Annual Report • Mar 13, 2020
Annual Report
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| Year in brief | 1 |
|---|---|
| About Sandvik | 2 |
| Letter from the CEO | 4 |
| Our vision and strategy | 6 |
| Targets and target fulfillment | 8 |
| Trends and driving forces | 10 |
| UN Sustainable Development Goals | 11 |
| Sustainability at Sandvik | 12 |
| Sustainability goals 2030 | 14 |
| Our operations | |
| Sandvik Machining Solutions | 16 |
| Sandvik Mining and Rock Technology | 22 |
| Sandvik Materials Technology | 28 |
Our share 34
| Summary, Group total | 38 |
|---|---|
| Development in business areas | 42 |
| Risk management | 44 |
| Corporate governance report | 48 |
| Board of Directors | 54 |
| Group Executive Management | 56 |
| Sustainability governance | 58 |
| Financial statements | 63 |
| Accounting principles | 73 |
| Financial notes | 82 |
| Non-financial notes | 123 |
| Board statement on dividend proposal | 135 |
| Proposed appropriation of profits | 136 |
| Auditor's report | 137 |
| Assurance report | 141 |
| Annual General Meeting and dividend | 142 |
| Definitions | 142 |
| Financial key figures | 144 |
Cover photo: The interior from the control room in the Sandvik test mine in Tampere, Finland.
The formal Annual Report comprises pages 38–121 and 135–136. The Statutory Sustainability Report and Sustainable Business Report include pages 2–3, 12–15, 44–47, 58–61 and 122–134. Unless otherwise stated, financial data is on pages 0–7, 16–37 and 42–43 refers to continuing operations, excluding Sandvik Mining Systems.
| Key ratios, continuing operations | 2018 | 2019 |
|---|---|---|
| Order intake, MSEK | 102,440 | 104,075 |
| Revenues, MSEK | 100,072 | 103,238 |
| Operating profit, MSEK | 18,655 | 13,386 |
| Operating margin, % | 18.6 | 13.0 |
| Adjusted operating profit, MSEK1) | 18,590 | 19,219 |
| Adjusted operating margin, %1) | 18.6 | 18.6 |
| Free operating cash flow, MSEK | 15,246 | 17,960 |
| Return on capital employed, % | 22.7 | 15.2 |
| Earnings per share, SEK | 10.54 | 6.97 |
| Adjusted Earnings per share, SEK1) | 10.39 | 11.12 |
| Net debt/equity ratio | 0.20 | 0.18 |
| Lost Time Injur y Frequency Rate, LTIFR2) | 1.7 | 1.5 |
| Total Recordable Injur y Frequency Rate, TRIFR3) | 3.9 | 3.8 |
| Number of employees | 41,670 | 40,235 |
| Share of women, % | 19.5 | 19.6 |
1) Adjusted for items affecting comparability.
2) Injuries resulting in lost time per million hours worked.
3) Total number of injuries per million hours worked.
Adjusted operating profit
Operating margin
Adjusted operating margin
Sandvik is included in several prestigious sustainability indices and is a signatory of the UN Global Compact (UNGC).
A market-leading manufacturer of tools and tooling systems for advanced metal cutting, expanding into digital and additive manufacturing.
40% SHARE OF REVENUES 47% SHARE OF ADJUSTED OPERATING PROFIT
A leading supplier in equipment and tools, service and technical solutions for the mining industry and rock excavation within the construction industry.
43% SHARE OF REVENUES 45% SHARE OF ADJUSTED OPERATING PROFIT
A leading developer and manufacturer of advanced stainless steels, powder-based alloys and special alloys for the most demanding industries.
15% SHARE OF REVENUES 9% SHARE OF ADJUSTED OPERATING PROFIT
The remaining 2 percent of revenues and –1 percent of operating profit refer to Other Operations (page 43). Revenues and adjusted operating profit are excluding Group activities and operating profit is adjusted for items affecting comparability.
Sandvik is a global, high-tech engineering Group with approximately 40,000 employees and sales in more than 160 countries. We have a strong focus on enhancing customer productivity, profitability and sustainability.
We deliver drill rigs, rock-drilling tools and systems, mobile and stationary crushers, load and haul machines, tunneling equipment, continuous mining and mechanical cutting equipment, as well as service and various solutions to increase automation, safety and customer productivity.
We offer solutions for all forms of energy production, including clean and renewable energy. We supply high-alloy products, such as stainless steel tubes for selected niches in the most demanding industries as well as tools and tooling systems to satisfy the industry's metal-cutting needs.
Our tools and tooling systems for metal cutting as well as advanced materials and components are used in engineering industries worldwide, improving productivity, profitability, quality and safety as well as reducing environmental impact. We are also a global leader in high-alloy metal powder.
Our tools and tooling systems for turning, milling and drilling in metals increase productivity when manufacturing, for example, engines and transmissions. Our stainless and high-alloy products are found in air conditioning and air bags, among other things.
We offer products and services that increase safety and customer productivity in breaking, drilling, crushing and screening within the construction industry. Application areas include tunneling, quarrying, civil engineering, demolition and recycling.
We work closely with the world's aerospace companies. As they apply new materials to manufacture airplanes that are lighter, safer and more fuel efficient, advanced tooling solutions and lightweight materials are critical.
■ Sandvik Machining Solutions
The remaining 4 percent includes mainly consumer goods, electronics and chemicals.
2019 was a successful and eventful year for Sandvik. We conducted several exciting acquisitions, presented new financial targets, new long-term sustainability targets and initiated the internal separation of Sandvik Materials Technology. We also noted distinct signs of a slowdown in the market and have therefore adapted our costs to ensure continued good profitability.
Sandvik entered 2019 with clear momentum from a positive economic climate. Behind us, we had a year of record sales as we, for the first time, exceeded 100 billion SEK in 2018. 2019 also ended with a record, as sales rose to 103 billion SEK, supported by a strong start to the year and the positive contribution from currency effects.
The economic slowdown, which we had planned for over a period of time, became evident during the summer. We were well-equipped for this as all operating units at Sandvik had prepared for how to act in the event of a deterioration in the market. These plans were implemented during the summer and autumn months.
The scope has varied between our different units, all of which have their unique circumstances, but all business areas have had to adapt and take cost-control measures, including redundancies. It is never
easy to take these kind of actions but they were necessary to ensure that Sandvik stands strong regardless of the prevailing market situation.
Thanks to our swift response to the slowdown, we achieved an adjusted EBIT margin of 18.6 percent for 2019. We could also look back on a record-high cash flow that offers us good flexibility moving forward.
The ability to deliver a good profitability level even under difficult conditions is one important part of the new financial targets that we presented during our Capital Markets Day at our test mine in Tampere in Finland. In addition to a target of 16 percent as the trough EBIT margin, we also presented targets for growth, net gearing and dividends.
Sandvik has high sustainability ambitions and presented new long-term goals for 2030 at the Capital Markets Day. These comprise four areas: circularity, climate change, safety and fair play.
We see sustainability as a major business opportunity and we are convinced that we can make the best contribution to a sustainable future by working together with our customers and suppliers to provide more efficient, safer and environmentally-sound solutions. Sustainability is already an integral part of our operations and our new goals will help us to take further steps.
Sandvik has continued to support the principles of the UN Global Compact and to contribute towards fulfilling the UN's Sustainable Development Goals. It is gratifying to see that we have again qualified for a place in the Dow Jones Sustainability Index.
One important event during the year was the Board's decision in May to begin the internal separation of the Sandvik Materials Technology business area, and to evaluate opportunities for a possible listing. The internal separation program is progressing as planned.
Acquisitions in selected areas are part of our growth agenda and we have welcomed a total of nine exciting and technology-leading companies to Sandvik during the year. They include Artisan, which manufactures battery-powered equipment for underground mines, and Newtrax, which is leading in various technologies for wireless connectivity in the mining sector. I am also referring to our share of Beam IT, a company with a strong position in additive manufacturing in metal and Summerill Tube Corporation, a manufacturer of high precision tubes.
Our position in the round tool segment has strengthened during the year through the acquisitions of Wetmore Tool & Engineering, OSK and Melin Tool Company.
In 2019, Sandvik signed a contract to divest a majority of Drilling and Completions (Varel). The divested share concerns the operations related to the oil and gas industry. Reviewing the business portfolio and ensuring that we are the right owner is work that never ends. However, the divestment of Varel is a significant step in the streamlining of our business portfolio. ▶
It is with both pride and optimism that I take on the job of leading Sandvik. During my initial period as President and CEO, I have set myself the task of finding out more about our various business operations. I understand that we have a stable base and dedicated employees with substantial technical know-how in the company. I see great potential to further develop Sandvik from our already strong positions in the market.
I am convinced that the focus towards greater decentralization that has taken place at Sandvik in recent years has been the right path to take. We will continue to move in this direction. Decisions are best and fastest when they are taken close to the customer and operative responsibility should also lie here.
Decentralized decision-making is also an important component of the ambitious financial targets set in 2019. We must be able to achieve our profitability targets in all market conditions and this requires the ability to make fast decisions.
Another focus area is the ongoing internal separation of the Sandvik Materials Technology business area, where opportunities for a possible listing will be assessed.
I believe Sandvik's technical leadership and strong market positions are crucial. These factors enable us to retain our status as our customers' most important partner and create opportunities to develop new products and solutions. The Sandvik workforce has a high level of technical know-how and this provides us with a solid foundation. We will now
continue to build and capitalize on the major opportunities created by new business models, increased digitalization, automation and electrification of the industrial sector.
I am impressed by the sustainability work already ongoing at Sandvik. To further integrate sustainability into our business will be increasingly important going forward if we are to remain a successful company.
Being the leader in both innovation and sustainability is key in recruiting the right talents, continuing to be our customers' preferred choice and remaining a company that is attractive to investors.
I am very much looking forward to getting to know our customers and all of my new colleagues. Together, we will continue to strengthen Sandvik.
Stockholm, February 2020
President and CEO as of 1 February 2020
In August, I announced that I would be leaving Sandvik in February 2020. I would like to take this opportunity to thank all of my colleagues, customers and shareholders for a fantastic time. It has been a privilege to lead Sandvik and I will look back on the years with the company as some of the best of my career. The strong culture and the commitment that exist among the workforce at Sandvik will ensure its future success.
Stockholm, January 2020
President and CEO until 1 February 2020
Sandvik is creating value for its customers, shareholders, employees and other stakeholders based on its vision, strategy and core capabilities. Our core values of Customer Focus, Innovation, Fair Play and Passion to Win form the base for our corporate culture and ways of working.
Sandvik actively worked on its business portfolio in 2019. In October, we signed an agreement to divest the majority of Sandvik Drilling and Completions (Varel). We announced nine strategic acquisitions, including digital mining technology company Newtrax, battery electric solutions provider Artisan, round tools companies OSK, Wetmore Tool & Engineering and Melin Tool Company, high precision tube company Summerill Tube Corporation and a 30 percent stake in additive manufacturing service provider Beam IT. Sandvik also initiated an internal separation of the Sandvik Materials Technology business area.
Sandvik focuses on innovations that help our customers increase their productivity and energy efficiency, improve safety and leverage the opportunities that are arising with digitalization and automation. A number of new products and solutions that are keeping us at the forefront of technological innovation were launched during the year, such as CoroDrill® DS20, an indexable drill and Prism™, a computeraided manufacturing app for machining (Sandvik Machining Solutions), three new modules for the OptiMine® platform and DT1132i, a tunneling jumbo (Sandvik Mining and Rock Technology), a Kanthal Additive Manufacturing customization service and Sanicro® 35, an austenitic stainless steel grade (Sandvik Materials Technology). Read more about innovations and product launches in the business area sections.
Sandvik has been on a journey to decentralize its structure since 2016. The new structure enables quicker decisionmaking that is closer to customers, with greater product ownership and accountability for better performance and results. The model, pending on strong performance management, has proven efficient for rapid adjustments to changing market conditions.
Sandvik introduced new, long-term financial goals, focusing on growth and improved economic performance throughout a business cycle, including a trough EBIT margin of 16 percent.
During the year, Sandvik saw signs of a declining market in some business segments and initiated a number of efficiency measures. We announced activities that will result in estimated savings of 1.7 billion SEK, effective mid-2020, including a reduction in personnel of about 2,500. The latter was in addition to the 450 staff redundencies in Sandvik Machining Solutions during the first half of 2019. The efficiency program improved the 2019 result by approximately 400 million SEK.
Sandvik has a target to improve productivity (revenues per employee in fixed exchange rates) by at least 3 percent annually. In 2019, productivity improved by 5 percent. Sandvik strengthened the free operating cashflow by 18 percent to 17,960 million SEK (15,246). Adjusted return on capital employed (ROCE) was 21.3 percent (22.6). Reported ROCE was 15.2 percent (22.7). Relative net working capital, calculated with 12-month average, was 25 percent (24), in line with the ambition not to exceed 25 percent.
Our commitment to Fair Play and doing things right is long standing. Total work related injuries (TRIFR) were reduced to 3.8 (3.9) and injuries leading to lost working time (LTIFR) to 1.5 (1.7). An online self-assessment compliance tool was introduced. The internal audit function was strengthed. 96 percent (94) of Sandvik employees and long-term contractors had completed Code of Conduct training. About 3,800 employees participated in some type of compliance training.
We continued programs to promote leadership and develop key competences. About 550 (600) people participated in Sandvik leadership training programs in 2019. About 2,700 (2,900) new employees were hired and a majority of the positions were posted on the open internal job market. 67 percent of top management positions were sourced internally (target 80). The new hire stay rate amounted to 89 percent (target 90). Sandvik launched a diversity and inclusion online training pilot. Brand-building activities strengthened our employer brand, resulting in several brand awards.
In addition to the seven focus areas, sustainability is integrated into all aspects of our strategy. In 2019, Sandvik introduced new long-term 2030 sustainability goals, addressing climate change, circularity, safety and fair play, to integrate sustainability even further into our business operations. Further information on pages 12–15, 58–61 and 122–134.
Sandvik adopted new long-term financial targets in 2019, focusing on growth and profitabilty over a business cycle. Maintaining a strong financial position and dividend are also prioritized.
Target: A growth of ≥ 5 percent through a business cycle, organically and through acquisitions.
≥16%
Target: A trough EBIT margin of ≥ 16 percent rolling 12 months, adjusted for items affecting comparabililty.
DIVIDEND* PAYOUT RATIO
50%
<0.5
Target: A net debt/equity ratio below 0.5.
5%
Outcome: The revenue growth 2017–2019 was 5 percent. In 2019 the revenue growth was –1 percent, due to a slowdown in the short-cycle business in the second half of the year.
19%
Outcome: The EBIT margin adjusted for items affecting comparability amounted to 16 percent, 19 percent and 19 percent in 2017, 2018 and 2019, respectively.
43%
Outcome: The average payout ratio in 2017–2019 amounted to 43 percent. Sandvik's strong performance in 2019 resulted in a proposed dividend of 6 billion SEK (5), corresponding to a payout ratio of 41 percent.
Outcome: The target was achieved as the net debt to equity ratio was 0.2.
Net debt/equity ratio Target
*) The growth and dividend targets refer to average through a business cycle.
HEALTH AND SAFETY CO2 EMISSIONS DIVERSITY CODE OF CONDUCT
18.2%
1.4/3.6
Target: A Lost Time Injury Frequency Rate (LTIFR) of 1.4 and a Total Recordable Injury Frequency Rate (TRIFR) of 3.6.
Target: Reduce CO2 emissions by 1.3 percent in 2019 through environmental improvement actions.
Target: Increase the share of women in managerial positions by 3 percent annually. For 2019 the target was 18.2 percent.
contractors, in our Code of Conduct.
Outcome: The LTIFR was reduced to 1.5 (1.7) and the TRIFR was reduced to 3.8 (3.9). Outcome: The reported outcome of our environmental improvement actions resulted in a 2.6 percent decrease.
Outcome: The share of women in managerial positions increased to 18.2 (17.7).
18.2%
Outcome: 96 percent (94) of employees and long-term contractors (longer than three months) were trained in the Code of Conduct.
*) Sandvik reports on the sustainability goals that were set for 2019 in 2018. We will report on the new, 2030 sustainability goals as of 2020. All areas above are covered in the new sustainability goals.
Sandvik has defined some external factors and drivers that impact our company. Together with customers and other stakeholders, we will seize the opportunities they create in order to generate profitable growth, manage risks and minimize our environmental impact.
New materials, such as
innovative alloys, nanomaterials and advanced powder technologies are creating new opportunities. Lower weight, improved strength and anti-corrosion durability are examples of properties in demand.
Sandvik is a world leader in materials development and produces materials with customized properties for new applications. Metal powder can be used as a raw material in applications with high demands on hardness, strength or ability to conduct electricity and heat. Sandvik is strengthening its position in the rapidly expanding markets for metal powders and additive manufacturing (3D printing).
Historically, design, machining and analysis
have been three clearly defined phases in metal cutting. New technology and digitalization are leading to the integration of the three stages to form a seamless manufacturing process.
Sandvik offers digitalized solutions and services to optimize its customers' and its own operations pertaining to costs, productivity and environmental impact. Data collection, for example in mining equipment, enables advanced analysis to optimize processes and to predict maintenance needs. Other examples include automated mines, intelligent tube systems and digital tools.
A growing global population and economy will require a transition to more sustainable energy and technologies as well
as an increased degree of recycling. Sandvik is contributing with new
solutions, such as electric mining equipment, and is developing materials for solar panels and hydrogenpowered cars. We are developing new technologies in metal cutting that help to improve productivity and reduce environmental impact. We aim for resource efficiency in our own operations and have the ambition to achieve as high a recycling rate as possible to contribute to a circular society.
Macro factors such as globalization, urbanization, political governance, and cyclical conditions influence Sandvik. Changes in circumstances for trade, such as customs duties, Brexit or the EU General Data Protection Regulation (GDPR) also impact the industry. Our global presence, our decentralized work procedures and our regulatory affairs allow us to be flexible and adapt to changes in circumstances. All of our business areas have business and action plans in place to manage changes in market conditions.
The manufacturing industry is experiencing one of the greatest transformations ever, a transition often referred to as Industry 4.0, and involves a shift to digitalization and automation. Access to Big Data, sophisticated analytical tools, robotization and artificial intelligence are creating new business opportunities and resulting in better business intelligence, new ways for people to interact with machines and new opportunities to transfer digital instructions to physical products. The development contributes to reduced costs, increased productivity and improved management of fluctuations in demand.
Sandvik invests in additive manufacturing, or 3D printing, a technology that requires fewer manufacturing steps and reduces impact on the environment by producing lighter products with less raw material. Multi-axle technology, where you can machine a material from several different angles, improves efficiency and enables completely new types of products. Optimizing manufacturing processes reduces carbon emissions and costs and increases productivity.
Read about our risk management on page 44.
Sandvik is committed to the UN Sustainable Development Goals (SDGs). We have defined the goals that are most relevant to us and to which we actively contribute. Below are some examples.
Exera® medical wire, used in medical applications, helps to improve people's lives. Our battery-driven mining equipment improves the air quality underground.
Sandvik has set up a 2030 sustainability goal to have at least one third women in managerial positions. Today it is 18.2 percent.
We produce renewable energy at our sites in France, Poland, Germany, the US, Zimbabwe, India and Sweden.
One of our long-term sustainability goals is zero harm to people. AutoMine® mining automation solution removes people from hazardous areas to a safer and healthier environment.
Sentusys™, our intelligent system for online monitoring of tubes, improves safety and process control.
Our goal is to drive the shift towards a circular society. We have extensive recycling schemes and buy-back programs in place. Sandvik steel is derived from 84 percent recycled material.
We will halve our CO₂ impact by 2030. Gasoline direct injection (GDI) technology helps reduce fuel consumption. Our green factory concept includes reduced CO₂ emissions.
Read more on how we contribute to the UN SDGs at: home.sandvik/sustainablebusiness
Sandvik is committed to using engineering and innovation to advance the world towards more sustainable business. We understand the need to make the shift to new business models and new thinking in line with the UN's Sustainable Development Goals and the Paris Climate Agreement.
The world is facing big challenges. For example, climate change is causing extreme weather events, which are costly to human life and economic stability. But there is a huge estimated upside of transitioning to a low carbon economy. The pressure on the world's finite natural resources is reaching a critical level and this is driving new thinking on a circular rather than linear economy.
The need for new solutions offers new business opportunities. With our proven track record of innovation, Sandvik is well positioned to contribute on this journey. One example is the World Economic Forum's recognition of our production unit in Gimo, Sweden as an advanced Industry 4.0 facility. We are also leading the electrification and automation transition in mining, and are developing the next generation of alloys for renewable energy solutions.
A new world trade landscape and challenges in occupational health, business ethics and supplier and customer relationships are increasingly important in today's world. Our work to set the industry standard, deliver safe and sustainable products and contribute to a sound business climate strengthens our offering to our customers, shareholders as well as current and future employees.
Going forward, there will be even more pressure on businesses, governments and NGOs to work together to create change. The UN's Sustainable Development Goals and the Paris Climate Agreement are significant examples of this unified effort.
Sustainability is an integral part of our strategy and business model, and we are increasingly becoming the leading sustainable business partner for our customers. Our business operations incorporate sustainability into every aspect of their day-to-day work to continuously improve and do things smarter, using fewer resources. We also work with our suppliers to meet the high standards required in this emerging business climate.
Sandvik's strategic agenda rests on seven key focus areas, all connected to and supporting sustainable business. Sustainability excellence is a key differentiator in our ambition of being number one or two in chosen markets and segments. Technology leadership and innovation is closely connected to sustainability since innovations most often lead to reduced environmental impact and sustainability aspirations call for innovative solutions. Accountability and decisions close to our customers means we can quickly adapt our offerings to demands, making sure Sandvik is the most sustainable and productive choice. Efficiency and cost reductions reduce the environmental impact. Through a culture of doing things right we make sure we have policies, processes and control systems in place which together with high safety standards reduce our risk. It also includes corporate citizenship and being involved in the communities where we operate. We strive to recruit and retain exceptional people, and know that sustainability excellence is a decisive factor when the best talents choose their employer.
We see sustainability as a business advantage as our innovations help not only ourselves, but also our suppliers and customers to become more sustainable and efficient. We see opportunities for new innovations and new ways of working that will drive efficiency and productivity, open new markets, support our customers and help to sustain long-term growth. We believe that Sandvik can contribute to a better business climate in more challenging environments. Together with our customers, we innovate for improved productivity, leading to reduced cost and reduced environmental impact.
We need to make the shift towards more sustainable business since it's the only way to secure our business long term.
We work hard on ensuring that we partner with companies that share our values and belief in fair working conditions, human rights, diversity and inclusion as well as strong business ethics, expressed in our Supplier Code of Conduct. Diversity and inclusion, one of our focus areas, has been proven to be a key denominator to business development and success.
We apply a life-cycle perspective to our products and operations and work together with our suppliers and our customers to become more sustainable and minimize our overall environmental footprint.
We are committed to contributing to a circular society. We minimize resources and materials used, we minimize
waste, we recycle, recover and reuse. The largest impact can be made in our offerings and by innovating together with our customers, for example by reducing their emissions, enabling them to use less raw material in their production and ensuring safety in operations. We buy back used inserts and drill bits from our customers and turn them into new ones.
We aim to grow and secure our business for the future by using our ingenuity and problem-solving capabilities to challenge conventional practices. By working closely with our suppliers and with our customers we widen the impact of our ambitions.
We have already taken the next big step by launching four ambitious 2030 goals, addressing a circular society, climate change, safety and fair play. These goals are presented in more detail on page 14.
In combination with our exceptional people and transparency ambition, we are convinced our approach will deliver long-term success for our business, customers, employees, society and for our shareholders.
As a reflection of our approach to sustainability, we have further integrated sustainability in the 2019 Annual Report. Policies and procedures are found in the sustainable governance section on page 58, results in the non-financial notes on page 122 and best practice examples in the business area sections.
In 2019, we launched four 2030 sustainability goals. We are working to achieve our new goals through a full lifecycle approach within our customer offerings, own operations and supply chain.
We have chosen to focus on four areas we consider most relevant to our business: circularity, climate, safety and fair play.
We have also defined five enablers to help us reach these goals, including integration of sustainabililty targets in performance management systems and creating an ideas hub with 100,000 sustainability ideas. Sandvik will report on the new targets in 2020.
We will drive the shift to more circular business models and use of resources, finding ways to close loops and generate new revenue streams from the processes and materials we use.
• We will require 90 percent circularity for our key suppliers
• Key suppliers identified by all divisions and discussions initiated with 80 percent
We will deliver on our commitments to reduce our climate impact. We are aiming to shift mindsets and outcomes in our own business, for our customers and with our suppliers to help reach our targets.
• We will cut the CO2 footprint from our own production and the transportation of people and products in half
• Our key suppliers will be required to cut their CO2 footprint in half
• 2 percent reduction of CO₂ emissions from environmental improvements
We aspire to the highest standards for people and will continue to raise these standards in line with our goal of zero harm.
• Ensure that health and safety risk analyses and improvements are a part of all product development projects
• We will require health and safety improvement plans from our key suppliers to meet Sandvik standards
• A TRIFR rate of 3.4
*) Further actions, targets and KPIs to be developed in 2020.
• All suppliers must be compliant with the Sandvik Supplier Code of Conduct
• Increase the share of women in managerial positions to 18.6 percent
Sandvik Machining Solutions could maintain solid margin levels in 2019 despite a weaker market in the global automotive and general engineering segments. The business area has begun a journey of expanding its offer to secure its leading position in component manufacturing in the years to come.
Sandvik Machining Solutions manufactures tools and tooling systems for engineering industries worldwide. The business area also offers digital technology for metal cutting, and advanced materials and solutions for additive manufacturing. Sandvik Machining Solutions is organized into seven divisions: Sandvik Coromant, Seco, Walter, Dormer Pramet, Wolfram, Additive Manufacturing and Applied Manufacturing Technologies. The majority of the business area's customers are in the general engineering sector (46 percent), followed by the automotive, aerospace and energy sectors.
Economic instability, such as trade conflicts, affected demand for products in the automotive and general engineering segments. This was felt most strongly in Asia, although the automotive sector in Europe started slowing down as well, affecting the business area's order intake and revenues negatively. Revenues remained fairly stable in North America, supported by deliveries on project orders received early in the year, but by the end of 2019, orders in the automotive and engineering sectors began to decline. The aerospace segment continued to perform well throughout our geographic regions.
Sandvik Machining Solutions' vision is to become the world-leading solutions provider to the wider component manufacturing industry. This entails expanding into solutions, such as additive manufacturing and digital technology, while continuing to grow in the core machining area.
In 2019, Sandvik Machining Solutions continued its focus to grow the core machining area in an increasingly competitive cutting tool industry. During the year three acquisitions were made in round tools. Along with reinforcing the offering of tools for metal cutting, Sandvik Machining Solutions also started a journey to broaden the market and growth opportunities by expanding into design, planning, verification and evaluation (illustration on page 19). The way forward will be achieved through organic growth, along with collaborations or acquisitions that include digital solutions and additive manufacturing.
Sandvik Machining Solutions continued to invest heavily in research and development and we have one of the strongest patent portfolios in the industry. The business area is building up two recently formed divisions –
Revenues by customer segment
| Overview, MSEK | 2018 | 2019 |
|---|---|---|
| Order intake | 41,094 | 41,163 |
| Revenue | 40,757 | 41,123 |
| Operating profit | 9,922 | 8,380 |
| Operating margin, % | 24.3 | 20.4 |
| Adjusted operating profit1) | 10,361 | 9,310 |
| Adjusted operating margin, % | 25.4 | 22.6 |
| Return on capital employed, % | 36.8 | 25.9 |
| Number of employees2) | 19,473 | 18,453 |
| Gender balance (Men/Women), % | 79/21 | 79/21 |
| Women in managerial positions, % | 17.5 | 17.8 |
| Lost time injury frequency rate (LTIFR) | 1.7 | 1.5 |
| Total recordable injury frequency rate (TRIFR) |
3.0 | 3.3 |
1) Operating profit adjusted for items affecting comparability of –439 million SEK in 2018 and –930 million SEK in 2019. 2) Number of employees adjusted for internal reallocations,
Applied Manufacturing Technologies and Additive Manufacturing – through organic growth and acquisitions. The Applied Manufacturing Technologies division focuses on combining our industrial expertise with its digital expertise. Partnerships are also very important as we expand into new technological areas.
In 2019, we launched new products and services in both the core tooling area and in the digital area. CoroDrill® DS20 is the first indexable insert drill on the market with a depth capacity of seven times the diameter (see page 21). Double Quattromill™, a new face mill cutter for roughing and semi finishing, lowers the cutting forces / machine power consumption. Prism™ enables users to quickly create and simulate CNC programs and is the first computer-aided manufacturing app for machining (more on page 20).
During the year, the Additive Manufacturing division announced the creation of the first-ever 3D-printed diamond composite, a super-hard material that can revolutionize the way industries use the hardest natural material on the planet.
Sandvik Machining Solutions continued to focus on profitable growth both organically and through acquisitions. We strengthened our position in round tools and the aerospace industry through the purchases of OSK in China, US-based Wetmore Tool & Engineering and US-based Melin Tool Company. In December, we reached an agreement to acquire the cutting tools division of Quimmco Centro Technológico (QCT), a privately owned Mexican company offering integral machining solutions. In line with our expansion within digital solutions, Sandvik acquired a 30 percent stake in the Italian company Beam-IT, a leading provider of metal additive manufacturing services and advanced components. We also completed the acquisition announced in 2018 of US-based Dura-Mill, a manufacturer of precision solid carbide end mills.
In October, a state-of-the-art, highly automated plant was inaugurated in Sandviken, Sweden, to supply titanium powder to the fast-growing additive manufacturing industry. With this investment, Sandvik can offer one of the widest alloy programs for additive manufacturing on the market.
Our continuous efforts over the years with efficiency and cost measures, such as operational excellence, have proven to be invaluable for maintaining stability even in times of economic uncertainty. The business area is well-positioned to meet the economic challenges facing the global economy. In 2019, we continued to work with efficiency programs, including staff reductions. Sandvik Machining Solutions closed its insert manufacturing facility in Fondettes, France, relocating the production to other facilities to achieve cost savings. It also announced a consolidation of its distribution centers in Europe, merging the centers in Belgium and the Netherlands into a new, highly automized facility in Schiedam, the Netherlands.
Every time we develop a new customer tool or solution we raise the bar on sustainability, aiming to be even more efficient than in the previous generation. This means that with a new product, customers can cut even faster or use the tool even longer than in the past. We also continue to improve circularity for customers through recycling and buy-back programs for used tools. Sandvik Machining Solutions is a world leader at recycling cemented carbide. Going forward, we will continue to focus on raw materials and our packaging to help reduce CO2 emissions and increase circularity.
In our own operations, continuous efforts are made to identify opportunities to increase circularity and reduce the CO2 footprint, for example with our green factory concept. Almost half of the tungsten used in production comes from reused material such as used products from customers. Such efforts contribute to reductions in cost, energy and CO2 emissions as well as reducing the risks associated with sourcing tungsten and cobalt. We are also reducing energy consumption and CO2 emissions through energy reduction activities, solar panels, LED technology and manufacturing processes that offer better efficiency and less waste. Through such efforts, Sandvik Machining Solutions has reduced its energy usage by 15 percent and CO2 emissions, in relation to sales, by 16 percent over the last three years.
Another focus area is compliance, which was on the agenda of the quarterly performance reviews of the main divisions, including target setting and follow-up on progress. Activities in 2019 included competition law training for employees in high-risk jurisdictions through a train-the-trainer concept and screening of commercial intermediaries.
Sandvik Machining Solutions is well positioned to maintain its industry leadership in the future. This will be done by continuing to focus on our strong product core, while at the same time rapidly building up a solutions portfolio, particularly within our digital offering, advisory services and advanced metal powders for additive manufacturing. Sandvik Machining Solutions will continue to look for new growth opportunities by developing sustainable solutions that help customers with productivity improvements.
Nikhil Dixit, Additive Manufacturing Engineer, talks about the opportunities that come with 3D printing.
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| Product portfolio |
Providing customers with a leading and sustainable offer within metal cutting delivered via multi divisions and brands in the form of metal cutting tools, additive manufacturing, know-how and digital solutions. |
|---|---|
| Market characteristics |
Cutting tools represent a small share of the total manufacturing cost for customers, however they are significant for the productivity. Service levels and product solutions are the main differentiators for the premium offering. Lower degree of service for mid-market which is more price sensitive. |
| Demand drivers | – Global manufacturing – Material evolution – New manufacturing technologies – Complex component designs and functionalities |
| Competitive landscape/Major competitors |
– Consolidated in the premium segment: IMC group (Iscar brand), Kennametal (Kennametal brand) – Fragmented in mid-market including global premium players present with their mid-market brands: Mitsubishi, IMC group (Taegutec brand), Kennametal (Widia brand), Zhuzhou |
| Go-to-market model |
Direct sales ~55–60 percent. Distribution sales are predominant in North America whereas direct sales are predom inant in Europe. In Asia, mainly distribution sales with limited service offering in the mid-market segment and direct sales, with high service level, in the premium segment. |
| Growth strategy | Expansion through organic growth, innovation and niche acquisitions in the core. Expansion into digital solutions and additive manufacturing supporting customer value chains. |
| Strategic risk management |
Various forms of business environment risks with an impact on the metal cutting market in general, mainly changes in customers behavior, acquisition-related risks, structural changes in our industry, information security risks and compliance-related risks. |
The new range of Shark Line taps from Dormer Pramet has been expanded with a new assortment for high strength steels and titanium alloys. The new taps incorporate a robust geometry which significantly increases cutting edge strength and supports problem-free, high quality thread production.
The light-weight milling cutter from Sandvik Coromant is produced using additive manufacturing, reducing the weight of the cutter body by more than 80 percent. Combined with the new Silent Tools™ milling adaptors, it is an exceptional tooling combination for slender tooling. The solution limits the vibration tendencies, enables high productivity and good process security in demanding applications.
CNC (Computer Numerical Control) programming is complex and time-consuming and requires deep machining knowledge to be done right. With Prism™, machine shops can simplify, speed up and fortify their process planning workflow for 3-axis machining, gaining quality machine time. Even new shop floor employees will be programming within minutes.
The new face mill cutter for roughing and semi finishing from Seco lowers the cutting forces / machine power consumption. The inserts featuring high-axial rake angles that makes them free cutting promote long tool life and higher productivity, making them suitable for a wide range of part materials. Improved material and resource efficiency, in combination with a reduced carbon footprint, make the cutter a sustainable and responsible choice.
This solid carbide drill from Walter can be used universally – in all materials, for a wide variety of applications, for drilling close to the edge of the workpiece and for convex and concave surfaces. It can be used for all machine concepts, such as machining centers and transfer lines, or on lathes in both static and driven modes, radial and axial orientation.
With its expanded depth capacity, the new insert drill CoroDrill® DS20 enables industrial customers to make significant time and money savings.
CoroDrill® DS20 with a 4-7xD drill range took Sandvik Coromant seven years to develop but it was well worth the wait, as successful trials at SKF proved.
In October 2019, CoroDrill DS20 was launched. It is the first indexable insert drill on the market with a depth capacity of 7xD (seven times the diameter) and ranges all the way down to 4xD. In terms of diameter, the assortment starts at 15 mm up to 65 mm.
Considerable time and knowledge were invested in the new drill family, which is set to become the benchmark of indexable insert drilling in general, and with specific emphasis on deeper holes. With the extended depth capacity as compared to the market standard of 5xD, the drill enables industrial customers to make significant time and money savings.
The drill has already made a difference at SKF's Monterrey, Mexico plant where it underwent successful trials prior to its launch.
SKF has operations in more than 130 countries and the Monterrey plant specializes mainly in manufacturing bearings and slewing rings for industrial and heavy equipment, such as wind power generation. The bearing and seal manufacturing company already had a successful track record with Sandvik Coromant and was eager to participate in the trials.
SKF was in need of a solution to reduce costs while maintaining productivity at equal levels, keeping up with the demand of a wind turbine bearing with a diameter of three meters. Although the parts were produced using special custom-made 6xD drills, the tool length made the process unstable, and production was frequently interrupted by broken inserts. There was also the uncertainty of never knowing how long the inserts were going to last, slow drilling rates and continual halts to prevent damage to the tool, the machine or the workpiece.
The economic aspects were another concern. "We're talking about very expensive parts because of their size," says the plant's engineering manager, Valdemar Garza. "We had to monitor the tool very carefully to prevent it or the workpiece from suffering any damage. So we were looking for more efficient, faster options that could give us the best cost per part."
In May 2019, SKF received 10 drill bodies, 300 center inserts and 300 peripheral inserts for a long-term field test. Since then, CoroDrill DS20 7xD has had a significant impact on SKF's business in Mexico, resulting in its highest production capacity since the company started using Sandvik Coromant drills. "This tool is giving us the opportunity to increase our cutting speed and reduce the cycle time to half the previous time," says Garza.
In addition, Garza highlights the company's new ability to schedule machine maintenance and cover operator vacations without having to use overtime. "This drill gave us flexibility to use the resources in different ways without having to depend on the product's output or having the machine operating non-stop," he says.
2019 was another solid year for Sandvik Mining and Rock Technology, which benefited from a stable mining market. Mining equipment orders remained steady and the aftermarket performed exceptionally well.
Sandvik Mining and Rock Technology manufactures equipment and tools for the mining and construction industries and offers service and digital solutions that help customers maximize their productivity and profitability. The vast majority (82 percent) of our customers are in the mining segment and the aftermarket business accounts for 60 percent of revenues. The business area provides equipment, rock tools, wear and spare parts for rock cutting, crushing and screening, loading and hauling, tunneling, quarrying and breaking and demolition. Sandvik Mining and Rock Technology is leading the mining industry when it comes to automated loading and hauling systems in underground mines.
The mining market remained strong in 2019, with commodity prices holding up, despite copper volatility mainly driven by trade disputes. Australia, in particular, had excellent growth during the year, and is, along with South Africa, our largest market. Orders for both underground and surface mining equipment were healthy, but, as customers caught up on their equipment replacements, growth tapered off somewhat compared to the high levels experienced in the previous year. Equipment replacements continued to drive demand in both mining and the construction segments.
We aim to strengthen our market position and deliver profitable growth through a business cycle. To succeed, we will focus on developing safer and more sustainable solutions, delivering customer value and expertise as well as staying in the forefront of automation, digitalization and electrification. We will strengthen and grow our core business through active portfolio management.
Our focus on strengthening the core business includes three main areas. First, we continue to invest in our aftermarket offering and local application expertise to deliver value for our customers. Second, we dedicate a significant share of our R&D resources to enhancing our core technologies. Third, we gradually divest product groups that fall outside of our core capabilities. In October, we signed an agreement to divest the majority of Varel's Drilling and Completions operations, which are linked to the oil and gas industry. We are retaining the mining-related part of Drilling and Completions, in line with our efforts to focus on the core business.
| Overview, MSEK | 2018 | 2019 |
|---|---|---|
| Order intake | 41,842 | 44,379 |
| Revenue | 41,058 | 44,777 |
| Operating profit | 7,452 | 8,602 |
| Operating margin, % | 18.2 | 19.2 |
| Adjusted operating profit1) | 7,542 | 8,911 |
| Adjusted operating margin, % | 18.4 | 19.9 |
| Return on capital employed, % | 33.9 | 32.3 |
| Number of employees2) | 14,397 | 14,229 |
| Gender balance (Men/Women), % | 84/16 | 84/16 |
| Women in managerial positions, % | 16.2 | 17.0 |
| Lost time injury frequency rate (LTIFR) | 0.99 | 0.62 |
| Total recordable injury frequency rate (TRIFR) |
4.0 | 3.4 |
1) Operating profit adjusted for items affecting comparability of –90 million SEK in 2018 and –309 million SEK in 2019. 2) Number of employees adjusted for internal reallocations.
We are investing heavily in research and development and shaping the mining industry eco-system when it comes to automation, digitalization and electrification. Through the automation of mining processes, such as AutoMine®, we are creating a safer working environment and increasing productivity for our customers. Digital systems, such as OptiMine®, provide customers with data to help them optimize production and pinpoint where operational improvements are needed. So far we have installed 53 AutoMine and 63 OptiMine systems. We invest in artificial intelligence (AI) to strengthen our maintenance diagnostics and services offering, as well as to optimize the performance of our rock tools. In 2019 we successfully launched several new products, for example an enhanced OptiMine platform, connected cone crushers and a heavy-duty underground drill rig.
All our divisions are profitable and are in the growth phase. We completed two acquisitions in 2019 that will further grow our capabilities within digitalization and electrification. In February we acquired US-based Artisan Vehicle Systems, a manufacturer of battery electric-powered mining vehicles. With this acquisition we now have the biggest fleet of battery-operated vehicles in underground mines in the industry. In June we completed the acquisition of Canadian-based Newtrax, a supplier of technology in wireless connectivity to monitor and provide insights on underground mining operations.
Our focus on agile and efficient execution includes driving internal efficiencies through a decentralized structure. To be agile in market upturns and downturns, we have set up a flexible manufacturing system using both inhouse and subcontracted manufacturing resources. We continue to drive efficiencies across the business area through tough performance targets and execution milestones for each performance unit.
Our biggest sustainability impact is through our offering, which helps our customers increase productivity and thereby become more sustainable. We are doing this by developing products and solutions that require less fuel and electricity, automating mining equipment for better productivity and durability, and developing products and solutions that contribute to a safer and healthier work environment. In addition, we drive recycling programs, notably within cemented carbide and manganese alloys. In 2019 we continued working towards healthier mines through electrification and strengthened our offering in the area through the acquisition of Artisan Vehicle Systems.
We were able to reduce our Lost Time Injuries (LTI) in our own operations by a third, from 0.99 to 0.62 per million hours worked. The 2019 target was 0.8.
The demand for productivity and sustainability improvements from mining customers will continue to grow. To optimize our customers' operations we will maintain our focus on a combination of advanced connected equipment and leading application expertise that makes it possible to maximize production output and minimize resource usage. Our leading offerings in automation and electrification will also result in further productivity and sustainability improvements within the industry.
Petra Sundström, Head of Digital Business, and Pernilla Jonsson, Head of Ericsson Consumer & Industry Lab, discuss how digitalization, artificial intelligence and the internet of things are changing the landscape for manufacturing companies.
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| Mining | Construction | |
|---|---|---|
| Product portfolio | Equipment for drilling, cutting, breaking, crushing, loading and hauling. Drilling consumables (rock tools), service, spare and wear parts. |
|
| Market characteristics |
Consolidated customer base of some 200 global major and junior miners. Remote locations, decreasing ore grades as well as safety requirements drive volume output and need for semi- to fully automated solutions. Significant aftermarket business. |
Sandvik is active in the niche areas of rock excavation and comminution. The customer base is fragmented with more than 25,000 individual customers. Localized offering and local competition. |
| Demand drivers | – GDP growth rate and resource intensive industry development – Metal and mineral prices – Production levels in existing mines and expan sion projects (greenfield and brownfield) – Productivity improvements and new technology, for example automation and electrification – Demand in the areas of environment, health and safety |
– GDP growth/urbanization – Infrastructure investments and spending – Government stimulus programs – Aggregates production – Cement consumption |
| Competitive landscape/Major competitors |
Consolidated in certain segments, i.e. under ground hard-rock mining: Epiroc, Metso Minerals, Caterpillar and Komatsu Mining. |
Some global competitors present in several niches and many local players: Epiroc, Terex, Metso Miner als, Caterpillar and Furukawa. |
| Go-to-market model |
Direct sales ~95 percent with worldwide service network. |
Due to a fragmented customer base, 50 percent of sales is via distributors. Global sales and service organization. |
| Growth strategy | Grow aftermarket business on the installed base. Climb the service ladder by data-driven productivity and advanced services. Automation, electrification and exploring complementary technologies and offerings through mergers and acquisitions. |
|
| Strategic risk management |
the world. | Various forms of business environment risks with an impact on the mining and construction market in general, such as increased market competition with new technological developments and the emergence of new com petitors, fluctuations in commodity prices and compliance-related risks. Political uncertainty in some parts of |
Sandvik offers the industry's most advanced automation and teleoperation systems. These solutions significantly improve productivity and safety, while lowering the total cost of ownership. The software systems also help customers to monitor their machines, giving them a full overview of their fleet and enabling them to control and optimize their operations.
We are shaping developments in the mining industry through product innovation and our efforts in automation, digitalization and electrification. Sandvik Mining and Rock Technology's products and solutions are helping our customers work in a safer, healthier and more productive way.
The tunneling jumbo DT1132i is the newest addition to our extensive range of heavy-duty underground drill rigs, developed with a modular design to make them highly flexible and versatile. The tunneling jumbo, which incorporates some of the latest digital solutions on the market, helps customers with fast and accurate drilling in tunneling and cavern excavations.
Sandvik Mining and Rock Technology continued to develop the OptiMine® platform, which helps mining customers improve their planning, processes, productivity and safety through real-time data information. The system identifies such things as bottlenecks and areas for operational improvements as well as providing insights into operator actions to improve safety. Three new modules were introduced in 2019, that focus on location-based analytics, 3D mine visualization and smart scheduling.
Three new models of cone crushers have been added to the 800i series of premium cone crushers. The new generation Automation and Connectivity System is a standard feature on each of these models, which are connected to the My Sandvik portal. With connectivity, the system can continuously monitor and optimize crusher performance and control the complete lubrication system, to increase uptime and reliability.
For decades, Sandvik Mining and Rock Technology has been producing rock tools with cemented carbide, which is one of the most successful composite engineering materials ever produced. Now we have gathered our most powerful carbide grades under one name, PowerCarbide, to showcase the importance of carbide grades in drilling operations and offer customers tailored solutions.
To avoid mud rush hazards, New Afton installed the automation system AutoMine®, allowing operators to work from a control room on the surface instead of underground. The new solution also resulted in significant bottom-line benefits.
Our equipment automation system AutoMine® enabled a Canadian mine to mitigate mud rush hazards and improve productivity – and it paid for itself in less than two months.
Tonnage is closely linked to profitability at mining company New Gold's New Afton mine in south-central British Columbia. The mine has moved and milled as many as 22,000 tons of ore in a single day and routinely extracts 18,500 from Canada's only block cave.
Like other prolific block caves, New Afton enjoys enviable efficiency at extremely low operating costs. But the mine has also had to conquer one of the biggest block cave challenges: mud rush.
Mitigating mud rush hazards was the major motivation for implementing automated loading at New Afton. To ensure operator safety, New Afton had stopped manual mucking in high-risk drawpoints and implemented lineof-sight tele-remote loading, but those systems were unable to keep up with the growing production demand.
To overcome the production constraint, as well as further improve safety, the mine turned to Sandvik. Its equipment automation system AutoMine allows operators who would otherwise operate a single vehicle underground to work from a control room on the surface, and simultaneously monitor the movement of a fleet of driverless loaders or trucks underground. Sandvik loaders or trucks navigate between the load and discharge points under the control of a supervisory system, which manages traffic and monitors the machines.
Based on trials, New Afton calculated that an automated Sandvik LH410 underground loader had the potential to muck 75 more buckets each shift than the existing remote solution, a productivity increase of more than 55 percent.
"To transition from a line-of-sight solution to an automated solution, we calculated a 54-day payback period," says mine manager Peter Prochotsky. "If we continued using line-of-sight tele-remotes, that production loss was, essentially over 54 days, the value of a brand new Sandvik LH410. And we obviously made the choice pretty quickly that it was the right way to go."
New Afton's existing block cave extraction level layout wasn't optimized for automation so two dedicated colleagues worked to implement the system. "Sandvik provided excellent documentation that we followed 'to a T' and I picked things up along the way working with their engineers," says electrical instrumentation technician TJ Williams. "The overall process of installation was pretty straightforward. I like how simple the overall experience of mapping a drive is. You use the live scanners, you use your laptop, and there's not a lot involved."
Within a week of commissioning in late 2017, the first of the mine's two automated Sandvik LH410s was already proving significantly more productive than the teleremote solution. An average 100-meter tram from a drawpoint to an ore pass was 60 percent faster with the automated system than line-of-sight.
On top of recouping the investment cost of the automated loader in less than two months of operation, New Afton has experienced equipment benefits on its bottom line. The system steers the loader with pinpoint precision and its collision avoidance features help eliminate damage while enabling high speeds that accelerate overall cycle time. "We used to do about \$10,000 of collision damage per loader per month, directly related to operating our lineof-sight loaders in a tight environment," Prochotsky says. "This cost has dropped to zero thanks to AutoMine."
2019 was an exciting and profitable year for Sandvik Materials Technology. We initiated an internal separation of Sandvik Materials Technology within the Sandvik Group to give the business area more flexibility for improved performance and growth.
Sandvik Materials Technology has unique expertise in materials development within advanced stainless steels and special alloys for a variety of high-demanding industries and applications. We have a broad customer offering in many segments, such as energy and engineering, as well as the chemical, medical, transportation and consumer goods segments. The business area produces tubular products, strip steel, precision medical wire, wirebased components and products for industrial heating.
Although there were clear indications of a market slowdown in 2019, Sandvik Materials Technology had a stable year overall, with strong demand coming from the oil and gas segment. The robust year for oil and gas had a positive effect, with orders climbing for advanced tubes such as umbilical tubes. We also strengthened our OCTG (Oil Country Tubular Goods) business. There was also a strong demand in other segments, such as aerospace and medical – areas with good growth opportunities. As the industry moves towards more electrification, we are well positioned to capture further opportunities within our industrial heating business (Kanthal). A gradual slowdown in demand in several segments had a negative effect on parts of our business in all three divisions.
In May we announced the initiation of an internal separation of Sandvik Materials Technology within the Sandvik Group. The purpose is to increase the business area's structural independence, enabling a stronger governance and control over the business, in line with the decentralized business structure at Sandvik. The Sandvik Board of Directors is also exploring the possibility of a separate listing on the Nasdaq Stockholm Exchange.
We began the process to separate our assets and operations within the Sandvik Group and the separation process will continue into 2020. Meanwhile, it's "business as usual" for Sandvik Materials Technology.
Our long-term focus is to continue being a leading materials technology innovator, providing customers with solutions that help make them safer, more energy efficient and productive. Last year we stated a short-term goal to reach a 10 percent EBIT (Earnings Before Interest and Tax) margin through portfolio optimization, improving our footprint within the Tube division, price-mix optimization and strengthen our culture of commitment and execution. By the end of 2019, we had achieved this short-term goal.
In 2019 we continued our focus on more advanced products, such as nickel-based and super alloys. One addition to our portfolio is Sanicro® 35, a new austenitic stainless steel grade that combines extreme pitting corrosion resistance and mechanical properties in a single alloy. This pioneering innovation was awarded with the internal Sandvik Innovation prize in 2019. We strengthened our position in tubular products and will continue to focus on super alloys and high
| Overview, MSEK | 2018 | 2019 |
|---|---|---|
| Order intake | 15,898 | 16,475 |
| Revenue | 14,697 | 15,279 |
| Operating profit | 1,307 | 1,444 |
| Operating margin, % | 8.9 | 9.4 |
| Adjusted operating profit1) | 1,331 | 1,787 |
| Adjusted operating margin, % | 9.1 | 11.7 |
| Return on capital employed, % | 10.1 | 11.0 |
| Number of employees2) | 5,919 | 5,726 |
| Gender balance (Men/Women), % | 82/18 | 81/19 |
| Women in managerial positions, % | 18.5 | 19.1 |
| Lost time injury frequency rate (LTIFR) | 4.3 | 4.7 |
| Total recordable injury frequency rate (TRIFR) |
7.5 | 7.5 |
1) Operating profit adjusted for items affecting comparability of –24 million SEK in 2018 and –343 million SEK in 2019. 2) Number of employees adjusted for internal reallocations.
nickel alloys. We are also expanding the heating solution service offering and strengthening our position within heating systems as the market transforms from gas to electric solutions.
Sandvik Materials Technology is recognized for its pioneering efforts in research and development and we continued to capture new ground. During 2019, a first commercial order was secured for Sentusys™, an intelligent tube system used for in-process, online monitoring, providing continuous information about temperature, strain and vibration. The medical segment with our Exera® range of precision fine wires and wire-based components are used in a wide range of medical applications, from the treatment of cardiovascular disorders to solutions for glucose monitoring, deep brain stimulation and hearing implants. We are also increasing our digital services and our new online shop for the Tube division is an industry first. It provides customers with a personalized dashboard overview of, among other things, stock levels, prices, orders and documentation.
With our highly innovative product offering we are in an excellent position to match market requirements for materials that are strong yet light, durable, recyclable and have anti-corrosive properties. We recently patented a hyper duplex strip steel that matches all of these requirements. Sandvik Materials Technology frequently collaborates with partners and customers to bring solutions to the market that capture material science opportunities within many different segments.
After some challenging years, there has been a return to profitability in the business area. Long-term efforts to improve market positioning led to a number of large tubular orders in 2019, including one for advanced OCTG tubes. Our efforts also paid off in the strip steel business, where we saw a continued strong margin improvement during the year. Sandvik Materials Technology is now in a stronger position with a clear growth strategy for prioritized segments. In December we signed an agreement to acquire privately owned Summerill Tube Corporation, based in Pennsylvania, US, a manufacturer of high precision tubes for high demanding industries, including aerospace, transportation and petrochemical. The acquisition was finalized in January 2020 and the same month we also acquired privately owned Thermaltek Inc., a manufacturer of high temperature furnace systems and metallic heating elements, headquartered in North Carolina, US.
During the year, Sandvik Materials Technology continued to improve price and cost efforts despite challenging market conditions. We initiated efficiency measures, carrying through with the decisions made in 2018 to consolidate in some areas, by closing a Tube production unit in Canada and a Kanthal production unit in Italy. In 2019, a decision was made to close two Tube mills in Sandviken, Sweden, and move production to our site in Chomutov, Czech Republic. We began the gradual transfer of production in 2019, which is scheduled for completion in the first half of 2021. We inaugurated a new cold finishing manufacturing line at our plant in Mehsana, India, improving quality, flexibility and regional service.
We signed a strategic agreement with German Zapp to manufacture Kanthal® wire on our behalf for further efficiencies. We continued to revise our factories and offices for higher flexibility and efficiency, which is helping us to manage our costs and adapt quicker in a volatile global environment. Today, the business area is in an improved position to simultaneously manage both periods of high growth, as well as slowdowns in our diverse market segments.
Sustainability is well integrated within our business both in terms of our own operations and within our customer offering. Installations of Kanthal heating solutions, switching from gas to electric heating at our customers, helped reduce our customers' CO₂ emissions substantially. The products that we manufacture at our steel mill consist of an average of 84 percent recycled material and we keep track of how much recycled steel goes into every product. We pass on this information to our customers in the form of materials certificates. We are also active in a number of buy-back initiatives to reduce our use of virgin material, whereby reducing costs and environmental impact.
We provide solutions that make our customers more sustainable. Flapper valves made with our compressor valve steel Hiflex® are turning household refrigerators into energysmart models. Other products, like Exera, our wire used in medical applications, are helping to improve and even save people's lives. We offer pre-coated strip steel for the production of bipolar plates and interconnects for different types of fuel cells and have a full-scale production plant in Sandviken, Sweden, ready for fuel cell and hydrogen technology to take off. Our seamless steel tubes Pressurfect® meet the higher pressure requirements for next-generation engine platforms. Gasoline direct injection (GDI) technology helps reduce fuel consumption and lowers CO₂ emissions.
Our strategy will continue in the year to come. We will maintain our number 1 or 2 position on the market through our customer relationships and innovation capabilities. This will be achieved by helping our customers to improve their efficiency, sustainability and safety. We will continue to expand and promote our digital offering, for example within smart tubing which makes it easier for customers to track and trace and identify stock levels. In the coming year we will finalize our internal separation and continue the review for a possible listing on the Nasdaq Stockholm Exchange.
Mats W Lundberg, Sustainable Business Manager, talks about what it takes to drive sustainability in the materials industry and reveals how hydrogen cars were his way into Sandvik.
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| Product portfolio | Tubular products, bars, billets, strip, rock drill steel, heating systems, precision medical wire and metal powder. |
|---|---|
| Market characteristics | Selected niches in demanding industries where material requirements, as well as product quality and reliability, are extremely high. High entry barriers. |
| Demand drivers | – Energy demand – Industrial production – Environmental demands and legislation, for example, reduced emissions and energy consumption – Materials evolution i.e. advanced material requirements – Increased demand for safety, reliability and more sustainable materials |
| Competitive landscape/Major competitors |
Nippon Steel and Sumitomo Metal (tube), Tubacex (tube), Jiuli (tube) VoestAlpine (strip), Aperam (heating elements and systems), smaller niche players. |
| Go-to-market model | About 80 percent direct sales. |
| Growth strategy | Increased focus on products and solutions improving energy efficiency and reducing emissions. Continued material evolution through focused R&D efforts and technologies based on, for example, powder metallurgy. |
| Strategic risk management |
Fluctuating oil and gas prices. Increased competition of high-tech material from China. Local protectionism in the steel industry. |
Sandvik Materials Technology works closely with its customers to discover ways of addressing their challenges with new innovations or modified products.
With the new additive manufacturing customization service, it's possible to 3D print heating elements and components in our FeCrAl alloy Kanthal® AM100. Now our customers can get heating elements and components in shapes that were previously inconceivable.
Sanicro® is a family of nickel alloys and high-alloy austenitic stainless steels which are used in a wide range of tubular environments. Sanicro 35 is the newest austenitic grade, which combines extreme pitting corrosion resistance and mechanical properties in one alloy. It is a lower cost option for the process industry, oil and gas, and renewable energy segments, and gives Sandvik Materials Technology access to new markets.
The Strip division entered new customer segments with the launch of Sandvik 12C27™ knife steel suitable for electric shaving or animal trimmers. Another new market for our strip steel products is fruit knives, made with Sandvik Chromflex™, a range of hardened and tempered martensitic chromium steels.
Exera® precision wire is a comprehensive range of high-grade fine wires and wire based components for applications in various fields of medical technology. Examples of applications are cochlear implants, deep brain implants for people with Parkinson's disease, continuous glucose monitoring (diabetes), vascular and cardiovascular sensing and stimulation.
Sandvik is playing an important role in Linde's expansion of hydrogen-fueling stations by supplying the company with tube solutions on site through a digitally connected Sandvik Mobile Service Solutions container.
Our onsite tubing solution is making the delivery of hydrogen safer and more efficient for long-time customer Linde.
Linde is a leading industrial gases and engineering company with customers in more than 100 countries. The company has more than 20 years of experience in hydrogen mobility applications, among its activities, and in recent years has been building hydrogen stations to fuel vehicles.
As a renewable element, hydrogen (H₂) plays a fundamental role in achieving sustainability targets by providing an alternative to fossil fuels. And, as demand for greener vehicles grows, so does the need for hydrogen to power such vehicles.
Linde has built more than 160 hydrogen-fueling stations at commercial filling stations in more than 15 countries to date, and further stations are underway. Sandvik is playing an important role in Linde's expansion by supplying the company with tube solutions on site through a digitally connected Sandvik Mobile Service Solutions container. The stainless steel alloy tubes are used to transport hydrogen from a storage tank to a dispenser usually located about 40–60 meters apart.
Sandvik personnel arrive with the container at the station. At the station, the 150–170 meter coiled tubing is straightened through our patented technology and cut to match Linde's exact specifications at each location.
"Installations on customer sites differ from project to project so it is essential to have tube solutions which allow us to realize different dimensions and lengths to connect the necessary units on the fueling station site," explains Johannes Fritzer, Research and Development, Linde Hydrogen FuelTech.
This convenient solution is both sustainable and costefficient as it eliminates waste by cutting only as much as is required, and eliminates the need for customers to keep large coils in stock. Sandvik's corrosion-resistant tubing solution also offers the highest possible level of safety.
"It is essential regarding safety aspects that the tubes meet certain quality requirements which are taken into account for the pressure rating of the different ranges in use," says Fritzer. Linde's hydrogen gas is transported under both low and high pressures of up to 900 bars and the high-quality tubes from Sandvik meet the strict safety guidelines for hydrogen transportation.
Our long tubing also reduces the risk of accidents by eliminating the need for conventional fittings such as cone and thread connections or welding, which are normally used to connect shorter tubes. Eliminating connections helps reduce the risk of leakage and station shut downs, increasing safety for both the site and the surrounding neighborhood. The lack of connections also makes the burying of hydrogen transporting tubes feasible.
Johannes Fritzer highlights yet another benefit with the convenient container solution: "From a logistical point of view the Sandvik solution eases the planning of the construction site through an unproblematic direct delivery of the needed tubes, with no ordering, storage or other logistical issues," he says, adding that he is pleased with Sandvik Mobile Service Solutions thus far.
"Overall there has been a very positive response from all parties involved in the process. Sandvik has good customer service, is technically professional and provides a consistently outcome-oriented approach. We will certainly continue to rely on Sandvik's support."
During 2019, the share price increased by 45 percent, while the OMXS30 index on Nasdaq Stockholm increased by 26 percent.
Sandvik's share is listed on Nasdaq Stockholm, Sweden. At year-end 2019, the share was quoted at 182.7 SEK, corresponding to a market capitalization of 229 billion SEK, placing Sandvik as the 10th (14) largest company on Nasdaq Stockholm.
In 2019, a total of 799 million shares (823) were traded for a total value of 125 billion SEK (125). Trading in Sandvik shares on the Nasdaq Stockholm accounted for 31 percent (37) of the total volume of shares traded. Other markets, for example, BATS Chi-X, Turquoise, etc. accounted for 69 percent (51). The Sandvik share can be traded in the US in the form of American Depositary Receipts (ADRs), a process handled by Deutsche Bank Trust Company Americas as a depository bank. In 2019, the average daily ADR trading volume was 36,450 (39,889). At the end of 2019 there were 4,192,508 ADRs outstanding (4,170,062).
Our target is that the dividend will amount to at least 50 percent of adjusted earnings per share, through an economic cycle. The Board has proposed a dividend of 4.50 SEK (4.25) per share to the 2020 Annual General Meeting, corresponding to approximately 5.6 billion SEK (5.3) and a dividend yield of 2.5 percent based on the share price at year-end. Assuming the approval of the proposed dividend for 2019 of 4.50 SEK (4.25), a 6 percent increase compared to 2018, Sandvik's dividend over the past five years has averaged 3.50 SEK. In this period a total of 44 percent of adjusted earnings per share for Continuing Operations has been distributed.
The number of Sandvik shares amounts to 1,254,385,923. Each share has a nominal value of 1.2 SEK and the share capital amounts to 1,505,263,108 SEK. Sandvik's share capital comprises one series of shares, with each share
carrying equal voting rights and equal rights to a dividend. Sandvik does not hold any shares in treasury and the most recent occasion when new shares were issued was in conjunction with the acquisition of the shares outstanding in Seco Tools in 2012.
Sandvik is included in several sustainability indices, such as the Dow Jones Sustainability Index, FTSE4Good and Ethibel Excellence Europe. These are international indices analyzing global companies that assume their responsible business practices. Sandvik's inclusion in these indices confirms the Group's achievements in relation to sustainable business practices.
In 2019, the number of shareholders decreased to 100,768 (100,909). There are shareholders in 76 countries, and the total ownership outside of Sweden amounted to 39 percent (35) at year-end. The ten largest individual shareholders accounted for 39 percent of the share capital on the same date. As of 31 December 2019, members of Sandvik's Group Executive Management owned a total of 206,726 shares in Sandvik. Members of the Board of Sandvik owned a total of 488,949 shares in Sandvik (including deputy board members, excluding the CEO). Total ownership of Group Executive Management and the Board corresponds to about 0.05 percent of the capital and voting rights.
4.50 Proposed dividend, SEK
| Key figures | 2018 | 2019 |
|---|---|---|
| Number of shares at year-end (million) | 1,254 | 1,254 |
| Market capitalization at year-end (billion) | 158 | 229 |
| Number of shareholders | 100,908 | 100,768 |
| Share price at year-end, SEK | 126.4 | 182.7 |
| Earnings per share after dilution, SEK (Group total) | 10.09 | 6.79 |
| Adjusted earnings per share, SEK (Group total) | 9.95 | 10.96 |
| P/E ratio at year-end | 12.5 | 26.9 |
| Change in share price during the year, % | –12 | +45 |
| Regular dividend, SEK /share | 4.25 | 4.501) |
| Dividend as a percentage of earnings per share | 42 | 661) |
| Total yield (price increase + dividend), % | –9.9 | 47 |
| Propor tion of shares in Sweden, % | 65 | 61 |
| Propor tion of shares owned by the ten largest shareholder groups, % |
38 | 39 |
1) Proposed dividend.
Source: Monitor by Modular Finance AB. Compiled and processed data from Euroclear, Morningstar and the Swedish Financial Supervisory Authority, among others.
| The ten largest shareholder groups, as of 31 December, % |
2018 | 2019 |
|---|---|---|
| AB Industrivärden | 12.1 | 12.4 |
| Alecta Pension Insurance | 6.5 | 6.6 |
| Swedbank Robur Funds | 3.9 | 4.4 |
| BlackRock | 2.4 | 2.8 |
| AMF Insurance and Funds | 2.7 | 2.6 |
| Vanguard1) | 2.4 | 2.5 |
| L E Lundbergföretagen AB | 2.4 | 2.4 |
| SEB Investment Management | 1.8 | 2.3 |
| Norges Bank | 1.0 | 1.8 |
| Nordea Funds | 1.4 | 1.3 |
1) Shares held in trust.
Source: Monitor by Modular Finance AB. Compiled and processed data from Euroclear, Morningstar and the Swedish Financial Supervisory Authority, among others.
We have continued to thrive on our offering of productivity and sustainability based on more than 150 years of leading materials and applications know-how.
To remain relevant in the future, we are increasingly combining our core competencies with new digital technologies, enabling us to broaden our customer offering. Our strong balance sheet supports acquisitive growth.
Our world is cyclical, but we believe that our decentralized business model is increasing agility and speed in our operational decision making, helping us to reduce earnings volatility and increase predictability. We target higher margins, resulting in improved through-cycle performance going forward.
Significant improvement in profitability and returns since 2016. Our decentralized business model drives accountability and speed in operating decisions close to customers. The improved performance review system contributes to increased transparency. Combined this will help us achieve improved through-cycle performance.
We continuously review our business portfolio to maximize shareholder value. Each unit is expected to deliver continuous improvements and to be or become no. 1 or 2 in its industry.
Approximately 25 analysts cover Sandvik on a continuous basis. At year-end 2019, the breakdown of ratings relating to the Sandvik share was: 52 percent buy/increase, 19 percent retain/neutral and 29 percent sell/decrease, according to Factset. Below are some of the most frequent questions discussed in 2019, and our answers.
A: The implementation of a decentralized business model, tangible contingency plans and important changes in Sandvik Mining and Rock Technology with a higher share of outsourcing, gives us the confidence to have a floor margin target. The basis for the calculation is a mining downturn with a 50 percent decrease in equipment sales and a significant (double-digit) downturn for the short-cycle part of the business (machining).
A: We want to achieve the target before increasing the ambition. Half of the target is assumed to be driven by acquisitions and half organically. We are assuming a higher share of organic growth in Sandvik Mining and Rock Technology and a higher share of mergers and acquisitions in Sandvik Machining Solutions.
A: Our overall strategy remains intact, with a current focus on growth and on protecting the margin in a tougher market. Stefan Widing's background in acquiring and successfully integrating software companies will be a great asset to Sandvik when developing adjacent digital product offerings, particularly for Sandvik Machining Solutions and its strategy to expand into pre- and post-machining. Furthermore, he has extensive experience from working and leading in a decentralized environment.
A: In 2019, we launched new long-term sustainability goals in four areas: circularity, climate change, safety and fair play. These goals will be integrated in our performance management systems and incentive programs, in order to report and follow-up. Furthermore, we will be introducing short-term goals to ensure we are on track for reaching our 2030 goals. That work has started but has not yet been finalized.
A: Our ambition is to acquire approximately 2.5 percent topline growth per year. Accordingly, the preferred option for capital is to reinvest in our business. We are virtually in a net cash position at year-end 2019 and if we do not manage to spend it on acquisitions, we need to evaluate our options for capital distribution.
A: We are working towards finalization of the internal separation by mid 2020. Further decisions on how to proceed will be made by the Board and ultimately by the Annual General Meeting.
A: We are committed to keeping NWC under control and to delivering solid returns, particularly as we become more active in acquisitions. In 2019, the market conditions for short-cycle segments deteriorated rapidly and significantly, making full control of NWC a challenge. For Sandvik Mining and Rock Technology, record order deliveries have pushed NWC up.
A: Most of the targeted savings of 1.7 billion SEK will be delivered by mid 2020. Approximately 20–30 percent of the measures can be described as structural by nature, for example, the closure of production units/larger restructurings. In 2019, the result was supported by approximately 400 million SEK from the announced program.
Market demand for the late-cycle businesses in the mining and oil & gas industries remained stable at a high level. However, customer activity softened significantly in the early-cycle businesses during the second half of the year, primarily related to the automotive and general engineering segments. Consequently, Sandvik's order intake decreased by –2 percent (9) whilst revenues for continuing operations remained stable at 0 percent (11) at fixed rates for comparable units, as backlog was delivered.
Sandvik's order intake amounted to 104,147 million SEK in 2019 (102,510), and revenue totaled 103,533 million SEK (100,924). The operating profit was 13,182 million SEK (18,103), corresponding to 12.7 percent (17.9) of revenues. While the adjusted operating profit improved to 19,219 million SEK (18,590), the adjusted operating margin remained on par with the previous year at 18.6 percent (18.6). Movements in metal prices for Sandvik Materials Technology made a positive contribution to the operating profit of 274 million SEK (255). Changes in foreign exchange rates affected earnings favorably by 1,879 million SEK (774) compared with the preceding year. Net financial items amounted to –1,238 million SEK (–788). The result after financial income and expenses for the Group was 11,945 million SEK (17,315), and 12,150 million SEK (17,860) for continuing operations. Income tax had a total impact of –3,421 million SEK (–4,646) on earnings, corresponding to 29 percent (27) of profit before taxes. Profit for the year attributable to equity holders of the Parent Company was 8,539 million SEK (12,679). Earnings per share for the Group amounted to 6.81 SEK (10.11) and 6.97 SEK (10.54) for continuing operations. Return on capital employed was 15 percent (22) and return on equity was 14 percent (23).
Relative net working capital for the year was 25 percent (24) of revenues. In absolute terms net working capital amounted to 25,027 million SEK (23,447) at the end of the year. In terms of volume, net working capital increased by 447 million SEK (3,198) compared with the preceding year.
Changed currency rates increased net working capital by 869 million SEK (1,088) compared with the preceding year. The structural effect from acquisitions and divestments increased working capital by 264 million SEK (–1,565).
Cash flow from operating activities increased to 17,654 million SEK (14,914). Net cash flow after investing activities was 12,171 million SEK (10,631). At the end of the year, cash and cash equivalents amounted to 16,987 million SEK (18,089). Interest-bearing liabilities including net pension liabilities, less cash and cash equivalents, yielded a net debt of 11,131 million SEK (11,557). The net debt to equity ratio was 0.18 (0.20). Sandvik's revolving credit facility of 9,000 million SEK was unutilized at year-end. Under the Swedish bond program, totaling 15,000 million SEK, bonds corresponding to a nominal amount of 5,650 million SEK were outstanding at year-end. Under the European bond program, totaling 3,000 million EUR, a nominal amount of 1,103 million EUR was outstanding at year-end. The remaining maturity of bonds averaged 1.3 years for Swedish bonds, 6.5 years for European. At year-end, the international credit rating agency Standard & Poor's had a rating of A- for Sandvik's long-term borrowings, and A-2 for short-term.
During the second quarter Sandvik made an early redemption of US private placement notes and a bilateral loan totaling 5.1 billion SEK.
Equity at year-end amounted to 61,858 million SEK (58,163), or 49.3 SEK per share (46.3). The equity ratio was 51 percent (49).
Investments in tangible and intangible assets for the full year 2019 amounted to 4,136 million SEK (3,920) corresponding to 99 percent of scheduled depreciation for continuing operations. Proceeds from sale of companies and shares, net of cash, amounted to 95 million SEK (4,052). Acquisition of companies and shares, net of cash, amounted to 1,870 million SEK (4,631). Investments in internally generated intangible assets were 533 million SEK (484).
On 9 January, Sandvik announced the completion of the acquisition of the company Wetmore Tool & Engineering. Wetmore Tool & Engineering is a manufacturer of round tools for the aerospace industry. Revenues for Wetmore Tool & Engineering amounted to 160 million SEK in 2017.
On 11 February, Sandvik closed the acquisition of US-based Artisan
| Earnings and return | 2018 | 2019 |
|---|---|---|
| Operating profit, MSEK | 18,103 | 13,182 |
| as a % of revenue | 17.9 | 12.7 |
| Adjusted operating profit, MSEK | 18,038 | 19,015 |
| as a % of revenue | 17.9 | 18.4 |
| Profit after financial income and expenses, MSEK | 17,315 | 11,945 |
| as a % of revenue | 17.2 | 11.5 |
| Return on capital employed, % | 22.0 | 15.0 |
| Return on total equity, % | 23.3 | 13.9 |
| Basic earnings per share, SEK | 10.11 | 6.81 |
| Diluted earnings per share, SEK | 10.09 | 6.79 |
| Whereof continuing operations | ||
| Operating profit, MSEK | 18,655 | 13,386 |
| as a % of revenue | 18.6 | 13.0 |
| Adjusted operating profit | 18,590 | 19,219 |
| as a % of revenue | 18.6 | 18.6 |
| Profit after financial income and expenses, MSEK | 17,860 | 12,150 |
| as a % of revenue | 17.8 | 11.8 |
| Basic earnings per share, SEK | 10.54 | 6.97 |
| Capital expenditure, Group total | 2018 | 2019 |
| Investments in non-current assets, MSEK | 3,984 | 4,147 |
| Investments in non-current assets, MSEK | 3,984 | 4,147 |
|---|---|---|
| as a % of revenue | 3.9 | 4.0 |
| as a % of scheduled depreciation | 100 | 93 |
Vehicle Systems, a manufacturer of battery powered underground mining equipment. In 2017, the company's revenues were approximately 12 million USD.
On 10 April, Sandvik closed the acquisition of China-based OSK, a leading supplier of solid carbide round tools. Revenues for OSK amounted to 120 million SEK in 2017.
On 17 June, Sandvik closed the acquisition of privately owned Newtrax, a supplier of leading technology in wireless connectivity based in Canada. In 2018, Newtrax revenues amounted to 26 million CAD.
On 12 July, Sandvik announced the completion of the acquisition of a 30 percent stake in privately owned Italian company Beam IT, a leading provider of metal additive manufacturing services and advanced end-use components. Beam IT generated revenues of 70 million SEK in 2018 .
On 28 October, Sandvik announced the signing of an agreement to divest the majority of Sandvik Drilling and Completions (Varel), the operations relating to the oil and gas industry, to privately owned equity firm Blue Water Energy and its co-investor, privately owned Nixon Energy Investments. Sandvik will remain a minority owner with a 30 percent stake in the company and keep a board position. The reclassification of Varel as "assets held for sale" in the financial statements triggered an impairment of –3,966 million SEK on net profit, comprising an effect on operating profit of –4,233 million SEK and an impairment of deferred tax of +267 million SEK.
On 22 December, Sandvik announced an agreement to acquire the US-based privately owned Summerill Tube Corporation. The acquisition was completed in January 2020. Summerill Tube Corporation is a manufacturer of high precision tubes for industries such as aerospace,
transportation and petrochemical. In 2018 it generated revenues of about 100 million SEK.
On 31 December, Sandvik closed the acquisition of privately owned US-based Melin Tool Company, a manufacturer of solid carbide tools. In the 12-month period ending September 2019, Melin Tool Company generated revenues of 22 million USD.
On 31 December, Sandvik closed the acquisition of the privately owned company Thermaltek Inc., a manufacturer of high temperature furnace systems and metallic heating elements based in the US. In the 12-month period ending in September 2019 Thermaltek generated 13 million USD.
The Parent Company's revenues for 2019 amounted to 21,038 million SEK (20,141) and the operating result was 4,224 million SEK (2,566). Income from shares in Group companies consists primarily of dividends and Group contributions from these and amounted to 11,989 million SEK (4,364). Interest-bearing liabilities, minus cash and cash equivalents and interest-bearing assets, amounted to 15,601 million SEK (15,059). The Parent Company's total assets increased by 12,868 million SEK, from 63,929 million SEK to 76,797 million SEK. Investments in non-current assets amounted to 976 million SEK (799).
The number of employees in the Parent Company and the subsidiaries operating on commission for Sandvik AB as of 31 December 2019 was 6,627 (6,793).
The President and the Board of Directors propose a dividend of 4.50 SEK (4.25) per share to the 2020 Annual General Meeting, corresponding to approximately 5.6 billion SEK (5.3).
Dividend 4.50 per share
x number of shares 1,254,385,923 =5,644,736,653 Profit carried forward 25,804,189,279 Total, SEK 34,448,925,932
The average number of employees amounted to 41,120 (42,540), of which 19 percent (19) were women. The employee turnover rate was 10 percent (8). Wages, salaries and other remunerations for the year totaled 21,795 million SEK (21,425).
In October 2019, Sandvik's Board of Directors appointed Stefan Widing as new President and CEO of Sandvik, succeeding Björn Rosengren. Stefan Widing took on the position as of 1 February 2020.
The divestment of the majority of Sandvik Drilling and Completion (Varel) is expected to be finalized early March 2020.
The Board of Directors proposes that the Annual General Meeting resolve to adopt the following guidelines for the remuneration of senior executives. Compared to the guidelines adopted by the Annual General Meeting in 2019 these guidelines have been updated to comply with new regulations on remuneration.
These guidelines encompass the President and other members of the Group Executive Management. The guidelines do not apply to any remuneration decided on or approved by the General Meeting.
| Financial position | 2018 | 2019 |
|---|---|---|
| Cash flow from operating activities, MSEK | 14,914 | 17,654 |
| Cash flow after investing activities, MSEK | 10,631 | 12,171 |
| Cash and cash equivalents and short-term | ||
| investments as of 31 December, MSEK | 18,089 | 16,987 |
| Net debt as of 31 December, MSEK | 11,557 | 11,131 |
| Net financial items, MSEK | –788 | –1,238 |
| Equity ratio, % | 49 | 51 |
| Net debt/equity ratio, times | 0.20 | 0.18 |
| Equity as of 31 December, MSEK | 58,163 | 61,858 |
| Equity per share as of 31 December, SEK | 46.4 | 49.3 |
| Quarterly trend of revenue and profit after financial items | ||
|---|---|---|
| MSEK | Revenue | Profit after financial items |
Net margin,% |
|
|---|---|---|---|---|
| 2018 | Q1 | 23,981 | 3,998 | 17 |
| Q2 | 26,434 | 4,672 | 18 | |
| Q3 | 24,438 | 4,907 | 20 | |
| Q4 | 26,070 | 3,738 | 14 | |
| 2019 | Q1 | 25,180 | 4,145 | 16 |
| Q2 | 26,567 | 4,625 | 17 | |
| Q3 | 25,188 | 2,765 | 11 | |
| Q4 | 26,598 | 409 | 2 |
1) The Parent Company includes subsidiaries operating on commission for Sandvik AB. These are presented in Note 14.
A prerequisite for the successful implementation of the Company's business strategy and safeguarding of its long-term interests, including its sustainability, is that the Company is able to recruit and retain qualified personnel. To this end, it is necessary that the Company offers competitive remuneration. These guidelines enable the Company to offer senior executives a competitive total remuneration. For more information regarding the Company's business and sustainability strategy, please see the Company's website: home.sandvik.
The total remuneration package should be based on market terms, be competitive and reflect the individual's performance and responsibilities as well as the Group's earnings trend. The remuneration may consist of fixed salary, variable remuneration, pension benefits and other benefits.
The purpose of the fixed salary is to attract and retain senior executives with the right competence for the respective positions. The salary level should be determined by comparing the salary to similarly complex positions within a defined peer group.
– Variable share related remuneration The Company may offer long-term share related or share price related remuneration. Such programs are adopted by the General Meeting and are therefore not covered by these guidelines. There are currently ongoing long-term share related incentive programs for senior executives and key employees in the Group. For more information on these programs, see the Company's website: home.sandvik.
The Company may offer short or long-term variable cash remuneration. The fulfillment of objectives for awarding such remuneration shall be measured over a period of one to three years. Such remuneration may amount to not more than 75 percent of the fixed annual salary per year.
Variable cash remuneration shall be conditional upon the fulfillment
of defined and measurable criteria. These criteria shall aim at promoting the Company's business strategy and performance as well as its long-term interests, including its sustainability. At the beginning of each year the Board of Directors and the Remuneration Committee shall establish the criteria, including key performance indicators (KPIs) and the target ranges, deemed relevant for the upcoming measurement period. The criteria may be financial, with at least three KPIs, and nonfinancial, and shall always be related to business performance. At least 80 percent of the variable cash remuneration shall be linked to the financial criteria. The President and Group Function heads shall be measured on Group level KPIs and the Business Area Presidents shall be measured on both Group level and Business Area level KPIs. The established KPIs shall be presented on the Company's website: home.sandvik. The extent to which the criteria for awarding variable cash remuneration have been fulfilled shall be determined when the measurement period has ended and will be published in the Report on Evaluation of Remuneration the following year. For financial criteria, the evaluation shall be based on the latest financial information made public by the Company.
In specific cases, the Company may offer one-off remuneration provided that such remuneration is only made on an individual basis, for the purpose of recruiting or retaining senior executives, does not exceed an amount corresponding to 100 percent of the individual's fixed annual salary and maximum variable cash remuneration, and is not paid more than once per year and individual.
Terms and conditions for variable remuneration shall be designed so that the Board of Directors (i) has the right to limit or refrain from payment of variable remuneration if exceptional economic circumstances prevail and such a measure is considered reasonable, and (ii) has the right to withhold or reclaim variable remuneration paid to an executive based on results that afterwards were found to have been misstated because of
wrongdoing or malpractice (so called malus and clawback).
For the President, the pension benefit shall be defined contribution and the pension premiums shall amount to not more than 37.5 percent of the fixed annual salary. For the other senior executives, pension benefits shall be defined contribution and amount to not more than 55 percent of the fixed annual salary, in accordance with the Swedish ITP1 pension scheme. Exceptions to this main rule may be decided on for senior executives with existing defined benefit schemes provided that the cost of such schemes does not exceed the above mentioned cap.
Other benefits may include, for example, life insurance, medical insurance and company car benefit. Such benefits may amount to not more than 5 percent of the fixed annual salary. For senior executives in need of double accommodation, paid accommodation, etc may be added in line with Sandvik's regulations and such benefits may amount to not more than 20 percent of the fixed annual salary.
Severance pay may be paid when employment is terminated by Sandvik. The President and the other senior executives may have a period of notice of not more than 12 months, in combination with severance pay corresponding to 6–12 months fixed salary. When employment is terminated by the senior executive, the notice period may not exceed six months and no severance pay shall be paid.
In case a senior executive is not entitled to severance pay, but is covered by a non-compete undertaking, the senior executive may instead be compensated for such a non-compete undertaking. Any remuneration paid as compensation for a non-compete undertaking shall not exceed 60 percent of the fixed salary at the time of notice of termination of the employment and shall not be paid for a longer period than 18 months. Fixed salary during the notice period together with any compensation for the non-compete undertaking shall not exceed an amount equivalent to the senior executive´s fixed salary for 24 months.
When preparing the proposal for these guidelines, the employment conditions applied within the Company as a whole have been used as a benchmark, following the principle that the remuneration packages of all Sandvik employees should be based on the complexity of the position, performance and market practice. In general, the same combination of remuneration components such as fixed salary, variable remuneration, pension and other benefits are offered within Sandvik.
The Board of Directors has established a Remuneration Committee. The Committee's tasks include preparing the Board of Directors' decision to propose guidelines for senior executive remuneration. The Board of Directors shall prepare a proposal for guidelines at least every fourth year and submit it to the General Meeting. The guidelines shall be in force until new guidelines are adopted by the General Meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remuneration for the executive management, the application of the guidelines for senior executive remuneration as well as the current remuneration structures and compensation levels in the Company. The members of the Remuneration Committee are independent of the Company and its executive management. The President and the other senior executives do not participate in the Board of Directors' processing of and resolutions regarding remuneration related matters to the extent that they are affected by such matters.
Decisions on remuneration to the President are taken by the Board of Directors, based on proposals from the Remuneration Committee, and decisions on remuneration to the other senior executives are taken by the Remuneration Committee.
Remuneration under employments subject to other rules than Swedish may be duly adjusted to comply with mandatory rules or established local practice, taking into account, to the
extent possible, the overall purpose of these guidelines.
The Board of Directors may temporarily resolve to derogate from the guidelines, in whole or in part, if in a specific case there is special cause for the derogation and a derogation is necessary to serve the Company's long-term interests, including its sustainability, or to ensure the Company's financial viability. As set out above, the Remuneration Committee's tasks include preparing the Board of Directors' resolutions in remuneration-related matters. This includes any resolutions to derogate from the guidelines.
For information concerning the current remuneration of senior executives, including ongoing long-term incentive programs, refer to Note 3.5.
The guidelines adopted by the 2019 Annual General Meeting are presented in Note 3.5.
Each business area is responsible for its own R&D activities. Focus areas are machining materials and process development, additive manufacturing, alloys, powder metallurgy, electrification and digital solutions.
Sandvik has a portfolio of approximately 6,060 (5,900) active patents. In 2019, 964 (700) new patents were granted. Investments in R&D were 3,872 million SEK (3,727), corresponding to 3.7 percent (3.7) of Group revenues. The number of employees in R&D, including Quality Assurance, was 2,740 (2,554).
Sandvik is a multinational group with many intercompany transactions. The OECD has issued guidelines for transfer pricing of cross-border transactions in multinational groups. Sandvik adheres to these guidelines and also to the local legislation of each country to ensure that a correct pricing model is deployed and that a correct amount of tax is paid in each country. Sandvik monitors the OECD's tax reform work and the EU initiatives on tax transparency carefully and observes these standards as and when enacted. Sandvik strives to have good relations with our stakeholders, such as tax authorities, non-governmental organizations and investors.
Sandvik has initiated cooperation with tax authorities in several countries. We are convinced that an open discussion and cooperation with tax authorities around the globe will help us to reduce uncertainty about the taxes we are obliged to pay. We contribute to the local communities and countries in which we operate in the form of, for example, taxes and employment opportunities. In 2019, the Group paid 3,598 million SEK (2,978) in income taxes globally. Income tax comprises just a portion of all taxes paid by Sandvik worldwide. In addition, we pay social security contributions, environmental and energy taxes, property taxes, etc. Furthermore, Sandvik collects and pays taxes at the request of governments and authorities, including indirect taxes and withholding taxes.
In Sweden, Sandvik conducts licensed operations at eight plants and notifiable operations in one location. All of them hold a requisite environmental permit. During the year, there was a potential breach related to exceeding maximum allowed water withdrawal within a 24-hour period. It was found to be of minimal impact and the case was closed. A number of guideline values were exceeded for noise and emissions to air and water. Actions are taken to comply with the target values. No environmental permit needs renewal in 2020.
Investigations and remediation activities have been performed at production sites with ground pollution. These activities are always performed in close cooperation with environmental authorities.
Sandvik has, in accordance with the Annual Accounts Act, prepared the statutory sustainability report as a separate report which was approved for issue by the Board of Directors and the President and CEO. The Statutory Sustainability report and Sustainable Business Report comprise pages 2–3, 12–15, 44–47, 58–61 and 122–134.
Sandvik's operations consist of three business areas: Sandvik Machining Solutions, Sandvik Mining and Rock Technology and Sandvik Materials Technology.
| Change, | Change, | |||
|---|---|---|---|---|
| MSEK | 2018 | 2019 | % | %1) |
| Sandvik Machining Solutions | 41,094 | 41,163 | 0 | –6 |
| Sandvik Mining and Rock | ||||
| Technology | 41,842 | 44,379 | 6 | 1 |
| Sandvik Materials Technology | 15,898 | 16,475 | 4 | 2 |
| Other Operations | 3,605 | 2,059 | –43 | 4 |
| Group activities | 0 | 0 | n/m | n/m |
| Continuing operations | 102,440 | 104,075 | 2 | –2 |
| Discontinued operations | 70 | 71 | 2 | 0 |
| Group total | 102,510 | 104,147 | 2 | –2 |
1) Change compared with the preceding year, at fixed exchange rates for comparable units.
| Change, | Change, | |||
|---|---|---|---|---|
| MSEK | 2018 | 2019 | % | %1) |
| Sandvik Machining Solutions | 40,757 | 41,123 | 1 | –6 |
| Sandvik Mining and Rock | 41,058 | 44,777 | ||
| Technology | 9 | 4 | ||
| Sandvik Materials Technology | 14,697 | 15,279 | 4 | 3 |
| Other Operations | 3,560 | 2,059 | –42 | 4 |
| Group activities | 0 | 0 | n/m | n/m |
| Continuing operations | 100,072 | 103,238 | 3 | 0 |
| Discontinued operations | 852 | 295 | –65 | –66 |
| Group total | 100,924 | 103,533 | 3 | –1 |
1) Change compared with the preceding year, at fixed exchange rates for comparable units.
| MSEK | 2018 | % of revenue | 2019 | % of revenue | Change, % | Change, %1) |
|---|---|---|---|---|---|---|
| Sandvik Machining Solutions | 9,922 | 24 | 8,380 | 20 | –16 | –17 |
| Sandvik Mining and Rock Technology | 7,452 | 18 | 8,602 | 19 | 15 | 7 |
| Sandvik Materials Technology | 1,307 | 9 | 1,444 | 9 | 10 | 16 |
| Other Operations | 659 | 19 | –4,263 | n/m | n/m | n/m |
| Group activities | –685 | n/m | –776 | 0 | 13 | 0 |
| Continuing operations | 18,655 | 19 | 13,386 | 13 | –28 | –7 |
| Discontinued operations | –552 | –65 | –204 | –69 | n/m | –57 |
| Group total | 18,103 | 18 | 13,182 | 13 | –27 | –5 |
1) Change compared with the preceding year, at fixed exchange rates for comparable units adjusted for items affecting comparability.
n/m=non meaningful.
Sandvik Machining Solutions is a market-leading manufacturer of tools and tooling systems for advanced industrial metal cutting, expanding into digital and additive manufacturing. Order intake for the business area amounted to 41,163 million SEK (41,094), a decrease of –6 percent at fixed exchange rates for comparable units. Revenue totaled 41,123 million SEK (40,757), down –6 percent at fixed exchange rates for comparable units. The operating margin was 20.4 percent (24.3) of revenues and the adjusted operating margin was 22.6 percent (25.4) of revenues. The items affecting comparability of –930 SEK million was related to efficiency measures to mitigate a slower demand environment and to ensure optimized efficiency.
| Financial overview, MSEK | 2017 | 2018 | 2019 |
|---|---|---|---|
| Order intake | 36,995 | 41,094 | 41,163 |
| Revenue | 36,114 | 40,757 | 41,123 |
| Operating profit | 8,465 | 9,922 | 8,380 |
| Operating margin, % | 23.4 | 24.3 | 20.4 |
| Adjusted operating profit1⁾ | 8,465 | 10,361 | 9,310 |
| Adjusted operating margin, % | 23,4 | 25.4 | 22.6 |
| Return on capital employed, % | 34.9 | 36.8 | 25.9 |
| Number of employees2⁾ | 18,918 | 19,473 | 18,453 |
1) Operating profit adjusted for items affecting comparability of –439 million SEK in 2018 and of –930 million SEK in 2019. 2) Number of employees adjusted for internal restructurings.
Sandvik Mining and Rock Technology is a leading supplier of equipment and tools, service and technical solutions for the mining industry and rock excavation within the construction industry. Order intake for the business area amounted to 44,379 million SEK (41,842), an increase of 1 percent at fixed exchange rates for comparable units. Revenue totaled 44,777 million SEK (41,058), up 4 percent at fixed exchange rates for comparable units. The operating margin was 19.2 percent (18.2) of revenues and the adjusted operating margin was 19.9 percent (18.4) of revenues. The items affecting comparability of –309 SEK million were predominantly related to efficiency measures to ensure cost efficiency.
| Financial overview, MSEK | 2017 | 2018 | 2019 |
|---|---|---|---|
| Order intake | 38,834 | 41,912 | 44,450 |
| Revenue | 38,136 | 41,910 | 45,072 |
| Operating profit | 5,802 | 6,900 | 8,398 |
| Operating margin, % | 15.2 | 16.5 | 18.6 |
| Adjusted operating profit1) | 5,802 | 6,990 | 8,707 |
| Adjusted operating margin, % | 15.2 | 16.7 | 19.3 |
| Return on capital employed, % | 33.0 | 31.3 | 31.6 |
| Number of employees | 14,277 | 14,431 | 14,241 |
| Financial overview, MSEK | 2017 | 2018 | 2019 |
|---|---|---|---|
| Order intake | 37,535 | 41,842 | 44,379 |
| Revenue | 35,058 | 41,058 | 44,777 |
| Operating profit | 5,864 | 7,452 | 8,602 |
| Operating margin, % | 16.7 | 18.2 | 19.2 |
| Adjusted operating profit1) | 5,864 | 7,542 | 8,911 |
| Adjusted operating margin, % | 16.7 | 18.4 | 19.9 |
| Return on capital employed, % | 32.8 | 33.9 | 32.3 |
| Number of employees2) | 14,211 | 14,397 | 14,229 |
1) Operating profit adjusted for items affecting comparability of –90 million SEK in 2018 and of –309 millin SEK in 2019. 2) Number of employees adjusted for internal restructurings.
Sandvik Materials Technology is a world-leading developer and manufacturer of high value-added products in advanced stainless steels, powder-based alloys and special alloys for the most demanding industries, as well as products for industrial heating. Order intake for the business area amounted to 16,475 million SEK (15,898), an increase of 2 percent at fixed exchange rates for comparable units. Revenue totaled 15,279 million SEK (14,697), up 3 percent at fixed exchange rates for comparable units. The operating margin was 9.4 percent (8.9) of revenues and the adjusted operating margin was 11.7 percent (9.1) of revenues. The items affecting comparability of –343 SEK million was related to efficiency measures to mitigate a slower demand environment as well as separation costs.
| Financial overview, MSEK | 2017 | 2018 | 2019 |
|---|---|---|---|
| Order intake | 14,381 | 15,898 | 16,475 |
| Revenue | 13,281 | 14,697 | 15,279 |
| Operating profit | 224 | 1,307 | 1,444 |
| Operating margin, % | 1.7 | 8.9 | 9.4 |
| Adjusted operating profit1) | 674 | 1,331 | 1,787 |
| Adjusted operating margin, % | 5.1 | 9.1 | 11.7 |
| Return on capital employed, % | 1.7 | 10.1 | 11.0 |
| Number of employees2) | 6,378 | 5,919 | 5,726 |
1) Operating profit adjusted for items affecting comparability of –450 million SEK in 2017, –24 million SEK and –343 million SEK in 2019. In 2019, adjusted operating profit, excluding metal price effects totaling 1,513 million SEK (1,074 for 2018 and 562 for 2017). The adjusted underlying operating margin was 9.9 percent (7.3 for 2018 and 4.2 for 2017).
2) Number of employees adjusted for internal restructurings.
In 2019 Other Operations consisted of Sandvik Drilling and Completions (Varel). Varel is a global supplier of drilling solutions focusing on drill bits and downhole products for well construction and well completion. In 2018 Other Operations comprised of Varel and Sandvik Hyperion, Sandvik Hyperion was divested in July 2018. Order intake for Other Operations amounted to 2,059 million SEK (3,605), an increase of 4 percent at fixed exchange rates for comparable units. Revenue totaled 2,059 million SEK (3,560), up 4 percent at fixed exchange rates for comparable units. The operating margin was –207.0 percent (18.5) of revenues and the adjusted operating margin was –6.8 percent (1.1) of revenues. In 2019 Sandvik signed an agreement to divest the majority of Varel. It resulted in a reclassification as "assets held for sale" in the financial statements, which triggered an impairment of –3,966 million SEK on net profit, comprising an effect on operation profit of –4,233 million SEK and an impairment of deferred tax of +267 million SEK.
| Financial overview, MSEK | 2017 | 2018 | 2019 |
|---|---|---|---|
| Order intake | 6,534 | 3,605 | 2,059 |
| Revenue | 6,374 | 3,560 | 2,059 |
| Operating profit | 4,293 | 659 | –4,263 |
| Operating margin, % | 67.3 | 18.5 | n/m |
| Adjusted operating profit1) | 382 | 41 | –140 |
| Adjusted operating margin, % | 6.0 | 1.1 | –6.8 |
| Return on capital employed, % | 51.9 | 10.3 | –100.1 |
| Number of employees2) | 2,602 | 1,089 | 1,081 |
1) Operating profit adjusted for items affecting comparability of +3,910 million SEK in 2017, in 2018 +618 million SEK in 2018 and
–4,123 million SEK in 2019.
2) Number of employees adjusted for internal restructurings.
Sandvik risk management processes support our business to manage and effectively mitigate critical risks.
The ability to effectively identify and manage risk is a vital element of business success for all parts of the Sandvik business.
The Group's risk management approach follows our decentralized structure. The Sandvik Board of Directors is ultimately responsible for the governance of risk management. Sandvik's Group Executive Management ensures there is a common and efficient process in place.
All management teams are responsible for their own risk management. The teams must follow the minimum requirements outlined in The Sandvik Way.
Part of the Board's requirements are clear and transparent information about Sandvik's enterprise risks and mitigating activities.
Sandvik has implemented an Enterprise Risk Management (ERM) program that covers all business areas, divisions and functions within the Group. The management teams
analyze risks in their operations and related to their strategic objectives at least annually. Assessment and management of sustainability risks are integrated and significant parts of the ERM program. In addition, the ERM methodology is used as a tool for decision-making, operationally and within projects, as well as in the strategy process in various levels of the Group. The Group Executive Management reviews and discusses the Sandvik Group risk appetite and decide on the Group risk profile once per year. An ERM 2019 report, summarizing key risks and mitigating activities across our business, was provided to Sandvik's Audit Committee and Board of Directors in December. The Board of Directors' and the Audit Committe's involvement in the ERM process is further described on pages 51–52.
Sandvik has tailored insurance programs that transfer the risks associated with the Group's property, cargo and liability exposures. Insurable risks are continuously evaluated and actions are taken to reduce these insurable risks, as part of Sandvik's loss-prevention strategy. Supported by our loss-prevention guidance, risk evaluations highlight opportunities to reduce the potential for significant losses and to ensure the Group's ability to deliver to its customers. In order to ensure cost efficient and tailored insurance solutions, selected risks are reinsured through the Group's captive insurance company.
The global policies for business continuity and crisis management set the requirements for local management teams to ensure their ability to successfully respond to disruptive events and continue their business operations on an acceptable level. Once a risk materializes, our crisis management priorities are to minimize harm to people, to the environment, and to minimize damage to Sandvik's business, as well
ERM PROCESS AT SANDVIK
Assess and evaluate risks Communicate risks Manage risks Monitor and
follow up risks
as ensuring a swift return to normal activities and safeguarding the company brands.
The internal audit function regularly follows up the implementation of different risk management programs such as ERM, business continuity, crisis management and the insurance programs. Sandvik applies group-wide internal controls to mitigate primarily financial risks but also some of the business risks. Read more about the internal controls program at Sandvik on page 53.
Sandvik's risk universe is based on risk categories that are organized in three main risk areas – strategic risks, business risks and financial risks. Each risk category can in one way or another significantly impact the Group's performance if not managed effectively. The detailed risk universe is outlined on the next page.
Strategic risks are risks that can significantly impact the execution of our business strategies and our ability to achieve our objectives. At Sandvik we include external and emerging risks in this risk area, such as industry shifts, technological shifts and macroeconomic developments. These risks can all impact our business negatively long term but often also create business opportunities if managed well. Our approach to managing these risks differs from other categories as it includes evaluation of which strategic risks to take and improving the business ability to manage them by
establishing risk tolerance, predicting the impact of possible risks and monitoring key risk indicators (KRIs).
In this risk area we include operational and commercial risks. These types of risks can often impact the financial performance of the business negatively or can have a negative reputational impact on the brands of the Group. Examples are sustainability risks, such as health and safety risks and compliance risks, and operational risks, such as cyber security risks, IT failures, information and data protection as well as talent attraction and retention. The approach to managing these risks is through active prevention and by designing and implementing mitigation actions and controls.
Through its complex and international operations, Sandvik is exposed to multiple financial risks such as currency risks, interest risks, liquidity and refinancing risk. Sandvik's Group Treasury is functionally responsible for managing the greater part of the Group's financial risks. The Board of Directors establishes the principles for the Group's financial risk management, which comprises guidelines, objectives, and limits for financial management as well as the management of financial risks.
Operating entities within the Sandvik Group present reports on their financial performance and economic status on a regular basis in accordance with internal reporting rules and the accounting policies applied by Sandvik and the International Financial Reporting Standards (IFRS). The Group's Finance function validates and analyzes the financial information as part of the quality control of financial reporting. More information is available in the Corporate Governance Report on page 48.
For information about currency risks, interest risks, liquidity and refinancing risks, credit risks, raw material price risks and pension commitments, please see note 27 on page 112.
Our risk universe has been developed through analysis and stakeholder dialogue of material risks for our industry, our different businesses, critical laws and regulations and critical operational, commercial, sustainability and financial requirements. It is a comprehensive library of risks which management teams apply to better understand, evaluate and aggregate risk within the business. The risk categories highlighted below refer to the Sandvik Group's identified key risks assessed during 2019.
B1. Noncompliance with laws and regulations
B10. Information and data protection
B19. Customer retention
B20. Pricing models and management
B24. Employee competence development and leadership development
B25. Contract management
| Risk category | Identified key risk | Risk consequence | Risk mitigation |
|---|---|---|---|
| S1. Industry shifts and market developments |
Changing competitive landscape with decreased demands for certain products or segments and an increased demand for a sustainable offering. |
The inability to reach strategic objectives long term, leading to lower growth or lower financial performance. |
The business areas are working with proactive business development and M&As. There is a strong focus on product segmentation (multi-company development/strategies, midmarket), aiming to diversify the product portfolio and reduce dependence on individual customer segments. There is also strong cost control in all our businesses. |
| S2. Macroeconomic developments B13. Change management/ demand/readiness |
Our ability to adapt to macroeconomic developments. |
The inability to plan long term, leading to less agile business, higher costs or price models not being profitable, causing lower financial performance long term. |
All businesses are working with strong cost control and cost flexibility. All businesses are closely monitoring relevant Key Risk Indicators (capex investment in mining, raw material prices, GDP, oil rig count, daily order rates, etc.). They all have up to date contingency plans, including different scenarios, ready to activate at a first sign of a downturn. |
| S3. Technological change/ shifts |
New and evolving technologies or technological demands leads to the need attract new talent in key competence areas (digitalization, sustainability, etc.) |
The inability to reach strategic objectives long term, leading to lower growth or financial performance. A general risk of losing competitiveness and business position on the market with a special risk focus if not being able to take a strong position in the digital area fast enough. |
There is a strong focus on R&D in all our businesses as well as proactive business development and M&A activities where growth is a priority. The business is closely monitoring the development of new technologies and customer segments. Partnerships have been formed with key partners and research centers to advance knowledge and capabilities in areas currently not core business. The business has also invested in additive manufacturing, powder technology, digitalization and automation. Sandvik has, across the business areas, focused on developing the Sandvik employer brand. One key area is to use new, digital channels to attract and recruit competence for the future. Succession planning has been strengthened for top management positions. |
| S4. Regulatory change |
Changes in trade laws or chemical legislations. Stricter sustainability requirements. |
The inability to quickly respond to new regulations leading to higher costs, fines or the inability to continue manufacturing certain products. Can have a negative reputational impact. |
All parts of Sandvik work with the monitoring of different initiatives and continually evaluate their impact on our business. We are active in business associations and other organizations, such as Jernkontoret, Svenskt Näringsliv, the Cobalt Institute and the International Tungsten Industry Association to name a few, to monitor regulatory development to benefit long-term sustainable business. |
| S6. Sustainability expectations and/or requirements |
Lack of focus on sustainability targets, due to conflicting short-term versus long-term priorities, leading to loss of competitiveness and customer satisfaction. |
Being slower than competors with new business models built on sustainability. Negative reputational impact and not meeting customer expectations could lead to a loss of business. Negative impact on the share's attraction as an investment as well as on the attraction and retention of future or current employees. |
The Group Executive Management has the overall responsibility for Sandvik's sustainability strategy and agenda while the business areas / divisions are responsible for the implementation and follow-up. The business areas / divisions are also responsible for the assessment and management of sustainability risks in their operations. KPIs are consolidated and reported to follow up on goals at Group and business area / division levels. Each year we evaluate our performance, set targets and focus actions for the coming year to ensure delivery on our sustainable business strategy. |
| B1. Noncompliance with laws and regulations |
Breach of anti bribary, anticorruption, competition or anti trust laws, General data Protection Regulations (GDPR) or trade compliance. |
Worst-case scenarios show high financial impact due to fines in multiple markets. Can have a major negative reputational impact if risk were to materialize. |
The Group has a governance framework, The Sandvik Way, including Group policies, Group procedures and other steering documentation. The scope of the governance framework, including the controls implemented, is based on legal requirements and risk exposure. Sandvik's formal compliance programs of anti-bribery and anti-corruption, competition law, customs and export controls and data privacy are managed by the business with oversight through a Group functional council. |
| B7. IT failures |
Major IT incident (causing downtime of one week or more) in critical operational IT systems. |
Inability to deliver products or services on time to customers or timely information to other stakeholders, leading to lower financial performance or negative financial impact due to fines. |
A cyber security improvement program across the Sandvik Group is ongoing. Each business area is running an IT security improvement program, including risk review of critical business applications and risk-based network segmentation. |
| B8. Insufficient IT security |
Lack of security in digital offering lifecycle. |
Risk of compromising data and automation systems with negative reputational and financial impact. Risk of exposure to Sandvik internal IT systems. |
All business areas / divisions are identifying the risks associated with their digital offering and taking appropriate actions to mitigate these risks. |
| B10. Information and data protection |
Leakage of confidential information and unstructured content management for internal systems as well as external platforms, for example, social media. |
Can lead to business critical information being made available to unauthorized individuals or organizations. |
Increased authentication to prevent unauthorized access has been implemented. All business areas have strengthened their IT security management. Review of key processes for information release and overall communication channels initiated. |
| B15. Business interruptions |
Unforeseen major disturbance or failure in production or supply chain, caused by, for example, weather events, machinery break-downs or fires. |
Inability to deliver products or services on time to customers or timely information to other stakeholders, leading to lower financial performance or negative financial impact due to fines. |
The Group's Crisis Management Policy is continuously updated and a Group policy for development of Business Continuity was approved by Group Executive Management in 2019. The business areas / divisions have performed risk scenario planning for some of the most critical production entities, supply chain vulnerabilities and IT system dependencies. |
Sandvik AB has its head office in Stockholm and is the Parent Company of the Sandvik Group, with subsidiaries in about 70 countries. The Group has about 40,000 employees and revenues in more than 160 countries. Sandvik AB is a public company with its shares listed on Nasdaq Stockholm (the "Stockholm Stock Exchange").
Corporate governance within Sandvik is based on external rules such as the Swedish Companies Act, the Stockholm Stock Exchange's Rule Book for Issuers, the Swedish Code of Corporate Governance (the "Code") and other relevant laws and regulations. The Code is available at corporategovernanceboard.se. In 2019 Sandvik applied the Code without deviating from any of its regulations.
Sandvik's corporate governance framework, The Sandvik Way, implements these external rules and also sets out the internal rules and principles for governance that apply specifically within Sandvik. It is based on four building blocks, as set forth in the model below, and describes how
common ways of working have been implemented throughout the entire organization.
This part outlines how the Group is led and governed from the top. The Board of Directors, elected at the Shareholders' Meeting, sets the strategic direction for the Group. The President carries this out through the Group Executive Management whose members manage and oversee the operations of the Group. The main operational responsibility in the Group lies with the business areas and divisions, with Group functions responsible for functional policies and processes supporting the business. This part is the main focus of this Corporate Governance Report.
This building block sets the foundation for how we all shape our culture in the company and enable a customer oriented and responsible business. Our operational controls and risk frameworks are underpinned by the ambitions and requirements of our vision, core values (Customer Focus, Innovation, Fair Play and Passion to Win), Code of Conduct and leadership principles.
The detailed controls and risk frameworks common across the Group are detailed in the operational system. This includes many aspects from planning and forecasting, policies, procedures and controls to compliance, monitoring and audit. The operational system
represents the day-to-day controls that directly impact the work of our employees. As such, it is subject to regular review and continuous improvement.
The final building block in the framework comprises the systems of business area governance, each reflecting the independent challenges and opportunities each business faces in its own industry sector. Customers, business cycles, supply chain and industry risk all vary across the three business areas and call for controls and management systems tailored to the business, further complementing the group-wide way of working detailed in the other building blocks. Business area governance is adopted by each business area within the overall framework of The Sandvik Way and may include specific rules and procedures for each business area, division, business unit as well as other relevant parts of the operational business structure.
As of 31 December 2019 Sandvik's share capital amounted to 1,505,263,107.60 SEK represented by 1,254,385,923 shares. According to the share register, Sandvik had about 101,000 shareholders as of 31 December 2019. AB Industrivärden was the largest owner with about 12.4 percent of the share capital. Of the total share capital at year-end, about 38.9 percent was owned by investors outside Sweden.
The General Meeting of Shareholders is the highest decision-making body.
At the Annual General Meeting, the shareholders are given the possibility to exercise their voting rights in relation to, for example, the Annual Report, dividends, election of the Board and appointment of auditor, and other matters stipulated in the Companies Act, the Articles of Association and, where applicable, the Code.
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 of the General Meeting 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 General Meeting.
All shares in Sandvik carry equal voting rights with one vote per share.
Shareholders representing 53.40 percent of the share capital and votes attended the Annual General Meeting held on 29 April 2019 in Sandviken, Sweden. Sven Unger, attorney-atlaw, was elected to chair the meeting. Resolutions passed at the General Meeting included the following:
| 31 December 2019, % | |
|---|---|
| AB Industrivärden | 12.4 |
| Alecta Pension Insurance | 6.6 |
| Swedbank Robur Funds | 4.4 |
| BlackRock | 2.8 |
| AMF Insurance and Funds | 2.6 |
| Vanguard1) | 2.5 |
| LE Lundbergföretagen AB | 2.4 |
| SEB Investment Management | 2.3 |
| Norges Bank | 1.8 |
| Nordea Funds | 1.3 |
Source: Monitor by Modular Finance AB 1) Shares held in trust.
– A long-term incentive program in the form of a performance share program for about 350 senior executives and key employees in the Group
For additional information about the Annual General Meeting, including the minutes, refer to: home.sandvik.
The next Annual General Meeting will be held on 28 April 2020 in Sandviken, Sweden. More information is available at: home.sandvik.
The Nomination Committee is a preparatory body that prepares proposals for, among other things, the election of the Board of Directors, the Chairman of the Board and auditors as well as fees for adoption at the General Meeting. The Annual General Meeting has adopted an instruction for the Nomination Committee, which includes a procedure for appointing the Nomination Committee, valid until a General Meeting resolves a change.
Sandvik's Annual General Meeting 2019 was held at the Göransson Arena, Sandviken, Sweden.
In accordance with this instruction, the Nomination Committee shall consist of representatives of the four largest shareholders, in terms of the number of votes, on the final business day in August plus the Chairman of the Board (convener).
For the 2020 Annual General Meeting, the Nomination Committee consists of Fredrik Lundberg, Chairman (Industrivärden), Hans Sterte (Alecta), Marianne Nilsson (Swedbank Robur Funds), Anders Oscarsson (AMF and AMF Funds) and Johan Molin (Sandvik's Chairman of the Board).
Up to the date of the Annual General Meeting, the Nomination Committee met on three occasions. The Nomination Committee was informed of the results of the Board's own evaluation. Due to the upcoming change of President and CEO, the Committee instead met with the Presidents of Sandvik's three business areas that presented their respective business area strategy
and market conditions for 2020. The Nomination Committee discussed the general criteria that Board members should fulfill, including the independence requirement, and reviewed the number of Board assignments that each Board member has in other companies. The Nomination Committee applied rule 4.1 of the Code as the diversity policy. This rule states that the Board shall have an appropriate composition in view of the company's operations, phase of development and other relevant circumstances, display diversity and breadth in terms of qualifications, experience and background of the Board members elected by the General Meeting and that the company shall strive for gender balance.
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 financial position.
The Board is to ensure that the company's organization is designed in a way that ensures that the financial statements, the management of assets and the company's financial condition in general are controlled in a satisfactory manner.
The President is appointed by the Board and 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 the Board's Procedural Guidelines which are reviewed and adopted each year. The review is based on such aspects as the Board's evaluation of the individual and collective work that the Board performs.
In addition to financial reporting and the monitoring and follow-up of daily operations and profit trend, Board meetings address the goals and strategies for the operations, significant acquisitions and 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.
As of 31 December 2019 Sandvik's Board consisted of eight members elected by the Annual General Meeting. Björn Rosengren left the Board, effective 1 February 2020, in connection with leaving his position as President and CEO. The new President and CEO, Stefan Widing, is proposed to be elected as a new Board member by the 2020 Annual General Meeting.
The Nomination Committee communicated before the 2019 Annual General Meeting that the Nomination Committee had applied rule 4.1 of the Code as the diversity policy. The current Board composition is the result of the work of the Nomination Committee prior to that General Meeting. The Board consists of members with experience from different geographic areas and different industry sectors and, excluding the President, 42 percent of the Board members elected by the General Meeting are women.
Pursuant to Swedish legislation, trade unions are entitled to representation on the Board and they have appointed two members and two deputies.
The Board members are presented on pages 54–55.
Helena Stjernholm is not regarded as independent in relation to major shareholders in the company and Björn Rosengren was not regarded as independent in relation to the company and its executive management. The other six Board members elected by the General Meeting are all independent in relation to Sandvik and its executive management, as well as the company's major shareholders. Accordingly, the composition of the Board complies with the independence requirements of the Code.
During the year, the Board held fourteen meetings. The Presidents of all business areas presented their goals and strategies. The Board also reviewed
the strategies and results from a number of the divisions (all divisions are reviewed in an 18 month rolling period). The Board addressed matters related to the overall Group strategy, long-term financial and sustainability targets, IT, risk management, human resources, such as incentive programs, environment, health and safety, and issues concerning investments and operational restructuring and reviewed previously made investments. Further, the Board handled matters with respect to acquisitions and divestments, such as the sale of Varel Oil & Gas and the internal separation of the Sandvik Materials Technology (SMT) business with an intention to evaluate the listing of SMT as a separate group. The Remuneration Committee, Audit Committee and the Acquisitions and Divestitures Committee reported from their respective meetings. In respect of the Audit Committee, reported matters included ERM, compliance, SpeakUp and Code of Conduct, internal control and internal audit as well as the result of the external audit. The Committees also submitted matters for resolution by the Board and the minutes and reports from these meetings were made available to the Board members. In June 2019 the Board visited Sandvik's operations in Finland.
As resolved at the 2019 Annual General Meeting, the fee to the Chairman of the Board is 2,550,000 SEK and the fee to each of the non-executive Board members elected by the General Meeting is 690,000 SEK.
In addition, 300,000 SEK was paid to the Chairman of the Audit Committee and 170,000 SEK to each of the other Committee members, in total 640,000 SEK. The Chairman of the Remuneration Committee was paid 145,000 SEK and each of the other Committee members 115,000 SEK, in total 375,000 SEK. No remuneration was paid to the members of the Acquisitions and Divestitures Committee.
For more detailed information on remuneration of the Board members, see Note 3.5.
To ensure the quality of the work of the Board and to identify the possible need
Attendance at board and committee meetings in 2019
for further expertise and experience, the work of the Board and its members is evaluated annually. In 2019 the evaluation, which was led by the Chairman of the Board, was carried out by way of each Board member responding anonymously to an online questionnaire. The Chairman also held separate evaluation discussions with all Board members. The compiled results of the evaluations were presented to the Board as well as to the Nomination Committee.
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.
| Member | Board | Audit Committee |
Remuneration Committee |
Acquisitions and Divestitures Committee |
|---|---|---|---|---|
| Total number of meetings | 14 | 5 | 3 | 5 |
| Jennifer Allerton | 14 | |||
| Thomas Andersson | 13 | |||
| Claes Boustedt | 14 | 5 | 5 | |
| Marika Fredriksson | 14 | |||
| Johan Karlström | 14 | 3 | ||
| Tomas Kärnström | 14 | |||
| Thomas Lilja | 14 | |||
| Mats W Lundberg | 14 | |||
| Johan Molin | 14 | 3 | 5 | |
| Björn Rosengren | 14 | |||
| Helena Stjernholm1) | 14 | 5 | 2 | 5 |
| Lars Westerberg1) | 14 | 5 | 1 |
1) Helena Stjernholm replaced Lars Westerberg as member of the Remuneration Committee on 29 April 2019.
| Name | Function | Independent in acc. with the Code |
Shareholding, number1) 31 Dec 2019 |
Elected | Audit Committee |
Remuneration Committee |
Acquisitions and Divestitures Committee |
|---|---|---|---|---|---|---|---|
| Jennifer Allerton | Member | Yes | 10,000 | 2015 | |||
| Thomas Andersson | Deputy2) | 0 | 2012 | ||||
| Claes Boustedt | Member | Yes | 20,000 | 2015 | Chairman | Member | |
| Marika Fredriksson | Member | Yes | 2,500 | 2017 | |||
| Johan Karlström | Member | Yes | 5,000 | 2011 | Member | ||
| Tomas Kärnström | Member2) | 2,889 | 2006 | ||||
| Thomas Lilja | Member2) | 3,560 | 2016 | ||||
| Mats W Lundberg | Deputy2) | 0 | 2015 | ||||
| Johan Molin | Chairman | Yes | 260,0003) | 2015 | Chairman | Chairman | |
| Björn Rosengren4) | Member | No5) | 119,181 | 2016 | |||
| Helena Stjernholm | Member | No5) | 5,000 | 2016 | Member | Member | Member |
| Lars Westerberg | Member | Yes | 180,000 | 2010 | Member |
1) Pertains to own and closely related persons' shareholdings in Sandvik AB.
2) Employee representatives (both members and deputy members participate in Board meetings). Thomas Lilja (member) and Mats W Lundberg (deputy) represent Unionen/Ledarna/Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Thomas Andersson (deputy) represent IF Metall.
3) In addition 1,000,000 call options in Sandvik AB.
4) Left the Board, effective 1 February 2020.
5) Helena Stjernholm is not regarded as independent in relation to major shareholders in the company and Björn Rosengren is not regarded as independent in relation to the company and its executive management.
As from the 2019 Annual General Meeting the members of the Remuneration Committee are Johan Molin (Chairman of the Committee), Johan Karlström and Helena Stjernholm. The tasks of the Remuneration Committee are, among others, those 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 and terms of employment for the President, who in turn decides on the remuneration to be paid to the Group Executive Management in consultation with the Remuneration Committee.
For guidelines, remuneration and other benefits payable to the Group Executive Management, refer to Proposal regarding guidelines for the remuneration of senior executives, on page 39 and Note 3.5.
During 2019 the Remuneration Committee held three meetings but also worked substantially between these meetings to prepare the appointment of a new President and CEO of Sandvik. At an extra Board meeting held in October 2019 the Committee presented its proposal for the Board to appoint Stefan Widing as the new President and CEO of Sandvik.
During 2019 the members of the Audit Committee were Claes Boustedt (Chairman of the Committee), Helena Stjernholm and Lars Westerberg. Areas addressed by the Audit Committee mainly related to:
risk management matters including legal disputes, compliance, corporate investigations, IT security, accounting procedures, taxation, treasury, finance operations, insurance coverage and pension issues
During 2019 the Audit Committee held five meetings at which Sandvik's external auditor and representatives of the company's management were present.
During 2019 the members of the Acquisitions and Divestitures Committee were Johan Molin (Chairman of the Committee), Claes Boustedt and Helena Stjernholm. The Committee was established in 2018 to provide a better process for preparing major or strategically important acquisitions and divestitures for Board decisions. The Committee meets on an ad hoc basis, at the request of the President and CEO in consultation with the Chairman of the Board.
During 2019 the Acquisitions and Divestitures Committee held five meetings and reviewed matters mostly related to the project to internally separate and evaluate a listing of Sandvik Materials Technology.
The President is accountable for Group decision-making in all areas delegated by the Board. In order to ensure a full Group perspective in these matters, the President has appointed the Group Executive Management as an advisory forum, focusing on how to achieve Group targets, strategies, structure and organization. The Group Executive Management meets each month and its members are accountable for implementing the President's decisions.
In 2019 the Group Executive Management consisted of:
– Björn Rosengren, President and CEO (succeeded by Stefan Widing on 1 February 2020)
The President and other members of the Group Executive Management are presented further on pages 56–57.
The Sandvik organization model is based on a decentralized business model with three separate business areas – Sandvik Machining Solutions, Sandvik Mining and Rock Technology and Sandvik Materials Technology – based on distinct product offerings. Each business area has full responsibility and accountability for its respective business results.
Each of the three business areas is organized in a number of divisions based on product offering or brand. The division is the highest operational level in the Sandvik organizational structure. Certain divisions that are based on a product offering are also divided into business units representing a defined part of the product offering.
Visit home.sandvik for more detailed information relating to the Group's business activities and product portfolios.
There are four Group functions within Sandvik: Communications, Finance, HR and Legal. Group functions specifically focus on setting the appropriate enabling structures and processes that are common for the Group or cover a specific area for which the Group is responsible.
At the 2019 Annual General Meeting, the audit firm PricewaterhouseCoopers AB was re-elected auditor of Sandvik AB for the period until the 2020 Annual General Meeting. Peter Nyllinge is the auditor-in-charge.
The auditor continuously audits and monitors the company's general accounting and the execution by the Board and the President of their respective responsibilities.
The progress of the audit is reported regularly during the year to the management teams of individual companies and the business areas, the Audit Committee and the Board. The auditor meets with the Board at least once a year without the President or any other member of the Group Executive Management attending.
The independence of the external auditor is guaranteed by the Audit Committee having determined the principles for allowing non-audit services to be provided by the auditor and, in some cases, pre-approving nonaudit services.
Audit fees are paid continuously over the period in office on an approved current account basis. For detailed information on fees paid to the auditor, see Note 3.6.
The Sandvik organization manages a well-established financial reporting process aimed at ensuring a high level of internal control.
The internal control system aligns with the conceptual framework of COSO, which is based on five key components that provide an effective framework for describing and designing the internal control system implemented in the organization. The five components are Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring and Follow-up. The application of the COSO framework is described below.
Sandvik's Board of Directors is ultimately responsible for the governance of risk management including internal control over financial reporting.
Sandvik internal control over financial reporting forms an integral part of the operational system described in The Sandvik Way on page 48 which also
includes risk assessments, policies, procedures and compliance.
The Sandvik Financial Reporting Policies and Procedures govern control over financial reporting. These documents contain detailed instructions regarding accounting policies and financial reporting procedures to be applied by all Sandvik reporting entities.
A Sandvik Financial Internal Control Framework has been developed and includes key components such as well-defined roles and responsibilities, internal control procedures and the risk and control matrix which defines a mandatory minimum of control activities that contribute to the mitigation of risks to acceptable levels. The process of rolling-out the common framework to the Sandvik entities is completed in Group Functions and Sandvik Mining and Rock Technology and is expected to be completed in 2020 in the other business areas.
The Enterprise Risk Management (ERM) process at Sandvik includes the area of financial reporting. Read more about the Enterprise Risk Management (ERM) program on page 44. Key risks noted in local assessments and observations made by Internal and External Audit are also taken into consideration to ensure that adequate controls exist to mitigate these risks.
Mandatory control activities include business process controls, IT controls and corporate governance controls focusing on compliance with policies and procedures. Internal controls are tailored per each operational entity based on risks and applicability. Entity management and process owners are responsible for ensuring that internal controls are operated as per agreed design.
At Group level, Group Control manages the reporting process to ensure the completeness and accuracy of financial reporting and compliance with IFRS requirements.
Controllers in the divisions and business areas perform analytical reviews and investigations, conduct business trend analyses and update forecasts.
Policies and procedures related to financial reporting are updated and communicated on a regular basis to all entities.
Results of monitoring and status of improvement activities related to internal controls are included in the CFO report which is part of the agenda for the Audit Committee meetings.
Quarterly interim reports are published externally and are supplemented by investor meetings attended by members of the Group Executive Management.
Entity management as well as local and global process owners are responsible for testing the effectiveness of internal controls through self-assessments on a quarterly basis and according to the requirements in the Sandvik Internal Control Framework. Results of the self-assessment testing of controls including test evidence are reported and consolidated in a Governance, Risk and Compliance IT tool. The tool also requires reporting of action plans with the purpose to remediate ineffective controls.
Business areas and divisions are to monitor the remediation of ineffective controls. The Audit Committee monitors the effectiveness of internal controls related to financial reporting presented by management with potential deficiencies and suggested actions.
The Board reviews all quarterly interim reports as well as the Annual Report prior to publishing. The Audit Committee reports to the Board regarding internal controls matters including matters for resolution. Minutes from Audit Committee meetings are made available to Board members.
Internal Audit is subordinated to the Audit Committee and the Head of Internal Audit reports to the Audit Committee.
Internal audits include, as a basis, the Group's policies for corporate governance, risk management and internal control regarding areas such as financial reporting, compliance with the Code of Conduct and IT.
The outputs of the audits include action plans and programs for improvement. Findings are reported to the business area management and to the Audit Committee.
Born 1959. Chairman of the Board since 2015. Chairman of the Remuneration Committee and Acquisitions and Divestitures Committee. Education and business experience: M.Sc. in Business and Economics, Stockholm School of Economics. President and CEO of ASSA ABLOY 2005–2018. President and CEO of Nilfisk-Advance 2001–2005 and various positions within Atlas Copco 1983–2001.
Current Board assignments: –
Shareholding in Sandvik (own and closely related persons): 260,000 as well as 1,000,000 call options.
Born 1951. Board member since 2015. Education and business experience: M.Sc. in Physics and B.Sc. in Mathematics, Physical Sciences and Geosciences. Chief Information Officer at F. Hoffmann-La Roche Ltd 2002–2012, Technology Director at Barclaycard 1999–2002 and various positions at ServiceNet, USA, BOC (now Linde), Cable & Wireless Business Networks and Unilever plc.
Current Board assignments: Board member of Iron Mountain Inc., AVEVA Group plc. and Barclays Bank Ireland plc.
Shareholding in Sandvik (own and closely related persons): 10,000.
Born 1962. Board member since 2015. Chairman of the Audit Committee and member of the Acquisitions and Divestitures Committee. Education and business experience: M.Sc. in Business and Economics, Stockholm School of Economics. Executive Vice President
of L E Lundbergföretagen AB since 1997 and President of L E Lundberg Kapitalförvaltning AB since 1995. Current Board assignments: Board member of
Hufvudstaden AB and Förvaltnings AB Lunden. Shareholding in Sandvik (own and closely related persons): 20,000.
Education and business experience: Master of Business Administration. CFO and Group Executive Vice President of Vestas Wind Systems A/S since 2013. CFO of Gambro AB 2009–2012, CFO of Autoliv Inc. 2008–2009 and various positions within Volvo 1996–2008, including CFO and Senior Vice President Finance and Strategy at Volvo Construction Equipment Corporation.
Current Board assignments: Board member of SSAB AB.
Shareholding in Sandvik (own and closely related persons): 2,500.
Born 1957. Board member since 2011. Member of the Remuneration Committee.
Education and business experience: M.Sc. in Engineering. President of Skanska AB 2008–2017, various positions within Skanska 2001–2008 and various senior positions within BPA (currently Bravida) 1995–2000. Current Board assignments: Board member of CRH plc.
Shareholding in Sandvik (own and closely related persons): 5,000.
Born 1970. Board member since 2016. Member of the Audit Committee , Remuneration Committee and Acquisitions and Divestitures Committee.
Education and business experience:
M.Sc. in Business Administration. President and CEO of AB Industrivärden since 2015. Investment manager and subsequently partner at IK Investment Partners 1998–2015 and consultant at Bain & Company 1997–1998.
Current Board assignments: Board member of AB Industrivärden, AB Volvo and Telefonaktiebolaget LM Ericsson.
Shareholding in Sandvik (own and closely related persons): 5,000.
Changes in the Board of Directors
Björn Rosengren was a member of the Board during 2019 but left the Board, effective 1 February 2020.
Information regarding Board assignments and holdings of shares as of 31 December 2019. Current Board assignments refer to assignments in companies or organizations outside the Sandvik Group.
Born 1948. Board member since 2010. Member of the Audit Committee. Education and business experience: M.Sc. in Engineering and B.Sc. in Business Administration. President and CEO of Autoliv Inc. 1999–2007, Gränges AB 1994–1999 and ESAB 1991–1994, and various positions within ESAB and ASEA 1972–1991.
Current Board assignments: Board member of Stena AB.
Shareholding in Sandvik (own and closely related persons): 180,000.
Born 1966. Board member since 2006 (employee representative, IF Metall). Education and business experience: Chairman of the Union Committee, Metal Worker's Union, Sandvik Materials Technology. Various positions within Sandvik since 1986. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 2,889.
Born 1975. Board member since 2016 (employee representative, Unionen/Ledarna/Swedish Association of Graduate Engineers).
Education and business experience: Technical College Graduate – Mechanical Engineering. Chairman Trade Union, Unionen Sandvik Sweden and Unionen Coromant and Machining Solutions. Various purchasing positions within Sandvik 2000–2010 and production and logistics positions within Scania 1995–2000. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 3,560.
Born 1962. Deputy Board member since 2012 (employee representative, IF Metall). Education and business experience: Chairman of the Union Committee, Metal Workers' Union, Sandvik Coromant, Gimo. Various operator positions at Gimoverken, Sandvik Coromant, since 1984. Construction firm Anders Diös 1980–1984.
Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 0.
Born 1974. Deputy Board member since 2015 (employee representative, Unionen/Ledarna/ Swedish Association of Graduate Engineers). Education and business experience: M.Sc. and PhD in Chemical Engineering. Sustainable Business Manager, Sandvik Materials Technology, since 2019. Sustainability Specialist and R&D positions within Sandvik Materials Technology 2010–2018. Scientist and postdoctoral researcher at Risø DTU, Denmark, 2007–2010 and Technical Sales Specialist at Spectral Solutions AB 2005–2007. Current Board assignments: Board member of Metacon AB.
Shareholding in Sandvik (own and closely related persons): 0.
Born 1941. Chairman of the Board of Sandvik AB 1983–2002.
Born 1969. Secretary to the Board since 2014. Executive Vice President and General Counsel, Sandvik AB, since 2014.
Auditor-in-charge:
Peter Nyllinge, Authorized Public Accountant. Other auditing assignments: Fagerhult and Svensk Exportkredit.
Born 1977. President and CEO, Sandvik AB, since 1 February 2020.
Education and business experience: M.Sc. Applied Physics and Electrical Engineering and B.Sc. Business Administration. Various positions within the Assa Abloy Group 2006–2020, including Executive Vice President HID Global division 2015–2020, Director of Product Management and General Manager of Shared Technologies Unit. Various positions in the Saab Group 2001–2006. Current Board assignments: –
Shareholding in Sandvik (own and closely related persons): –
Born 1969. President of the Sandvik Mining and Rock Technology business area since 2019. Education and business experience: M.Sc. Accounting and Finance. Various positions within Sandvik since 2014, including President for the Rock Tools division, President for the Global Equipment division and Vice President for Strategy within Sandvik Mining and Rock Technology. Previously leading positions at McKinsey, Ericsson and several high-tech start-ups.
Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 5,883
Born 1977. Executive Vice President and Head of Group Communications, Sandvik AB, since 2013. Education and business experience: M.Sc. in Geological and Earth Sciences/Geosciences, and Journalism. Various positions within Sandvik since 2006, including Vice President Communication and Marketing at Sandvik
Coromant. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 4,398.
Born 1958. Acting President of the Sandvik Machining Solutions business area since 2019. Education and business experience: M.Sc. in Mechanical Engineering and MBA in International Management. Senior Strategy Advisor and Vice President Sandvik Machining Solutions 2018–2019, President of Seco Tools 2011–2018, President and CEO of BE Group 2009–2010 and President and CEO of KMT Group 2003–2008. Previously various senior positions within ABB. Current Board assignments: Ejendals AB Shareholding in Sandvik (own and closely related persons): 34,407.
Born 1965. President of the Sandvik Materials Technology business area since 2017. Education and business experience: M.Sc. in Mechanical Engineering. Various positions within Sandvik since 1990, including Head of Business Development, Vice President Production Strategy and Vice President Production at Sandvik Coromant and Head of Primary Products at Sandvik Materials Technology . Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 6,168.
Born 1962. Executive Vice President and Chief Financial Officer, Sandvik AB, since 2016. Education and business experience: B.Sc. in Business Administration and Economics. CFO of AB Electrolux 2012–2016, CFO and Executive Vice President of ASSA ABLOY AB 2006–2012, CFO of Seco Tools AB 2002–2006 and various positions within ABB 1987–2002. Current Board assignments: Board member of Millicom International Cellular S.A. Shareholding in Sandvik (own and closely related persons): 20,191.
Born 1970. Executive Vice President and Head of Human Resources, Sandvik AB, since 2016. Education and business experience: M.Sc. in Business and Economics. Various positions in Human Resources and Organizational Development within Sandvik since 2004 and consultant at Cap Gemini 1999–2003. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 9,730.
Born 1969. Executive Vice President and General Counsel, Sandvik AB, since 2014. Education and business experience: Master of Laws (LL.M), Sweden and the Netherlands. Various positions within Securitas 2009–2014, including General Counsel, Elekta AB 1999– 2009, including General Counsel, and Lagerlöf & Leman law firm 1996–1999. Current Board assignments: – Shareholding in Sandvik (own and closely related persons): 6,768.
Björn Rosengren was President and CEO during 2019 but left the company, effective 1 February 2020, when he was succeeded by Stefan Widing. Klas Forsström and Lars Engström left the company in 2019 and were replaced by Lars Bergström and Henrik Ager, respectively.
Information regarding board assignments and holdings of shares as of 31 December 2019. Current board assignments refer to assignments in companies or organizations outside the Sandvik Group.
Sandvik's business strategy, business model and the 2030 sustainability Goals (see page 14) form the basis for the company's sustainable business governance. Relevant goals are set to address material areas and efficiently manage related risks and opportunities. Policies and management systems have been set to ensure financial, environmental and social compliance.
The Group Executive Management has the overall responsibility for Sandvik's sustainability strategy and agenda while the business areas and divisions are responsible for the implementation and follow-up. The business areas are also responsible for the assessment and management of sustainability risks in their operations. KPIs are consolidated and reported to follow up on goals at Group and business area levels. Each year we evaluate our performance, set targets and focus actions for the coming year.
The Sustainability Council is a forum for cooperation and best practice sharing across Sandvik. The Council comprises representatives from the business areas and group functions. The Sustainable Business function coordinates the sustainability agenda together with the business areas.
Sandvik's Code of Conduct is based on our Core Values, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the United Nations International bill of Human Rights, the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention against Corruption, as outlined in the ten principles of the United Nations Global Compact. It confirms our strong commitment to ethical and responsible business practices and compliance with relevant laws and regulations in all markets where we operate. The Code of Conduct describes the principles of behavior that our employees should adhere to and provides guidance in our actions and everyday business decisions. The Code of Conduct is a vital component in The Sandvik Way governance model, which encompasses common steering documents and processes. The Sandvik Way also describes a common culture and ways of working and is an important enabler for achieving our 2030 goals.
Employees and external parties who witness a violation of the Code of Conduct, laws or our policies can report the violation, anonymously, through the global reporting tool Speak Up. All reports are assigned an investigator from the business area that conducts the investigation. The Ethics Office oversees the effectiveness of the Speak Up process. Reports, investigations and remediation are recorded, monitored and included in reporting to the Audit Committee.
No retaliation may be taken against an employee or business partner who, in good faith, voices their concern, as is outlined in Sandvik's Speak Up Policy.
Sandvik's Compliance System includes four areas: anti-bribery and corruption, competition law, trade compliance and data privacy. To emphasize the importance of a fully embedded and agile Compliance System within the business, the Compliance System is part of Sandvik's 2030 goals (see page 14). The purpose is to ensure a well-functioning structure with control over Sandvik's international business and to manage compliance risks in all countries in which Sandvik operates. Compliance programs, including risk identification, policies, training, controls, etc., are implemented by each business area and overseen by the Sandvik Compliance Functional Council which sets requirements, reviews performance and provides assurance of satisfaction to the Board of Directors through the Audit Committee. The Council comprises business area and group Compliance Officers and the Head of Business Integrity.
Our commitment to human rights is confirmed in our Code of Conduct as well as in our Supplier Code of Conduct in which we support, amongst others, the Bill of Human Rights and UN Guiding Principles on Business and Human Rights. The Codes also provide guidance in identifying, preventing and mitigating risks related to human rights.
To mitigate human rights risks, we continuously work to ensure compliance with national legislation and internationally agreed human rights standards and regulations. We regularly evaluate our standards and procedures for identifying, preventing and mitigating adverse human rights impacts in the Group's operations and in our value chain. Our work on human rights is integrated in our regular processes and procedures in different ways, for example, in our Sustainable Supplier Management, our safety work and in our diversity and inclusion scheme. We have zero tolerance for forced or slave labor and child labor.
We support children's rights and the right to education through our community involvement initiatives in, for example, India and China. All employees have the right, if they choose, to join a union and be covered by a collective agreement. We do not accept any form of harassment or bullying and believe in a diverse workforce without any form of discrimination based on gender identity, ethnicity, national origin, age, disability, marital status, social group or any other characteristics.
Sandvik offers a diverse and inclusive workplace, fair remuneration and working terms that respect the needs of the individual. Sandvik has a People Policy that reflects Sandvik's commitment to our employees and outlines what employees can expect
from us in relation to how we attract, develop and retain our employees and where appropriate, manage their exit from the business.
Our 5,300 managers play a crucial role in enabling teams to grow and deliver results. Our leadership model and our global leadership programs set clear expectations on both leadership capabilities and behaviors.
Through our Global Graduate Program, we attract and train young professionals at various parts of the Sandvik organization. One of the main purposes with the program is to develop and prepare graduates for future key positions, and after the program they are deployed into different roles within our business.
Diversity and inclusion are vital aspects of our people strategy and part of Sandvik's 2030 goals (see page 14).
The responsibility for implementation and communication of the 2030 goals lies within the business, including securing resource needs and taking appropriate measures to ensure goal achievement. Sandvik has a diversity and inclusion forum with representatives from business areas and the Group with the purpose to work collaboratively to develop a diverse organization and a culture of inclusion. The forum collaborates on joint initiatives and shares best practices and experiences.
Sandvik has a zero-harm vision for our people, the environment we work in, our customers and our suppliers. All explicitly included in our 2030 goals (see page 14). Sandvik's EHS Policy, Groups EHS Objectives and the 2030 Goals drive our health and safety activities. Each business area works to meet these objectives according to their own plans. Targets are set year on year to drive performance on all organizational levels towards the 2030 goals. In addition to our own internal operations, our EHS Policy includes a commitment to external relationships that Sandvik has in the market.
The Sandvik EHS Council consists of representatives from all business areas with its primary aim being to facilitate collaboration across the company that will enhance our progress towards our EHS vision. While EHS activities are decentralized within the business areas, the EHS
Council is the forum for identifying, reaching consensus on and implementing common initiatives and procedures. In addition, the Council drafts documents, such as the EHS Policy and objectives and targets, for the Group Executive Management to consider and approve. The council can appoint working groups to work on specific EHS issues, for example environmental working groups.
Our EHS Management systems are based on ISO 14001, ISO 45001, OHSAS 18001 or equivalent standards. Management of individual topics follows the criteria of these frameworks but can go beyond. We have a common EHS Policy for the company and Group Procedures in areas where Sandvik wants to set standards that go above and beyond the requirements of our certified management systems. These procedures handle hazard identification and risk management; incident reporting, investigation and injury management; EHS performance measurement and monitoring; Training and competence; Small sites and offices procedure. Sites with a lower risk profile do not have to go through the process of external certification. However, these sites will be covered by the requirements in the Group procedure for Small sites and offices.
Any specific issues of a more local nature, for example, effluent discharge limits or environmental permits, if not covered in legal requirements, certifications or Group procedures, will be local initiatives adapted to the specific needs at each production unit or business division. The scope of the EHS Management systems includes relationships also outside the company boundaries, and a responsibility to ensure high standards where Sandvik is in control of the work environment. This includes working with risk identification and mitigation in order to prevent any incidents of work-related injuries or occupational illnesses.
Environmental criteria are included in the process for sustainable supplier management and environmental and safety criteria are part of the product development process.
Each Sandvik-controlled location will implement and maintain formal systems and processes for risk assessments. All employees can and are encouraged to report the hazards they observe. The system supports a process for handling all hazards adequately and following them through to completion. The most senior Sandvik manager at each location is responsible for correct handling of the registered hazard.
Each business area / location has an Incident Reporting and Investigation system and is responsible for ensuring the findings from incident
investigations are shared within the organization. All employees have access to a colleague in their immediate workplace or as part of their organization who is representing the EHS function within Sandvik.
Health and safety committees are organized depending on the nature of the local organization and the issues within that region. Typically, representatives are from local management and from workers and EHS professionals.
Training is provided as part of the induction for all employees and in more depth to EHS professionals. Furthermore, EHS issues are integrated in any training for certain roles. Our training packages vary from classroom training in-house to external training and self-learning, for example, e-learning.
Access to medical and healthcare services is designed based on local needs. It varies from having professional healthcare on site or agreements with external parties where our employees have access to vaccinations, health checks, etc. Health and Well-being programs are offered and maintained for all employees. Enrollment is voluntary. The programs are adapted to local needs and address a wide range of issues such as fitness, nutrition, mental health and disease prevention.
Sandvik is committed to sustainable procurement practices that minimize our negative societal and environmental impacts, improve the sustainability performance of our suppliers and create value for business, our customers and society at large. It is important for us to partner with suppliers who understand and embrace our sustainability standards in areas such as environment, labor, human rights, anti-corruption, circularity of materials and carbon footprint. Our requirements are part of our 2030 Sustainability goals and are outlined in our Supplier Code of Conduct, which will be updated in 2020. The responsibility of development and implementation of sustainable supplier management is decentralized and lies within each division.
Sandvik is involved in a wide variety of community relations projects around the world. Our platform for sponsorship and community involvement projects comprises four areas: Innovation – projects with a clear link to our daily work, products and solutions, Education and skills – projects that demonstrate our role as an employer and provide long-term
employer branding value, Health and safety – projects contributing to improved health and safety in society, and Local enabler – projects creating joint value for our stakeholders and our employees.
We view our community projects as investments, for which we require contracts, clear target groups and objectives with measurable results. All activities must conform to our Code of Conduct, which means that we do not engage in any activities of a political or religious nature, or in projects that may be viewed as hazardous to health or the environment. All of our project partners must sign the Sandvik Supplier Code of Conduct and undergo the same screening process as our suppliers. As part of our 2030 Sustainability goals, we encourage our sites to be engaged in community activities with a positive impact on society.
| 63 |
|---|
| 64 |
| 66 |
| 67 |
| Income statement | 68 |
|---|---|
| Balance sheet | 69 |
| Changes in equity | 71 |
| Cash flow statement | 72 |
| MSEK | Note | 2018 | 2019 |
|---|---|---|---|
| Continuing operations | |||
| Revenue | 1,2 | 100,072 | 103,238 |
| Cost of sales and services | –59,094 | –61,662 | |
| Gross profit | 40,978 | 41,576 | |
| Selling expenses | –13,377 | –14,946 | |
| Administrative expenses | –6,180 | –6,643 | |
| Research and development costs | 4 | –3,535 | –3,674 |
| Share of results of associated companies | 45 | 9 | |
| Other operating income | 5 | 1,337 | 1,184 |
| Other operating expenses | 6 | –613 | –4,119 |
| Operating profit | 1,3,7,8 | 18,655 | 13,386 |
| Financial income | 374 | 492 | |
| Financial expenses | –1,169 | –1,729 | |
| Net financing costs | 9 | –795 | –1,237 |
| Profit after financial items | 17,860 | 12,150 | |
| Income tax | 10 | –4,645 | –3,421 |
| Profit for the year, continuing operations | 13,214 | 8,728 | |
| Discontinued operations | |||
| Revenue | 852 | 295 | |
| Operating profit | –552 | –204 | |
| Profit after financial items | –545 | –205 | |
| Profit for the year, discontinued operations | 30 | –545 | –205 |
| Group total | |||
| Revenue | 100,924 | 103,533 | |
| Operating profit | 18,103 | 13,182 | |
| Profit after financial items | 17,315 | 11,945 | |
| Profit for the year, Group total | 12,669 | 8,523 | |
| Profit for the year attributable to: | |||
| Equity holders of the Parent | 12,679 | 8,539 | |
| Non–controlling interests | –10 | –16 | |
| Basic earnings per share, SEK | 11 | ||
| Continuing operations | 10,54 | 6,97 | |
| Discontinued operations | –0,43 | –0,16 | |
| Group total | 10,11 | 6,81 | |
| Diluted earnings per share, SEK | 11 | ||
| Continuing operations | 10,52 | 6,96 | |
| Discontinued operations | –0,43 | –0,17 | |
| Group total | 10,09 | 6,79 | |
| Consolidated statement of comprehensive income | |||
| Profit for the year | 12,669 | 8,523 | |
| Other comprehensive income | |||
| Items that cannot be reclassified to profit/loss for the year | |||
| Actuarial gains/losses on defined–benefit pension plans | 20 | –684 | –1,638 |
| Tax relating to items that cannot be reclassified to profit/loss for the year | 10 | 163 | 323 |
| –522 | –1,315 | ||
| Items that can be reclassified to profit/loss for the year | |||
| Translation differences during the year | 1,752 | 1,880 | |
| Fair–value changes in cash flow hedges Fair–value changes in cash flow hedges transferred to profit/loss for the year |
3 15 |
30 –2 |
|
| Tax related to fair–value changes in cash–flow hedges | 10 | –4 1,766 |
–8 1,900 |
| Total other comprehensive income for the year | 1,244 | 585 | |
| Total comprehensive income | 13,914 | 9,108 | |
| Total comprehensive income for the year attributable to: | |||
| Equity holders of the Parent | 13,924 | 9,124 | |
| Non–controlling interests | –10 | –16 |
| MSEK | Note | 31 Dec. 2018 | 31 Dec. 2019 |
|---|---|---|---|
| Assets | |||
| Non–current assets | |||
| Intangible assets | |||
| Patents and other intangible assets | 12 | 6,645 | 5,694 |
| Goodwill | 12 | 15,605 | 14,380 |
| Total | 22,250 | 20,074 | |
| Property, plant and equipment | |||
| Land and buildings | 12 | 9,118 | 9,012 |
| Plant and machinery | 12 | 11,879 | 12,221 |
| Equipment, tools, fixtures and fittings | 12 | 1,580 | 1,752 |
| Construction in progress and advance payments | 12 | 2,785 | 2,657 |
| Total | 25,362 | 25,643 | |
| Right–of use assets | 8 | 0 | 3,172 |
| Financial assets | |||
| Investments in associated companies | 1,15 | 100 | 292 |
| Financial assets | 119 | 83 | |
| Deferred tax assets | 10 | 3,150 | 3,797 |
| Non–current receivables | 16 | 2,295 | 2,390 |
| Total | 5,664 | 6,562 | |
| Total non–current assets | 53,276 | 55,450 | |
| Current assets | |||
| Inventories | 17 | 24,393 | 24,243 |
| Contract assets | 143 | 77 | |
| Current receivables | |||
| Trade receivables | 18 | 15,255 | 14,878 |
| Due from associated companies | 0 | 0 | |
| Income tax receivables | 10 | 740 | 1,403 |
| Other receivables | 16 | 4,667 | 4,708 |
| Prepaid expenses and accrued income | 808 | 896 | |
| Total | 21,470 | 21,885 | |
| Cash and cash equivalents | 18,089 | 16,9531) | |
| Assets held for sale | 30 | 641 | 1,815 |
| Total current assets | 64,736 | 64,973 | |
| Total assets | 118,011 | 120,423 |
1) Not including Assets held for sale of 34 million SEK
| MSEK | Note | 31 Dec. 2018 | 31 Dec. 2019 |
|---|---|---|---|
| Equity and liabilities | |||
| Equity | |||
| Share capital | 1,505 | 1,505 | |
| Other paid-in capital | 7,678 | 7,678 | |
| Reserves | 5,110 | 7,010 | |
| Retained earnings incl. profit/loss for the period | 43,827 | 45,651 | |
| Equity attributable to equity holders of the Parent | 58,120 | 61,844 | |
| Non-controlling interest | 42 | 14 | |
| Total equity | 19 | 58,163 | 61,858 |
| Non-current liabilities | |||
| Interest-bearing liabilities | |||
| Provision for pensions | 20 | 6,234 | 7,765 |
| Loans from financial institutions | 1,123 | 22 | |
| Lease liabilities | 27 | 0 | 2,448 |
| Other liabilities | 23 | 20,431 | 15,148 |
| Total | 27,788 | 25,383 | |
| Non-interest-bearing liabilities | |||
| Deferred tax liabilities | 10 | 2,385 | 2,299 |
| Provision for taxes | 10 | 1,457 | –0 |
| Other provisions | 21 | 1,149 | 1,193 |
| Other non-current liabilities | 24 | 303 | 298 |
| Total | 5,294 | 3,790 | |
| Total non-current liabilities | 33,082 | 29,174 | |
| Current liabilities | |||
| Interest–bearing liabilities | |||
| Loans from financial institutions | 2,348 | 172 | |
| Lease liabilities | 27 | 0 | 792 |
| Other liabilities | 23 | 27 | 2,062 |
| Total | 2,375 | 3,026 | |
| Non-interest-bearing liabilities | |||
| Advance payments from customers | 2,447 | 1,871 | |
| Accounts payable | 7,792 | 7,598 | |
| Contract liabilities | 275 | 278 | |
| Due to associated companies | 1 | 1 | |
| Income tax liabilities | 10 | 1,252 | 3,744 |
| Other liabilities | 24 | 2,467 | 2,357 |
| Other provisions | 21 | 2,126 | 2,693 |
| Accrued expenses and deferred income | 7,420 | 6,944 | |
| Total | 23,780 | 25,486 | |
| Liabilities directly attributed to assets held for sale | 30 | 612 | 880 |
| Total current liabilities | 26,768 | 29,391 | |
| Total liabilities | 59,850 | 58,564 | |
| Total equity and liabilities | 118,011 | 120,423 |
For information on contingent liabilities and pledged assets, refer to Note 26.
| Equity attributable to equity holders | |||||||
|---|---|---|---|---|---|---|---|
| MSEK | Share capital |
Other paid–in capital |
Reserves | Retained earnings incl. profit/loss for the year |
Total | Non–con trolling |
interests Total equity |
| Equity at 1 January 2018 | 1,505 | 7,678 | 3,344 | 36,167 | 48,694 | 28 | 48,722 |
| Net working capital adjustment | –312 | –312 | –312 | ||||
| Changes due to IFRS 9 | – | – | – | –71 | –71 | – | –71 |
| Adjusted equity at 1 January 2018 | 1,505 | 7,678 | 3,344 | 35,784 | 48,311 | 28 | 48,339 |
| Profit for the year | – | – | – | 12,679 | 12,679 | –10 | 12,669 |
| Other comprehensive income/loss | – | – | 1,766 | –531 | 1,235 | – | 1,235 |
| Total comprehensive income/loss for the year | 0 | 0 | 1,766 | 12,148 | 13,914 | –10 | 13,904 |
| Transaction with owners | |||||||
| Acquired non–controlling interest | –24 | –24 | 24 | 0 | |||
| Share–based payment settled by equity instruments | – | – | – | 151 | 151 | – | 151 |
| Payments on exercise of options program | – | – | – | 20 | 20 | – | 20 |
| Reduction of hedge options programs | – | – | – | 1 | 1 | – | 1 |
| Other options | – | – | – | 0 | 0 | – | 0 |
| Dividends, hedged options program | – | – | – | 137 | 137 | – | 137 |
| Dividend | – | – | – | –4,390 | –4,390 | – | –4,390 |
| Equity at 31 December 2018 | 1,505 | 7,678 | 5,110 | 43,827 | 58,120 | 42 | 58,162 |
| Equity at 1 January 2019 | 1,505 | 7,678 | 5,110 | 43,827 | 58,120 | 42 | 58,162 |
| Profit for the year | 8,539 | 8,539 | –16 | 8,523 | |||
| Other comprehensive income/loss | 1,900 | –1,315 | 585 | 585 | |||
| Total comprehensive income/loss for the year | 0 | 0 | 1,900 | 7,224 | 9,124 | –16 | 9,108 |
| Transaction with owners | |||||||
| Acquired non–controlling interest | 3 | 3 | –3 | 0 | |||
| Share–based payment settled by equity instruments | – | – | – | 97 | 97 | – | 97 |
| Payments on exercise of options program | – | – | – | 20 | 20 | – | 20 |
| Reduction of hedge options programs | – | – | – | –189 | –189 | – | –189 |
| Other options | – | – | – | 0 | 0 | – | 0 |
| Dividends, hedged options program | – | – | – | 0 | 0 | – | 0 |
| Dividend | – | – | – | –5,331 | –5,331 | –9 | –5,340 |
| Equity at 31 December 2019 | 1,505 | 7,678 | 7,010 | 45,651 | 61,844 | 14 | 61,858 |
| MSEK | Note | 2018 | 2019 |
|---|---|---|---|
| Group total | |||
| Cash flow from operating activities | |||
| Income after financial income and expenses | 17,315 | 11,945 | |
| Adjustment for depreciation, amortization and impairment losses | 4,408 | 10,077 | |
| Other adjustment for non–cash items, etc. | 29 | 46 | 441 |
| Income tax paid | –2,978 | –3,598 | |
| Cash flow from operating activities before changes in working capital | 18,791 | 18,865 | |
| Changes in working capital | |||
| Change in inventories | –2,119 | 474 | |
| Change in operating receivables | –1,013 | 1,168 | |
| Change in operating liabilities | –66 | –2,090 | |
| Cash flow from changes in working capital | –3,198 | –447 | |
| Investments in rental equipment | –825 | –911 | |
| Divestments of rental equipment | 146 | 147 | |
| Cash flow from operating activities | 14,914 | 17,654 | |
| Cash flow from investing activities | |||
| Acquisition of companies and shares, net of cash acquired | 30 | –4,631 | –1,870 |
| Proceeds from sale of companies and shares, net of cash disposed | 30 | 4,052 | 95 |
| Acquisition of tangible assets | –3,310 | –3,472 | |
| Proceeds from sale of tangible assets | 209 | 397 | |
| Acquisition of intangible assets | –611 | –664 | |
| Proceeds from sale of intangible assets | 70 | 42 | |
| Other investments, net | –62 | –11 | |
| Net cash used in investing activities | –4,283 | –5,484 | |
| Net cash flow after investing activities | 10,631 | 12,171 | |
| Cash flow from financing activities | |||
| Change in borrowing | 29 | –859 | –7,073 |
| Dividends paid | –4,390 | –5,340 | |
| Amortization, lease liabilities | 29 | – | –945 |
| Cash flow from financing activities | –5,249 | –13,358 | |
| Cash flow for the year | 5,382 | –1,188 | |
| Cash and cash equivalents at beginning of year | 12,724 | 18,089 | |
| Foreign exchange differences on cash and cash equivalents | –17 | 86 | |
| Cash and cash equivalents at the end of year | 29 | 18,089 | 16,9871) |
| Continuing operations | |||
| Cash flow from operations | 15,353 | 17,807 | |
| Cash flow from investing activities | –4,286 | –5,500 | |
| Cash flow from financing activities | –5,247 | –13,356 | |
| Cash flow from continuing operations | 5,820 | –1,050 |
1) Included assets held for sale of 34 million SEK
| MSEK | Note | 2018 | 2019 |
|---|---|---|---|
| Revenue | 2 | 20,141 | 21,038 |
| Cost of sales and services | –11,103 | –10,038 | |
| Gross profit | 9,038 | 11,000 | |
| Selling expenses | –1,321 | –1,259 | |
| Administrative expenses | –2,393 | –2,724 | |
| Research and development costs | 4 | –1,492 | –1,588 |
| Other operating income | 5 | 26 | 44 |
| Other operating expenses | 6 | –1,291 | –1,249 |
| Operating profit | 3, 8 | 2,567 | 4,224 |
| Result from shares in Group companies | 9 | 4,364 | 11,989 |
| Result from shares in associated companies | 9 | 0 | 0 |
| Interest income and similar items | 9 | 541 | 485 |
| Interest expenses and similar items | 9 | –1,117 | –795 |
| Profit after financial items | 6,355 | 15,903 | |
| Appropriations | –3,138 | –82 | |
| Income tax | 10 | –1,481 | –684 |
| Profit for the year | 1,736 | 15,137 |
Profit for the year corresponds to total comprehensive income for the year.
| MSEK | Note | 31 Dec. 2018 | 31 Dec. 2019 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | |||
| Patents and other intangible assets | 13 | 26 | 32 |
| Goodwill | 13 | 81 | 53 |
| Total | 107 | 85 | |
| Property, plant and equipment | |||
| Land and buildings | 13 | 985 | 972 |
| Plant and machinery | 13 | 4,158 | 4,444 |
| Equipment, tools, fixtures and fittings | 13 | 373 | 441 |
| Construction in progress and advance payments | 13 | 1,537 | 1,232 |
| Total | 7,053 | 7,089 | |
| Financial assets | |||
| Shares in Group companies | 14 | 30,777 | 42,573 |
| Due from Group companies | 11,505 | 11,648 | |
| Investments in associated companies | 15 | 0 | 0 |
| Other investments | 2 | 2 | |
| Non-current receivables | 16 | 109 | 35 |
| Deferred tax assets | 10 | – | 80 |
| Total | 42,393 | 54,338 | |
| Total non-current assets | 49,553 | 61,512 | |
| Current assets | |||
| Inventories | 17 | 3,065 | 3,229 |
| Current receivables | |||
| Trade receivables | 747 | 798 | |
| Due from Group companies | 9,160 | 10,112 | |
| Income tax receivables | 10 | 81 | – |
| Other receivables | 16 | 684 | 451 |
| Prepaid expenses and accrued income | 636 | 695 | |
| Total | 11,308 | 12,056 | |
| Cash and cash equivalents | 3 | 0 | |
| Total current assets | 14,376 | 15,285 | |
| Total assets | 63,929 | 76,797 |
| MSEK | Note | 31 Dec. 2018 | 31 Dec. 2019 |
|---|---|---|---|
| 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 | |||
| Profit brought forward | 19,979 | 16,312 | |
| Profit for the year | 1,736 | 15,137 | |
| Total | 21,715 | 31,449 | |
| Total equity | 19 | 24,831 | 34,565 |
| Untaxed reserves | |||
| Other untaxed reserves | 3,140 | 3,222 | |
| Total | 3,140 | 3,222 | |
| Provisions | |||
| Provisions for pensions | 20 | 376 | 337 |
| Other provisions | 21 | 215 | 433 |
| Total | 591 | 770 | |
| Non-current interest-bearing liabilities | |||
| Loans from Group companies | 22 | 1 | 1 |
| Other liabilities | 22 | 16,962 | 15,123 |
| Total | 16,963 | 15,124 | |
| Non-current non-interest-bearing liabilities | |||
| Deferred tax liabilities | 10 | 649 | – |
| Other liabilities | 258 | 245 | |
| Total | 907 | 245 | |
| Current interest-bearing liabilities | |||
| Loans from financial institutions | 93 | 99 | |
| Loans from Group companies | 10,730 | 13,144 | |
| Other liabilities | – | 1,995 | |
| Total | 10,823 | 15,238 | |
| Current non-interest-bearing liabilities | |||
| Advance payments from customers | 342 | 325 | |
| Accounts payable | 1,844 | 1,819 | |
| Due to Group companies | 1,541 | 2,226 | |
| Income tax liabilities | 10 | – | 604 |
| Other liabilities | 248 | 291 | |
| Accrued expenses and deferred income | 25 | 2,699 | 2,368 |
| Total | 6,674 | 7,633 | |
| Equity and liabilities | 63,929 | 76,797 |
For information on contingent liabilities and pledged assets, refer to Note 26.
| Share | Statutory | Distributable | ||
|---|---|---|---|---|
| MSEK | capital | reserve | equity | Total equity |
| Equity at 1 January 2018 | 1,505 | 1,611 | 24,063 | 27,179 |
| Comprehensive income for the year | – | – | 1,735 | 1,735 |
| Adjustment due to IFRS 9 | – | – | –2 | –2 |
| Dividend | – | – | –4,390 | –4,390 |
| Share-based payment settled by equity instruments | – | – | 151 | 151 |
| Reduction of hedge options programs | – | – | 137 | 137 |
| Payments on exercise of options program 2013 | – | – | 1 | 1 |
| Dividends, hedged options program | – | – | 20 | 20 |
| Equity at 31 December 2018 | 1,505 | 1,611 | 21,715 | 24,831 |
| Comprehensive income for the year | – | – | 15,137 | 15,137 |
| Dividend | – | – | –5,331 | –5,331 |
| Share-based payment settled by equity instruments | – | – | 97 | 97 |
| Reduction of hedge options programs | – | – | –189 | –189 |
| Dividends, hedged options program | – | – | 20 | 20 |
| Equity at 31 December 2019 | 1,505 | 1,611 | 31,449 | 34,565 |
| MSEK | 2018 | 2019 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit before tax | 3,217 | 15,821 |
| Adjustment for depreciation, amortization and impairment losses | 948 | 1 163 |
| Adjustment for non-cash items, etc. | 6,127 | –222 |
| Income tax paid | –58 | –728 |
| Cash flow from operating activities before changes in working capital | 10,234 | 16,034 |
| Changes in working capital | ||
| Changes in inventories | –139 | –164 |
| Changes in operating receivables | –4,648 | 795 |
| Changes in operating liabilities | –4,033 | 706 |
| Cash flow from operating activities | 1,414 | 17,371 |
| Cash flow from investing activities | ||
| Acquisition of companies and shares, net of cash acquired | –2,930 | –11,893 |
| Acquisition of property, plant and equipment | –799 | –976 |
| Proceeds from sale of companies and shares, net of cash disposed of | 2,791 | 115 |
| Proceeds from sale of property, plant and equipment | 183 | 136 |
| Net cash used in investing activities | –755 | –12,618 |
| Net cash flow after investing activities | 659 | 4,753 |
| Cash flow from financing activities | ||
| Changes in advances/loans to Group companies | –650 | –1 853 |
| Changes in advances/loans from Group companies | 4,872 | 2,414 |
| Proceeds from external borrowings | 93 | 99 |
| Repayment of external borrowings | –581 | –85 |
| Dividend paid | –4,390 | –5,331 |
| Net cash used in financing activities | –656 | –4,756 |
| Cash flow for the year | 3 | –3 |
| Cash and cash equivalents at beginning of year | 0 | 3 |
| Cash and cash equivalents at end of year | 3 | 0 |
The consolidated financial 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 financial statements except as set out below in the section "Parent Company's accounting policies."
The financial statements are presented on pages 38–121 and 135–136 in the printed Annual Report. The Parent Company's Annual Report and the consolidated financial statements were approved for issuance by the Board of Directors on 1 March 2020. The Group's and the Parent Company's income statements and balance sheets are subject to adoption at the Annual General Meeting on 28 April 2020.
Assets and liabilities are stated on a historical cost basis except for certain financial assets and liabilities, which are stated at their fair value. Financial assets and liabilities measured at fair value comprise derivative instruments. Receivables and liabilities and items of income and expense are offset only when required or expressly permitted in an accounting standard.
The preparation of financial 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 had a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year, are discussed further 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 financial statements were authorized for issue by the Board of Directors. Significant non-adjusting events, that is, events indicative of conditions that arose after the balance sheet date, are disclosed in the financial statements. Only adjusting events, that is, those that provide evidence of conditions that existed at the balance sheet date, have been considered in the final establishment of the financial statements. The most significant accounting policies for the Group, as set out below, have been applied consistently to all periods presented in these consolidated financial statements except as specifically described. Moreover, the Group's accounting policies have been consistently applied in the Group reporting by all members of the Group and in the Group reporting of associated companies, where necessary, by adaptation to Group policies.
The below amendments of standards and new and amended interpretations came into effect 1 January 2019. None of these standards had any material impact on Sandvik's financial statements.
–IFRS 16 Leases. The standard is effective from 1 January 2019. The lease portfolio included almost 10,000 contracts at the transition date and covers mainly operational leases for offices, production and warehouse facilities, production, office and IT equipment. Existing finance leases measured previously under IAS 17 Leases are reclassified to IFRS 16 to the amounts recognized immediately before the date of application of the new standard. Sandvik has chosen to perform the transition in line with the Cumulative catch-up approach and has applied the expedient not to restate any comparative information. Right-of-use assets have been determined as an amount equal to the lease liabilities as identified at initial application. A single discount rate has been applied per country, per lease term and asset classes Land and Buildings respectively Other assets such as machinery, equipment, vehicles and IT. Implicit rate has been applied when it has been recognized in a contract. Hindsight has been used to determine the lease terms when an option to terminate or extend has been available. Lease contracts shorter than 12 months or ending within 12 months at the date of application are considered short-term and hence not recognized as lease liability or right-of-use asset. In addition, low value contracts are also excluded from being recognized as lease liability or right-of-use asset. The Group's activities as a lessor are not material and hence the impact on Group financial statements is not significant. However, some additional disclosures will be required. The effect on the Group financial reports transiting to IFRS 16 as per 1 January 2019 is summarized below.
| MSEK | Closing bal ance 31 Dec 2018 before transition to IFRS 16 |
Reclassifica tion of finance leases due to IFRS 16 transition |
Estimated adjustments due to IFRS 16 transition |
Estimated adjusted opening balance 1 Jan 2019 |
|---|---|---|---|---|
| Property, plant and equipment |
25,362 | –30 | — | 25,332 |
| Right-of-use assets |
— | 30 | 3,359 | 3,389 |
| Other liabilities | 20,431 | –30 | 20,401 | |
| Long-term lease liabilities |
— | 30 | 2,639 | 2,669 |
| Short-term lease liabilities |
— | — | 720 | 720 |
Sandvik has identified many contracts concerning premises with open-ended contracts. In many countries local law provides protection to the lessee from being given notice. This requires Sandvik as a lessee to determine the contract period instead of considering the termination clause. The lessee then determines the length of the contract period based on factors such as the importance of the building to the business, any planned or made leasehold investments and the market situation for premises. As a consequence, these contracts have in many cases had the contract period extended.
| MSEK | Movement |
|---|---|
| Minimum lease payments for operating leases IAS 17 | 4,237 |
| Discounted by Incremental borrowing rate (3.48%) | –517 |
| Addition of financial lease liabilities | 30 |
| Deduction of short-term and low value contracts | –441 |
| Deduction of contracts reassessed as service agreements |
–5 |
| Changes due to extension and termination options | 85 |
| Other changes | 0 |
| OB adjustment according to IFRS 16 | 3,389 |
The lease contracts included in comparative year 2018 in the Annual Report are presented applying the accounting standard IAS 17 Leases under which a finance lease, the lessee recognizes the leased asset measured at the lower end 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 profit or loss for the year on a straight-line basis following the lease term.
– IFRIC 23 Uncertainty over Income Tax Treatments. Sandvik has applied the amendment from 1 January 2019. The amendment addresses how uncertainty regarding amounts for income taxation shall be reported, how a tax receivable shall be reported when the amount is appealed, and discussions are held with tax authorities. IFRIC 23 is expected to have very limited impact on the financial reports. The opening balance for 2019 has been adjusted by reclassifying the provision for taxes, 1,457 MSEK to Income tax liabilities.
Other new or amended accounting standards and interpretations implemented during 2019, have not had any or immaterial impact on Sandvik's financial statements.
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 influence over the company. Divested companies are included in the consolidated accounts until the date the Group ceases to control or exercise influence over them.
In preparing Sandvik's consolidated financial statements, any Intra-Group transactions have been eliminated.
Subsidiaries are entities over which the Parent Company has a controlling influence. Controlling influence exists if the Parent Company has the power over the investee, meaning the investor has existing rights that give it the ability to direct the relevant activities, is exposed to or has the rights to variable return from its involvement in the investee and can, through its influence, affect the return from the involvement in the investee. In assessing a controlling interest, de facto control, potential voting rights that are currently exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that the controlling influence 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 comply with the Group's accounting policies. The consolidated financial statements are prepared in accordance with the purchase method. In business combinations, acquired assets and assumed liabilities are identified and classified, and measured at fair value on the date of acquisition (also known as a purchase price allocation).
Transaction costs in conjunction with acquisitions are directly in profit or loss for the year as other operating expenses.
Contingent considerations are recognized as financial liabilities and at fair value on the acquisition date. Contingent considerations are remeasured at each reporting period with any change recognized in profit 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 re-measurement is recognized in profit or loss. If the controlling interest is lost upon divestment, net profit is recognized in profit 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 profit 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 significant influence, but not control, over the financial and operating policies. Normally this means a shareholding of between 20 percent and 50 percent of the voting rights. Interests in associated companies are recognized in accordance with the equity method in the consolidated financial 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 deficit 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 financial 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 the functional currency at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognized in profit 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. Nonmonetary 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 reclassified from equity to profit or loss for the year as a reclassification adjustment at the date on which the profit or loss of the divestment is recognized. For cases in which divestments made include a residual controlling influence, 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 non-current liabilities are included in the accumulated translation differences reclassified from the translation reserve in equity to profit or loss for the year.
Financial instruments recognized in the balance sheet include assets, such as account receivables, financial investments and derivatives, and liabilities such as loan liabilities, account payables, and derivatives.
A financial asset or a financial liability is recognized on the balance sheet when the entity becomes a party to the contractual provisions of the instrument. Account receivables are recognized upon issuance of the invoice. A liability is recognized when the counter-party has performed under the agreement and the company is contractually obliged to settle the obligation, even if no invoice has been received.
At initial recognition, the Group measures financial assets and liabilities at its fair value plus or minus, in the case of a financial asset or liability not at fair value through profit or loss (FVPL), transaction costs including all fees, premiums and discounts that are directly attributable to the acquisition or issue of the financial asset and liability. Transaction costs of financial assets and liabilities carried at FVPL are expensed in profit or loss.
A financial asset is derecognized when the rights to receive cash flows under the agreement have expired, or have been transferred and the group has substantially transferred all of the risks and rewards. The same applies to a portion of a financial asset. A financial liability is derecognized when the obligation specified in the contract is discharged or otherwise expires.
A financial asset and a financial liability are offset and presented in a net amount in the balance sheet only if there is a legally enforceable right to offset 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.
Financial assets excluding derivatives, include equity and debt instruments. The Group classifies its financial assets as those to be measured at fair value, and those to be measured at amortized cost.
Equity instruments are measured at fair value, and gains and losses are recorded in profit or loss. For those that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.
For debt instruments, which includes accounts receivables, the classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows: Amortized Cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Fair Value through profit and loss: Assets that do not meet the criteria for amortized cost are measured as fair value through profit and loss.
Bad debt provisions are based on the full lifetime expected credit loss model with a provision matrix where fixed provision rates are applied depending on the number of days outstanding. The entities consider reasonable and supportable information about past events, current conditions and reasonable and supportable forecasts of future economic conditions when measuring the expected credit losses. Impairment losses are presented in a separate line item in the statement of profit or loss.
Financial liabilities excluding derivatives include loans and accounts payables. These instruments are classified and subsequently measured at amortized cost. Any difference between the loan amount, net of transaction costs, and the repayable amount is allocated to profit or loss for the year over the term of the loan using the effective interest method.
Derivatives are classified at fair value through profit and loss, with the exception, of those that are designated as hedging instruments in a cash flow hedge.
Hedge accounting is applied in accordance with IAS 39 and to meet the criteria there must be a clear relationship between the hedging instrument and the hedged item. The relationship is expected to be highly effective and it must be possible to reliably measure such effectiveness. Moreover, the hedge must be formally designated and documented. Gains and losses on re-measurement of derivatives used for hedging purposes are recognized as described below under cash flow hedges.
Hedge accounting is applied when hedging a particular risk associated with highly probable future cash flows and forecast transactions. The effective portion of the change in fair value for the year, of derivatives that are qualified as cash flow 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 profit or loss for the year. When the hedged item impacts profit or loss for the year, the accumulated changes in value of the hedging instrument are reclassified to profit or loss for the year. The gain or loss relating to the effective portion of hedging instruments is recognized in profit or loss within the same line as the hedged item.
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 flow 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' 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 reflects this structure. In accordance with IFRS 8, segment information is presented only based on the consolidated financial 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 financial investments, interest expense, losses on the disposal of financial investments, income tax expense and certain administrative expenses. Unallocated assets and liabilities include income tax receivables and payables, financial investments and financial liabilities.
The revenue standard has established a five step model for recognizing revenue from customer contracts. It requires revenue to be recognized when control of goods and services are transferred to the customer. The supply of goods and services comprises metal cutting tools, mining equipment, stainless steels, furnaces, installation, support and maintenance.
Customer contracts can include variable considerations such as cash discounts, rebates or right of returns. When Sandvik identifies such components the company determines if the identified portion of revenue and any related cost of goods sold should be deferred to a later period. This is established by determining if a significant revenue reversal might not take place, by applying the expected value method or the most likely amount method with the threshold of being highly probable.
If a customer contract is including a buy-back clause, exercised at the customer discretion and a significant transfer of control has not taken place, the transaction is then accounted for as an operational lease in accordance with IFRS 16 Leases. If the customer is not considered to have a significant economic incentive to exercise the option, the contract is then accounted for by applying the principles of right of return in IFRS 15.
Sandvik receives advances from customers. If a significant financing component is identified in the contract the company applies the practical expedient of not recognizing any time value of money for advances being performed upon within 12 months. Sandvik also applies the practical expedient of not recognizing a contract asset for costs to obtain a contract, if the customer contract has a duration equal to or shorter than 12 months. Sandvik allocates the transaction price to each identified performance obligation on a relative stand-alone selling price basis. This means that each performance obligation will be allocated its share of revenue based on its stand-alone selling price put in relation to the sum of all performance obligation's stand-alone selling price. Sandvik usually applies the methods Adjusted market assessment approach and Expected cost plus a margin approach, to determine the stand-alone selling price if not observable for one or more of the performance obligations. Variable consideration is generally allocated proportionally to all performance obligations unless there is evidence that the entire discount does not relate to all performance obligations in the contract.
Sandvik recognizes revenue over time when any of the three over time indicators are identified as being fulfilled: the customer simultaneously receives and consumes all the benefits provided by the entity as the entity performs; the entity's performance creates or enhances an asset that the customer controls as the asset is created; or the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Goods are recognized over time most often under the criteria the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Service contracts recognized over time are identified under the criteria the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs. Sandvik applies both the Input and Output method to determine the progress and when revenue should be recognized. The output method is only applied to service contracts by applying the expedient allowing revenue to be recognized in line with amounts that correspond directly with the value to the customer and to which the entity has the right to invoice. The majority of Sandvik's revenues are recognized at a point in time. The transfer of control is identified taking place by considering indicators such as, but not limited to: significant risks and rewards of ownership, transferred physical possession, the customer has accepted the asset, present right to payment and legal title of goods and services. For sale of goods the transfer of control occurs usually according to the risk and reward criteria by applying Incoterms. For sale of services the transfer of control usually occurs when the customer has accepted the performed service.
Revenue from royalty/licenses based on sales or usage promised in exchange for a license or intellectual property only when the latter of the following criteria are fulfilled: the subsequent sale or usage occurs; and the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied.
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 attached to them. Grants are recognized in profit 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 consist of interest expense on borrowings, interest income and expenses on interest swaps that are recognized net as an interest expense. Credit losses on financial assets and foreign exchange gains and losses on hedging instruments are recognized in profit or loss for the year.
Income tax comprises current and deferred tax. Income tax is recognized in profit 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 to 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 and intends to do so.
Deferred tax is recognized based on temporary differences between the carrying amounts of assets and liabilities for financial 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 fiscal 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 profits.
Goodwill acquired in a business combination represents the excess of the cost of the business combination over the net fair value of the identifiable 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 scientific 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 sufficient 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 benefits, 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, customer relationships and other rights. They are split between acquired and internally generated intangible assets.
Amortization is charged to profit or loss for the year on a straightline basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite 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 finite useful life are amortized as of the date the asset is available for use.
– The estimated useful lives are as follows:
| – Patents and trademarks | 10–20 years |
|---|---|
| – Customer relationships | 10 years |
| – Capitalized development costs | 3–7 years |
| – Software for IT operations | 3 years |
Property, plant and equipment are recognized at cost less accumulated depreciation and any impairment losses.
In the consolidated financial statements, leases when Sandvik being a lessee are recognized as Right-of-Use assets and when being a lessor either as a Finance lease or an Operational lease, further explained in the section Leasing further down.
Depreciation is based on cost less estimated residual value. Property, plant and equipment are depreciated over the estimated useful lives. Right-of -Use assets are depreciated over the estimated useful life or the contract period, whichever is the shortest.
If an item of property, plant and equipment comprises components with different useful lives, each such significant component is depreciated separately. Depreciation methods and estimated residual values and useful lives are reviewed at each year-end.
Assets with an indefinite 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 fair value less selling costs and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a rate that reflects current
market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In respect to items of property, plant and equipment, Right-of-Use assets and intangible fixed 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 to 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 time period to get ready for its intended use or sale. The Group considers a period in excess of one year to be a substantial time period. For the Group, the capitalization of borrowing costs 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 lowest end 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 first-in/first-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 profit 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 share-based payment arrangements issued to employees. The shared-based awards 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 defined-contribution and defined-benefit pension plans, some of which have plan assets held by separate foundations or equivalent. A number of Group entities also provide post-employment medical benefits. Whenever possible, Sandvik nowadays seeks defined contribution pension solutions and in recent years defined-benefit plans have as far as possible been closed for new entrants in connection with negotiations about defined-contribution pension arrangements.
A defined-contribution plan is a post-employment benefit plan under which an entity pays fixed 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 cases 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 defined-contribution pension plans are recognized as an employee benefit expense in profit or loss for the year as the employee renders services to the entity.
The Group's net obligation in respect to defined-benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have vested in return for their service in the current and prior periods. This benefit 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 qualified actuary. In addition, the fair value of any plan assets is assessed. This method of accounting is applied to the most significant defined-benefit plans in the Group. A number of plans, which neither individually nor in the aggregate are significant 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 profit or loss under other comprehensive income.
When the benefits under a plan are improved, the portion of the increased benefits that relate to past service by employees is recognized in profit or loss for the year. The amount of obligations recognized in the balance sheet for pensions and similar obligations reflects the present value of the obligations at the 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 significantly 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 defined-benefit 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 benefits 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.
Share-based payments refer to remuneration to employees in accordance with employee share saving programs. The share-based programs include two types of rights. Matching share rights provide entitlement to shares in Sandvik if the participant remains employed and retains the saving share that has been purchased initially. Performance share rights provide entitlement to shares subject to the same conditions and if goals relating to operating performance are achieved. The amount recognized as an expense is adjusted to reflect the actual number of share vested.
In order to meet its commitments under the share saving program, Sandvik has entered into an equity swap agreement with a financial institution. Under the agreement, the financial 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 financial liability and as a reduction of equity in accordance with IAS 32. Social costs relating to sharebased 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 outflow 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 flows at a pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific 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, and customer and supplier claims relating to ongoing or finished projects.
A contingent liability is recognized when there is a possible obligation that arises from past events and whose existence will be confirmed 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 outflow of resources will be required, alternatively because the amount of the obligation cannot be measured with sufficient reliability.
Disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The disposal group is measured at the lower of the carrying amount and fair value less costs to sell.
An impairment loss is recognized for any initial or subsequent write-down of the disposal group to fair value less costs to sell.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
To qualify as Discontinued operations, a component of the Sandvik Group must, in addition to having been classified as a disposal group held for sale, also represent a separate major line of business or be a part of a single coordinated plan to dispose of a separate major line of business.
When the Group disposes of a significant part of its interest, and therefore loses control, of a subsidiary, the Group de-consolidates the subsidiary. If the retained interest in the entity fulfills the criteria of being an associate, it is accounted for at fair value at the disposal date, and subsequently accounted for using the equity method. The gain or loss of the transaction is the difference between the fair value of the consideration received as well as the fair value of the retained interest, and the carrying value of the former subsidiary's net assets (including any related goodwill), and is recorded in the income statement. Any portion of the gain or loss related to the re-measurement of the retained interest to fair value is disclosed separately.
Sandvik, when being a lessee identifies if a contract contains a lease by testing if Sandvik has the right to obtain substantially all of the economic benefits from use of the identified assets and has the right to direct the use of the identified asset and that the supplier has no substantial rights of substitution.
Sandvik has decided to separate non-lease components from the lease components in contracts concerning buildings. The nonlease component cost should then be recognized as an expense and not be included in the calculation of a right-of-use asset and lease liability for asset class buildings. For all other asset classes non-lease components are included in the calculation of a right-ofuse asset and lease liability.
The lease contracts are assessed at the commencement date whether the lessee is reasonably certain to exercise an option to extend the lease; or to exercise an option to purchase the underlying asset; or not to exercise an option to terminate the lease. In cases of open-ended contracts local law can provide protection to the lessee from being given notice. This requires the Sandvik lessee to determine the contract period instead of considering the termination clause. The lessee then determines the length of the contract period based on factors such as the importance of building to the business, any planned or made leasehold investments and the market situation for premises.
The leasing liability and right-of-use asset is calculated by using the implicit rate in the contract. If the implicit rate cannot be identified the incremental borrowing rate is instead applied, which is the interest rate the company had been given if the investment had been financed through a loan from a financial institute. The measurement of the Right-of-Use asset includes amount of initial measurement of lease liability, lease payments at or before the commencement date, any initial direct cost and restoration costs. Sandvik depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the Right-of-Use asset or the end of the lease term.
After commencement date the carrying amount of the lease liability and the Right-of-Use asset is remeasured to reflect any modification or reassessment of a lease contract.
Sandvik has chosen to apply the two expedients concerning leases shorter than one year and low value assets that need to be taken into consideration when a lease contract is recognized.
Under a finance lease, the lessee recognizes the leased asset measured at the lower end 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 profit or loss for the year on a straight-line basis following the lease term.
As a lessor, Sandvik classifies each of its leases as either an operating lease or a financial lease. The substance of the transaction rather than the form of the contract determines if it is a finance or operating lease. This also includes contracts identified under IFRS 15 Revenue from Contracts with customers containing buy-back clauses, which means under certain circumstances that control hasn't transferred to the customer and instead lease accounting under IFRS 16 Leases apply.
A finance lease is a lease that transfers substantially all the risks and rewards resulting from ownership of an underlying asset to the lessee. An operating lease is a lease that does not transfer substantially all the risks and rewards as a result from ownership of an underlying asset. A sublease should also be classified as finance or operational lease by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset, for example, an item of property, plant or equipment.
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. The interpretations issued by the Financial Reporting Board valid for listed companies have also 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 financial reporting and taxation. The standard specifies what exceptions from or additions to the IFRS shall be made.
Unless otherwise stated below, the Parent Company's accounting policies in 2019 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 financial statements mainly pertain to the presentation of finance 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 profit or loss in the consolidated financial 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 financial statements with changes in value recognized in profit or loss. Dividends from subsidiaries are recognized in full as income in profit 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 profit 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 defined-benefit 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 significant differences relate to the determination of the discount rate and 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 financial 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. Shareholder 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 financial statements.
The Parent Company applies a relaxation rule permitted by the Swedish Financial Reporting Board to the reporting of financial guarantees as opposed to the rules stipulated by IFRS 9. This relaxation rule pertains to financial guarantee agreements issued for the benefit of subsidiaries, associated companies and joint ventures. The Parent Company recognizes financial guarantees as a provision in the balance sheet when the company has an obligation for which payment is probably necessary to settle the commitment.
In order to prepare the financial statements, management and the Board make various judgments and estimates that can affect the amounts recognized in the financial 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 financial 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 12. As can be deduced from this description, changes in the conditions for these judgments and estimates can significantly 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 identified any intangible assets with indefinite 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 financial 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 flows of the asset, alternatively the cash-generating unit to which the asset belongs. The rental fleets of Sandvik Mining and Rock Technology are subject to special examination considering their dependence on the business climate in the mining- and oil
industry and the risk that rental agreements may be canceled. The carrying amount of the rental fleets at the end of 2019 was 1,071 million SEK (943).
A call for an impairment test also arises when a non-current asset is classified 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.
Significant 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 profits. 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 final review by tax authorities and tax courts of tax returns. At year-end 2019, Sandvik recognized deferred tax assets of 3,797 million SEK (3,150). Furthermore, the Group had additional tax loss carry-forward of about 2,595 million SEK (3,038) at the end of 2019 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 and other uncertainties amounted to 1,457 million SEK last year. Due to the new standard IFRIC 23 the opening balance of this provision was reclassified to income tax liabilities. The provision this year amounted to 1,454 million SEK and is as previously based on management's best estimate of the outcome.
Sandvik provides pension solutions and other post-employment benefits to employees throughout the Group. In certain countries defined-benefit plans are provided and the accounting for these plans is complex because actuarial assumptions are required to determine the obligation and the expense. Life expectancy, inflation and discount rate are examples of assumptions used for the calculations. Furthermore, the obligations are measured on a discounted basis since they may be settled many years after the employment. The applied actuarial assumptions as well as a sensitivity analysis are presented in Note 20. Some of the defined-benefit plans are funded, with plan assets held by separate foundations or the equivalent. The financial risk management associated with the defined-benefit plans are presented in the Directors' Report in the section Financial Risk Management.
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 financial position or results of operations.
For additional information on risks related to disputes, refer to the Enterprise Risk Management section.
| Note 1 | Segment information | 82 |
|---|---|---|
| Note 2 | Categories of revenue | 83 |
| Note 3 | Personnel information and remunera tion of management and auditors |
84 |
| Note 4 | Research, development and quality assurance |
87 |
| Note 5 | Other operating income | 87 |
| Note 6 | Other operating expenses | 88 |
| Note 7 | Operating expenses | 88 |
| Note 8 | Leases | 88 |
| Note 9 | Net financing cost | 89 |
| Note 10 | Income tax | 90 |
| Note 11 | Earnings per share | 92 |
| Note 12 | Intangible assets and property, plant and equipment, Group |
93 |
| Note 13 | Intangible assets and property, plant and equipment, Parent Company |
96 |
| Note 14 | Shares in Group companies | 98 |
| Note 15 | Investments in associated companies | 105 |
| Note 16 | Non-current receivables and other current receivables |
105 |
| Note 17 | Inventories | 106 |
| Note 18 | Trade receivables | 106 |
| Note 19 | Capital and reserves | 107 |
|---|---|---|
| Note 20 | Provisions for pension and other non-current post-employment benefits |
108 |
| Note 21 | Other provisions | 110 |
| Note 22 | Non-current interest-bearing liabilities | 111 |
| Note 23 | Other interest-bearing liabilities | 111 |
| Note 24 | Other non-interest-bearing liabilities | 111 |
| Note 25 | Accrued expenses and deferred income |
111 |
| Note 26 | Contingent liabilities and pledged assets |
111 |
| Note 27 | Supplementary information – financial risk management |
112 |
| Note 28 | Related parties | 117 |
| Note 29 | Supplementary information to the cash flow statement |
118 |
| Note 30 | Acquisition and divestment of operations and discontinued operations |
119 |
| Note 31 | Parent Company particulars | 121 |
| Note 32 | Information on shares, owners and rights |
121 |
| Note 33 | Proposed appropriation of profits | 121 |
| Note 34 | Events after the close of the period | 121 |
Consolidated and Parent Company financial statements. (Amounts in tables in MSEK, unless otherwise stated)
| Sandvik | Sandvik Mining | Sandvik | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Machining | and Rock | Materials | Other | ||||||||||||
| Solutions | Technology | Technology | operations | Group activities Eliminations | Group Total | ||||||||||
| MSEK | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |
| Revenue | |||||||||||||||
| External revenue | 40,757 41,123 41,058 44,777 14,697 15,279 | 3,560 | 2,059 | — | — | 100,072 103,238 | |||||||||
| Internal revenue | 723 | 399 | 30 | 16 | 449 | 486 | 149 | –0 | — | — –1,351 –901 | –0 | –0 | |||
| Total | 41,479 41,522 41,088 44,793 15,146 15,766 3,709 2,059 | — | — –1,350 –901 100,072 103,238 | ||||||||||||
| Share of results of associated companies |
— | 0 | 6 | 9 | 39 | — | — | — | — | — | 45 | 9 | |||
| Operating profit/loss by associated areas |
9,922 8,380 7,452 8,602 1,307 1,444 | 659 –4,263 | –685 | –776 | 18,655 | 13,386 | |||||||||
| Net financing items | — | — | — | — | — | — | — | — | — | — | –795 | –1,237 | |||
| Income tax expense for the year | — | — | — | — | — | — | — | — | — | — | –4,646 | –3,421 | |||
| Profit for the year | 9,922 8,318 7,503 8,617 1,307 1,436 | 659 –4,268 | –685 | –780 | 13,214 | 8,728 | |||||||||
| Other disclosures | |||||||||||||||
| Assets | 36,825 39,167 33,930 37,472 16,366 16,830 | 5,406 | 1,565 | 1,489 | 1,600 | 94,017 | 96,634 | ||||||||
| Investments in associates | 5 | 189 | 94 | 103 | — | — | — | — | — | — | 100 | 292 | |||
| Total assets | 36,831 39,356 34,024 37,575 16,366 16,830 5,406 1,565 1,489 1,600 | 94,116 | 96,926 | ||||||||||||
| Unallocated assets | — | — | — | — | — | — | — | — | — | — | 23,254 | 23,240 | |||
| Total | 117,370 120,166 | ||||||||||||||
| Liabilities | 7,441 | 8,911 10,136 11,061 | 3,862 | 4,016 | 701 | 606 | 1,162 | 1,476 | 23,301 | 26,070 | |||||
| Unallocated liabilities | — | — | — | — | — | — | — | — | — | — | 35,936 | 32,187 | |||
| Total | 59,237 | 58,258 | |||||||||||||
| Capital expenditure | 2,339 –2,284 | 677 | –857 | 694 | –687 | 76 | –75 | 133 | –233 | 3,920 | 4,136 | ||||
| Depreciation/Amortization | –2,003 –2,646 –1,289 –1,694 | –776 | –861 | –350 | –300 | –129 | –203 | –4,546 | –5,704 | ||||||
| Impairment losses | –57 | –35 | –41 | –66 | 132 | –142 | 124 –4,121 | –8 | 0 | 150 | –4,364 | ||||
| Other non–cash expenses | 140 | 481 | 122 | –504 | 37 | –32 | –691 | –81 | –90 | 129 | 108 | 499 |
All transactions between the business areas are on market terms. For information regarding business combinations, see Note 30.
| Revenue by country, Group | 2018 | 2019 |
|---|---|---|
| USA | 14,302 | 15,792 |
| Germany | 7,916 | 7,104 |
| China | 7,299 | 6,943 |
| Australia | 6,415 | 6,756 |
| Russia | 3,921 | 4,679 |
| Canada | 3,653 | 4,351 |
| UK | 3,180 | 3,889 |
| Italy | 3,817 | 3,827 |
| Sweden | 3,951 | 3,596 |
| Mexico | 3,588 | 3,458 |
| South Africa | 3,102 | 3,356 |
| France | 3,299 | 3,295 |
| India | 3,019 | 3,025 |
| Japan | 2,273 | 2,242 |
| Indonesia | 1,730 | 2,111 |
| Brazil | 1,628 | 1,713 |
| Chile | 1,231 | 1,545 |
| Poland | 1,319 | 1,389 |
| Norway | 1,504 | 1,275 |
| Spain | 1,194 | 1,270 |
| Austria | 1,140 | 1,238 |
| Korea | 1,237 | 1,144 |
| Finland | 1,030 | 1,078 |
| Czech Republic | 988 | 953 |
| Other countries | 17,338 | 17,209 |
| Total | 100,072 | 103,238 |
| Non-current assets by country, Group | 2018 | 2019 |
|---|---|---|
| Sweden | 13,549 | 13,331 |
| USA | 9,848 | 6,963 |
| France | 4,442 | 4,440 |
| Germany | 3,833 | 3,902 |
| Austria | 2,565 | 2,556 |
| Finland | 2,062 | 2,137 |
| UK | 1,874 | 2,003 |
| China | 1,595 | 1,854 |
| India | 774 | 1,328 |
| Canada | 1,180 | 1,200 |
| Czech Republic | 823 | 905 |
| Australia | 622 | 588 |
| Italy | 617 | 589 |
| Japan | 532 | 582 |
| Switzerland | 423 | 405 |
| Other countries | 2,872 | 2,935 |
| Total | 47,612 | 45,717 |
Non-current assets include intangible assets and property, plant and equipment, and are specified by country based on where the customers are.
Income is specified by country based on where customers are.
| 2018 | 2019 Sandvik |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sandvik | ||||||||||
| Sandvik | Mining | Sandvik | Other | Sandvik | Mining | Sandvik | Other | |||
| Primary geographical markets | Group | Machining Solutions |
and Rock Technology |
Materials Technology |
Opera tions |
Group | Machining Solutions |
and Rock Technology |
Materials Technology |
Opera tions |
| Europe | 38,322 | 22,657 | 6,547 | 8,158 | 960 | 37,928 | 22,102 | 6,989 | 8,562 | 275 |
| North America | 21,543 | 8,420 | 8,576 | 3,318 | 1,227 | 23,601 | 9,571 | 9,617 | 3,601 | 812 |
| South America | 4,918 | 828 | 3,759 | 202 | 129 | 5,267 | 838 | 4,154 | 205 | 71 |
| Africa and Middle East | 9,099 | 325 | 7,789 | 326 | 660 | 9,595 | 341 | 8,181 | 311 | 761 |
| Asia | 19,649 | 8,245 | 8,224 | 2,631 | 548 | 19,855 | 8,002 | 9,188 | 2,531 | 135 |
| Australia and New Zealand | 6,541 | 281 | 6,163 | 62 | 35 | 6,992 | 269 | 6,648 | 69 | 6 |
| Total | 100,072 | 40,757 | 41,058 | 14,697 | 3,560 | 103,238 | 41,123 | 44,777 | 15,279 | 2,059 |
| Major goods/service lines | ||||||||||
| Sale of goods | 95,279 | 40,331 | 37,094 | 14,629 | 3,224 | 98,185 | 40,460 | 40,835 | 15,219 | 1,671 |
| Rendering of services | 3,667 | 414 | 3,185 | 68 | — | 3,941 | 652 | 3,231 | 58 | — |
| Rental income | 1,112 | — | 779 | — | 333 | 1,099 | 4 | 707 | — | 388 |
| Other non product-related revenue | 14 | 11 | — | 0 | 2 | 11 | 6 | 4 | 0 | — |
| Total | 100,072 | 40,757 | 41,058 | 14,697 | 3,560 | 103,238 | 41,123 | 44,777 | 15,279 | 2,059 |
| Major goods/service lines | ||||||||||
| Order backlog to be recognized as revenue after 2020 until 2021 |
2,301 | 0 | 648 | 1,653 | N/A | 1,782 | 0 | 300 | 1,482 | N/A |
Contract assets movements, from an opening balance of 127 MSEK (62) to a closing balance of 22 MSEK (127), is due to the following:
The contract assets have been reduced with –5 MSEK (–3) relating to catch up effects from contracts satisfied in previous periods.
Acquisitions represents an increase of contract asset balances of 0 MSEK (1) and divestments represents a decrease of
0 MSEK (0). The majority of the movements of contract assets relates to accruals during the period and reversals of existing and added contract assets to be invoiced.
Currency translation effects represent only minor changes to the contract asset balances.
| Parent Company | 2018 | 2019 |
|---|---|---|
| Primary geographical markets | ||
| Europe | 16,393 | 17,431 |
| North America | 1,671 | 1,410 |
| South America | 161 | 201 |
| Africa and Middle East | 47 | 81 |
| Asia | 1,792 | 1,809 |
| Australia and New Zealand | 77 | 106 |
| Total | 20,141 | 21,038 |
Contract asset and contract liability balances are not disclosed for parent company, due to the small balances and corresponding small movements.
Contract liability movements, from an opening balance of 169 MSEK (111) to a closing balance of 153 MSEK (169), is due to the following:
Contract liabilities in the opening balance recognized as revenue in this period amounts to 118 MSEK (156).
Acquisitions represents an increase of contract liability balances of 1 MSEK (1) and divestments represents a decrease of
0 MSEK (–4). The majority of the movements of contract liabilities relates to deferrals during the period and reversals of existing and added contract liabilities to be recognized as revenue.
Currency translation effects represent only minor changes to the contract liability balances.
| Parent Company | 2018 | 2019 |
|---|---|---|
| Major goods/service lines | ||
| Sale of goods | 20,073 | 20,962 |
| Rendering of services | 63 | 66 |
| Rental income | 6 | 10 |
| Other non product related revenue | — | — |
| Total | 20,141 | 21,038 |
| Group | Parent Company | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | ||||||
| Number | Women % | Number | Women % | Number | Women, % | Number | Women, % | ||
| Sweden | 9,293 | 24 | 8,997 | 24 | 7,000 | 23 | 6,711 | 23 | |
| Rest of Europe | 14,439 | 19 | 14,041 | 19 | — | — | — | — | |
| Total Europe | 23,732 | 21 | 23,038 | 21 | 7,000 | 23 | 6,711 | 23 | |
| North America | 5,638 | 15 | 5,343 | 17 | — | — | — | — | |
| South America | 1,883 | 16 | 1,782 | 16 | — | — | — | — | |
| Africa, Middle East | 2,280 | 17 | 2,173 | 17 | — | — | — | — | |
| Asia | 8,077 | 15 | 7,851 | 14 | — | — | — | — | |
| Australia | 930 | 16 | 934 | 17 | — | — | — | — | |
| Total | 42,540 | 19 | 41,120 | 19 | 7,000 | 23 | 6,711 | 23 | |
| Whereof discontinued operations | 100 | 0 | 23 | 0 | |||||
| Continuing operations | 42,440 | 0 | 41,097 | 0 |
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | ||
| Wages, salaries and other remuneration |
21,425 | 21,770 | 4,196 | 4,196 | |
| Social costs | 5,419 | 5,613 | 1,900 | 1,862 | |
| Employee profit sharing | 173 | — | 118 | 38 | |
| Total | 27,017 | 27,383 | 6,214 | 6,096 | |
| Whereof discontinued operations |
65 | 30 | — | — | |
| Continuing operations | 26,952 | 27,354 | 6,214 | 6,096 | |
| Of which, pension costs rec ognized in social costs |
1,596 | 1,612 | 677 | 571 |
A total of 62 million SEK (66) of the Group's pension costs relates to Boards and presidents. The Group's pension liability to these persons amounted to 105 million SEK (161). Correspondingly, 23 million SEK (23) 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 4 million SEK (4).
To promote performance that is favorable to the Group's long-term development and also to stimulate continued employee loyalty, Sandvik has historically had a profit-sharing system for all employees in wholly-owned companies in Sweden since 1986.
From January 2019 the Board of Directors has decided to decentralize the profit sharing scheme to Sandvik´s business areas and to the group functions. The responsibility of this variable salary model will be entirely handled by Sandvik´s business areas and when applicable by divisions. The decision on the design of the future arrangements will be implemented based on local business decisions. Therefore the profit shares will, from 2019 and onwards, not be reported in Sandvik's annual report.
Sandvik's Board of Directors has also decided that employees with an individual variable salary, STI (short-term incentive), will not be covered by any other short-term schemes that are based on the company's results, and are therefore exempted from the profit-sharing scheme from 2019.
| Group Parent Company |
||||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Sweden | 5,561 | 5,533 | 4,196 | 4,196 |
| Rest of Europe | 8,115 | 8,351 | — | — |
| Total Europe | 13,676 | 13,884 | 4,196 | 4,196 |
| North America | 3,278 | 3,621 | — | — |
| South America | 564 | 401 | — | — |
| Africa, Middle East | 926 | 798 | — | — |
| Asia | 2,190 | 2,226 | — | — |
| Australia | 791 | 840 | — | — |
| Total | 21,425 | 21,770 | 4,196 | 4,196 |
| Whereof discontinued operations |
48 | 22 | — | — |
| Continuing operations | 21,377 | 21,748 | 4,196 | 4,196 |
| Of which, to Boards of Directors and presidents |
||||
| Salaries and other remuneration |
791 | 675 | 51 | 45 |
| Of which, variable salary | 127 | 111 | 14 | 6 |
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Proportion of women, % | 2018 | 2019 | 2018 | 2019 | |
| Gender distribution in senior | |||||
| management | 16 | 16 | 27 | 27 | |
| Other senior executives | 22 | 25 | 29 | 29 |
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 2019 Annual General Meeting, the total fee to the external Board members elected at the Meeting amounts to in total 6,690,000 SEK on an annual basis. Of this amount 2,550,000 SEK is payable to the Chairman of the Board (Johan Molin) and 690,000 SEK to each of the other external Board members (Jennifer Allerton, Claes Boustedt, Johan Karlström, Helena Stjernholm, Lars Westerberg and Marika Fredriksson).
In addition to these amounts, the Annual General Meeting resolved that a fee for committee work should be paid to Board members elected by the Meeting, in an amount totaling 640,000 SEK to the members of the Audit Committee (Claes Boustedt 300,000 SEK, Helena Stjernholm 170,000 SEK and Lars Westerberg 170,000 SEK) and in an amount totaling 375,000 SEK to the members of the Remuneration Committee (Johan Molin 145,000 SEK, Johan Karlström 115,000 and Helena Stjernholm 115,000 SEK).
The long-term asset manager and largest shareholder of Sandvik shares, Industrivärden, granted in 2019 the Chairman of the Board one million call options over Sandvik shares with a five-year term and an exercise price of 177 SEK. The options were purchased at market price.
Principles of remuneration
The following guidelines approved by the Annual General Meeting for remuneration of senior executives have been applied since the Annual General Meeting in 2019:
The remuneration of the Group Executive Management is to comprise fixed salary, variable salary, pension and other benefits. The total remuneration package should be based on market terms, be competitive and reflect 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 fulfillment of defined and measurable goals and should be maximized in relation to the fixed 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 of Directors, 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 specific cases, agreements may be reached regarding oneoff remuneration amounts provided that such remuneration does not exceed an amount corresponding to the individual's annual fixed salary and maximum variable salary in cash and is not paid more than once per year and individual. Pension benefits should be defined contribution.
Normally, severance pay is paid when employment is terminated by Sandvik. Members of the 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 fixed salary. An alternative solution may be applied to the President comprising a period of notice of 24 months and no severance pay. No severance pay will be paid when employment is terminated by the employee.
The Board of Directors 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 the Group Executive Management.
| Position | Fixed salary/ Board fee |
Annual variable salary1) |
Other benefits2) | Long-term variable salary3) |
Pension costs |
|---|---|---|---|---|---|
| Chairman of the Board | 2,695,000 4) | ||||
| Other Board members | 5,010,000 4) | ||||
| President and CEO | 15,621,896 5) | 3,397,275 | 104,352 | 7,929,919 | 5,662,488 |
| Other senior executives6) | 28,675,299 | 5,582,713 | 451,757 | 9,489,645 | 10,816,536 |
| Total | 52,002,195 | 8,979,988 | 556,109 | 17,419,564 | 16,479,024 |
1) Amount pertaining to 2019 and expected to be paid in 2020.
2) Relates mainly to the fringe-benefit and company car.
3) The amounts pertain to changes in provisions made for the 2017, 2018 and 2019 LTI programs for the members of the Senior Management at year-end.
4) Expensed during 2019.
5) Björn Rosengren' s fixed salary 2019 amounts to 15,099,000 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 2019: Johan Kerstell, Tomas Eliasson, Jessica Alm, Åsa Thunman, Göran Björkman, Henrik Ager (Apr–Dec), Lars Bergström (Jul–Dec), Klas Forsström (Jan–Jun), Lars Engström (Jan–Mar).
| Fixed salary/ | Annual variable | Long-term vari | |||
|---|---|---|---|---|---|
| Position | Board fee | salary1) | Other benefits2) | able salary3) | Pension costs |
| Chairman of the Board | 2,535,000 4) | ||||
| Other Board members | 4,785,000 4) | ||||
| President and CEO Björn Rosengren | 14,843,245 5) | 8,546,623 | 135,672 | 9,697,244 | 5,342,004 |
| Other senior executives6) | 27,631,023 | 12,733,694 | 502,334 | 14,108,164 | 12,392,179 |
| Total | 49,794,268 | 21,280,317 | 638,006 | 23,805,408 | 17,734,183 |
1) Amount pertaining to 2018 and expected to be paid in 2019.
2) Relates mainly to the fringe-benefit and company car.
3) The amounts pertain to changes in provisions made for the 2016, 2017 and 2018 LTI programs.
4) Expensed during 2018.
5) Björn Rosengren' s fixed salary 2018 amounts to 14,244,372 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 2018: Göran Björkman, Jessica Alm, Johan Kerstell, Klas Forsström, Lars Engström, Tomas Eliasson, Åsa Thunman.
Sandvik's President and CEO, Björn Rosengren, was paid an annual fixed salary of 15,099,000 SEK and received the fringe-benefit value of a car provided by the company. In addition, an annual variable cash based salary of maximum 75 percent of the fixed salary is payable. The variable salary for 2019 amounted to 3,397,275 SEK.
Björn Rosengren is entitled to retire at age 65. A pension premium of 37.5 percent of his annual fixed salary is reserved annually. In the event of termination of employment by the company, Björn Rosengren has a notice period of 12 months and 12 months' severance pay.
An agreement has been signed with the incoming President and CEO Stefan Widing on partial redemption of his existing long-term incentive program and for partially lost annual variable salary from his previous employer. Payment of SEK 10.3 million was made in 2019. The agreement also states that if Stefan Widing decides to leave Sandvik, on his own initiative, before 31 December 2021 there is an obligation to reimburse 90 percent of the amount for the months remaining between his last working day and December 31, 2021.
For other members of the Group Executive Management who are covered by a Swedish pension plan (ITP1 or ITP2), the retirement age is minimum 62.
For members that are covered by the ITP plan 1 (defined contribution) a supplement of 5 percent of the salary portions in excess of 7.5 income base amounts may apply.
For members that are covered by the ITP Plan 2 (defined benefit), a supplementary defined-contribution plan under which the company each year contributes 25–33 percent (depending on age and employment start in GEM) of fixed salary portions in excess of 20 price base amounts applies. Members of the Group Executive Management employed as per 31 December 2019 are covered either by the ITP 1- or by the ITP2 occupational pension plans.
Severance pay is paid in the event that the company terminates employment. The severance pay equals 6–12 months' fixed salary in addition to the notice period, which is 6–12 months. Any other income from employment may be deducted from the severance pay.
The 2016, 2017, 2018 and 2019 Annual General Meetings approved the Board's proposal to introduce a performance share program for each year for about 350 senior executives and key individuals in the Sandvik Group, divided into four categories. For all participants, a personal investment is required in each separate program and the programs encompass at Grant a maximum total of 6,318,250 shares.
All program participants have invested in Sandvik shares ("investment shares"), up to an amount corresponding to 10 percent of their fixed annual pre-tax salary at the time of the investment.
In the LTI 2016 and 2017 each acquired investment share entitles participants to be allotted, free of charge, after a period of three years, one Sandvik share ("matching share"). In the LTI 2016, 2017, 2018 and 2019 provided certain performance targets are met Sandvik shares ("performances shares") may be allotted. The maximum number of performance shares that may be allotted for each acquired investment share depends on the category to which the participant belongs.
The number of performance shares that will finally be allotted to the participant for each acquired investment share is dependent on the development of the Sandvik Group adjusted Earnings Per Share ("EPS") during the financial year that the investment shares were acquired, compared to adjusted EPS for the previous financial year.
In January 2016, 2017, 2018 and 2019 respectively the Board of Directors established the levels regarding adjusted EPS for the performance year in question that had to be attained for allotment of a certain number of performance shares.
The 2016 LTI program: Matching shares were allotted during 2019. Performance shares were also allotted since the performance targets set by the Board of Directors were essentially met. Adjusted EPS for the financial year 2016 amounted to 5.48 SEK. The 2017 LTI program: Matching shares will be allotted during 2020 if all the prerequisites for allotment are met. Performance shares will also be allotted since the performance targets set by the Board of Directors were met. Adjusted EPS for the financial year 2017 amounted to 7.99 SEK.
The 2018 LTI program: Performance shares will be allotted since the performance targets set by the Board of Directors were met. Adjusted EPS for the financial year 2018 amounted to 10.58 SEK. The 2019 LTI Program: Performance shares will partly be allotted since the performance targets set by the Board of Directors were partly met. Adjusted EPS for the financial year 2019 amounted to 11.31 SEK. This means that no later than June 2022, and if all the prerequisites for allotment are met, one performance share per one investment share will be allotted and an additional 18,87 percent of the remaining shares within the range of 5–15 percent EPS 2019 increase in relation to adjusted EPS 2018 will be allotted. The allotment of performance shares requires continuous employment and that all investment shares are held during a period of three years from the acquisition of the investment shares.
The number of allotted shares (matching shares under the 2016– 2017 LTI programs and performance shares under the 2016–2019 LTI programs) for the President and other members of the Group Executive Management on 31 December 2019, corresponds to the number of outstanding performance shares and matching shares at year-end.
The following IFRS2 provisions were established during the year: 14.6 million SEK, excluding social costs for the 2019 LTI program, of which 2.2 million SEK for the President and other senior executives; 52.9 million SEK, excluding social costs for the 2018 LTI program, of which 7.7 million SEK for the President and other senior executives; 34.0 million SEK, excluding social costs for the 2017 LTI program, of which 7.7 million SEK for the President and other senior executives.
The employee matching shares and performance shares 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 each program. Social costs are expensed during the vesting period of each program based on the change in value of the employee matching shares and performance shares.
The Board's Remuneration Committee prepares issues relating to the Group Executive Management's remuneration. The Committee met three times during the year. Issues dealt with included the distribution between fixed 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 2019. 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 | Program 2016 (on date of issue) |
Program 2017 (on date of issue) |
Program 2018 (on date of issue) |
Program 2019 (on date of issue) |
|---|---|---|---|---|
| Share price, SEK | 82.70 | 137.00 | 162.90 | 153.00 |
| Present value of forecasted future dividends, SEK1) | 8.74 | 10.55 | 12.70 | 14.81 |
| Risk-free interest rate, % | –0.41 | –0.46 | –0.41 | –0.49 |
1) Based on analysts' 3 year combined expectations.
| Performance shares 2016 |
Matching shares 2016 |
Performance shares 2017 |
Matching shares 2017 |
Performance shares 2018 |
Performance shares 2019 |
|
|---|---|---|---|---|---|---|
| Outstanding at beginning of year | 1,241,629 | 293,576 | 1,183,237 | 259,842 | 1,347,116 | – |
| Allotted during the period | – | – | – | – | – | 1,296,902 |
| Vested during the year | –1,225,012 | –291,851 | – | – | – | – |
| Forfeited during the year | –16,617 | –1,725 | –175,543 | –36,370 | –144,588 | –868,089 |
| Outstanding at year-end | – | – | 1,007,694 | 223,472 | 1,202,528 | 428,813 |
| Theoretical value when allotted acc. to Black-Scholes, SEK |
74.00 | 74.00 | 126.40 | 126.40 | 150.10 | 138.19 |
| Performance shares 2016 |
Matching shares 2016 |
Performance shares 2017 |
Matching shares 2017 |
Performance shares 2018 |
Performance shares 2019 |
|
|---|---|---|---|---|---|---|
| Outstanding at beginning of year | 241,981 | 46,079 | 231,604 | 41,802 | 194,341 | – |
| Allotted during the period | – | – | – | – | – | 196,780 |
| Vested during the year | –232,304 | –43,432 | – | – | – | – |
| Forfeited during the year | –9,677 | –2,647 | –40,222 | –6,704 | – | –135,272 |
| Transferred during the year | – | – | – | – | – | – |
| Outstanding at year-end | – | – | 191,382 | 35,098 | 194,341 | 61,508 |
| Theoretical value when allotted acc. to Black-Scholes, SEK |
74.00 | 74.00 | 126.40 | 126.40 | 150.10 | 138.19 |
Fees and remuneration to the Group's auditors were as follows:
| PwC | Other | Total | ||||
|---|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |
| Audit fee | ||||||
| Parent Company | 12.4 | 18.0 | 0.0 | 0.2 | 12.4 | 18.2 |
| Subsidiaries | 56.1 | 64.5 | 20.4 | 10.2 | 76.5 | 74.7 |
| Group | 68.5 | 82.4 | 20.4 | 10.4 | 88.9 | 92.9 |
| Audit activities other than the audit assignment |
||||||
| Parent Company | – | 0.3 | ||||
| Subsidiaries | – | – | ||||
| Group | 0.3 | |||||
| Tax consultancy services | ||||||
| Parent Company | 3.1 | 0.1 | ||||
| Subsidiaries | 9.9 | 5.7 | ||||
| Group | 13.0 | 5.8 | ||||
| Other services | ||||||
| Parent Company | 17.6 | 19.8 | ||||
| Subsidiaries | 8.0 | 3.1 | ||||
| Group | 25.6 | 22.8 |
Audit refers to the statutory audit of the financial statements, the accounting records and the administration of the business by the Board of Directors and the President and CEO, 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 other assurance, advice on accounting issues and due-diligence services in connection with acquisitions.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Expenditure for | ||||
| Research and development | –3,727 | –3,872 | –1,544 | –1,655 |
| Quality assurance | –423 | –475 | –252 | –269 |
| Total | –4,150 | –4,347 | –1,796 | –1,924 |
| of which expensed, total | –3,958 | –4,149 | –1,744 | –1,858 |
| of which expensed relating to research and development |
–3,535 | –3,674 | –1,492 | –1,588 |
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 1,184 million SEK (1,337). The amount is mainly related to currency exchange gain from operating receivables and liabilities of 550 million SEK and legal settlements/ penalties of 100 million SEK.
The Parent Company's other operating income mainly pertains to profit from sale of assets, revaluation of unrealized hedges and foreign exchange profit on bank accounts.
Other operating expenses amounted to –4,119 million SEK (–613). The main parts are impairment on goodwill related to Varel of –2,776 million SEK and currency exchange loss from derivatives and other items with currency components of –800 million SEK.
The Parent Company's other operating expenses mainly pertains to royalties between Group companies, realized hedges and losses on foreign exchange on operating receivables and payables.
| Group | 2018 | 2019 |
|---|---|---|
| Cost of goods and material | –31,783 –33,104 | |
| Employee benefit expense | –26,952 –27,354 | |
| Depreciation and amortization | –4,546 | –5,704 |
| Impairment losses, inventories | –297 | –215 |
| Impairment losses and reversal impairment losses, non–current assets |
150 | –4,364 |
| Impairment losses, doubtful receivables | –78 | –74 |
| Other expenses | –19,293 –20,231 | |
| Total | –82,799 –91,045 |
Other expenses mainly relate to purchases of services and consumables.
Sandvik implemented IFRS 16 from January 1 2019. During 2018 Sandvik applied IAS 17. Contracts not yet commenced amounted to 27 MSEK. For maturity analysis of the lease liability, see Note 27.
| Group | Land and buildings | Plant and machinery | Fixture and fittings | Total |
|---|---|---|---|---|
| MSEK | ||||
| Opening balance adjustment at 1 January 2019 | 2,539 | 295 | 554 | 3,389 |
| Additions | 351 | 83 | 297 | 730 |
| Remeasurements | 66 | 10 | 9 | 86 |
| Business combinations | 21 | — | — | 21 |
| Divestments and disposals | –49 | –1 | –11 | –61 |
| Reclassifications | –11 | 3 | 3 | –5 |
| Translation differences for the year | 58 | 3 | 13 | 72 |
| Transfer asset held for sale | –73 | –19 | –2 | –94 |
| At 31 December 2019 | 2,902 | 374 | 864 | 4,137 |
| Depreciation for the year | 608 | 106 | 275 | 989 |
| Impairment losses | 17 | 6 | 0 | 23 |
| Business combinations | 0 | — | — | |
| Divestments and disposals | –2 | 1 | –6 | –7 |
| Reclassifications | –3 | –1 | 9 | |
| Translation differences for the year | –4 | –1 | –3 | –7 |
| Transfer asset held for sale | –27 | –8 | –1 | –36 |
| At 31 December 2019 | 589 | 103 | 274 | 966 |
| Net carrying amount | ||||
| At 1 January 2019 | 2,539 | 295 | 554 | 3,389 |
| At 31 December 2019 | 2,313 | 271 | 590 | 3,172 |
| Impairment losses/reversal of impairment losses per line | ||||
| in the 2019 income statement | ||||
| Cost of goods sold | 17 | 6 | 0 | 23 |
| Selling expenses | — | — | — | — |
| Administrative expenses | — | — | — | — |
| Research and Development expenses | — | — | — | — |
| Total | 17 | 6 | 0 | 23 |
| Group, MSEK | 2019 |
|---|---|
| Depreciations for the year | –989 |
| Impairment losses/reversal of impairment losses | –23 |
| Interest expenses related to lease liabilities | –111 |
| Expenses for low value assets | –80 |
| Expenses for short–term leases | –42 |
| Expenses related to variable lease expenses not included in | |
| the lease liability | –4 |
| Gains/losses related to sale and leaseback transactions | –0 |
| Total amounts recognized in the income statement | –1,249 |
| The total cash outflow for leases during the year | –1,071 |
No comparable figures for 2019, for the Group, as Sandvik implemented IFRS 16.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Within one year | 1,143 | — | 186 | 135 |
| Between one and five years | 2,265 | — | 479 | 374 |
| Later than five years | 829 | — | 333 | 223 |
| Net carrying amount | 4,237 | — | 998 | 732 |
The Group's investments in financial leases amounted to 3,413 million SEK (2,880) at year-end 2019. Finance income was 93 million SEK (—). Variable fees recognized in profit/loss, and unguaranteed residual values accruing to the benefit 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 | 2018 | 2019 | 2018 | 2019 |
| Within one year | 1,517 | 1,883 | 1,431 | 1,763 |
| Between one and five years | 1,347 | 1,529 | 1,291 | 1,763 |
| Later than five years | 16 | 1 | 4 | 0 |
| Net carrying amount | 2,880 | 3,413 | 2,726 | 3,527 |
The planned residual value of the Group's rental fleet is 1,071 million SEK (943). Depreciation for the year amounted to 472 million SEK (609). Loss on disposed assets was –14 million SEK (–27). The future minimum lease payments under non-cancellable leases amount to 782 million SEK (824). Variable fees amounted to 10 million SEK (17). Future minimum lease payments under non-cancellable cancel operating lease contracts fall due as follows:
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Within one year | 459 | 384 | — | — |
| Between one and five years | 361 | 398 | — | — |
| Later than five years | 4 | 0 | — | — |
| Net carrying amount | 824 | 782 | — | — |
| Group | 2018 | 2019 |
|---|---|---|
| Interest income | 281 | 356 |
| Dividend | 15 | 20 |
| Other investments incl.derivatives | ||
| Net gain on remeasurements of financial assets/ liabilities |
43 | 80 |
| Foreign–exchange gains | — | — |
| Other financial income | 35 | 37 |
| Financial income | 374 | 492 |
| Interest expense | –1,089 | –1,405 |
| Other investments incl. derivatives | ||
| Net loss on remeasurements of financial assets/ | ||
| liabilities | –14 | –236 |
| Foreign–exchange losses | –6 | –4 |
| Other financial expenses | –59 | –85 |
| Financial expenses | –1,169 | –1,729 |
| Net financing cost | –795 | –1,237 |
Net interest income/expense from financial assets and liabilities not measured at fair value through profit or loss amounted to –1,049 million SEK (–801). Hedging of fair values in 2019 had an effect of 0 million SEK (0) on the result. No inefficiencies in cash flow hedges impacted profit for the year (0). For further information regarding valuation policies for financial instruments, refer to Note 27.
| Income from shares in Group companies |
Income from shares in associated companies |
|||
|---|---|---|---|---|
| Parent Company | 2018 | 2019 | 2018 | 2019 |
| Dividend, net of withholding tax | 3,129 | 10,036 | — | — |
| Group contributions paid/ received |
3,072 | 1,937 | — | — |
| Gain or loss on sale of shares and participations |
–1,824 | 16 | 0 | — |
| Impairment | –13 | — | — | — |
| Total | 4,364 | 11,989 | 0 | 0 |
| Parent Company | 2018 | 2019 |
|---|---|---|
| Interest income, Group companies | 491 | 482 |
| Other interest income | 0 | 0 |
| Derivatives, Group companies | 50 | — |
| Other | — | 3 |
| Total | 541 | 485 |
| Parent Company | 2018 | 2019 |
|---|---|---|
| Interest expense, Group companies | –301 | –154 |
| Other interest expense | –550 | –564 |
| Derivatives, Group companies | –238 | –65 |
| Other | –28 | –12 |
| Total | –1,117 | –795 |
| Group | Parent Company | |||
|---|---|---|---|---|
| Income tax expense for the year |
2018 | 2019 | 2018 | 2019 |
| Current tax | –2,651 | –4,112 | –120 | –1,326 |
| Adjustment of taxes attributa ble to prior years |
–290 | 95 | — | –87 |
| Total current tax expense | –2,941 | –4,017 | –120 | –1,413 |
| Deferred taxes relating to tem porary differences and unused |
||||
| tax loss carry-forward | –1,704 | 596 | –1,361 | 729 |
| Total tax expense | –4,645 | –3,421 | –1,481 | –684 |
The Group's recognized tax expense for the continuing operations for the year amounted to 3,421 million SEK (4,645) or 28.2 percent (26) of profit after financial items. The major part of the deferred tax is related to the reversal of the deferred tax liabilities due to the ongoing divestment of Varel.
The Group's weighted average tax rate for the continuing operations, calculated in accordance with the statutory tax rates in each country, is 22.6 percent (22.3). The tax rate in Sweden is 21.4 percent (22). Reconciliation of the Group's weighted average tax rate, based on the tax rates in each country, and the Group's actual tax expense:
| 2018 | 2019 | |||
|---|---|---|---|---|
| Continuing operations | MSEK | % | MSEK | % |
| Profit after financial items | 17,860 | 12,150 | ||
| Weighted average tax based on each country's tax rate |
–3,985 | –22.3 | –2,744 | –22.6 |
| Tax effect of | ||||
| Non-deductible expenses | –465 | –2.6 | –767 | –6.3 |
| Tax-exempt income | 395 | 2.2 | 31 | 0.3 |
| Adjustments relating to prior years |
–290 | –1.6 | 95 | 0.8 |
| Effects of tax loss carry-for | ||||
| ward, net | –207 | –1.2 | 13 | 0.1 |
| Other | –93 | –0.5 | –49 | –0.4 |
| Total recognized tax expense | –4,645 | –26.0 | –3,421 | –28.2 |
Tax items attributable to other comprehensive income
| 2018 | 2019 | |||||
|---|---|---|---|---|---|---|
| Group | Before tax | Tax | After tax | Before tax | Tax | After tax |
| Actuarial gains/losses attributable to defined-benefit pension plans |
–684 | 163 | –522 | –1,638 | 323 | –1,315 |
| Translation differences for the year | 1,752 | — | 1,752 | 1,880 | — | 1,880 |
| Fair-value changes in cash flow hedges for the year | 3 | –1 | 2 | 30 | –9 | 21 |
| Fair-value changes in cash flow hedges carried forward to profit/loss for the year |
15 | –3 | 12 | –2 | 1 | –1 |
| Other comprehensive income | 1,086 | 159 | 1,244 | 270 | 315 | 585 |
The weighted average tax rate for Group total, based on the statutory tax rates in each country, is 23 percent (23).
| 2018 | 2019 | |||
|---|---|---|---|---|
| Group total | MSEK | % | MSEK | % |
| Profit after financial items | 17,315 | 11,945 | ||
| Weighted average tax based on each country's tax rate |
–3,985 | –23.0 | –2,744 –23.0 | |
| Tax effect of | ||||
| Non-deductible expenses | –465 | –2.7 | –767 | –6.4 |
| Tax-exempt income | 395 | 2.3 | 31 | 0.3 |
| Adjustments relating to prior years | –290 | –1.7 | 95 | 0.8 |
| Effects of tax loss carry-forward, net | –207 | –1.2 | 13 | 0.1 |
| Other | –93 | –0.5 | –49 | –0.4 |
| Total recognized tax expense | –4,645 | –26.8 | –3,421 –28.6 |
The Parent Company's effective tax rate is lower than the nominal tax rate in Sweden, mainly due to received dividends from shares in Group companies which are non-taxable incomes.
Reconciliation of the Parent Company's nominal tax rate and actual tax expense:
| 2018 | 2019 | |||
|---|---|---|---|---|
| Parent Company | MSEK | % | MSEK | % |
| Profit after financial items | 6,337 | 15,821 | ||
| Tax based on the nominal tax rate for the Parent company |
–1,394 | –22.0 | –3,386 | –21.4 |
| Tax effect of | ||||
| Non-deductible expenses | –513 | –8.1 | –68 | –0.4 |
| Tax-exempt income | 671 | 10.6 | 2,797 | 17.7 |
| Adjustments relating to prior | ||||
| years | –245 | –3.9 | –27 | –0.2 |
| Total recognized tax expense | –1,481 | –23.4 | –684 | –4.3 |
Deferred tax assets and liabilities
The deferred tax assets and liabilities recognized in the balance sheet are attributable to the following assets and liabilities.
| 2018 | 2019 | |||||
|---|---|---|---|---|---|---|
| Group | Deferred tax assets |
Deferred tax liabilities |
Net | Deferred tax assets |
Deferred tax liabilities |
Net |
| Intangible assets | 53 | –1,588 | –1,535 | 184 | –1,466 | –1,282 |
| Property, plant and equipment | 160 | –1,487 | –1,327 | 261 | –1,612 | –1,351 |
| Financial non-current assets | 70 | –128 | –58 | 184 | –150 | 34 |
| Inventories | 848 | –85 | 763 | 964 | –94 | 870 |
| Receivables | 168 | –36 | 132 | 174 | –107 | 67 |
| Interest-bearing liabilities | 1,292 | 0 | 1,292 | 1,641 | 0 | 1,641 |
| Non-interest-bearing liabilities | 1,126 | –16 | 1,110 | 1,305 | –26 | 1,279 |
| Other | 1 | –9 | –8 | 17 | — | 17 |
| Tax loss carry-forward | 396 | — | 396 | 258 | — | 258 |
| Total | 4,114 | –3,349 | 765 | 4,988 | –3,455 | 1,533 |
| Offsetting within companies | –964 | 964 | — | –1,155 | 1,155 | — |
| Transfer asset held for sale | — | — | — | –36 | — | –36 |
| Total deferred tax assets and liabilities | 3,150 | –2,385 | 765 | 3,797 | –2,299 | 1,498 |
| 2018 | 2019 | |||||
|---|---|---|---|---|---|---|
| Parent Company | Deferred tax assets |
Deferred tax liabilities |
Net | Deferred tax assets |
Deferred tax liabilities |
Net |
| Property, plant and equipment | — | –669 | –669 | — | –24 | –24 |
| Inventories | 9 | — | 9 | 6 | — | 6 |
| Provisions | 30 | –24 | 6 | 76 | –21 | 55 |
| Non-interest–bearing assets and liabilities | 5 | — | 5 | 43 | — | 43 |
| Total | 44 | –693 | –649 | 125 | –45 | 80 |
| Offsetting | –44 | 44 | — | –125 | 125 | 0 |
| Total deferred tax assets and liabilities | — | –649 | –649 | — | 80 | 80 |
The Group has additional tax loss carry-forward of 2,595 million SEK (3,038). The main part of the change for 2019 relates to revaluation and expiry of tax losses in prior years in Brazil and Chile. No deferred tax asset was recognized for these losses.
The expiry dates of these tax loss carry-forwards are distributed as follows:
| Year | MSEK |
|---|---|
| 2020 | 111 |
| 2021 | 116 |
| 2022 | 121 |
| 2023 and later | 23 |
| No expiry date | 2,224 |
| Total | 2,595 |
Related deferred tax assets were not recognized since utilization of the tax losses against future taxable profits is not deemed probable in the foreseeable future. The tax value of the unrecognized tax loss carry-forwards amounted to 750 million SEK (826).
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Balance at the beginning of the year, net |
2,739 | 765 | 712 | –649 |
| Recognized in profit and loss | –1,704 | 596 | –1,361 | 729 |
| Acquisitions/disposals of subsidiaries |
–364 | –146 | — | — |
| Recognized in other compre hensive income |
159 | 315 | — | — |
| Translation differences | –65 | 44 | — | — |
| Reclassifications | — | –41 | — | — |
| Transfer asset held for sale | — | –36 | — | — |
| Balance at end of year, net | 765 | 1,498 | –649 | 80 |
In addition to the deferred tax assets and liabilities. Sandvik reports the following tax liabilities and receivables:
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Provisions for taxes | –1,457 | — | — | — |
| Income tax liabilities | –1,252 –3,744 | — | –604 | |
| Income tax receivables | 740 | 1,403 | 81 | — |
| Net tax liabilities/receivables | –512 –2,341 | 81 | –604 |
Provisions for taxes reported last year is reclassified to income tax liabilities due to the new standard, IFRIC 23.
| Basic | Diluted | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Earnings per share. Group total | 10.11 | 6.81 | 10.09 | 6.79 |
| Earnings per share, continuing operations |
10.54 | 6.97 | 10.52 | 6.96 |
The calculation of the numerators and denominators used in the above calculations of earnings per share is presented below.
| 2018 | 2019 | |
|---|---|---|
| Profit for the year attributable to the equity holders of the Parent Company. Group total |
12,679 | 8,539 |
| Profit for the year attributable to the equity holders of the Parent Company, continuing operations |
13,225 | 8,744 |
The calculation of earnings per share for 2019 is based on the profit for the year attributable to the equity holders of the Parent Company, Group total, continuing operations and the weighted average number of shares (thousands) of 1,254,386 (1,254,386) during 2019.
| In thousands of shares | 2018 | 2019 |
|---|---|---|
| Total number of ordinary shares at 1 January | 1,254,386 | 1,254,386 |
| Weighted average number of shares | ||
| outstanding during the year, basic | 1,254,386 | 1,254,386 |
The calculation of diluted earnings per share for 2019 is based on the profit attributable to the equity holders of the Parent Company. Group total, continuing operations and the weighted average number of shares (thousands) of 1,256,614 (1,257,527) during 2019 calculated as follows:
| In thousands of shares | 2018 | 2019 |
|---|---|---|
| Total number of ordinary shares at 1 January | 1,254,386 | 1,254,386 |
| Effect of share options | 3,141 | 2,229 |
| Weighted average number of shares outstanding during the year, diluted |
1,257,527 | 1,256,614 |
Diluted earnings per share is related to outstanding share-based LTI programs. Information about these programs is found in Note 3.5.
| Patents, Patents, Capitali licenses, Capitali licenses, zed R&D trade zed R&D trade expendi IT marks expendi IT marks ture software etc Other Subtotal ture software etc Goodwill Other Subtotal Cost At 1 January 2018 3,779 2,744 231 162 6,916 151 799 2,064 11,911 2,376 17,301 24,217 Additions 192 274 9 9 484 45 80 — — 1 127 611 Business combinations — — — — — 254 34 129 3,198 967 4,582 4,582 Divestments and disposals –53 –74 –63 –41 –231 — –44 –7 –1,016 –216 –1,284 –1,514 Reclassifications 16 37 44 –8 89 19 45 –18 909 137 1,093 1,181 Translation differences for the year 74 41 7 10 132 7 24 128 602 147 908 1,039 At 31 December 2018 4,009 3,022 227 132 7,389 476 937 2,296 15,605 3,412 22,727 30,116 At 1 January 2019 4,009 3,022 227 132 7,389 476 937 2,296 15,605 3,412 22,727 30,116 Additions 203 313 9 7 533 29 81 20 156 2 289 822 Business combinations — — 15 — 15 –6 0 312 917 464 1,687 1,703 Divestments and disposals –108 –320 4 –3 –427 –23 –126 –6 –5 — –160 –588 Reclassifications –8 –1 4 23 19 0 19 0 0 –4 15 34 Translation differences for the year 27 25 4 3 59 7 10 81 561 97 756 815 At 31 December 2019 4,123 3,038 264 163 7,587 483 922 2,705 17,233 3,971 25,314 32,901 Accumulated amortizations and impairment losses 2,317 1,448 111 126 4,002 59 549 821 0 1,410 2,839 6,841 — — — — — — 22 — — — 22 22 –44 –71 –13 –40 –167 — –42 –7 — –122 –171 –338 30 — — 8 38 — — 1 — — 1 39 — — — — — — –1 — — — –1 –1 — –10 –8 — –17 — 39 –14 — 140 165 147 317 263 12 3 594 49 48 106 — 168 371 965 40 7 4 9 59 2 21 43 — 65 131 190 2,660 1,637 106 106 4,508 110 637 950 0 1,661 3,357 7,866 2,660 1,637 106 106 4,508 110 637 950 0 1,661 3,357 7,866 — — 3 — 3 — 0 — — 5 5 9 –102 –312 4 –3 –413 –9 –108 –6 — — –123 –535 52 10 — — 62 — 10 839 2,853 436 4,138 4,200 — — — — — — 0 — — — 0 0 0 — 14 4 17 0 7 0 0 –11 –4 14 333 321 14 5 673 58 75 120 — 281 534 1,208 14 6 2 3 25 1 8 –6 — 39 42 67 2,956 1,662 142 116 4,876 160 629 1,897 2,853 2,411 7,950 12,827 1,462 1,295 120 37 2,914 92 250 1,243 11,911 966 14,462 17,376 1,349 1,384 121 26 2,880 366 300 1,345 15,605 1,753 19,370 22,250 1,349 1,384 121 26 2,880 366 300 1,345 15,605 1,753 19,370 22,250 1,167 1,376 122 47 2,711 323 293 808 14,380 1,560 17,363 20,074 Amortization for the year is included in the following lines in the 2018 income statement — –84 — –1 –85 –7 –26 –102 — –32 –167 –252 Selling expenses — –8 — –2 –10 –37 –7 –2 — –134 –180 –190 –317 –171 –12 — –500 –5 –15 –2 — –2 –24 –524 –317 –263 –12 –3 –595 –49 –48 –106 — –168 –371 –966 Amortization for the year is included in the following lines in the 2019 income statement Cost of sales –1 –81 0 –4 –86 –7 –31 0 — –15 –53 –140 Selling expenses –4 –14 –4 — –22 –19 –4 –2 — –1 –26 –47 Administrative expenses –328 –227 –6 –4 –565 –32 –40 –117 — –265 –454 –1,019 –333 –321 –11 –7 –673 –58 –75 –120 — –281 –534 –1,207 |
Internally generated intangible assets | Acquired intangible assets | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| At 1 January 2018 | |||||||||
| Business combinations | |||||||||
| Divestments and disposals | |||||||||
| Impairment losses | |||||||||
| Reversal of impairment losses | |||||||||
| Reclassifications | |||||||||
| Amortization for the year | |||||||||
| Translation differences for the year | |||||||||
| At 31 December 2018 | |||||||||
| At 1 January 2019 | |||||||||
| Business combinations | |||||||||
| Divestments and disposals | |||||||||
| Impairment losses | |||||||||
| Reversal of impairment losses | |||||||||
| Reclassifications | |||||||||
| Amortization for the year | |||||||||
| Translation differences for the year | |||||||||
| At 31 December 2019 | |||||||||
| Net carrying amount | |||||||||
| At 1 January 2018 | |||||||||
| At 31 December 2018 | |||||||||
| At 1 January 2019 | |||||||||
| At 31 December 2019 | |||||||||
| Cost of sales | |||||||||
| Administrative expenses | |||||||||
| Total | |||||||||
| Total |
Note 12, continued
| Capital- ized R&D expenditure |
IT software |
Internally generated intangible assets Patents, licenses, trademarks etc Other |
Sub total |
Capitalized R&D expenditure |
IT software |
Patents, licenses, trademarks etc Goodwill Other |
Acquired intangible assets | Sub total |
Total | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Impairment losses/Reversal of impairment losses per line in the 2018 income statement | ||||||||||||
| Cost of sales | — | — | — | — | — | — | — | — | — | — | — | — |
| Selling expenses | — | — | — | 8 | 8 | — | — | — | — | — | — | 8 |
| Administrative expenses | 30 | — | — | — | 30 | — | — | 1 | — | 1 | 31 | |
| Total | 30 | — | — | 8 | 38 | — | — | 1 | — | — | 1 | 39 |
| Impairment losses/Reversal of impairment losses per line in the 2019 income statement | ||||||||||||
| Cost of sales | — | 10 | — | — | 10 | — | 6 | — | — | — | 6 | 16 |
| Selling expenses | — | — | — | — | — | — | 1 | 839 | 2,853 | 436 | 4,129 | 4,129 |
| Administrative expenses | 52 | — | — | — | 52 | — | 2 | — | — | — | 2 | 54 |
| Total | 52 | 10 | — | — | 62 | — | 10 | 839 | 2,853 | 436 | 4,138 | 4,200 |
For 2019, the impairment losses/reversal of impairment losses amounted to –4,200 million SEK (39 ), of which 4,051 million SEK was related to the ongoing divestment of Varel. Other impairment was related to the business area Sandvik Mining and Rock Technology.
| Land and buildings |
Plant and machinery |
Equipment, tools, fixtures and fittings |
Construction in progress |
Total | |
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2018 | 16,411 | 39,660 | 6,287 | 2,376 | 64,734 |
| Additions | 373 | 1,421 | 274 | 2,035 | 4,103 |
| Business combinations | 7 | 232 | 25 | — | 264 |
| Divestments and disposals | –493 | –3,213 | –585 | –237 | –4,528 |
| Reclassifications | 753 | 3,038 | 439 | –1,432 | 2,798 |
| Translation differences for the year | 489 | 929 | 154 | 42 | 1,613 |
| At 31 December 2018 | 17,541 | 42,067 | 6,591 | 2,786 | 68,984 |
| Opening adjustment IFRS 16 | –123 | –123 | |||
| At 1 January 2019 | 17,418 | 42,067 | 6,591 | 2,786 | 68,862 |
| Additions | 208 | 1,692 | 349 | 2,082 | 4,332 |
| Business combinations | 4 | 178 | 14 | — | 196 |
| Divestments and disposals | –430 | –1,975 | –479 | –130 | –3,013 |
| Reclassifications | 252 | 1,303 | 288 | –2,084 | –240 |
| Translation differences for the year | 278 | 637 | 109 | 24 | 1,048 |
| Transfer asset held for sale | –124 | –734 | –9 | –23 | –890 |
| At 31 December 2019 | 17,605 | 43,169 | 6,865 | 2,657 | 70,296 |
| Accumulated depreciations and impairment losses | |||||
| At 1 January 2018 | 7,599 | 27,942 | 4,793 | — | 40,335 |
| Additions | — | — | — | — | — |
| Business combinations | 2 | 130 | 19 | — | 150 |
| Divestments and disposals Impairment losses |
–243 45 |
–2,395 80 |
–532 4 |
— — |
–3,170 129 |
| Reversal of impairment losses | –109 | –83 | 0 | — | –192 |
| Reclassifications | 346 | 1,197 | 193 | — | 1,736 |
| Depreciation for the year | 540 | 2,635 | 417 | — | 3,592 |
| Translation differences for the year | 242 | 685 | 118 | — | 1,046 |
| At 31 December 2018 | 8,423 | 30,188 | 5,012 | — | 43,622 |
| Opening adjustment IFRS 16 | –93 | –93 | |||
| At 1 January 2019 | 8,330 | 30,188 | 5,012 | — | 43,529 |
| Additions | — | — | — | — | — |
| Business combinations | 1 | 104 | 10 | — | 115 |
| Divestments and disposals | –339 | –1,740 | –439 | — | –2,518 |
| Impairment losses | 25 | 310 | 1 | — | 335 |
| Reversal of impairment losses | –15 | –14 | 0 | — | –29 |
| Reclassifications | –9 | –365 | 17 | — | –357 |
| Depreciation for the year | 545 | 2,575 | 435 | — | 3,554 |
| Translation differences for the year | 127 | 452 | 84 | — | 664 |
| Transfer asset held for sale | –71 | –563 | –7 | — | –641 |
| At 31 December 2019 | 8,593 | 30,947 | 5,113 | — | 44,653 |
| Net carrying amount | |||||
| At 1 January 2018 | 8,811 | 11,718 | 1,493 | 2,376 | 24,398 |
| At 31 December 2018 | 9,118 | 11,879 | 1,578 | 2,788 | 25,363 |
| At 1 January 2019 | 9,118 | 11,879 | 1,578 | 2,788 | 25,363 |
| At 31 December 2019 | 9,012 | 12,221 | 1,752 | 2,657 | 25,643 |
| Construction in | |||||
|---|---|---|---|---|---|
| 2018 | Land and buildings | Plant & Machinery | Equip., tools etc | progress | Total |
| Cost of sales | –63 | 5 | 4 | –2 | –56 |
| Selling expenses | — | — | — | — | — |
| Administrative expenses | — | –8 | — | — | –8 |
| Total | –63 | –3 | 4 | –2 | –64 |
| 2019 | |||||
| Cost of sales | 9 | 296 | 1 | 0 | 306 |
| Selling expenses | — | — | — | — | — |
| Administrative expenses | — | — | — | 0 | 0 |
| Total | 9 | 296 | 1 | 0 | 306 |
| Construction in | |||||
|---|---|---|---|---|---|
| Land and Buildings | Plant & Machinery | Equip., tools etc | progress | Group | |
| 2018 | |||||
| Sandvik Machining Solutions | 35 | 19 | 4 | — | 58 |
| Sandvik Mining and Rock Technology | — | 1 | 0 | — | 1 |
| Sandvik Materials Technology | –106 | –22 | — | — | –127 |
| Other Operations | 8 | –1 | 0 | — | 6 |
| Total | –63 | –3 | 4 | — | –62 |
| 2019 | |||||
| Sandvik Machining Solutions | –15 | 40 | 0 | — | 25 |
| Sandvik Mining and Rock Technology | — | 0 | 0 | — | 0 |
| Sandvik Materials Technology | — | 105 | — | — | 105 |
| Other Operations | 25 | 151 | 1 | — | 176 |
| Total | 9 | 295 | 1 | — | 306 |
Property, plant and equipment and intangible assets with a definite useful life were tested for impairment when an indication for impairment was identified. The tests resulted in impairment losses of 4,506 million SEK (–25) for 2019. For property, plant and equipment the amount was 306 million SEK (–64) where of 203 million SEK is related to the ongoing divestment of Varel. For intangible assets 4,200 million SEK (39), including the impairment related to the ongoing divestment of Varel of 4,051 million SEK.
Items of property, plant and equipment totaling 234 million SEK (293) have been pledged as security for liabilities. In 2019, contractual commitments for the acquisition of property, plant and equipment amounted to 385 million SEK (222).
Borrowing costs included in the cost of assets during the year amounted to zero for 2019 and 2018.
Government grants during the year amounted to 48 million SEK (8).
| Carrying amount | ||||
|---|---|---|---|---|
| Goodwill by cash–generating unit | 2018 | 2019 | ||
| Sandvik Machining Solutions | ||||
| Walter group | 1,141 | 1,124 | ||
| Seco Tools | 239 | 423 | ||
| Wolfram | 1,574 | 1,595 | ||
| Metrologic | 2,606 | 2,544 | ||
| Business area level | 1,583 | 1,887 | ||
| Total | 7,143 | 7,573 | ||
| Sandvik Mining and Rock Technology | ||||
| Business area level | 4,643 | 5,441 | ||
| Total | 4,643 | 5,441 | ||
| Sandvik Materials Technology | ||||
| Business area level | 1,224 | 1,324 | ||
| Total | 1,224 | 1,324 | ||
| Other operations | ||||
| Varel | 2,554 | — | ||
| Total | 2,554 | — | ||
| Other | 41 | 42 | ||
| Group total | 15,605 | 14,380 |
Goodwill was impairment tested in the fourth quarter 2019. As stated below, the carrying amount of goodwill in the consolidated balance sheet is 14,380 million SEK (15,605), essentially related to a number of major business combinations and the ongoing divestment of Sandvik Drilling and Completions (Varel).
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 flows using forecasts covering a four-year period, which are in turn based on the three-year plans prepared annually by each of the business areas and approved by Sandvik Group Executive Management.
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 differ for each market, and external and internal studies of these, are used in the analysis of the business situation. The forecasts form the basis for how the values of the material assumptions are established.
The assumptions mentioned below reflect past experience and are consistent with external information. 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 four years was 2 percent for Walter (2), Seco Tools (2), Wolfram (2), Sandvik Machining Solutions business area level (2), Sandvik Materials Technology business area level (2) and 3 percent for Sandvik Mining and Rock Technology business area level (3). Need of
working capital beyond the four-year period is deemed to increase approximately as the expected growth in the terminal period. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders' equity and was assumed to amount to 10 percent (10) before tax. These assumptions apply to all cash-generating units. The specific risks of the cash-generating units have been adjusted for in the future cash flow forecasts. Goodwill attributable to Varel OAG was impaired in October 2019 following the fair value assessment taking place when the business was classified as Disposal group for sale and also moved from the business area Sandvik Mining and Rock Technology to Other operations. The impairment of Goodwill amounted to 2,776 million SEK and the impairment of patents, licenses and trademark related to the ongoing divestment of Varel amounted to 1,275 million SEK. Varel OAG is expected to be divested early March 2020. For more information, see Note 30.
The testing of Goodwill did not indicate any other 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. The goodwill value would also be maintained, given an operating margin drop by 2 percentage points.
| Patents and other intangible assets |
Goodwill | Total | |
|---|---|---|---|
| Cost | |||
| At 1 January 2018 | 112 | 139 | 251 |
| Additions | 19 | — | 19 |
| Divestments and disposals | –8 | — | –8 |
| At 31 December 2018 | 123 | 139 | 262 |
| At 1 January 2019 | 123 | 139 | 262 |
| Additions | 17 | — | 17 |
| Divestments and disposals | –20 | — | –20 |
| At 31 December 2019 | 120 | 139 | 259 |
| Accumulated amortization | |||
| At 1 January 2018 | 90 | 30 | 120 |
| Amortization for the year | 7 | 28 | 35 |
| At 31 December 2018 | 97 | 58 | 155 |
| Net carrying amount at end of year | 26 | 81 | 107 |
| At 1 January 2019 | 97 | 58 | 155 |
| Divestments and disposals | –20 | — | –20 |
| Amortization for the year | 11 | 28 | 39 |
| At 31 December 2019 | 88 | 86 | 174 |
| Net carrying amount at end of year | 32 | 53 | 85 |
| the following lines in 2019 income statement | ||
|---|---|---|
| 2018 | 2019 | |
| Administrative expenses | 35 | 39 |
| Total | 35 | 39 |
| Plant and Equipment, fixtures |
Construction in | |||||
|---|---|---|---|---|---|---|
| Land and buildings | machinery | and fittings | progress | Total | ||
| Cost | ||||||
| At 1 January 2018 | 1,711 | 14,511 | 1,566 | 1,436 | 19,224 | |
| Additions | 5 | 167 | 19 | 616 | 807 | |
| Divestments and disposals | –13 | –746 | –134 | –4 | –897 | |
| Reclassifications | 21 | 433 | 57 | –511 | 0 | |
| At 31 December 2018 | 1,724 | 14,365 | 1,508 | 1,537 | 19,134 | |
| At 1 January 2019 | 1,724 | 14,365 | 1,508 | 1,537 | 19,134 | |
| Additions | 14 | 178 | 61 | 706 | 959 | |
| Divestments and disposals | –13 | –496 | –105 | –66 | –680 | |
| Reclassifications | 31 | 813 | 101 | –945 | — | |
| At 31 December 2019 | 1,756 | 14,860 | 1,565 | 1,232 | 19,413 | |
| Revaluations | ||||||
| At 1 January 2018 | 39 | — | — | — | 39 | |
| Divestments and disposals | 0 | — | — | — | 0 | |
| At 31 December 2018 | 39 | — | — | — | 39 | |
| At 1 January 2019 | 39 | — | — | — | 39 | |
| Divestments and disposals | –3 | — | — | — | –3 | |
| At 31 December 2019 | 36 | — | — | — | 36 | |
| Depreciation | ||||||
| At 1 January 2018 | 729 | 10,113 | 1,181 | — | 12,023 | |
| Divestments and disposals | –10 | –574 | –128 | — | –712 | |
| Reclassifications | — | 2 | –2 | — | — | |
| Depreciation for the year | 51 | 666 | 84 | — | 801 | |
| Impairment losses | 8 | — | 0 | — | 8 | |
| At 31 December 2018 | 778 | 10,207 | 1,135 | — | 12,120 | |
| At 1 January 2019 | 778 | 10,207 | 1,135 | — | 12,120 | |
| Divestments and disposals | –9 | –471 | –103 | — | –583 | |
| Reclassifications | 0 | 0 | — | — | 0 | |
| Depreciation for the year | 51 | 680 | 92 | — | 823 | |
| At 31 December 2019 | 820 | 10,416 | 1,124 | — | 12,360 | |
| Net carrying amount | ||||||
| At 1 January 2018 | 1,021 | 4,398 | 385 | 1,436 | 7,240 | |
| At 31 December 2018 | 985 | 4,158 | 373 | 1,537 | 7,053 | |
| At 1 January 2019 | 985 | 4,158 | 373 | 1,537 | 7,053 | |
| At 31 December 2019 | 972 | 4,444 | 441 | 1,232 | 7,089 |
| Parent Company | ||
|---|---|---|
| 2018 | 2019 | |
| Cost | ||
| At the beginning of the year | 34,083 | 31,528 |
| Additions | 4,793 | 5,825 |
| Capital contributions | 93 | 6,068 |
| Captial reductions | — | –27 |
| Divestment | –7,441 | –350 |
| Total | 31,528 | 43,044 |
| Accumulated impairment losses | ||
| At the beginning of the year | –1,541 | –751 |
| Impairment losses for the year | –13 | — |
| Impairment reversed for the year | 803 | 280 |
| Total | –751 | –471 |
| Accumulated revaluations | ||
| At the beginning of the year | 16 | 0 |
| Revaluations reversed for the year | –16 | — |
| Total | 0 | 0 |
| Carrying amount at year-end | 30,777 | 42,573 |
according to balance sheet at 31 December
| 2018 | 2019 | ||||||
|---|---|---|---|---|---|---|---|
| Carrying | Carrying | ||||||
| Corp. Reg. | No. of | Holding, | amount | No. of | Holding, | amount | |
| Company, domicile | number | shares | %2) | 000s,SEK | shares | %2) | 000s,SEK |
| SWEDEN | |||||||
| Gimo Utbildningsaktiebolag, Gimo | 556061–4041 | 1,000 | 91 | — | 1,000 | 91 | 3,656 |
| Industri AB Skomab, Sandviken | 556008–8345 | 2,000 | 100 | 21,946 | 2,000 | 100 | 21,946 |
| Sandvik Global Purchasing AB, Stockholm | 556052–4315 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Mining AB, Sandviken1) | 556659–6952 | 1,000 | 100 | 100 | — | — | — |
| AB Sandvik Coromant, Sandviken1) | 556234–6865 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Coromant Sverige AB, Stockholm1) | 556350–7846 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| 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 | 81,000 | 1,500 | 100 | 81,000 |
| Sandvik Besöksservice AB, Sandviken1) | 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 |
| Sandvik Materials Technology EMEA AB, Stockholm | 556734–2026 | 501,000 | 100 | 50,100 | 501,000 | 100 | 5,782,350 |
| AB Sandvik Materials Technology, Sandviken1) | 556234–6832 | 1,000 | 100 | 2,050 | — | — | — |
| 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 | 8,000 | — | — | — |
| Sandvik Powder Solutions AB, Surahammar | 556032–6760 | 600 | 100 | 60,000 | — | — | — |
| Sandvik Rotary Tools AB, Köping | 556191–8920 | 101,000 | 100 | 103,231 | 101,000 | 100 | 103,231 |
| 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 |
| Sanrip AB, Sandviken1) | 556692–0038 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Machining Solutions AB, Sandviken1) | 556692–0053 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Utbildnings AB, Sandviken | 556304–8791 | 910 | 91 | 18,355 | 910 | 91 | 28,342 |
| Sandvikens Brukspersonals Byggnadsförening upa, Sandviken |
785500–1686 | — | 100 | 0 | — | 100 | 0 |
| Dormer Pramet AB, Halmstad | 556240–8210 | 80,000 | 100 | 46,145 | 80,000 | 100 | 46,145 |
| Walter Norden AB, Halmstad | 556752–4698 | 15,000 | 100 | 5,139 | 15,000 | 100 | 5,139 |
| Sandvik Mining and Construction Köping AB, Köping1) | 556776–9525 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Wire Sandviken AB, Sandviken1) | 556779–3897 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik IT Services AB, Sandviken1) | 556788–9059 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Venture AB, Stockholm1) | 556868–7155 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Credit AB, Stockholm | 556843–7296 | 10,000 | 100 | 75,000 | 10,000 | 100 | 75,000 |
| Seco Tools AB, Fagersta | 556071–1060 145,467,690 | 100 15,658,859 145,467,690 | 100 15,658,859 | ||||
| Sandvik PT AB, Sandviken | 556207–5191 | — | — | — | 2,500 | 100 | 4,740,600 |
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 76%.
5) Shares up to an ownership interest of 100% are held by other Group companies.
| 2018 | 2019 | ||||||
|---|---|---|---|---|---|---|---|
| Carrying | Carrying | ||||||
| Country/Location | Company | No. of shares | Holding, %2) | amount 000s,SEK |
No. of shares | Holding, %2) | amount 000s,SEK |
| Australia | Sandvik Australia Pty. Ltd. | — | 253, 4) | 235,382 | — | 253, 4) | 235,382 |
| Sandvik Australian Ltd. Partnership | — | 99 | — | — | 99 | — | |
| Brazil | Sandvik Holding Do Brasil Ltda | 339,135,756 | 100 | 790,695 | 339,135,756 | 100 | 790,695 |
| Bulgaria | Sandvik Bulgaria Ltd. | — | 100 | 0 | — | 100 | 0 |
| Chile | Sandvik Credit Chile S.A. | 9,900 | 99 | 165,331 | 9,900 | 99 | 165,331 |
| China | Sandvik China Holding Co Ltd. | — | 100 | 1,263,072 | — | 100 | 1,579,078 |
| Sandvik Materials Technology (China) Ltd. |
— | 583) | 282,749 | — | 583) | 282,749 | |
| Czech Republic | Sandvik CZ s.r.o. | — | 100 | 0 | — | 100 | 0 |
| Democratic Repub lic of Congo |
Sandvik Mining and Construction DRC S.P.R.L. |
9,990 | 100 | — | 9,990 | 100 | 4,898 |
| Hungary | Sandvik Magyarorszag Kft. | — | 100 | 3,258 | — | 100 | 3,258 |
| India | Sandvik Asia Ltd. | 1,801,241 | 755) | 252,481 | 1,801,241 | 755) | 252,481 |
| 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 | 2,780,000 | 100 | 224,701 |
| Korea | Sandvik Korea Ltd. | 752,730 | 100 | 46,856 | 752,730 | 100 | 20,185 |
| 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 | 903) | 712,312 | 406,642,873 | 903) | 712,312 |
| 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 | 7,093,582 |
| Frost Holding B.V. | 1 | 100 | 0 | 1 | 100 | 1,105 | |
| Peru | Sandvik del Perú S.A. | 6,562,795 | 903) | 26,025 | 6,562,795 | 903) | 26,025 |
| Slovakia | Sandvik Slovakia s.r.o. | — | 100 | 1,238 | — | 100 | 1,238 |
| South Africa | Sandvik Holding Southern Africa (Pty) Ltd |
— | — | — | 1,107,501 | 100 | 1,084,567 |
| 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 | 30,776,865 | 42,573,113 |
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 76%.
5) Shares up to an ownership interest of 100% are held by other Group companies.
Note 14, continued
| Country/Location | Company | 2018 | 2019 |
|---|---|---|---|
| Sweden | Sandvik Treasury AB | 100 | 100 |
| Sandvik Materials Technology Treasury AB | — | 100 | |
| Metrolog Services Nordic AB | 100 | 100 | |
| SETP Invest AB | 100 | 100 | |
| Sandvik Invest Aktiebolag | 100 | 100 | |
| Seco AB | 100 | 100 | |
| Pramet Scandinavia AB | — | 100 | |
| AB Sandvik KPS | 100 | — | |
| Sandvik Heating Technology AB | 100 | 100 | |
| Sandvik Mining and Construction Haparanda AB | 100 | 100 | |
| Sandvik SRP AB | 100 | 100 | |
| Argentina | ESIP Energy S.A. | 50 | 50 |
| Seco Tools Argentina S.A. | 100 | 100 | |
| Sandvik Argentina S.A. | 100 | 100 | |
| Sandvik Mining and Construction Argentina S.A. | 100 | 100 | |
| Armenia | Sandvik Mining and Rock Technology AM LLC | 100 | 100 |
| Australia | Sandvik Australia Pty Ltd | — | 100 |
| Sandvik Credit Pty Ltd | 100 | 100 | |
| Sandvik Australian Limited Partnership | 100 | 100 | |
| Sandvik Mining and Construction Australia (Production/Supply) Pty Ltd | 100 | 100 | |
| NTX Australia Pty Ltd | — | 100 | |
| Varel International (Australia) Pty Ltd | — | 100 | |
| Seco Tools Australia Pty Ltd | 100 | 100 | |
| Sandvik Australia Holdings Pty Ltd | 100 | 100 | |
| Sandvik Mining and Construction Australia Pty Ltd | 100 | 100 | |
| Austria | Sandvik in Austria Gesellschaft GmbH | 100 | 100 |
| Walter Austria GmbH | 100 | 100 | |
| Wolfram Bergbau und Hütten AG | 100 | 100 | |
| Seco Tools Gesellschaft GmbH | 100 | 100 | |
| Sandvik Mining and Construction G.m.b.H. | 100 | 100 | |
| Sandvik Mining and Construction Materials Handling GmbH & Co KG | 100 | 100 | |
| Sandvik Mining and Construction Materials Handling GmbH | 100 | 100 | |
| Belgium | Walter Benelux N.V./S.A. | 100 | 100 |
| S.A. Seco Tools Benelux N.V. | 100 | 100 | |
| Botswana | Sandvik Botswana (Pty) Ltd | 100 | 100 |
| Brazil | Sandvik Coromant Do Brasil Industria e Comercio de Ferramentas Ltda | 100 | 100 |
| Walter do Brazil Ltda | 100 | 100 | |
| Dormer Pramet Solucoes Para Usinagem Ltda | 100 | 100 | |
| Sandvik Materials Technology do Brasil Industria e Comercio Ltda | 100 | 100 | |
| Sandvik Holding do Brazil Ltda | 100 | 100 | |
| Seco Tools Indústria e Comércio Ltda. | 100 | 100 | |
| Sandvik MGS S.A. | 100 | 100 | |
| Sandvik Mining and Rock Technology do Brasil Ltda | 100 | 100 | |
| Burkina Faso | Sandvik Mining and Rock Technology Burkina Faso SARL | 100 | 100 |
| Canada | Systéme Guardian Inc. | — | 100 |
| Sandvik Canada, Inc. | 100 | 100 | |
| Newtrax Holdings Inc | — | 100 | |
| Inrock Ltd. | 100 | 100 | |
| Newtrax Technologies Inc | — | 100 | |
| Varel Rock Bits Canada Inc | 100 | 100 | |
| Chile | Sandvik Chile S.A. | 100 | 100 |
| NTX Chile SpA | — | 100 | |
| Sandvik Credit Chile S.A. | 100 | 100 | |
| Sandvik Mining and Construction Chile S.A. | 100 | 100 | |
| China | Sandvik Tooling Production (Langfang) Co. Ltd | 100 | 100 |
| Sandvik Materials Technology (China) Co., Ltd | 100 | 100 | |
| Sandvik International Trading (Shanghai) Co Ltd | 100 | 100 | |
| Walter Wuxi Co. Ltd. | 100 | 100 | |
| Sandvik Coromant Cutting Tools (Shanghai) Ltd | 100 | 100 | |
| Sandvik Rock Tools Technology (Wuxi) Co., Ltd | 100 | 100 |
| Country/Location | Company | 2018 | 2019 |
|---|---|---|---|
| China | Varel Beijing Trading Co Ltd | 100 | 100 |
| Dormer Tools (Shanghai) Co Ltd | 100 | 100 | |
| Sandvik Logistics (Shanghai) Co. Ltd | 100 | 100 | |
| Seco Tools (Shanghai) Co Ltd | 100 | 100 | |
| Kunshan Ousike Precision Tools Co., Ltd | — | 100 | |
| Seco Tools Manufacturing (Shanghai) Co Ltd | 100 | 100 | |
| Pramet Tools (Shanghai) Co Ltd | 100 | 100 | |
| Sandvik Mining and Construction Trading (Shanghai) Co. | 100 | 100 | |
| Shanghai Jianshe Luqiao Machinery Co. Ltd | 80 | 80 | |
| Shandong Energy Machinery Group ZhongRui Minig Equipment | 50 | 50 | |
| Sandvik Mining and Construction (China) Co Ltd | 100 | 100 | |
| Sandvik Mining and Construction (Luoyang) Co Ltd | 100 | 100 | |
| Jinan Lingong Mining and Rock Technology Co Ltd | 65 | 65 | |
| Colombia | Sandvik Colombia S.A.S. | 100 | 100 |
| Czech Republic | WALTER CZ s.r.o. | 100 | 100 |
| Seco Tools CZ s.r.o. | 100 | 100 | |
| Dormer Pramet s.r.o. | 100 | 100 | |
| Denmark | Sandvik A/S | 100 | 100 |
| Seco Tools A/S | 100 | 100 | |
| DR Congo | Sandvik Mining & Construction DRC S.P.R.L | 100 | 100 |
| Finland | Seco Tools Oy | 100 | 100 |
| Sandvik Mining and Construction Oy | 100 | 100 | |
| Sandvik Mining and Construction Finland OY | 100 | 100 | |
| Tamrock Oy | 100 | 100 | |
| Oy Tampella Ab | — | 100 | |
| Sandvik Coromant Finland Oy | 100 | 100 | |
| Tammerfors Linne och Jern Ab | — | 100 | |
| France | Sandvik Holding France S.A.S | 100 | 100 |
| Sandvik Tooling France S.A.S | 100 | 100 | |
| Sandvik Materials Technology France SAS | 100 | 100 | |
| Walter France S.A.S. | 100 | 100 | |
| Gunther Tools | 100 | 100 | |
| Varel Europe S.A.S. | 100 | 100 | |
| Sandvik Coromant Inserts 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 | |
| Financiere Metrolog SAS | 100 | 100 | |
| Metrologic Group SAS | 100 | 100 | |
| Metrologic Services SAS | 100 | 100 | |
| A.O.B. S.A.S | 100 | 100 | |
| Seco Tools France S.A.S. | 100 | 100 | |
| SECO Tools tooling systems SAS | 100 | 100 | |
| Seco Ressources et Finances SA | 100 | 100 | |
| Seco Tools Reaming SAS | 100 | 100 | |
| Gabon | Varel Gabon SARL | 100 | 100 |
| Germany | Sandvik Materials Technology Deutschland GmbH | 100 | 100 |
| Walter Deutschland GmbH | 100 | 100 | |
| Sandvik Tooling Deutschland GmbH | 100 | 100 | |
| Walter AG | 100 | 100 | |
| TDM Systems GmbH | 100 | 100 | |
| Comara GmbH | 100 | 100 | |
| Werner Schmitt PKD–Werkzeug GmbH | 100 | 100 | |
| Prototyp–Werke GmbH | 100 | 100 | |
| Metrologic Group GmbH | 100 | 100 | |
| Protomedical GmbH | 100 | 100 | |
| Sandvik Mining and Construction Deutschland GmbH | 100 | 100 | |
| Sandvik Mining and Construction Central Europe GmbH | 100 | 100 | |
| Sandvik Mining and Construction Crushing Technology GmbH | 100 | 100 | |
| Seco Tools GmbH | 100 | 100 | |
| Sandvik Holding GmbH | 100 | 100 |
| Country/Location | Company | 2018 | 2019 |
|---|---|---|---|
| Hong Kong | Smooth Team Investments Limited | 100 | |
| Sandvik Hongkong Ltd BA SMC | 100 | ||
| Hungary | Walter Hungaria Kft | 100 | |
| Seco Tools Kft | 100 | ||
| Pramet Kft | 100 | ||
| India | Sandvik Asia Private Limited | 100 | |
| Walter Tools India Private Limited | 100 | ||
| Seco Tools India Private Limited | 100 | ||
| Dormer Tools India Private Limited | 100 | ||
| Indonesia | PT Sandvik Indonesia | 100 | |
| PT Sandvik Mining and Construction Indonesia | 100 | ||
| PT Seco Tools Indonesia | 100 | ||
| PT Sandvik SMC | 100 | ||
| Italy | Sandvik Italia S.p.A. | 100 | |
| SSC Holding Italia SRL | 100 | ||
| Walter Italia SRL | 100 | ||
| Metrologic Group Italia S.R.L. | 100 | ||
| Seco Tools Italia S.p.A SU | 100 | ||
| Japan | Walter Japan K.K. | 100 | |
| Seco Tools Japan K.K. | 100 | ||
| Sandvik Tooling Supply Japan K.K. | 100 | ||
| Kazakhstan | Sandvik Mining and Construction Kazakhstan Ltd | 100 | |
| Korea | Walter Korea Ltd | 100 | |
| Seco Tools Korea Ltd | 100 | ||
| Sandvik SuhJun Ltd | 100 | ||
| Malaysia | Sandvik Malaysia Sdn Bhd | 100 | |
| Seco Tools Sdn Bhd | 100 | ||
| Walter Malaysia Sdn Bhd | 100 | ||
| Downhole Products Asia Sdn Bhd | 100 | ||
| Sandvik Mining And Construction (M) Sdn Bhd | 100 | ||
| Mexico | NTX Mining Services S de RL de CV | — | |
| Sandvik SA de CV | 100 | ||
| Sandvik Hard Materials de Mexico S.A. de C.V. | 100 | ||
| Walter Tools S.A. de C.V. | 100 | ||
| Sandvik de Mexicana S.A. | 100 | ||
| Varel de Mexico S.A. de C.V. | 100 | ||
| Varel International de Mexico S.A. de C.V. | 100 | ||
| Valenite de Mexico | 100 | ||
| Seco Tools de Mexico S.A. de C.V. | 100 | ||
| Sandvik Mining and Construction de Mexico S.A. de C.V. | 100 | ||
| Morocco | Seco Tools S.A. | 100 | |
| Mozambique | Sandvik Mining & Construction Mozambique Lda | 100 | |
| Namibia | Sandvik Namibia (Pty) Ltd | 100 | |
| Netherlands | Sandvik Benelux B.V. | 100 | |
| Sandvik DC Venlo BV | 100 | ||
| Jabro Tools BV | 100 | ||
| Sandvik Mining and Construction B.V. | 100 | ||
| New Zealand | Sandvik New Zealand Ltd | 100 | |
| Nigeria | Sandvik Mining & Construction Nigeria Limited | 100 | |
| Varel International Nigeria Limited | 75 | ||
| Norway | Sandvik Teeness AS | 100 | |
| Seco Tools AS | 100 | ||
| Sandvik Norge AS | 100 | ||
| Papua New Guinea | Sandvik Mining and Construction PNG Limited | 100 | |
| Peru | Sandvik del Peru S.A. | 100 | |
| Newtrax Peru Sociedad Anonima Cerrada | — | ||
| Sandvik Forestal S.A. | 100 | ||
| Varel International Industries L.P Sucursal Del Peru | 100 | ||
| Philippines | Sandvik Philippines Inc | 100 | |
| Sandvik Tamrock Philippines Inc | 100 |
12345678
| Country/Location | Company | 2018 | 2019 | 1 |
|---|---|---|---|---|
| Poland | Sandvik Polska Sp. Z.o.o. | 100 | 100 | |
| Walter Polska SP. Z.o.o. | 100 | 100 | 2 | |
| Seco Tools Sp Z.o.o. | 100 | 100 | 3 | |
| Pramet Sp. Z.o.o. | 100 | 100 | 4 | |
| Portugal | Seco Tools Portugal Lda | 100 | 100 | 5 |
| Romania | Sandvik SRL | 100 | 100 | |
| Walter Tools SRL | 100 | 100 | 6 | |
| Seco Tools Romania SRL | 100 | 100 | 7 | |
| Russia | Newtrax Rus LLC | — | 100 | 8 |
| LLC Walter | 100 | 100 | 9 | |
| Sandvik MKTC OAO | 100 | 100 | ||
| LLC Sandvik | 100 | 100 | 10 | |
| Varel NTS, LLC | 100 | 100 | 11 | |
| LLC Pramet | 100 | 100 | 12 | |
| LLC Seco Tools | 100 | 100 | 13 | |
| Sandvik Mining and Construction CIS LLC | 100 | 100 | ||
| Saudi Arabia | Varel Arabia Company Limited | 75 | 75 | 14 |
| Serbia | Seco Tools SRB d.o.o. | 100 | 100 | 15 |
| Singapore | Walter AG Singapore Pte Ltd | 100 | 100 | 16 |
| Sandvik South East Asia Ptd Ltd | 100 | 100 | 17 | |
| Seco Tools (SEA) Pte Ltd | 100 | 100 | ||
| Sandvik Mining and Construction S.E. Asia Pte Ltd | — | 100 | 18 | |
| Slovakia | PRAMET Slovakia spol sro | 100 | 100 | 19 |
| Walter Slovakia s.r.o. | 100 | 100 | 20 | |
| Seco Tools SK, s.r.o. | 100 | 100 | ||
| Slovenia | Sandvik D.o.o. | 100 | 100 | 21 |
| Walter Tools, d.o.o. | — | 100 | 22 | |
| Seco Tools SI d.o.o. | 100 | 100 | 23 | |
| South Africa | Sandvik (Pty) Ltd | 100 | 100 | 24 |
| Sandvik Credit South Africa (Pty) Ltd | 100 | 100 | ||
| Seco Tools South Africa (Pty) Ltd | 100 | 100 | 25 | |
| Sandvik Mining RSA (Pty) Ltd | 75 | 75 | 26 | |
| Sandvik Mining & Construction Delmas (Pty) Ltd | 100 | 100 | 27 | |
| Spain | Sandvik Espanola | 100 | 100 | 28 |
| Walter Tools Iberica S.A.U. | 100 | 100 | ||
| Metrologic Group Spain S.L. | 100 | 100 | 29 | |
| Seco Tools Espana S.A. | 100 | 100 | 30 | |
| Switzerland | Sandvik Holding AG | 100 | 100 | 31 |
| Sandvik AG | 100 | 100 | 32 | |
| Walter (Schweiz) AG | 100 | 100 | 33 | |
| Santrade Ltd | 100 | 100 | ||
| Varel International Engineering Resources SA | 100 | 100 | 34 | |
| Seco Tools AG | 100 | 100 | 35 | |
| Taiwan | Sandvik Taiwan Ltd | 100 | 100 | 36 |
| Seco Tools (S.E.A.) Taiwan Branch | 100 | 100 | 37 | |
| Tanzania | Sandvik Mining & Construction Tanzania Limited | 98 | 98 | |
| Thailand | Sandvik Thailand Limited | 91 | 91 | 38 |
| Walter (Thailand) Co Ltd | 100 | 100 | 39 | |
| Seco Tools (Thailand) Co Ltd | 100 | 100 | 40 | |
| Turkey | Walter Cutting Tools Industry and Trade LLC | 100 | 100 | 41 |
| Seco Tools Kesici Takimlar Makina San.Tic.A.S. | 100 | 100 | ||
| Ukraine | Sandvik Ukraine | 100 | 100 | 42 |
| LLC Seco Tools Ukraine | 100 | 100 | 43 | |
| United Arab Emirates | Downhole Products Middle East Fze | 100 | 100 | 44 |
| United Kingdom | Sandvik Holdings Ltd | 100 | 100 | 45 |
| Sandvik Materials Limited | 100 | 100 | ||
| Sandvik Ltd | 100 | 100 | 46 | |
| Walter GB Ltd | 100 | 100 | 47 | |
| Dormer Tools Ltd | 100 | 100 | ||
| BTA Heller Drilling Systems Ltd | 100 | 100 | ||
| Inrock Ltd. (UK) | 100 | 100 |
| 1 | Country/Location | Company | 2018 | 2019 |
|---|---|---|---|---|
| United Kingdom | Varel (UK) Limited | 100 | 100 | |
| 2 | Downhole Products UK Holdco II Limited | 100 | 100 | |
| 3 | Downhole Products UK Holdco Limited | 100 | 100 | |
| 4 | Downhole Products Limited | 100 | 100 | |
| 5 | Ian Hay (Engineering) Ltd | 100 | 100 | |
| Seco Tools (UK) Limited | 100 | 100 | ||
| 6 | Tamrock Great Britain Holdings Ltd | 100 | 100 | |
| 7 | Fintec Crushing and Screening Limited | 100 | 100 | |
| 8 | Sandvik Osprey Ltd | 100 | 100 | |
| 9 | USA | Sandvik Special Metals LLC | 100 | 100 |
| 10 | PennPower Inc | 100 | 100 | |
| Sandvik, Inc. | 100 | 100 | ||
| 11 | Sandvik Customer Finance LLC | 100 | 100 | |
| 12 | Walter USA LLC | 100 | 100 | |
| 13 | TDM Systems Inc | 100 | 100 | |
| Sandvik Machining Solutions USA LLC | 100 | 100 | ||
| 14 | Dura–Mill, Inc. | 100 | 100 | |
| 15 | Advanced Theodolite Technology, Inc. | 100 | 100 | |
| 16 | Metrologic Group Services, Inc. | 100 | 100 | |
| 17 | MG USA Properties, Inc. | 100 | 100 | |
| Precorp Inc | 100 | 100 | ||
| 18 | uFab LLC | 100 | 100 | |
| 19 | Dormer Pramet LLC | 100 | 100 | |
| 20 | Varel Group | 100 | 100 | |
| 21 | Varel International Energy Services Inc. | 100 | 100 | |
| Varel International Holdings Inc | 100 | 100 | ||
| 22 | Valenite LLC | 100 | 100 | |
| 23 | Sandvik Materials Technology LLC | 100 | 100 | |
| 24 | Varel International Ind. LLC | 100 | 100 | |
| 25 | Downhole Products Holdings USA Inc. | 100 | 100 | |
| Aberdeen Products, Inc. | 100 | 100 | ||
| 26 | Varel Newtech Holdings Inc | 50 | 50 | |
| 27 | Wetmore Tool and Engineering Company | — | 100 | |
| 28 | Artisan Vehicle Systems, Inc. | — | 100 | |
| 29 | Tamcorp Inc USA | 100 | 100 | |
| 30 | Thermaltek, LLC | — | 100 | |
| Inrock Drilling Systems, inc. | 100 | 100 | ||
| 31 | Inrock Acquisitions, Inc. | 100 | 100 | |
| 32 | Pennsylvania Extruded Tube Co. (PEXCO) | 70 | 70 | |
| 33 | Diamond Tool Coating, LLC | 100 | 100 | |
| Niagara Cutter LLC | 100 | 100 | ||
| 34 | Seco Tools, LLC | 100 | 100 | |
| 35 | Sandvik Wire and Heating Technology Corporation | 100 | 100 | |
| 36 | Sandvik Thermal Process Inc. | 100 | 100 | |
| 37 | Sandvik Mining and Construction USA LLC | 100 | 100 | |
| 38 | Melin Tool Company, Inc. | — | 100 | |
| Custom Electric Manufacturing LLC | 100 | 100 | ||
| 39 | Artisan Vehicle, Inc. | — | 100 | |
| 40 | Vietnam | Sandvik Vietnam Company Ltd | 100 | 100 |
| 41 | Seco Tools Vietnam Co Ltd | 100 | 100 | |
| 42 | Zambia | Sandvik Mining & Construction Zambia Limited | 100 | 100 |
1) Refers to share of capital, which also corresponds to voting rights for the total number of shares, unless otherwise stated.
104 SANDVIK | ANNUAL REPORT 2019
| Group shares in associated companies | 2018 | 2019 |
|---|---|---|
| Accumulated share of equity | ||
| At the beginning of the year | 269 | 100 |
| Acquisition of associates | — | 190 |
| Divestment of associates | –214 | — |
| Share of profits for the year | 46 | 9 |
| Less dividend received | –1 | –1 |
| Translation differences during the year | –0 | –5 |
| Carrying amount at the end of year | 100 | 292 |
| Parent Company's shares in associated companies | 2018 | 2019 |
|---|---|---|
| Accumulated cost | ||
| At the beginning of the year | 0 | 0 |
| Carrying amount at the end of year | 0 | 0 |
Summarized financial information of associated companies, and the Group's share
| Group's | |||||||
|---|---|---|---|---|---|---|---|
| 2019 | Country | Revenue | Profit | Assets | Liabilities | Equity | share, % |
| Owned directly by Sandvik AB | — | — | — | — | — | — | — |
| Owned indirectly by Sandvik AB | |||||||
| Eimco Elecon | India | 259 | 31 | 461 | 50 | 410 | 25.1 |
| Fagersta Seco AB | Sweden | — | — | 3 | 2 | 1 | 50.0 |
| Fagerstahälsan AB | Sweden | 8 | –0 | 8 | 6 | 2 | 50.0 |
| Beam IT Spa (acquired in July 2019) | Italy | 16 | 2 | 361 | 89 | 272 | 30.0 |
| STC Rental Co. Ltd. (acquired in July 2019) | Japan | 2 | –0 | 1 | 0 | 1 | 14.5 |
| 3C Metrologic | Mexico | 13 | 0 | 10 | 7 | 3 | 40.0 |
| Shanghai Innovatools Co. Ltd. | China | 5 | –1 | 11 | 2 | 8 | 40.0 |
| Group's | |||||||
| 2018 | Country | Revenue | Profit | Assets | Liabilities | Equity | share, % |
| Owned directly by Sandvik AB | — | — | — | — | — | — | — |
| Owned indirectly by Sandvik AB | |||||||
| Eimco Elecon | India | 188 | 20 | 431 | 56 | 375 | 25.1 |
| Fagersta Stainless AB (sold in June 2018) | Sweden | 1,054 | 69 | — | — | — | — |
| Fagersta Seco AB | Sweden | — | — | 3 | 2 | 1 | 50.0 |
| Fagerstahälsan AB | Sweden | 7 | — | 9 | 6 | 2 | 50.0 |
| 3C Metrologic (acquired in July 2018) | Mexico | — | — | — | — | — | 40.0 |
| Shanghai Innovatools Co. Ltd. | China | 6 | 0 | 12 | 3 | 9 | 40.0 |
The close of the reporting period for the associate Eimco Elecon is 31 March 2019. The dividend paid in 2019 is included in the calculation of the proportion of equity. No financial statements as of a later date have been obtained. Other associates are recognized one month in arrears with an exception for STC Rental Co. Ltd. that is recognized with a quarter in arrears. The associated companies Beam IT Spa and STC Rental Co. Ltd. were acquired in 2019.
| Group | 2018 | 2019 |
|---|---|---|
| Non-current receivables | ||
| Derivatives designated as hedging instruments | 140 | 70 |
| Funded pension plans | 516 | 417 |
| Other non-interest-bearing receivables | 397 | 465 |
| Other interest-bearing receivables | 1,318 | 1,513 |
| Total | 2,372 | 2,465 |
| Whereof assets held for sale | 77 | 75 |
| Continued operations | 2,295 | 2,390 |
| Other current receivables | ||
| Derivatives designated as hedging instruments | 414 | 339 |
| Other non-interest-bearing receivables | 2,464 | 2,476 |
| Other interest-bearing receivables | 1,621 | 1,801 |
| Advances to suppliers | 283 | 257 |
| Total | 4,782 | 4,874 |
| Whereof assets held for sale | 115 | 166 |
| Continued operations | 4,667 | 4,708 |
| Parent Company | 2018 | 2019 |
|---|---|---|
| Non-current receivables | ||
| Derivatives | 91 | 19 |
| Other interest-bearing receivables | 18 | 16 |
| Total | 109 | 35 |
| Other current receivables | ||
| Derivatives | 138 | 26 |
| Other non-interest-bearing receivables | 511 | 418 |
| Other interest-bearing receivables | 35 | 7 |
| Total | 684 | 451 |
| Group | Parent Company | |||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Raw materials and consumables | 5,649 | 5,680 | 1,340 | 1,095 |
| Work in progress | 4,771 | 4,785 | 1,356 | 1,301 |
| Finished goods | 14,045 | 14,349 | 369 | 833 |
| Total | 24,465 | 24,813 | 3,065 | 3,229 |
| Whereof assets held for sale | 72 | 571 | — | — |
| Continuing operations | 24,393 | 24,243 | 3,065 | 3,229 |
Cost of sales of the Group includes impairment of inventories of 215 million SEK (297) while cost of sales of the Parent Company includes impairment of 119 million SEK (98). There were no significant reversals of impairment losses during 2019 and 2018.
| 1–30 days | 31–60 days past |
61–90 days past |
91–180 days past |
181–360 days past |
More than 360 days |
|||
|---|---|---|---|---|---|---|---|---|
| Loss reserve | Current | past due | due | due | due | due | past due | Total |
| Expected loss rate, % | 0.5 | 1.8 | 5.0 | 16.1 | 16.2 | 45.5 | 90.2 | 4.7 |
| Gross carrying amount – trade receivables | 12,257 | 1,595 | 496 | 257 | 308 | 219 | 480 | 15,613 |
| Gross carrying amount – contract assets | 362 | 9 | 3 | 1 | 1 | 0 | 22 | 399 |
| 12,619 | 1,605 | 499 | 258 | 309 | 219 | 502 | 16,012 | |
| Loss allowance | –59 | –29 | –25 | –41 | –50 | –100 | –453 | –757 |
| Reported value | 12,560 | 1,575 | 474 | 217 | 259 | 120 | 49 | 15,255 |
| Loss reserve | Current | 1–30 days past due |
31–60 days past due |
61–90 days past due |
91–180 days past due |
181–360 days past due |
More than 360 days past due |
Total |
|---|---|---|---|---|---|---|---|---|
| Expected loss rate, % | –1.2 | 1.9 | 4.5 | 8.5 | 19.9 | 40.4 | 89.7 | 4.2 |
| Gross carrying amount – trade receivables | 11,609 | 1,583 | 510 | 284 | 345 | 210 | 613 | 15,154 |
| Gross carrying amount – contract assets | 356 | 3 | 1 | 0 | 0 | 0 | 18 | 379 |
| 11,965 | 1,586 | 511 | 284 | 346 | 210 | 632 | 15,533 | |
| Loss allowance | 143 | –31 | –23 | –24 | –69 | –85 | –567 | –655 |
| Reported value | 12,108 | 1,555 | 488 | 260 | 277 | 125 | 65 | 14,878 |
Sandvik evaluates its trade receivables, contract assets and financial leases on a collective basis for its categories respectively. Each reporting entity classifies their receivables in suitable risk categories according to Group policy. The Group's assessment is that the aggregated credit risk has not increased during the reporting period.
Sandvik's principles for the writing off of receivables are based on several prerequisites, such as proof of write-off, insolvency or failed legal and other collection processes. An assessment is made whether one or several of these prerequisites are fulfilled before the write-off takes place.
Credit risks are classified based on credit information provided by credit agencies, identified payment behavior of the customer and other relevant information available, such as lost contracts, changes in company management and other customer specific information. Additionally, a macroeconomic evaluation is conducted on the outlook of industries and countries relevant for our customers.
Regarding credit securities, the Group selectively utilizes different forms of credit securities, such as letters of credit, retention of title or credit insurance.
| Details of reserves | 2018 | 2019 |
|---|---|---|
| Translation reserve | ||
| At the beginning of the year | 3,481 | 5,233 |
| Translation differences during the year | 1,752 | 1,880 |
| At the end of the year | 5,233 | 7,113 |
| Hedging reserve | ||
| At the beginning of the year | –137 | –123 |
| Translation differences during the year | 14 | 20 |
| At the end of the year | –123 | –103 |
| Total reserves | ||
| Reserves at the beginning of the year | 3,344 | 5,110 |
| Changes in reserves: | ||
| Translation reserve | 1,752 | 1,880 |
| Hedging reserve | 14 | 20 |
| Reserves at the end of the year | 5,110 | 7,010 |
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 differences arising on the translation of the financial statements of foreign operations stated in a currency different from the Group's presentation currency. Translation reserves relating to divested assets are not material.
The Parent Company's and the Group's presentation and functional currency is Swedish kronor (SEK).
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. The change in cash flow hedges that was transferred to profit/loss for the year amounted to 20 million SEK (14).
Retained earnings including profit or loss for the year comprises the earned profit of the Parent Company and its subsidiaries and associated companies.
| Financial goals | |
|---|---|
| Revenue growth, organicaly and through acquisitions1) | ≥ 5% |
| EBIT margin rolling 12 months2) | ≥ 16% |
| Net debt / equity ratio | < 0,5 |
| Dividend pay-out ratio of adjusted earnings per share1, 2) | 50% |
1) Through a business cycle 2) Adjusted for items affecting comparability
Equity is defined as total shareholders' equity including non-controlling interests.
| Equity | 2018 | 2019 |
|---|---|---|
| Share capital | 1,505 | 1,505 |
| Other paid-in capital | 7,678 | 7,678 |
| Reserves | 5,110 | 7,010 |
| Retained earnings including profit for the year | 43,827 | 45,651 |
| Equity attributable to equity holders of the Parent Company |
58,120 | 61,844 |
| Non-controlling interest | 42 | 14 |
| Total equity | 58,162 | 61,858 |
The Board of Directors has proposed to the 2020 Annual General Meeting a dividend of 4.50 SEK per share (4.25). The proposal corresponds to approximately 41 percent 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 2017 |
1,254,385,923 | 1.20 | 1,505,263,108 |
| Share capital at 31 December 2018 |
1,254,385,923 | 1.20 | 1,505,263,108 |
| Share capital at 31 December 2019 |
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 2019 is estimated to amount to 5,645 million SEK (4.50 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 officially listed only on the Nasdaq 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.
The purpose of the statutory reserve has been to tie up part of the net profit that is not needed to cover an accumulated deficit. 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 profits brought forward and the profit 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 defined-benefit, defined-contribution and other plans for long-term post-employment benefits 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 defined-benefit based plans to pension solutions that are defined-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 significant defined-benefit 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 defined contribution plan. There are no funding requirements for the defined benefit plan. Pension payments to retirees are made directly from Sandvik.
The commitment for family pension, also a defined-benefit plan, is insured with Alecta. Sufficient information to use defined-benefit accounting for this plan was not available, which is why these commitments are recognized as a defined-contribution plan. At the end of 2019, Alecta reported a preliminary plan surplus of 148 percent (142).
The Group's share of Alecta's saving premiums is 0.2 percent, the total share of active members in Alecta is 0.7 percent. For 2020, the expected contribution to Alecta is 39 million SEK.
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. As a part of the actuarial valuation, Sandvik and the Trustees have agreed to a plan to clear shortfall and meet the costs of the further build-up of benefits. Pension payments to retirees are made from the plan.
There are a number of pension plans in the US, including commitments for medical benefits. The largest pension plan covers 92 percent 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. Those eligible for the pension plan are also eligible for the medical plan in retirement. The retiree medical plan offers a dollar amount for each service year based on the age at which someone retires.
In Finland, Sandvik sponsors a defined benefit pension plan funded in a foundation. The benefits offered include an old-age pension and disability pension. In addition to the benefits guaranteed by the Finnish subsidiary, there is also a defined contribution pension component. Pension payments to retirees are made from the plan.
In Germany, Sandvik has defined benefit 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 has been closed for new participants for non-bargaining unit plans since 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 defined contribution plan.
| 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 31 | Information by country, 31 December 2018 | Sweden | UK | US | Finland | Germany | Canada | Other | Total |
| Amounts included in the balance sheet | |||||||||
| 32 | Present value of funded and unfunded obligations | 5,772 | 6,605 | 6,801 | 3,443 | 2,655 | 543 | 1,217 | 27,036 |
| 33 | – of which for actives | 2,866 | 1,375 | 3,005 | 968 | 1,245 | 280 | 982 | 10,721 |
| 34 | – of which for vested deferreds | 1,485 | 1,930 | 946 | 794 | 227 | 20 | 36 | 5,438 |
| 35 | – of which for retirees | 1,421 | 3,300 | 2,850 | 1,681 | 1,183 | 243 | 199 | 10,877 |
| Plan assets | 2,574 | 6,417 | 6,176 | 3,612 | 1,456 | 526 | 756 | 21,517 | |
| 36 | Total surplus/(deficit) | –3,198 | –188 | –625 | 169 | –1,199 | –17 | –461 | –5,519 |
| 37 | Funding level, % | 45 | 97 | 91 | 105 | 55 | 97 | 62 | 80 |
| 38 | Pension plans recognized according to local rules | — | — | — | — | — | — | — | –198 |
| 39 | Average duration of the obligation, years | 23 | 17 | 13 | 16 | 10 | 12 | N/A | 16 |
| 40 | Amounts included in the income statement | ||||||||
| Current service cost | –194 | –114 | –158 | –95 | –44 | –43 | –48 | –696 | |
| 41 | Net interest | –62 | –8 | –20 | 7 | –21 | 1 | –22 | –125 |
| 42 | Remeasurements | –700 | 181 | –36 | –100 | –10 | –11 | –8 | –684 |
| 43 | Total expense for defined benefits (pretax) | –956 | 59 | –214 | –188 | –75 | –53 | –78 | –1,505 |
| 44 | Amounts included in the cash flow statement | ||||||||
| Contributions by the employer | — | –143 | –184 | –28 | –44 | –15 | –41 | –455 | |
| 45 | Benefits paid | –110 | — | –30 | — | –64 | –3 | –31 | –238 |
| 46 | Settlements paid | — | — | — | — | –7 | — | — | –7 |
| 47 | Major assumptions for the valuation of the liability | ||||||||
| Longevity, years1) | 23 | 22 | 22 | 21 | 22 | 23 | N/A | N/A | |
| Inflation, % | 1.75 | 3.10 | 2.27 | 1.85 | 2.00 | 2.00 | N/A | 2.24 | |
| Discount rate, % (weighted average) | 2.50 | 2.90 | 4.20 | 2.10 | 1.75 | 3.76 | N/A | 2.92 | |
| Future salary increase (weighted average) | 3.00 | 2.64 | 3.00 | 2.50 | 3.00 | 3.00 | N/A | 2.87 | |
1) Expressed as the expected remaining life expectancy of a 65 year old in number of years
| Information by country, 31 December 2019 | Sweden | UK | US | Finland | Germany | Canada | Other | Total |
|---|---|---|---|---|---|---|---|---|
| Amounts included in the balance sheet | ||||||||
| Present value of funded and unfunded obligations | 7,535 | 7,943 | 7,865 | 3,790 | 2,891 | 580 | 1,242 | 31,846 |
| – of which for actives | 3,962 | 1,744 | 3,549 | 1,193 | 1,315 | 188 | 995 | 12,946 |
| – of which for vested deferreds | 2,008 | 2,380 | 919 | 858 | 289 | 90 | 45 | 6,589 |
| – of which for retirees | 1,565 | 3,819 | 3,398 | 1,738 | 1,287 | 302 | 202 | 12,311 |
| Plan assets | 2,904 | 7,634 | 7,427 | 3,856 | 1,598 | 567 | 771 | 24,757 |
| Total surplus/(deficit) | –4,631 | –309 | –438 | 66 | –1,293 | –13 | –471 | –7,089 |
| Funding level, % | 39 | 96 | 94 | 102 | 55 | 98 | 62 | 78 |
| Pension plans recognized according to local rules | — | — | — | — | — | — | — | –260 |
| Average duration of the obligation, years | 24.5 | 17.7 | 14.1 | 17.5 | 11.7 | 12.2 | N/A | 14.5 |
| Amounts included in the income statement | ||||||||
| Current service cost | –231 | –65 | –34 | –100 | –41 | –41 | –21 | –533 |
| Net interest | –79 | –3 | –26 | 4 | –21 | — | –34 | –160 |
| Remeasurements | –1,240 | –254 | 51 | –45 | –128 | 15 | –7 | –1,608 |
| Total expense for defined benefits (pretax) | –1,550 | –322 | –9 | –141 | –190 | –27 | –62 | –2,301 |
| Amounts included in the cash flow statement | ||||||||
| Contributions by the employer | — | –218 | –194 | –35 | –47 | –3 | –17 | –514 |
| Benefits paid | –117 | — | –26 | — | –64 | –3 | –36 | –246 |
| Settlements paid | — | — | — | — | 0 | — | — | 0 |
| Major assumptions for the valuation of the liability | ||||||||
| Longevity, years 1) | 23 | 22 | 22 | 21 | 22 | 23 | N/A | N/A |
| Inflation, % | 1.75 | 3.05 | 2.27 | 1.30 | 2.00 | 2.00 | N/A | 2.19 |
| Discount rate, % (weighted average) | 1.75 | 2.05 | 3.19 | 1.20 | 1.30 | 3.06 | N/A | 2.10 |
| Future salary increase, % (weighted average) | 3.00 | 2.53 | 3.00 | 2.50 | 3.00 | 3.00 | N/A | 2.81 |
1) Expressed as the expected remaining life expectancy of a 65 year old in number of years
| 2018 | 2019 | |
|---|---|---|
| Opening balance, January 1 | 26,127 | 27,036 |
| Service cost | 696 | 532 |
| Settlements | –55 | –102 |
| Interest cost | 728 | 814 |
| Contributions by plan participants | 34 | 32 |
| Benefits paid | –1,073 | –1110 |
| Remeasurements loss/(gain) arising from: | ||
| – Financial assumptions | –501 | 3,802 |
| – Demographic assumptions | –96 | –117 |
| – Experience adjustments | 248 | 298 |
| Other | –163 | –205 |
| Exchange differences | 1,091 | 865 |
| Closing balance, December 31 | 27,036 | 31,845 |
Reconciliation of change in the fair value of plan assets
| 2018 | 2019 | |
|---|---|---|
| Opening balance, January 1 | 21,404 | 21,517 |
| Interest income | 603 | 654 |
| Settlements | –55 | –102 |
| Contribution by the employer | 455 | 514 |
| Benefits paid directly by employer | 238 | 246 |
| Settlements paid by employer | 7 | 0 |
| Contributions by plan participants | 34 | 32 |
| Benefits paid | –1,073 | –1,110 |
| Return on plan assets, excl amount included in | ||
| interest | –1,033 | 2,345 |
| Other | –43 | –157 |
| Exchange differences | 980 | 818 |
| Closing balance, December 31 | 21,517 | 24,757 |
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 417 million SEK (516) in the item non-current receivables. Provisions for pensions include pension plans of 7,765 million SEK (6,234). The total net liability is 7,348 million SEK (5,717).
Three main categories of risks are associated with the company's defined-benefit pension plans. The first category is linked to future pension payments. Greater life expectancy, increased inflation 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 insufficient for covering future pension payments. The third and final category pertains to the measurement methods and accounting of defined-benefit pension plans, primarily regarding the discount rate utilized in the measurement of the present value of the pension obligations. This rate can fluctuate, leading to major changes in the recognized pension liability. The discount rate also affects the interest rate component of the pension liability and that is recognized in net financial 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 to determine the discount rate.
A sensitivity analysis of the most important assumptions affecting 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.
| (Net) | SE | UK | US | FI | DE | CA | Total |
|---|---|---|---|---|---|---|---|
| Life expec tancy, +1 year |
362 | 285 | 232 | 147 | 92 | 16 | 1,134 |
| Discount rate –50 bps |
993 | 275 | 1 | 19 | 71 | 6 | 1,365 |
| Inflation rate +50 bps |
993 | 732 | 581 | 351 | 177 | 33 | 2,867 |
| Equities –20% | 147 | 208 | 441 | 299 | 47 | 17 | 1,159 |
Sandvik estimates that approximately 400 million SEK (656) will be paid into existing defined benefit plans in 2020.
Plan assets amounted to 24,757 million SEK (21,517). Actual return on plan assets was 2,999 million SEK (–430). The consolidation ratio for funded plans is 83 percent (86). For all plans including unfunded plans, the consolidation ratio is 78 percent (80).
Assets without quoted prices amounted to approximately 9 percent (9) of the total plan assets of 24,757 million SEK.
The fair value of plan assets on 31 December 2019 included loans of 0 million SEK (0) to Sandvik companies and the value of properties leased to Sandvik of 209 million SEK (219).
The defined benefit and defined 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 defined-benefit 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. The GPC meets twice a year.
The aims of the investment decisions made in the foundations managing plan assets are as follows:
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 in place.
The Parent Company's recognized pension provision was 337 million SEK (376). 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 2,904 million SEK (2,574), which was 300 million SEK (442) lower than the capital value of the corresponding pension obligations for the entire foundation. The deficit was recognized as a liability in the companies. The Parent Company's funded obligations mainly comprise ITP Plans.
| Net amount recognized for pension obligations | –376 | –337 |
|---|---|---|
| Deficit in the assets of the pension foundation | –254 | –330 |
| Plan assets | 2,201 | 2,482 |
| Present value of funded and unfunded pension obligations |
2,323 | 2,489 |
| 2018 | 2019 |
| Employee | Environmental | Legal | Other | ||||
|---|---|---|---|---|---|---|---|
| Warranties | Restructuring | benefits | obligations | disputes | obligations | Total | |
| Group | |||||||
| Balance at 31 December 2018 | 458 | 1,188 | 571 | 359 | 295 | 404 | 3,275 |
| Provisions made during the year | 85 | 1,681 | 355 | 100 | –40 | 574 | 2,756 |
| Provisions used during the year | –116 | –945 | –318 | –59 | –27 | –195 | –1,659 |
| Unutilized provisions reversed during the | |||||||
| year | –59 | –177 | –17 | –5 | –29 | –136 | –422 |
| Provision disposed through divestment | — | –0 | 0 | — | — | 1 | 1 |
| Reclassifications | 46 | –156 | 55 | –2 | 3 | –4 | –58 |
| Translation differences | 30 | 3 | –23 | 5 | 6 | –27 | –7 |
| Balance at 31 December 2019 | 445 | 1,595 | 622 | 398 | 208 | 618 | 3,885 |
| of which current | 374 | 1,442 | 221 | 60 | 171 | 425 | 2,693 |
| of which non-current | 71 | 154 | 401 | 338 | 37 | 192 | 1,193 |
| Parent Company | |||||||
| Balance at 31 December 2018 | 9 | 36 | 143 | 27 | — | — | 215 |
| Provisions made during the year | 1 | 265 | 56 | 25 | — | — | 347 |
| Provisions used during the year | 2 | –75 | –52 | — | — | — | –125 |
| Unutilized provisions reversed during the | |||||||
| year | — | –4 | — | — | — | — | –4 |
| Reclassifications | –0 | — | –0 | — | — | 0 | 0 |
| Balance at 31 December 2019 | 12 | 222 | 147 | 52 | — | 0 | 433 |
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 benefits is recognized in accordance with agreements entered for long-term incentive programs, local bonus programs, part-time pensions and other personnel obligations.
An environmental provision is recognized when there is a legal obligation for a clean up.
Legal disputes include provisions for claims which, at the balance sheet date, had not been closed.
Provision for costs for restoring contamined land is made in accordance with the Group's published environmental principles when there is a legal requirement or other binding commitment to restore established contaminated land and when the cost can be measured with reasonable precision.
Other obligations include provisions for onerous contracts and obligations within the scope of Sandvik Försäkring AB's operations. Provisions classified as current are expected to result in an outflow of resources within twelve months from the balance sheet date.
Non-current interest-bearing liabilities fall due as follows:
| 2018 | 2019 | |||||
|---|---|---|---|---|---|---|
| Within one to | Later than five | Within one to | Later than five | |||
| five years | years | Total | five years | years | Total | |
| Loans from Group companies | 1 | — | 1 | 1 | — | 1 |
| Other liabilities1) | 8,153 | 8,809 | 16,962 | 6,977 | 8,146 | 15,123 |
| Total | 8,154 | 8,809 | 16,963 | 6,978 | 8,146 | 15,124 |
1) Other liabilities mainly comprise bond loans.
| Group | 2018 | 2019 |
|---|---|---|
| Non-current liabilities | ||
| Bond issues | 20,308 | 15,123 |
| Other | 123 | 26 |
| Total | 20,431 | 15,148 |
| Current liabilities | ||
| Bond issues | 0 | 1,995 |
| Other | 27 | 67 |
| Total | 27 | 2,062 |
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 | 2018 | 2019 |
|---|---|---|
| Other non-current liabilities | ||
| Derivatives designated as hedging instruments | 258 | 263 |
| Other | 45 | 36 |
| Total | 303 | 298 |
| Other current liabilities | ||
| Derivatives designated as hedging instruments | 238 | 270 |
| Bills payable | 104 | 88 |
| Other | 2,145 | 2,109 |
| Total | 2,487 | 2,466 |
| Whereof assets held for sale | 20 | 109 |
| Continuing operations | 2,467 | 2,357 |
| Parent Company | 2018 | 2019 |
|---|---|---|
| Personnel related | 1,782 | 1,767 |
| Expenses related to finance | 298 | 304 |
| Other | 619 | 297 |
| Total | 2,699 | 2,368 |
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 significantly affect the Sandvik Group.
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Contingent liabilities | 2018 | 2019 | 2018 | 2019 | |
| Bills discounted | 13 | 5 | — | — | |
| Other surety undertakings and contingent liabilities |
2,318 | 1,826 | 10,798 | 4,577 | |
| Total | 2,331 | 1,831 | 10,798 | 4,577 | |
| of which for subsidiaries | 10,700 | 4,570 |
The Parent Company's surety undertakings and contingent liabilities amounted to 4,577 million SEK (10,798), of which 1 million SEK (6,492) related to the Parent Company's guarantees for Sandvik Treasury AB's financial borrowings. The remainder comprised mainly indemnity bonds for commitments of Group companies to their customers and vendors on advances received and various types of performance bonds and guarantees to financial institutions relating to local borrowings, and guarantee facilities as well as to pension commitments.
The Group's surety undertakings and contingent liabilities amounted to 1,826 million SEK (2,318) and mainly comprised of bank guarantees and ongoing proceedings.
Pledged assets for own liabilities and provisions.
| Group | 2018 | 2019 |
|---|---|---|
| Property mortgages | 231 | 234 |
| Chattel mortgages | 62 | — |
| Total | 293 | 234 |
No assets of the Parent Company had been pledged in 2019 and 2018.
Through its comprehensive international operations, Sandvik is exposed to financial risks.
Group Treasury is the function responsible for managing most of the Group's financial risks. The primary objectives of the function are to contribute to the creation of value by managing the financial risks to which the Group is exposed to during the ordinary course of business, and to optimize the Group's financial net.
The Board of Directors is responsible for establishing the Group's finance policy, which comprises guidelines, objectives, and limits for financial management within Group Treasury as well as the management of financial risks within the Group.
Group Treasury supports Group companies and its tasks are to support subsidiaries with loans, deposits, foreign exchange deals, and banking solutions, as well as to act as an advisor in financial matters. The function conducts internal banking operations and is based at the head office in Stockholm. It is also responsible for the Group's bank account set-up.
In addition, Group Treasury conducts operations for payment advisory and trade finance, and is responsible for the Group's global policy for granting credit to customers in conjunction with sales. The customer finance activity is carried out through the Business Area Sandvik Mining and Rock Technology through selected locations worldwide.
Finally, Group Treasury also manages the financial risks associated with the company's defined-benefit pension plans.
Only institutions with a solid financial position and solid credit ratings are accepted as Sandvik's counterparties in financial transactions.
The presentations comply with the reporting requirements stated in IFRS under IFRS 7, IFRS 9, and IAS 39 for Hedge Accounting.
Transaction exposure occurs when sales and purchases are made in two different currencies which affect profit for the year.
Sandvik's annual transaction exposure, meaning the Group's net flow of currencies, after full offsetting of the countervalue in the exporting companies' local currencies, and measured at the average exchange rate, amounted to 20,266 million SEK (19,468) in 2019. The most important currencies for one year of exposure are shown in the following diagram.
Sandvik generally offers 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 account 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 inflow of foreign currencies.
In order to mitigate the currency risk, pricing is adjusted against both customers and suppliers in circumstances where Sandvik is affected negatively by currency movements. To further reduce exposure to foreign currencies, currencies received are used to pay for purchases in the same currency via a netting structure.
A certain portion of the anticipated net flow of sales and purchases is hedged through financial instruments and bank account balances in accordance with guidelines set in the Group's finance policy. In addition, major project orders are currency hedged to safeguard the gross margin. Under the finance policy, the CFO has a mandate to hedge the annual transaction exposure. At yearend, the total hedged amount was 2,136 million SEK (2,521). The average duration for the hedged volume of foreign currency was 3 months (2). Unrealized gains from outstanding currency contracts for hedging of future net flows amounted to 18 million SEK (0.2) at year-end. This amount consists of 28 million SEK in gains related to contracts maturing in 2020 and –10 million SEK in losses related to contracts maturing in 2021 or later. For a more detailed breakdown of the quarterly effects on cash flow of the transactions that have been recognized in the hedge reserve, see the table at the end of Note 27.
If all exchange rates for the exposure currencies were to change by 5 percent in an unfavorable direction, total operating profit over a 12-month period would change by approximately –1,360 million SEK (–1,126), assuming that the composition is the same as it was at year-end.
| AUD | CAD | CHF | CNY | EUR | USD | ZAR | Other | Total |
|---|---|---|---|---|---|---|---|---|
| –117 | –81 | –28 | –124 | –143 | –558 | –90 | –219 | –1,360 |
Translation exposure occurs when assets and liabilities are denominated in different currencies.
Since the Swedish krona (SEK) is Sandvik's base currency, a translation risk related to the valuation of the net assets in foreign subsidiaries and the profit/loss in foreign currency achieved during the period occurs. The net assets, which usually consist of the foreign subsidiaries' shareholders equity, are translated to SEK at the rates applied at the balance sheet date. At 31 December, the Group's net assets in subsidiaries in local currencies amounted to 58,021 million SEK (58,324).
2018 2019
To avoid translation risk in the balance sheets of subsidiaries, they are financed in their functional currency through the internal bank. External borrowing often takes place in a specific currency, as shown in the first diagram. The currency risk that arises in the internal bank as a result of this is managed using various derivatives to minimize the translation risk.
Sandvik has chosen not to hedge future profits 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 second diagram shows the distribution of net assets among various currencies.
If exchange rates were to change by 5 percent in an unfavorable direction the net effect on other comprehensive income would be approximately –2,904 million SEK (–2,921). This net effect primarily comprises translation exposure in equity.
| AUD | CHF | CNY | EUR | GBP | INR | USD | Other | Total |
|---|---|---|---|---|---|---|---|---|
| –130 | –129 | –142 | –977 | –205 | –149 | –605 | –567 | –2,904 |
Interest-rate risk is defined as the risk that changes in market interest rates will have 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 and 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:
If market rates were to rise by 1 percentage point across all terms, in relation to loans for which the interest rate will be reset during the coming year, interest costs would be impacted by –36 million SEK ( –38).
An interest-rate sensitivity analysis of interest-rate swap agreements valid at year-end, and to which hedge accounting was applied, shows that other comprehensive income would change by 50 million SEK (65) as a result of a 1 percentage point shift in the interest-rate curve.
| Effective rate | Fixed-interest | Recognized liability, MSEK |
|---|---|---|
| 5,650 | ||
| 11,469 | ||
| — | ||
| 335 | ||
| 17,454 | ||
| 4.4 | ||
| of interest, % 2.7 3.6 — 5.4 3.3 1.0 |
term, months 12 68 — 7 49 |
The Group's interest-rate risk arises mainly in connection with borrowing. Interest-rate swap agreements are sometimes used to achieve the desired fixed-interest term. The Group CFO has a mandate to vary the average fixed-interest term of the Group's debt portfolio, provided that it does not exceed 60 months. The average fixed-interest term on Sandvik's borrowing was 49 months (47) at year-end, with consideration given to interest-rate swap agreements entered into.
In line with the Group's finance policy, internal lending to foreign subsidiaries is hedged. Consequently, there is an interest-rate effect in currency derivatives of 1.0 percent between the currencies the Group borrows and the currencies the Group lends. The Group's average interest expense, including other loans and effects of various derivatives, was 4.4 percent (3.8).
Hedge accounting is applied when an effective 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 that are 100 percent effective and with a notional amount of 1,500 million SEK, to which it applies cash-flow hedging. This means that changes in the market values of these swaps are recognized directly in other comprehensive income instead of in profit for the year. A presentation of all interest-rate swap agreements entered into, and information regarding their duration, can be found at the end of Note 27.
Sandvik's loan conditions do not currently entail financial covenants linked to key figures. Only under exceptional circumstances are assets pledged in connection with the raising of loans. Such pledging is disclosed in Note 26.
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.
Liquidity and refinancing risk is defined as the risk that financing possibilities will be limited when loans are to be refinanced, and that payment commitments cannot be met as a result of insufficient liquidity.
Nominal amount, MSEK
Cash and cash equivalents
| Recogni zed liability, |
Size of programs, |
Average remaining credit peri |
||
|---|---|---|---|---|
| Bond loans, | Currency | MSEK | MSEK | ods, years |
| Swedish MTN | SEK | 5,650 | 15,000 | 1.3 |
| Bond loans, European MTN |
EUR | 11,469 | 31,306 | 6.5 |
| Commercial papers | EUR, SEK | — | 17,826 | — |
| Other loans from banks |
EUR, Other | 335 | — | 0.5 |
| Total borrowings | 17,454 | 64,132 | 4.7 |
According to the finance policy, the Group's capital employed excluding cash and cash equivalents should be financed on a longterm basis. At year-end, the Group's capital employed, excluding cash and cash equivalents, was 73,406 million SEK and long-term financing, including share capital, pension liabilities, long-term tax liabilities, long-term provisions and the guaranteed longterm credit facility, amounted to 96,431 million SEK. The shortterm liquidity reserve, comprising committed credit facilities and accessible cash and cash equivalents was 22,364 million SEK. This reserve should at a minimum correspond to loans that mature for payment over the next six months and two weeks operating expenses, calculated to 5,350 million SEK.
Sandvik has a revolving credit facility totaling 9,000 million SEK maturing in 2023. The facility, which is the Group's primary liquidity reserve, was unutilized at year-end.
The aim of Sandvik's financing strategy is to achieve a well-balanced maturity profile for liabilities to thereby reduce the refinancing risk. The share of long-term loans in relation to total borrowing was 87 percent at year-end 2019 compared with 90 percent one year earlier. The maturity structure for the Group's financial liabilities and derivatives is presented further down in Note 27.
At year-end, Standard & Poor's, the international credit rating agency, had assigned a A– 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 home.sandvik.
Risk The Group's commercial and financial transactions give rise to credit risk in relation to Sandvik's counterparties. Credit risk or counterparty risk is defined as the risk for losses if the counterparty does not fulfill its commitments.
The credit risk to which Sandvik is exposed to can be divided into three categories:
| Total credit risk MSEK | 2018 | 2019 |
|---|---|---|
| Trade receivables1) | 15,255 | 14,878 |
| Cash and cash equivalents | 18,089 | 16,987 |
| Unrealized net gains on derivatives | 554 | 409 |
| Other receivables | 277 | 433 |
| Outstanding credits | 3,244 | 3,770 |
| Total | 37,418 | 36,478 |
1) Excludes assets held for sales
Sandvik has entered into agreements with the banks that are most important to the company, covering such matters as the right to offset assets and liabilities that arise from financial derivative transactions, so-called ISDA agreements. This means that the company's counterparty exposure to the financial sector is limited to the unrealized net gains that arise in derivative agreements, and investments and bank balances. At 31 December 2019, the value of these amounted to 17,396 million SEK (18,643).
Sandvik companies are exposed to credit risk associated with outstanding trade receivables from ongoing sales. The credit risk is spread over a large number of customers in the business areas, and this year's credit losses are limited on a consolidated level. In 2019, Sandvik's credit losses, defined as the sum of receivables written off and change in bad debt reserve, amounted to –24 million SEK (–61), equivalent to 0.02 percent of sales. The gross value of trade receivables was 15,535 million SEK (16,006) at 31 December. Total impairment of these was –657 million SEK (–751). An age analysis of trade receivables at 31 December is presented in Note 18.
Sandvik offers short- and long-term customer financing through its own financing companies and in partnership with financial institutions and banks. At year-end, the value of outstanding credits was 3,858 million SEK (3,310), of which –88 million SEK (–66) was reserved for doubtful receivables.
In addition to the traditional financing of equipment, Sandvik also offers short-lease machinery. At year-end, the net carrying amount of this short-lease machinery was 447 million SEK (370).
Sandvik's financial risks related to raw materials are primarily concentrated to nickel and electricity. The price risks associated with these are partially hedged through the signing of financial contracts. A change in the electricity price of 0.1 SEK per kWh is estimated to affect Sandvik's operating profit by plus or minus 85 million SEK (85) on an annual basis, based on the prevailing conditions at year-end 2019.
When Sandvik Materials Technology obtains a customer order containing a fixed price for nickel, molybdenum or copper, the prices of these materials are hedged by signing financial contracts. This means that Sandvik's operating profit is not impacted by movements in the price of these raw materials, relating to the aforementioned orders at a fixed price.
The Group applies a hedging strategy in order to minimize the metal price risk in connection with transactions conducted at a variable metal price. The measurement of inventory is not affected by hedging.
Changes in metal prices affect the profit and loss statement as a consequence of the lead time between the purchase of raw material and delivery of the finished product. The effect can be estimated through the rules regarding valuation of inventory. The net effect is presented in the "Development in business areas" section.
For Sandvik's large production units in Sweden and Finland, the electricity price is continuously hedged through derivatives. Electricity consumption at these units normally totals around 850 GWh. The hedging horizon at year-end was about 18 months' (18) expected consumption.
Net total consumption of nickel amounted to about 14,900 metric tons during the year.
At year-end, the volume of hedged nickel inventory was 2,184 metric tons (1,626). The market value of commodity derivatives entered into was –33 million SEK (–26).
The volume of electricity hedged with derivatives was 1,239 GWh (1,292) at year-end. The market value of these derivative contracts amounted to 14 million SEK (202).
For a more detailed breakdown of the quarterly effects on cash flow of the transactions that have been recognized in the hedge reserve, see the table at the end of Note 27.
Sandvik has comprehensive pension obligations in the countries in which it operates. The pension solutions and funding requirements vary depending on legislation and local agreements. The largest funded pension plans are found in the US, UK, Finland, Sweden, Germany, and Canada. Three main risks are associated with Sandvik's pension obligations; interest rate fluctuations, capital market volatility, and changes in life expectancy.
The group funded pension liability has an average duration of 18.0 years. The average duration of the group's interest-bearing assets in the pension portfolio is 15.2 years. The allocation to interest-bearing assets is 54 percent of the pension portfolio. Due to the asset allocation and differences in duration between the interest-bearing assets and the liability, Sandvik is exposed to interest rate fluctuations, both when discounting the liability but also as market values change in the bond portfolio. If the average discount rate falls by –50 basis points the pension liability would increase by 2,867 million SEK.
25 percent of the pension portfolio is invested in equities. A 20 percent movement in the equity portfolio would result in a change in market value of 1,159 million SEK. If the life expectancy assumptions increase by one year, the pension liability would rise by 3.6 percent which corresponds to 1,134 million SEK. The calculated total loss potential for one year (Pension risk), based on stress tests, is on aggregate 4,690 million SEK.
In 2019, the pension assets totalled 24,788 million SEK (21,544) and the corresponding pension liability amounted to 29,899 million SEK (25,136), which is equal to a funding level of 83 percent (86). The
1 2 3
NOTES
return on Sandvik's pension assets was 14.0 percent during the year ( –2.0). In addition, Sandvik has unfunded pension commitments of 1,946 million SEK (1,900).
The pension plans are governed through Sandvik's Pension Supervisory Board (PSB). PSB is responsible for implementing policies and directives, approving new plans or material changes and closure of existing plans. The pension plans and governance are further described in Note 20.
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. Under the IFRS 13 disclosure requirements, the method applied to the valuation of assets and liabilities measured at fair value in the balance sheet is presented below. The valuation is divided into three levels:
All of Sandvik's financial instruments measured at fair value are measured according to Level 2.
The following is a summary of the methods and assumptions primarily applied to determine the fair value of the financial instruments presented on the following page.
The fair value of foreign exchange contracts is determined based on observable market prices. The fair value of interest-rate swaps is based on discounting estimated future cash flows 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 flows are used, the future cash flows are calculated on the best assessments of company management. The discount rate applied is the market-based interest rate of similar instruments at 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 payables with variable interest and current receivables and payables (for example, trade receivables and accounts payable), the fair value has been considered to correspond to the carrying amount.
| 2018 | 2019 | |
|---|---|---|
| Financial assets | ||
| Derivatives | ||
| Foreign exchange contracts | 324 | 365 |
| Interest-rate swaps | 0 | — |
| Commodity and electricity derivatives | 230 | 44 |
| Total | 554 | 409 |
| Financial liabilities | ||
| Derivatives | ||
| Foreign exchange contracts | 230 | 288 |
| Interest-rate swaps | 212 | 181 |
| Commodity and electricity derivatives | 54 | 63 |
| Total | 496 | 532 |
Financial assets and liabilities are not offset in the balance sheet. Derivative contracts are subject to framework agreements governing offsetting, and the carrying amounts of assets not offset in the balance sheet amounted to 409 million SEK. The carrying amount of corresponding liabilities was –532 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 202 million SEK would be offset in accordance with the framework agreement governing offsetting.
duration.
Financial assets and liabilities are measured in accordance with IFRS 9. Calculation at fair value of the Group's non-current borrowings would increase the total carrying amount by 2,276 million SEK
(1,778). When measuring interest-bearing liabilities, the company's Swedish and European bond loans have been remeasured using observable market prices for identical securities to value the Group's marketable debt instruments. Other non-current debt has been remeasured in accordance with the principles described above. For short-term loans and deposits, no remeasurement was carried out, given that the carrying amount is considered to represent a good approximation of the fair value due to the short
The table below shows the valuation of financial assets and liabilities.
| Fair value through | ||||||||
|---|---|---|---|---|---|---|---|---|
| profit or loss | Amortized costs | Hedge Accounting | Total carrying amount | |||||
| Balance sheet items | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 |
| Financial assets | ||||||||
| Financial investments | 119 | 82 | 119 | 82 | ||||
| Trade receivables1) | 15,255 | 14,878 | 15,255 | 14,878 | ||||
| Other receivables2) | 3,193 | 3,413 | 3,193 | 3,413 | ||||
| Derivatives3) | 550 | 409 | 4 | 0 | 554 | 409 | ||
| Cash and cash equivalents | 18,089 | 16,987 | 18,089 | 16,987 | ||||
| Total financial assets | 668 | 491 | 36,537 | 35,279 | 4 | 0 | 37,209 | 35,770 |
| Financial liabilities | ||||||||
| Borrowings4) | 23,928 | 17,453 | 23,928 | 17,453 | ||||
| Derivatives5) | 333 | 401 | 163 | 131 | 496 | 532 | ||
| Accounts payable1) | 7,792 | 7,598 | 7,792 | 7,598 | ||||
| Due to associates | 1 | 1 | 1 | 1 | ||||
| Other liabilities6) | 451 | 3,732 | 451 | 3,732 | ||||
| Total financial liabilities | 333 | 401 | 32,172 | 28,784 | 163 | 131 | 32,668 | 29,316 |
1) Excludes assets held for sales
2) Comprises parts of the Group's other receivables and accrued income from contract assets, financial leasing, and customer financing recognized in the balance sheet. 3) Derivatives form part of the other receivables recognized in the balance sheet.
4) Recognized in the balance sheet as non-current and current liabilities to financial institutions and other liabilities.
5) Derivatives form part of the other liabilities recognized in the balance sheet.
6) Form part of the Group's other liabilities and accrued expenses from leasing recognized in the balance sheet.
| 2018 | 2019 | |
|---|---|---|
| Fair value through profit or loss | –909 | –608 |
| Amortized costs | –119 | –585 |
| Hedge accounting | 14 | 20 |
The company's financial liabilities amounted to 29,316 million SEK (32,668) at year-end.
| 2018 | 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 6 –12 | <6 | 6 –12 | |||||||
| <6 months | months 1 –5 years | >5 years | months | months 1 –5 years | >5 years | ||||
| Bank loans | EUR, Other | –147 | –478 | –1,296 | — | –156 | –99 | –89 | — |
| Commercial papers | SEK | — | — | — | — | — | — | — | — |
| Medium Term Notes | SEK | –66 | –37 | –5,363 | –504 | –2,071 | –37 | –3,784 | — |
| European Medium Term Notes | EUR | –275 | –133 | –4,501 | –9,764 | –279 | –135 | –4,756 | –9,282 |
| Private Placements | USD | –1,921 | – 91 | –3,539 | — | — | — | — | — |
| Derivatives | |||||||||
| – Currency derivatives | 73 | 0 | –11 | –3 | 90 | –2 | –15 | –21 | |
| whereof outflow | –181 | – 11 | –11 | –3 | –204 | –11 | –24 | –21 | |
| whereof inflow | 254 | 11 | — | — | 294 | 9 | 9 | — | |
| – Interest rate derivatives | –44 | –5 | –183 | –34 | –41 | –2 | –154 | — | |
| – Commodity and electricity derivatives | –3 | 120 | 60 | — | –17 | 5 | –8 | — | |
| Leases1) | — | — | — | — | –374 | –418 | –1,873 | –575 | |
| Finance leases2) | –2 | –2 | –42 | — | — | — | — | — | |
| Accounts payable3) | –7,792 | — | — | — | –7,598 | — | — | — | |
| Total | –10,177 | –626 | –14,875 | –10,305 | –10,446 | –688 | –10,679 | –9,878 |
1) Discounted values from 2019 based on IFRS 16 .
2) Only applicable for 2018 when applying IAS 17. As of 2019, Sandvik applies IFRS 16.
3) Excludes assets held for sales
| Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | 2022 and later |
|
|---|---|---|---|---|---|---|---|---|---|
| Currency derivatives | — | 0 | — | — | — | — | — | — | — |
| Interest rate derivatives | — | — | — | — | — | — | — | –23 | –108 |
| Commodity and electricity derivatives | — | 0 | 0 | — | — | — | — | — | — |
| Total | 0 | 0 | 0 | 0 | 0 | 0 | 0 | –23 | –108 |
| 2018 | 2019 | |
|---|---|---|
| Carrying amount (included in other liabilities) | –161 | –131 |
| Notional amount | 1,500 | 1,500 |
| Change in fair value of outstanding hedging instru | ||
| ments since 1 January | 49 | 31 |
The Group's sales to associated companies amounted to 5 million SEK (506). The Group's purchases from associated companies amounted to 5 million SEK (107). Loans to associated companies amounted to 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 16,966 million SEK (16,157), or 81 percent (80) of total sales. The share of exports was 58 percent (87). The Parent Company's purchases from Group companies amounted to 1,875 million SEK (1,926), or 11 percent (11) 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 effected 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, no transactions took place with persons closely associated with the company.
| Cash and cash equivalents | 2018 | 2019 |
|---|---|---|
| Group | ||
| Cash and cash equivalents comprise: | ||
| Cash and bank | 6,859 | 4,970 |
| Short-term investments comparable to cash and cash equivalents |
11,230 | 12,017 |
| Total in the balance sheet | 18,089 | 16,987 |
| Total in the cash flow statement | 18,089 | 16,987 |
| Parent Company | ||
| Cash and cash equivalents comprise: | ||
| Cash and bank | 3 | 0 |
| Total in the balance sheet | 3 | 0 |
| Total in the cash flow statement | 3 | 0 |
A short-term investment is classified as a cash and cash
equivalent if:
– The risk of changes in value is insignificant
– It is readily convertible into cash
– It has a maturity of no more than three months from the date of acquisition
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Cash and cash equivalents | 2018 | 2019 | 2018 | 2019 | |
| Interest and dividend paid and received |
|||||
| Dividend received | 15 | 20 | 3,129 | 10,036 | |
| Interest received | 271 | 252 | 502 | 489 | |
| Interest paid | –1,080 | –1,314 | –558 | –572 | |
| Total | –794 | –1,042 | 3,073 | 9,953 |
| Group Parent Company |
||||
|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | |
| Other adjustments for non-cash items, etc |
||||
| Changes in value of financial instruments |
— | — | –70 | 180 |
| Unappropriated results of associated companies |
–44 | –8 | — | — |
| Gains and losses on disposal of non-current assets |
–28 | –69 | –17 | –327 |
| Gains and losses on disposal of companies and shares |
–879 | — | 1,824 | –18 |
| Provisions for pensions | — | — | 62 | –36 |
| Other provisions | 393 | 584 | –31 | 214 |
| Other | 604 | –66 | 4,359 | –235 |
| Total | 46 | 441 | 6,127 | –222 |
| 2019 | |
|---|---|
| 1,866 | |
| 75 | |
| 114 | |
| 293 | |
| 314 | 38 |
| 2,386 | |
| –273 | |
| –205 | |
| –2,831 | –478 |
| 2,782 | 1,908 |
| 2018 4,642 114 80 464 5,614 –7 –2,824 |
| Group | 2018 | 2019 |
|---|---|---|
| Divestments of subsidiaries and other business operations |
||
| Divested assets and liabilities: | ||
| Intangible assets | 1,007 | — |
| Property, plant and equipment | 1,006 | — |
| Financial assets | 200 | — |
| Deferred tax assets | 31 | — |
| Inventories | 1,189 | — |
| Current receivables | 859 | — |
| Cash and cash equivalents | 90 | — |
| Total assets | 4,381 | — |
| Provisions | –7 | — |
| Interest-bearing liabilities | –633 | — |
| Non-interest-bearing liabilities | –932 | — |
| Total provision and liabilities | –1,572 | — |
| Net identifiable assets and liabilities | 2,809 | — |
| Hyperion | 3,577 | — |
| Other | 475 | — |
| Purchase consideration received | 4,052 | — |
| 2017 –12 –31 | Cash flow effects | Non-cash flow effects |
Foreign exchange differences |
2018 –12 –31 | |
|---|---|---|---|---|---|
| Loans including net pension liabilities | 28,671 | –228 | 977 | 166 | 29,586 |
| Other interest bearing receivables | –2,182 | –447 | — | –58 | –2,688 |
| Other financing items | 315 | –184 | –26 | 1 | 106 |
| Total | 26,803 | –859 | 951 | 109 | 27,005 |
| 2018 –12 –31 | Cash flow effects | Non-cash flow effects |
Foreign exchange differences |
2019 –12 –31 | |
|---|---|---|---|---|---|
| Loans | 23,870 | –6,647 | 60 | 170 | 17,453 |
| Funded pension plans | –516 | 0 | 121 | –22 | –417 |
| Provision for pensions | 6,234 | –760 | 2,222 | 69 | 7,765 |
| Other interest bearing receivables | –2,688 | 292 | –820 | –100 | –3,315 |
| Lease liabilities | 3,331 | –945 | 851 | 81 | 3,317 |
| Other financing items | 107 | 42 | –107 | 0 | 42 |
| Total | 30,337 | –8,018 | 2,327 | 198 | 24,845 |
The acquisitions and divestments of business combinations executed in 2019 are set out below. Annual revenue and number of employees reflect the situation at the date of the respective transaction. Goodwill is not tax deductible.
| No. of | ||||
|---|---|---|---|---|
| Business area | Company | Acquisition date | Annual revenue | employees |
| Sandvik Machining Solutions | Wetmore Tool & Engineering1) | 9 January 2019 | 160 MSEK in 2017 | 170 |
| Sandvik Mining and Rock Technology | Artisan | 11 February 2019 | 12 MUSD in 2017 | 60 |
| Sandvik Machining Solutions | OSK2) | 10 April 2019 | 120 MSEK in 2017 | 90 |
| Sandvik Mining and Rock Technology | Newtrax | 17 June 2019 | 26 MCAD in 2018 | 120 |
| Sandvik Machining Solutions | BeamIT, 30% stake1) | 12 July 2019 | 70 MSEK in 2018 | 38 |
| Sandvik Materials Technology | Thermaltek | 31 December 2019 | 13 MUSD in 2018 | 30 |
| Sandvik Machining Solutions | Melin Tool Company3) | 31 December 2019 | 22 MUSD in 2018 | 100 |
1) Belongs to cash generating unit Business area level SMS 2) Belongs to cash generating unit Seco Tools 3) Belongs to cash generating unit Walter Group
The fair value of acquired assets and assessed liabilities has been preliminarily established for the acquisitions of Newtrax, Melin Tool and Thermaltek. Only minor IFRS adjustments were made to the acquisition values.
| Sandvik | Sandvik | |||
|---|---|---|---|---|
| Sandvik | Mining | Materials | ||
| Machining | and Rock | Techno | ||
| Solutions | Technology | logy | Total | |
| Intangible assets | — | 23 | — | 23 |
| Property, plant and equipment | 47 | 29 | — | 76 |
| Inventories | 52 | 61 | — | 113 |
| Current receivables | 89 | 204 | — | 293 |
| Cash and cash equivalents | 3 | 38 | — | 41 |
| Provisions | — | –22 | — | –22 |
| Interest-bearing liabilities | –28 | –245 | — | –273 |
| Non-interest-bearing liabilities | –94 | –178 | — | –272 |
| Net identifiable assets | 69 | –90 | — | –21 |
| and liabilities | ||||
| Goodwill and surplus values | 730 | 930 | 154 | 1 814 |
| Purchase consideration | –799 | –840 | –154 –1,793 | |
| Cash and cash equivalents | ||||
| in the acquired business | 3 | 38 | — | 41 |
| Repayment of loans | — | — | — | — |
| Transaction expenses | –46 | –74 | — | –120 |
| Net cash outflow | –842 | –876 | –154 –1,872 |
| Sandvik Machi ning Solutions |
Sandvik Mining and Rock Techno logy |
Sandvik Materials Techno logy |
Total | |
|---|---|---|---|---|
| Contributions as of acquisition date |
||||
| Revenue | 211 | 83 | — | 294 |
| Profit/loss for the year | –26 | –124 | — | –150 |
| Contributions if the acquisition date would have been 1 January 2019 |
||||
| Revenue | 447 | 293 | 126 | 866 |
| Profit/loss for the year | –9 | –147 | 27 | –129 |
45 46 47
| Machining Solutions | Mining and Rock Technoloy | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Metrologic | Dura-Mill | Inrock | |||||||
| 2018 | 2019 | Change | 2018 | 2019 | Change | 2018 | 2019 | Change | |
| Intangible assets | 1 463 | 1 463 | — | — | 4 | 4 | — | — | — |
| Property, plant and equipment | 29 | 49 | 20 | — | 11 | 11 | 84 | 93 | 9 |
| Inventories | 7 | 7 | — | — | 16 | 16 | 65 | 65 | — |
| Current receivables | 282 | 282 | — | — | 7 | 7 | 172 | 172 | — |
| Cash and cash equivalents | 314 | 314 | — | — | 6 | 6 | — | — | — |
| Provisions | –10 | –10 | — | — | — | — | — | — | — |
| Interest-bearing liabilities | –2 | –2 | — | — | –1 | –1 | –5 | –8 | –3 |
| Non-interest-bearing liabilities | –2 147 | –2 147 | — | — | –2 | –2 | –325 | –325 | 0 |
| Net identifiable assets and liabilities | –64 | –44 | 20 | – | 42 | 42 | –9 | –3 | 6 |
| Goodwill and surplus values | 1 966 | 1 882 | –84 | 146 | 104 | –42 | 681 | 665 | –16 |
| Purchase consideration | –1 902 | –1 838 | 64 | –146 | –146 | 1 | –672 | –662 | 10 |
| Cash and cash equivalents in the | |||||||||
| acquired business | 314 | 314 | — | — | — | — | — | — | — |
| Repayment of loans | –1 924 | –1 924 | — | –0 | –0 | 0 | –171 | –171 | — |
| Transaction expenses | –68 | –68 | — | — | — | — | — | — | — |
| Net cash outflow | –3 580 | –3 516 | 64 | –146 | –146 | 1 | –843 | –833 | 10 |
The Mining Systems business was divested to FLSmidth and NEPEAN already in 2017, however a number of ongoing projects were kept to be delivered by Sandvik in 2017–2019, though an operational agreement with FLSmidth. The majority of the projects were completed by the end of 2019, however Mining Systems still has some personnel and guarantees that expire in 2020 and 2021.
| 2018 | 2019 | |
|---|---|---|
| Revenue | 852 | 295 |
| Cost of sales and services | –1,174 | –385 |
| Gross profit | –322 | –90 |
| Selling expenses | –42 | –29 |
| Administrative expenses | –110 | –45 |
| Research and development costs | –6 | 0 |
| Other operating income | 12 | 4 |
| Other operating expenses | –84 | –44 |
| Operating loss | –552 | –204 |
| Financial income | — | — |
| Financial expenses | 8 | –1 |
| Net financing costs | 8 | –1 |
| Loss after financial items | –545 | –205 |
| Income tax | — | — |
| Loss for the year | –545 | –205 |
| 2018 | 2019 | |
|---|---|---|
| Cash flow from operating activities | –439 | –152 |
| Cash flow from investing activities | 2 | 16 |
| Cash flow from financing activities | –2 | –2 |
| Cash flow from discontinued activities | –439 | –138 |
During October 2019 Sandvik signed an agreement to divest the segment Oil and Gas which is the majority of Drilling and Completions (Varel) to the private equity firm Blue Water Energy and its co-investor, the privately owned Nixon Energy Investments. Sandvik will remain as minority owner of 30 percent of the company and hold a position on the board. Since the recovery of the investment is principally through sale the assets and liabilities were classified as a disposal group held for sale. The disposal group was measured at fair value less costs to sell. The transaction triggered a writedown of goodwill and other intangible assets with an effect on net result of 3.9 million SEK. Goodwill is not tax deductible. The foreign currency translation differences relating to the Varel disposal group amounts to –428 million SEK at the balance sheet date. At the disposal date, Sandvik, will recognize the remaining 30 percent of Drilling and Completion (Varel) as an associated company. The associate will be measured at fair value at disposal date (closing date) and is subsequently accounted for using the equity method. Closing of the transaction is expected during the first quarter of 2020.
| Total liabilities | 612 | 880 |
|---|---|---|
| Other non-interest-bearing liabilities | 385 | 199 |
| Accrued expenses and deferred income | 85 | 110 |
| Accounts payable | 138 | 171 |
| Interest-bearing liabilities | 0 | 88 |
| Provisions | 4 | 312 |
| Total assets | 641 | 1,815 |
| Other current assets | 305 | 273 |
| Trade receivables | 234 | 535 |
| Inventories | 72 | 571 |
| Financial assets | 4 | 111 |
| Right of Use Assets | — | 57 |
| Property, plant and equipment | 26 | 249 |
| Intangible assets | — | 18 |
| 2018 | 2019 |
No divestments during 2019. Some minor adjustments were made to the final values of previous years divestments.
Sandvik Aktiebolag, corporate registration number 556000 –3468, is a Swedish limited liability company. The registered office of its Board of Directors is in Stockholm, Sweden. The address of the head office is PO Box 510, SE –101 30 Stockholm, Sweden. The visiting address is World Trade Center, Kungsbron 1, section G, floor 6, Stockholm.
The Parent Company's shares are quoted on Nasdaq Stockholm. Shares can also be traded in the US in the form of ADRs (American Depositary Receipts).
The 2019 consolidated financial 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 2019, 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 percent (12.4) of the voting rights are held by AB Industrivärden.
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 effect should the control of the company change as a result of a public takeover bid.
There are no employment agreements between the companies in the Group and the Parent Company's directors or employees who provide compensation if those persons give notice of termination, or their services are terminated on a reasonable basis, or the employment is terminated as a consequence of a public takeover bid.
The Board of Directors proposes a dividend of 4.50 SEK (4.25) per share to the 2020 Annual General Meeting, corresponding to approximately 5.6 billion SEK (5.3).
| 25,804,189,279 |
|---|
| 5,644,736,653 |
On 14 January 2020, Sandvik completed the previously announced acquisition of Summerill Tube Corporation, a manufacturer of high precision tubes. Summerill Tube Corporation is headquartered in Pennsylvania, USA, and generated revenues of about 100 million SEK with 45 employees in 2018. The deal has a limited impact on earnings per share from the start.
On 1 February 2020, Stefan Widing assumed the position as CEO and President of Sandvik.
The divestment of the majority of Sandvik Drilling and Completions (Varel) is expected to be finalized early March 2020.
| Reporting principles | 123 | |
|---|---|---|
| Note 35 | About this report | 124 |
| Note 36 | Stakeholder dialogues | 124 |
| Note 37 | Materiality analysis | 124 |
| Note 38 | Code of Conduct | 124 |
| Note 39 | Speak up | 124 |
| Note 40 | Compliance | 124 |
| Note 41 | Employees | 125 |
| Note 42 | Environment, Health and Safety (EHS) | 127 |
| Note 43 | Environmental footprint | 128 |
| Note 44 | Sustainable supplier management | 130 |
| Note 45 | Community involvement | 130 |
| Note 46 | Follow-up on 2019 targets | 131 |
| Note 47 | GRI index | 133 |
The Group material aspects were decided in a materiality analysis by the Group Executive Management in 2016. The material aspects are reported in accordance with GRI Standards. In addition, Sandvik reports on emissions and energy. No significant changes of material topics or topic boundaries has occurred from previous reporting periods.
The sustainability information in the Annual Report refers to the 2019 fiscal year. See pages 98–104 for a list of entities included in the figures, unless otherwise stated.
Employee statistics regarding the number of FTEs (Full Time Equivalents) is derived from the financial reporting system (BPC). We have revised our figures for the total number of employees (FTE) for the years 2014–2017 as we now report on continuous operations to be more aligned with financial reporting. All other employee statistics (age, turnover, new employees, part time/full time, gender, performance dialogues) are derived from the Group's common HR system (Workday), which covers 98 percent of Sandvik employees. These figures are compiled annually. Sandvik does not have a significant portion of workers who are not employees.
EHS data is derived from our EHS reporting system in which reporting is conducted on a monthly basis for safety-related indicators and on a quarterly basis for the areas relating to environmental key figures. Supplementary data is collected and compiled outside of the EHS database once a year, and that data is thus subject to a higher level of uncertainty. These figures are rounded to a greater degree to manage this higher level of uncertainty. In the event of further limitations in the report, these are indicated in the text. The key figures compiled are based on information available at the date of the most recent year-end accounts, which may entail that historical figures have been adjusted. The Group's results in relation to its objectives are measured using relevant performance indicators and key figures. The figures presented are the accumulated figures for 2019 for all active reporting units, unless otherwise stated. For the EHS data an operational control approach was used for consolidation. That means that all our locations are included in our numbers to 100 percent, also joint ventures where Sandvik has operational control. We are also present at some customer locations in our service-related business. In these cases we include data when data of our usage can be obtained.
The calculations of CO₂ emissions do not include CO₂ equivalents from other greenhouse gases in the reported fuel data. Calculations show that they constitute less than one percent of the total reported data. The conversion factors are uploaded in our EHS database where the calculation of all carbon emissions is performed. For the majority of the European sites, the emission factor for electricity is zero in the market-based approach, with reference to the purchase of certificates for carbon-free electricity.
Emissions to air is a combination of calculations of fossil fuel use and sample measurements from the steel mill. The emissions based on sample measurements have been constant since 2012. If the samples would indicate a significant change of emissions, the constants would be amended based on the new results. For NOx, roughly a third of the reported volume comes from the steel production. More than 80 percent of SO₂ derives from the steel mill.
In the data presented for Water Discharged, the split of data per GRI Standard 303-4 has been performed by applying allocation keys, where such could be obtained from the locations. The allocation specified how the water withdrawal was discharged after use. An allocation key was requested from major production sites. Each of these sites have returned an estimated split of their discharge per the required split in the standard. Where no such split could be specified, the reported water withdrawal was all included as "discharged as fresh water to a third party". For inclusion in the waterstress category, the major production sites were asked to verify in accordance with the definition as outlined in the GRI Standard 303 if they fulfill the criteria of a water stressed location. All water is deemed freshwater when drawn in to our production processes, which is why the category "other water" is not listed in the section for water withdrawal.
In the tables that illustrate reduction of energy, GHG emissions, water and waste, Environmental Improvement Actions was derived from what was registered at the end of the year from the sites that had committed to implement such actions and had stated that they were completed. The remaining difference between 2018 and 2019, whether positive or negative, are grouped and named Other impacts. Other impacts refers to other contributing factors such as those related to weather or production, as well as other items that have an impact but lie outside the control of the activities directly aiming to reduce environmental impact.
Worked hours is defined as exposure hours, which means all hours exposed to risk by employees, contractors and sub-contractors. The exposure hours are collected and entered into the EHS database on a monthly basis.
The reported data for occupational illnesses and frequency rates are part of our monthly reporting process. The term used in GRI called "high-consequence injury/illness" is incorporated in the key figures for Lost Time cases. In the past two years we have had one incident on record meeting the six months absence criteria. Our approach to mitigate these high severity incidents and illnesses is a key part of our management system and is handled within the processes for serious potential incidents, for example in our work with critical control management. The illness data is a more recent addition to the reporting than the injury data and therefore at a less mature stage. As a consequence, the level of uncertainty is deemed higher for the illness data. Illness is defined as an occurrence of physical or mental harm or disease that develops over time in the course of work not as the result of a single instantaneous event. Establishing that an illness is occupational can be a complicated process and could span over a long period of time. An illness must meet the criteria of "under Sandvik control" to be included in our data. The primary criterion for making this decision is: "could and/or should the Sandvik EHS Management System have realistically prevented this incident from occuring?". Only if this is the case, the incident will be considered under Sandvik control and recorded as such.
The percentage of sites certified according to ISO 14001 and ISO 45001 or equivalent standards is based on the status of our major production-related companies. At year-end, 99 locations were asked to provide their certification status. Smaller locations can also choose to go for certification, but these are not included in the calculation. No previous certifications were abandoned compared to last year.
This is the fourteenth consecutive year of sustainable business reporting for Sandvik. We aim to continue reporting the same way on an annual basis. Sandvik's most recent Sustainable Business Report was published in March 2019. In the non-financial notes, information on strategy, management approach, stakeholder dialogues, materiality analysis and sustainability data are presented.
Information meeting the Swedish legal requirements on sustainability reporting, the Statutory Sustainability report, and Sandvik's Sustainable Business Report, is found on pages 2–3, 12–15, 44–47, 58–61 and 122–134. This report has been prepared in accordance with the Global Reporting Initiative, GRI Standards, Core option, and has been reviewed by an external party. The assurance provider was engaged by the Board of Directors and the CEO of Sandvik to undertake a limited assurance engagement of Sandvik's Sustainability Report for the year 2019. The assurance provider is independent to Sandvik. Sandvik is a signatory to the UN Global Compact (UNGC) and reports on the ten principles in accordance with the UNGC Advanced level criteria.
We have defined a number of stakeholders who can be expected to be affected by Sandvik or have a an affect on Sandvik, of which the most significant are customers, employees and investors.
We engage in an open dialogue with our stakeholders. As an example, structured dialogues are being held as part of the materiality analysis, on which we base our reporting in accordance with the GRI Standards. Some of the dialogues held in 2019 include: Group or individual meetings with analysts, investors and shareholders discussing issues like strategy implementation, the relevance of the 2030 Goals to Sandvik's business, targets and target outcome and contribution to the UN Sustainable Development Goals. Customer dialogues are held continuously, including issues such as product development for improved safety and energy efficiency of the products. We have an ongoing dialogue with suppliers relating to the Supplier Code of Conduct. There are continuous dialogues with employees through meetings, employee surveys and performance dialogues. Sandvik regularly meets with unions and discusses the sustainability agenda.
Sandvik is a member of the UN Global Compact. Sandvik is also part of the industry associations Jernkontoret (steel producers), Svemin (mines, minerals and metal producers), the Cobolt Institute and the International Tungsten Industry Association, where a number of initiatives and actions to communicate with legislators have been taken, particularly in relation to the UN Sustainable Development Goals.
The Group Executive Management conducts a materiality analysis on a regular basis. The starting point is the sustainability agenda for the Group derived from international frameworks and institutions such as the Global Reporting Initiative (GRI), the UN Global Compact, media reports, global trends, stakeholder dialogues and our own assessment.
In late 2016, a materiality analysis was conducted for the years 2017–2019. In 2019, we developed new long-term sustainability goals that focus on our most material sustainability areas (see page 14) . The process involved the Group Executive Management, the business areas and divisions and was based on input from stakeholders, such as customers, shareholders and investors.
In 2020, we will undertake a new materiality analysis.
Sandvik's Code of Conduct is based on our Core Values and confirms our strong commitment to ethical and responsible business practices and compliance with relevant laws and regulations in all markets where we operate. The Code of Conduct describes the principles of behavior that our employees should adhere to and provides guidance in our actions and everyday business decisions. The Code of Conduct is a vital component in The Sandvik Way governance model, which encompasses common steering documents and processes. The Sandvik Way also describes a common culture and ways of working.
Sandvik has set up a target to train 100 percent of employees and long-term contractors hired for more than 90 days in the Code of Conduct. The training includes sections dedicated to anti-bribery and corruption. Every month a training report is generated to monitor this target. By the end of 2019, 96 percent (94) of employees and long-term contractors had completed the Code of Conduct training. All members of the Board of Directors as well as the Group Executive Management have undergone training in the Code. A target has also been set for onboarding of new employees, whereby 90 percent of new employees should be trained within three months. The outcome by the end of 2019 was 65 percent.
Employees and external parties who witness a violation of the Code of Conduct, laws or our policies can report the violation, anonymously, through the global reporting tool Speak Up. They can also ask questions related to the Code of Conduct through Speak Up. 83 percent of the respondents in Sandvik's 2018 Employee Engagement Survey said they were aware of the whistle blowing process and 74 percent said they trust the system. To increase the awareness and trust in Speak Up, a new Speak Up intranet site, including a toolbox dedicated to awareness material, was launched in 2019. A Speak Up nano-learning was also developed, which will be released in 2020 to follow up on the 2018 survey.
Speak Up is available through Sandvik's internet and intranet portals, as well as through telephone hotlines 24 hours a day, 7 days a week, in all major countries where Sandvik operates. Speak Up reports are screened, and each case is then assigned an investigator from the business area that conducts the investigation, supported by a specialist investigation function.
In 2019, 142 (206) Speak Up incidents were reported (see distribution in chart below). It took on average 85 days to close a Speak Up case and the substantiation rate amounted to 38 (62) percent. In 2019 the Speak Up process was reviewed by an internal audit, including closing of old cases which affected this year's figures. Four percent of all Speak Up reports related to human rights matters.
| Number | % | |||
|---|---|---|---|---|
| Speak Up Reports | 2018 | 2019 | 2018 | 2019 |
| Human Relations | 82 | 47 | 40 | 33 |
| Compliance | 54 | 26 | 26 | 18 |
| Theft and misappropriation | 19 | 13 | 9 | 9 |
| Business records and information |
19 | 6 | 9 | 4 |
| EHS | 8 | 12 | 4 | 8 |
| Inquiries | 21 | 15 | ||
| Other | 24 | 17 | 12 | 12 |
| Total | 206 | 142 | 100 | 100 |
Sandvik manages risks in four compliance areas: anti-bribery and corruption, competition law, trade compliance and data privacy. During 2019, the strategic work mainly focused on developing a new compliance tool, the Compliance House. The Compliance House is a tool which the business can use to get an overview of the requirements in the four compliance programs that are relevant to them, the respective risk levels and the current status of their compliance activities. The purpose of the Compliance House is to further embed compliance into the business and allow entity level monitoring of risks and compliance status. Our 2020 target is to implement the Compliance House at 25–50 percent of Sandvik entities.
Compliance training was offered to employees in different formats, including e-learning, webinars and classroom training. A total of 3,800 participants received training.
There were extensive activities in the trade compliance program area in 2019 due to Brexit preparations, as well as a number of
changes in customs tariffs and international sanctions imposed by the US government and other countries. For data privacy, implementation of the GDPR requirements continued during 2019. Specific focus is now on building a sustainable and effective governance structure.
Sandvik has zero tolerance for bribery and corruption. In 2019, the implementation of anti-bribery and anti-corruption internal controls was in focus, as well as the adjustment of our processes and systems to handle risks related to administrative intermediaries, such as customs agents.
We have a competition law compliance program in place to mitigate risks associated with competition or antitrust laws in all countries where Sandvik operates. The program relies on frequent e-learning and in-person training for employees who may be exposed to competition law risks in their work. In 2019, about 1,500 employees received training in competition law. Training in this area is repeated and updated every second year. Comprehensive competition law guidelines are available for all employees who are also encouraged to seek advice from Sandvik Legal Support teams in case of doubts about the legality of a business activity.
Sandvik received no (no) significant fines or non-monetary sanctions for non-compliance with laws or regulations related to our four areas.
At year-end 2019 the number of employees amounted to 40,235 (41,670).
South America, 3% Africa/Middle East, 2%
Sandvik provides employee development opportunities through on-the-job-training, virtual learning channels and classroom training. We offer our employees leadership programs, learning academies, digital workshops, mentoring, and other opportunities to
| Female | Male | Total | |||||
|---|---|---|---|---|---|---|---|
| FTE | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |
| Permanent | 7,336 | 7,502 | 30,717 | 31,130 | 38,053 | 38,632 | |
| Temporary | 816 | 461 | 2,812 | 1,423 | 3,628 | 1,885 | |
| Total | 8,152 | 7,963 | 33,529 | 32,553 | 41,681 | 40,516 |
| Female | Male | Total | |||||
|---|---|---|---|---|---|---|---|
| FTE | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |
| Full time | 7,376 | 7,217 | 32,924 | 31,982 | 40,300 | 39,199 | |
| Part time | 777 | 743 | 605 | 574 | 1,382 | 1,317 | |
| Total | 8,153 | 7,960 | 33,529 | 32,556 | 41,682 | 40,516 |
* Differences in the total number of employed due to insufficient data for age and gender.
acquire new skills and knowledge. In 2019, 549 (622) employees participated in a leadership program. Their feedback in follow-up surveys indicates that these programs support the development of leadership capabilities and managers' contribution to business.
The Global Graduate Program is Sandvik's global trainee program that offers young professionals the opportunity to explore various parts of our operations during 18 months. In 2019, the fourth program started. To secure a truly global team that mirrors our business presence, our ten graduates come from different geographies: China, India, Finland, Sweden and the US.
As a Sandvik employee you are responsible for your own career development. Sandvik offers a wide range of career opportunities. Our internal job market enables our employees to move to other parts of Sandvik or other countries and to grow and develop as individuals and professionals. In 2019 about 2,700 (2,900) employees were hired and a vast majority of the positions were posted on the open internal job market.
The share of women in managerial positions increased to 18.2 percent (17.7), the share of women in division management teams amounted to 19 percent (17) and the share of women in our talent pool was 25 percent (28). 21 percent (19) of the members in division management teams were non-Europeans. Our sustainability goals include a one third share of female managers by 2030.
We offer training in diversity and inclusion by offering a leadership workshop and a toolbox that includes e-learning workshops and exercises. In December, we rolled out an online diversity and inclusion training pilot for 900 employees, including tools to help nurture a diverse and inclusive mindset. After evaluation, training will be rolled out globally in 2020. Our Bridge program focuses on leading across boundaries and all our internal global leadership programs include training on how managers can work with diversity and inclusion.
We conduct a global Sandvik employee engagement survey biannually. The survey provides a starting point for team performance dialogues and development activities, and measures both how engaged our employees are and whether we, as a company, have put in place all we need to achieve high organizational results. In 2018, 87 percent of our employees participated in the survey and we made progress in both areas mentioned above.
Every employee at Sandvik is offered at least one individual performance dialogue annually with their manager, that focuses on previous performance, new goals as well as development plans for the coming years. In 2019, 97 percent of employees participated in performance dialogues.
In 2019, 61 percent (55) of employees were covered by collective bargaining agreements.
| Permanent Temporary |
Total | |||||
|---|---|---|---|---|---|---|
| FTE | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 |
| Europe | 23,623 | 23,340 | 1,377 | 710 | 25,000 | 24,050 |
| North America |
4,432 | 4,545 | 20 | 26 | 4,452 | 4,571 |
| South America |
1,834 | 1,745 | 61 | 29 | 1,895 | 1,774 |
| Africa & Middle East |
2,069 | 1,922 | 166 | 214 | 2,235 | 2,136 |
| Asia | 5,181 | 6,200 | 2,076 | 891 | 7,257 | 7,091 |
| Australia | 899 | 928 | 44 | 20 | 943 | 948 |
| Total | 38,038 | 38,680 | 3,744 | 1,890 | 41,782 | 40,570 |
* Differences in the total number of employed due to insufficient data for age and gender.
46 47
| 2018 | 2019 | ||||
|---|---|---|---|---|---|
| Hired | % | Hired | % | ||
| Under 30 | 883 | 36 | 859 | 35 | |
| 30–50 | 1,364 | 56 | 1,379 | 57 | |
| Over 50 | 190 | 8 | 187 | 8 | |
| Total | 2,437 | 100 | 2,425 | 100 |
| Total number and rate of new employee hires by gender | |||||
|---|---|---|---|---|---|
| 2018 | 2019 | ||||
| Hired | % | Hired | % | ||
| Female | 650 | 23 | 607 | 22 | |
| Male | 2,232 | 77 | 2,120 | 78 | |
| Total | 2,915 | 100 | 2,727 | 100 |
| 2018 | 2019 | |||
|---|---|---|---|---|
| Hired | % | Hired | % | |
| Europe | 1,350 | 46 | 1,249 | 46 |
| North America | 634 | 22 | 627 | 23 |
| South America | 218 | 8 | 222 | 8 |
| Africa & Middle East | 120 | 4 | 113 | 4 |
| Asia | 473 | 16 | 355 | 13 |
| Australia | 120 | 4 | 161 | 6 |
| Total | 2,915 | 100 | 2,727 |
| 2018 | 2019 | |||
|---|---|---|---|---|
| Left | % | Left | % | |
| Under 30 | 564 | 11 | 501 | 9 |
| 30–50 | 1,864 | 7 | 1,990 | 8 |
| Over 50 | 969 | 8 | 1,492 | 14 |
| Total | 3,397 | 8 | 3,983 | 10 |
| 2018 | 2019 | |||
|---|---|---|---|---|
| Left | % | Left | % | |
| Female | 749 | 9 | 832 | 10 |
| Male | 2,642 | 8 | 3,151 | 10 |
| Total | 3,391 | 8 | 3,983 | 10 |
| 2018 | 2019 | |||
|---|---|---|---|---|
| Left | % | Left | % | |
| Europe | 1,620 | 7 | 1,993 | 8 |
| North America | 645 | 12 | 861 | 19 |
| South America | 306 | 16 | 280 | 15 |
| Africa & Middle East | 337 | 15 | 233 | 11 |
| Asia | 520 | 7 | 528 | 7 |
| Australia | 140 | 15 | 151 | 16 |
| Total | 3,568 | 8 | 4,046 | 10 |
*) Differences in the total number of employed due to insufficient data for age and gender.
| Age structure, % | ||||
|---|---|---|---|---|
| Share of women, % | Under 30 | 30–50 | Above 50 | |
| Board of Directors | 31 | 0 | 31 | 69 |
| Group Executive Management | 25 | 0 | 50 | 50 |
| Management | 18 | 1 | 69 | 30 |
| Other employees | 20 | 14 | 59 | 27 |
| Female (%) | Male (%) | Total (%) | |||||
|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | ||
| Staff | 26 | 26 | 74 | 74 | 53 | 54 | |
| Workers | 12 | 12 | 88 | 87 | 47 | 46 | |
| Total | 20 | 20 | 80 | 80 | 100 | 100 |
| Under 30 (%) 30–50 (%) |
Over 50 (%) | Total (%) | ||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |
| Staff | 10 | 9 | 64 | 64 | 26 | 27 | 53 | 54 |
| Workers | 18 | 16 | 55 | 56 | 27 | 28 | 47 | 46 |
| Total | 14 | 12 | 60 | 60 | 27 | 27 | 100 | 100 |
Our EHS management systems are audited by external agencies to ensure that they meet internationally accepted standards (ISO 14001, ISO 45001, OHSAS 18001 or equivalent) and are regularly audited internally to continually improve our operating practices. Every non-administrative Sandvik location with more than 25 people is required to have external certification within two years of commencement or acquisition. At the end of 2019, 97 percent of sites in scope were certified.
We utilize a wide range of leading and lagging indicators to measure safety and health performance in every Sandvik location, including Lost Time Injury Frequency Rate (LTIFR) and Total Recordable Injury Frequency Rate (TRIFR). Both of these indicators show long-term positive trends. In 2019, the LTIFR (LTIs per million hours worked) decreased to 1.5 (1.7), and the TRIFR (total number of injuries per million hours worked) was reduced to 3.8 (3.9). As the LTIFR gets to lower levels, Sandvik is moving towards a greater focus on TRIFR as
its primary safety performance indicator. There have been no fatalities to report since 2015.
Sandvik has processes in place to record and investigate occupational illnesses to determine the root causes and develop prevention strategies.
We continually work to replace hazardous materials with less hazardous alternatives in our production or, where replacement is not an option, minimize the use of hazardous materials. We invest in new equipment and improve our processes to reduce employee exposure to hazards such as noise, dust and exposure to gases or other substances. Our products and solutions are designed with improved customer health and safety in focus, for example by reducing their exposure to chemical hazards. Our battery-driven underground mining equipment helps to alleviate the potential health impacts of diesel particulate matter and other engine emissions.
| Health and safety | 2018 | 2019 | ||||
|---|---|---|---|---|---|---|
| Injury | Employees | Non-employees1) | Total Workforce | Employees | Non-employees1) | Total Workforce |
| Number of Fatalities | 0 | 0 | 0 | |||
| Number of LTI | 127 | 19 | 146 | 122 | 9 | 131 |
| LTIFR2) | 1.7 | 2.0 | 1.7 | 1.6 | 0.92 | 1.5 |
| Number of TRI | 296 | 42 | 338 | 294 | 33 | 327 |
| TRIFR2) | 3.9 | 4.4 | 3.9 | 3.9 | 3.4 | 3.8 |
| Main type of injuries | Hand and finger injuries. Cuts and pinched hands and fingers are the most common injury types for both years | |||||
|---|---|---|---|---|---|---|
| Million Exposure Hours | 76.7 | 9.5 | 86.2 | 75.3 | 9.8 | 85.2 |
| Hazards reported | 75,508 | 81,102 | ||||
| Hazards closed out | 72,627 | 77,698 | ||||
| Hazard close out ratio (%) | 96.2 | 95.8 | ||||
| Near Misses reported | 6,656 | 6,299 | ||||
| Work Related illness3) | ||||||
| Illness | ||||||
| Number of Fatalities | 0 | 0 | 0 | 0 | 0 | 0 |
| Number of LTIL | 10 | 1 | 11 | 10 | 2 | 12 |
| LTILFR2) | 0.13 | 0.10 | 0.13 | 0.13 | 0.20 | 0.14 |
| Number of TRIL | 25 | 1 | 26 | 18 | 4 | 22 |
| TRILFR2) | 0.33 | 0.10 | 0.30 | 0.24 | 0.41 | 0.26 |
Main type of illnesses Repetitive strain injuries and stress-related symptoms are the most commonly reported illnesses.
1) All workers who are not employees but whose work and/or workplace is controlled by Sandvik. 2) Normalization factor = 1,000,000 hours worked.
3) Based on data from only a few entities.
TRIFR LTIFR
An LTI is an accident resulting in time away from work, a RWI (Restricted Work Injury) is an injury where you can be at work but you can't perform your ordinary work, and a MTI (Medical Treatment Injury) is when you need some kind of medical treatment but can perform your normal work.
We provide customers with products and services that boost their environmental performance and efficiency. Within our operations we work continuously to minimize our own environmental impact.
Sandvik is working to ensure that every individual site in the company has an action plan to increase energy efficiency and reduce carbon dioxide emissions (CO2). Sandvik had about 110 environmental action plans underway in 2019, consisting of more than 300 individual actions. Heat exchange systems, improved insulation in buildings, LED lighting, and solar rooftop panels are some examples of initiatives.
For 2019, Sandvik had set a target to reduce its energy usage and CO2 emissions, through environmental improvement actions, by 1.3 percent and 1.3 percent respectively. The completed actions amounted to annual energy usage reductions of 1.4 percent and 2.6 percent carbon emission reductions.
Our main production sites in Europe have been buying energy from renewable energy sources since 2013, resulting in a reduction of annual emissions by approximately 113,000 tons.
Energy data is calculated based on reported consumption data. The calculations are programmed within our reporting tool where also the factors for conversion to energy equivalents are stored. The conversion factors are established in our EHS definitions that are held within the management system documentation. These factors origin from the Swedish Energy Agency (EPA).
Sandvik Materials Technology, 51% Sandvik Machining Solutions, 35%
| e GHG Emissions ('000 ton CO2 ) |
2018 | 2019 |
|---|---|---|
| Scope 1 | 181 | 176 |
| Scope 2 (location based) | 281 | 274 |
| Initiatives to source low-emission e lectricity | –119 | –120 |
| Scope 2 (market based) | 162 | 155 |
| Gross Total (location based) | 463 | 450 |
| Net Total (market based) | 344 | 331 |
The emission factors for Scope 1 emissions are sourced from the Swedish EPA. The calculation of scope 2 'location based' use the conversions built in to the GHG Protocol calculation tool, version 4.4. The market-based emission factors and information on respective electricity supplier are provided by the Sandvik reporting entities annually. If these factors can't be obtained, the same emission factor as for location-based emissions, i.e. grid averages, are applied.
Any difference between location-based and market-based factors (positive or negative) is reported in the table as 'initiatives to source low-emission electricity'. The main effect comes from the purchase of emission-free electricity for our European operations. In 2019, Sandvik used 1,081 GWh grid electricity in Europe. We sourced, and cancelled, Guarantees of Origin for the full amount of electricity used in our European operations during the year.
Sandvik Machining Solutions, 43% Sandvik Materials Technology, 35% Sandvik Mining and Rock Technology, 16% Other Operations, 5%
Company activities, 1%
| Energy Consumption (TJ) | 2018 | 2019 |
|---|---|---|
| Non-Renewable fuels | 2,853 | 2,803 |
| Gasoline | 253 | 225 |
| Diesel | 369 | 355 |
| Liquefied Petroleum Gas | 838 | 696 |
| Natural Gas | 1,282 | 1,436 |
| Fuel Oil | 111 | 93 |
| Renewable fuels | 15 | |
| Ethanol | 2 | |
| HVO | 13 | |
| Total Energy from fuels | 2,853 | 2,818 |
| GRID Electricity | 4,946 | 4,865 |
| Own Renewable electricity | 4 | 8 |
| Purchased Heat and Steam | 273 | 293 |
| Sold Heat | –31 | –35 |
| Total Electricity Heat and Steam | 5,192 | 5,130 |
| Total Energy consumption | 8,045 | 7,948 |
| Total Energy use in relation to revenues | 2018 | 2019 |
|---|---|---|
| GJ/MSEK | 80 | 77 |
| TJ | % | |
|---|---|---|
| Total Energy use 2018 – continuing operations | 8,045 | |
| Environmental Improvement Actions | –109 | –1.4 |
| Other impacts | 12 | 0.2 |
| Total Energy use 2019 – continuing operations | 7,948 | –1.2 |
| Net total CO2 emissions in relation to revenues | 2018 | 2019 |
|---|---|---|
| ton/MSEK | 3.4 | 3.2 |
| kton | % | |
|---|---|---|
| CO2 emissions 2018 – continuing operations | 344 | |
| Environmental Improvement Actions | –9 | –2.6 |
| Other impacts | –4 | –1.1 |
| CO2 emissions 2019 – continuing operations | 331 | –3.7 |
| Other air emissions (ton) | 2018 | 2019 |
|---|---|---|
| NOx | 356 | 348 |
| SOx | 37 | 36 |
| Volatile organic compounds (NMVOC) | 53 | 46 |
| Emissions to water (ton) | 2018 | 2019 |
| 113 |
|---|
| 124 |
| 1 |
| 0.3 |
| 0.2 |
| 155 110 2 0.4 0.2 |
About 90 percent of our manufacturing activities take place in areas where there is an abundance of water. Nonetheless, water use is closely monitored and many measures are taken to minimize consumption, including circulation of cooling water, to reduce the need for fresh water.
Sandvik's emissions to water consist mainly of nitrogen compounds, oxygen-consuming substances and metals. All wastewater from production processes is treated before being released, to ensure that all discharges are below the acceptable limit.
| 2018 | 2019 | |||
|---|---|---|---|---|
| Water | Water | |||
| Fresh water by source of | All | Stressed | All | Stressed |
| withdrawal | Areas | Areas | Areas | Areas |
| Surface | 4,112 | 0 | 4,332 | 0 |
| Ground | 1,004 | 89 | 1,048 | 86 |
| Third-party | 2,297 | 43 | 2,194 | 52 |
| Rain | 5 | 1 | 23 | 14 |
| Total Withdrawal | 7,418 | 147 | 7,597 | 153 |
| 2018 | 2019 | |||
|---|---|---|---|---|
| Water | Water | |||
| Water discharge by | All | Stressed | All | Stressed |
| destination | Areas | Areas | Areas | Areas |
| Surface | 1,414 | 0 | 1,495 | 0 |
| Fresh water | 831 | 0 | 907 | 0 |
| Other water | 583 | 0 | 588 | 0 |
| Ground | 461 | 0 | 492 | 0 |
| Fresh water | 5 | 0 | 4 | 0 |
| Other water | 457 | 0 | 488 | 0 |
| Third-party | 5,543 | 147 | 5,609 | 153 |
| Fresh water | 5,333 | 146 | 5,415 | 152 |
| Other water | 209 | 1 | 195 | 1 |
| Total | 7,418 | 147 | 7,597 | 153 |
| Water withdrawal in relation to revenues | 2018 | 2019 |
|---|---|---|
| m3/MSEK | 74.4 | 73.6 |
| Reduction of total water | ||
| '000 m3 | % | |
| Water 2018 | 7,418 | |
| Environmental Improvement Actions | –12 | –0.2 |
| Other impacts | 191 | 2.6 |
| Water 2019 | 7,597 | 2.4 |
Sandvik does not use water in its products. In manufacturing operations, especially in hot environments, some water will inevitably transpire and evaporate. The evaporated volumes are insignificant in relation to production and water volumes. There are no steps in our manufacturing processes that would cause irreversible pollution to the water being used. Thus, all water withdrawn is released back to recipients after relevant treatment, either in our own treatment facilities or in third-party treatment operations. For the main manufacturing operations, water withdrawal and discharges are conducted in a carefully controlled manner and subject to relevant permits. In 2019, there was one occasion where the ground water withdrawal exceeded the allowed limit. A case was raised, but later deemed insignificant and closed by the authorities. The incident occurred in the operations in Sandviken, Sweden. No other significant water incidents were reported.
Circularity is a key aspect for Sandvik and we are reusing and recycling to offset the use of raw materials and reduce waste. Our target is to increase the share of recovered waste to 20 percent and we are currently at 19 percent. Total waste decreased by 1 percent. In 2019, 29 Sandvik locations reported a 100 percent waste recovery rate. Sandvik recycles both steel and cemented carbide. Our metallic input materials amounted to 306 thousand tons in 2019 (320), with a recovery rate of 79 percent (80).
| Waste by type and disposal method (kton) | 2018 | 2019 |
|---|---|---|
| Hazardous Waste | 33 | 34 |
| to recovery operations | 14 | 14 |
| to other disposal | 19 | 20 |
| Non-Hazardous Waste | 303 | 299 |
| to recovery operations | 48 | 48 |
| to other disposal | 256 | 251 |
| Total Waste | 337 | 332 |
The reportable waste disposal methods are defined based on the disposal codes from the EU regulation 'Regulation (EC) No 1013/2006 of the European Parliament and of the Council of 14 June 2006 on shipments of waste'. These definitions will be applied by our reporting entities. The determination of waste disposal method varies in the company but is mainly based on information from the waste disposal company.
Sandvik Machining Solutions, 61% Sandvik Materials Technology, 34% Sandvik Mining and Rock Technology, 4% Other Operations, 1%
| Total waste in relation to revenues | 2018 | 2019 |
|---|---|---|
| ton/MSEK | 3.4 | 3.2 |
| kton | % | |
|---|---|---|
| Waste 2018 | 337 | |
| Environmental Improvement Actions | 0 | 0.0 |
| Other impacts | –4 | –1.3 |
| Waste 2019 | 332 | –1.3 |
Sandvik has about 65,376 suppliers located in approximately 91 countries, from which we source raw materials, components, products and services. Our commitment to provide sustainable products implies that we expect our suppliers to comply with Sandvik's Supplier Code of Conduct. In 2019, approximately 9.6 percent of our supplier spend occurred in countries with a high risk of Sandvik Supplier Code violations such as China (3.7 percent), India (2.9 percent), Brazil (1.5 percent), Indonesia and Mexico (0.6 percent each).
In 2019, the capacity building activities continued to be a key part of our efforts in building a sustainable supply base. We trained 707 Sandvik employees and all 115 audited suppliers in the Code of Conduct and our way of working with it. We also provided additional training on more specific topics, such as conflict minerals.
In 2019, we identified 1,171 supplier entities (out of 42,505 fully risk assessed) located in high-risk countries and developing activities deemed to be at high risk. A total number of 115 suppliers were audited, out of which 74 are located in India, 12 in China, 12 in Argentina, 5 in South Africa, 5 in Brazil, 3 in Chile, 2 in Russia and one in the UK as well as Malaysia. All were audited either by independent third-party auditors, selected and trained by Sandvik (90 suppliers), or by our own auditors (25 suppliers). All audits were conducted on site.
We had 99 corrective action plans agreed to with the suppliers audited in 2019 (86 percent of total audited). During the year, we have prioritized the cases according to its severity and based on that, we have closed the year with 37 partly or fully implemented corrective action plans and one supplier terminated. For the remaining cases, 45 had the timeline extended for implementation in 2020 and 16 cases have not been implemented yet. All cases (61) will be followed up in 2020.
In 2019, we identified no deviations related to child labor or underaged workers exposed to hazardous working conditions. Deviations related to forced labor relate to financial penalties imposed on employees at our suppliers in China. Those regarding discrimination refer to unequal payment of employees with the same experience and qualification who performed the same work in Chile. Legal compliance deviations relate primarily to missing safety or environmental certificates/licenses. Competition Law, Anti-corruption and Conflict Minerals deviations refer to a lack of relevant policies/training/processes. Deviations related to environment, health and safety refer to a range of issues from missing relevant policies to lack of fire safety measures and/or risk assessments. Deviations related to employment conditions mostly refer to contracts missing mandatory clauses. Right-to-property-related deviations refer primarily to lacking impacts assessment on the previous user(s) caused by the facility taking over lease/ownership of the property. In 2019 one supplier relationship was terminated due to audit results.
| Deviations identified among suppliers | 2018 | 2019 |
|---|---|---|
| Health and safety | 1,335 | 702 |
| Environment | 327 | 248 |
| Compensation and benefits | 344 | 208 |
| Anti-corruption | 207 | 172 |
| Working hours | 216 | 137 |
| Legal compliance | 90 | 132 |
| Competition law | 168 | 84 |
| Monitoring | 92 | 67 |
| Employment conditions | 193 | 58 |
| Management system | 302 | 49 |
| Right to property | 7 | 8 |
| Forced labor | 40 | 6 |
| Freedom of association and collective bargaining | 8 | 2 |
| Discrimination | 1 | 2 |
| Conflict-free origin of minerals | 29 | 2 |
| Child labor | 0 | 0 |
| Total | 3,359 | 1,877 |
In 2019, we performed a reasonable country of origin enquiry to identify smelters and refiners associated with our supply chain, based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Wolfram Bergbau und Hütten, a Sandvik subsidiary based in Austria, is a Conformant Tungsten Smelter that has maintained its compliant status since the company successfully completed the Responsible Minerals Assurance Program (former Conflict-Free Smelter Program) audit in March 2015. It continued to supply the majority of Sandvik's total tungsten in 2019.
Our platform for community involvement includes four areas: Innovation, Education and skills, Health and Safety and Local enabler. In 2019, we were involved in about 250 projects.
Europe, 50%
Sandvik reports on the 2019 targets set up in 2018. We will report on the new 2030 sustainability targets as of 2020.
| Targets 2019 | Outcome 2019 | |
|---|---|---|
| Our offerings | ||
| Innovation and productivity | ||
| Sandvik Machining Solutions |
1) New Sales Ratio in the range of 30–40% | 1) New Sales Ratio of 21.2% |
| 2) New Filing Ratio 30–35% | 2) New Filing Ratio of 34.6% | |
| 3) Increase recycling rate in products | 3) A 20% increase, from 39% in 2018 to 47% in 2019 |
|
| Sandvik Mining and Rock Technology |
1) Maintain a healthy trend of New Filing Ratio (share of pat ents filed in the last 5 years as % of the total portfolio). Target New Filing Ratio: 41% |
1) New Filing Ratio of 38.2% |
| Sandvik Materials Technology |
1) All divisions to have the capabilities to present a Life Cycle Analysis to selected customers. |
1) Life Cycle Assessment reports presented to selected customers and included in busi ness development discussions. |
| 2) Market introduction of new products or applications sup porting energy efficiency and green energy transition. |
2) Multiple products that supports energy efficiency and green energy transition e.g. Sanicro® 25 and Tube Production on Cus tomer Site used for hydrogen filling stations. |
|
| 3) Develop business cases for materials or applications used in emerging energy applications. |
3) Multiple business cases developed e.g. additive manufacturing for industrial heating applications and Life Cycle Analysis as a service. |
|
| Health and Safety Sandvik Mining and Rock Technology |
1) Manage Cyber Security for equipment within SMRT. | 1) An Offering Cyber Security Policy was drafted and reveiwed and an Offering Cyber Security Committee was launched. Internal security reviews for key products and ser vices started. |
| Environmental Impact | ||
| Sandvik Mining and Rock Technology |
1) Ensure compliance within environmental regulations area for products. |
1) Mandatory environmental regulations have been mapped and integrated into the New Product Development (NPD) process. |
| Sandvik Materials Technology |
1a) Increased share of sustainable transports. | 1a) All transports at the Sandviken site use HVO100 biodiesel. |
| 1b) Introduction of conventional packaging material recycla ble at customer. |
1b) Mapping of possible recyclable solu tions ongoing and circular options for plastic investigated with suppliers and manufacturers. |
|
| 2) Feasibility review of potential recycling opportunities on business area product offering. |
2) First buyback case of scrap steel for closed loop circularity completed. Addi tional discussions with selected customers initiated. |
|
| 3) Develop proposal for sustainability labeling to implement on applicable products. |
3) Percentage of recycled material in a prod uct included on materials certificate has been developed and launched. |
| Targets 2019 | Outcome 2019 | |
|---|---|---|
| Our operations | ||
| Code of Conduct | 1) 100% of all employees trained in our Code of Conduct. 2) 90% of new employees trained in our Code of Conduct within 3 months. |
1) 96% were trained year-end 2019. 2) 65% of new employees were trained year end 2019. |
| Speak Up | 1) Average open days not to exceed 40 days. 2) Improve the results from 2018 SEmp survey. (a) Awareness to exceed 83%. (b) Confidence in the system/process to exceed 74%. |
1) 85 days due to review and closure of old cases. 2) No monitoring done in 2019. Strategies developed to increase awareness and trust. Training to be rolled out in 2020 including monitoring. |
| Compliance | 1) 100 % of all identified material entities) shall have reported and have a Basic Compliance Completion Ratio. ) As defined together with each division. |
1) Focus shifted to developing Sandvik's Compliance House, a tool for monitoring compliance implementation in the entities. Rollout started early 2020. We also contin ued to evaluate compliance implementation on Business Area and Divisional level. |
| Sustainable Supplier Management |
1) Active suppliers, corresponding to 100% of supplier spend, risk assessed according to Sandvik inherited risk matrix. 2) Workplan in place for rolling out Sandvik Supplier Sustaina bility Questionnaire. 3) 100% of corrective actions pertaining to audits performed in 2018 and 2019 implemented within the time limit agreed with the supplier. 4) Suppliers representing 85% of spend having signed our Supplier Code of Conduct. |
1) Approx. 71% fully risk assessed and 23% partly risk assessed (either by country or by category) 2) All business areas have outsourced the questionnaire and integrated it into their supplier management systems or plan to do so. Rolling out plan is being developed. 3) 19.4 % were implemented within the agreed time limit with suppliers. During the year, we have prioritized cases according to their severity and based on that, 31.4% have had the time line extended and will be fol lowed up during 2020. 4) 55.5% |
| Environmental footprint | 1) 1.3% reduction of energy use from environmental improve ment action. 2) 1.3% reduction of CO₂ emissions from environmental improvement action. 3) 0.6% reduction of water use from environmental improve ment action 4) Reduce total waste by 0.2% from environmental improve ment action. |
1) Completed actions corresponding to 1.4% reduction was reported. 2) Completed actions corresponding to 2.6% reduction was reported. 3) Completed actions corresponding to 0.2% reduction was reported. 4) Completed actions corresponding to 0.0% reduction was reported. |
| Health and Safety | 1) TRIFR: 3.6 2) LTIFR: 1.4 |
1) TRIFR: 3.8 2) LTIFR: 1.5 |
| Standard and disclosure | Page | Comments |
|---|---|---|
| GRI 102: General Disclosures 2016 | ||
| Organizational profile | ||
| 102-1 Name of the organization | 48 | |
| 102-2 Activities, brands, products, and services | 2–3 | |
| 102-3 Location of headquarters | 48 | |
| 102-4 Location of operations | 3, 82, 98–104 | |
| 102-5 Ownership and legal form | 48 | |
| 102-6 Markets served | 1–3 | |
| 102-7 Scale of the organization | 1, 3, 63–65 | |
| 102-8 Information on employees and other workers | 123, 125–126 | |
| 102-9 Supply chain | 130 | |
| 102-10 Significant changes to the organization and its supply chain | 38–39, 133 | |
| 102-11 Precautionary Principle or approach | 58–60 | |
| 102-12 External initiatives | 1, 4, 11, 58–59, 124 | |
| 102-13 Membership of associations | 124 | |
| Strategy | ||
| 102-14 Statement from senior decision-maker | 4–5 | |
| Ethics and integrity | ||
| 102-16 Values, principles, standards, and norms of behavior | 7, 58–61, 124 | |
| Governance | ||
| 102-18 Governance structure | 48–61, 58 | |
| Stakeholder engagement | ||
| 102-40 List of stakeholder groups | 124 | |
| 102-41 Collective bargaining agreements | 125 | |
| 102-42 Identifying and selecting stakeholders | 124 | |
| 102-43 Approach to stakeholder engagement | 124 | |
| 102-44 Key topics and concerns raised | 37, 124 | |
| Reporting practice | ||
| 102-45 Entities included in the consolidated financial statements | 98–104 | |
| 102-46 Defining report content and topic Boundaries | 58–61, 123–124, 131–132 | |
| 102-47 List of material topics | 19, 25, 31, 58–61, 131–132 | |
| 102-48 Restatements of information | 123 | |
| 102-49 Changes in reporting | 123 | |
| 102-50 Reporting period | 123 | |
| 102-51 Date of most recent report | 124 | |
| 102-52 Reporting cycle | 124 | |
| 102-53 Contact point for questions regarding the report | 143 | |
| 102-54 Claims of reporting in accordance with the GRI Standards | 124 | |
| 102-55 GRI content index | 133–134 | |
| 102-56 External assurance | 124, 140 | |
| GRI 103: Management approach 2016 103-1 Explanation of the material topic and its Boundaries |
||
| Anti-corruption | 58, 61, 124 | |
| Materials, Effluents and waste, Water and effluents, Energy, Emissions | 13, 15, 128 –130 |
|
| Supplier Environmental Assessment, Child Labor, Forced and | 15, 47, 124, 130 | |
| Compulsory Labor, Supplier Social Assessment | ||
| Occupational Health and Safety | 15, 59 –61 |
|
| Diversity and equal opportunity, Employment | 15, 58 –59 |
|
| 103-2 The management approach and its components | ||
| Anti-corruption | 58, 61, 124 | |
| Materials, Effluents and waste, Water and effluents, Energy, Emissions | 15, 128 | |
| Supplier Environmental Assessment, Child Labor, Forced and | 15, 47, 58 –61, 130 |
|
| Compulsory Labor, Supplier Social Assessment | ||
| Occupational Health and Safety | 15, 58 –61, 127 |
|
| Diversity and equal opportunity, Employment | 15, 58–59, 125 | |
| 103-3 Evaluation of the management approach | ||
| Anti-corruption | 58, 61, 124, 130, 131 | |
| Materials, Effluents and waste, Water and effluents, Energy, Emissions | 59 –61, 128–130 |
|
| Supplier Environmental Assessment, Child Labor, Forced and | 58 –61, 124 |
|
| Compulsory Labor, Supplier Social Assessment | ||
| Occupational Health and Safety | 59 –61, 127 |
| Standard and disclosure | Page | Comments | |
|---|---|---|---|
| GRI 403: Occupational Health and Safety 2018 | |||
| 403-1 Occupational health and safety management system | 58–61 | ||
| 403-2 Hazard identification, risk assessment, and incident investigation | 58–61 | ||
| 403-3 Occupational health services | 58–61 | ||
| MANAGEMENT APPROACH | 403-4 Worker participation, consultation, and communication on occupational health and safety |
58–61 | |
| 403-5 Worker training on occupational health and safety | 58–61 | ||
| 403-6 Promotion of worker health | 58–61 | ||
| 403-7 Prevention and mitigation of occupational health and safety | 58–61 | ||
| impacts directly linked by business relationships | |||
| GRI 303: Water and effluents 2018 | |||
| 303-1 Interactions with water as a shared resource | 59–61, 123, 129, 132 | ||
| 303-2 Management of water discharge-related impacts | 59–61, 129 | ||
| GRI 205: Anti-corruption 2016 | |||
| 205-2 Communication and training about anti-corruption policies and procedures |
124 | Data per region and employee category not available as we follow up training on business area rather than region. Data on business partners not available. |
|
| GRI 301: Materials 2016 | |||
| 301-1 Materials used by weight or volume | 129 Data on packaging materials, reclaimed pro ducts and semi-manufactured metallic mate rials is not reported as focus in on metallic raw materials. |
||
| 301-2 Recycled input materials used | 129 | ||
| GRI 302: Energy 2016 | |||
| 302-1 Energy consumption within the organization | 123, 128 | ||
| 302-3 Energy intensity | 123, 128 | ||
| 302-4 Reduction of energy consumption | 123, 128 | ||
| GRI 303: Water and effluents 2018 | |||
| 303-3 Water withdrawal | 123, 129 | ||
| 303-4 Water discharge | 123, 129 | ||
| Own indicator Water intensity | 123, 129 | ||
| Own indicator Reduction of total water | 123, 129 | ||
| TOPIC SPECIFIC | GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions |
123, 128 | Not applicable. Sandvik has no significant stationary source resulting in biogenic GHG |
| emission. | |||
| 305-2 Energy indirect (Scope 2) GHG emissions | 123, 128 | ||
| 305-4 GHG emissions intensity | 123, 129 | ||
| 305-5 Reduction of GHG emissions | 123, 129 | ||
| TOPIC SPECIFIC | 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions |
123, 129 | POP, HAP and PM not available |
| GRI 306: Effluents and waste 2016 | |||
| 306-2 Waste by type and disposal method | 123, 129 | ||
| Own indicator Waste intensity | 123, 130 | ||
| Own indicator Reduction of total waste | 123, 130 | ||
| GRI 308: Supplier Environmental Assessment 2016 | |||
| 308-2 Negative environmental impacts in the supply chain and actions taken |
130 | ||
| GRI 401: Employment 2016 | |||
| 401-1 New employee hires and employee turnover | 126 | ||
| GRI 403: Occupational health and safety 2018 | |||
| 403-9 Work-related injuries | 123, 127 | ||
| 403-10 Work-related ill health | 123, 127 | ||
| GRI 405: Diversity and equal opportunity 2016 | |||
| 405-1 Diversity of governance bodies and employees | 126 | ||
| GRI 408: Child labor 2016 408-1 Operations and suppliers at significant risk for incidents |
130 | ||
| of child labor | |||
| GRI 409: Forced or compulsory labor 2016 409-1 Operations and suppliers at significant risk for incidents |
130 | ||
| of forced or compulsory labor |
GRI 414: Supplier Social Assessment
414-2 Negative social impacts in the supply chain and actions taken 130
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 significant events, reference is made to the Directors' Report.
The company's financial position at 31 December 2019 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 an unutilized revolving credit facility amounting to 9,000 million SEK, which means that the company should reasonably be able to meet unexpected events and temporary fluctuations in cash flows of reasonable proportions. The company's financial 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 justified 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 financial position in general.
Stockholm, 1 March 2020
Sandvik Aktiebolag (publ) BOARD OF DIRECTORS
The President and the Board of Directors propose that the profits at the disposal of the Annual General Meeting:
| profits carried forward and result for the year |
16,312,157,363 15,136,768,569 |
|---|---|
| SEK | 31,448,925,932 |
| be appropriated as follows: a dividend of 4.50 SEK per share |
|
| to the shareholders | 5,644,736,653 |
| profits carried forward | 25,804,189,279 |
SEK 31,448,925,932
The proposed record date for dividends is Thursday, 30 April 2020.
The income statements and the balance sheets of the Group and of the Parent Company are subject to the adoption by the Annual General Meeting on 28 April 2020.
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 financial statements have been prepared in accordance with the international financial 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 financial reporting standards. The Annual Report and the consolidated financial statements give a true and fair view of the Parent Company's and the Group's financial 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, financial position and results, and describes the significant risks and uncertainties facing the Parent Company and the companies included in the Group.
Stockholm, 1 March 2020
Johan Molin Jennifer Allerton Claes Boustedt Chairman Board member Board member
Marika Fredriksson Johan Karlström Tomas Kärnström
Board member Board member Board member
Thomas Lilja Helena Stjernholm Lars Westerberg Board member Board member Board member
Stefan Widing President and CEO
Our auditor's report was submitted on 6 March 2020 PricewaterhouseCoopers AB
Peter Nyllinge Authorized Public Accountant Lead Partner
Magnus Svensson Henryson Authorized Public Accountant
Unofficial translation
To the general meeting of the shareholders of Sandvik AB (publ), corporate identity number 556000-3468
We have audited the annual accounts and consolidated accounts of Sandvik AB (publ) for the year 2019. The annual accounts and consolidated accounts of the company are included on pages 38–122 and pages 135–136 in this document.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of parent company and the group as of 31 December 2019 and its financial performance and cash flow 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 financial position of the group as of 31 December 2019 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act.
A corporate governance statement has been prepared and is in agreement with the Annual Accounts Act. 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 general meeting of shareholders adopts the income statement and balance sheet for the parent company and the Group.
Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company's audit committee in accordance with the Audit Regulation (537/2014) Article 11.
We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
Sandvik performs its business via its subsidiaries in a large number of territories. Operationally, the business is organized in divisions that are aligned in the Group's three Business Areas. There are joint functions at various levels of the Group to support the operational activities of the divisions.
In order to tailor our overall audit approach, we have updated our understanding of how the Group's business is organized, about important systems and processes as well as the internal controls put in place to provide comfort to management and the directors of the precision of the financial reporting. For this purpose, we have held many interviews with management at various levels of the Group and heads of Group functions on the business and the Group strategy. We have also obtained and read management reports, policies, instructions as well as planning and governing documents. In addition, we have had a close dialogue with both Group Internal Audit and Group Internal Controls in order to share knowledge and coordinate activities when relevant.
With all of this as a starting point and for the purpose of expressing an opinion on the consolidated accounts as a whole, we decided that approximately 80 reporting units were the most important and should be in scope for the Group audit. Financial reporting from less significant units were covered through analytical procedures that were used to conclude whether extended audit procedures were necessary. Most subsidiaries of the Group are also subject to statutory audit requirements. The central team was responsible for the audit of significant IT systems, processes, transaction flows and functions including the consolidation and the parent company accounts. The local teams were responsible for auditing items related to the operations in each reporting unit that emanates from local production and sales activities.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality for the consolidated financial statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.
The Group manufactures and sells a number of products and services to its customers globally, mainly through its own distribution network. Sales contracts contain various performance obligations and other terms and the determination of when significant performance obligations have been met varies albeit a specific point in time can often be established.
The Group has analyzed its various sales contracts and concluded on the principles for deciding in which period or periods the Group's sales transactions should be recognized as revenue.
Disclosures in note 2 and the accounting policies provide additional information on how the Group accounts for its revenue.
The majority of Sandvik's intangible assets have been acquired externally, mostly through acquiring businesses, representing significant amounts. Assets with indefinite useful life such as goodwill are not subject to yearly depreciation. Instead, an annual test will show whether the carrying amount for the cash generating unit can still be supported. Sandvik has acquired and divested several businesses containing intangible assets during 2019.
There are a number of instances where management's judgment is decisive for the accounting treatment in connection with acquiring and divesting of businesses. Management's estimates of the intangible assets' potential to generate future cash flows and other assumptions are also decisive when preparing the annual impairment tests.
Note 12 contains additional information on the Group's intangible assets and the significant assumptions applied in the annual impairment tests.
Sandvik keep significant stock of raw materials, spare parts and work-in-progress at its production units and stores of finished goods mostly at its sales units and distribution centers. Measurement of inventory is important for a fair presentation of gross margin.
A due process is required to prepare accurate reporting of the acquisition cost when procurement, production and logistical processes are complex. Establishing product costing requires many instances of management judgment with effect on the reported values. This includes considering normal production levels, foreign currency, prices of raw materials and allocation of other direct and indirect costs. For finished goods, assessment is needed of obsolescence and how sellable the products are. Finally, there is a complexity in monitoring and measuring volumes particularly for some raw materials and work in progress as well as eliminating effects from intra group transactions.
The accounting policies include the Group's accounting principles for measuring inventory and note 17 provides additional information on the line item.
Our audit included but was not limited to the following activities: – Mapped and evaluated selected systems and processes for
Our audit included but was not limited to the following activities: – Assessed the model used by the Group for impairment testing and evaluated the significant assumptions for establishing fore-
casted cash flows and discount interest rates used for calculating the value-in-use of the cash generating units. In our evaluation, we have compared with the historic business performance and the Group's forecasts and strategic planning as well as with external data sources when possible and relevant.
– Evaluated that the purchase price allocations of the significant acquisitions made during the year meet the requirements of IFRS and have been prepared according to generally accepted practices. Assessed that significant assumptions used to measure values of acquired assets are reasonable.
– Tested that previously acquired intangible assets belonging to groups of assets held for sale or discontinued operations have been identified, measured correctly according to the Group accounting policy and derecognized from the balance sheet at the appropriate point in time.
Our audit included but was not limited to the following activities:
Accounting for sales of non-current assets and liabilities and presentation of discontinued operations contain several judgments that affects timing, presentation of the income statement and measurement of balance sheet items. These judgments may, as an example, have an effect on reported EBITDA for the continuing operations and other KPIs.
Divestments of businesses are complicated transactions that often run over an extended period of time from when a sales process is initiated until it has been finalized and agreed commitments have expired. Sandvik has completed several divestments that have been presented as discontinued operations during the last few years.
During Q4 2019 Sandvik reached an agreement to sell Varel Oil and Gas requiring an impairment test of the assets held for sale.
There is additional information in the income statement and in note 30 regarding non-current assets held for sale and discontinued operations.
Following a softer market activity in its short cycle businesses, Sandvik announced a program to increase efficiency and reduce cost in the Q2 Interim report. The program has been executed during the second half of the year. Both the costs for executing the efficiency measures and the expected reduction of cost for running the business going forward are significant.
An accurate reporting of an efficiency program involves management estimates on the timing and measurement of costs for reducing staff, exiting agreements and the other costs that the efficiency measures give rise to as well as the presentation of the effects on the business going forward.
The accounting policies include the Group's accounting principles for measuring restructuring costs and note 21 provides additional information on the line item.
This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–37 and 142–144. The Board of Directors and the Managing Director are responsible for this other information.
Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.
In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.
If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they 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 audit included but was not limited to the following activities:
Our audit included but was not limited to the following activities:
In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company's and the group's ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intend to liquidate the company, to cease operations, or has no realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Board of Director's responsibilities and tasks in general, among other things oversee the company's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.
A further description of our responsibility for the audit of the annual accounts and consolidated accounts is available on Revisorsinspektionen's website: www.revisorsinspektionen.se/revisornsansvar. This description is part of the auditor´s report.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Director's and the Managing Director of Sandvik AB (publ) for the year 2019 and the proposed appropriations of the company's profit or loss.
We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Director's and the Managing Director be discharged from liability for the financial year.
We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and the group's type of operations, size and risks place on the size of the parent company's and the group' equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company's organization and the administration of the company's affairs. This includes among other things continuous assessment of the company's and the group's financial situation and ensuring that
the company´s organization is designed so that the accounting, management of assets and the company's financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors' guidelines and instructions and among other matters take measures that are necessary to fulfill the company's accounting in accordance with law and handle the management of assets in a reassuring manner.
Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:
Our objective concerning the audit of the proposed appropriations of the company's profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company's profit or loss are not in accordance with the Companies Act.
A further description of our responsibility for the audit of the administration is available on Revisorsinspektionen's website: www.revisorsinspektionen.se/revisornsansvar. This description is part of the auditor's report.
PricewaterhouseCoopers AB, Torsgatan 21, 113 97 Stockholm, was appointed auditor of Sandvik AB (publ) by the general meeting of the shareholders on the 29 April 2019 and has been the company's auditor since the general meeting of the shareholders on 27 April 2018.
Stockholm 6 March 2020
PricewaterhouseCoopers AB
Peter Nyllinge Auditor-in-charge Authorized Public Accountant
Magnus Svensson Henryson Authorized Public Accountant
Auditor's Limited Assurance Report on the Sustainable Business Report and Statement on the Statutory Sustainability Report
We have been engaged by the Board of Directors and the Managing Director of Sandvik AB (publ) to undertake a limited assurance engagement of Sandvik's Sustainable Business Report for the year 2019. The company has defined the scope of the Sustainable Business Report and the Statutory Sustainability Report on page 124.
The Board of Directors and the Managing Director are responsible for the preparation of the Sustainable Business Report including the Statutory Sustainability Report, in accordance with the applicable criteria, and the Annual Accounts Act respectively. The criteria are defined on page 124, and consist of the GRI Sustainability Reporting Standards, as well as the accounting and calculation principles that Sandvik has developed. This responsibility also includes the internal control relevant to the preparation of a sustainability report that does not contain material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the Sustainable Business Report based on the limited assurance procedures we have performed, and to provide a statement on the Statutory Sustainability Report.
We conducted our limited assurance engagement in accordance with ISAE3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainable Business Report, and applying analytical and other limited assurance procedures.
We have conducted our review regarding the Statutory Sustainability Report in accordance with RevR 12, the Auditor's Opinion on the Statutory Sustainability Report, issued by FAR. A limited assurance engagement and a review according to RevR 12 have a different focus and a considerably smaller scope compared to the focus and scope of an audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.
The audit firm applies ISQC 1 (International Standard on Quality Control) and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We are independent in relation to Sandvik according to generally accepted auditing standards in Sweden, and have fulfilled our professional ethics responsibility according to these requirements.
The procedures performed in a limited assurance engagement and review according to RevR 12 do not allow us to obtain such assurance that we become aware of all significant matters that could have been identified if an audit was performed. The stated conclusion based on a limited assurance and review in accordance with RevR 12, therefore, does not have the level of assurance that a stated conclusion based on an audit has.
Our procedures are based on the criteria defined by the Board of Directors and the Managing Director as described above. We consider these criteria as suitable for the preparation of the Sustainable Business Report.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion below.
Based on the limited assurance procedures we have performed, nothing has come to our attention that causes us to believe that the Sustainable Business Report is not, in all material respects, prepared in accordance with the criteria defined by the Board of Directors and Managing Director.
A Statutory Sustainability Report has been prepared.
Stockholm, 6 March 2020
PricewaterhouseCoopers AB
Peter Nyllinge Authorized Public Accountant
Fredrik Ljungdahl Sustainability Expert Member of FAR
The Annual General Meeting will be held on Tuesday, 28 April 2020 at 3:00 p.m. at the Göransson Arena, Sätragatan 21, Sandviken, Sweden.
Shareholders who wish to participate in the Meeting must:
– be recorded in the share register maintained by Euroclear Sweden AB on Wednesday, 22 April 2020, and – notify the company of their participation in the Meeting not later than Wednesday, 22 April 2020.
Notice of participation in the Meeting shall be made on the company's website home.sandvik, by telephone +46 (0) 26-26 09 40 weekdays 9:00 a.m.–4:00 p.m. or by letter to Computershare AB, "Sandvik's AGM", Box 5267, SE-102 46 Stockholm, Sweden.
Shareholders whose shares are registered in the name of a nominee must temporarily have re-registered the shares in their own name at Euroclear Sweden AB on Wednesday, 22 April 2020 to be entitled to participate in the Meeting. Please note that this procedure also applies with respect to shares held on a bank's shareholder deposit account and certain investment savings accounts.
When giving notice, please state name, personal or corporate registration number, address and telephone number and the number of assistants, if any. If participation is by proxy, the proxy should be submitted to the address stated above in advance of the Meeting.
The President and the Board of Directors propose that the 2020 Annual General Meeting declare a dividend of 4.50 SEK per share.
The proposed record date is Thursday, 30 April 2020. If the proposal is adopted by the Annual General Meeting, it is expected that dividends will be paid on Wednesday, 6 May 2020. 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 this change to their bank in sufficient time prior to the record date.
The Annual Report is available at home.sandvik, where a printed copy can also be ordered.
Profit/loss for the year attributable to equity holders of the Parent Company divided by the average number of shares outstanding during the year.
Earnings before interest and taxes. Corresponds to operating profit.
Earnings before interest and taxes adjusted for items affecting comparability. Corresponds to adjusted operating profit.
Total equity in relation to total capital.
Interest-bearing current and non-current debts, including net pension liabilities, less cash and cash equivalents divided by total equity.
Revenues for the last quarter annualized divided by average total capital.
Total of inventories, trade receivables, account payables and other current non-interest-bearing receivables and liabilities, excluding tax assets and liabilities and provisions.
Average working capital for the last four quarters, divided by revenues in the last twelve months.
Operating profit/loss plus financial income, as a percentage of a four quarter average capital employed. Capital employed is defined as total capital less current noninterest bearing debt.
Consolidated net profit/loss for the year as a percentage of average total equity during the year.
Operating profit/loss plus financial income, as a percentage of four quarter average total capital.
Order intake for a period refers to the value of all orders received for immediate delivery and those orders for future delivery for which delivery dates and quantities have been confirmed. General sales agreements are included only when they have been finally agreed upon and confirmed. Service contracts are included in the order intake with the full binding contract amount upon signing.
Financial targets for the Sandvik Group; excluding discontinued operations and including Sandvik Materials Technology unless otherwise stated.
Target to be achieved through both organic and acquired growth.
Trough = lowest level through an economic cycle.
Total number of injuries per million worked hours.
Number of lost time injuries per million worked hours.
Items with a significant impact on Group or Business Area results from gains and losses on business disposals, restructuring and impairments costs.
Net debt to equity ratio, including discontinued operations
If you have any comments on our Annual Report, please contact Group Communications, +46 (0)8 456 11 00 or [email protected].
For comments or questions on sustainability-related information, please contact Sustainable Business, +46 (0)8 456 11 00 or [email protected].
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Revenue, MSEK | 82,654 | 94,084 | 98,529 | 87,328 | 88,821 | 90,822 | 84,430 | 93,906 | 100,924 | 103,533 |
| Change, % | +15 | +14 | +5 | –11 | +2 | +2 | –7 | +11 | +8 | +3 |
| of which organic, % | +17 | +20 | +5 | –7 | –2 | –6 | –6 | +10 | +11 | –1 |
| of which structural, % | +1 | 0 | 0 | 0 | +2 | 0 | 0 | 0 | –6 | –1 |
| of which currency, % | –2 | –5 | 0 | –5 | +2 | +8 | –1 | +1 | +2 | +4 |
| Operating profit/loss, MSEK | 11,029 | 10,148 | 13,490 | 8,638 | 10,120 | 6,062 | 9,657 | 18,011 | 18,103 | 13,182 |
| as % of revenue | 13 | 11 | 14 | 10 | 11 | 7 | 11 | 19 | 18 | 13 |
| Profit/loss after financial items, MSEK | 9,412 | 8,179 | 11,516 | 6,753 | 8,264 | 4,059 | 7,996 | 16,940 | 17,315 | 11,945 |
| as % of revenue | 11 | 9 | 12 | 8 | 9 | 4 | 9 | 18 | 17 | 12 |
| Consolidated net profit for the year, MSEK | 6,943 | 5,861 | 8,107 | 5,008 | 5,992 | 2,194 | 5,468 | 13,160 | 12,669 | 8,523 |
| Equity1⁾, MSEK | 33,813 | 31,264 | 32,536 | 33,610 | 36,672 | 34,060 | 39,290 | 48,722 | 58,163 | 61,858 |
| Equity ratio1⁾, % | 38 | 32 | 31 | 36 | 34 | 34 | 38 | 46 | 49 | 51 |
| , 3⁾, multiple Net debt/equity ratio2 |
0.7 | 0.7 | 0.8 | 0.9 | 1.0 | 1.0 | 0.7 | 0.3 | 0.2 | 0,2 |
| Rate of capital turnover2⁾, % | 92 | 100 | 97 | 89 | 89 | 86 | 83 | 90 | 89 | 85 |
| Cash and cash equivalents, MSEK | 4,783 | 5,592 | 13,829 | 5,076 | 6,327 | 6,376 | 8,818 | 12,724 | 18,089 | 16,987 |
| Return on total equity1⁾,% | 22.1 | 18.5 | 25.3 | 15.3 | 17.4 | 6.2 | 15.2 | 31.3 | 23.3 | 13.9 |
| Return on capital employed1⁾,% | 17.4 | 16.0 | 19.8 | 12.6 | 13.4 | 7.9 | 12.9 | 23.8 | 22.0 | 15.0 |
| Investments in non-current assets, MSEK | 3,378 | 4,994 | 4,820 | 4,185 | 4,703 | 4,161 | 3,691 | 3,578 | 3,984 | 4,147 |
| Total investments, MSEK | 4,493 | 5,332 | 4,859 | 4,674 | 7,537 | 4,168 | 3,722 | 3,578 | 8,615 | 6,018 |
| Cash flow from operations, MSEK | 12,149 | 7,764 | 11,892 | 5,133 | 9,515 | 11,952 | 12,032 | 14,286 | 14,914 | 17,654 |
| Cash flow, MSEK | –2,642 | 907 | 8,450 | –8,656 | 1,039 | 79 | 2,288 | 3,963 | 5,382 | –1,188 |
| Number of employees, 31 December | 47,064 | 50,030 | 48,742 | 47,338 | 47,318 | 45,808 | 43,732 | 43,024 | 41,705 | 40,246 |
1) As of 2011, comparative figures adjusted due to amended accounting principles.
2) As of 2011, comparative figures adjusted due to changed definition. For definitions see page 150.
3) As of 2012, net debt includes net pension liabilities.
(All historical figures are adjusted taking into account the 5:1 split).
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Basic earnings1⁾ | 5.59 | 4.63 | 6.51 | 4.00 | 4.79 | 1.79 | 4.39 | 10.50 | 10.11 | 6.81 |
| Diluted earnings2⁾ | 5.59 | 4.63 | 6.51 | 4.00 | 4.79 | 1.79 | 4.39 | 10.49 | 10.09 | 6.79 |
| Equity3⁾ | 27.5 | 25.2 | 25.9 | 26.7 | 29.1 | 27.1 | 31.2 | 38.8 | 46.4 | 49.3 |
| Dividend (2019 as proposed) | 3.00 | 3.25 | 3.50 | 3.50 | 3.50 | 2.50 | 2.75 | 3.50 | 4.25 | 4.50 |
| Direct return4⁾,% | 2.3 | 3.8 | 3.4 | 3.9 | 4.6 | 3.4 | 2.4 | 2.4 | 3.4 | 2.5 |
| Payout percentage5⁾,% | 54 | 70 | 54 | 88 | 73 | 140 | 63 | 33 | 42 | 66 |
| Quoted prices, Sandvik Share, highest | 133 | 135 | 107 | 108 | 97 | 107 | 116 | 153.9 | 165.3 | 190.4 |
| lowest | 76 | 73 | 82 | 79 | 74 | 68 | 65 | 113.5 | 123.1 | 122.7 |
| year-end | 131 | 84 | 103.50 | 90.70 | 76.40 | 74.05 | 112.70 | 143.7 | 126.4 | 182.7 |
| No. of shares at year-end, million | 1,186.3 | 1,186.3 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 |
| Average no. of shares, million | 1,186.3 | 1,186.3 | 1,245.9 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 | 1,254.4 |
| P/E ratio6⁾ | 23.5 | 18.2 | 15.9 | 22.7 | 15.9 | 41.4 | 25.7 | 137 | 12.5 | 26.9 |
| 7⁾ Quoted price, % of equity2, |
476 | 333 | 400 | 340 | 261 | 273 | 361 | 370 | 273 | 370 |
1) Profit/Loss for the year per share.
2) Profit/Loss for the year after dilution of outstanding convertible program.
3) As of 2011, comparative figures adjusted due to amended accounting principles. 4) Dividend by quoted price at year-end.
5) Dividend by basic earnings per share.
6) Market price of share at year-end in relation to earnings per share.
7) Market price of share at year-end, as a percentage of equity per share.
Supplementary definitions see page 150.
| Revenue | Operating profit and operating margin | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2017 2018 2019 |
2017 | 2018 | 2019 | ||||||
| MSEK | MSEK | MSEK | MSEK | % | MSEK | % | MSEK | % | |
| Sandvik Machining Solutions | 36,114 | 40,757 | 41,123 | 8,465 | 23 | 9,922 | 24 | 8,380 | 20 |
| Sandvik Mining and Rock Technology | 35,058 | 41,058 | 44,777 | 5,864 | 17 | 7,452 | 18 | 8,602 | 19 |
| Sandvik Materials Technology | 13,281 | 14,697 | 15,279 | 224 | 2 | 1,307 | 9 | 1,444 | 9 |
| Other Operations | 6,374 | 3,560 | 2,059 | 4,293 | 67 | 659 | 19 | –4,263 | N/M |
| Discontinued Operations | 3,078 | 852 | 295 | –62 | –2 | –552 | –65 | –204 | –69 |
For more key figures, please visit our investors page at home.sandvik
Design and production: Sandvik and Narva. Print: Elanders Sweden, 2020.
Photo: Jari Kivälä, Hans Nordlander, Karl Nordlund, Alexander Lindström, Sandvik.
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