199 | 1,870 | 574 | 1,575 | 19,367 |
| Plan assets | 1,990 | 4,095 | 3,084 | 2,495 | 871 | 491 | 856 | 13,882 |
| Total surplus/(defi cit) | –1,566 | –855 | –1,559 | 296 | –999 | –83 | –719 | –5,485 |
| Funding level, % | 56% | 83% | 66% | 113% | 47% | 86% | 54% | 72% |
| Pension plans recognized according to local rules | — | — | — | — | — | — | — | –192 |
| Duration (remaining term of pension obligation), years | 22 | 15 | 15 | 16 | 10 | 12 | — | — |
| Amount in income statement /other comprehensive income | ||||||||
| Current service cost | –131 | –57 | –119 | –34 | –27 | –18 | –53 | –439 |
| Net interest | –38 | –30 | –53 | 19 | –43 | –3 | –29 | –177 |
| Actuarial gains/(losses) | –355 | –276 | –172 | –93 | –252 | –50 | –219 | –1,417 |
| Total cost of defi ned-benefi t pension plans before tax | –524 | –363 | –344 | –108 | –322 | –71 | –301 | –2,033 |
| Amount in cash fl ow | ||||||||
| Employer contributions to pension plans | — | –124 | –288 | –3 | –45 | –36 | –95 | –591 |
| Pension payments directly from the company | –103 | — | –20 | — | –65 | –2 | –29 | –219 |
| Key assumptions used in the valuation of the pension liability | ||||||||
| Life expectancy, years1 | 20 | 22 | 20 | 19 | 20 | 21 | — | — |
| Infl ation, % | 2.00% | 2.95% | 2.47% | 2.00% | 2.00% | 2.00% | — | 2.34% |
| Discount rate, % (weighted average) | 3.50% | 4.31% | 3.88% | 3.80% | 3.71% | 4.32% | — | 3.85% |
| Future salary increases | 3.00% | 3.16% | 3.10% | 3.50% | 3.00% | 3.00% | — | 3.10% |
1) Expressed as the expected remaining life expectancy of a 65 year old in number of years.
| Present value of funded and unfunded pension obligations | 2013 | 2012 |
|---|---|---|
| At 1 January | 19,367 | 16,951 |
| Current service cost | 461 | 439 |
| Settlements | –23 | 0 |
| Interest expense | 731 | 759 |
| Employee contributions | 24 | 23 |
| Pension payments | –833 | –660 |
| Actuarial gains/(losses) attributable to: | ||
| - Financial assumptions | –718 | 1,759 |
| - Demographic assumptions | 48 | 132 |
| - Experience adjustments | 276 | 265 |
| Other | –14 | 9 |
| Foreign exchange diff erences | 258 | –310 |
| At 31 December | 19,577 | 19,367 |
| Plan assets | ||
|---|---|---|
| At 1 January | 13,882 | 12,836 |
| Interest income | 544 | 581 |
| Settlements | –23 | 0 |
| Employer contributions to pension plans | 553 | 591 |
| Pension payments directly from the company | 218 | 219 |
| Employee contributions | 24 | 23 |
| Pension payments | –833 | –660 |
| Return on plan assets, excluding amount included in | ||
| interest income | 645 | 739 |
| Other | –14 | –23 |
| Foreign exchange diff erences | 181 | –424 |
| At 31 December | 15,177 | 13,882 |
Amended accounting policies regarding IAS 19 impacted comparative fi gures for 2012 in the note. Refer to Note 35 for further information.
An asset is recognized if the value of the plan assets for a certain plan exceeds the liability. Funded pension plans are recognized as an asset in the amount of 603 million SEK (359) in the item non-current receivables. Provisions for pensions include pension plans of 5,164 million SEK (6,037).
Three main categories of risks are associated with the company's defi ned-benefi t pension plans. The fi rst category is linked to future pension payments. Greater life expectancy, increased infl ation assumptions and higher salaries can increase future pension payments and thus also the liability for the pension obligation. The second category refers to the assets in the foundations that are funded. Low returns may, in the future, lead to the assets being insuffi cient for covering future pension payments. The third and fi nal category pertains to the measurement methods and accounting of defi ned-benefi t pension plans, primarily regarding the discount rate utilized in the measurement of the present value of the pension obligations. This rate can fl uctuate, leading to major changes in the recognized pension liability. The discount rate also aff ects the interest rate component of the pension liability and that is recognized in net fi nancial items.
To determine the discount rate, AA credit rated corporate bonds are used that correspond to the duration of the pension obligation. If there is no deep market for corporate bonds, government bonds are instead used as the basis for determining the discount rate. Mortgage bonds are used in Sweden and Norway to determine the discount rate.
A sensitivity analysis of the most important assumptions aff ecting the recognized pension liability is provided below. Note that this sensitivity analysis is not intended to be the expression of an opinion by the company regarding the probability of such events occurring.
Sandvik estimates that approximately 650 MSEK (650) will be paid into existing defi ned-benefi t plans in 2014.
Plan assets amounted to 15,177 million SEK (13,882). Actual return on plan assets in 2013 was 1,189 million SEK (1,320). The consolidation ratio for funded plans was 86% (80).
Assets without quoted prices amounted to approximately 10% of the total plan assets of 15,177 million SEK.
The fair value of plan assets on 31 December 2013 included loans of 21 million SEK (41) to Sandvik companies and the value of properties leased to Sandvik of 221 million SEK (233).
2013 2012
The defi ned-benefi t and defi ned-contribution plans are governed through Sandvik's Pension Supervisory Board (PSB). PSB meets twice a year and has the following areas of responsibility:
• Implement policies and directives
The Group Pension Committee (GPC) is another operating body, which is also preparatory to the PSB, that has representatives from countries with large defi ned-benefi t plans and the relevant Group functions. The GPC's task is to monitor developments in countries, submit proposals on changes to pension plans to the PSB and approve the principle of how actuarial assumptions are established. GPC meets twice a year.
The aims of the investment decisions made in the foundations managing plan assets are as follows:
• Ensure that the plan assets are suffi cient to cover the foundation's future pension commitments
• Achieve optimal returns while taking into account a reasonable level of risk Each foundation is to have a written investment policy approved by GPC. Reviews are performed annually. The foundation makes its own decisions on its investment strategy and takes into consideration the composition of the pension commitments, requirements of cash and cash equivalents and available investment opportunities. The investment strategy is to be long term and in line with the guidelines established by PSB. An investment committee is to be created.
The Parent Company's recognized pension provision was 323 million SEK (324). The Parent Company's PRI pensions are secured through Sandvik's own pension foundation, the Sandvik Pension Foundation in Sweden. Sandvik AB and most of its Swedish subsidiaries are members of the foundation. The total value of the assets held by the foundation was 2,077 million SEK (1,990), which was 292 million SEK lower than the capital value of the corresponding pension obligations for the entire foundation. The defi cit was recognized as a liability in the companies. The Parent Company's funded obligations mainly comprise ITP Plans.
| Present value of funded and unfunded pension obligations | 2013 | 2012 |
|---|---|---|
| Amount in the balance sheet | ||
| Present value of funded and unfunded pension | ||
| obligations | 1,911 | 1,849 |
| Plan assets | 1,615 | 1,548 |
| Defi cit in the assets of the pension foundation | –27 | –23 |
| Net amount recognized for pension obligations | –323 | –324 |
| Provisions for | Provisions for | Provisions for | ||||
|---|---|---|---|---|---|---|
| Provisions for | Provisions for | employee | environmental | Provisions for | other | |
| warranties | restructuring | benefi ts | obligations | legal disputes | obligations | Total |
| 503 | 695 | 496 | 290 | 111 | 840 | 2,935 |
| 395 | 1,197 | 407 | 32 | 23 | 536 | 2,590 |
| –316 | –698 | –548 | –32 | –49 | –530 | –2,173 |
| –84 | –91 | –24 | –1 | — | –82 | –282 |
| 11 | 24 | 20 | 66 | 14 | –135 | — |
| 1 | 0 | –9 | –5 | –11 | –31 | –55 |
| 510 | 1,127 | 342 | 350 | 88 | 598 | 3,015 |
| 331 | 971 | 186 | 101 | 50 | 316 | 1,955 |
| 179 | 156 | 156 | 249 | 38 | 282 | 1,060 |
| Balance at 31 December 2012 | 22 | 17 | 177 | 11 | — | 7 | 234 |
|---|---|---|---|---|---|---|---|
| Provisions made during the year | 3 | 142 | 59 | 11 | — | 0 | 215 |
| Provisions used during the year | –1 | –90 | –129 | –12 | — | –4 | –236 |
| Unutilized provisions reversed during the year | –2 | — | — | — | — | 0 | –2 |
| Reclassifi cations | — | 0 | 2 | — | — | –2 | 0 |
| Balance at 31 December 2013 | 22 | 69 | 109 | 10 | — | 1 | 211 |
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighing of all possible outcomes against their associated probabilities.
A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for.
A provision for personnel-related benefi ts is recognized in accordance with agreements entered for long-term incentive programs, local bonus programs, part-time pensions and other personnel obligations.
Environment-related provisions include provisions for environmental remediation measures related to the Group's sites.
Non-current interest-bearing liabilities fall due as follows:
Legal disputes include provisions for claims which, at the balance sheet date, had not been closed.
Other provisions include provisions for onerous contracts and obligations within the scope of Sandvik Försäkring AB's operations. At 1 January 2013, the insurance business had provisions of 189 million SEK, of which 141 million SEK was utilized during the year. Provisions classifi ed as current are expected to result in an outfl ow of resources within twelve months from the balance sheet date.
In conjunction with Sandvik's introduction of reporting provisions in several categories, items were recategorized from the group Other provisions during the year.
| Within one to fi ve years |
2013 Later than fi ve years |
Total | Within one to fi ve years |
2012 Later than fi ve years |
Total | |
|---|---|---|---|---|---|---|
| Loans from fi nancial institutions | 2,241 | — | 2,241 | 3,852 | — | 3,852 |
| Loans from Group companies | 580 | — | 580 | 59 | 302 | 361 |
| Other liabilities | 5,181 | 7,757 | 12,9381) | 9,830 | 8,003 | 17,833 |
| Total | 8,002 | 7,757 | 15,759 | 13,741 | 8,305 | 22,046 |
1) Other liabilities mainly comprise bond loans.
| Group | 2013 | 2012 |
|---|---|---|
| Non-current liabilities | ||
| Bond issues | 18,401 | 23,380 |
| Other | 143 | 202 |
| Total | 18,544 | 23,582 |
| Current liabilities | ||
| Bond issues | 4,375 | 1,667 |
| Other | 39 | 23 |
| Total | 4,414 | 1,690 |
For information on contractual terms, scheduled repayments and the exposure to interest risk and foreign-currency risk, refer to the section "Financial risk management."
| Group | 2013 | 2012 |
|---|---|---|
| Other non-current liabilities | ||
| Derivatives designated as hedging instruments | 114 | 118 |
| Other | 69 | 66 |
| Total | 183 | 184 |
| Other current liabilities | ||
| Derivatives designated as hedging instruments | 607 | 809 |
| Bills payable | 70 | 72 |
| Gross amount due to construction contract | ||
| customers | 1,705 | 2,407 |
| Other | 1,735 | 1,712 |
| Total | 4,117 | 5,000 |
| Parent Company | 2013 | 2012 |
|---|---|---|
| Personnel related | 1,280 | 1,473 |
| Expenses related to fi nance | 562 | 925 |
| Other | 236 | 357 |
| Total | 2,078 | 2,755 |
On occasion, Sandvik is party to litigation and administrative proceedings related to its operations, including responsibility for products, the environment, health and safety. However, Sandvik does not deem that any of these ongoing proceedings and processes will signifi cantly aff ect the Sandvik Group.
In 2005, Sandvik AB implemented a reorganization of ownership and management of intellectual property rights. All Swedish-owned patents and trademarks were transferred to Sandvik Intellectual Property AB (IP Company). As a result of the reorganization, the Swedish National Tax Board did not approve the IP company's tax returns and the Public Commissioner fi led an appeal against the Tax Board's decision relating to Sandvik AB.
The Public Commissioner requested that Sandvik AB be taxed in 2005 for a capital gain of 18,097 million SEK, which arose in the Group in conjunction with the reorganization. In June 2010, the Administrative Court approved the Public Commissioner's appeal pertaining to additional taxation of Sandvik AB for 2005. An appeal regarding the decision was lodged with the Administrative Court of Appeal. In June 2013, the Administrative Court of Appeal issued its ruling and ordered that Sandvik be taxed for a capital gain in 2005 totaling 18,063 million SEK at the same time as it approved the amortization of the intellectual property rights. As a result of this ruling, Sandvik paid approximately 5,800 million SEK, including interest, to the Swedish Tax Agency in September 2013. A signifi cant part of this amount will be recovered through reduced tax payments related to increased amortization in the IP Company. The ruling was appealed to the Supreme Administrative Court, but the appeal for reconsideration was rejected and, accordingly, the Administrative Court of Appeal's decision is defi nitive. For further details, refer to the Integrated risk management section.
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Contingent liabilities | 2013 | 2012 | 2013 | 2012 | |
| Bills discounted | 17 | 19 | — | — | |
| Other surety undertakings | |||||
| and contingent liabilities | 634 | 1,333 | 13,339 | 15,265 | |
| Total | 651 | 1,352 | 13,339 | 15,265 | |
| of which for subsidiaries | 12,690 | 14,721 |
The Parent Company's surety undertakings and contingent liabilities amounted to 13,339 million SEK (15,265), of which 7,616 million SEK (9,515) related to the Parent Company's guarantees for Sandvik Treasury AB's fi nancial borrowings. The remainder comprised mainly indemnity bonds for commitments of Group companies to their customers and vendors, and to fi nancial institutions relating to local borrowings, guarantees on advances received and various types of performance bonds.
The Group's surety undertakings and contingent liabilities amounted to 651 million SEK (1,352) and comprised mainly guarantees to fi nancial institutions.
Pledged assets for own liabilities and provisions.
| Group | 2013 | 2012 |
|---|---|---|
| Property mortgages | 201 | 193 |
| Chattel mortgages | 100 | 104 |
| Total | 301 | 297 |
No assets of the Parent Company had been pledged in 2013 and 2012.
Under the IFRS 7 disclosure requirements, the method applied to the valuation of fi nancial instruments measured at fair value in the balance sheet is presented below. The valuation is divided into three levels:
All of Sandvik's fi nancial instruments are measured according to Level 2, except for 34 million SEK related to a contingent purchase consideration, refer to Note 32, which is measured according to level 3.
Information on fi nancial risks is also presented in the fi nancial risk section of the Report of the Directors.
The following is a summary of the methods and assumptions primarily applied to determine the fair value of the fi nancial instruments presented in the table below.
The fair value of listed securities is determined based on the listed average price of the asset on the balance sheet date with no supplement for transaction costs on the acquisition date.
The fair value of foreign exchange contracts is determined based on the listed price. The fair value of interest-rate swaps is based on discounting estimated future cash fl ows under the contractual terms and conditions and maturity dates and based on the market interest rate for similar instruments on the balance sheet date. Where discounted cash fl ows are used, the future cash fl ows are calculated on the best assessments of company management. The discount rate applied is the market-based interest rate of similar instruments on the balance sheet date.
All valuation techniques applied are accepted in the market and take into account all parameters that the market would consider in its pricing. These techniques are reviewed regularly so as to ensure their reliability. Applied assumptions are compared against actual outcomes to identify any needs for adjusting the measurement or forecasting tools.
For means of payment, receivables and liabilities with variable interest and current receivables and liabilities (for example, trade receivables and accounts payable), the fair value has been considered to correspond to the carrying amount.
| Financial instruments measured at fair value | 2013 | 2012 | |
|---|---|---|---|
| Financial assets | |||
| Derivatives | Foreign exchange contracts | 731 | 950 |
| Foreign currency options | 105 | 80 | |
| Interest-rate swaps | 57 | 294 | |
| Commodity and electricity | |||
| derivatives | 18 | 29 | |
| Total | 911 | 1,353 | |
| Financial liabilities | |||
| Derivatives | Foreign exchange contracts | 451 | 393 |
| Foreign currency options | — | — | |
| Interest-rate swaps | 102 | 399 | |
| Commodity and electricity | |||
| derivatives | 168 | 134 | |
| Total | 721 | 926 |
Financial assets and liabilities are not off set in the balance sheet. Derivative contracts are subject to framework agreements governing off setting, and the carrying amounts of assets not off set in the balance sheet amounted to 911 million SEK. The carrying amount of corresponding liabilities was -721 million SEK. No collateral has been received or pledged. In the event of a default by a derivative counterparty, assets and liabilities for a total value of 507 million SEK would be off set in accordance with the framework agreement governing off setting.
35
35
Financial assets and liabilities and fi nancial derivatives are stated at fair value, except for current and non-current borrowings, which are measured at amortized cost. Calculation at fair value would increase the Group's non-current borrowings by 1,275 million SEK (1,696). When measuring interest-bearing liabilities, the company's Swedish and European bond loans have then been remeasured at listed market prices when available. Other non-current debt has been remeasured in accordance with the principles described above. Current
loans, which include outstanding commercial papers with a fi xed interest period of less than 12 months, have not been remeasured.
The table below shows the fair value of fi nancial assets and liabilities compared with their carrying amounts. Fair value is the amount at which an asset or liability can be sold between well-informed partners who are independent in relation to each other and who have a vested interest in completing the transaction.
| value through profi t and loss |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance-sheet items | Derivatives for hedge accounting1) |
Derivatives held for trading2) |
Available-for-sale fi nancial assets |
Loans and receivables |
Total carrying amount |
Fair value | ||||||
| Financial assets | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 |
| Financial investments | — | — | — | — | 80 | 79 | — | — | 80 | 79 | 80 | 79 |
| Trade receivables | — | — | — | — | — | — | 12,682 | 13,579 | 12,682 | 13,579 | 12,682 | 13,579 |
| Other receivables 3) | — | — | — | — | — | — | 1,509 | 908 | 1,509 | 908 | 1,509 | 908 |
| Derivatives 4) | 308 | 720 | 603 | 633 | — | — | — | — | 911 | 1,353 | 911 | 1,353 |
| Cash and cash equivalents | — | — | — | — | — | — | 4,967 | 13,829 | 4,967 | 13,829 | 4,967 | 13,829 |
| Total fi nancial assets | 308 | 720 | 603 | 633 | 80 | 79 | 19,158 | 28,316 | 20,149 | 29,748 | 20,149 | 29,748 |
Assets at fair
| Liabilities at fair value through profi t and loss |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives for hedge accounting1) |
Derivatives held for trading2) |
Other fi nancial liabilities |
Total carrying amount |
Fair value | ||||||
| Financial liabilities | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 |
| Borrowings5) | — | — | — | — | 30,259 | 34,961 | 30,259 | 34,961 | 31,534 | 36,657 |
| Derivatives6) | 321 | 462 | 400 | 464 | — | — | 721 | 926 | 721 | 926 |
| Accounts payable | — | — | — | — | 6,676 | 6,585 | 6,676 | 6,585 | 6,676 | 6,585 |
| Due to associates | — | — | — | — | 7 | 14 | 7 | 14 | 7 | 14 |
| Other liabilities7) | — | — | — | — | 70 | 72 | 70 | 72 | 70 | 72 |
| Total fi nancial liabilities | 321 | 462 | 400 | 464 | 37,012 | 41,632 | 37,733 | 42,558 | 39,008 | 44,254 |
1) Of which –43 million SEK (163) pertains to cash-fl ow hedges recognized in the hedging reserve in equity and 33 million SEK (96) pertains to fair-value hedges recognized in profi t or loss.
2) Of which 203 million SEK (169) pertains to fi nancial hedges; hedge accounting is not applied.
3) Comprises parts of the Group's non-current receivables, accrued income and other receivables recognized in the balance sheet. 4) Derivatives form part of the other receivables recognized in the balance sheet.
5) Recognized in the balance sheet as non-current and current liabilities to fi nancial institutions and other liabilities.
6) Derivatives form part of the other liabilities recognized in the balance sheet.
7) Form part of the Group's non-current liabilities, accrued expenses and other liabilities recognized in the balance sheet.
In addition to fair value adjustment, interest and currency movement eff ects are included.
| Financial liabilities | –1,836 | –2,042 | |||||
|---|---|---|---|---|---|---|---|
| Available-for-sale fi nancial assets | 7 | 8 | |||||
| Loans and accounts receivables | 91 | –233 | |||||
| Assets and liabilities at fair value (Derivatives) | 385 | 223 | |||||
| 2013 | 2012 |
The company's fi nancial liabilities amounted to 37,733 million SEK (42,558) at year-end.
| 2013 | 2012 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Nominal amounts | <6 months | 6–12 months | 1–5 years | >5 years | <6 months | 6–12 months | 1–5 years | >5 years | |
| Bank loans | SEK | –1,097 | –1,625 | –2,367 | –1,327 | –1,100 | –68 | –6,494 | –1,301 |
| Commercial papers | SEK | — | — | — | — | — | — | — | — |
| Medium Term Notes | SEK | –115 | –130 | –5,934 | –1,866 | –2,201 | –66 | –7,184 | –1,638 |
| European Medium Term Notes | EUR | –4,789 | –127 | –1,244 | –7,768 | –422 | –93 | –6,296 | –6,316 |
| Private placement | USD | –138 | –138 | –2,262 | –3,786 | –138 | –138 | –2,431 | –3,878 |
| Derivatives | |||||||||
| – Currency derivatives | 57 | 20 | 127 | — | 97 | 105 | 326 | — | |
| – Interest-rate derivatives | 116 | –13 | –176 | –141 | 83 | –72 | –10 | –147 | |
| – Commodity and electricity | |||||||||
| derivatives | –48 | –31 | –68 | — | –32 | –24 | –48 | — | |
| Finance leases | –14 | –13 | –51 | –38 | –15 | –15 | –59 | –46 | |
| Accounts payable | –6,676 | — | — | — | –6,585 | — | — | ||
| Total | –12,704 | –2,057 | –11,975 | –14,926 | –10,313 | –371 | –22,196 | –13,326 |
Periods when hedged cash fl ows are expected to occur and aff ect earnings
| Total | –14 | 19 | –15 | 0 | 14 | 5 | –9 | 11 | –54 |
|---|---|---|---|---|---|---|---|---|---|
| derivatives | –24 | –23 | –20 | –10 | –4 | –11 | –12 | –6 | –38 |
| Commodity and electricity | |||||||||
| Interest derivatives | — | — | — | — | — | — | — | — | –78 |
| Currency derivatives | 10 | 42 | 5 | 10 | 18 | 16 | 3 | 17 | 62 |
| Q 1 2014 | Q 2 2014 | Q 3 2014 | Q 4 2014 | Q 1 2015 | Q 2 2015 | Q 3 2015 | Q 4 2015 | 2016 and later | |
The Group's sales to associated companies amounted to 697 million SEK (729). The Group's purchases from associated companies amounted to 326 million SEK (383). Advances have been made to associated companies in the amount of 0 million SEK (0). Interest income on loans to associated companies amounted to 0 million SEK (0). Guarantees have been made for the obligations of associated companies in the amount of 0 million SEK (0). All transactions are carried out on market terms.
Sales to Group companies from the Parent Company amounted to 12,618 million SEK (14,861), or 79% (87) of total sales. The share of exports was 75% (62). The Parent Company's purchases from Group companies amounted to 2,181 million SEK (1,589), or 14% (10) of total purchases. The Parent Company granted no loans to associated companies. Guarantees have been made for obligations of associated companies in the amount of 0 million SEK (0). All transactions are eff ected on an arm's length basis.
Except as indicated in Note 3.5, Remuneration of the Board of Directors and senior executives, and in the description of the Board of Directors on page 66, no transactions took place with persons closely associated with the company.
| 2013 | 2012 | |
|---|---|---|
| Cash and cash equivalents – Group | ||
| Cash and cash equivalents comprise: | ||
| Cash and bank | 3,812 | 5,620 |
| Short-term investments comparable to cash and cash | ||
| equivalents | 1,264 | 8,209 |
| Total in the balance sheet | 5,076 | 13,829 |
| Total in the cash-fl ow statement | 5,076 | 13,829 |
| Cash and cash equivalents – Parent Company | ||
| Cash and cash equivalents comprise: | ||
| Cash and bank | 0 | 25 |
| Total in the balance sheet | 0 | 25 |
| Total in the cash-fl ow statement | 0 | 25 |
A short-term investment is classifi ed as a cash and cash equivalent if:
• The risk of changes in value is insignifi cant.
• It is readily convertible into cash.
• It has a maturity of no more than three months from the date of acquisition.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Interest and dividend paid | ||||
| Dividend received | 7 | 8 11,470 | 9,636 | |
| Interest received | 185 | 265 | 870 | 349 |
| Interest paid | –2,377 –2,031 –2,351 –1,576 | |||
| Total | –2,185 –1,758 | 9,989 | 8,409 |
| Group | Parent Company |
||||
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||
| Adjustment for non-cash items, etc. | |||||
| Changes in value of fi nancial instruments | — | — | 377 | 52 | |
| Unappropriated results of associated | |||||
| companies | –10 | 5 | — | — | |
| Gains and losses on disposal of non-current | |||||
| assets | –13 | –34 | –7 | 21 | |
| Provisions for pensions | — | 183 | –1 | –44 | |
| Other provisions | 134 | –89 | –18 | –81 | |
| Appropriations | — | — | 1 | –6 | |
| Unrealized foreign exchange diff erences | — | — | –860 | –255 | |
| Other | –2 | 186 | –241 | –360 | |
| Total | 109 | 251 | –749 | –673 |
| 2013 | 2012 | |
|---|---|---|
| Acquisitions of subsidiaries and other business operations – Group |
||
| Net assets acquired: | ||
| Non-current assets | 250 | 27 |
| Inventories | 87 | 15 |
| Operating receivables | 73 | –52 |
| Cash and cash equivalents | 16 | 13 |
| Total assets | 426 | 3 |
| Provisions | 60 | 27 |
| Operating liabilities | 44 | –8 |
| Other liabilities | 13 | –3 |
| Total provisions and liabilities | 117 | 16 |
| Purchase consideration recognized as a liability | –34 | –5 |
| Purchase consideration paid | –505 | –44 |
| Less cash and cash equivalents of divested operations | 16 | 5 |
| Eff ect on cash and cash equivalents | –489 | –39 |
Acquired assets and liabilities in 2012 include the eff ects of the fi nal acquisition balance relating to the acquisition of SJL, China, which took place in 2011.
| 2013 | 2012 | |
|---|---|---|
| Divestments of subsidiaries and other business units – Group |
||
| Divested assets and liabilities: | ||
| Non-current assets | — | 599 |
| Inventories | — | 117 |
| Operating receivables | — | 96 |
| Cash and cash equivalents | — | 3 |
| Total assets | — | 815 |
| Provisions | — | –27 |
| Operating liabilities | — | –65 |
| Total provisions and liabilities | — | –92 |
| Purchase consideration received | — | 695 |
| Less cash and cash equivalents in the divested operation | — | –3 |
| Eff ect on cash and cash equivalents | — | 692 |
35
The business combinations eff ected during 2012 and 2013 are set out below. Annual revenue and number of employees refl ect the situation at the date of the respective acquisition.
| Business area | Company | Acquisition date | Annual revenue | No. of employees |
|---|---|---|---|---|
| Sandvik Machining Solutions | Precorp Inc. | 1 October 2013 | 230 | 200 |
| Sandvik Machining Solutions | Alfa Tool International AB, Sweden | 21 December 2012 | 92 | 20 |
| Sandvik Mining | Cubex Ltd | 1 April 2013 | 270 | 110 |
| Sandvik Venture | TechoPartner Samtronic GmbH | 1 October 2013 | 112 | 35 |
On 12 June 2008, shares corresponding to 49% of the equity in Precorp Inc. were acquired. On 1 October 2013, shares corresponding to 51% of the equity in the company were acquired, at which time a controlling interest was established. A cash payment of 205 million SEK was made for the shares. The company serves customers worldwide, primarily within the aerospace and automotive segments. The product portfolio comprises a full line of polycrystalline diamond (PCD) and cemented-carbide tools (drills, reamers, end mills, port tools, and micro tools) to meet the requirements of high-speed machining of die-cast aluminum, carbide parts and the machining of advanced composite materials. Through the acquisition, Sandvik intends to further develop and strengthen the global business for engineered special diamond and cemented carbide-based cutting tools, particularly to meet the demands of the attractive aerospace segment.
On 1 April 2013, Sandvik acquired Cubex Ltd, a supplier of drilling solutions, by way of an asset-transfer arrangement. Sandvik made a cash payment of 267 million SEK for the business and its assets. CUBEX is an industry-leading drilling solutions provider focused on design and manufacturing of a wide range of underground in-the-hole (ITH) and geotechnical drilling equipment. CUBEX products are distributed globally and the main markets are the US, Canada, Africa, South America and Australia. The acquisition is a natural step to further develop the strong cooperation between the companies. Since 2009, Sandvik has served as global distributor responsible for sales and service of CUBEX products worldwide. CUBEX's knowledge of the ITH drilling method complements Sandvik's already extensive off ering in underground drilling.
On 1 October 2013, TechnoPartner Samtronic GmbH was acquired by way of an asset-transfer arrangement. Sandvik made a cash payment of 28 million SEK and a further payment of 34 million SEK comprises a contingent purchase consideration for the business and its assets. The company manufactures feed/scattering machines and double belt presses. The company's core capabilities are reinforced Tefl on belt-based double belt press machines. The aim of the acquisition is to further reinforce Sandvik's position in the advanced composites segment, both in terms of its product and service off ering.
The fair value of assets and liabilities in acquired companies is presented in the tables below.
| Sandvik Machining Solutions |
Sandvik Mining |
Sandvik Venture |
Fair value recognized in the Group |
|
|---|---|---|---|---|
| Intangible assets | 54 | — | 51 | 105 |
| Property, plant and equipment | 133 | 3 | 7 | 142 |
| Financial assets | 3 | — | — | 3 |
| Inventories | 9 | 57 | 20 | 87 |
| Current receivables | 26 | 47 | — | 73 |
| Cash and cash equivalents | 16 | 0 | — | 16 |
| Interest-bearing liabilities | –0 | — | — | –0 |
| Noninterest-bearing liabilities | –66 | –27 | –24 | –117 |
| Net identifi able assets and liabilities | 174 | 80 | 55 | 309 |
| Non-controlling interests | — | — | — | — |
| Goodwill | 228 | 187 | — | 415 |
| Fair value of previously owned share | 197 | — | — | 197 |
| Purchase consideration | 205 | 267 | 62 | 533 |
The value of acquired assets and assumed liabilities in Precorp Inc., Cubex Ltd and TechnoPartner Samtronic GmbH was determined preliminarily pending a fi nal valuation. A fair-value measurement increased the value of net assets recognized as intangible items in the form of patents. The fair value of former holdings in Precorp Inc. amounted to 197 million SEK and entailed a gain of 68 million SEK in the Group, which was recognized under other operating income.
Goodwill arose as a result of synergy eff ects. Goodwill is not expected to be tax deductible in the case of Precorp Inc. For the two other acqusitions, which were carried out in the form of asset-transfer arrangements, goodwill is expected to be tax deductible. For more detailed information about goodwill, refer to Note 13.
Acquisition-related expenses amounted to 4.6 million SEK and relate to consultant fees in conjunction with due diligence. These expenses were recognized as other operating expenses in profi t or loss and other comprehensive income.
The acquisition agreement covering TechnoPartner Samtronic GmbH states that a contingent purchase consideration will be paid to the seller if sales exceed a specifi ed amount. The additional purchase consideration cannot exceed 34 million SEK and this represents the amount recognized in the Group.
| Cash and cash equivalents | 499 |
|---|---|
| Contingent purchase consideration | 34 |
| 533 |
The value of acquired assets and assumed liabilities has been fi nalized for the acquisition of Alfa Tool International AB, which was implemented in 2012. No adjustment was made to the preliminary acquistion values.
| Sandvik Machining Solutions |
Sandvik Construction |
Sandvik Mining | Sandvik Materials Technology |
Sandvik Venture |
Total | |
|---|---|---|---|---|---|---|
| Contributions as of acquisition date | ||||||
| Revenue | 48 | — | 116 | — | 56 | 220 |
| Profi t/loss for the year | 3 | — | –22 | — | 12 | –7 |
| 1 January 2013 | ||||||
|---|---|---|---|---|---|---|
| Revenue | 234 | — | 197 | — | 186 | 617 |
| Profi t/loss for the year | 37 | — | –11 | — | 15 | 41 |
Sandvik Machining Solutions' acquisition in 2012 of Alfa Tool International AB would have contributed income of 92 million SEK and annual profi t of 7 million SEK had the transaction been implemented on 1 January 2012. The income and profi t contribution from the date on which a controlling interest was established was 0 million SEK.
Sandvik Aktiebolag, corporate registration number 556000-3468, is a Swedish limited liability company. The registered offi ce of its Board of Directors is in Stockholm, Sweden. The address of the head offi ce is PO Box 510, SE-101 30 Stockholm, Sweden.
The Parent Company's shares are quoted on NASDAQ OMX Stockholm. Shares can also be traded in the US in the form of ADRs (American Depositary Receipts).
The 2013 consolidated fi nancial statements comprise the Parent Company and all its subsidiaries, jointly the Group. The Group also includes the owned share of investments in associated companies.
The following information is presented in accordance with the provisions of Chapter 6, Section 2.a. of the Swedish Annual Accounts Act.
The Parent Company has issued one series of shares and each share carries one vote. The total number of shares shall be no less than 1,000,000,000 and no more than 4,000,000,000.
At the end of 2013, 1,254,385,923 shares (1,254,385,923) with a quotient value of 1.20 SEK per share had been issued. Shareholders have a preferential right to subscribe to newly issued shares issued for cash or with terms and conditions concerning rights of setoff . All shares are fully negotiable.
Shareholdings that directly and indirectly represent at least 10% of the voting rights are held by AB Industrivärden (11.6%).
Sandvik AB's Articles of Association govern such policies as the direction of the business, domicile and share capital (minimum and maximum capital). The
Articles do not stipulate that the members of the Board of Directors shall be elected in any other way than at the Annual General Meeting. However, Board representatives of the employees are appointed by the trade unions under the Private Sector Employees (Board Representation) Act.
Companies in the Group entered into borrowing agreements that include conditions coming into eff ect should the control of the company change as a result of a public takeover bid.
There are no agreements between the companies in the Group and the Parent Company's directors or employees if those persons give notice of termination, or their services are improperly terminated, or the employment is terminated as a consequence of a public takeover bid.
Up until 31 December 2012, Sandvik applied the corridor approach in connection with the recognition of the Group's pension liability. The updated IAS 19 standard no longer permits this method. As a result, changes in actuarial assumptions are recognized directly in other comprehensive income. In addition, the standard requires the company to use the same interest rate when determining the return on plan assets as that applied when discounting pension obligations.
The updated standard is applied as of 1 January 2013 with full retroactive application. For Sandvik, this entails an increase in the net pension obligation and a corresponding reduction, with due consideration of the tax eff ects, in retained earnings.
Had the standard been applied as of 31 December 2012, the net pension obligation would have been approximately 5.0 billion SEK higher. On taking deferred tax into account, the eff ects of the updated standard on retained earnings would have been 3.7 billion SEK lower. The eff ects in the consolidated income statement, aside from those impacting other comprehensive income, are immaterial and did not entail any adjustment in profi t or loss. The full-year eff ect in other comprehensive income totaled – 1,069 million SEK.
The eff ects in their entirety are presented in the table below:
| 1 Jan. 2012 | ||||||
|---|---|---|---|---|---|---|
| IAS 19 | IAS 19 | |||||
| Outcome | adjustment | Restated value | Outcome | adjustment | Restated value | |
| Deferred tax assets | 3,070 | 1,021 | 4,091 | 2,544 | 1,325 | 3,869 |
| Non-current receivables | 3,229 | –1,230 | 1,999 | 3,285 | –1,322 | 1,963 |
| of which pension plans recognized as an asset | 1,573 | –1,086 | 487 | 1,555 | –1,195 | 360 |
| Other assets | 92,440 | 92,440 | 98,223 | 98,223 | ||
| Total assets | 98,739 | –209 | 98,530 | 104,052 | 3 | 104,055 |
| Equity | 33,891 | –2,627 | 31,264 | 36,232 | –3,696 | 32,536 |
| Provisions for pensions | 2,358 | 2,457 | 4,815 | 2,242 | 3,795 | 6,037 |
| Non-current interest-bearing liabilities | 6,487 | –39 | 6,448 | 6,516 | –96 | 6,420 |
| Other liabilities | 56,003 | 56,003 | 59,062 | 59,062 | ||
| Total liabilities | 64,848 | 2,418 | 67,266 | 67,820 | 3,699 | 71,519 |
| Total equity and liabilities | 98,739 | –209 | 98,530 | 104,052 | 3 | 104,055 |
.
Board statement in accordance with Chapter 18, Section 4 of the Swedish Companies Act.
The nature and extent of the company's operations are stated in the Articles of Association and issued annual reports.
Such nature and extent do not entail risks over and above those inherent, or reasonably to be expected, in the industry or otherwise inherent in business operations. For information on signifi cant events, reference is made to the Report of the Directors.
The company's fi nancial position at 31 December 2013 is apparent from this Annual Report. The proposed dividend does not infringe on investments deemed to be required. In addition, the company's liquidity reserve is in the form of two unutilized credit facilities amounting to 650 million EUR and 5,000 million SEK, respectively, which means that the company should reasonably be able to meet unexpected events and temporary fl uctuations in cash fl ows of reasonable proportions. The company's fi nancial position supports the assessment that the company will be able to continue its business and meet its obligations in both the short and long term.
In view of the above and based on what the Board is otherwise aware, the proposed dividend in the Board's opinion is justifi ed considering the requirements which the nature, extent and risks associated with the operations place on the size of the equity of the company, and also taking into consideration the company's need to strengthen its balance sheet, liquidity and fi nancial position in general.
Stockholm, 20 February 2014 Sandvik Aktiebolag (publ) BOARD OF DIRECTORS
The Board of Directors proposes that the profi ts at the disposal of the Annual General Meeting: premium fund 2,230,579,927
| 14,838,724,425 |
|---|
| 6,575,854,466 |
| 23,645,158,818 |
be appropriated as follows:
| a dividend of 3.50 SEK per share to the shareholders 4,390,350,731 | |
|---|---|
| profi ts carried forward | 19,254,808,087 |
| SEK | 23,645,158,818 |
The proposed record date for dividends is Friday, 16 May 2014.
The income statements and the balance sheets of the Group and of the Parent Company are subject to adoption by the Annual General Meeting on 13 May 2014.
The Board of Directors and the President hereby certify that the Annual Report has been prepared in accordance with generally accepted accounting principles in Sweden, and that the consolidated fi nancial statements have been prepared in accordance with the international fi nancial reporting standards referred to in the regulation (EU) no. 1606/2002 of the European Parliament and Council dated 19 July 2002, pertaining to the application of international fi nancial reporting standards. The Annual Report and the consolidated fi nancial statements give a fair view of the Parent Company's and the Group's fi nancial position and results. The Report of the Directors pertaining to the Parent Company and the Group gives a fair overview of the development of the Parent Company's and the Group's operations, fi nancial position and results, and describes the signifi cant risks and uncertainties facing the Parent Company and the companies included in the Group.
Anders Nyrén Jürgen M Geissinger Johan Karlström Chairman Board member Board member
Jan Kjellgren Tomas Kärnström Fredrik Lundberg Board member Board member Board member
Hanne de Mora Simon Thompson Lars Westerberg Board member Board member Board member
Olof Faxander President, CEO and Board member
Our audit report was issued on 26 February 2014
George Pettersson Authorized Public Accountant
We have audited the annual accounts and consolidated accounts of Sandvik AB (publ) for the year 2013. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 37–122.
Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circum-stances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinions.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the fi nancial position of the parent company as of 31 December 2013 and of its fi nancial performance and its cash fl ows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with
the Annual Accounts Act and present fairly, in all material respects, the fi nancial position of the group as of 31 December 2013 and of their fi nancial performance and cash fl ows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. A corporate governance statement has been prepared. The statutory administration report and the corporate governance statement are consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of share-holders adopt the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profi t or loss and the administration of the Board of Directors and the Managing Director of Sandvik AB (publ) for the year 2013.
Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company's profi t or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profi t or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As basis for our opinion on the Board of Directors' proposed appropriations of the company's profi t or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.
As basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined signifi cant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinions.
We recommend to the annual meeting of shareholders that the profi t be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the fi nancial year.
Stockholm 26 February 2014
Anders Nyrén Olof Faxander Jürgen M Geissinger
Johan Karlström Fredrik Lundberg Hanne de Mora
Thomas Andersson Alicia Espinosa
DEPUTY MEMBERS
Anders Nyrén, b. 1954.
Chairman of the Board since 2010. Board member since 2002, Vice Chairman of the Board 2006–2010. Chairman of the Remuneration Committee and member of the Audit Committee.
Education and business experience: B.Sc. (Econ.), MBA. President and CEO of AB Industrivärden since 2001, Executive Vice President and CFO of Skanska AB 1997–2001, various executive positions at AB Wilhelm Becker, STC Scandinavian Trading Co AB, STC Venture AB, OM International AB, Securum AB and Nordbanken 1979–1997. Current Board assignments: Chairman of Svenska Handelsbanken AB, Board member of AB Industrivärden, SCA, AB Volvo, Ernström & C:o AB, Stockholm School of Economics and Stockholm School of Economics Association.
Shareholding in Sandvik (own and closely related persons): 4,500.
Not independent in relation to major shareholders in the company.
Board member since 2011. Education and business experience: M.Sc. (Materials Science) and B.Sc. (Business Administration). President and CEO of SSAB 2006–2010, Executive Vice President of Outokumpu Oy 2004–2006. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 32,660. Not independent in relation to the company and its executive management.
Board member since 2012. Education and business experience: PhD in Mechanical Engineering. President and CEO of Schaeffl er AG 1998–2013, various senior positions at ITT Automotive 1992–1998. Current Board assignments: Member of the Supervisory Board of MTU Aero Engines AG. Shareholding in Sandvik (own and closely related persons): 0.
Board member since 2011. Member of the Remuneration Committee. Education and business experience: M.Sc. (Eng.) President of Skanska AB since 2008, various senior positions at BPA (currently Bravida) 1995–2000. Current Board assignments: Board member of Skanska AB. Shareholding in Sandvik (own and closely related persons): 5,000.
Board member since 2006. Education and business experience: M.Sc. (Eng.), B.Sc. (Econ.), D.Econ Honorary, D. Tech. Honorary. Active in L E Lundbergföretagen AB since 1977 and CEO since 1981.
Current Board assignments: Chairman of the Board of Holmen AB, Hufvudstaden AB and Indutrade AB, Vice Chairman of Svenska Handelsbanken AB, Board member of L E Lundbergföretagen AB, AB Industrivärden and Skanska AB. Shareholding in Sandvik (own and closely related persons): 6,540,000, via L E Lundbergföretagen AB 30,000,000 and via AB Industrivärden 145,274,257. Not independent in relation to major share-
holders in the company.
Board member since 2006. Chairman of the Audit Committee.
Education and business experience: B.Sc. (Econ.), MBA, IESE, Barcelona. One of the founders and owners, also Chairman of the Board of the management company a-connect (group) ag since 2002, partner in McKinsey & Company Inc. 1989–2002, various positions within brand management and controlling at Procter & Gamble 1986–1989. Current Board assignments: Board member of AB Volvo and IMD Foundation Board. Shareholding in Sandvik (own and closely related persons): 0.
Board member since 2008. Member of the Audit Committee.
Education and business experience: M.A. (Geology). Various positions at Anglo American Group 1995–2007 including Board member of Anglo American plc 2005–2007, AngloGold Ashanti 2004–2008, Chairman of Tarmac 2004–2007, Board member of SG Warburg 1994–1995, NM Rothschild & Sons Ltd. 1984–1995. Current Board assignments: Chairman of Tullow Oil plc., Board member of Newmont Mining Corporation and AMEC plc. Shareholding in Sandvik (own and closely related persons): 0.
Board member since 2010. Member of the Remuneration Committee. Education and business experience: M.Sc. (Eng.) and B.Sc. (Econ.). President and CEO of Autoliv Inc. 1999–2007, Gränges AB 1994– 1999 and ESAB 1991–1994. Various positions at ESAB and ASEA from 1972. Current Board assignments: Chairman of Husqvarna AB, Board member of SSAB, AB Volvo, Stena AB and Meda AB. Shareholding in Sandvik (own and closely related persons): 12,000.
Board member since 2008 (Employee representative). Education and business experience: Senior R&D engineer, AB Sandvik Coromant. Various positions at Sandvik since 1981. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 570.
Board member since 2006 (Employee representative). Education and business experience: Principal safety representative Sandvik Materials Technology. Various positions at Sandvik since 1986.
Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 2,889.
Thomas Andersson, b. 1962. Deputy Board member since 2012 (Employee representative).
Education and business experience: Chairman of the Union Committee, Metal Workers' Union, Sandvik Coromant, Gimo. Various operator positions at Gimoverken since 1984. Construction fi rm Anders Diös 1980–1984.
Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 612.
Deputy Board member since 2010 (Employee representative).
Education and business experience: M.Sc. (Eng.). EHS Manager at the Oil and Gas Sandviken product unit, various positions within Sandvik since 2000, including Flow Manager, Sandvik Materials Technology. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 7,759.
Percy Barnevik, b. 1941. Chairman of the Board of Sandvik AB 1983–2002.
Bo Severin, b. 1955.
Secretary to the Sandvik Board of Directors since 2000. Education and business experience: Master of Laws. General Counsel at Sandvik AB. Current Board assignments: Board member of International Council of Swedish Industry. Shareholding in Sandvik (own and closely related persons): 9,454.
KPMG AB Auditor-in-charge: George Pettersson, b. 1964. Authorized Public Accountant. Other auditing assignments: Auditor in charge for B&B Tools AB, Holmen AB, Hufvudstaden AB, LE Lundbergföretagen AB and Skanska AB, among others. Shareholding in Sandvik (own and closely related persons): 0.
Petra Einarsson
Gary Hughes
Tomas Nordahl
Bo Severin Anna Vikström Persson
MEMBERS OF EXTENDED GROUP EXECUTIVE MANAGEMENT IN 2013
President and CEO of Sandvik AB since 2011. Education and business experience: M.Sc. (Materials Science) and B.Sc. (Business Administration). President and CEO of SSAB 2006–2010, Executive Vice President of Outokumpu Oy 2004–2006. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 32,660.
Executive Vice President and Head of Group Communications, Sandvik AB, since 1 July 2013. Education and business experience: M.Sc. in Geological and Earth Sciences/Geosciences, and Journalism. Employed at Sandvik since 2006. Various senior positions, including Vice President Communication and Marketing at Sandvik Coromant (2012–2013) and Internal Communication Manager at Sandvik Coromant (2010–2012). Current Board assignments: —
Shareholding in Sandvik (own and closely related persons): 332.
Chief Financial Offi cer and Executive Vice President, Sandvik AB, since 1 October 2013. Education and business experience: B.Sc. in Business Administration and Economics. Various senior positions at Sandvik since 2007. Outokumpu Oy 2001–2007, Nordea 1999– 2001, Boliden 1996–1999. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 5,943.
President of the Sandvik Materials Technology business area since 1 February 2013. Education and business experience: B.Sc. in Business Administration and Economics. Employed at Sandvik since 1990. Various senior positions, including Financial Manager at Sandvik Materials Technology (2004–2007), President of the Strip product area (2007–2011) and President of the Tube product area (2011–2013).
Current Board assignments: Board member of the Swedish Association of Industrial Employers and member of the council of the Swedish Steel Producers' Association.
Shareholding in Sandvik (own and closely related persons): 4,295.
President of the Sandvik Construction business area since 1 October 2013. Education and business experience: MBA and B.Sc. in Mechanical Engineering. Various senior positions at Bosch, Eagle Ottowa China, Honeywell Automotive Parts and Sinotruk Hong Kong 1991–2013. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 0.
President of the Sandvik Materials Technology business area until 31 January 2013, thereafter President of the Sandvik Machining Solutions business area.
Education and business experience: M.Sc. (Eng.) Various senior positions at Sandvik since 2008, Vice President Operations at Rotax 2002–2007, various positions at Bombardier 1997–2002 and ABB 1995–199 7. Current Board assignments: Board member of the Steel and Metal Employers Association. Shareholding in Sandvik (own and closely related persons): 11,007.
President of the Sandvik Mining business area since 2012.
Education and business experience: Dip. Mining. President Underground Mining, Sandvik Mining and Construction 2010–2012, President Region Latin America, Sandvik Mining and Construction 2003–2010, Vice President Business Development Region Africa, Sandvik Mining and Construction and various positions at Sandvik in Africa 1997–2003.
Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 11,519.
President of the Sandvik Venture business area since 2012 and Head of IT, sourcing and strategy since 2011. Education and business experience: M.Sc. in Business Administration and Economics. Various positions at The Boston Consulting Group 1994–2011. Current Board assignments: — Shareholding in Sandvik (own and closely related persons): 7,925.
Executive Vice President and General Counsel of Sandvik AB since 2000.
Education and business experience: Master of Laws. Legal Counsel of Sandvik AB since 1988. Current Board assignments: Board member of International Council of Swedish Industry. Shareholding in Sandvik (own and closely related persons): 9,454.
Executive Vice President and Head of Human Resources of Sandvik AB since 2011. Education and business experience: Master of Laws. Executive Vice President and Head of Human Resources at SSAB 2006–2011. Head of Human Resources for Ericsson's Swedish operations 2004–2006. Various senior positions in Human Resources and Organizational Development for the Ericsson Group 1998–2006. Current Board assignments: Board member of Know IT.
Shareholding in Sandvik (own and closely related persons): 10,442.
Emil Nilsson, b. 1971. Chief Financial Offi cer and Executive Vice President of Sandvik AB until 30 September 2013.
Acting President of the Sandvik Construction business area until 30 September 2013.
Executive Vice President Group Communications of Sandvik AB, until 30 June 2013.
President of the Sandvik Machining Solutions business area until 31 January 2013.
Ajay Sambrani, b. 1966. Country Manager India and Managing Director Sandvik Asia Private Ltd from 2011 until 14 January 2014. Education and business experience: Bachelor in Industrial Engineering and Management Diploma, ABB University. Employed 2006–2014. Ajay Sambrani left the company, and thus also Extended Group Executive Management, on 14 January 2014.
Senior Vice President and Head of Group R&D. Chairman of Sandvik's R&D Board since 2012. Education and business experience: Metallurgical engineer. Professor in process metallurgy, KTH Royal Institute of Technology, Stockholm, 1987–1996. Visiting professor at Shanghai University, China. Employed since 1980.
Country Manager China and Managing Director Sandvik China Holding Co. Ltd since 2012.
Education and business experience: MBA, Bachelor of Electronic Engineering. Various senior positions at the Siemens Group 1987– 2012, including President Siemens VDO China 1999–2005 and President Nokia Siemens Networks China 2007–2012. Employed since 2012.
| Communications | Jessica Alm |
|---|---|
| Finance | Mats Backman |
| HR | Anna Vikström Persson |
| IT, sourcing and strategy Tomas Nordahl | |
| Legal | Bo Severin |
The Annual General Meeting will be held on Tuesday, 13 May 2014 at 5:00 p.m. at the Göransson Arena, Sätragatan 15, Sandviken, Sweden.
Shareholders who wish to participate in the Meeting must notify the company either by letter to Sandvik AB, c/o Computershare AB, Box 610, SE-182 16 Danderyd, Sweden, by telephone +46 26 26 09 40 from 9:00 a.m. to 4:00 p.m. on weekdays, or at www.sandvik. com. Such notifi cation must reach Sandvik AB not later than Wednesday, 7 May 2014. Shareholders must also have been entered in the share register kept by Euroclear Sweden AB on Wednesday, 7 May 2014 to be entitled to participate in the Meeting.
Shareholders whose shares are registered in the name of a nominee must have them temporarily re-registered with
Euroclear Sweden AB in their own name on Wednesday, 7 May 2014 to be entitled to participate in the Meeting. Note that this procedure also applies to shareholders using a bank's shareholder deposit account and/or trading via the Internet.
When providing notifi cation, please state your name, personal or corporate registration number, address and telephone number, and details of any assistants. If you plan to be represented at the Meeting by proxy, such proxy must be sent to Sandvik AB prior to the Meeting.
The Board proposes that the 2014 Annual General Meeting declare a dividend of 3.50 SEK per share.
The proposed record date is Friday, 16 May 2014. If this proposal is adopted by the Annual General Meeting, it is expected that dividends will be paid on
Wednesday, 21 May 2014. Dividends will be sent to those who, on the record date, are entered in the share register or on the separate list of assignees, etc. To facilitate the distribution of dividends, shareholders who have changed address should report their change of address to their bank in suffi cient time prior to the record date.
The Annual Report is available at www.sandvik.com, where a printed copy can also be ordered.
| 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Invoiced sales, MSEK | 87,328 | 98,529 | 94,084 | 82,654 | 71,937 | 92,654 | 86,338 | 72,289 | 63,370 | 54,610 |
| Change, % | –11 | +5 | +14 | +15 | –22 | +7 | +19 | +14 | +16 | +12 |
| of which organic, % | –7 | +5 | +20 | +17 | –30 | +5 | +18 | +14 | +14 | +15 |
| of which structural, % | 0 | 0 | 0 | +1 | 0 | +2 | +3 | +1 | –1 | –1 |
| of which currency, % | –5 | 0 | –5 | –2 | +10 | 0 | –2 | –1 | +3 | –2 |
| Operating profi t/loss, MSEK | 8,638 | 13,490 | 10,148 | 11,029 | –1,412 | 12,794 | 14,394 | 12,068 | 9,532 | 7,578 |
| as % of invoicing | 10 | 14 | 11 | 13 | –2 | 14 | 17 | 17 | 15 | 14 |
| Profi t/loss after fi nancial items, MSEK | 6,753 | 11,516 | 8,179 | 9,412 | –3,472 | 10,577 | 12,997 | 11,113 | 8,819 | 6,877 |
| as % of invoicing | 8 | 12 | 9 | 11 | –5 | 11 | 15 | 15 | 14 | 13 |
| Consolidated net profi t for the year, MSEK | 5,008 | 8,107 | 5,861 | 6,943 | –2,596 | 7,836 | 9,594 | 8,107 | 6,392 | 5,111 |
| Shareholders' equity1 , MSEK |
33,610 | 32,536 | 31,264 | 33,813 | 29,957 | 36,725 | 29,823 | 27,198 | 24,507 2) | 23,551 2) |
| Equity ratio1 , % |
36 | 31 | 32 | 38 | 33 | 36 | 35 | 41 | 41 | 46 |
| Net debt/equity ratio3, multiple | 0.7 | 0.6 | 0.7 | 0.7 | 1.0 | 0.9 | 1.0 | 0.6 | 0.7 | 0.5 |
| Rate of capital turnover3, % | 89 | 97 | 100 | 92 | 73 | 101 | 112 | 115 | 112 | 108 |
| Cash and cash equivalents, MSEK | 5,076 | 13,829 | 5,592 | 4,783 | 7,506 | 4,998 | 2,006 | 1,745 | 1,559 | 1,720 |
| Return on shareholders' equity1 , % |
15.3 | 25.3 | 18.5 | 22.1 | –7.9 | 24.8 | 34.4 | 31.8 | 27.4 | 21.7 |
| Return on capital employed1 , % |
12.6 | 19.8 | 16.0 | 17.4 | –1.3 | 19.9 | 27.0 | 27.6 | 23.7 | 20.5 |
| Investments in non-current assets4, MSEK | 4,185 | 4,820 | 4,994 | 3,378 | 4,006 | 6,634 | 4,811 | 4,175 | 3,665 | 2,967 |
| Total investments4, MSEK | 4,674 | 4,859 | 5,332 | 4,493 | 6,161 | 7,766 | 9,480 | 5,455 | 3,950 | 3,278 |
| Cash fl ow from operations4, MSEK | 5,133 | 11,892 | 7,764 | 12,149 | 11,792 | 9,335 | 5,076 | 7,741 | 7,266 | 5,322 |
| Cash fl ow, MSEK | –8,656 | 8,450 | 907 | –2,642 | 2,471 | 2,764 | 179 | 357 | –380 | –207 |
| Number of employees, 31 December | 47,338 | 48,742 | 50,030 | 47,064 | 44,355 | 50,028 | 47,123 | 41,743 | 39,613 | 38,421 |
1) As of 2011, comparative fi gures adjusted due to amended accounting policies. Refer to Note 35 for further information.
2) Total equity, including minority interest.
3) As of 2011, comparative fi gures adjusted due to changed defi nition. For defi nitions, refer to page 92.
4) As of 2006, excluding rental fl eet.
(All historical fi gures are adjusted taking into account the 5:1 split.)
| SEK | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|---|---|---|---|---|
| Basic earnings 1) | 4.00 | 6.51 | 4.63 | 5.59 | –2.24 | 6.30 | 7.65 | 6.45 | 4.95 | 3.85 |
| Diluted earnings 2) | 4.00 | 6.51 | 4.63 | 5.59 | –2.24 | 6.29 | 7.65 | 6.45 | 4.90 | 3.75 |
| Equity 3) | 26.7 | 25.9 | 25.2 | 27.5 | 24.4 | 30.00 | 24.10 | 22.00 | 19.80 | 18.30 |
| Dividend (2013 as proposed) | 3.50 | 3.50 | 3.25 | 3.00 | 1.00 | 3.15 | 4.00 | 3.25 | 2.70 | 2.20 |
| Direct return 4), % | 3.9 | 3.4 | 3.8 | 2.3 | 1.2 | 6.4 | 3.6 | 3.3 | 3.6 | 4.1 |
| Payout percentage 5), % | 88 | 54 | 70 | 54 | — | 50 | 52 | 50 | 55 | 57 |
| Quoted prices, Sandvik share, highest | 108 | 107 | 135 | 133 | 90 | 108 | 151 | 106 | 79 | 56 |
| lowest | 79 | 82 | 73 | 76 | 41 | 42 | 96 | 71 | 54 | 46 |
| year-end | 90.70 | 103.50 | 84 | 131 | 86 | 49 | 111 | 100 | 74 | 54 |
| No. of shares at year-end, million | 1,254.4 | 1,254.4 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,235.2 |
| Average no. of shares, million | 1,254.4 | 1,245.9 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,216.9 | 1,255.8 |
| P/E ratio 6) | 22.7 | 15.9 | 18.2 | 23.5 | — | 7.8 | 14.5 | 15.4 | 15.0 | 13.9 |
| Quoted price, % of equity 2) 7) | 340 | 400 | 333 | 476 | 352 | 163 | 462 | 452 | 374 | 293 |
1) Profi t/loss for the year per share.
2) Profi t/loss for the year per share after dilution of outstand-4) Dividend divided by the quoted price at year-end. 5) Dividend divided by basic earnings per share.
share.
7) Market price of share at year-end, as a percentage of equity per share.
6) Market price of share at year-end in relation to earnings per Supplementary defi nitions, see page 92.
3) As of 2011, comparative fi gures adjusted due to amended accounting policies. Refer to Note 35 for further
information.
ing convertible program.
| Invoiced sales | Operating profi t and operating margin | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2011 | 2010 | 2013 | 2012 | 2011 | 2010 | |||||
| MSEK | MSEK | MSEK | MSEK | MSEK | % | MSEK | % | MSEK | % | MSEK | % | |
| Sandvik Mining | 30,744 | 37,762 | 32,232 | 27,160 | 2,743 | 9 | 6,004 | 16 | 5,189 | 16 | 4,096 | 15 |
| Sandvik Machining Solutions | 28,543 | 28,482 | 28,171 | 24,457 | 5,205 | 18 | 6,256 | 22 | 6,347 | 23 | 4,850 | 20 |
| Sandvik Materials Technology | 14,035 | 15,366 | 16,339 | 15,703 | 1,270 | 9 | 592 | 4 | –642 | –4 | 1,233 | 8 |
| Sandvik Construction | 8,601 | 9,683 | 9,249 | 8,023 | 110 | 1 | 748 | 8 | 58 | 1 | 570 | 7 |
| Sandvik Venture | 5,394 | 7,194 | 8,056 | 7,275 | 606 | 11 | 1,238 | 17 | –21 | –0 | 850 | 12 |
KI-AR 13 ENG Design and production: Sandvik and Solberg. Print: Falk Graphic Media
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