Annual Report • Dec 31, 2011
Annual Report
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| Year in brief | 1 |
|---|---|
| This is Sandvik | 2 |
| Sandvik as of 2012 | 4 |
| Letter from the President and CEO | 6 |
| Business concept, goals and strategies | 8 |
| The Sandvik share | 11 |
| Report of the Directors | |
| Market conditions | 14 |
| Group summary review | 15 |
| Earnings, returns and financial position | 16 |
| Development in business areas | 18 |
| Research and development | 22 |
| Human Resources | 24 |
| Sustainable development | 26 |
| Risks and risk management | 27 |
| Financial risk management | 30 |
| Corporate Governance Report | 36 |
| Internal control of financial reporting | 42 |
| Consolidated financial statements | |
| Income statement Balance sheet |
45 46 |
| Changes in equity | 48 |
| Cash-flow statement | 49 |
| Parent Company financial statements | |
| Income statement | 51 |
| Balance sheet | 52 |
| Changes in equity | 54 |
| Cash-flow statement | 55 |
| Significant accounting policies Definitions |
56 |
| 67 | |
| Notes The Board's statement on |
68 |
| its dividend proposal | 96 |
| Proposed appropriation of profits | 97 |
| Audit report | 98 |
| Sustainability Report | 100 |
| Board of Directors and Auditors | 112 |
| Group Executive Management | |
| and Group functions | 114 |
| Annual Meeting, payment of dividend | 115 |
| Financial key figures | 116 |
| The formal annual report comprises the pages 14-97. | |
| Forthcoming information and reports |
| April 2012 |
|---|
| April 2012 |
| 27 April 2012 |
| 2 May 2012 |
| 19 July 2012 |
| 25 October 2012 |
| 28 January 2013 |
Financial information may be ordered from: Sandvik AB Group Communications SE-811 81 Sandviken Sweden Phone: +46 (0)26-26 00 00 (Switchboard) e-mail: [email protected] www.sandvik.com
A new strategic direction involving a comprehensive change program and a new Group Executive Management team was presented in the autumn 2011.
The new strategy will generate higher growth and profitability. The measures being implemented will ensure a more target-oriented Sandvik and strengthen all business areas.
Read more on page 5
Sandvik's invoiced sales amounted to 94,084 MSEK (82,654) and the Group's result after financial items totaled 8,179 MSEK (9,412).
Read more on page 15
In addition to information in the Annual Report, the Sandvik Group is presented in The Sandvik World, a publication distributed to shareholders in April 2012. On top of descriptions of operations, financial key figures, goals, business concept, strategy and more, The Sandvik World provides an in-depth look at a number of key areas. More information is provided at www.sandvik.com.
* At fixed exchange rates for comparable units.
| Key figures | ||||||
|---|---|---|---|---|---|---|
| MSEK | 2011 | 2010 | 2009 | 2008 | 2007 | Change 2011/2010, % |
| Order intake | 99,078 | 93,285 | 71,285 | 92,610 | 92,059 | +12* |
| Invoiced sales | 94,084 | 82,654 | 71,937 | 92,654 | 86,338 | +20* |
| Result after financial items | 8,179 | 9,412 | –3,472 | 10,577 | 12,997 | –13 |
| Earnings per share, SEK | 4.63 | 5.59 | –2.24 | 6.30 | 7.65 | –17 |
| Return on capital employed, % | 16.0 | 17.4 | –1.3 | 19.9 | 27.0 | — |
| Return on shareholders' equity, % | 17.3 | 22.1 | –7.9 | 24.8 | 34.4 | — |
| Cash flow from operations | 7,764 | 12,149 | 11,792 | 9,335 | 5,076 | –36 |
| Number of employees at 31 December | 50,030 | 47,064 | 44,355 | 50,028 | 47,123 | +6 |
* At fixed exchange rates for comparable units.
Sandvik is a high-technology engineering Group with advanced products and world-leading positions in selected areas. In 2011, the Group had about 50,000 employees and sales exceeding 94 billion SEK in more than 130 countries.
Sandvik's operations are based on unique expertise in materials technology and extensive insight into customer processes. This combination has provided world-leading positions in the following primary areas:
Sandvik is focused on sustained growth and establishing market-leading positions in selected niches. To create the basis for sustainable development, operations are divided into business areas whose responsibilities include research and development, production, marketing and sales of their particular products.
Sandvik Tooling focuses primarily on tools and tooling systems for metal cutting.
Products are sold under a number of international brands, such as Sandvik, Sandvik Coromant, Walter, Safety, Dormer, Diamond Innovations and Wolfram.
Advanced products manufactured in cemented carbide and other hard materials, such as synthetic diamond, cubic boron nitride, ceramics and highspeed steel. The focus is on increasing customer productivity by providing products, services and applications know-how.
Customers include companies in the general engineering, aerospace and automotive industries, oil and gas extraction sectors, as well as electronics and medical technology industries.
In 2011, the global market for metalcutting tools as well as wear parts and components in cemented carbide and other hard materials was estimated to total some 165 billion SEK. Given the turbulence in the market in recent years, some increased degree of uncertainty surrounds estimations of the market's size. The average annual long-term growth has been 4–5%.
Sandvik Mining and Construction is specialized in equipment, tools and service for the mining and construction industries.
The business area is active in three customer segments: Underground Mining, Surface Mining and Construction.
Equipment, tools, service and technical solutions for mineral exploration, mining and processing of rock and minerals in the mining and construction industries.
The business area provides an extensive product program for drilling and mechanical mining, as well as for loading and transport, crushing and sorting, demolition, recycling and handling of rock and minerals.
The products are deployed primarily in mines and in construction operations worldwide. The global market for 2011 was estimated to amount to about 265 billion SEK. Average, long-term annual growth for equipment, tools and spare parts is 4–6%, with a higher growth rate for services.
Sandvik Materials Technology specializes in high value-added products in advanced metallic and ceramic materials for the most demanding industries and fields of applications. Its cutting-edge expertise is based on an integrated production platform and world-leading metallurgy and R&D.
As of 1 january 2012, operations are divided into four product areas: Tube, Strip, Wire and Heating Technology and Primary Products.
High value-added products based on advanced stainless steels, special alloys and titanium. Furnace products, heating systems and resistance materials.
Customers are active in, for example, the energy, aerospace, automotive and chemical and petrochemical industries – industrial segments in which exacting demands are imposed on safety, productivity, cost efficiency and a long lifecycle.
In 2011, the world market was estimated at more than 150 billion SEK. The underlying average annual growth is 4–6%, while growth is normally higher in such areas as the energy segment.
*Adjusted for restructuring measures and impairment losses, the operating result amounted to about 1,000 MSEK.
A new strategic direction involving a comprehensive change program and a new Group Executive Management team was presented in autumn 2011. Three business areas became five with the aim of intensifying the focus on core operations and of establishing an organization with fewer matrixes and simpler control systems. The changes apply as of 2012. The new organization and strategy will have full effect in 2015.
As a result of the new strategy and organization, sandvik has reviewed the Group's financial goals. These goals are to be viewed in the context of the aim of enhancing value creation and being a world leader in certain segments, as well as an assessment of global growth and adequate financial security. The updated goals for the Group are as follows:
| Average annual growth | 8% |
|---|---|
| Return on capital employed | 25% |
| Net debt/equity ratio | <0.8 |
| Dividend payout percentage | 50% of earnings per share |
Olof Faxander, President and chief Executive Officer. Ola salmén, senior Executive vice President and chief Financial Officer.
Tomas nordahl, Executive vice President. Head of iT, sourcing and strategy.
Anna vikström Persson, Executive vice President. Head of Human Resources.
bo severin, Executive vice President. General counsel.
Jan Lissåker, Executive vice President. Head of Group communications.
Thomas schulz, President of sandvik construction.
Andreas Evertz, President of sandvik machining solutions.
Jonas Gustavsson, President of sandvik materials Technology.
Gary Hughes, President of sandvik mining.
Anders Thelin, President of sandvik venture.
An expanded Group Executive management has been established that also includes sandvik's country managers for china and india.
sandvik construction offers highperformance products, solutions and services in selected niches of the global construction industry. Areas include surface drilling and tunneling, mobile or stationary crushers and sorting as well as tools and spare parts.
invoiced sales: 9,249 msEk Operating margin: 4% number of employees: 3,900
sandvik machining solutions is the market leader in advanced, productivity-enhancing products and solutions for cutting primarily in metals. The operation is divided into four product areas and brands: sandvik coromant, seco Tools, walter and safety.
invoiced sales: 28,171 msEk Operating margin: 23% number of employees: 18,500
sandvik materials Technology is specialized in high value-added products in advanced metallic and ceramic materials for demanding industries and fields of applications. its cutting-edge expertise is based on an integrated production platform and world-leading metallurgy and R&d. Product areas are Tube, strip, wire and Heating Technology and Primary Products.
invoiced sales: 16,339 msEk Operating margin: 4% number of employees: 8,200
sandvik mining specializes in highperformance products, solutions and service for surface and underground mining. The business area offers the market's most comprehensive product program for drilling, mechanical cutting, loading and transport, crushing, screening, tools and spare parts.
invoiced sales: 32,232 msEk Operating margin: 17% number of employees: 13,300
sandvik venture is a business area that creates opportunities for growth and profitability in small, attractive and fast-growing businesses as well as for smaller operations of major strategic value to other parts of sandvik. Operations are conducted in the following product areas: sandvik Hard materials, diamond innovations, wolfram, sandvik Process systems, dormer and sandvik medTech.
invoiced sales: 8,056 msEk Operating margin: 17% number of employees: 4,100 The information in these summaries is pro forma for the full-year 2011. Figures for seco Tools are consolidated in the sandvik machining solutions business area. The operating margin is adjusted for impairments and restructuring measures. intra-Group invoicing was not taken into account in the accompanying figures.
A generally favorable business climate and intensive efforts to introduce a new strategy and shape a new organization; this is how I would summarize 2011 for Sandvik. The Group is well prepared to meet the various scenarios in the world economy that may arise over the coming years.
"An important intermediate goal of the new strategy has been to reduce Sandvik's sensitivity to sudden changes in the economic climate."
In 2011, we experienced several historical events. Japan was hit by an earthquake with tragic consequences for many people.Back inEurope,sovereign debt grew intoacrisis in theEurozone with major political implications that will impact industrial activity for some time to come. Awave of democracy sweptthroughthe Arab world, the consequences of which are still unclear.
ForSandvik, it was mainly the events in Japan that were of direct significance in 2011, resulting inaheightened sense of uncertainty as to the future of the nuclear power industry. As yet, we donotknow what the long-term effects will be.
In general, thebusinessclimate was favorable for Sandvik, with continued strongrecovery following the dramatic decline in conjunction with the financial crisis. The order status was healthy in most operations, we completed important acquisitions and establishments in the Chinese mining industry and we are working on the integration of Seco Tools asawhollyowned subsidiary, thereby consolidatingourcorebusinessin metal cutting and generating valuable synergies.
In 2011, Sandvik'sinvoiced sales amounted to 94,084MSEK(82,654) and the result after financial items was 8,179MSEK (9,412).Earnings were charged with 3.3 billionSEKin restructuringcosts.
WhenItook over as President in February 2011,Iinitiatedachangeprocess. The ambition is to make Sandvik more
fast-paced, international and customerfocused. The strategy emphasizes the importance of cooperation between all parts of the company to enable theGroup to achieve its full potential. We must create greater synergies between IT solutions, HR issues, logistics and, perhaps above all, research and development. At the same time, we are making the organization simpler and flatter, ensuring that decisions are made closer to the reality that prevails in the various markets.
In response to global competition and to better reflect the regions in which we are established, the management team has become more international. For the first time in Sandvik's history, the Group now has members in its Group Executive Management from countries other than Sweden.
The aim of the new strategy is to generate increased growth and profitability. The actions being implemented will ensure that we are more focused and will strengthen all business areas. Sandvik Mining and Sandvik Machining Solutions are highly profitable areas. By increasing synergies andthroughgreater market adaptation, they can become even stronger. For Sandvik MaterialsTechnologyand Sandvik Construction, we have created specific plansdetailing how we intend to raise profitability. Sandvik Venture isabusiness area that givesanumber ofoperations theopportunityto develop into strongunits that could play an important rolein Sandvik's future.
Sandvik isastrong Group. But while the outlook is ultimately favorable, with continued strong demand for Sandvik's products and services, there areanumber of elements of uncertainty and question marks concerning economic development. An important intermediate goal of the new strategy has been to reduce Sandvik's sensitivity to sudden changes in the economic climate. We have therefore prepared contingency plans foranumber of different scenarios.
Increased market orientation is another way of addressingeconomicturbulence. The ability toputyour ear to theground and listen to the different local conditions will beadecisive success factor allowing us to make the rightchoiceat the right time.Iam convinced that the companies that are the most adaptable are also the most successful. Sandvik has proven this throughoutits history and we intend to continue along this path.
Part of Sandvik's new strategic direction involves buildingasustainablebusiness concept, whichnotonly includes financial responsibility,butalso environmental and social responsibility. This requires that we integrate sustainable development into our corporate culture. To achieve success with our business concept, we have identified four key areas froma sustainability perspective for which we have particularly high ambitions.For employees, the most important aspect is the creation ofasafe and secure work environment.Forthe environment, the focus is oneconomizingon resources, minimizing emissions and assistingour customers in their efforts to reduce their environmentalimpact. For our suppliers, the task is to create solid evaluation processes to ensure compliance with ourCode of Conduct, with respect to businessethics, we must do everything inourpower to prevent corruption.
To achieve our goals, it is of vital importance that Sandvik is an attractive employer. We must have the ability to attract the best talent while also offering asafe and healthy workplace forthose working in production. We do this by taking these issues very seriously,from goal-orientedemployer branding among university students toanumber of specific health and safetyprogramsforour 50,000 employees.
It is vital that we, as an employer, focus on talent and ability so that such factors as ethnic backgroundor gender donot influence recruitment.
In 2011,Ivisited many of Sandvik'soperations across the globe and metalarge number of employees and customers. The feeling thatItook awayfromthese visits was that Sandvik really makesadifference. We contribute to developing society and to making companies moreprofitable.Sandvik plays an important part in the global progression towardabetter and more sustainable world.
"The ambition is to make Sandvik more fast-paced, international and customer -focused."
Among the workforce, it is my perception that there is great pride in beinga Sandvik employee.Ishare this pride and would like to take thisopportunityto thank all employees for their hard work. 2011 was an intensive year containing both reasons to celebrate andtoughchallenges as we jointly advanced the positions of one of the world's mostreputable companies. We have made considerable progressand it is with great confidence thatIlook to the future.
TheGroup'sanniversary will be the highlight of 2012.For150 years, Sandvik has operated and developed successfully by beingopento change and seeing new opportunitiesin trends and newtechnology. Fromourstrongposition asaworldleading engineering Group, we are moving forward with our task of making Sandvik an even more attractive company for customers, employees and shareholders.
Olof Faxander, February 2012 President and CEO
The core of Sandvik's business is to offer products, services and support that improve customer productivity and profitability. The Group takes a global perspective and has an advanced holistic approach encompassing financial, environmental and social responsibility.
Founded in 1862, Sandvik isaworld-leading company in the engineering industry. From the very beginning, the company has distinguished itself through high-technology development, withafocus on metallurgy and materials technology. Throughout the years, the direction of the company has varied depending on historical technology shifts and the needs of the industry and society at various junctures.
Sandvik manufactures advanced engineering tools, mining and construction
equipment and products in high-alloy materials.
Sandvikholds,or has the potential to establish, world-leading positions in all of the market segments it serves.
Sandvik'sbusinessconcept is to develop, manufacture and market high-techproducts and services that facilitate higher customer productivity and profitability.
Sandvik's long-term strategy is based on creating interaction between the Group'sstrengths, such as advanced and broad-based R&D, high value-added products,ahigh share ofin-housemanufacturing, efficient logistics systems, financial strength,awell-established approachto sustainability andastrong corporate culture. Assuming an active rolein addressing sustainability issues also characterizes cooperation with customers andsuppliers.
• Open mind • Fair Play • Team spirit
• stronger mandate to pursue Group-wide issues.
• more distinct business focus.
• stronger mandate to leverage synergies locally, for example, by using sandvik's brand as an employer and achieving cost advantages.
Acquisitions that both strengthen the Group'sprincipal direction and streamline the existing operations are paths that are reviewed continuously.
Sandvik hasanumber of customer-oriented, financial, social and environmental objectives. Management by objectives is pursuedinadecentralized manner and contains bothshortand long-term goals. The objectives are broken down intoa number of targets that are adapted to the various levels in the organization. Read more about the objectives of theGroup's sustainability work on pages 100–111 or at www.sandvik.com.
The overall financialgoalis based on the Group'sworld-leading positions in the various areas of activities. The long-term goalfor Sandvik's organic growth is 8%.
The goal for return on capital employed is 25% for the Group asawhole.
To ensure that Sandvik retains its marketleadingpositionsin its product markets, anew strategy and organization has been initiated. The strategy is summarized in the motto "One Sandvik to be Number One." The initial steps were taken in 2011 with the program to yield full effect in 2015.
The strategy isrootedin theGroup's corporate culture and clearly specifies the decisive success factors and the various choicesrelating to how the strategy can be best implemented at all levels,from GroupExecutive Management to local initiatives.
The Group's long-term objective is to create value for its shareholders. Sandvik has achieved an average of about 9% annual sales growth over the past 20 years–just over half of which through organic growth and just under half through acquisitions.
Comprehensive and goal-oriented research and development isaprerequisite for growth. Each year, Sandvik invests approximately3billion SEK in R&D. More than 2,700 employees work in the area and activities are often pursued in close cooperation with customers. TheGrouphas some 5,500 active patents and other intellectual property rights that are owned and managed byaseparate company to maximize value creation.
Efficient inventory management and advanced logistics enhance the reliability of supplies and ensure first-rate customer service. Sandvik's distribution system is based onasmall number of sizable and strategically sited warehouses in the largest market areas. This means that the Group can ensure rapid deliveries and maintainabroad product offering.
| Organic growth | +8% + acquisitions |
|---|---|
| Return on capital employed | 25% for existing operations |
| Net debt/equity ratio | 0.7–1.0 |
| Payout ratio as a percentage of earnings per share | ≥50% |
*For financial goals as of 2012, refer to page 4.
| Business areas | Organic growth | Return on capital employed** |
|---|---|---|
| Sandvik Tooling | +7% | 30% |
| Sandvik Mining and Construction | +9% | 25% |
| Sandvik Materials Technology | +8% | 20% |
Sandvik's production organization is integrated with R&D activities and maintains world-class efficiency. This creates favorable potential for the continuous and rapid launch of products, which represents a major competitive advantage for the Group.
Effective and transparent corporate governance builds trust among Sandvik's various stakeholders and creates a distinct focus on customer and shareholder value. Corporate governance clearly defines the roles and responsibilities of shareholders, the Board of Directors and Group Executive Management. It also encompasses the Group's control and management systems.
Sustainable development is assigned priority at Sandvik. The Group's focus on enhancing efficiency in customer operations contributes to sustainable development, since it means that a growing number of companies endeavor or are given the opportunity to effectively utilize their resources. Sandvik aims to maintain a high level of business ethics and be a good global corporate citizen.
The Group's Code of Conduct includes guidelines for the environment, health, safety and social responsibility. Management by objectives and preventive programs are important foundation pillars in efforts to achieve continuous improvements. The Code of Conduct applies to all units and employees and includes rules and guidelines for record keeping and
accounting, business ethics, working conditions, and environmental and social commitments. The Code of Conduct forms the basis for Sandvik's management system and helps to continuously improve the Group's financial, environmental and social performance. Each manager in the Group is responsible for ensuring compliance with the Code.
At the same time as Sandvik's sustainability work generates positive leverage for customers and the external environment, it is also important that Sandvik's suppliers share its values. Sandvik has thus prepared a Code of Conduct for its suppliers.
Read more about the Group's sustainability work on pages 100–111 or at www.sandvik.com.
Sandvik endeavors to generate an attractive return and value growth for investors in the Sandvik share. Communication with players in the financial market in 2011 mostly related to Sandvik's new business strategy and how the general economy is impacting the Group.
Sandvik's share price declined 36%, while the OMXS-index on NASDAQ OMXStockholmdropped17%. At yearend 2011, the Sandvik share was quoted at 84.45 SEK.
TheGroup'smarket capitalization declined 56 billion SEK during the year to 100 billion SEK (156), ranking Sandvik as the 9th (7) largest company on NASDAQ OMX Stockholm. During 2011, Sandvik shares were traded foratotal value of 146 billion SEK (147), making it the 6th (6) most actively traded share.
The term "total shareholder return" shows the real development ofastock investment and consists of the change in share price, including reinvested dividends. During 2011, the total shareholder return for the Sandvik share was –34%. In the past fiveyear period, the total shareholder return
has averaged –1% annually. This was one of the reasons behind the formulation and launch of the new strategy in September 2011, which aims to enhance value generation through an increased and clearer focus on core operations.
Sandvik'sgoalis to ensure that the value of the company's share is always assessed on the basis of relevant, correct and current information. Realization of this goal requiresaclear strategy for financial communication, creating confidence in information and regular contacts with the various stakeholders in the financial markets.
Aside from daily communication, focused contacts with the financial markets are carried out in the form of presentations in conjunction with interim reports and meetings with analysts, investors and journalists on capital market days, conferences andseminars,as well as visits to
various Sandvik sites. The communication is coordinated by Sandvik's Investor Relations (IR) Group staff function.
The need for financial communication increases in times of particular turbulence in the global economy. While Sandvik's vertically integratedbusinessmodel has proven highly successful over the years, it has also shown to be vulnerable to financial fluctuations. In such times, IR invests considerable time and effort into explaining Sandvik's business model, strategy and how the company can be affected in the event of various scenarios.
In 2011,alarge number of meetings were arrangedthroughoutthe world to give Sandvik's various stakeholders in the financial markets theopportunityto have personal contact and to receive responses to questions about theGroup'sbusiness and future. The most prominent questions related to how theGroup'snew strategy
sandvik is a high-technology and global engineering Group whose offering includes products, services and support that improve customer productivity and profitability. Over the years, the direction of the company has varied depending on historical technology shifts and the needs of the industry and society at various junctures. The Group invests significantly in research and development. sandvik holds – or has the potential to establish – world-leading positions in all of the market segments in which it operates. A holistic approach and a proactive role in addressing such issues as the environment, health and safety characterizes the Group, as does close cooperation with customers and suppliers.
Anders Eriksson, capital goods analyst at SEB Enskilda. What is your assessment of the outlook for the markets served by Sandvik?
"we believe that sandvik has an attractive product portfolio and is well positioned to capitalize on the global growth in the long perspective. interesting niches where sandvik is strong include the mining industry, oil/gas/petrochemical and steam generator tubes for nuclear power."
"communication is frequent, timely and reliable, and management is visible to institutional shareholders. The annual capital markets day offers detailed insight into the divisions as well as the opportunity to interact with the presidents of the business areas. This is especially useful."
and organization are intended to improve Sandvik and thus increase value creation, how the economy affects Sandvik and in what ways theGroupis better equipped today to deal withapossible economic decline.
Sandvik's share is listed on NASDAQ OMXStockholmand is one of the stock exchange's oldest companies, withalisting dating back to 1901. The Sandvik share can be traded in the US also in the form of American Depositary Receipts (ADR).
In 2011, the number ofshareholdersrose toatotal of about 113,000 (112,000). Sandvik has shareholders in more than 90 countries.
At 31 December 2011, members of Sandvik'sGroupExecutive Management
| 2 February | board of directors of sandvik Ab propose introduction of long-term incentive program. |
|---|---|
| 2 February | Report on the fourth quarter 2010. |
| 28 February | sandvik concludes major agreement for delivery of cladding tubes to westinghouse. |
| 1 march | sandvik Ab nomination committee's proposal to the 2011 AGm regarding the composition of the board. |
| 24 march | notification of 2011 AGm. |
| 4 April | new President of sandvik materials Technology. |
| 5 April | sandvik Ab's 2010 Annual Report. |
| 29 April | sandvik and chinese mining equipment supplier form joint venture. |
| 3 may | sandvik's 2011 Annual General meeting. |
| 3 may | Report on the first quarter 2011. |
| 3 may | sandvik mining and construction signs project order in Latin America. |
| 19 July | Report on the second quarter 2011. |
| 2 september | new sandvik Group Executive management from 2012. |
| 2 september | sandvik sets a new strategic direction to strengthen market leadership. |
| 12 september nomination committee for Annual General meeting on 2 may 2012. | |
| 13 september | sandvik materials Technology launches comprehensive improvement program. |
| 27 september sandvik mining and construction signs major project order in Australia. | |
| 11 October | sandvik completes acquisition of sHAnbAO, chinese supplier of crushing and screening equipment. |
| 17 October | sandvik completes establishment of a coal mining equipment joint venture in china. |
| 1 november | sandvik reduces workforce in sweden. |
| 1 november | Report on the third quarter 2011. |
| 7 november | sandvik announces a recommended public offer to the minority shareholders of seco Tools. |
| 9 november | Extraordinary General meeting of sandvik Aktiebolag. |
| 28 november sandvik publishes offer document. | |
| 30 november new vice President Group communications at sandvik Ab. | |
| 12 december | sandvik holds Extraordinary General meeting. |
ownedatotal of 99,496 shares in Sandvik. Members of the Board of Sandvik owned atotal of 6,091,711 shares in Sandvik, corresponding to 0.5% of the capital and voting rights.
Sandvik endeavors to generate an attractive return and value growth for investors in the Sandvik share. Thegoalis that the dividend will amount to 50% of earnings per share.
The Board has decided toproposea dividend of 3.25 SEK (3.00) per share for 2011 to the 2012 Annual General Meeting, corresponding toapproximately4.1 billion SEK andadividend yield of 3.8% based on the share price at year-end. Over the past five years, Sandvik's dividend has averaged 2.88 SEK per year. During the same period, an average of approximately66% of earnings per share has been distributed to theshareholders.
Sandvik is included in such indexes as the Dow Jones Sustainability World Index (DJSI World) and the Dow Jones SustainabilityEuropeIndex (DJSIEurope). Qualification for DJSI World requires being ranked among thetop10% of companies in terms of three factors: financial success, environmental performance and social responsibility.
Sandvik is also included in FTSE-4Good Series; another international index for global companies that assume social responsibility.
At www.sandvik.com/ir you will find further information about the Sandvik share and IR activities.
** Administrates shares held in trust.
The Board of Directors and President of Sandvik AB (publ) hereby submit the report for the Company's and Group's operations in 2011.
For Sandvik, 2011 was characterized by a generally favorable business situation, with the strong recovery continuing following the sharp downturn in conjunction with the financial crisis. The order intake was healthy in most operations. The mining market and particularly the aftermarket continued to display a strong trend featuring high levels of demand and investment activities. Viewed in terms of geographical growth, Australia and North America displayed the strongest performance.
Industrialoutputin the OECD countries increased 3% compared with 2010. The manufacturing industry in the EU demonstratedapositive trend androse5% while the manufacturing industry in Russiarose 7%. In the US, the manufacturing industry continued to displaya positive trendrising5% compared with the preceding year. Brazil's manufacturing industry grew only 0.3%, whereas the increase in Mexico's industrial production was 5%. Growth during the year remained favorable in parts ofAsia.Industrial production in China and India rose by 14% and 5%, respectively, while the trend in Japan was negative, down 4% compared with 2010.
The performance of key customer segments, such as the automotive, engineering and aerospace industries, was stable in North America andEuropeduring the year. Demand in Asia and South America declined slightly due to weaker trend in the automotive industry and lower investment levels in China.
The mining market and particularly the aftermarket continued to displaya strongtrend featuring high levels of demand and investment activities, particularly in Asia and emerging markets.A certain degree of elevated hesitation was notedamong customers at the end of the year regardingplacinglarge equipment
orders when metal prices fell slightly during thefourthquarter.
Demand for niche products from Sandvik Materials Technology continued to perform well,althoughdemand for consumerrelated and certain standard products remained weak. Total demand in the oil and gas segment remainedrobust,despite the global growth in demand for oil showing signs ofaslight downturn toward the end of the year. The solar energy segment remained weak. Demand from the nuclear power industry was uncertain following the accident at Fukushima.
Developments in the respectivebusiness areas are described in more detail on pages 18–21.
| MSEK | 2011 | Share, % | 2010 | Change, % | Change, %* |
|---|---|---|---|---|---|
| Europe | 35,953 | 36 | 32,916 | +9 | +15 |
| NAFTA | 17,238 | 17 | 14,899 | +16 | +24 |
| South America | 8,141 | 8 | 8,811 | –8 | –2 |
| Africa, Middle East | 9,379 | 10 | 9,446 | –1 | +8 |
| Asia | 17,967 | 18 | 18,011 | 0 | +6 |
| Australia | 10,400 | 11 | 9,202 | +13 | +12 |
| Group total | 99,078 | 100 | 93,285 | +6 | +12 |
* Change compared with the preceding year at fixed exchange rates for comparable units.
| Group total | 94,084 | 100 | 82,654 | +14 | +20 |
|---|---|---|---|---|---|
| Australia | 9,128 | 10 | 8,049 | +13 | +12 |
| Asia | 16,332 | 17 | 15,153 | +8 | +14 |
| Africa, Middle East | 9,677 | 10 | 8,253 | +17 | +28 |
| South America | 7,633 | 8 | 6,154 | +24 | +32 |
| NAFTA | 15,593 | 17 | 13,741 | +13 | +22 |
| Europe | 35,721 | 38 | 31,304 | +14 | +20 |
| MSEK | 2011 | Share, % | 2010 | Change, % | Change, %* |
* Change compared with the preceding year at fixed exchange rates for comparable units.
Order intake amounted to 99,078 MSEK (93,285), up 6% in value and up 12% at fixed exchange rates for comparable units. The Sandvik Group's invoiced sales reached 94,084 MSEK (82,654), up 14% in value and up 20% at fixed exchange rates for comparable units.
Markets outside Sweden accounted for 96% (95) of invoiced sales. The consolidated result after financial income and expenses totaled 8,179 MSEK (9,412). Earnings per share amounted to 4.63 SEK (5.59). Return on capital employed was 16.0% (17.4). The Board of Directors proposesadividend of 3.25 SEK per share (3.00), corresponding to an increase of 8%fromayear earlier.
We experienced several historic events in 2011. Primarily the earthquake and subsequent nuclear accident in Japan was of major direct significance for Sandvik and resulted in heightened uncertainty in the nuclear power industry. The long-term consequences arenotyet known. Generally, thebusinesssituation was favorable for Sandvik with continued strong recovery following the sharpdownturnin connection with the financial crisis, and the order intake was healthy in most operations.
Sandvik isastrongGroupand theoutlook is positive for 2012 and beyond, with continued high demand for Sandvik's products and services. However, much uncertainty remains regarding the economicclimate.Akey sub-target of the new strategy is to make Sandvik less sensitive to sudden changes in demand levels, which will prepare us foraseries of different turns of events.
Sandvik's financialgoalsare based on assessments of the company's strength and of how it is positioned for the future. TheGroup'sgoalsandgoalfulfillment are presented in the table below.
The outcome since 2002 corresponds to an average annual organic growth of 6% andareturnoncapital employed of 18%. In addition, the annual growthfrom acquisitions, net of divestments, has averaged 2%. The financial crisis in autumn 2008 and the subsequent recession hada significant negative impact on average growth and return. In 2011, organic growth was 20% and the return on capital employed was 16%. At the end of 2011, the net debt/equity ratio was 0.8.
| Goals and goal fulfillment | |||
|---|---|---|---|
| sandvik Group | Goals up to and including 2011 | Outcome 2011 | 2002–2011 |
| Organic growth, % | 8 | 20 | 6 |
| Return on capital employed, % | 25* | 16 | 18 |
| Net debt/equity ratio, times | 0.7–1.0 | 0.8 | — |
| Payout ratio, % of earnings per share | ≥50 | 70 | 63 |
| sandvik Tooling | |||
| Organic growth, % | 7 | 21 | 5 |
| Return on capital employed, % | 30* | 28 | 24 |
| sandvik mining and construction | |||
| Organic growth, % | 9 | 25 | 11 |
| Return on capital employed, % | 25* | 27 | 22 |
| sandvik materials Technology | |||
| Organic growth, % | 8 | 9 | 5 |
| Return on capital employed, % | 20* | –10 | 7 |
* Relates to existing operations.
The operating result for 2011 amounted to 10,148 MSEK (11,029),butcompared with 2010 was charged with slightly more than 3,300 MSEK due to restructuring measures and impairments and slightly more than 200 MSEK due to movements in metal prices.
The operating margin was 10.8% (13.3) of invoiced sales. Changes in foreign exchange rates compared with 2010 negatively affected the result by about 1,400 MSEK compared to last year. Net financial items amounted to –1,969 MSEK (–1,617). The weakening in net financial items compared with the preceding year was mainly due toahigher average indebtedness and currency effects. The result after financial income and expenses was 8,179 MSEK (9,412). Income tax hadanegative impact of –2,318 MSEK (–2,469) on the result or 28% (26) of the result before taxes. The result for the year attributable to equityholdersof the Parent Company was 5,498 MSEK (6,634). Earnings per share amounted to 4.63 SEK (5.59). Return on capital employed was 16.0% (17.4) and return on equity was 17.3% (22.1).
Cash flowfromoperating activities amounted to 7,764 MSEK (12,149). Cash flow after investments, acquisitions and divestments was 2,584 MSEK (7,769). At the end of the year, cash and cash equivalents amounted to 5,592 MSEK (4,783). Interest-bearing liabilities, including net provisions for pensions, less cash and cash equivalents yieldedanet debt of 25,908 MSEK (23,200). Sandvik hada credit facility of 500 MEUR expiring in 2012 and another facility of 1,000 MEUR expiring in 2013. These facilities, which were theGroup'sprimary liquidity reserve, were unutilized at the end of the year. At the beginning of 2012, these were replaced by two new facilities of 650 MEUR and 5,000 MSEK, respectively, which were also unutilized. Under the Swedish bond program of 15,000 MSEK, bonds corresponding to the nominal amount of 10,115 MSEK wereoutstanding at year-end. Under the European bond program of 3,000 MEUR, the nominal amount of 590 MEUR was utilized. In addition, there were bonds issued in the US foranominal amount of 740 MUSD. The remaining maturity of bonds averaged 4.8 years for Swedish bonds, 2.2 years forEuropeanbonds and 8.0 years for US bonds. At year-end, the international credit-ratingagencyStandard& Poor's hadarating of BBB+ for Sandvik's long-term borrowings, and A-2 for shortterm borrowings.
Working capital at the end of the year amounted to 25,626 MSEK (21,139). Relative working capital during the fourthquarter of 2011 was 26% (22) of invoiced sales. The carrying amount of inventories at the end of the year was 26,077 MSEK (21,420). Capital tied up in inventory was 26% (23) of invoiced sales. At year-end, trade receivables totaled 14,563 MSEK (12,738), which was 14% (13) of invoiced sales.
Equity at year-end amounted to 33,891 MSEK (33,813), or 27.40 SEK (27.50) per share. The equity ratio was 34% (38).
Thepurchaseconsideration for company acquisitions during the year (less acquired
| Capital expenditure | 2011 | 2010 | |
|---|---|---|---|
| Investments in property, plant and equipment, MSEK | 4,994 | 3,378 | |
| as a % of invoiced sales | 5.3 | 4.1 |
| Results and returns | 2011 | 2010 |
|---|---|---|
| Operating result, MSEK | 10,148 | 11,029 |
| as a % of invoiced sales | 10.8 | 13.3 |
| Result after financial income and expenses, MSEK | 8,179 | 9,412 |
| as a % of invoiced sales | 8.7 | 11.4 |
| Return on capital employed, % | 16.0 | 17.4 |
| Return on equity, % | 17.3 | 22.1 |
| Basic earnings per share, SEK | 4.63 | 5.59 |
| Diluted earnings per share, SEK | 4.63 | 5.59 |
Definitions, page 67.
cash) was 338 MSEK (1,216).Proceeds fromthe sale of companies and shares amounted to0MSEK (0). Investments in internally generated intangible assets amounted to 457 MSEK (397). Investments inproperty,plant and equipment amounted to 4,994 MSEK (3,378).
On7November 2011, Sandvik AB announcedarecommendedpublicoffer to acquire all remaining shares in its subsidiary Seco Tools AB, one of the world's largest manufacturers of innovative metal-cutting tools.Foreach classB share in Seco Tools, Sandvik offered 1.2 shares in Sandvik. The offer was part of Sandvik's strategy to continue to strengthen its world-leading position within the newbusinessarea Sandvik Machining Solutions. The Extraordinary General Meeting held on 12 December 2011 authorized the Board of Directors to issue new shares in Sandvik AB as consideration to theshareholdersin Seco Toolswhoaccepted the offer. With the support of this mandate, Sandvik's Board decided, on two occasions in January 2012, to issueatotal of 68,098,748 new shares corresponding toamarket value of approximately7billion SEK.
Following expiry of the final acceptance period, Sandvik with subsidiaries held 99.4% of the shares and 99.8% of the votes in Seco Tools. Sandvik initiatedacompulsory acquisition procedure to acquire all of the outstanding shares in Seco Tools.
Sandvik is the Parent Company of Seco Tools and thus already consolidates the company in its consolidated accounts. Consequently, the impact of the offer on Sandvik's earnings and financial position is primarily limited to the share of the result for the period and equity attributabletonon-controllinginterests being eliminated and replaced by equity attributable to equityholdersof the Parent. Furthermore, Sandvik will have access to 100% of Seco Tool's cash flow.
The Parent Company's invoicing for 2011 amounted to 17,460 MSEK (17,668) and the operating result was –2,754 MSEK (107). During the year, the operating result was impacted by impairedproperty, plant and machinery, negative effects of metal prices and nonrecurring items. Income from shares in Group compa-
nies consists primarily of dividends and
Group contributions from these and amounted to 2,815 MSEK (5,336). Interest-bearing liabilities, less cash and cash equivalents and interest-bearing assets, amounted to 16,990 MSEK (10,554). The Parent Company's indebtedness and equity were impacted in the amount of approximately 1.4 billion SEK during the year from signing share swapagreementsfor safeguarding the decided share-based incentive program. The liability will be reserved in conjunction with the redemption of future share options.
Investments in property, plant and machinery amounted to 1,421 MSEK (946).
The Parent Company's total assets decreased 1,070 MSEK (from 46,311 MSEK to 45,241 MSEK) partly attributable to repayments of matured loans.
In 2011, the Parent Company received dividends totaling 1,701 MSEK, of which 1,426 MSEKfromSandvik Mining and Construction Logistics Limited.
The number of employees in the Parent Company and the subsidiaries operating on commission for Sandvik AB at 31 December 2011 was 8,514 (8,025).
| MSEK | Invoiced sales | Result after financial items |
Net margin, % | |
|---|---|---|---|---|
| 2010 | 1:st quarter | 18,534 | 1,502 | 8 |
| 2:nd quarter | 20,603 | 3,037 | 15 | |
| 3:rd quarter | 20,241 | 2,120 | 10 | |
| 4:th quarter | 23,276 | 2,754 | 12 | |
| 2011 | 1:st quarter | 22,030 | 2,855 | 13 |
| 2:nd quarter | 23,421 | 3,073 | 13 | |
| 3:rd quarter | 23,528 | 1,110 | 5 | |
| 4:th quarter | 25,104 | 1,140 | 5 |
| Financial position | 2011 | 2010 |
|---|---|---|
| Cash flow from operating activities, MSEK | 7,764 | 12,149 |
| Cash flow after capital expenditures, acquisitions and divestments, MSEK |
2,584 | 7,769 |
| Cash and cash equivalents and short-term investments at 31 December, MSEK |
5,592 | 4,783 |
| Net debt at 31 December, MSEK | 25,908 | 23,200 |
| Net financial items, MSEK | –1,969 | –1,617 |
| Equity ratio, % | 34 | 38 |
| Net debt/equity ratio, times | 0.8 | 0.7 |
| Equity at 31 December, MSEK | 33,891 | 33,813 |
| Equity per share at 31 December, SEK | 27.40 | 27.50 |
| Definitions, page 67. |
Sandvik's operations in 2011 comprised three business areas: Sandvik Tooling, Sandvik Mining and Construction and Sandvik Materials Technology. At 31 December 2011, Sandvik also controlled 60% of the shares and 89% of the votes in Seco Tools, which is a global group active in the area of metal cutting. In November, Sandvik announced a public offer to the minority shareholders of Seco Tools to acquire all remaining shares. The offer was recommended by the Board of Seco Tools and major shareholders.
Seco Tools decided to delist the company fromthe NASDAQ OMX in January 2012 andannouncedan Extraordinary General Meeting for 17 February to appointanew Board. Subsequently, Seco Tools will become part of the Sandvik Machining Solutionsbusinessarea.
The global market situation was generally favorable for Sandvik in 2011. Demand was healthy in most operations. The mining market and particularly the aftermarket displayedastrong trend. The performance of key customer segments, such as the automotive, engineering and aerospace industries, remained stable throughout the year. While demand in the oil and gas segment remained strong, demand from the nuclear power industry was uncertain following the earthquake and subsequent nuclear accident in Japan at the start of 2011.
Sandvik Tooling's order intake totaled 27,918 MSEK(24,342),up 22% on the preceding year at fixed exchange rates for comparable units. Invoiced sales totaled 27,160 MSEK (23,893), an increase of 21% compared with 2010 at fixed exchange rates for comparable units. Movements in exchange rates affected order intake and invoiced sales negatively by 6%. The price trend remained positive.
The operating result totaled 5,896 MSEK (4,296), yielding an operating margin of 22%. The increase derived from growth in demand and production, resulting inarise in gross profit. The result was negatively impacted by approximately 737 MSEK due to exchange rate movements. The number of employees at 31 December was 15,948 (15,278).
The demand trend for Sandvik Tooling was positive in 2011 and, compared with the market situation in 2010, conditions improved significantly in all markets and product areas. Themainunderlying factor for this was the increase in global activity in many regions, resulting inarise in industrial production and thus higher demand for Sandvik Tooling's products. Themarkets that displayed strongest growth were Europe and North America, where order intake rose by more than 20%. The increase in Asia was slightly lower.
Demandfromthe energy sector remainedstrongwhile an overall stable trend was noted in the automotive,aerospace and general engineering industries. Growth in the automotive industry in Asia was somewhat lower following the steep increases noted in 2010. The recov-
| MSEK | 2011 | 2010 | Change, % | Change, %* |
|---|---|---|---|---|
| Sandvik Tooling | 27,918 | 24,342 | 15 | 22 |
| Sandvik Mining and Construction | 45,517 | 42,079 | 8 | 15 |
| Sandvik Materials Technology | 18,445 | 20,847 | –12 | –8 |
| Seco Tools | 7,196 | 6,016 | 20 | 21 |
| Group activities | 2 | 1 | ||
| Group total | 99,078 | 93,285 | 6 | 12 |
* Change compared with the preceding year, at fixed exchange rates for comparable units.
| Change, %* | ||
|---|---|---|
| 23,893 | 14 | 21 |
| 35,182 | 18 | 25 |
| 17,703 | 4 | 9 |
| 5,838 | 20 | 22 |
| 38 | 2 | 2 |
| 82,654 | 14 | 20 |
* Change compared with the preceding year, at fixed exchange rates for comparable units.
ery signifies that demand has now returned to the levels prevailing prior to the financial crisis. Growth was stronger for products incementedcarbide than for super-hard materials and high-speed steel.
Along-term focus on strategic regions boosted Sandvik Tooling's competitiveness thereby increasing its market shares in most markets. This position was further strengthened in the aerospace industry in which several long-term delivery contracts were signed.
In 2011, Sandvik Mining and Construction's order intake amounted to 45,517 MSEK (42,079), representing an increase of 15% compared with 2010 at fixed exchange rates for comparable units. Invoiced sales amounted to 41,481 MSEK (35,182), up 25%fromthe preceding year at fixed exchange rates for comparable units. Movements in exchange rates had anegative impact of about 1,994 MSEK on invoiced sales. The price trend remained relatively stable.
The operating result totaled 5,246 MSEK (4,665), yielding an operating margin of 13%. The result was positively impacted byarise in invoicing andproduction volumes, increased internal efficiency andafavorable product mix. Exchange rate movements hadanegative impact of 518 MSEK on the result. The number of employees at 31 December was 17,170 (15,455).
The prioritized areas in 2011 were increased focus on the core businesses, service and speed and flexibility, in line with the change in strategic direction that the Sandvik Group introduced in September 2011. Under the new strategic direction, Sandvik Mining and Construction was divided into twobusinessareas with clear targets and focuses, Sandvik Mining and Sandvik Construction. In conjunction with this change, Lars Josefsson left his position as the President of Sandvik Mining and Construction and Peter Larson was appointed Acting President. Gary Hughes andThomasSchulz took office as the President of Sandvik Mining and President of Sandvik Construction, respectively,from1January 2012. These two new business areas underwent restructuring at the end of the year, which resulted ina structural redundancy corresponding to approximately400 employees.
In April, Sandvik Mining and Construction signed an agreement with Shandong Energy Machinery Co. in Xintai, Shandong Province, China, to forma
| Operating result by business area | Margin as a % of Margin as a % of |
|||
|---|---|---|---|---|
| MSEK | 2011 | invoiced sales | 2010 | invoiced sales |
| Sandvik Tooling | 5,896 | 22 | 4,296 | 18 |
| Sandvik Mining and Construction | 5,246 | 13 | 4,665 | 13 |
| Sandvik Materials Technology | –1,619 | –9 | 1,540 | 9 |
| Seco Tools | 1,408 | 20 | 1,098 | 19 |
| Group activities | –783 | — | –570 | — |
| Group total | 10,148 | 11 | 11,029 | 13 |
joint venture for the production and sales of coal-mining equipment. The joint venture will primarily focus on assembly, sales and service of roadheaders for continuous mining for the large Chinese coalmining market. In October, the business area completed the acquisition of Shanghai Jianshe Luqiao Machinery Co. Ltd, the Chinese manufacturer of crushing and screening equipment.
Sandvik Mining and Construction securedanumber of major project orders during the year.Alarge contract was signed in the mining industry for the delivery of materials-handling systems to amajor mining company in Latin America, atatotal contract value ofapproximately 1,200 MSEK. In the construction industry, the business area secureda major project contract with Boral Limited, an international building and construction materialssupplierin Australia. The order includes the design and construction ofanew quarry plant. The value of the contract amounted to almost 500 MSEK and is one of the largest that Sandvik has received in the construction industry.
The new Hunter Valley site, situated northof Newcastle in Australia, wherea number of existing service and productions plants were integrated to formasingle 16-hectare facility, was completed and openedin November. The facility will serve both the Australian and global market. Thebusinessarea also establisheda new subsidiary in Mozambique during the year.
During the year, Sandvik Mining and Construction introducedaseries of new products. One example is the new 800-series of stationary mining cone crushers, Sandvik CH890 and CH895, which with their design and 1,000 horsepower, can safely ensure the highest productivity.
Sandvik MaterialsTechnology'sorder intake totaled 18,445 MSEK (20,847), down 8%fromthe preceding year at fixed exchange rates for comparable units. Invoiced sales totaled 18,379 MSEK (17,703), an increase of 9% compared with 2010 at fixed exchange rates for comparable units. The effects of movements in metal prices hadamarginal impact on order intake and invoiced sales. Exchange rate movements impacted both order intake and invoiced sales negatively by 4%. The price trend was favorable for high value-added nicheproducts,butsomewhat more pressured for products exposed to greater competition.
The operating result totaled –1,619 MSEK (1,540), yielding an operating margin of –9%. Asaresult of the new strategic direction and the improvement program announced in September, earnings for the year were charged with 1.2 billion SEK foragoodwill impairment of the MedTech business andafurther approximately 1.4 billion SEK in costs for restructuring and impairments. In addition, changed metal prices hadanegative impact of 217 MSEK on the operating result. Compared with the preceding year, movements in exchange rates negatively impacted the operating result positively by 12 MSEK. The number of employees at 31 December totaled 9,221 (9,058).
Demand for Sandvik MaterialsTechnology improved during the first half of 2011. The order intake for products for the oil, gas and mining industry remained strongthroughoutthe year. However, demand for products for the consumer goods and electronics industries, and more standardized products, declined
during the third andfourthquarter. In North America, demand was favorable for most of the year, while the market situation was relatively fragmented in Asia andEuropeduring the second half of the year due to the financial constraints in China and economic uncertainty in Europe.
In February, Sandvik Materials Technologysignedamulti-yearsupplyagreement withWestinghousefor the delivery of cladding tubes for nuclear power plants worldwide atatotal value of more than3billion SEK. Asaresult of the agreement, the Sandvik Boardapproved the expansion of production capacity at the facility in Sandviken, Sweden. In May,amajor order for tubes to the oil industry in the US was signed atavalue of 325 MSEK.
Activity in the nuclear power industry was low due to the nuclear power plant accident in Japan at the beginning of the year. Security reviews were initiated which resulted in delays to certain existing orders for steam generator tubesfrom Chinese customers.
On1May, Jonas Gustavsson, formerly President of the Wire and Heating Technologyproduct area within Sandvik MaterialsTechnology,was appointed new President of thebusinessarea. Jonas Gustavsson succeeded Peter Gossaswho retired after nine years as President of the businessarea according to his contract with Sandvik.
The Sandvik Group's new strategic direction was announcedon2September. The aim of the new strategy is for Sandvik Materials Technology to achievesignificantlyhigherprofitability within two to three years. Alternatives for growth and expansionwill subsequently be evaluated.
Accordingly, in mid-September, Sandvik MaterialsTechnologylaunchedacomprehensive improvementprogram(The
Step Change Program), aimed at increasing thebusinessarea's profitability toa significantly higher and sustainable level and to strengthen the leading position in key segments. The cornerstones of the programare the following:
One of the objectives of theprogramis to sustainably reduce the overall cost structure byapproximately500 MSEK overa two to three year period,throughsuch measures as reducing costs for staff and administration in addition to costoptimization of the sales organization.
Anew and simplified organizational structure started to be implementedfrom mid-September. Asaconsequence of the organizational changes,aglobal structural redundancy corresponding to about 500 salaried employees was identified, of whomabout 300 individuals in Sweden. Redundant personnel will leave the company during the first half of 2012. In parallel with the review in Sweden,acomprehensive review of the business area's sales organization was also conducted. Within the framework of this review, redundancy corresponding to more than 200 employees was identified. One of the reasons for the reduction isanew sales model that will be implemented in the first half of 2012. The aim is that the new sales organization will be inplacenot later than1May 2012. In addition, contracts with more than 180 temporary employees at Sandviken, Sweden were concluded.
Adecision was made at the end of the year to restructure the wire and strip operations, which will enableashift in the product mix toward more advanced andprofitableproducts in key segments, such as the energy sector. The decision means that the production of wire and strip in Hallstahammar, Sweden, will be discontinued over the next 18 months, as will two plants for strip production in the UK and China. In conjunction with this, efforts will be intensified to phaseout wire and strip products that arenotsufficientlyprofitableor donotform part of the corebusiness.The manufacturing of the remaining part of the wire and strip productprogramwill primarily be transferred from Hallstahammar to Sandviken. Asaresult of the planned changes, redundancy corresponding to more than 100 employees was identified.
As part of the new strategic direction for the SandvikGroup,theProcessSystems product area and parts of MedTech were transferred to the Sandvik Venture businessarea on1January 2012. This means that, effective this date, Sandvik Materials Technology comprises four product areas: Tube, Strip, Wire and HeatingTechnology,and PrimaryProducts. The intention to divest the instrument and implants section of the MedTech product area was alsoannouncedin conjunction with thepublicationof the new Groupstrategy.
Seco Tools' order intake amounted to 7,196 MSEK (6,016), up 21% on the preceding year at fixed exchange rates for comparable units. Invoiced sales totaled 7,026 MSEK (5,838), which corresponded toayear-on-year increase of 22% at fixed
exchange rates for comparable units. Changed exchange rates hadanegative impact on order intake and invoiced sales of 7%.
Operating profit was 1,408 MSEK (1,098), corresponding to an operating margin of 20% (19). The improvement was primarily the result of higher volumes andafavorable price trend. Changed exchange rates hadanegative impact on earnings of 118 MSEK. The number of employees at 31 December was 5,595 (5,306).
Demand remainedstrongduring the year. All market regions continued to demonstrate growth during the year compared with 2010. The most positive trend was notedin NAFTA andEurope.The pace of growth in markets in Asia and South America was slightly lower. Seco Tools' long-termprogramsto increase growth continued during the yearthroughsuch activities asahistorically high number of new product launches and investments in China inanew sales office and distribution centers. In the latter part of the year, the new facility in Fagersta for theproduction of cemented-carbide powder was completed andisscheduled to go onstream in gradual steps during 2012. The total value of the investment inpropertyand equipment isapproximately140 MSEK over three years. The investment increases Seco Tools production capacity and enables further steps in relation to product quality and efficiency. As of 2012, Seco Tools is consolidated in the Sandvik Machining Solutionsbusinessarea.
The aim of Sandvik's research and development activities is to increase customers' productivity, reduce their impact on the environment and improve the work environment. R&D projects are assigned high priority in the Group and include metallurgic research, metal cutting and development of production technologies, production processes and IT systems.
Asaresult of Sandvik's new strategy,a R&DCouncilwasfoundedwith the task of capitalizing on synergies, developing methodsand processes, and enhancing transparency in the company inabid to ensureahigh level of efficiency andinnovation in R&D activities.
Sandvik invests almost3billion SEK each year in R&D and more than 2,700 employees are active in this area. The Grouphas about 5,500 active patents and other intellectualpropertyrights. The R&D strategy includesafocused and continuous effort to seek,protectand monitor patents.
Activities are conducted inadecentralized manner in each of thebusinessareas and in close cooperation with customers. The exchange of knowledge between the businessareas is substantial, generating synergies and qualitative accumulation of data upon which decisions can be based.
Sandvik alsopursueslong-term research efforts within the framework of various national and international researchprogramsthus establishing important contacts between Sandvik and universities and colleges. These partnerships are ongoing in some ten countries worldwide covering such research areas as metallurgy, material physics, metal cutting,rockmechanics, miningprocesses and productiontechnology.
TheGroupalso participates in the development of universityprogramsto ensure that they are adapted to current and future requirements and supportsa number of doctorateprograms.
Development of newtoolmaterials and products as well as improved production methodsand product equipment. Tool performance and quality is enhanced while production efficiency both for customers and thebusinessarea itself is streamlined. New methods are developed for the production of cemented carbide, ceramic materials, cubicboronnitride and synthetic diamonds. Development of methods for precision pressing and coating in the production of indexable inserts hasahigh priority.
To increase customer productivity throughadvancedtechnology,low environmental impact and favorable total production economy.
R&D activities are carriedoutin several locationsthroughoutthe world. The largest units are located in Sweden, Germany, the US and the UK. Each product areapursuesproduct and applicationdevelopment in close cooperation with customers.
Aselection of advances in research and development at Sandvik Tooling in 2011 are listed below:
The Sandvik Coromant product area has developedarange of products for more efficient drilling in different material. For example,asolid carbide drill, the CoroDrill 860, was developed for launch in 2012. The product hasanew drill geometry, developed for high feeds and closer tolerances, thus reducing customers' production costs. The drill is made fromanew, unique cemented-carbide grade, which when combined with new surface treatment technology, significantly enhances performance. All of this has resulted in the most efficient tool in the market for drilling in steel.
In 2011,anew so-called tipped drill was also developed. Instead of replacing the entire drill, only the tip is changed when it has worn out. This reduces the customer's production costs, for example, by shorteningretoolingtime. This drill, which is designed for somewhat larger holes than
the CoroDrill 860, will be launched in 2012 under the CoroDrill 870 name.
In 2011, the Walter product area launched an entirely new range of cemented-carbide inserts for turning steel. The cementedcarbide inserts are coated withanew aluminum oxide layer, ensuring higher cutting speeds. Combined withanewly developed surface-treatmentprocess,this extends insert life and improves reliability. The new cemented-carbide insert also featuresanew geometric design enabling more efficient evacuation of the chips that form during machining of the workpiece.
Development of innovative solutions for automated mining operations in drilling, crushing and cutting to optimize focus on energy and cost efficiency. Research is based on know-how of how energy is generated and used in connection with crack extension in minerals or rock, thus creating the basis for product development.
Research and knowledge improve the reliability of customerapplications. Development is based ontechnology platforms that support several project concepts, enabling competitive solutions to be delivered.
Cost savings, reduced energy use, enhanced safety and improved environment and health conditions. The availability of equipment is continuously developed to satisfy the rigorousdemands of customers for operational reliability in sites with continuous operations.
The largest development units can be found in Finland, Sweden, Austria and the US. In 2010,aproduct development center was inaugurated in Shanghai, China, to strengthen Sandvik's establishment in the world's most rapidly expanding market. In 2011 the product development facility becameakey unit in the business area's operations.
Anumber of current R&D advances in Sandvik Mining and Construction are listed below:
Forthe past number of years, Sandvik has pursuedacomprehensive project focusing on energy efficiency and carbon emissions for sustainable mining operations and rockexcavation. During the year,a research partnership was established with the Australian research company CRC Mining, which aims primarily to intensify studies into energy efficiency.
In the crushing area, several new models have been introduced with an emphasison reliability andhighperformance, primarily in relation to mining applications. For all mobile equipment,agreat deal of work has been done to reduce exhaustemissions.In the drilling area,anumber of new drilling rigswere introduced withahigherdegree of automation andafocusonreliability.
To take the next step in product safety and reduce the risks in customer operations, deeper cooperation was established with customers in the area of product safety.
The business area is world-leading in the development of advanced metallic and ceramic materials for demanding industries and fields of application. Examples of technology niches in which the business area has made particularly
large investments in recent years include powder and surface technology. Sandvik Materials Technology's position in energy has also been strengthened in recent years through the continuous launch of new materials and products that enable technology shifts in this area.
Increase customer productivity, reduce energy use, reduce the environmental footprint and createasafe working environment.
One of Europe's largest R&D centers for advanced metallic materials and special alloys is located in Sandviken, Sweden. The business area also operates an R&D center for ceramic and metallic resistance materials in Hallstahammar, Sweden. Aresearch and modeling center for advanced materials is sited in Pune, India, where activities include simulation of various processes. Other development centers are also located in the US and Scotland.
Anumber of current R&D projects in Sandvik MaterialsTechnology'sare listed below:
Sandvik is the leadingsupplierof highly advanced materials for the oil and gas industry, where extremelyrigorous demands are placed on material performance. Material for tubes in umbilicals is continuously upgraded to meet the demands of deep-sea oil extraction and extreme temperatures.
Sandvik MaterialsTechnologyhas two joint ventures with CarpenterTechnology in the field of powdertechnology.In 2011,aresearchprogramwas launched
between Sandvik and Carpenter Technology aimed at further strengthening the position in powder technology and advanced materials. An important part of the program relates to materials development in the energy segment.
The next-generation nuclear power plants will take reactor design to an entirely new level. The aim is to make the plants even safer and more efficient and to reduce the volume of waste generated. With unique expertise in materials technology anda very strong position asamaterial supplier to the nuclear power industry, Sandvik has what it takes to develop material and solutions for the most critical applications. Partnerships with external research groups are also underway in this area.
Sandvik isaworld leader in the development of new materials in the heating applicationsfield. New products are developed in ceramic and metallic materials for resistive heating, such as ceramic elements for the glass manufacturing industry and diffusion furnaces for the semiconductor and solarcell industries. Sandvik also develops completeprocess heaters based on resistive heating.
support sustainable energy extraction With unique competence in materials technology, Sandvik can playadecisive role in technology development in sustainable energy extraction. Projects are under way to develop material and products that help the Group's customers to extract energy while causing less of an impact on the environment.For example, Sandvik works with materials development to enhance energy efficiency in plants powered by fossil fuels. Development is also under way of components for wind turbines.
The ability to attract, develop and retain employees with the relevant competencies is essential for the Group's success in achieving its objectives.
When Sandvik's newbusinessstrategy "One Sandvik to be Number One" was started to be implemented in 2011, it resulted in changes to both the organization and theGroup'sbusinessapproach.
AGroup-wideHR strategy was prepared in conjunction with the development of Sandvik'sbusinessstrategy in 2011 and wasrolledoutin its entirety on 1January 2012. Particular focus will directed to the following areas in forthcoming years:
To provideasafe working environment, puttingsafety first, continues to be the number one priority. In addition to the importance to the Sandvik organization, it isaprerequisite in attracting newpeopleand maintaining customer relationships.
Sandvik has been created and built on innovation, and innovation will be critical to our future success. The Sandvik culture with the three core values Opend Mind, Fair Play and Team Spirit, supports innovation and entrepreneurial spirit.
Diversity and inclusion aresourcesof innovation and will make us more effec-
Number of employees
tive asaGroup.Consciously building strongdiverse teams will beacompetitive advantage and help drive the best results forourcustomers. Diversity also serves as abridge between the workplaceand the marketplace, and therefore Sandvik's workforce needs to better reflect the market.
Our employees,ourclosest contact to the market and the customer, will be given more responsibility and freedom to act. This will both empowerpeople and increase speed. An annual employee climate survey will be conducted and the result will serve asabase for improvingourhuman capital and driving continuous improvements.
To becomealeader in attracting, developingand retaining the bestpeople,we will haveaclear strategy to strengthen the Sandvik brand and become the employer ofchoicein selected markets. ONE Sandvik and internal mobility will beakey theme andtoolto manage the Sandvik brand.
Performance management with clear objectivesthroughoutthe organization will be fundamental in driving andfol-
Number of employees by business area
2009 2010 2011
lowing-up thebusinessand individuals at all levels. Allourmanagers are responsible for conducting annual performance dialogues including individual objectives and developmentplans.
Sandvik will have one leadership model, from which we identify, appoint, develop and sometimes even dismissourleaders. The model will serve asafoundation for leadership development, and leaders will be reviewed based on it onanannual basis.
Sandvik's management by objectives is also reflected in the strategy for remuneration and compensation, which aims to support Sandvik'sbusinessobjectives and contribute to maintaining Sandvik as an attractive company in which to work and develop. Sandvik's remuneration model comprises fixed salary, performancebased annual variable salary, long-term performance based salary for senior executives and specialists, pensions and other benefits. According to theGroup'sremuneration policy, fixed salary is based on fourcornerstones: the complexity and difficulty of the position, individual performance, the salary situation in the relevant market and stimulation of the individual's professional development. Some of Sandvik's employees are entitled to
performance-based variable salary. Remuneration of these individuals is always based on predetermined goals.For remuneration of senior executives, see below and Note 3.5.
Sandvik works continuously to adjust its production capacity and cost levels to prevailing market conditions. In addition to standard rationalization measures, the company seeks to implement measures that create flexibility in the organization as far as possible, for example, solutions in conjunction with aneconomicdownturn could involve employee agreements regulating reducing workinghours,temporary dismissal and strategic investments in skills developments.
The number of employees at the end of the year was 50,030 (47,064), an increase for comparable operations of 2,966 persons during the year. The number of employees in Sweden at 31 December 2011 totaled 11,537 (11,050). Data on personnel expenses and the average number of employees is available in Note 3.
Sandvik's employment conditions are based on the UN's Universal Declaration of Human Rights and the ILO's Declaration on Fundamental Principles and Rights at Work.
Examples of activities carriedoutduring the year to achieve theGroup-wide target of improving the balance between men and women areaDiversity Management program held for specific key female employees at the Sandvik MaterialsTechnologybusinessarea,workshops with the Sandvik Toolingbusinessarea management team and Sandvik Coromant management to enhance expertise in the area of diversity.Anumber of local and regional initiatives were conducted in this field in the Sandvik Mining and Construction business area. Arelevant key figure that is monitored onaquarterly basis is the percentage of women and men in various positions, and here we can seeaminor increase in the percentage of women. One of the focus areas of the new employee strategy effective1January 2012 is diversity.
The guidelines for the remuneration of the Board and senior executives that were adopted at the Annual General Meeting held on3May 2011 are stated in Note3.5.The company's auditors have examined compliance with the guidelines.
The Board of Sandvik ABproposes that the Annual General Meeting on2 May 2012 resolve on the continued principles for the remuneration of senior executives in accordance with that stated in Note 3.5. The Board's motion is designed to ensure that Sandvik,froma global perspective, can offer marketbased remuneration that will attract and retain qualified members of theGroup Executive Management. The remuneration package forGroupExecutive Management comprises fixed salary, annual variable salary and long-term variable salary and pension. The aim is that the components will formawell-balanced remuneration and benefit package that reflects the individual's performance and responsibility and theGroup'searnings trend. The fixed salary, which is individual and differentiated in terms of responsibility and performance, is determined taking into account market conditions and is reviewed each year. The Board may departfromthe principles established by the Annual General Meeting if, in isolated cases, there are special reasons for so doing.Thoseaffected by theseproposed principles are the President and the other members of theGroupExecutive Management.Forfurther details on both the adopted principles and the Board's proposedrevised principles, refer to Note 3.5.
| Distribution of women/men |
2011 | 2010 |
|---|---|---|
| No. of employees 31 December 50,030 | 47,064 | |
| Average number of employees | ||
| Women | 8,978 | 8,189 |
| Men | 39,569 | 37,520 |
| Total | 48,547 | 45,709 |
Sustainable development represents an integral part of the business process, with focus on continual improvement in such areas as environment, health and safety, human rights and business ethics. The Group's Code of Conduct forms the basis for Sandvik's improvement efforts in these areas.
In addition to the financial results of Sandvik's operations, the Group's environmental and social objectives and the outcome of these are presented in the company's Sustainability Report on pages 100–111.
Activities conducted during theyearto fulfill Sandvik's objectives include two ISO 14001 certifications for companiesrecently acquired, the continuedintroductionof energy-saving programs, reduction of water consumption and increased recycling of materials. Relevant performance indicators that are followed up onaquarterly basis include use of electricity and fossil fuel, carbondioxideemissions, water consumption,wastevolumes andwastewater from processes.
Sandvik complies with applicable laws and regulations relating to environmental issues in the countries where the Group operates. However, Sandvik applies even stricter requirements when it is ecologically justified, technically possible and economically viable. Sandvik's Swedish units conduct licensed operations in accordance with environmental legislation at eight plants. Permits for these sites relate to such activities as the manufacturing of various steel alloy, ceramic, cemented-carbide and castings products. All units have the environmental permits that are required for their operations. The main environmental impacts are emissions to air and water, energy use, waste production, older contaminated land areas and noise. Sandvik is highly dependent on the environmental permits granted for these sites.
In Sandviken, the Environmental Court of Appeal announced its decision pertaining to deferred issues regarding mercury emissions to air from the steelworks. The Environmental Court of Appeal extended theprobationaryperiod until 2013 and stipulated that by this date the company investigate the possibility to clean its mercury emissions.
No breaches of permissible manufacturing volumes or limit values within the parameters of the terms and conditions of permits occurred during the year.Anumber of guideline values were exceeded for noise and emissions to air and water at the sites in Västberga, Hallstahammar and Sandviken. Actions are being taken to comply with these target values, often in consultation with the relevant supervisory authority. At the Hallstahammar plant, breaches of guideline values for emissions to water in 2010 led to the plant being instructed to take appropriate action. The supervisory authorities also referred this case to the regional public prosecution office for consideration.
At Sandvik AB's sites in Sandviken, the public prosecution office decided to prosecute the company followingabreakdown of the sewage system's main pump station in 2008. This matter will be settled in 2012.
For the units subject to environmental permits, public environmental reports are submitted eachyearto the supervisory authority.
Within the Sandvik Group, 27 known or presumed land contamination has occurred. Of these, remediation procedures have been ordered at 17 units at an estimated cost of some 150 MSEK. Moreover, voluntary remediation measures atafurther nine sites have been agreed.
Following demands from the supervising authority, soil pollution was investigated at the plants in Gimo and Hallstahammar. Trichloroethylene (TCE) was detected in the soil at these plants. Additional investigations will be carried out in 2012.
When manufacturing companies are acquired or divested, the due diligence procedures always includeacomprehensive environmental audit toidentifyany environmentalliabilities related to the operationin question.
The Group'splantsinSandvikenand Hallstahammar are covered by the EU trading system in carbondioxideemission allowances. In 2011, the Groupwasallocated
emissionallowancescorresponding to 109,727 tons of carbondioxide.For the period, carbon emissions totaling approximately 113,000 tons will be declared. The deficit will be covered by the purchase of new emissionsrights.
The REACH chemical legislation and similar legislation will involve costs for processing of applications and registration of chemical substances. Fulfillment of requirements is alsoastrength for Sandvik's businesses.
Otherwise, Sandvik is not aware of any changes in environmental requirements raised by laws or otherwise that could have asignificant operational or financial impact on business activities.
Regrettably, four work-related fatalities occurred at Sandvik's units in 2011 (see the Sustainability Report, page 105).
Activities pursued during the year to attain Group-wide objectives for health and safety, and employee conditions and development, include two new certifications under theOHSAS18001 occupational health and safety management system for companies recently acquired, training, risk assessment of the workplace, more focus on reporting of incidents and improving the efficiency of safety committees. Relevant performance indicators that are monitored onaquarterly basis include the number of fatalities, the number of injuries resulting in lost time, the number of reported near misses and the number of lost days due to injuries.
Sandvik's policies relating to human rights and business ethics are summarized in the Codeof Conduct. No incidents relating to violation of human rights in proprietary operations were reported during 2011. Some 100 incidents of harassment, fraud and corruption were identified. Where appropriate, corrective measures were implemented in all of these cases, including the dismissal of personnel.
The aim of Sandvik's risk management is to minimize risks within the company and also to ensure that opportunities are leveraged in the best possible manner. The uncertainty in the financial markets and the uneven recovery in the global product market have meant that Sandvik's work on restricting and controlling risk-taking was particularly important once again in 2011. Sandvik has a favorable risk spread with operations in more than 130 countries in about 20 product areas and a number of different industries.
The SandvikGrouphasappliedacomprehensiveprogramfor risk management –Enterprise Risk Management (ERM) for several years. Theprogramcovers all parts of operations,businessareas as well asGroupfunctions. Since ERM is an integral part of thecontrolof Sandvik's operations, theprocessalso assists the company in taking action when dramatic changes occur in the external environment and market conditions.
The main components of risk management are identification, measurement, management, reporting, monitoring and control.An actionplanis established for each risk to accept, reduce, eliminate or increase the risk. Formal procedures and processes are established for the reporting, monitoring andcontrolof risks.A full, consolidated ERM Report is submitted to ExecutiveGroupManagement twiceayear and to the Board onceayear.
In 2011, Sandvik's markets continued to recoverfromthe sharpeconomic downturn in demand that dominated 2009. Risk management continued to focus on theGroup'sbusinessrisks in order to efficiently retain and balance capacity and personnel during the period ofeconomicupturn.
Each manager with operational responsibilities shall ensure that risks associated with the operations areappropriately identified, measured and managed. Operational risks include market and country risks, R&D risks, product risks, production risks, health and safety as well as environmental risks. Each unit's risks are regularly summarized inareport, which also details the actions that are being taken to manage the risks. Each risk is measured and assigned an actionplan. All this information is consolidated at Grouplevel.
* Reporting twice per year, of which once to the Sandvik Board of Directors.
• structural changes • dramatic changes in
• Power of sandvik1) • Tax legislation
• Local laws • Governance
• Financial closure process
Sandvik is globally engaged in many different areas and conducts its business within theframeworkof rules and regulations that apply invariouscountries, markets and factual areas. The Group shall comply with laws governing environmental and labor issues, the operation of the business, taxation, terms of employment, marketing regulations, and so forth. In addition, the Group has internally established regulatory systems and instructions assupportfor management and other employees in the company.
Operating companies within the Sandvik Grouppresent reports on their financial performance andeconomicstatus ona regular basis in accordance with internal reporting rules and the accountingpolicies that Sandvikapplies,the International Financial Reporting Standards (IFRS). TheGroup'scontrollerfunction validates and analyzes the financial information asapart of the qualitycontrolof financial reporting. See also the Corporate Governance Report on pages 36–43.
Throughrecurring updates conducted as part of the ERM work, specific changes in thebusinessor in factors affecting the businessare identified. These may relate to the acquisition ofanew company,a major investment, new legislation, sudden changes in market conditions, technical innovation, etc.,whoseimplications must be individually assessed.
On occasion, Sandvik is party to litigation and administrativeproceedings related to its operations, including responsibility for products, the environment, health and safety. However, Sandvik doesnotdeem that any of theseongoingproceedingsand processes will significantly affect the SandvikGroup.
Sandvik's US subsidiary, Sandvik Inc., has been subject to lawsuits in the US in which the plaintiffs have claimed that exposure to welding fumes has caused neurologicalinjury. Sandvik Inc., sells welding electrodes,althoughits market share in the US is less than 1%. All of the cases against Sandvik also involve other defendantswhohave sold welding electrodesin the US. In order foraplaintiff to winajudgment against Sandvik, the plaintiff would have to prove that he used Sandvik's weldingelectrodesand that he hasneurologicalinjuries that were caused by such use. Many of the cases against Sandvik have been dismissed because the plaintiffs were unable to prove that they used Sandvik's welding electrodes. Furthermore, Sandvik believes that there is noreliable scientific evidence to support the claims being made in these lawsuits. To date, Sandvik hasnotlost or settled
any of these lawsuits, and the only costs that have arisen are the costs of defending the lawsuits.Asignificant portion of these defense costs have been covered by Sandvik's insurance policies.
Toprotectthe return on the resources that Sandvik invests in research and development, theGrouphasastrategy for the active safeguarding of technical achievements against patent infringements andcopying.Sandvikprotectsits intellectualpropertyrightsthroughlegal proceedingswhen necessary.
During 2007, the Swedish National Tax Board performed tax audits at Sandvik AB and Sandvik IntellectualPropertyAB (the "IP Company"), and in this connection, reviewed the reorganization of ownership and management of intellectual propertyrights that tookplacein 2005.
Asaresult of the reorganization, Swedish owned patents and trademarks were transferred to the IP Company. The reasons for this reorganization were the need to gather the activities relating to intellectualpropertyrights into one company to visualize the considerable worth of the intellectual rights and to gain operational advantages.
The Tax Board did not approve the tax returns for the 2005 and 2006 fiscal years filed by the IP Company with respect to
the claimed deductions for amortization of the transferred intellectualproperty rights.
The Tax Boardapprovedthe tax returns filed by Sandvik AB for the 2005 fiscal year. Subsequently, the Tax Board, throughthePublicCommissioner, filed an appeal against its own decision relating to the effects of the above-mentioned reorganization. In addition, according to the Commissioner's appeal, the rejection of the IP Company's amortization claims shouldbe removed in the event that the appeal concerning Sandvik AB's tax returns isapproved.If the Commissioner's appeals areapproved,the resulting additional tax expense of some 5,050 MSEK wouldnotaffect Sandvik's earnings since the amount would correspond to the tax value of the raised taxable amortization in the IP Company. However, asaresult ofareduction in Swedish income taxfrom28% to 26.3% effective from2009, the tax value of the taxable amortization would be affected negatively by about 200 MSEK.
If theCourtaccepts Sandvik's position, theGroup'stax expense would decline by about 4,850 MSEK, to be recognized as income when suchacourtorder gains legal force.
In January and December of 2008, the IP Company appealed the decision by the Tax Board regarding taxation for 2005, 2006 and 2007.Forsubsequent years of assessment, both the Tax Board and
Sandvik have dealt with tax returns and appeals in the same manner as previously. In June 2010, the AdministrativeCourt in FalunapprovedthePublicCommissioner's appeal pertaining to additional taxation of Sandvik for 2005. Sandvik subsequently appealed the decision and was grantedarespite for its tax payments. Pendingaconclusion of the legal proceedings,Sandvik has establisheda provision for the tax effects of implemented amortization in the IP Company and for accrued interest for the tax that thePublicCommissioner's appeal against Sandvik AB would entail ifapproved.
An area that Sandvik periodically discusses with the tax authorities is transfer pricing issues, meaning the pricesapplied to products distributedfromSandvik's production plant to its sales companies in various countries. Sandvik keeps detailed documentation for this pricing,butif the tax authorities' opinion inapricing matter differsfromSandvik's standpoint, it may have consequences for Sandvik's revenue recognition between countries.
Sandvik has the customary insurance programswith respect to theGroup's propertyand liability risks.
Asanatural element of theGroup's various activities, measures to limit the impact of damages are taken continuously, often in cooperation with Sandvik's external insurance advisors.
In suchacontext, standards for desired protection levels are established to reduce the probability of significant material damages and to guarantee deliveries to customers.
Sustainability risks entail the risk of an adverse impact on the environment, health and safety, human rights andbusiness ethics due to the commercialoperations conducted by Sandvik. To minimize these risks, Sandvik conducts comprehensive work at all levels of the company. Fair play and Code of Conduct seminars are heldthroughouttheGrouponaregular basis. These aspects also comprise key areas for Sandvik's internal assurance function,GroupAssurance. In recent years, Sandvik has also developedaseparate Sustainability Report, which requires asystematic analysis of the company's operations in terms of sustainability and enables the identification of risks within this area.Forfurther information, see Sandvik's Sustainability Report on pages 100–111.
Through its comprehensive and international operations, Sandvik is exposed to financial risks. The Board of Directors is responsible for establishing the Group's finance policy, which comprises the guidelines, objectives and limits for financial management and the managing of financial risks within the Group.
Sandvik Financial Services has been established to act as the functional organization responsible for managing the greater part of theGroup'sfinancial risks.
The primary objective of the function is to contribute to the creation of value by managing the financial risks to which the Groupis exposed in the ordinarycourse ofbusiness,and tooptimizetheGroup's financial net.
Sandvik Financial Services provides service toGroupcompanies and its task is to support subsidiaries with loans,
investmentopportunitiesand foreign exchange deals, and to act as advisors in financial matters. The function conducts internal banking operations and is based at the head office in Sweden and in Singapore. The internal bank also conducts Sandvik's netting system, and is responsiblefor theGroup'scash management.
Sandvik Financial Services also conducts operations for payment advice and trade finance, and issues theGroup'sglobal credit policy. This activity is carried outmainlythroughthe head office in
Sweden and via finance companies in the US and Chile.
Finally, Sandvik Financial Services also manages the financial risks associated with the company's defined-benefit pensionplans.
Only banks withasolid financial position and high credit ratings are accepted as Sandvik's counterparties in financial transactions.
The presentations comply with the reporting requirements stated in accordance with IFRS (IFRS7and IAS 39).
| Risk Risk |
Exposure | Comments Kommentar |
|---|---|---|
| Currency risk Currency risks refer to the foreign exchange movements affecting the com pany's result for the year, other compre hensive income, and the company's competitive situation in various ways: • The result for the year is affected when sales and purchases are made in different currencies (transaction exposure). • The result for the year is affected when assets and liabilities are denominated in different currencies (translation exposure). • The result for the year is affected when the financial results of subsidiaries are translated to SEK (translation exposure). • Other comprehensive income is affected when the net assets of subsidiaries are translated to SEK (translation exposure). Sandvik manages the currency risks that arise in the manner described in the following section. The manner in which the currency risk is managed has not been changed compared with the preceding year. |
Sandvik's transaction exposure, meaning the Group's net flow of currencies, after full offsetting of the countervalue in the exporting companies' local currencies, amounted to 10,900 MSEK (11,000) in 2011. The most important currencies are shown in the diagram below.
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 in accounts receivables denominated in foreign currency and in 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. To reduce exposure to foreign currencies, currencies received are used to pay for purchases in the same currency.
A certain portion of the anticipated net flow of sales and purchases is hedged through financial instruments in accordance with guidelines set in the Group's finance policy. In addition, major project orders are currency hedged to safeguard the gross margin. The CFO establishes how much of the Group's transaction exposure needs to be hedged. At year-end, the total hedged amount was 6,337 MSEK (6,458). The average duration for the hedged volume of foreign currency was about 2 years (2). Unrealized gains from outstanding currency contracts for hedging of future net flows amounted to 243 MSEK (489) at year-end. Of these, –80 MSEK relates to contracts maturing in 2012 and 323 MSEK to contracts maturing in 2013 or later. Hedge accounting in line with IAS 39 is applied for the most significant portion of the hedge transactions. For a more detailed breakdown of the quarterly effects on cash flow of the transactions that have been recognized in the hedge reserve, see Note 31.
Sandvik's subsidiaries should normally not have any extensive translation risk in their balance sheets since the objective is that a subsidiary's receivables and liabilities in foreign currency shall be balanced (currency hedged).
Profit/loss in a foreign subsidiary is translated to SEK based on the average rate for the period to which the profit/ loss relates, which means that the Group's result is exposed to a translation risk.
Net assets, meaning the subsidiaries' shareholders equity, are translated into SEK at the rate applying on the balancesheet date. At 31 December, the Group's net assets in subsidiaries in foreign currency were 33,200 MSEK (34,500).
To avoid translation risk in the balance sheets of subsidiaries, they are financed through the internal bank. The currencies required by the subsidiaries are shown in the adjacent diagram. External borrowing often takes place in a specific currency, as shown in the following diadram. The currency risk that arises in the internal bank as a result of this is managed using various derivatives, thus minimizing the translation risk.
Sandvik has chosen not to hedge future profits in foreign subsidiaries. Net assets are also not hedged, but the differences that arise due to changes in exchange rates since the preceding year-end are recognized directly in other comprehensive income. The final diagram shows the distribution of net assets between various currencies.
Exchange-rate sensitivity
To gain a comprehensive understanding of how exchange-rate fluctuations impact the Group's operating result, consideration must be given to the transaction exposure, the operating result of the subsidiaries in their respective currencies and implemented hedging activities.
The sensitivity of the Group's other comprehensive income to exchange rates depends on the size of net assets. A side from net assets, other comprehensive income is also exposed to exchange-rate risk, since certain derivative contracts are subject to hedge accounting, which means that the change in the market value of these contracts is recognized directly in other comprehensive income instead of in the result for the year.
If the exchange rates for the exposure currencies were to change by 5% in an unfavorable direction for the company, the total operating result over a 12-month period would change by approximately 1,200 MSEK, assuming that the structure is the same as it was at year-end.
The net effect on other comprehensive income of a similar change to exchange rates would be approximately 1,900 MSEK. This net effect primarily comprises translation exposure in equity.
Interest rate risk is defined as the risk that changes in market interest rates will have an adverse impact on the Group's net interest items. The speed with which a change in interest rate affects net interest items depends on the fixed-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:
• The company may have invested in interest-bearing assets, the value of which changes when the interest rate changes.
• The cost of the company's borrowing fluctuates when the general interest rate situation changes.
If market rates were to rise by 1 percentage point across all terms at 1 January 2012, in relation to loans for which the interest rate will be reset during the coming year, net interest expenses would be impacted by –148 MSEK.
An interest rate sensitivity analysis of interest-swap agreements valid at year-end, and to which hedge accounting was applied, shows that other comprehensive income would change by 198 MSEK as a result of a 1 percentage point parallel shift of the interest rate curve.
| Including effects of interest-rate derivatives | ||||
|---|---|---|---|---|
| MSEK | Effective rate of interest, % |
Fixed-interest term, months |
Recognized liability, MSEK |
|
| Bond loans, Swedish MTN | 4.4 | 29 | 10,027 | |
| Bond loans, European MTN | 6.5 | 16 | 5,323 | |
| Private placement | 3.7 | 77 | 5,947 | |
| Commercial papers | 2.9 | 2 | 197 | |
| Other loans from banks | 4.4 | 1 | 9,220 | |
| Total | 4.7 | 27 | 30,714 | |
| Interest effect of currency derivatives | 0.9 | |||
| Total incl. currency derivatives | 5.6 |
In the event that Sandvik has surplus liquidity, it is placed in bank deposits or in short-term money-market instruments with durations of less than 90 days, which means that the interest risk (the risk of a change in value) is low.
The Group's interest rate risk arises mainly in connection with borrowing. Interest-swap agreements are sometimes used to achieve the desired fixed-interest term. The CFO has a mandate to vary the average fixed-interest term of the Group's debt portfolio, provided that it does not exceed 36 months. The average fixedinterest term on Sandvik's borrowing was 27 months (29) at year-end, with consideration given to derivative agreements entered into.
As described in a previous section (translation exposure), internal lending to foreign subsidiaries is often hedged. If market interest rates are higher abroad than in Sweden, the foreign exchange contracts entail an interest expense. The Group´s average interest expense, including other loans and effects of various derivatives, was 5.6% (6.1).
Hedge accounting is applied when an effective link exists between hedged loans and interest swaps. Accordingly, changed market interest rates could also impact other comprehensive income, since the Group has interest-swap agreements 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 the result for the year. A presentation of all interest-swap agreements entered into, and information regarding their duration, can be found in Note 31.
Sandvik's loan conditions do not currently entail financial covenants. Only under exceptional circumstances are assets pledged in connection with the raising of loans. Such pledging is disclosed in Note 30.
Liquidity and refinancing risk is defined as the risk that financing possibilities will be limited when loans must be refinanced, and that payment commitments cannot be met as a result of insufficient liquidity.
Maturity profile for borrowing and liquid assets Nominal amount, MSEK
| Currency | Recognized liability, MSEK |
Size of programs, MSEK |
Average remaining credit period (years) |
|
|---|---|---|---|---|
| Bond loans, Swedish MTN | SEK | 10,027 | 15,000 | 4.8 |
| Bond loans, European MTN | EUR | 5,323 | 26,808 | 2.2 |
| Private placement | USD | 5,947 | — | 8.0 |
| Commercial papers | SEK | 197 | 16,702 | 0.1 |
| Other loans from banks | Diverse | 9,220 | — | 1.5 |
| Total borrowing | 30,714 | 58,510 | 3.9 |
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 can be divided into three categories:
• Financial credit risk
• Credit risk in trade receivables
• Credit risk in customer financing
| MSEK | 2011 | 2010 |
|---|---|---|
| Trade receivables | 14,563 | 12,738 |
| Cash and cash equivalents |
5,592 | 4,783 |
| Unrealized gains on derivatives |
983 | 1,189 |
| Other receivables | 753 | 764 |
| Total | 21,891 | 19,474 |
According to the finance policy, the Group's capital employed excluding cash and cash equivalents should be financed on a long-term basis and the short-term liquidity reserve should correspond to at least two weeks' operating expenses. At year-end, the Group's capital employed, excluding cash and cash equivalents, was 64,000 MSEK and long-term financing, including share capital, pension liabilities, long-term tax liabilities, long-term provisions and long-term guaranteed credit facilities, amounted to approximately 70,000 MSEK. The shortterm liquidity reserve amounted to about 12,500 MSEK, comprising credit facilities and the Parent Company´s cash and cash equivalents less loans that mature for payment over the next six months. This amount should be compared with two weeks' estimated operating expenses of nearly 3,000 MSEK. 2025 –1 367
Sandvik has credit facilities totaling 1,500 MEUR, of which 500 MEUR will mature in 2012 and 1,000 MEUR in 2013. The facilities, which are the Group's primary liquidity reserve, were unutilized at year-end. These were replaced with two new facilities at the start of 2012, one amounting to 650 MEUR and the other to 5,000 MSEK.
The aim of Sandvik's financing strategy is to maintain a wellbalanced maturity profile for liabilities to reduce refinancing risk. The share of long-term loans in relation to total borrowing was 81% at year-end 2011 compared with 87% one year earlier. The maturity structure for the Group´s financial liabilities and derivatives is presented in Note 31.
At year-end, Standard & Poor's, the international credit rating agency, had assigned a BBB+ credit rating to Sandvik's long-term borrowing and A-2 for its short-term borrowing. For a continuous update on Sandvik's credit rating, refer to www.sandvik.com.
Sandvik has entered into agreements with the banks that are most important to the company covering such matters as the right to offset receivables 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 positive results that arise in derivate agreements, and investments and bank balances. At 31 December 2011, the value of these amounted to 6,575 MSEK (5,972).
The Sandvik companies are exposed to credit risk in outstanding trade receivables from ongoing sales. The use of payment terms and risk management are regulated in Sandvik's Group-wide credit policy. Credit risk is diversified over a large number of customers in all business areas and satisfactorily reflects the spread of sales. The credit quality of the trade receivables that have not fallen due for payment is good. Sandvik's credit losses amounted to –37 MSEK (–88), which is less than 0.1% of sales. The total gross value of outstanding trade receivables was 15,240 MSEK (13,399) at 31 December. Total impairment of these was –667 MSEK (–661). Ageing analyses of trade receivables at 31 December are presented in Note 20.
Sandvik offers short and long-term customer financing through its own financing companies and in partnership with financial institutions and banks. Customer financing usually takes place in conjunction with the sale of products from Sandvik Mining and Construction, with the aim of supporting and promoting sales and enhancing competitiveness in the market. Customer financing at Sandvik is being developed by expanding the partnership with the Swedish National Export Credits Guarantee Board (EKN) and other financial institutions. At year-end, the value of outstanding credits in financing companies was 640 MSEK (523), of which 13 MSEK was reserved for doubtful receivables.
Sandvik regularly provides buyback guarantees, that is, a promise to repurchase a machine at a price established in advance. At year-end, the outstanding buyback guarantees amounted to 354 MSEK (382).
In addition to the traditional financing of equipment that the customer buys, Sandvik also offers rental machines to customers that only require the use of a machine for a shorter period. At year-end, the net carrying amount of these machines was 427 MSEK (562).
Sandvik's financial risks related to raw materials are primarily concentrated to nickel, molybdenum and electricity. The price risk involved in these is partially hedged through the signing of financial contracts. Other risks that raw materials may give rise to are managed as described in the Risk and risk management section.
The price of nickel varied significantly during the year, as shown in the diagram on the right.
Net total consumption of nickel amounted to about 15,300 metric tons during the year. When Sandvik Materials Technology obtains a significant customer order with a fixed price for nickel and molybdenum, the price of these materials is hedged by signing financial contracts.
The Group pursues an offset hedging strategy to eliminate the metal price risk in connection with transactions conducted at a variable metal price. The measurement of inventory is not affected by offset hedging.
At year-end, the volume of hedged nickel inventory was 3,324 metric tons (3,413). The market value of commodity derivatives entered into was 47 MSEK (146).
For Sandvik's large production units in Sweden, the electricity price is continuously hedged through derivatives. The total electricity consumption at these units normally amounts to some 900 GWh. The hedging horizon at year-end was about 19 months' (19) expected consumption. The market value of electricity derivatives was 567 MSEK (830) at year-end. Losses from these derivative contracts amounted to –101 MSEK (gain: 173). A change in the electricity price of SEK 0.10 per kWh is estimated to impact Sandvik's operating result and other comprehensive income by plus or minus 90 MSEK on an annual basis, based on the prevailing conditions at year-end 2011.
Hedge accounting in accordance with IAS 39 is applied to the majority of the raw materials and electricity derivatives. To view when recognized hedging transactions will impact the result for the year, see Note 31.
Sandvik has comprehensive pension obligations for its employees in the countries in which it operates. The pension solutions vary depending on legislation and local agreements. The most comprehensive agreements are found in Sweden, Finland, Germany, the UK and the US.
The average interest rate duration for the Group's interest-bearing assets in the pension portfolio is 5.8 years, and 16.6 years for the pension commitment. Since the durations of the assets and liabilities differ, a change in interest rates of 1 percentage point would have a net impact of approximately 1,400 MSEK. A 20% fall in the stock market would lead to a decline in assets of about 900 MSEK. If the life assumptions, so-called longevity, are changed by one year, the pension liability would change by about 4%, which corresponds to about 600 MSEK. The risk, measured as Value at Risk (VaR) with a 95% confidence interval and a oneyear holding period, is approximately 1,800 MSEK.
To ensure the efficient administration of the substantial pension plans and efficient management of funds reserved for pension plans, Sandvik has established a separate entity for this purpose, the Sandvik Pensions Supervisory Board. In addition, local pension boards are established in each country that are responsible for compliance with legislation and local agreements.
The defined-benefit pension plans are described in Note 23.
In 2011, managed capital totaled 12,800 MSEK and the corresponding pension commitments amounted to 15,300 MSEK, which is equal to a consolidation level of 84% (92). The return on Sandvik's Group pension assets was 2.5% (8.7).
Corporate governance within Sandvik is based on applicable legislation, the rules and regulations of the Stock Exchange, the Swedish Code of Corporate Governance (the "Code"), and internal guidelines and regulations. The aim is to ensure efficient and value-creating decision-making by clearly specifying the division of roles and responsibilities among shareholders, the Board and executive management.
Corporate governance comprises the Group's control and management systems. Another important corporate governance ingredient is the link to Sandvik's risk management, in accordance with the ERM model, and to the approved model for remuneration of senior executives. The Code is availablefrom www.corporategovernanceboard.se. Sandvikappliedthe Code in 2011 withoutdeviatingfromany of the Code's regulations.
Sandvik AB is the Parent Company of the SandvikGroup,with subsidiaries in about 60 countries. Its operations
Organizational model*)
As a component in the governance of Sandvik, Group-wide cooperation and task forces have been established comprising representatives from all business areas and the Group. Examples of such groups include the Finance Management Team, IT Management Team, R&D Council and Cross Communication Team. *) For the period until 31 December 2011.
areglobal with sales in more than 130 countries, and the SandvikGrouphas approximately50,000 employees. Sandvik AB isapublic company listed on NAS-DAQ OMXStockholm(the "Stock Exchange").
At 31 December 2011, Sandvik's share capital amounted to 1,423,544,610 SEK represented by 1,186,287,175 shares.Following the issues of new shares in Sandvik in January 2012 as part of Sandvik's acquisition of Seco Tools AB, Sandvik's share capital amounts to 1,505,263,107.60 SEK and the number of shares to 1,254,385,923. Each share carries one vote at meetings of shareholders. According to the owner register, Sandvik had about 113,000shareholdersat 31 December 2011. AB Industrivärden is the largest owner with about 12.2% of the share capital. Of the total share capital at yearend,approximately32% was owned by foreign investors.
Pursuant to the Swedish Companies Act, the General Meeting of shareholders is the highest decision-making forum, at which the shareholders exercise their voting rights. At the Annual General Meeting, resolutions are made relating to the Annual Report, dividends, election of Board members and, whereapplicable, appointment of auditors, and other matters stipulated in theCompaniesAct and the Articles of Association.
Sandvik's Articles of Association do notcontain any limitations on the number of votes thatashareholdermay cast ataMeeting. In addition, the Articles of Association donotcontain any specific provisions regarding the appointment or discharge of Board members or regarding amendments to the Articles.
Allshareholderswhohave been entered in the Share Register and have informed the company of their attendance within the correct time limit stated in thenotice 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 aproxy at the Meeting. Notice of the General Meeting ispublishedin Post- och Inrikes Tidningar and on the company's website. Confirmation of thepublication of thenoticeispublishedin Svenska Dagbladet and inadaily newspaperpublished in Sandviken or Gävle.
Shareholdersrepresenting 50.71% of the votes and share capital attended the Annual General Meeting held on3May 2011 in Sandviken. Sven Unger, attorneyat-law, was elected to chair the meeting. The meeting resolved to payadividend of 3.00 SEK per share.
| 2011 | |
|---|---|
| AB Industrivärden | 12.2 |
| Swedbank Robur Funds | 4.6 |
| Handelsbanken's Pension Foundation | 4.1 |
| Alecta Pension Insurance | 3.6 |
| JPM Chase* | 3.6 |
| Omnibus Account W FD OM80 | 3.3 |
| L E Lundbergföretagen AB | 2.3 |
| Göranssonska Foundations | 2.1 |
| Handelsbanken Funds | 1.7 |
| Folksam | 1.6 |
* Administrates shares held in trust.
Johan Karlström and Olof Faxander were elected new members of the Board, and Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Anders Nyrén, Simon Thompson and Lars Westerberg were re-elected members of the Board. Anders Nyrén was re-elected Chairman of the Board. KPMG AB was re-elected as the company's auditorthroughthe 2015 Annual General Meeting. The Meeting resolved onaprocedure for the composition of the Nomination Committee, and approvedthe Board'sproposalregarding guidelines for remuneration of senior executives and amendments to the Articles of Association, to adapt the Articles to the revisions in the Companies Act, among other items. Furthermore, the Meeting resolved to implementalong-term sharebased incentiveprogramfor about 400 senior executives and key employees in the Group. Additional information about the Annual General Meeting, including the minutes, is available from the company's website www.sandvik.com.
An Extraordinary General Meeting held on 12 December 2011 resolved to authorize the Board of Directors, until 31 March 2012, on one or more occasions, to resolve to issue no more than 69,195,888 new shares as consideration for the acquisition of shares in SecoToolsAB. In addition, the Meeting resolved to amend the Articles of Association to the effect that theplaceof the registered office of the Board was changed from Sandviken to Stockholm.
Sandvik's 2012 Annual General Meeting will be held on2May in Sandviken. Shareholderswhowish to haveamatter addressed by the Annual General Meeting must submitawritten request to the Board in sufficient time prior to the Meeting. More information is available from Sandvik's website, www.sandvik.com.
The 2011 Annual General Meeting resolved that the Nomination Committee for the 2012 Annual General Meetingshould comprise representatives of the four largest shareholders,in terms of the number of votes,onthe final business day in August 2011 and the Board Chairman (convener).
Forthe Annual General Meeting to be held on2May 2012, the Nomination Committee consists of Carl-Olof By, Chairman (Industrivärden), Håkan Sandberg (Handelsbanken's PensionFoundations), Staffan Grefbäck (Alecta), Marianne Nilsson (Swedbank Robur Funds), and Anders Nyrén (Sandvik's Chairman of the Board). Up to 15 February 2012, the Nomination Committee had met on threeoccasions.Through Sandvik's Board Chairman, the Nomination Committee received information concerning the Board's own evaluation and the company'soperations, stage of development and overall status. The Nomination Committee discussed the general criteria that Board members should fulfill, including independence issues. The issue of more even
gender distribution was addressed by the Committee. The Nomination Committee also had access to an external consultant as part of its work to identify and evaluate potential new Board members.
The Board of Directors is responsible for the company's organization and the management of the company'sbusiness.The Board shall continuously monitor the company's and the Group's financial position.
The Board shall ensure that the company's organization is designed inaway that ensures that the accounts, the management of assets and the company's financial condition in general arecontrolledina satisfactory manner.
The CEO is responsible for the daily operations pursuant to guidelines and instructions issued by the Board. The distribution of responsibilities between the Board and the CEOislaid down in written terms of reference.
The Board's Procedural Guidelines and instruction for work delegation between the Board and the CEO, as well as financial reporting, are updated andapprovedeach year. The update is based on such aspects
| Name | Function | Independent in acc. with the Code |
Shareholding, number3) 31 Dec 2011 |
Elected | Audit Committee | Remuneration Committee |
|---|---|---|---|---|---|---|
| Alicia Espinosa | Deputy* | 7,137 | 2010 | |||
| Olof Faxander | Member | No2) | 9,639 | 2011 | ||
| Johan Karlström | Member | Yes | 5,000 | 2011 | ||
| Jan Kjellgren | Member* | 570 | 2008 | |||
| Tomas Kärnström | Member* | 2,865 | 2006 | |||
| Fredrik Lundberg | Member | No1) | 6,040,0004) | 2006 | ||
| Hanne de Mora | Member | Yes | 0 | 2006 | Chairman | |
| Egil Myklebust | Member | Yes | 10,000 | 2003 | Member | |
| Anders Nyrén | Chairman | No1) | 4,500 | 2002 | Member | Chairman |
| Simon Thompson | Member | Yes | 0 | 2008 | Member | |
| Lars Westerberg | Member | Yes | 12,000 | 2010 | Member | |
| Bo Westin | Deputy* | 0 | 1999 |
* Employee representatives (both members and deputy members partake in Board meetings). Jan Kjellgren (member) and Alicia Espinosa (deputy) represent Unionen/Ledarna/ Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Bo Westin (deputy) represent IF Metall.
1) Not independent in relation to major shareholders in the company.
2) Not independent in relation to the company and Group Executive Management.
3) Pertains to own and closely related persons shareholdings.
4) Shareholding in Sandvik in addition to shareholding via L E Lundbergföretagen AB totals 27,500,000, and shareholding via AB Industrivärden totals 144,577,252.
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 andprofittrend, Board meetings address thegoalsand strategies for the operations, acquisitions and major investments, as well as matters relating to the financial structure. Senior executives reportbusinessplansand strategic issues to the Board on an ongoing basis. The respective committees prepare remuneration and audit matters.
To ensure that the Board of Directors meets with required standards,asystematic and structuredprocesshas been developed to evaluate the work that the Board and its members perform. The evaluation of the work of the Board and its need for experience and expertise covers each individual member. The Board discusses the evaluations inaplenary meeting. The Chairman of the Board presents the results of the evaluation ata meeting with the Nomination Committee.
Attendance at Board and Committee meetings in 2011
1) Left the Board in conjunction with the Annual General Meeting on 3 May 2011.
2) Elected as Board member at the Annual General Meeting on 3 May 2011.
composition of the board of directors Sandvik's Board of Directors, to the extent elected at the Annual General Meeting, has eight members. Pursuant to Swedish legislation, union organizations are entitled to representation on the Board and they have appointed two additional members and twodeputies.
In accordance with the Nomination Committee'sproposal,Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Anders Nyrén, Simon Thompson and Lars Westerberg were re-elected at the Annual General Meeting in 2011. Johan Karlström and Olof Faxander were elected new members of the Board. Anders Nyrén was re-elected Board Chairman. The trade unions appointed Tomas Kärnström and Jan Kjellgren as Board members and Alicia Espinosa and Bo Westin asdeputies. Sandvik's General Counsel Bo Severin served as secretary of the Board, the Remuneration and Audit Committees as well as the Nomination Committee. The Board members are presented in more detail on pages 112–113.
Anders Nyrén and Fredrik Lundberg are notindependent in relation to major shareholdersin the company and Olof Faxander isnotindependent in relation to the company andGroupExecutive Management. The other five members elected by the General Meeting are all independent in relation to Sandvik and major shareholders.Accordingly, the composition of the Board complies with the requirements in the Code that the majority of the members elected by the General Meeting be independent in relation to the company and Group Executive Management and thataminimum of two of those members that are independent in relation to the company and its management shall also be independent in relation to major shareholders.
During the year, the Board held 12 meetings. The Board addressed the strategic direction. The executive managements of all three businessareas presented theirgoalsand strategies. The Board also addressed matters related to personnel, such as successionplanningand remuneration terms, and matters relating to investments, acquisitions and divestments, including thepublicoffer to acquire the minority shares of the subsidiary Seco Tools AB.
In addition, 175,000 SEK was paid to the Chairman and 150,000 SEK to each member of the Audit Committee, in total 475,000 SEK. The Chairman of the Remuneration Committee was paid 125,000 SEK and each Committee member 100,000 SEK, oratotal of 325,000 SEK. For additional information on remuneration of the Board members, see pages 70–73.
The tasks of the Committees and their work procedures are stipulated in written instructions issued by the Board. The Committees' primary task is to draft issues and present them to the entire Board for resolution.
According to the Board's Procedural Guidelines, the Remuneration Committee shall undertake the tasks prescribed by the Code, which includes preparing proposals to the Board of Directors regarding proposed guidelines for remuneration of senior executives that the Annual General Meeting is to resolve on by law. Since the 2011 Annual GeneralMeeting,the members of the Remuneration Committee have been the Board's Chairman Anders Nyrén (also
Chairman of the Remuneration Committee), Egil Myklebust and Lars Westerberg.
The Remuneration Committee's recommendations to the Board cover:
Based on the recommendations of the Remuneration Committee, the Board decides the remuneration of the President and CEO. The President decides on the remuneration to be paid to the other senior executives following consultation with the Remuneration Committee.Foradditional information, see pages 70–73.
During 2011, the Remuneration Committee met onfouroccasions.
Since the 2011 Annual General Meeting, the members of the Audit Committee have been Hanne de Mora (Chairman), Anders Nyrén and Simon Thompson. In 2011, the Committee held five meetings at which the company's external auditor and representatives of the company's management were present. Areas addressed by the Audit Committee mainly related to:
At the 2011 Annual General Meeting, the audit firm KPMG AB was re-elected auditor for the four-year period until the 2015 Annual General Meeting, with George Pettersson as the auditor in charge.
Theprogressof the audit is reported regularly during the year to the managements of individual companies and the businessareas, toGroupExecutive Management, the Audit Committee and to the Board of Sandvik AB. The auditor meets with the company's Board at least oncea year without the CEO or any other member of Group Executive Management attending.
The independence of the external auditor is governed byaspecial instruction prepared by the Audit Committee setting outwhich non-audit services the external auditors may provide to Sandvik.
Audit fees are paid continuously over the mandate period on anapprovedcurrent account basis.Forinformation on fees paid to auditors, see page 73.
Information relating to theGroup'soperational organization andbusinessactivities is available on the company's website, www.sandvik.com.
The threebusinessareas Sandvik Tooling, Sandvik Mining and Construction and Sandvik MaterialsTechnology,comprised Sandvik's operational structure in 2011. The presidents of thebusinessareas report directly to the CEO of Sandvik AB and are responsible for thebusinessactivities of their respective areas. In turn, the businessareas are organized into various product areas or customer segments. Internal Board meetings are held at the businessarea level. Sandvik AB's CEO chairs these meetings. In addition to the president and the financial manager of thebusinessarea, Sandvik AB's Senior Executive Vice Presidents and the General Counsel attended these meetings. Senior Executive Vice President Peter Larson is aBoard member of Seco Tools AB and thus does not participate in Sandvik Tooling's Board meetings.
From1February 2011,GroupExecutive Management comprised Olof Faxander, President and CEO, Anders Thelin, Sandvik Tooling, Lars Josefsson (until5September 2011), Sandvik Mining and Construction, Peter Gossas (until April 2011), Sandvik MaterialsTechnology,Jonas Gustavsson (from1May 2011), Sandvik Materials Technology, Peter Larson, Senior Executive Vice President, Ola Salmén, Senior Executive Vice President and CFO, Bo Severin, Executive Vice President and General Counsel,Anna Vikström Persson (from 1March 2011), Executive Vice President and Head of Human Resources, and Tomas Nordahl (from1October 2011) Executive Vice President and Head of IT, sourcing and strategy. Peter Larson served as the Acting President of Sandvik Mining and Construction Business Areafrom 5September 2011.Anew Group Executive Management team will come into effect in 2012, for more details refer to page 4.
GroupExecutive Management is convened each month and deals with the Group's financial development, Group-wide development projects, leadership and competence sourcing, and other strategic issues. The Sandvik Group has established Group functions responsible for such Group-wide activities as financial reporting,business analysis, treasury, IT, communications, internalcontrol,legal affairs, HR, taxes, investor relations, intellectualproperty rights, and patents and trademarks. Intellectual property rights and patents and trademarks are managed byaseparate, wholly owned Group entity. In addition to Group Executive Management, business areas and Group functions,anumber of councils are commissioned to coordinateGroup-wide strategic areas, such as environment, health and safety, research and development, purchasing,IT, finance and HR.
The CEO and other members ofGroup Executive Management are presented on page 114.
Foreach country in which Sandvik has asubsidiary, there isaCountry Manager whosetask includes representing Sandvik in relation topublicauthorities in the country, assuming responsibility for Group-wideissues, coordinatingGroupwide processes, and ensuring compliance withGroup-wideguidelines.
Foreach country,amember ofGroup Executive Management, or another individual appointed byGroupExecutive Management, has been given the overriding responsibility for thebusiness(Group Management Representative). In most cases, this individual serves as Chairman on local Boards and is responsible, through the Country Manager, for ensuring compliancewith Group-wide guidelines.
Remuneration of senior executives Forprinciples, remuneration and other benefits payable toGroupExecutive Management, refer to pages 70–73.
Internal control and risk management The Board has the overall responsibility to ensure that theGroup'ssystem for management and internalcontrolis effective.
The guidelines for Sandvik's operations are assembled in The Power of Sandvik, the contents of which include:
TheGroup'srisk management complies with the ERM model and is integrated with the dailyplanning,monitoring and controlwithin the framework of strategic and operational management. Effective risk management unites operational business development with demands from shareholdersand otherstakeholdersfor controland sustainable value creation. Risk management also aims to minimize risks while ensuring thatopportunities are leveraged in the best possible way.
The financial statements are established in accordance with prevailing legislation, International Financial Reporting Standards (IFRS) and the listing agreement with the NASDAQ OMX Stockholm. This description of internal control over financial reporting is prepared in accordance with the Annual Accounts Act and constitutes an integral part of the Corporate Governance Report.
Sandvik's finance organization managesa well-established financial reportingprocess aimed at ensuringahigh level of internalcontrol.The internalcontrolsystemappliedcomplies with the conceptual framework of COSO, which is based on five key components comprising good internalcontrolin large companies. The five components areControlEnvironment, Risk Assessment,ControlActivities, Information and Communication and, finally, Monitoring and follow up.
The internalcontrolprocedures cover all stages of the financial reportingprocess,fromthe initial recording of transactions in each subsidiary and reporting entity, to the validation and analysis of eachbusinessarea and further to the consolidation, quality assurance, analysis and reporting atGrouplevel. The way Sandvikappliesthe COSO framework is described below.
As described earlier in the Annual Report, The Power of Sandvik (PoS) is the primarysourcefor the guidelines governing management and staff, internal controland conduct at Sandvik. The PoS contains the Sandvik Code of Conduct, delegation instruments, including signatory and authorization principles for decision-making and costapprovals, request andapprovalprocedures regarding investments and acquisitions, among other items.
In the area of financial reporting, the Sandvik Financial Reporting Procedures have been implemented. This document contains detailed instructions regarding
accounting policies and financial reporting procedures to beappliedby all Sandvik reporting entities. In the 20 majorcountries where Sandvik operates, Country Financial Managers are appointed to support the local management and finance organizations and to provide alink between reporting entities and Groupfinance. AtGrouplevel,Group FinancialControlmanages the reporting processto ensure the completeness and correctness of financial reporting and its compliance with IFRS requirements. Group Business Control performs the business analysis and compiles the report on operational performance. Both statutory and management reporting is performed in close cooperation withbusinessareas and specialist functions such as tax, legal and financial services to ensure the correct reporting of the incomestatement,balance sheet, equity and cash flow.
The ERM work at Sandvik described earlier in the Annual Report also includes the area of financial reporting. This means that risk management isanatural element of the daily work on and responsibility for financial reporting. Specific activities have been established with the purpose of identifying risks, weaknesses and any changes needed to the financial reporting processto minimize risks. The combination ofrolesand responsibilities, work descriptions, IT systems, skills and expertise creates an environment that is monitored continuously to identify and manage potential risks.
Controlactivities have been implemented in all areas that affect financial reporting. The internalcontrolactivities follow the logic of the reportingprocessand the finance organization. In each reporting entity, the finance staff is responsible for the correct accounting and closing of books. The finance staff adheres to the Sandvik Financial Reporting Procedures and validates and reconciles local accounts before submitting them tobusiness area management andGroupfinance for consolidation.
Controllersin the product andbusiness areas perform analytical reviews and investigations, conductbusinesstrend analyses and update forecasts and budgets. They investigate certain issues related to the financial information when needed. All business areas present their financial performance in written reports ona monthly and quarterly basis.
GroupFinancialControl,GroupBusinessControlandGroupAssurance all have key responsibilities forcontrolactivities regarding financial reporting.
Financial reports settingouttheGroup's financial position and the earnings trend of operations are regularly submitted to the Board. The Board deals with all quarterly interim reports as well as the Annual Report prior topublishingand monitors the audit of internalcontroland financial statements conducted byGroup Assurance and external auditors.
The business areas and major countries also haveasystem of internal Board meetings withaformalagenda,including financial information, monitoring and decisions related to financial and accounting matters.
Steering documents, such as policies and instructions, are updated regularly on the company's intranet and are available to Sandvik's employees. Reporting requirements are also updated on the company's intranet and are communicated through formal and informal channels, as well as at regular meetings and conferences.
Information to external parties is communicated regularly on Sandvik's website, which contains news and press releases. Quarterly interim reports are published externally and are supplemented by investor meetings attended by Group Executive Management.In addition, there is an establishedagendafor communicating information on shareholder meetings and other information to owners. The Annual Report is made available to shareholders and the general public, both asaprinted version and on Sandvik's website.
Order status, sales statistics and cash flow are reported and monitored ona monthly basis whileacomprehensive and complete closing of books, together with afull reporting package provided to the GroupExecutive Management and the Board, is performed quarterly and for the full fiscal year.
Each business entity manager and finance organization is ultimately responsible for continuously monitoring the financial information of the various entities. In addition, the information is monitored atabusiness area level, by Group staff functions, Group Executive Management and by the Board. The Audit Committee at Sandvik isakey body in the monitoring of financial reporting and different aspects thereof.
The quality of the financial reporting process and internal controls are assessed by Group Finance every month as part of the quality assurance of reporting. The Sandvik internal audit function Group Assurance independently monitors the internal control system of financial reporting as part of its audit plan.
The external auditors continuously examine the level of internal control over financial reporting. They review the thirdquarter interim report and study the financial reports prepared for the other quarters. In conjunction with the close of the third quarter, the external auditors performamore detailed examination of the operations, known asahard close audit, which includes the Parent Company's reporting and internal control, the business areas, subsidiaries and Group functions. Finally, the external auditors performastandard examination of the annual accounts and Annual Report.
TheGroupAssurance staff function ensures that theGrouphas effective corporate governance, internalcontroland risk management procedures.
GroupAssurance is subordinated to the Board's Audit Committee and the head of the unit reports to the Audit Committee. In functional terms, the head ofGroup Assurance reports to Sandvik's CFO.
The internal audits are based on the Group'sguidelines and policies for corporate governance, risk management and internalcontrolwith regard to such aspects as financial reporting, compliance with the Code of Conduct and IT. The examination results in actions andprograms for improvement. Findings are reported toGroupExecutive Management andbusinessarea management and to the Board's Audit Committee.
| consolidated income statement | 45 |
|---|---|
| consolidated balance sheet | 46 |
| consolidated changes in equity | 48 |
| consolidated cash-flow statement | 49 |
| Revenue 1, 2 94,084 82,654 Cost of sales and services –61,704 –53,131 Gross profit 32,380 29,523 Selling expenses –13,095 –10,848 Administrative expenses –6,416 –5,295 Research and development costs 4 –2,421 –2,106 Share of results of associated companies 7 38 Other operating income 5 347 142 Other operating expenses 6 –654 –425 Operating profit 1, 3, 7, 8 10,148 11,029 Financial income 265 377 Financial expenses –2,234 –1,994 net financing cost 9 –1,969 –1,617 Profit after financial items 8,179 9,412 Income tax 11 –2,318 –2,469 Profit for the year 5,861 6,943 Other comprehensive income Translation differences during the year –270 –2,386 Fair-value changes in cash-flow hedges –451 566 Fair-value changes in cash-flow hedges transferred to profit/loss for the year –171 49 Tax related to fair-value changes in cash-flow hedges 11 164 –162 Other total comprehensive loss for the year, net after tax –728 –1,933 Total comprehensive income for the year 5,133 5,010 Profit for the year attributable to: Equity holders of the Parent 5,498 6,634 Non-controlling interests 363 309 Total comprehensive income for the year attributable to: Equity holders of the Parent 4,773 4,769 Non-controlling interests 360 241 Basic earnings per share, SEK 12 4.63 5.59 Diluted earnings per share, SEK 12 4.63 5.59 |
MSEK | Note | 2011 | 2010 |
|---|---|---|---|---|
| MSEK | Note | 2011 | 2010 |
|---|---|---|---|
| AssETs | |||
| non-current assets | |||
| Intangible assets | |||
| Patents and other intangible assets | 13 | 2,773 | 2,859 |
| Goodwill | 13 | 9,034 | 10,334 |
| Total | 11,807 | 13,193 | |
| Property, plant and equipment | |||
| Land and buildings | 13 | 8,349 | 7,811 |
| Plant and machinery | 13 | 12,613 | 13,430 |
| Equipment, tools, fixtures and fittings | 13 | 1,555 | 1,544 |
| Construction in progress and advance payments | 13 | 3,185 | 2,467 |
| Total | 25,702 | 25,252 | |
| Financial assets | |||
| Investments in associated companies | 1, 16 | 456 | 467 |
| Financial assets | 17 | 80 | 78 |
| Deferred tax assets | 11 | 3,070 | 2,056 |
| Non-current receivables | 18 | 3,229 | 3,422 |
| Total | 6,835 | 6,023 | |
| Total non-current assets | 44,344 | 44,468 | |
| current assets | |||
| Inventories | 19 | 26,077 | 21,420 |
| Current receivables | |||
| Trade receivables | 20 | 14,563 | 12,738 |
| Due from associated companies | 141 | 274 | |
| Income tax receivables | 11 | 772 | 765 |
| Other receivables | 18 | 5,310 | 4,676 |
| Prepaid expenses and accrued income | 1,193 | 875 | |
| Total | 21,979 | 19,328 | |
| Cash and cash equivalents | 5,592 | 4,783 | |
| Assets held for sale | 29 | 747 | — |
| Total current assets | 54,395 | 45,531 | |
| TOTAL AssETs | 1 | 98,739 | 89,999 |
| MSEK | Note | 2011 | 2010 |
|---|---|---|---|
| EQUiTY And LiAbiLiTiEs | |||
| Equity | |||
| Share capital | 1,424 | 1,424 | |
| Other paid-in capital | 1,057 | 1,057 | |
| Reserves | 1,849 | 2,574 | |
| Retained earnings including profit/loss for the year | 28,160 | 27,525 | |
| Equity attributable to equity holders of the Parent | 32,490 | 32,580 | |
| non-controlling interests | 1,401 | 1,233 | |
| Total equity | 21 | 33,891 | 33,813 |
| non-current liabilities | |||
| Interest-bearing liabilities | |||
| Provisions for pensions | 23 | 2,358 | 2,264 |
| Loans from financial institutions | 4,485 | 3,142 | |
| Other liabilities | 26 | 20,282 | 20,278 |
| Total | 27,125 | 25,684 | |
| Noninterest-bearing liabilities | |||
| Deferred tax liabilities | 11 | 956 | 1,038 |
| Provisions for taxes | 11 | 3,941 | 3,650 |
| Other provisions | 24 | 1,381 | 895 |
| Other non-current liabilities | 27 | 209 | 286 |
| Total | 6,487 | 5,869 | |
| Total non-current liabilities | 33,612 | 31,553 | |
| current liabilities | |||
| Interest-bearing liabilities | |||
| Loans from financial institutions | 4,095 | 3,109 | |
| Other liabilities | 26 | 1,853 | 674 |
| Total | 5,948 | 3,783 | |
| Noninterest-bearing liabilities | |||
| Advance payments from customers | 2,751 | 2,153 | |
| Accounts payable | 8,133 | 6,889 | |
| Due to associated companies | 63 | 47 | |
| Income tax liabilities | 11 | 1,505 | 1,208 |
| Other liabilities | 27 | 4,322 | 3,760 |
| Provisions | 24 | 1,720 | 879 |
| Accrued expenses and deferred income | 6,686 | 5,914 | |
| Total | 25,180 | 20,850 | |
| Liabilities directly attributed to assets held for sale | 29 | 108 | — |
| Total current liabilities | 31,236 | 24,633 | |
| TOTAL LiAbiLiTiEs | 1 | 64,848 | 56,186 |
| TOTAL EQUiTY And LiAbiLiTiEs | 98,739 | 89,999 |
For information on contingent liabilities and pledged assets, refer to Note 30.
| Equity attributable to equity holders of the Parent Company | |||||||
|---|---|---|---|---|---|---|---|
| MSEK | Share capital | Other paid-in capital |
Reserves | Retained earnings incl. profit/ loss for the year |
Total | Non controlling interests |
Total equity |
| Equity at 1 January 2010 | 1,424 | 1,057 | 4,439 | 22,067 | 28,987 | 970 | 29,957 |
| Profit for the year | — | — | — | 6,634 | 6,634 | 309 | 6,943 |
| Other comprehensive income/loss | — | — | –1,865 | — | –1,865 | –68 | –1,933 |
| Total comprehensive income/loss for the year | — | — | –1,865 | 6,634 | 4,769 | 241 | 5,010 |
| Acquisition of non-controlling interests | — | — | — | 10 | 10 | –17 | –7 |
| Divestment of non-controlling interests | — | — | — | — | — | 41 | 41 |
| Dividends | — | — | — | –1,186 | –1,186 | –2 | –1,188 |
| Equity at 31 december 2010 | 1,424 | 1,057 | 2,574 | 27,525 | 32,580 | 1,233 | 33,813 |
| Equity at 1 January 2011 | 1,424 | 1,057 | 2,574 | 27,525 | 32,580 | 1,233 | 33,813 |
| Profit for the year | — | — | — | 5,498 | 5,498 | 363 | 5,861 |
| Other comprehensive income/loss | — | — | –725 | — | –725 | –3 | –728 |
| Total comprehensive income/loss for the year | — | — | –725 | 5,498 | 4,773 | 360 | 5,133 |
| Acquisition of non-controlling interests, controlling interest previously | — | — | — | –18 | –18 | –5 | –23 |
| Acquisition of non-controlling interests, no controlling interest previously | — | — | — | — | — | 61 | 61 |
| Share-based payment regulated by equity instruments | — | — | — | 67 | 67 | — | 67 |
| Hedging of options program through equity swaps | — | — | — | –1,353 | –1,353 | — | –1,353 |
| Dividends | — | — | — | –3,559 | –3,559 | –248 | –3,807 |
| Equity at 31 december 2011 | 1,424 | 1,057 | 1,849 | 28,160 | 32,490 | 1,401 | 33,891 |
| MSEK | 2011 | 2010 |
|---|---|---|
| Cash flow from operating activities | ||
| Income after financial income and expenses | 8,179 | 9,412 |
| Adjustment for depreciation, amortization and impairment losses | 5,823 | 4,038 |
| Adjustment for non-cash items, etc. | 1,359 | –130 |
| Income tax paid | –2,587 | –1,056 |
| cash flow from operating activities before changes in working capital | 12,774 | 12,264 |
| Changes in working capital | ||
| Change in inventories | –4,699 | –2,161 |
| Change in operating receivables | –2,598 | –2,832 |
| Change in operating liabilities | 2,567 | 5,041 |
| cash flow from changes in working capital | –4,730 | 48 |
| Investments in rental equipment | –440 | –369 |
| Divestments of rental equipment | 160 | 206 |
| cash flow from operating activities | 7,764 | 12,149 |
| Cash flow from investing activities | ||
| Acquisition of companies and shares, net of cash acquired | –338 | –1,216 |
| Acquisition of property, plant and equipment | –4,994 | –3,378 |
| Proceeds from sale of property, plant and equipment | 152 | 214 |
| net cash used in investing activities | –5,180 | –4,380 |
| net cash flow after investing activities | 2,584 | 7,769 |
| Cash flow from financing activities | ||
| Proceeds from borrowings | 3,576 | 1,044 |
| Repayment of borrowings | –1,423 | –10,301 |
| Acquisition of non-controlling interests | –23 | –7 |
| Divestment of non-controlling interests | — | 41 |
| Dividends paid | –3,807 | –1,188 |
| cash flow from financing activities | –1,677 | –10,411 |
| Cash flow for the year | 907 | –2,642 |
| Cash and cash equivalents at beginning of year | 4,783 | 7,506 |
| Foreign exchange differences on cash and cash equivalents | –98 | –81 |
| cash and cash equivalents at end of year | 5,592 | 4,783 |
Supplementary information, Note 33.
| Parent Company income statement | 51 |
|---|---|
| Parent Company balance sheet | 52 |
| Parent Company statement of changes in equity | 54 |
| Parent Company cash-flow statement | 55 |
| MSEK | Note | 2011 | 2010 |
|---|---|---|---|
| Revenue | 2 | 17,460 | 17,668 |
| Cost of sales and services | –15,207 | –13,348 | |
| Gross profit | 2,253 | 4,320 | |
| Selling expenses | –748 | –631 | |
| Administrative expenses | –3,725 | –2,820 | |
| Research and development costs | 4 | –1,150 | –932 |
| Other operating income | 5 | 1,415 | 911 |
| Other operating expenses | 6 | –799 | –741 |
| Operating profit/loss | 3, 8 | –2,754 | 107 |
| Income from shares in Group companies | 9 | 2,815 | 5,336 |
| Income from shares in associated companies | 9 | 10 | 5 |
| Interest income and similar items | 9 | 611 | 665 |
| Interest expenses and similar items | 9 | –1,679 | –1,376 |
| Profit/loss after financial items | –997 | 4,737 | |
| Appropriations | 10 | –8 | 2 |
| Income tax | 11 | 625 | –420 |
| Profit/loss for the year | –380 | 4,319 |
Profit/loss for the year corresponds to total comprehensive income for the year
| MSEK | Note | 2011 | 2010 | 1/1-2010 |
|---|---|---|---|---|
| AssETs | ||||
| non-current assets | ||||
| Intangible assets | ||||
| Patents and other intangible assets | 14 | 17 | 25 | 17 |
| Total | 17 | 25 | 17 | |
| Property, plant and equipment | ||||
| Land and buildings | 14 | 750 | 675 | 638 |
| Plant and machinery | 14 | 4,110 | 4,443 | 4,275 |
| Equipment, tools, fixtures and fittings | 14 | 353 | 374 | 376 |
| Construction in progress and advance payments | 14 | 1,779 | 1,276 | 1,333 |
| Total | 6,992 | 6,768 | 6,622 | |
| Financial assets | ||||
| Shares in Group companies | 15 | 15,937 | 15,037 | 14,366 |
| Due from Group companies | 1,336 | 148 | 152 | |
| Investments in associated companies | 16 | 66 | 66 | 4 |
| Other investments | 1 | 1 | 1 | |
| Non-current receivables | 18 | 27 | 61 | 101 |
| Deferred tax assets | 11 | 1,135 | 518 | 865 |
| Total | 18,502 | 15,831 | 15,489 | |
| Total non-current assets | 25,511 | 22,624 | 22,128 | |
| current assets | ||||
| Inventories | 19 | 4,023 | 3,675 | 3,310 |
| Current receivables | ||||
| Trade receivables | 631 | 804 | 569 | |
| Due from Group companies | 13,122 | 17,748 | 20,691 | |
| Due from associated companies | 129 | 263 | 117 | |
| Income tax receivables | 11 | 239 | 203 | 165 |
| Other receivables | 18 | 368 | 521 | 338 |
| Prepaid expenses and accrued income | 1,210 | 461 | 389 | |
| Total | 15,699 | 20,000 | 22,269 | |
| Cash and cash equivalents | 8 | 12 | 9 | |
| Total current assets | 19,730 | 23,687 | 25,588 | |
| TOTAL AssETs | 45,241 | 46,311 | 47,716 |
| MSEK | Note | 2011 | 2010 | 1/1-2010 |
|---|---|---|---|---|
| EQUiTY And LiAbiLiTiEs | ||||
| Equity | ||||
| Non-distributable equity | ||||
| Share capital | 1,424, | 1,424 | 1,424 | |
| Statutory reserve | 1,611 | 1,611 | 1,611 | |
| Total | 3,035 | 3,035 | 3,035 | |
| Distributable equity | ||||
| Profit brought forward | 9,861 | 10,386 | 7,317 | |
| Profit/loss for the year | –380 | 4,319 | 4,255 | |
| Total | 9,481 | 14,705 | 11,572 | |
| Total equity | 21 | 12,516 | 17,740 | 14,607 |
| Untaxed reserves | ||||
| Other untaxed reserves | 22 | 10 | 2 | 4 |
| Total | 10 | 2 | 4 | |
| Provisions | ||||
| Provisions for pensions | 23 | 368 | 99 | 128 |
| Other provisions | 24 | 329 | 182 | 87 |
| Total | 697 | 281 | 215 | |
| Non-current interest-bearing liabilities | ||||
| Loans from Financial institutions | 25 | 1,816 | 463 | 1,894 |
| Loans from Group companies | 25 | 301 | 43 | 40 |
| Other liabilities | 25 | 13,955 | 14,086 | 17,145 |
| Total | 16,072 | 14,592 | 19,079 | |
| Non-current noninterest-bearing liabilities | ||||
| Other liabilities | 33 | — | 22 | |
| Total | 33 | — | 22 | |
| Current interest-bearing liabilities | ||||
| Loans from Financial institutions | 1,910 | 1,539 | — | |
| Loans from Group companies | 5,727 | 6,399 | 6,526 | |
| Other liabilities | 1,395 | 374 | 3,160 | |
| Total | 9,032 | 8,312 | 9,686 | |
| Current noninterest-bearing liabilities | ||||
| Advance payments from customers | 577 | 599 | 429 | |
| Accounts payable | 2,032 | 1,595 | 1,147 | |
| Due to group companies | 702 | 281 | 270 | |
| Due to associated companies | 1 | 1 | — | |
| Other liabilities | 453 | 225 | 202 | |
| Accrued expenses and deferred income | 28 | 3,116 | 2,683 | 2,055 |
| Total | 6,881 | 5,384 | 4,103 | |
| TOTAL EQUiTY And LiAbiLiTiEs | 45,241 | 46,311 | 47,716 | |
| Pledged assets | 30 | — | — | — |
| Contingent liabilities | 30 | 12,006 | 11,228 | 17,778 |
| MSEK | Share capital | Statutory reserve | Distributable equity | Total equity |
|---|---|---|---|---|
| Equity at 1 January 2010 | 1,424 | 1,611 | 11,572 | 14,607 |
| Profit for the year | — | — | 4,319 | 4,319 |
| Dividend | — | — | –1,186 | –1,186 |
| Equity at 31 december 2010 | 1,424 | 1,611 | 14,705 | 17,740 |
| Loss for the year | — | — | –380 | –380 |
| Dividend | — | — | –3,559 | –3,559 |
| Share-based payment regulated by equity instruments | — | — | 67 | 67 |
| Hedging of options program through equity swaps | — | — | –1,352 | –1,352 |
| Equity at 31 december 2011 | 1,424 | 1,611 | 9,481 | 12,516 |
Profit/loss for the year corresponds to total comprehensive income for the year.
The result of 2,850 MSEK for 2010 was adjusted in the amount of 1,469 MSEK to 4,319 MSEK, with a corresponding adjustment of retained earnings. The adjustment is attributable to changed accounting policies pertaining to Group contributions, for more information refer to the Parent Company's accounting policies.
| MSEK | 2011 | 2010 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit/loss before tax | –1,004 | 4,739 |
| Adjustment for depreciation, amortization and impairment losses | 1,164 | 851 |
| Adjustment for non-cash items, etc. | 700 | –1,328 |
| Income tax paid | –29 | –111 |
| cash flow from operating activities before changes in working capital | 831 | 4,151 |
| Changes in working capital | ||
| Changes in inventories | –348 | –364 |
| Changes in operating receivables | –604 | –2,344 |
| Changes in operating liabilities | 1,098 | 1,218 |
| cash flow from operating activities | 977 | 2,661 |
| Cash flow from investing activities | ||
| Acquisition of companies and shares, net of cash acquired | –887 | –783 |
| Acquisition of property, plant and equipment | –1,421 | –946 |
| Proceeds from sale of companies and shares, net of cash disposed of | 2 | 41 |
| Proceeds from sale of property, plant and equipment | 6 | 13 |
| net cash used in investing activities | –2,300 | –1,675 |
| net cash flow after investing activities | –1,323 | 986 |
| Cash flow from financing activities | ||
| Changes in advances/loans to/from Group companies, net | 3,609 | 5,229 |
| Proceeds from external borrowings | 1,651 | 798 |
| Repayment of external borrowings | –382 | –5,824 |
| Dividend paid | –3,559 | –1,186 |
| net cash used in financing activities | 1,319 | –983 |
| Cash flow for the year | –4 | 3 |
| Cash and cash equivalents at beginning of year | 12 | 9 |
| cash and cash equivalents at end of year | 8 | 12 |
Supplementary information, Note 33.
The consolidated financial statements have been prepared in accordance withInternationalFinancial Reporting Standards (IFRS)adoptedby theInternational Accounting Standards Board (IASB) as endorsed by the EU. Inaddition,the recommendation RFR1Supplementary Accounting Rules for Groups, issued by the Swedish Financial Reporting Board, has been applied.
The Parent Company has applied the sameaccountingpolicies as those applied in the consolidated financial statements except as set out below in thesection "Parent Company'saccountingpolicies."
The financial statements arepresented on pages 14–97 in theprintedAnnual Report. The Parent Company's annual report and the consolidated financial statementswere approved for issuance by the Board of Directors on 15 February 2012. The Group's and the Parent Company's income statements and balance sheets are subject toadoptionat the Annual General Meeting on2May 2012.
Assets and liabilities are stated onahistorical 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 and financial assetsheld for sale.
Receivables and liabilities and items of income and expense are offsetonlywhen required or expressly permitted in an accountingstandard.
The Parent Company'sfunctionalcurrency is Swedish kronor (SEK), which is also the reporting currency of the Parent Company and the Group. Accordingly, the financial statements arepresentedin SEK. Allamountsare in MSEK unless otherwise stated.
The preparation of financial statements in conformity with IFRS requires managementtomakeassessments, estimates and assumptions that affect the application of accountingpolicies and recognized amountsof assets and liabilities, income and expenses. Actual results may differ from these assessments.
The estimates and underlying assumptionsare reviewed on an ongoing basis. Revisions toaccountingestimates are recognized in the period in which the estimate is revised if the revision affectsonlythat period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgmentsmadeby management in the application of IFRS that haveasignificant effect on the financial statements, and estimates withasignificant risk of material adjustmentin the next year, are further discussed below.
Events after the balance sheet date refer to both favorable and unfavorable events that have occurred after the balance sheet date but before the date the financial statementswere authorized for issue by the Board of Directors.Significantnon-adjusting events, that is, events indicative of conditions that arose after the balance sheet date, are disclosed in the financial statements.Onlyadjusting events, that is, those that provideevidenceof conditions that existed at the balance sheet date, have been considered in the final establishment of the financial statements.
The most significantaccountingpolicies for the Group, as set out below, have been appliedconsistentlyto all periods presentedin these consolidated financial statementsexcept as specifically described. Moreover, the Group'saccountingpolicies have beenconsistentlyapplied in the statementsof all members of the Group and also in the statementsof associated companies, where necessary, byadaptationto Group policies.
The changedaccountingpolicies applied by the Group effective1January 2011 are described below. Other revisions to IFRS that cameintoeffect in 2011didnot have any significant impact on the Group's reporting.
The IASB's annual improvements process published in May 2010 changed the requirements contained in IAS1Presentation of Financial Statements regarding the presentation of the statement of changes in equity. According to these changes, the reconciliations in the statement of changes in equity of changes in each component of equity for
the year, and the reserves for accumulated other comprehensive income, do not need to specify each individual item in other comprehensive income. The company has, as permitted under this change, chosen to provide disclosure in the form ofadetailed reconciliation of the reserves and other components of equity inanote instead of in the statement of changes in equity. Following the wording of revised IAS 1, the former line of "Comprehensive income for the year" in the statement of changes in equity has been divided up withaseparate specification of "Profit for the year" and "Other comprehensive income for the year". The changed presentation format is applied to the current year and the comparative year. The change did not result in any adjustments to amounts in the financial statements.
Anumber of new or revised standards and interpretationswill not become effective until future financialyearsand were not applied in advance in the preparation of these financial statements. New items or revisions that become effective in theyears aheadare not planned to be applied in advance.
IFRS9Financial Instruments is intendedto replace IAS 39 Financial Instruments: Recognition and Measurement not later than 2015. The IASB has published the first two of at least three componentsthat will combine to form IFRS 9. This first component addresses the classification and measurement of financial assets. The categories for financial assets that exist in IAS 39 are replaced by two categories, in which measurement is conducted at fair value or amortized cost. Amortized cost is applied to instruments that areheldinabusiness model with the aim of obtaining thecontractualcash flows that comprise payment of principals and interest on principals onaspecified date. Other financial assets are recognized at fair value and the possibility to apply the fair value option, as stipulated in IAS 39, is retained. Changes in fair value are to be recognized in earnings, with theexception of value changes of equity instrumentsheld for trading and for which an initial choice ismadeto recognize value changes in other comprehensive income. Changes in value
of derivatives in hedgeaccountingare not affected by this part of IFRS 9, but will be recognized in line with IAS 39 until further notice. InOctober2010, IASB also published the parts of IFRS9regarding the classification and measurement of financial liabilities. Much is the same as theprevious IAS 39 rules, except regarding financial liabilities that arevoluntarilymeasured at fair value under the Fair ValueOption. The changes in value for these liabilities are to be dividedintochanges attributable to the company's own credit rating and changes in thebenchmarkinterestrate.
The company has notmadeadecision as to whether the new policies will be applied in advance or from 2015.
The revised version of IAS 19 is to be applied to fiscalyearsbeginning1January 2013 or later. The standard is expected to be approved by the EU in early 2012, and Sandvik has decided to apply it from1January 2013.
The revision involves significant changes primarily to the recognition of definedbenefit pension plans:
The standard is expected to haveasignificantimpact on the consolidated financial statements. Related taxescouldgenerate anon-recurring effect that cannot be estimated at the current time. For 2011, the changes would have increased the pension liability by 3,400 MSEK and reduced equity by about 2,400 MSEK (less deductionsfor deferred tax assets).
The following amendments toaccounting policies with prospective application have not been deemed to have any impact on the Group's financial statements:
–Amendments to IAS1 Presentation of Financial Statements –Changes to IAS 12 Income Taxes regarding the valuation for taxes for investment properties– Changes to IFRS7Financial Instruments: Disclosures regarding new disclosure requirements for transfers of financial assets–IFRS 10 Consolidated Financial Statements–IFRS 11 Joint Arrangements–IFRS 12 Disclosure of Interest in Other Entities–Revised IAS 27 Consolidated and Separate Financial Statements–Revised IAS 28 Investments in Associates–IFRS 13 Fair Value Measurement
Asummary of the implications of the revisedaccountingpolicies with prospective application as detailed above is presentedbelow.
Revised IAS1Presentation of Financial Statements (presentation of other comprehensive income). This change refers to how items in other comprehensive income are to be presented. The items are to be divided into two categories: items that will be reclassified to profit for the year and items that will not be reclassified. Examples of items to be reclassified are translation differences and gains/losses on cash-flow hedges. Examples of items not to be reclassified are actuarial gains andlosses,and remeasurements according to the revaluation model for intangible assets and property, plant and equipment. The amendment must be applied retroactively from fiscal years beginning1January 2012. The EU is expected to approve the amendment during the first quarter of 2012.
Amendments to IAS 12 Income Taxes regarding the valuation of tax for investment properties. The change involvesapresumption that investment properties measured at fair value will be realized through sale. According to this approach, deferred tax is normally to be measured based on the tax rate applying at the time of the sale of the property. The amendment must be applied from fiscal years beginning1January 2012. The EU is expected to approve the amendment during the second quarter of 2012.
Amendments to IFRS7Financial Instruments: Disclosures with respect to new disclosure requirements on the transfer of financial assets. The amendment must be applied to fiscal years beginning1July 2011 or later.
IFRS 10 Consolidated Financial Statements. Anew standard for consolidated
accounts. The standard must be applied retroactively to fiscal years beginning1January 2013 or later. The EU is expected to approve the standard during thethirdquarter of 2012.
IFRS 11 Joint Arrangements.Anew standard for recognizing joint ventures and joint operations. The standard must be applied to fiscal years beginning1January 2013 or later. The EU is expected to approve the standard during thethirdquarter of 2012.
IFRS 12 Disclosure of Interests in Other Entities.Anew standard for disclosing investments in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard must be applied retroactively to fiscal years beginning1January 2013 or later. The EU is expected to approve the amendment during the third quarter of 2012.
Revised IAS 27 Consolidated and Separate Financial Statements. The revised standard includes only regulations for legal entities. There are primarily no changes regarding recognition and disclosures for separate financial statements. Recognition and disclosures of associates and joint ventures have been included in IAS 27. The standard must be applied to fiscal years beginning1January 2013 or later. The EU is expected to approve the amendment during the third quarter of 2012.
Revised IAS 28 Investments in Associates. The revised standard is generally the same as the previous IAS 28. The amendments pertain to the recognition of changes in holdings and the loss of significant influence or joint control. The amendments must be applied to fiscal years beginning1January 2013 or later. The EU is expected to approve the amendment during the third quarter of 2012.
IFRS 13 Fair Value Measurement.Anew uniform standard for measuring fair value, as well as improved disclosure requirements. The standard must be applied prospectively to fiscal years beginning1January 2013 or later. The EU is expected to approve the standard during the third quarter of 2012.
Non-current assets and liabilities essentially consist ofamountsexpected to be recovered or settled after more than 12 months from the balance sheet date. Currentassets and current liabilitiesessentially consist ofamountsexpected to be recovered or settled within 12 months from the balance sheet date. The Group's operating cycle is considered to be less than one year.
An operating segment isapart of the Group that pursues operations from which it can generate revenues and incur costs for which separate financial information is available. The result of an operating segmentissubsequentlymonitored by the Group's chief operating decisionmakerto evaluate the outcome and to be able to allocate resources to the operating segment.
The Group's business is dividedinto operations based on the parts of the business monitored by the Group's chief operating decision maker. This is known asa management approach.
Sandvik's business is organized ina 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 apresident thatisresponsible for day-to-day activities and who regularly reports to the CEO regarding the results of the operating segment's work and the need for resources. Since the CEO monitors the business's result and decides on the distributionof 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 anumber of business areas based on products and services. Themarketorganization also reflects this structure. In accordance with IFRS 8, segment information is presentedonlyon the basis of the consolidated financial statements.
Segmentresults, assets and liabilities includeonlythose items that are directly attributable to the segment and the relevantportionsof items that can be allocated onareasonable basis to the segments. Unallocated items compriseinterestand dividend income, gains on disposal of financial investments,interestexpense, losseson the disposal of financial investments,income tax expense and certain administrative expenses. Unallocated assets and liabilities include income tax receivables and payables, financial investmentsand financial liabilities.
Subsidiaries are entities over which the Parent Company hasacontrolling influence. Controllinginterestexists when the Parent has the power, directly or indirectly, to govern the financial and operating policies of an entity so as toobtaineconomic benefits from its activities. In assessing controllinginterest,potential votingrights thatcurrentlyare exercisable or convertible are takenintoaccount.
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 the Group's accounting policies.
Acquisitions of subsidiaries are recognized in accordance with the purchase method. Under suchamethod, the acquisition is regarded asatransactionwhereby the Group indirectly acquires the subsidiary's assets and assumes its liabilities. The acquisitionanalysisdetermines the acquisition-date fair value of acquiredidentifiable assets, assumed liabilities and any noncontrollinginterests.Transaction costs, except fortransactioncosts attributable to the issue of equity instruments or debt instruments, that arise are recognized directly in profit orlossfor the year.
For business combinations in which the consideration transferred, any non-controlling interests and the fair value of previously held equity interests (for step acquisitions) exceeds the fair value of separately recognized acquired assets and assumed liabilities, the difference is recognized as goodwill. When the difference is negative, known asabargain purchase, it is directly recognized in profit or loss for the year.
Consideration transferred in conjunction with the acquisition does not include payments pertaining to the settlement of previous business connections, which is instead recognized in profit or loss.
Contingent considerations are recognized at fair value on the acquisition date. Contingent consideration classified as an equity instrument is not remeasured and its settlement takes place within shareholders' equity. Other types of contingent considerations are remeasured at each reporting period with any change recognized in profit or loss for the year.
Non-controlling interests arise for acquisitions not involving 100%ownership of the subsidiary. Two options are available for recognizing non-controlling interests: recognizing the non-controlling interest's proportionate share of net assets of the acquiree or recognizing the non-controlling interest at fair value, meaning that the non-controlling interest hasashare of goodwill. The options for recognizing noncontrolling interests can be made on an acquisition-by-acquisition basis.
For business combinations achieved in stages (step acquisitions), goodwill is determined on the date on which the controlling interest arises. Former interests are measured at fair value and the change in value recognized in profit or loss for the year.
In conjunction with divestments resulting in the loss ofanon-controlling interest but wherearesidual interest exists, this holding is measured at fair value and the change in value recognized in profit or loss for the year.
Acquisitionsmadebetween1January 2004 and 31 December 2009 where the cost exceeds the fair value of the separately recognized acquired assets and assumed liabilities andcontingentliabilities, the difference is recognized as goodwill. If the difference is negative, it is recognized in profit orlossfor the year.
Transaction costs, except for transaction costs attributable to the issue of equity instruments or debt instruments, that arise are included in the cost.
For acquisitions made prior to1January 2004, impaired goodwill is recognized at cost corresponding to the carrying amount in accordance with previously applied accounting policies. The classification and accounting procedures applied to business combinations occurring prior to1January 2004 were not retested under IFRS3in the preparation of the Group's opening balance sheet in accordance with IFRS on1January 2004.
Acquisitions of non-controlling interests are recognized asatransaction within shareholders' equity, meaning between the Parent Company's owners (under retained earnings) and non-controlling interests. Accordingly, goodwill does not arise in conjunction with such transactions. The change in noncontrolling interests is based on their proportionate share of net assets.
Sales to non-controlling interests, entailinga residual controlling interest, are recognized asatransaction within shareholders' equity, meaning between the Parent Company's owners and non-controlling interests. The difference between the consideration received and the non-controlling interest's proportionate share of acquired net assets is recognized under retained earnings.
Associated companies are those entities over which the Group commandsasignificantinfluence, but notcontrol,over the financial and operating policies, normally ashareholding of not less than 20%and not more than 50 %.Interestsin associated companies are, as from the date significantinfluence commences, recognized in accordance with the equity method in the consolidated financial statements. Under the equity method, the carrying amountsofinterestsin associated companies correspond to the recognized equity of associated companies, any goodwill and any other remaining fair valueadjustments recognized at acquisition date. The consolidated profit orlossfor theyear includes as "Share of profit orlossof associated companies" the Group's share of the associate's income attributable to the owners of the Parent Company adjusted for dissolution of acquired surplus or deficit values. These shares in profits, less dividends received from associates, constitute the main change in the carryingamountof participations in associated companies. The Group's share of other comprehensive income of associated companies is recognized onaseparate line in the Group's other comprehensive income.
Any difference between the cost of the investment and the investor's share of the net fair value of the associate's identifiable assets, liabilities and contingent liabilities is accounted for in accordance with the same principles as those applied to the acquisition of subsidiaries.
Transaction costs, except for transaction costs attributable to the issue of equity instruments or debt instruments, that arise are included in cost.
When the Group's share of recognized losses in associated companies exceeds the value of shares in the Group, the value of the shares is reduced to zero. Losses are also deducted from non-current financial transactions without collateral, which in its financial meaning compriseapart of the owner company's net investment in the associated company. Continued losses are not recognized unless the Group has provided guarantees to cover losses arising in the associated company. The application of the equity method is discontinued on the date that significant influence ceases.
Transactions eliminated on consolidation Intra-Group balances, income and expenses and any unrealized gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealized gains from transactions withassociatedcompanies and jointly controlled entities are eliminated to the extent that they correspond to the Group's interest in the entity. Unrealized losses are similarly eliminated, but only insofar as there is no impairment requirement.
Transactions in foreign currencies are translated into functional currency at the foreign exchange rate prevailing at the date of the transaction. The functional currency is the currency of the primary economic environment in which the Group entities operate. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to functional currency at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognized in profit or loss for the year. Non- monetary assets and liabilities measured in terms of historical cost inaforeign currency are translated using the exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value are retranslated to the functional currency at the exchange rate prevailing at the date that the fair value was determined.
Financial statements of foreign operations The assets and liabilities of foreign operations,including goodwill and fair value adjustmentsarising onconsolidation,are translated from the foreign operation's functionalcurrency to the Group's reporting currency, SEK, at foreign exchange rates prevailing at the balance sheet date. Revenues and expenses of foreign operationsare translated to SEK at average rates that approximate the foreign exchange rates prevailing at each of thetransaction dates. Translation differences arising from the translation of the net investment in foreign operations are recognized in other comprehensive income and are accumulated inaseparate component of equity,a translation reserve. When the foreign operation is divested, the accumulated translationdifferences attributable to the divested foreign operation are reclassified from equity to profit orlossfor theyearasa reclassificationadjustmentat the date on which the profit orlosson the divestment is recognized. For cases in which divestmentsmadeincludearesidual controlling influence, the proportionate share of accumulated translation differences from other
comprehensive income is transferred to non-controllinginterests.
Since1January 2004, meaning the date of transition to IFRS, translation differences have been recognized in the translation reserve.
Monetary non-current receivables or monetary non-currentliabilitiestoaforeign operation for which no settlement is planned or is not likely to take place in the foreseeable future are, inpractice,part of the company's net investment in foreign operations.Aforeign exchange difference arising on the monetary non-current receivable or monetary noncurrentliabilityis recognized in other comprehensive income and accumulated ina separate component of shareholders' equity, entitledtranslation reserve. Whenaforeign operation is divested, the accumulated foreign exchange differences attributable to monetary non-current receivables or monetary noncurrent liabilities are included in the accumulated translation differences reclassified from the translation reserve in equity to profit or loss for the year.
Revenue from the sale of goods is recognized in profit orlossfor theyearwhen the significant risks and rewards of ownership have been transferred to the buyer, that is, normally in connection with delivery. If the product requires installation at the buyer, and installation isasignificant part of the contract, revenue is recognized when the installation is completed. Buy-back commitments mayentailthat sales revenue cannot be recognized if the agreement with the customer in reality implies that the customer hasonlyrentedthe product fora certain period of time.
Revenue from service assignments is normally recognized in connection with the rendering of the service. Revenue from service and maintenance contracts is recognized in accordance with the percentage of-completion method. The stage of completion is normally determined based on the proportion of costs incurred on the balance sheet date in relation to the estimated total costs of the assignment. Only expenditures relating to work carried out or to be carried out are included in calculating the total costs.
Construction contracts exist to some extent, mainly in the Sandvik Mining and Construction business area and the Sandvik Materials Technology's Process Systems product area. As soon as the outcome ofa construction contract can be estimatedreliably, contract revenue and expenses are recognized in profitorloss for the year in proportion to the stage of completion of the contract. The stage of completion is determined based on the proportion that contract costs incurred to date bear to the estimated total contract costs. Expected losses are immediately recognized as an expense in consolidated profitorloss for the year.
Revenue in the form of royalty is recognized on the basis of the financial implications of the agreement.
Government grants are recognized as deferred income in the balance sheet when there is reasonable assurance that the grant will be received and that the entity will comply with the conditions attaching to them. Grants are recognized in 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, onasystematic basis. Grants related to assets are presented by deducting the grant from the carrying amount of the asset.
Costs for operating leases are recognized in profit orlossfor theyearonastraightline basis over the term of the lease. Lease incentives received are recognized in profit orlossfor theyearas anintegralpart of the total lease expense. Variable fees are expensed in the period in which they were incurred.
Minimum lease payments are apportioned between the finance charge and the reductionof the outstanding liability. The finance charge is allocated to each period so as to produceaconstant periodic rate of intereston the remaining balance of the liability. Variable fees are expensed in the period in which they were incurred.
Financialincomecomprisesinterest income on funds invested (including financial assets available-for-sale), dividend income, gains on the disposal of financial assets availablefor-sale, and gains on hedging instruments recognized in profitorloss for the year.
Interestincome from financial instrumentsis recognized using the effective interestmethod (see below). Dividend income is recognized when the Group's rightto receive payment is established. Income from the sale ofafinancial instrumentis recognized when the risks and benefits associated with ownership are transferred to thebuyerand the Group no longerhascontrolover the instrument.
Financial expenses compriseinterest expense on borrowings, unwinding of the discounteffect on provisions, impairment lossesrecognized on financial assets, and losseson hedging instruments that are recognized in profit for the year. Borrowing costs are recognized in profit orlossusing the effectiveinterestmethod, except for the portionthat is directly attributable to the purchase, construction or production of assets that takeaconsiderableamountof time to complete for theirintendeduse or sale. In suchacase, they are included in the asset's cost.
The effectiveinterestrate is the rate that exactlydiscountsestimated future cash payments or receipts through the expected life of the financial instrument to the net carryingamountof the financial asset or financial liability. The calculation includes all fees and points paid or received between contractualparties that are anintegral part of the effectiveinterestrate, transactioncosts, and all other premiums or discounts.
Income tax comprises current and deferred tax. Income tax is recognized in profit or lossfor theyearexcept when the underlyingtransactionis recognized in other comprehensive income, in which case the associated tax effects are recognized in other comprehensive income or in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet liability method, based on temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and theamounts used for taxation purposes. Deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill, or for temporary difference
arising on the initial recognition of assets or liabilities that affect neitheraccounting nor taxable profit.Additionally,deferred tax is not recognized on temporary differences relating to investments in subsidiaries and associated companies to theextent that they willprobablynot be reversed in the foreseeable future. Theamountof deferred tax provided is based on the expected manner of realization or settlementof the carryingamountof the underlyingassets 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 taxlosscarryforwards are recognizedonlyto theextent that it is probable that future taxable profits will be available against which the asset can be utilized. The value of deferred tax assets is reduced to theextentthat it is no longerprobable that the related tax benefit will be realized.
Anyadditionalincome taxes that arise from thedistributionof dividends are recognized at the same time as the liability to pay the related dividend.
Financialinstruments recognized in the balance sheet include assets, such as cash and cash equivalents, loan and trade account receivables, financial investments and derivatives, and liabilities such as loan liabilities, accounts payable and derivatives.
Afinancial asset orafinancial liability is recognized on the balance sheet when the entity becomesaparty to thecontractual provisions of the instrument. Trade receivables are recognized upon issuance of the invoice.Aliability is recognized when the counterpartyhas performed under the agreement and the company iscontractuallyobligedto settle theobligation,even if no invoice has been received.
Afinancial asset is derecognized when the rights under the agreement are realized orhave expired,orwhen control of the contractual rights is lost. The same applies toaportion ofafinancial asset.Afinancial liability is derecognized when the obligation specified in the contract is discharged orotherwise expires. The same applies toa portion ofafinancial liability.
Afinancial asset andafinancial liability are offset and presented inanet amount in the balance sheet only if there isalegally enforceable right to set off the recognized amounts and there is an intention either to
settle onanet basisorto realize the asset and settle the liability simultaneously.
Aregular purchaseorsale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Trade date is the date at which an entity commits itself to purchaseorsellan asset.
Anon-derivative financial instrument is initially recognized attransactionprice equivalent to the fair value of the instrument.The Group classifies its financial instruments based on the purpose for its acquisition. Management decides its classification on initial recognition. The classification ofafinancial asset determines how it is measured after initial recognition. Sandvik's holdings of financial instruments are classified as follows:
Cash and cash equivalents comprise cash balances and call deposits with banks and equivalent financial institutions, and shortterm investments that haveamaturity of no more than three months from the date of acquisition, and are exposed only to an insignificant risk of changes in value.
Financial assets and liabilities are classified as follows:
i) Financial assets and financial liabilities heldfor trading, which comprise all derivativesheldby Sandvik. Derivatives trading is pursuedmainlyto hedge the Group's foreign exchange andinterestrate risks. Derivatives with positive fair values are recognized as other current or non-current receivables (unrealized profits), while derivatives with negative fair values are recognized as other current or non-current liabilities (unrealized losses).
ii) Financial assets and liabilities which are initially classified as belonging to this category (fair value option). Sandvik holds no financial instruments classified in this subgroup.
Non-current receivables and among noncurrent assets and currenttradereceivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket.After the initial recognition, these assets are measured at amortized cost using the effective interestmethod, less any reserve for value depletion.
Financial liabilities, that is, Sandvik's borrowings, are initially measured at fair value net oftransactioncosts. Borrowings aresubsequentlymeasured at amortized cost and any difference between theloan amount(net oftransactioncosts) and the repayableamountis allocated to profit or lossfor theyearover the term of theloan using the effectiveinterestmethod. Borrowings are classified as current unless the company has an unconditionalrightto postpone payment for at least 12 months after the balance sheet date.
Investments in shares and participations reflect holdings that are nottradedon an activemarketand are classified as financial assets available-for-sale. Such assets are, after initial recognition, principally measured at their fair values with gains or lossesarising fromachange in the fair value recognized directly in equity. However, if there is objectiveevidencethat the asset is impaired, the cumulativelossrecognized directly in equity is removed from equity and recognized in profit for the year. Investments in equity instruments that do not haveaquotedmarketprice in an activemarketand whose fair value cannot be reliably measured are, however, measured at cost,possiblyadjusted to recognize an impairmentloss.
The policies set out above are those that Sandvikmainlyapply whenaccountingfor financial assets and financial liabilities. The exceptions from the abovementioned principles apply to financial instruments that form part of hedging relations.
The Group's derivative instruments are acquired to hedgeinterestrates and foreign exchange risks to which the Group is exposed as well as the risk for changes in the fair value of certain assets, liabilities andcontractedtransactions. Derivatives are initially recognized at fair value. Transactioncosts are recognized in profit orlossfor the year. After initial recognition,derivatives are measured at fair value and the change in value is recognized in the manner described below.
To meet the criteria for hedge accounting, there must beaclear-cut relation to the hedged item and the hedge must be expected to be highly effective and it must be possible to measure such effectiveness reliably. Moreover, the hedge must be formally designated
and documented. Gains and losses on hedges are recognized in profit or loss for the year at the same time that the gains and losses are recognized for the hedged items.
Sandvik does not apply hedge accounting to all hedging transactions. When hedge accounting is not applied, the different handling of derivatives, which are measured at market value, andliabilities,measured at amortized cost, result in volatilityin the financial net in the terms of accounting.
In financial terms, Sandvik believes that its hedgingactivitiesare appropriate and that its risk management complies with the finance policy approved by the Board.
Sandvik uses foreign exchangecontractsto hedge the foreign exchange risk inherent in these assets and liabilities. Hedgeaccounting is not applied to derivatives that economically hedge such monetary assets and liabilities denominated in foreign currencies. Rather, both the underlying receivable or liability and the hedging instrument are measured at the exchange rate ruling on the balance sheet date and exchange-rate fluctuations are recognized in profit orloss for the year.
Sandvik uses foreign exchangecontracts and foreign currencyoptionsto hedge future cash flows and forecast transactions denominated in foreign currencies, including intra-Group transactions as defined in the amendment to IAS 39 issued by the IASB in April 2005. These derivative instruments are included in the balance sheet at fair value. The effectiveportionof the change in fair value for theyearis recognized in other comprehensive income and the accumulated changes inaseparate component of shareholders' equity (the hedging reserve) until the hedged flow impacts profit orlossfor the year, at which pointthe accumulated changes in value of the hedging instrument are reclassified to profit orlossfor theyearin conjunction with the hedged item impacting profit or lossfor the year. The ineffectiveportionof again orlossis immediately recognized in profit orlossfor the year. Toalesser extent,Sandvik hasenteredintoforeign exchangecontractsthat are not designated as hedging instruments. The changes in fair value of thesecontractsare directly recognized in profit orlossfor the year.
The accumulated gain or loss recognized in equity is reclassified into profit or loss for the year in the periods during which the hedged item affects profit or loss (for instance when the forecast sales that are hedged take place). If the hedged forecast transaction subsequently results in the recognition ofanonfinancial asset (for instance, inventories or an item of property, plant and equipment), ora non-financialliability,the hedging reserve is dissolved and the gain or loss is included in the initial cost or other carrying amount of the asset orliability.
Interest-rate swaps are used to hedge the risk in future interest rate flows of loans with floating interest rates. The swaps are measured at fair value in the balance sheet. The interest coupon on swaps is recognized as interest income or interest expense in profit or loss for the year. The remaining change in fair value is recognized directly in the hedging reserve in equityuntilthe hedged item is recognized in profit for the year, and as long as the criteria for hedge accounting and hedge effectiveness are met. Some of Sandvik's interest rate swaps do not meet the criteria for hedge accounting and the changes in fair value of these instruments are therefore recognized in profit or loss for the year.
Whenahedging instrument is used to hedge the exposure to changes in fair value, changes in the fair value of the instrument are recognized in profit orloss for the year. The gain orlosson the hedged item attributable to the hedged risk adjusts the carryingamountof the hedged item and is recognized in profit orloss.
Fair value hedges are used to hedge the fair value of assets and liabilities recognized in the balance sheet, provided that the hedged item is otherwise recognized at purchase value, and by contracted flows. The derivative instruments used include commodity and electricity derivatives used to hedge delivery contracts entered into with suppliers.
Sandvik has no derivates that are used to hedge net investments in foreign operations.
Goodwill acquired inabusiness combinationrepresents the excess of the cost of the business combination over the net fair value of theidentifiableassets, liabilities andcontingentliabilities recognized.
Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is
tested annually for impairment. Goodwill arising on the acquisition of an associated company is included in the carrying amount of participations in associates.
On transition to IFRS, the company has not applied IFRS retrospectively to business combinations effected before1January 2004. Instead, the carrying amount of goodwill at that date henceforth constitutes itsdeemedcost, adjusted only for any impairment losses.
If inabusiness combination the fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the difference is immediately recognized in profit or loss for the year.
Expenditure on research activities related to the obtaining of newscientificor technical knowledge is expensed as incurred. Expenditure ondevelopmentactivities, whereby the research results or other knowledge is applied to accomplish new or improved products or processes, is recognized as anintangibleasset in the balance sheet, provided the product or process is technically and commerciallyfeasibleand the company has sufficient resources to completedevelopment,and issubsequently able to use or sell theintangibleasset. The carryingamountincludes the directly attributable expenditure, such as the cost of materials and services, costs ofemployee benefits, fees to registerintellectualpropertyrightsand amortization of patents and licenses. Other expenses fordevelopment are expensed as incurred. In the balance sheet, capitalizeddevelopmentexpenditure is stated at cost less accumulated amortizationand 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. Expenditure for internally generated goodwill and trademarks is expensed as incurred.
Subsequent expenditure on capitalized intangible assets is capitalized only when it increases the future economic benefits. All other expenditure is expensed as incurred.
Borrowing cost attributable to the construction of qualifying assets are capitalized asaportion of the qualifying asset's cost.A qualifying asset is an asset that takesasubstantial period of time to get ready for its intended use or sale. Firstly, borrowing costs that arise on loans that are specific to the qualifying asset are capitalized. Secondly, borrowing costs are capitalized that arise on general loans that are not specific to any other qualifying asset. For the Group, the capitalization of borrowing costs is mainly relevant for capitalized expenditure for the development of new data systems.
Amortization is charged to profit orloss for theyearonastraight-line basis over the estimated useful lives ofintangibleassets unless such lives are indefinite. Goodwill andintangibleassets with an indefinite useful life are systematically tested for impairmentannually or as soon as there is an indication that the asset may be impaired.Intangibleassets withafinite useful life are amortized as from the date the asset is available for use.
The estimated useful lives are as follows: Patents and trademarks 10–20 years. Capitalized development costs 3–7 years. Software for IT operations3years.
Itemsof property, plant and equipment are recognized at cost less accumulated depreciation and any impairment losses.
In the consolidated financial statements, leases are classified as either finance leases or operating leases.Afinance lease substantiallytransfers the economic risks and rewards of ownership to the lessee. If that is not the case, the lease is classified as an operating lease.
Assets leased under finance leases are recognized as assets in the consolidated balance sheet and are initially measured at the lower of the fair value of the leased property and thepresentvalue of the minimum lease payments at inception of the lease. Theobligationto pay future leasing fees is recognized as interest-bearing noncurrent and current liabilities. The leased assets are systematically depreciated and the leasing fees are apportioned between interestexpense and the reduction of the outstanding liabilities.
Assets leased under operating leases are not recognized as an asset in the consolidated balance sheet. Nor do operating leases give rise to any liabilities.
In cases in which Sandvik is the lessor underafinancial lease, the assets held under such leases are not presented as property, plant and equipment since the risks of ownership have been transferred to the lessee. Instead, the future minimum lease payments are recognized as financial receivables.
Subsequent expenditure is added to the cost if the expenditure pertains to the replacement of identified components or parts of such components. The expenditure is also added to the cost whenanew component is created. Any non-depreciated carrying amounts for replaced components, or parts of components, are eliminated and expensed in conjunction with the replacement. Repairs are expensed continuously.
Borrowing costs attributable to the construction of qualifying assets are capitalized asaportion of the qualifying asset's cost.A qualifying asset is an asset that takesasubstantial period of time to get ready for its intended use or sale. Firstly, borrowing costs that arise on loans that are specific to the qualifying asset are capitalized. Secondly, borrowing costs are capitalized that arise on general loans that are not specific to any other qualifying asset. For the Group, the capitalization of borrowing costs is mainly relevant in connection with the construction of production buildings on aproprietary basis.
Depreciation is based on cost less estimated residual value. The assets are depreciated over the estimated useful lives.Plant and machinery is generally depreciated on astraight-line basis over 5–10years,rental assets over threeyears,buildings over 10–50years,and site improvements over 20 years. Land is not depreciated. Computer equipment is depreciated over 3–5years using the reducing balance method.
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 for impairment annually. Assets that are amortized or depreciated are tested for impairment whenever events or changed circumstances indicate that the carryingamountmay not be recoverable. An impairmentlossis recognized in theamountby which thecarrying amountof an asset exceeds its recoverable amount,which is the greater of the net selling price and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value usingarate 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.
Impairment losses recognized in respect ofacash-generating unit (or group of units) are allocated first to reduce the carrying amount of any goodwill allocated to the unit (group of units) and then to reduce the carrying amount of the other assets in the unit (group of units) onapro rata basis.
In respect of items of property, plant and equipment and intangible fixed assets, an impairment loss is reversed if there has been achange in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized.
Impairment–and any reversal of impairment–of certain other assets, such as financial assets under the scope of IAS 39, inventories, plan assets held byapost- employment, benefit fund and deferred tax assets, is tested in accordance with the respective standard.
Inventories are stated at the lower of cost and net realizable value, with due consideration of obsolescence. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Cost is based on the 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.
Assets are classified as held for sale if their value, within one year, will be recovered throughasale and not through continued use in the operations. On the reclassification date, assets and liabilities are measured at the lower of fair value less selling expenses and the carrying amount. Following reclassification, the assets are no longer depreciated/amortized.
When share capital is repurchased, the amountof the considerationpaidis recognized asachange in equity. If the repurchased shares are cancelled, the quotient value of such shares reduces the share capital. If repurchased shares are re-issued or sold,the consideration directly increases shareholders' equity.
Dividends are recognized asaliability in the period in which they are resolved ata 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 options issued to employees. The options are dilutive if the exercise price is less than the quoted stock price and increases with the size of the difference.
The Group's pension plans
The Group sponsorsanumber of defined contribution and defined-benefit pension plans, some of which with plan assets held by separate foundations or equivalent.
Anumber of Groupentitiesalso provide post-employment medical benefits. Whenever possible, Sandvik nowadays seeks definedcontribution 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. The Group's Swedish companies offer newly hired whitecollar staff, regardless of age, the definedcontribution pension solution (ITP 1) resulting from the renegotiationof the ITP Plan between the Confederation of Swedish Enterprise and theNegotiationCartel for Salaried Employees in the Private Business Sector.
Adefined-contribution plan isapostemployment benefit plan under which an entity pays fixed contributions intoaseparate entity and will have no legal or constructive obligation to pay further amounts. The size of the pension that the employee will ultimately receive in such case depends on the size of the contributions that the entity pays to the plan or an insurance company and the return that the contributions yield. Obligations for contributions to 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 and the contribution payable in exchange for that service becomes due.
The Group's netobligationin respect of defined-benefit pension plans is calculated separately for each plan by estimating the amountof future benefit thatemployees have vested in return for their service in the current and prior periods. This benefit isdiscountedto itspresentvalue. The discountrate is theyieldon high-quality corporate bonds (AA credit rated bonds), mortgage bonds–or if there is no deep marketfor such bonds, government bonds –that have maturity dates approximating the terms of the Group'sobligations.The calculation is performed annually bya qualified actuary. Inaddition,the fair value of any plan assets as at the balance sheet date is assessed. Sandvik applies such anaccountingpolicy to the Group's most significant defined-benefit plans.Anumber of plans, which neitherindividuallynor in the aggregate are significant in relation to the Group's total pensionobligations,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. The corridor rule is applied, which means that only the portion of the aggregate gains and losses that exceed the greater of 10% of the present value of the obligations or 10% of the fair value of plan assets are recognized in profit or loss over the remaining expected average service period of the plan participants. Actuarial gains and losses are otherwise not recognized.
When the benefits underaplan are improved, the portion of the increased benefits that relate to past service by employees is recognized in profit or loss for the year ona straight-line basis over the average period until all of the benefits become vested. To the extent that the benefits become fully vested, the expense is recognized immediately 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 balance sheet date, less the fair value of any plan assets and any unrecognized gains or losses as well as any unrecognized past service costs.
If the net amount so determined results in an asset, the recognized value of the asset is limited to the total of any cumulative unrecognized net actuarial losses and past service cost, and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
When there isadifference between the pension cost recognized in the separate financial statements of an entity and in the consolidated financial statements,aprovision orarefundable claim for payroll tax on pension costs calculated on such difference is recognized.Suchcalculation is not discounted to present value.
When employment is terminated,aprovision is recognized only when the entity is demonstrably committed either to terminate the employment of an employee oragroup of employees before the normal retirement age or provide termination benefits asa result of an offer made to encourage voluntary redundancy. In the latter case,aliability 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.
Ashareoptionprogram allowsemployees to acquire shares in the company. The fair value ofoptionsgrantedis recognized as anemployeeexpense withacorresponding increase in equity. The fair value as measured at thegrantdate isspreadover the vesting period. The fair value of the optionsis measured using the Black& Scholes formula, takingintoaccountthe terms and conditions upon which the optionsweregranted.Sandvik'soption programscontainno other vesting conditionsthan that theemployeeshall remain in the entity's employ at the end of the three-year vesting period. The amountrecognized as an expense is adjusted to reflect the actual number of shareoptionsvested.
Cash-settled options result inacommitment to employees, which is measured at fair value and recognized as an expense, withacorresponding increase of liabilities. The fair value is initially measured at the allotment date and is allocated over the vesting period. The fair value of the cashsettled options is calculated in accordance with the Black&Scholes formula, taking into account the terms and conditions of the rights. The fair value of the liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized as an employee expense in profit or loss for the year.
In order to meet its commitments under the option program, Sandvik has entered into an equity swap agreement withafinancial institution. Under the agreement, the financial institution acquired Sandvik shares at the start of the program. Sandvik hasasubsequent commitment to purchase these shares from the financial institution for allotment to the program's participants following the vesting period. The fair value of the Sandvik share when the swap agreement was signed is recognized asafinancial liability and asareduction of equity in accordance with IAS 32.
Social costs relating to share-based payments to employees are expensed over the accounting periods during which the services are provided. The charge is based on the fair value of the options at the reporting date. The fair value is calculated using the same formula as that used when the options were granted.
Aprovision is recognized in the balance sheet when the Group hasalegal or constructive obligation asaresult ofapast event, and it is probable that an outflow of resources will be required to settle the obligation, andareliable estimate of the amount can be made. If the effect is material, the provision is determined by discounting the expected future cash flows ata pre-tax rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Aprovision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data andaweighing of all possible outcomes with theirassociatedprobabilities.
Aprovision for restructuring is recognized when the Group has approvedadetailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. No provision is posted for future operating costs.
In accordance with the Group's published environmental policy and applicable legal requirements,aprovision for site restoration in respect of contaminated land is recognized when land has become contaminated.
Aprovision for onerous contracts is recognized when the expected benefits to be derived by the Group are lower than the unavoidable cost of meeting its obligations under the contract.
Acontingent liability is recognized when there isapossible 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 isapresent obligation that cannot be recognized asaliability 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.
Payments and receipts have been divided into the following categories: operating activities, investing activities, and financing activities. Cash flows from operating activities are recognized using the indirect method.
Changes during theyearin operating assets and liabilities are adjusted for the effects of exchange rate movements. Acquisitions and divestments are recognized within investing activities. The assets and liabilitiesheldby acquired or divestedentities at the transfer date are not included in theanalysisof changes in working capital, nor in changes in balance sheet items recognized within investing and financing activities.
Inadditionto cash and bank balances, cash and cash equivalents include shortterm investments, the conversion of which to bank funds can be accomplished at an amountthat islargelyknown in advance. Cash and cash equivalents thus include short-term investments withamaturity of less than three months.
The Parent Company has prepared its Annual Report in accordance with the Annual Accounts Act (1995:1554) and the standard, RFR2Reportingbyalegal entity, issued by the Swedish Financial ReportingBoard. Also the interpretations issued by the FinancialReportingBoard valid for listed companies have been applied. Under RFR 2, the Parent Company in its Annual Report shall 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 betweenfinancial reportingand taxation. The standard specifies what exceptions from or additions to the IFRS shall be made. Taken together, this results indifferencesbetween the accounting policies applied in the consolidatedfinancialstatements and those applied by the Parent Company is specified below.
Unless otherwise stated below, the Parent Company'saccountingpolicies in 2011 changed in accordance with the amendmentsdescribed above for the Group's accountingpolicies.
From 2011, Group contributions received are recognized as dividends and Group contributions paid are recognized as investments in shares and subsidiaries. Comparative figures for 2010 have been amended in accordance with the new principles. Group contributions were previously recognized directly in equity in accordance with UFR2 Group Contributions and Shareholders' Contributions.
The Parent Company's income statement and balance sheet adhere to the presentation included in the Annual Accounts Act. The differences compared to IAS1Presentation of Financial Statements applied when presenting the consolidated financial statements mainly pertain to the presentation of finance income and expenses, noncurrent assets, equity and the presentation of provisions as aseparate heading in the balance sheet.
The Parent Company recognizes shares in Group companies and associated companies in accordance with the cost model, meaning thattransactioncosts are included in the carryingamountof holdings in subsidiaries and associated companies. Transactioncosts related to shares in Group companies are recognized directly in profit orlossin the consolidated financial statementswhen 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 infullas income in profit or loss for the year.
The Parent Company recognizes items of property, plant and equipment at cost less accumulated depreciation and any impairment losses, that is as in the consolidated financial statements, but increased by any revaluation.
The Parent Company recognizes all lease contracts as operating leases.
The Parent Company recognizes all expenditure for research anddevelopment conducted onaproprietary basis as an expense in profit orloss.
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 isaprerequisite for income tax purposes. Compared to IAS 19, the most significant differences relate to the determination of the discount rate, the fact that the obligation is calculated based on the current salary level disregarding assumptions about future levels, and the immediate recognition of actuarial gains and losses in profit or loss.
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 and shareholders'
contributions in legal entity accounts Group contributions thataParent Company receives fromasubsidiary are recognized in the Parent Company in accordance with the same policies as normal dividends from subsidiaries. Group contributions paid byaParent 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 suchadecision before it published its financial statements.
The Parent Company does not apply hedge accountingin accordance with IAS 39 due to theclosetie between financial reporting and taxation.
The Parent Company appliesarelaxation rule permitted by the Swedish Financial Reporting Board to the reporting of financial guarantees as opposed to the rules stipulated by IAS 39. 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 asaprovision in the balance sheet when the company has anobligationfor which payment isprobablynecessary to settle the commitment.
key sources of estimation uncertainty 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 eventsorchanges in circumstances indicate that the carrying amount of goodwill has been impaired, for example due toachanged business climateoradecision taken either tosellorclose 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 ona number of factors, including historical results, business plans, forecasts and market data. This is further described in Note 13. As can be deduced from this description, changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.
Sandvik's property,plantand equipment andintangibleassets–excluding goodwill –are stated at cost less accumulated depreciation/amortization and any impairment losses. Other than goodwill, Sandvik has notidentifiedanyintangibleassets with indefinite useful lives. The assets are depreciated/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 financialyear-end.
The carrying amount of the Group's noncurrent assets are 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 costs to sell, and its value in use. Value in use is measured as the discounted future cash flows of the asset, alternatively the cashgenerating unit to which the asset belongs. The rental fleet of Sandvik Mining and Construction is particularly examined considering its dependence on the business climate in the mining industry and the risk that rental agreements may be cancelled. The carrying amount of the rental fleet at the end of 2011 was 427 MSEK (562).
Acall for an impairment test arises also whenanon-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.
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. Two critical assumptions–the discount rate and expected return on plan assets–are essential for the measurement of both the expense of the current year and the present value of the defined-benefit obligations. These assumptions are reviewed annually for each pension plan in each country. Other assumptions, which may relate to demographic factors such as pension age, mortality rates and employee turnover, are reviewed less frequently. The actual outcome often differs from the actuarial assumptions for economicorother reasons.
The discount rate is used to measure the present value of future cash flows at the measurement date. This rate shall be determined by reference to market yields at the balance sheet date on high-quality corporate bonds or, if there is no deep market for such bonds, the market yields on government bonds.Alower discount rate increases the present value of the pension obligation and the annual pension cost.
In order to determine the expected rate of return on plan assets, the Company considers the current and anticipated categories of plan assets as well as historical and expected returns on the various categories.
Compared with the preceding year, the average discount rate changed from 5.1% to 4.6%. The expected weighted average return on plan assets in 2011 was 6.1% (6.1).
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 2011, Sandvik recognizedde ferred tax assets of 3,070 MSEK (2,056). Furthermore, the Group had additional tax loss carryforwards of about 588 MSEK (355) at year-end for which no deferred tax assets are recognized since utilization of these losses is notdeemedprobable.Achange in the estimate of the possibility for utilization thus can affect results both positively and negatively. The expenditure recognized asa
provision for ongoing tax litigations based on management's best estimate of the outcome, andamountedto 3,941 MSEK (3,650) at the end of 2011.
Sandvik is besides the tax litigation cases set out above–party toanumber 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 haveamaterially negative effect on the business, the financial position or results of operations.
For additional information on risks related to disputes, refer to the Risks and Risk Management section.
The company refers to its description above of the accounting policies that the company has chosen to apply, especially when those policies are selected from permissible alternatives. Management would in particular draw attention to the following:
Sandvik applies IAS2in accounting for its inventories. Inventories are recognized at the lower of cost and net realizable value.A consequence of the IAS2rules is that if the market value of materials and components included in Sandvik's finished goods drops, the value of the materials and components must not be reduced as long as the selling price of the finished product less selling costs still exceeds the cost of the finished product. Instead, the lesser market value of the materials and components shows itself in the form ofalower margin in future periods to the extent that Sandvik must adapt its selling price due to the changes in market values. In periods of significant price volatility, this state of affairs should be taken into consideration when future results are being appraised.
Accounting for actuarial gains and losses According to IAS 19,immediaterecognition of actuarial gains and lossesrelatedto defined-benefit pension plans is not mandatory. Instead, only that portion of such gains and losses that fall outside ofacorridor of plus/minus 10%of the greater of the present value of the defined-benefit obligation and fair value of the plan assets is recognized. Also any systematic method that results in faster recognition of actuarial gains and losses is possible, including immediate recognition in profit or loss. Sandvik has chosen to apply the corridor approach and to recognize gains or losses outside the corridor over the expected average remaining working lives of the employees participating in the plan. Unrecognized actuarial losses amounted to 1,789 MSEK at year-end 2010 and 3,384 MSEK at year-end 2011.
Profit/lossfor theyearattributable to equity holders of the Parent Company divided by the average number of shares outstanding during the year.
Shareholders' equity including non-controllinginterestsin relation to total capital.
Interest-bearing current and non-current debts (including provisions for pensions) less cash and cash equivalents divided by the total of shareholders' equity including non-controllinginterests.
Invoiced sales divided by average total capital.
Average working capital divided by invoicing in the most recent quarter adjusted to annual rate.
Profit/lossafter financial income and expenses, plusinterestexpenses, asapercentage of average total capital, less noninterest-bearing debts.
Consolidated net profit/loss for the year asa percentage of average shareholders' equity during the year.
Profit/lossafter financial income and expenses, plusinterestexpenses, asapercentage of average total capital.
Total of inventories, trade receivables, accounts payable and other noninterestbearing receivables and liabilities, excluding tax assets and liabilities.
| 1. Segment information | 69 | |
|---|---|---|
| 1.1 Information on business segments/ | ||
| business areas | 69 | |
| 1.2 Information by country | 69 | |
| 2. Categories of revenue | 70 | |
| 3. Personnel information and remuneration | ||
| of management and auditors | 70 | |
| 3.1 Average number of employees | 70 | |
| 3.2 Wages, salaries, other remuneration | ||
| and social costs | 70 | |
| 3.3 Wages, salaries and other remuneration | ||
| by market area | 70 | |
| 3.4 Gender distribution in senior management | 70 | |
| 3.5 Information on remuneration of the Board of Directors and senior executives |
70 | |
| 3.6 Audit fees | 73 | |
| 4. Research, development and quality assurance | 73 | |
| 5. Other operating income | 73 | |
| 6. Other operating expenses | 74 | |
| 7. Operating expenses | 74 | |
| 8. Fees for finance and operating leases | 74 | |
| 9. Net financing cost | 74 | |
| 10. Appropriations | 75 | |
| 11. Income tax | 75 | |
| 12. Earnings per share | 76 | |
| 13. Intangible assets and property, | ||
| plant and equipment, Group | 77 | |
| 14. Intangible assets and property, | ||
| plant and equipment, Parent Company | 80 |
| 15. Shares in group companies | 81 |
|---|---|
| 16. Investments in associated companies | 85 |
| 17. Other financial assets | 85 |
| 18. Non-current receivables and | |
| other current receivables | 86 |
| 19. Inventories | 86 |
| 20. Trade receivables | 86 |
| 21. Capital and reserves | 86 |
| 22. Parent Company's other untaxed reserves | 87 |
| 23. Provisions for pension and other non-current | |
| post-employment benefits | 87 |
| 24. Other provisions | 90 |
| 25. Non-current interest-bearing liabilities | 90 |
| 26. Other interest-bearing liabilities | 90 |
| 27. Other noninterest-bearing liabilities | 90 |
| 28. Accrued expenses and deferred income | 91 |
| 29. Assets held for sale | 91 |
| 30. Contingent liabilities and pledged assets | 91 |
| 31. Supplementary information – | |
| financial risk management | 91 |
| 32. Related parties | 93 |
| 33. Supplementary information to | |
| the cash-flow statement | 93 |
| 34. Business combinations | 94 |
| 35. Parent Company particulars | 95 |
| 36. Information on shares, owners and rights | 95 |
(Amounts in tables in MSEK, unless otherwise stated)
| Sandvik Mining | Sandvik Materials | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sandvik Tooling | and Construction | Technology | Seco Tools | Corporate | Eliminations | Group total | ||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Revenue | ||||||||||||||
| External revenue | 27,160 | 23,893 | 41,481 | 35,182 | 18,379 | 17,703 | 7,026 | 5,838 | 38 | 38 | 94,084 | 82,654 | ||
| Internal revenue | 365 | 160 | 5 | 9 | 391 | 338 | 17 | 20 | 17 | 17 | –795 | –544 | ||
| Group total | 27,525 | 24,053 | 41,486 | 35,191 | 18,770 | 18,041 | 7,043 | 5,858 | 55 | 55 | –795 | –544 | 94,084 | 82,654 |
| share of results of associated companies |
18 | 14 | 5 | 5 | –22 | 14 | 6 | 5 | — | — | 7 | 38 | ||
| Operating profit/loss by business area |
5,896 | 4,296 | 5,246 | 4,665 | –1,619 | 1,540 | 1,408 | 1,098 | –783 | –570 | 10,148 | 11,029 | ||
| Net financing cost | –1,969 | –1,617 | ||||||||||||
| Income tax expense for the year |
–2,318 | –2,469 | ||||||||||||
| Profit for the year | 5,861 | 6,943 | ||||||||||||
| Other disclosures | ||||||||||||||
| Assets | 25,247 | 23,913 | 32,454 | 27,040 | 18,943 | 20,586 | 6,271 | 5,425 | 2,732 | 1,570 | 85,647 | 78,534 | ||
| Investment in associates | 141 | 131 | 45 | 48 | 251 | 272 | 19 | 16 | — | — | 456 | 467 | ||
| Total assets | 25,388 | 24,044 | 32,499 | 27,088 | 19,194 | 20,858 | 6,290 | 5,441 | 2,732 | 1,570 | 86,103 | 79,001 | ||
| Unallocated assets | 12,636 | 10,998 | ||||||||||||
| Group total | 98,739 | 89,999 | ||||||||||||
| Liabilities | 5,501 | 4,835 | 12,081 | 9,817 | 5,046 | 4,258 | 1,314 | 1,251 | 3,182 | 3,467 | 27,124 | 23,628 | ||
| Unallocated liabilities | 37,724 | 32,558 | ||||||||||||
| Group total | 64,848 | 56,186 | ||||||||||||
| Capital expenditure | 1,292 | 750 | 1,163 | 583 | 1,711 | 1,340 | 617 | 386 | 151 | 215 | 4,934 | 3,274 | ||
| Depreciation/ Amortization |
–1,444 | –1,576 | –995 | –1,091 | –902 | –832 | –420 | –379 | –107 | –104 | –3,868 | –3,982 | ||
| Impairment losses | –55 | 33 | –206 | –27 | –1,694 | –28 | — | — | — | –34 | –1,955 | –56 | ||
| Other non-cash expenses |
–73 | –20 | 357 | –83 | 878 | –59 | 86 | –24 | 111 | 56 | 1,359 | –130 |
All transactions between the business areas are on market terms. For information regarding business combinations, see Note 34.
| Group | 2011 | 2010 |
|---|---|---|
| USA | 11,066 | 10,032 |
| Australia | 8,606 | 7,564 |
| Germany | 7,678 | 6,571 |
| China | 6,561 | 5,581 |
| South Africa | 4,806 | 4,532 |
| Brazil | 4,571 | 3,613 |
| Sweden | 4,233 | 3,819 |
| Italy | 3,355 | 3,013 |
| France | 3,008 | 3,090 |
| Russia | 2,990 | 2,339 |
| Canada | 2,745 | 2,333 |
| UK | 2,567 | 2,215 |
| Japan | 2,277 | 2,099 |
| India | 2,220 | 2,224 |
| Mexico | 1,786 | 1,379 |
| Other countries | 25,615 | 22,250 |
| Total | 94,084 | 82,654 |
Fixed assets by country
| Group | 2011 | 2010 |
|---|---|---|
| Sweden | 12,682 | 12,231 |
| USA | 4,317 | 4,730 |
| Germany | 3,216 | 3,288 |
| Austria | 2,416 | 2,411 |
| China | 1,948 | 1,332 |
| UK | 1,917 | 3,368 |
| Australia | 1,768 | 1,448 |
| Finland | 1,501 | 1,566 |
| India | 892 | 915 |
| France | 885 | 918 |
| Japan | 870 | 860 |
| Brazil | 786 | 886 |
| Czech Republic | 777 | 401 |
| Canada | 511 | 544 |
| Italy | 464 | 511 |
| Other countries | 2,559 | 3,036 |
| Total | 37,509 | 38,445 |
Income is specified by country based on where customers are located.
Fixed assets are specified by country based on where they are located.
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sale of goods | 87,000 | 75,541 | 17,427 | 17,430 | |
| Contract revenue | 3,342 | 3,251 | 3 | 178 | |
| Rendering of services | 3,231 | 3,241 | 26 | 52 | |
| Rental income | 511 | 621 | 4 | 8 | |
| Total | 94,084 | 82,654 | 17,460 | 17,668 |
| Group | Parent Company | |||||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||||
| Number | Women % | Number | Women % | Number | Women % | Number | Women % | |
| Sweden | 11,293 | 23 | 10,667 | 22 | 8,227 | 22 | 7,737 | 20 |
| Rest of Europe | 15,433 | 19 | 14,778 | 19 | — | — | — | — |
| Total Europe | 26,726 | 21 | 25,445 | 20 | 8,227 | 22 | 7,737 | 20 |
| NAFTA | 5,741 | 17 | 5,565 | 19 | — | — | — | — |
| South America | 3,169 | 12 | 2,846 | 13 | — | — | 2 | — |
| Africa, Middle East | 3,046 | 18 | 2,965 | 13 | — | — | — | — |
| Asia | 7,529 | 16 | 6,538 | 16 | — | — | — | — |
| Australia | 2,336 | 15 | 2,350 | 14 | — | — | — | — |
| Total | 48,547 | 18 | 45,709 | 18 | 8,227 | 22 | 7,739 | 20 |
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Wages, salaries and | |||||
| other remuneration | 18,860 | 17,967 | 3,896 | 3,321 | |
| Social costs | 4,938 | 4,668 | 2,142 | 1,593 | |
| Employee profit sharing | 216 | 250 | 183 | 212 | |
| Total | 24,014 | 22,885 | 6,221 | 5,126 | |
| of which, pension costs recognized in social costs |
1,747 | 1,466 | 938 | 538 | |
A total of 57 MSEK (69) of the Group's pension costs relates to Boards and presidents. The Group's pension liability to these persons amounted to 184 MSEK (221). Correspondingly, 8 MSEK (32) of the Parent Company's pension costs related to the Board of Directors and presidents. The Parent Company's pension liability relating to these persons amounted to 60 MSEK (61).
To promote a performance that is favorable to the Group's long-term development and also to stimulate continued employee loyalty, Sandvik has had a profitsharing system for all employees in wholly owned companies in Sweden since 1986. The Group's return during 2011 implied an allocation of 216 MSEK (250) to the profit-sharing foundation.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Sweden | 5,210 | 4,522 | 3,896 | 3,321 |
| Rest of Europe | 6,426 | 6,269 | — | — |
| Total Europe | 11,636 | 10,791 | 3,896 | 3,321 |
| NAFTA | 2,671 | 2,778 | — | — |
| South America | 1,001 | 791 | 0 | 0 |
| Africa, Middle East | 824 | 851 | — | — |
| Asia | 1,253 | 1,268 | — | — |
| Australia | 1,475 | 1,488 | — | — |
| Total | 18,860 | 17,967 | 3,896 | 3,321 |
| Of which, to Boards of Directors and presidents |
||||
| Salaries and other remuneration | 447 | 401 | 43 | 32 |
| of which, variable salary | 66 | 55 | 3 | 9 |
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| Proportion of women, % | 2011 | 2010 | 2011 | 2010 | |
| Boards and Presidents | 11 | 9 | 9 | 9 | |
| Senior management | 18 | 17 | 11 | — |
The guidelines for the remuneration of Sandvik's senior executives were adopted at the Annual General Meeting in 2011. They are designed to ensure that Sandvik, from a global perspective, can offer market-based remuneration in order to attract and retain qualified employees.
The total remuneration package is distributed between fixed salary, annual variable salary, long-term variable salary (cash and share-based), pension and other benefits, such as company car, free housing, health insurance and severance benefits. It is intended that the components shall jointly form a well-balanced remuneration and benefit program that reflects the individual's performance and responsibility as well as the Group's earnings trend.
In 2006, the Board decided to implement a cash-based program for long-term variable salary (LTI – Long-Term Incentive). Based on a common goal perception for executives, specialists and shareholders, the program was to form a link to future performance goals aimed at the long-term enhancement of the value of the company. This was to be achieved through an overall shared Group and business area focus on and governing towards profitable growth. An additional purpose was to improve the possibilities to recruit and retain key employees in the Group.
A LTI program was decided for each of the years 2008, 2009 and 2010. Some 400 Sandvik employees participated in the programs on a global basis. The programs applied for a three-year period, with any settlement paid after the third year of each program. The 2008 program was concluded in 2010, but resulted in no settlement in 2011. Any settlement for the 2009 program will take place in 2012 and for the 2010 program in 2013.
Under these programs, there is a direct link between performance, added value, and remuneration. There is an annual maximum outcome related to the participant's fixed salary in December of the third year. The outcome of the LTI program is conditional upon meeting measurable goals, established by the Board, for certain key ratios that create shareholder value linked to the company's growth, profitability and capital efficiency over a three-year period. For members of Group Executive Management, the maximum payment from the LTI program is 40–50% of the annual fixed salary.
Amounts attributable to these programs are expensed and reserved continuously, based on assumptions regarding goal achievement. In 2011, no longterm variable salary was paid. The 2008 LTI program covering the years 2008- 2010 resulted in no settlement, since the performance targets set by the Board of Directors were not met.
During the year, a provision of 49 MSEK was made for the 2010 long-term variable salary program, of which 2.7 MSEK pertained to Group Executive Management. No provisions were made for the cash-based 2009 LTI program.
The 2011 Annual General Meeting resolved in accordance with the Board's proposal to replace the cash-based LTI program with a new share-based LTI program. The program is aimed at about 400 senior executives and key individuals in the Sandvik Group and encompasses a maximum total of 11,719,690 Sandvik shares. The program participants have the option of receiving an allotment of employee stock options that entitle the employee to acquire Sandvik shares after three years at a set exercise price ("performance shares"), on condition that certain performance targets linked to the Sandvik Group's growth in value – Sandvik Value Added (SVA) – are met. For the President, senior executives and certain top-level executives, a personal investment in Sandvik shares ("saving shares") corresponding to 10% of fixed annual pre-tax salary for 2011 is required in order to receive allotment of employee stock options. Provided that such a personal investment in Sandvik shares is made, these executives will also receive allotment of rights ("matching rights") that entitle the executive to acquire Sandvik shares after three years at a set exercise price ("matching shares").
Employees who were offered and agreed to participate in the program received allotment of employee stock options on 30 June 2011. The total number of employee stock options allotted to about 400 senior executives and key individuals in the Sandvik Group could entitle acquisition of a maximum of 11,647,300 performance shares.
Employee stock options were allotted as follows: the President (category 1) received 145,000 employee stock options, senior executives (category 2) received a maximum of 87,000 employee stock options per person and four other employee groups (categories 3–6) received between 21,750 and 43,500 employee stock options.
The employee stock options are non-transferrable. Each employee stock option entitles the employee to acquire one performance share. The amount of the allotted employee stock options that will eventually provide entitlement to the acquisition of performance shares depends on the trend in Sandvik Value Added (SVA) over the 2011–2013 fiscal years compared with the 2010 fiscal year.
Employee stock options can be utilized to acquire performance shares not earlier than three and not later than five years after the allotment of the options.
The utilization of the employee stock options to acquire performance shares requires continued employment at Sandvik. For those executives investing personally in Sandvik shares, the utilization of employee stock options to acquire performance shares also requires that all acquired saving shares are held for a three-year period after allotment of the employee stock options. The Chairman of the Board is entitled, in specific cases, to grant exemptions from this requirement.
The total number of matching rights allotted to the executives investing personally in Sandvik shares provides entitlement to the acquisition of a maximum of 72,390 matching shares.
The matching rights are non-transferrable. The participant is allotted one matching right for each saving share acquired. Each matching right entitles the holder to acquire a matching share. Matching rights can be utilized to acquire matching shares not earlier than three and not later than five years after the allotment of the matching rights. The utilization of matching rights to acquire matching shares requires continued employment at Sandvik and that all acquired saving shares are held for a three-year period after the allotment of matching rights. The Chairman of the Board is entitled, in specific cases, to grant exemptions from the requirement that saving shares be held for a threeyear period.
When employee stock options are utilized to acquire performance shares, the participant is to pay, for each performance share, an amount corresponding to 110% of the average volume-weighted price paid for the Sandvik share on the NASDAQ OMX Stockholm during a period of ten trading days immediately following the 2011 Annual General Meeting. When matching rights are utilized to acquire matching shares, the participant is to pay for each matching share an amount corresponding to 75% of the average volume-weighted price paid for the Sandvik share on the NASDAQ OMX Stockholm during a period of ten trading days immediately following the 2011 Annual General Meeting. The average volume-weighted price paid was determined at 117.20 SEK. A theoretical value of an employee stock option and matching right was calculated based on the Black & Scholes option pricing model. The basis of the calculation included a share price of 117.20 SEK and expected volatility of about 32%. The theoretical value amounts to 17 SEK per employee stock option and 33.10 SEK per matching right.
The Board is entitled to decide to introduce an alternative incentive solution for key individuals in those countries where the allotment of employee stock options or matching rights, or the utilization of employee stock options or matching rights to acquire performance and matching shares, is not suitable.
In accordance with IFRS 2, the total expense for the 2011 LTI program amounted to 201 MSEK excluding social costs, of which 11 MSEK for the President and other senior executives. During the year, a provision of 67 MSEK, excluding social costs, was established for the 2011 LTI program, of which 3.8 MSEK for the President and other senior executives. The employee stock options and matching rights are expensed as an employee expense (excluding social costs) over the vesting period and are recognized directly against equity. The amount recognized is continuously revised throughout the vesting period of the employee stock options and matching rights. Social costs are expensed during the vesting period of the employee stock options and matching rights based on the change in value of the employee stock options and matching rights.
Group
| Exercise price, SEK | 129 1) | 87.90 2) |
|---|---|---|
| Number of employee stock options 2011 |
Number of matching rights 2011 |
|
| Outstanding at beginning of year | — | — |
| Allotted during the period | 11,647,300 | 72,390 |
| Forfeited during the period | –406,000 | –10,076 |
| Outstanding at year-end | 11,241,300 | 62,314 |
| Exercise price, SEK | 129 1) | 87.90 2) |
|---|---|---|
| Number of employee stock options 2011 |
Number of matching rights 2011 |
|
| Outstanding at beginning of year | — | — |
| Allotted during the period | 1,384,750 | 27,824 |
| Forfeited during the period | –159,500 | –4,440 |
| Outstanding at year-end | 1,225,250 | 23,384 |
1) Exercise price of the options, performance shares. 2) Exercise price of the options, matching shares
The number of allotted employee stock options and acquired matching rights for the President and other members of the Group Executive Management on 31 December 2011 corresponds to the number of outstanding employee stock options and matching rights at year-end.
| Assumptions | Program 2011 (on date of issue) |
|---|---|
| Share price | 117.20 SEK |
| Exercise price | 129/87.90 SEK |
| Expected volatility | 32 % |
| Expected maturity | 3 years |
| Present value of forecasted future dividends1 |
13.10 SEK |
| Risk-free interest rate | 2.6 % |
1) Based on analysts' combined expectations
The expected volatility was determined by analyzing the historical volatility of Sandvik AB and some comparable listed companies. When determining the expected maturity, assumptions were made regarding expected behavior patterns for utilizing the employee stock options and acquired matching rights among the program participants.
The Board's Remuneration Committee prepares issues relating to Group Executive Management's remuneration. The Committee met four 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 guidance.
Based on the Remuneration Committee's proposals, the Board decided on the remuneration of the President for 2011. 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.
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.
The following guidelines approved by the Annual General Meeting for remuneration of senior executives were applied for 2011:
The Board's motion concerning guidelines for remuneration of senior executives is designed to ensure that the Sandvik Group, from a global perspective, can offer remuneration at the market rate and that is competitive to attract and retain skilled personnel to Sandvik's Group Executive Management. Group Executive Management's remuneration comprises fixed salary, annual variable salary and long-term variable salary in the form of a cash salary and/or shares in Sandvik AB. The components are intended to create a well-balanced remuneration and benefit program that reflects the individual's performance and responsibility and the Group's earnings trend. The fixed salary, which is individual and differentiated based on the individual's responsibility and performance, is determined based on market-rate principles and is reviewed annually. Payment of annual variable salary requires fulfillment of annually established goals. The goals are related to the company's earnings and to measurable goals within the individual's area of responsibility. The annual variable salary for Group Executive Management may not exceed 75% of fixed salary. The long-term variable salary requires fulfillment of measurable goals, set by the Board, pertaining to certain key ratios that create shareholder value linked to the company's growth, profitability and capital efficiency over a three-year period. The longterm variable cash salary may not exceed 50% of the fixed annual salary. Longterm variable remuneration may also be paid in the form of shares in Sandvik AB through participation in a share-based incentive program encompassing the offer of acquiring employee stock options and matching rights. The program, which shall have been adopted by the Annual General Meeting, shall contain the principal conditions that certain categories of top-level senior executives are required to have invested personally in the Sandvik share, that the vesting period is three years subject to the requirement that the individual remain an employee for this entire period and that the allotment of shares shall be related to performance criteria linked to the company's growth, profitability and capital efficiency - Sandvik Value Added (SVA). Group Executive Management's other benefits shall correspond to what could be considered reasonable in relation to generally accepted practice in the market. The benefits comprise pension, company car, housing, medical insurance and severance pay. The pension benefits for Group Executive Management are based on fixed salary or gross salary paid in cash and shall be defined-benefit or defined-contribution solutions. Normally, retirement is at age 62. Retirement age for the President is 60. Normally, severance payment is made when employment is terminated by the company. Any other income from employment is deducted from the severance pay, which is between 12 and 18 months for persons under 55 years of age and between 18 to 24 months for persons over 55. No severance amount is paid to employees who resign from the company. The Board shall have the right to deviate from the guidelines resolved by the Annual General Meeting, if,
in individual cases, there is a special reason for this. The sphere of senior executives encompassed by the proposed guidelines is the President and other members of Group Executive Management.
The Board proposes that for 2012, the Annual General Meeting resolve to apply the following revised guidelines for remuneration of senior executives:
The Board's motion concerning guidelines for remuneration of senior executives is designed to ensure that the Sandvik Group, from a global perspective, can offer remuneration at the market rate and that is competitive to attract and retain skilled personnel to Sandvik's Group Executive Management. Group Executive Management's remuneration comprises fixed salary, annual variable salary and long-term variable salary in the form of salary and/or shares in Sandvik AB. The components are intended to create a well-balanced remuneration and benefit program that reflects the individual's performance and responsibility and the Group's earnings trend. The fixed salary, which is individual and differentiated based on the individual's responsibility and performance, is determined based on market-rate principles and is reviewed annually. Payment of annual variable salary requires fulfillment of annually established goals. The goals are mainly related to the company's earnings and to measurable goals within the individual's area of responsibility. The annual variable salary may not exceed 75% of annual fixed salary. The long-term variable cash salary requires fulfillment of measurable goals, set by the Board, pertaining to certain key figures that create shareholder value linked to the company's growth, profitability and capital efficiency – Sandvik Value Added (SVA) – over a three-year period. The maximum payment of long-term variable cash salary is 50% of the annual fixed salary. Long-term variable remuneration may also be provided in the form of shares in Sandvik AB by participating in a share-based incentive program that includes the right to be allotted employee stock options and matching rights. The program, which shall have been adopted by the Annual General Meeting, shall contain the principal conditions that certain categories of top-level senior executives are required to have invested personally in the Sandvik share, that the vesting period is three years subject to the requirement that the individual remain an employee for this entire period and that the allotment of shares shall be related to performance criteria linked to SVA. Group Executive Management's other benefits shall correspond to what could be considered reasonable in relation to generally accepted practice on the market. The benefits comprise pension, company car, housing, medical insurance and severance pay. The pension benefits for Group Executive Management are based on fixed salary or gross salary paid in cash and shall be defined-benefit or defined-contribution solutions. Normally, retirement is at age 62. Retirement age for the President is 60. For other members of Group Executive Management who are not Swedish citizens, the retirement age follows local rules and practice. Normally, severance payment is made when employment is terminated by the company. The President has a notice period of 24 months with no severance pay. For other members of Group Executive Management, a notice period of 12 months generally applies. Severance pay is six months salary for persons under 55 years of age and 12 months for people aged 55 and over for members of Group Executive Management who are Swedish citizens. Other members of Group Executive Management generally receive 12 months salary in severance pay. For all other benefits, local market practice applies in each specific country. Any other income from employment is deducted from the severance pay. No severance amount is paid to employees who resign from the company. The Board shall have the right to deviate from the guidelines resolved by the Annual General Meeting, if, in individual cases, there is a special reason for this. The sphere of senior executives encompassed by the proposal is the President and other members of Group Executive Management.
| SEK | Fixed salary/ Director's fee |
Annual variable salary 1) |
Other benefits 2) |
Long-term variable salary 3) |
Pension costs |
|---|---|---|---|---|---|
| Chairman of the Board Anders Nyrén | 1,775,000 4) | — | — | — | — |
| President and CEO Olof Faxander | 9,212,884 5) | 1,020,938 | 274,954 | 918,434 | 3,256,109 |
| Former President Lars Pettersson 6) | 637,500 | — | 26,237 | 51,027 | 1,038,985 |
| Other senior executives 7) 8) | 30,742,418 | 754,805 | 1,838,914 | 5,635,491 | 27,217,399 |
| Total | 42,367,802 | 1,775,743 | 2,140,105 | 6,604,952 | 31,512,493 |
1) Amount pertaining to 2011 and expected to be paid in 2012.
2) Other benefits largely pertain to the fringe-benefit value of housing and company car.
3) The amounts pertain to provisions made for the 2010 and 2011 LTI programs.
4) Expensed during 2011 and will be paid in 2012. The amount includes a Board fee of 1,500,000 SEK, a Remuneration Committee fee of 125,000 SEK and an Audit Committee fee of 150,000 SEK. 5) Olof Faxander's fixed salary as of 1 February 2011 amounted to 9,900,000 SEK, the remaining amount relates to vacation pay, etc. Board fees are not paid to internal Board members.
Bo Severin, Anders Thelin, Anna Vikström Persson (from March 2011) and Göran Westberg (Jan–Feb 2011).
8) The amounts also include severance pay for the former President of the Sandvik Mining & Construction business area who left the company during the year.
6) Pertains to January 2011. 7) Pertains to the following persons in 2011: Peter Gossas (Jan-May 2011), Jonas Gustavsson (from May 2011), Lars Josefsson (Jan–Aug 2011), Peter Larson, Tomas Nordahl (from Oct 2011), Ola Salmén,
In accordance with the resolution at the Annual General Meeting, the total fee to the external directors elected at the Meeting amounts to 4,500,000 SEK. Of this amount, 1,500,000 SEK (on an annual basis) is payable to the Chairman of the Board (Anders Nyrén) and 500,000 SEK to each of the other external Board members (Johan Karlström, Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Simon Thompson and Lars Westerberg).
In addition to these amounts, the Annual General Meeting resolved that an additional fee should be paid for the committee work to committee members elected by the Meeting, in an amount totaling 475,000 SEK to be divided between the members of the Audit Committee (Hanne de Mora 175,000 SEK, Anders Nyrén 150,000 SEK and Simon Thompson 150,000 SEK) and in an amount totaling 325,000 SEK to be divided between the members of the Remuneration Committee elected by the Meeting (Egil Myklebust 100,000 SEK, Anders Nyrén 125,000 SEK and Lars Westerberg 100,000 SEK).
Effective 1 February 2011, Sandvik's CEO and President, Olof Faxander, was paid an annual fixed salary of 9,900,000 SEK and received the fringe-benefit value of housing and car provided by the company. In addition, a variable salary of maximum 75% of the fixed salary is paid. The variable salary for 2011 amounted to 1,020,938 SEK.
Olof Faxander is entitled to retire with pension at age 60. A premium of 35% of his annual fixed salary is reserved annually.
In the event of termination of employment by the company, Olof Faxander has a notice period of 24 months with no severance pay.
For other members of Group Executive Management, pension age is 62. Pension between the age of 62 and 65 will amount to 65% of fixed salary up to 30 price base amounts, 50% of fixed salary between 30–50 price base amounts, and 25% of fixed salary in the interval 50–100 price base amounts (15 years is required for full accrual). No pension insurance policies have been taken out for pensions through age 65 and, at 31 December 2011, the obligation for pensions vested through that date amounted to 24,502,041 SEK.
The pension from age 65 to the other members of Group Executive Management is arranged through the ITP Plan and a supplementary defined-contribution plan under which the company each year contributes 20–30% (depending on age) of fixed salary portions in excess of 20 price base amounts. Alternatively, this group may be encompassed by the ITP Plan 1 and a supplement of a maximum of 5% for salary portions exceeding 7.5 income base amounts if this solution has been chosen in 2008 under the offering to all salaried employees at Sandvik who were covered by the ITP 2 plan and supplementary plan at the time. In such a case, the previous system with the ITP 2 plan and the supplementary plan will not apply. Of the seven remaining members of Group Executive Management employed on 31 December 2011, four people are encompassed by the ITP 1 plan and three people remain in the ITP 2 plan and a supplementary plan. Severance pay is paid in the event that the company terminates employment. The severance pay equals 12–18 months' fixed salary in addition to the six-month notice period. For both the President and other members of Group Executive Management, any earned income is offset against the severance pay.
Fees and remuneration to the Group's auditors were as follows:
| KPMG | Other | Total | ||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Audit | ||||||
| Parent Company | 10.8 | 11.7 | 0.0 | 0.0 | 10.8 | 11.7 |
| Subsidiaries (excl. Seco | ||||||
| Tools) | 55.5 | 53.0 | 3.9 | 4.3 | 59.4 | 57.3 |
| Seco Tools | 5.2 | 0.3 | 1.4 | 6.7 | 6.6 | 7.0 |
| Group | 71.5 | 65.0 | 5.3 | 11.0 | 76.8 | 76.0 |
| Tax consultancy services | ||||||
| Parent Company | 0.8 | 1.0 | ||||
| Subsidiaries | ||||||
| (excl. Seco Tools) | 7.9 | 12.6 | ||||
| Seco Tools | 0.2 | 0.0 | ||||
| Group | 8.9 | 13.6 | ||||
| Other services | ||||||
| Parent Company | 5.7 | 2.5 | ||||
| Subsidiaries | ||||||
| (excl. Seco Tools) | 5.5 | 4.8 | ||||
| Seco Tools | 0.9 | 0.0 | ||||
| Group | 12.1 | 7.3 |
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 auditing and other review procedures performed in accordance with agreements or contracts. This includes other procedures required to be performed by the company's auditors as well as other services caused by observations during the performance of such examination and other procedures.
Tax consultancy services relate to services in the tax area. Other services essentially comprise advice in areas closely related to the audit, such as advice on accounting issues and due-diligence services in connection with acqusitions.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Expenditure for | ||||
| research and development | 2,712 | 2,309 | 1,150 | 932 |
| quality assurance | 613 | 570 | 309 | 279 |
| Total | 3,325 | 2,879 | 1,459 | 1,211 |
| of which expensed, total | 3,034 | 2,675 | 1 459 | 1,211 |
| of which expensed relating to research and development |
2,421 | 2,106 | 1,150 | 932 |
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.
| Group | 2011 | 2010 |
|---|---|---|
| Gain on sale of property, plant and equipment | — | 43 |
| Gain on sale of businesses and shares | 9 | 6 |
| Insurance compensation | 181 | — |
| Other | 157 | 93 |
| Total | 347 | 142 |
Other operating income mainly pertains to intra-Group services and insurance compensation.
| Group | 2011 | 2010 |
|---|---|---|
| Loss on disposal of non-current assets | –140 | — |
| Loss on sale of operations and shares | –4 | –3 |
| Exchange rate losses on operating receivables and payables |
–44 | –243 |
| Other | –466 | –179 |
| Total | –654 | –425 |
Other operating expenses pertain mainly to royalties between Group companies, exchange rate losses on operating receivables and payables, and losses on sale of property, plant and equipment.
| Group | 2011 | 2010 |
|---|---|---|
| Employee benefit expense | –24,014 | –22,885 |
| Depreciation and amortization | –3,868 | –3,982 |
| Impairment losses, inventories | –379 | –317 |
| Impairment losses, property, plant and equipment | –1,955 | –56 |
| Impairment losses, trade receivables | –37 | –89 |
There were no significant reversals of earlier recognized impairment losses during 2011 or 2010.
The Group leases plant and machinery under finance lease agreements. At 31 December 2011, the planned residual value of such leased assets was 155 MSEK (171).
Variable fees recognized as an expense were 0 MSEK (0).
Future minimum lease payments in respect of non-cancellable contracts fall due as follows:
| Nominal fee | Present value | ||||
|---|---|---|---|---|---|
| Group | 2011 | 2010 | 2011 | 2010 | |
| Within one year | 30 | 30 | 27 | 27 | |
| Between one and five years | 76 | 89 | 57 | 70 | |
| Later than five years | 59 | 72 | 31 | 39 | |
| Total | 165 | 191 | 115 | 136 |
The Group's investments in finance leases at 2011 year-end amounted to 499 MSEK (493). 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 | 2011 | 2010 | 2011 | 2010 | |
| Within one year | 271 | 241 | 251 | 221 | |
| Between one and five years | 228 | 252 | 191 | 208 | |
| Total | 499 | 493 | 442 | 429 |
Leasing fees for assets under operating leases, such as leased premises, machinery and major items of computer and office equipment, are recognized within operating expenses. In 2011, the Group expensed 696 MSEK (711), including minimum lease payments of SEK 670 MSEK (690), variable fees of 26 MSEK (24), and net of sublease income of 0 MSEK (–3). The Parent Company expensed 169 MSEK (165).
Future minimum lease payments under non-cancellable operating lease contracts fall due as follows:
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Within one year | 690 | 642 | 163 | 159 | |
| Between one and five years | 1,458 | 1,308 | 477 | 465 | |
| Later than five years | 675 | 703 | 200 | 230 | |
| Total | 2,823 | 2,653 | 840 | 854 |
Future minimum lease payments under non-cancellable lease contracts that pertain to subleased items amounted to 7 MSEK (1).
The planned residual value of the Group's rental fleet is 427 MSEK (562).
Depreciation for the year amounted to 381 MSEK (504). The future minimum lease payments under non-cancellable leases amount to 245 MSEK (306). Variable fees amounted to 20 MSEK (19).
Future minimum lease payments under non-cancellable operating lease contracts fall due as follows:
| Total | 245 | 306 | 14 | 14 |
|---|---|---|---|---|
| Later than five years | 1 | 1 | — | — |
| Between one and five years | 67 | 119 | 5 | 3 |
| Within one year | 177 | 186 | 9 | 11 |
| 2011 | 2010 | 2011 | 2010 | |
| Group | Parent Company |
| Group | 2011 | 2010 |
|---|---|---|
| Interest income | 191 | 189 |
| Dividend | 0 | 6 |
| Other investments incl. derivatives | ||
| Net gain on remeasurement | ||
| of financial assets/ liabilities | 71 | 138 |
| Net foreign-exchange gains | — | 27 |
| Other financial income | 3 | 17 |
| Financial income | 265 | 377 |
| Interest expense | –1,971 | –1,925 |
| Other investments incl. derivatives | ||
| Net loss on remeasurement | ||
| of financial assets/liabilities | –222 | –51 |
| Net foreign-exchange losses | –28 | — |
| Other financial expenses | –13 | –18 |
| Financial expenses | –2,234 | –1,994 |
| net financing cost | –1,969 | –1,617 |
Net interest income/expense from financial assets and liabilities not measured at fair value through profit or loss amounted to –1,562 MSEK (–1,564). Hedging of fair values in 2011 had an effect of –3 MSEK (–5) 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 31.
| Income from shares in Group companies |
Income from shares in associated companies |
|||
|---|---|---|---|---|
| Parent Company | 2011 | 2010 | 2011 | 2010 |
| Dividend, net of withholding tax | 1,701 | 3,352 | 10 | 5 |
| Group contributions paid/ received |
1,100 | 1,993 | — | — |
| Gain on sale of shares and participations |
1 | –7 | — | — |
| Impairment | –3 | –2 | — | — |
| Reversed impairment | 16 | — | — | — |
| Total | 2,815 | 5,336 | 10 | 5 |
| Interest income and similar items |
||||
|---|---|---|---|---|
| Parent Company | 2011 | 2010 | ||
| Interest income, Group companies |
450 | 259 | ||
| Other interest income | 2 | 1 | ||
| Derivatives, Group companies | 159 | 405 | ||
| Total | 611 | 665 |
| Interest expense and similar items |
|||
|---|---|---|---|
| Parent Company | 2011 | 2010 | |
| Interest expense, Group companies | –206 | –263 | |
| Other interest expense | –1,278 | –983 | |
| Derivatives, Group companies | –183 | –8 | |
| Other | –12 | –122 | |
| Total | –1,679 | –1,376 |
| Parent Company | 2011 | 2010 |
|---|---|---|
| Country risk reserve | –8 | 2 |
| Total | –8 | 2 |
| Group | Parent Company | |||
|---|---|---|---|---|
| Income tax expense for the year | 2011 | 2010 | 2011 | 2010 |
| Current tax | –3,248 | –2,478 | 12 | 12 |
| Adjustment of taxes attributable | ||||
| to prior years | 75 | 87 | –6 | –87 |
| Total current tax expense | –3,173 | –2,391 | 6 | –75 |
| Deferred taxes relating to temporary | ||||
| differences and tax losses carry forward | 855 | –78 | 619 | –345 |
| Total tax expense | –2,318 | –2,469 | 625 | –420 |
The Group recognized tax expense for the year of 2,318 MSEK or 28.3% of the result after financial items. The Group's tax income for 2010 was 2,469 MSEK or 26.2% of the result after financial items.
The Group's weighted average tax rate, based on the tax rates in each country, is 26.0% (26.2). The nominal tax rate in Sweden is 26.3% (26.3). Reconciliation of the Group's weighted average tax rate, based on the tax rates in each country, and the Group's actual tax expense:
| 2011 | 2010 | ||||
|---|---|---|---|---|---|
| Group | MSEK | % | MSEK | % | |
| Result after financial items | 8,179 | 9,412 | |||
| Weighted average tax based on each country's tax rate |
–2,123 | –26.0 | –2,468 | –26.2 | |
| Tax effect of | |||||
| Non-deductible expenses | –330 | –4.0 | –258 | –2.7 | |
| Tax exempt income | 131 | 1.6 | 232 | 2.5 | |
| Adjustments relating to prior years | 75 | 0.9 | 87 | 0.9 | |
| Effects of tax losses carry forward, net | 20 | 0.2 | 23 | 0.2 | |
| Other | –91 | –1.0 | –85 | –0.9 | |
| Total recognized tax expense | –2,318 | –28.3 | –2,469 | –26.2 |
The Parent Company's effective tax rate is less than the nominal tax rate in Sweden, mainly due to tax-exempt dividend income from subsidiaries and associated companies.
Reconciliation of the Parent Company's nominal tax rate and actual tax expense:
| 2011 | 2010 | ||||
|---|---|---|---|---|---|
| Parent Company | MSEK | % | MSEK | % | |
| Profit before tax | –1,005 | 4,739 | |||
| Tax based on the nominal tax rate for the Parent Company |
264 | –26.3 | –1,246 | –26.3 | |
| Tax effects of | |||||
| Non-deductible expenses | –104 | –10.3 | –22 | –0.5 | |
| Tax-exempt income | 471 | 46.9 | 899 | 19.0 | |
| Use of previously uncapitalized tax losses carry forward |
— | — | 36 | 0.8 | |
| Adjustments relating to prior years | –6 | –0.6 | –87 | –1.8 | |
| Total recognized tax expense | 625 | 62.2 | –420 | –8.9 | |
| 2011 | ||||||
|---|---|---|---|---|---|---|
| Group | Before tax |
Tax | After tax |
Before tax |
Tax | After tax |
| Translation differences for the year |
–270 | — | –270 | –2 386 | — –2 386 | |
| Fair-value changes in cash-flow hedges for the year |
–451 | 119 | –332 | 566 | –149 | 417 |
| Fair-value changes in cash-flow hedges carried forward to profit/loss for the year |
–171 | 45 | –126 | 49 | –13 | 36 |
| Other comprehensive income |
–892 | 164 | –728 | –1 771 | –162 –1 933 |
Deferred tax assets and liabilities
The deferred tax assets and liabilities recognized in the balance sheet are attributable to the following assets and liabilities (liabilities shown with a minus sign).
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Group | Deferred tax assets |
Deferred tax liabilities |
Net | Deferred tax assets |
Deferred tax liabilities |
Net |
| Intangible assets | 30 | –517 | –487 | 52 | –620 | –568 |
| Property, plant and equipment |
107 | –1,279 | –1,172 | 96 | –1,285 | –1,189 |
| Financial non-current assets |
176 | –4 | 172 | 162 | –6 | 156 |
| Inventories | 1,236 | –72 | 1,164 | 1,300 | –83 | 1,217 |
| Receivables | 147 | –404 | –257 | 156 | –425 | –269 |
| Interest-bearing liabilities |
321 | –338 | –17 | 383 | –494 | –111 |
| Noninterest-bearing liabilities |
1,159 | –398 | 761 | 1,059 | –523 | 536 |
| Other | — | –31 | –31 | 28 | –2 | 26 |
| Tax losses carry forward | 1,981 | — | 1,981 | 1,220 | — | 1,220 |
| Total | 5,157 | –3,043 | 2,114 | 4,456 | –3,438 | 1,018 |
| Offsetting within companies |
–2,087 | 2,087 | — | –2,400 | 2,400 | — |
| Total deferred tax assets and liabilities |
3,070 | –956 | 2,114 | 2,056 | –1,038 | 1,018 |
| assets and liabilities | 1,135 | — | 1,135 | 518 | — | 518 |
|---|---|---|---|---|---|---|
| Total deferred tax | ||||||
| Offsetting | –146 | 146 | — | –178 | 178 | — |
| Total | 1,281 | –146 | 1,135 | 696 | –178 | 518 |
| Tax losses carry forward | 1,233 | — | 1,233 | 653 | — | 653 |
| Noninterest-bearing liabilities |
— | –107 | –107 | — | –145 | –145 |
| Provisions | 45 | –6 | 39 | 42 | — | 42 |
| Inventories | 3 | — | 3 | 1 | — | 1 |
| Property, plant and equipment |
— | –33 | –33 | — | –33 | –33 |
| Parent Company | Deferred tax assets |
2011 Deferred tax liabilities |
Net | Deferred tax assets |
2010 Deferred tax liabilities |
Net |
The Group has additional tax losses carryforward of about 588 MSEK (355). Related deferred tax assets were not recognized since it was not deemed probable that it would be possible to utilize these deductions in the foreseeable future.
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Balance at beginning of year, net | 1,018 | 1,268 | 518 | 865 | |
| Recognized in profit and loss | 855 | –78 | 617 | –347 | |
| Acquisitions/disposals of subsidiaries | –12 | 3 | — | — | |
| Reclassification of assets | 25 | — | — | — | |
| Recognized in other comprehensive income |
164 | –162 | — | — | |
| Government grants | –6 | –7 | — | — | |
| Translation differences | 70 | –6 | — | — | |
| balance at end of year, net | 2,114 | 1,018 | 1,135 | 518 |
In addition to the deferred tax assets and liabilities, Sandvik reports the following tax liabilities and receivables:
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Other provisions for taxes | –3,941 | –3,650 | — | — | |
| Income tax liabilities | –1,505 | –1,208 | — | — | |
| Income tax receivables | 772 | 765 | 239 | 203 | |
| net tax liabilities/receivables | –733 | –443 | 239 | 203 |
Other provisions for taxes of –3,941 MSEK (–3,650) relate to ongoing disputes and assessed risks. The increase during 2011 (291 MSEK) mainly reflects provisions relating to the tax dispute involving Sandvik Intellectual Property AB and Sandvik AB regarding the reorganization of ownership and managing of patents and trademarks effected in 2005. For additional information, refer to the section Risks and Risk Management.
| Basic | Diluted | |||||
|---|---|---|---|---|---|---|
| SEK | 2011 | 2010 | 2011 | 2010 | ||
| Earnings per share | 4,63 | 5,59 | 4,63 | 5,59 | ||
The calculation of the numerators and denominators used in the above calculations of earnings per share is shown below.
The calculation of earnings share for 2011 is based on the result for the year attributable to the equity holders of the Parent Company of 5,498 MSEK (6,634) and the weighted average number of shares (thousands) during 2011 of 1,186,287 (1,186,287). These two components have been calculated as follows:
| 2011 | 2010 | |
|---|---|---|
| Profit for the year attributable to the | ||
| equity holders of the Parent Company | 5,498 | 6,634 |
| In thousands of shares | 2011 | 2010 |
|---|---|---|
| Total number of ordinary shares at 1 January |
1,186,287 | 1,186,287 |
| Effects of reacquisitions and redemption | — | — |
| Weighted average number of shares outstanding during the year, basic |
1,186,287 | 1,186,287 |
The calculation of diluted earnings per share for 2011 is based on the result attributable to the equity holders of the Parent Company of 5,498 MSEK (6,634) and the weighted average number of shares (thousands) during 2011, 1,186,287 (1,186,287). The two components have been calculated as follows:
| 2011 | 2010 | |
|---|---|---|
| Profit for the year attributable to equity holders of the Parent Company |
5,498 | 6,634 |
| In thousands of shares | 2011 | 2010 |
|---|---|---|
| Weighted average number of shares, basic | 1,186,287 | 1,186,287 |
| Effect of share options | — | — |
| Weighted average number of shares outstanding during the year, diluted |
1,186,287 | 1,186,287 |
The 2011 Annual General Meeting approved a share-based LTI program. This could entail future dilution effects. For information about the program, refer to note 3.5.
| Internally generated intangible assets | Acquired intangible assets | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capitalized | Patents, licenses, |
Capitalized | Patents, licenses, |
|||||||||
| R&D expendi |
IT | trade marks, |
R&D expendi |
IT | trade marks, |
|||||||
| Cost | ture | software | etc. | Other Subtotal | ture | software | etc. Goodwill | Other Subtotal | Total | |||
| At 1 January 2010 | 1,486 | 786 | 237 | 48 | 2,557 | 15 | 335 | 808 | 11,135 | 1,712 | 14,005 | 16,562 |
| Additions | 203 | 176 | 18 | — | 397 | — | 4 | 7 | — | 65 | 76 | 473 |
| Business combinations | — | — | — | — | — | — | — | 8 | 37 | 24 | 69 | 69 |
| Divestments and disposals | –73 | –22 | –1 | –1 | –97 | — | –1 | –1 | — | –69 | –71 | –168 |
| Reclassifications | — | 26 | — | 8 | 34 | — | 7 | — | — | 29 | 36 | 70 |
| Translation differences during the year | –53 | –10 | –18 | 4 | –77 | — | –33 | –54 | –838 | –98 | –1,023 | –1,100 |
| At 31 december 2010 | 1,563 | 956 | 236 | 59 | 2,814 | 15 | 312 | 768 | 10,334 | 1,663 | 13,092 | 15,906 |
| At 1 January 2011 | 1,563 | 956 | 236 | 59 | 2,814 | 15 | 312 | 768 | 10,334 | 1,663 | 13,092 | 15,906 |
| Additions | 291 | 158 | 8 | — | 457 | — | 10 | 30 | — | 22 | 62 | 519 |
| Business combinations | — | — | — | — | — | — | — | 14 | 172 | 136 | 322 | 322 |
| Divestments and disposals | –72 | –14 | — | — | –86 | –15 | –7 | –86 | – | –82 | –190 | –276 |
| Reclassification to assets held for sale | — | — | — | — | — | — | — | –24 | –125 | –237 | –386 | –386 |
| Impairment losses | — | — | — | — | — | — | — | — | –1,240 | — | –1,240 | –1,240 |
| Reclassifications | — | 8 | –4 | 6 | 10 | — | 17 | 5 | — | 2 | 24 | 34 |
| Translation differences during the year | –4 | –2 | –4 | –8 | –18 | — | — | 2 | –107 | –12 | –117 | –135 |
| At 31 december 2011 | 1,778 | 1,106 | 236 | 57 | 3,177 | 0 | 332 | 709 | 9,034 | 1,492 | 11,567 | 14,744 |
| Accumulated amortization and impairment losses |
||||||||||||
| At 1 January 2010 | 555 | 528 | 82 | 39 | 1,204 | 15 | 308 | 371 | — | 527 | 1,221 | 2,425 |
| Divestments and disposals | –66 | — | –1 | –1 | –68 | — | –1 | –1 | — | –60 | –62 | –130 |
| Impairment losses | — | — | 1 | — | 1 | — | — | — | — | — | — | 1 |
| Reclassifications | — | — | — | — | — | — | — | — | — | 1 | 1 | 1 |
| Amortization for the year | 189 | 114 | 13 | 6 | 322 | — | 19 | 57 | — | 136 | 212 | 534 |
| Translation differences for the year | –23 | –3 | –8 | 2 | –32 | — | –35 | –12 | — | –39 | –86 | –118 |
| At 31 december 2010 | 655 | 639 | 87 | 46 | 1,427 | 15 | 291 | 415 | — | 565 | 1,286 | 2,713 |
| At 1 January 2011 | 655 | 639 | 87 | 46 | 1,427 | 15 | 291 | 415 | — | 565 | 1,286 | 2,713 |
| Divestments and disposals | –49 | –14 | — | — | –63 | –15 | –4 | –87 | — | –66 | –172 | –234 |
| Reclassification to assets held for sale | — | — | — | — | — | — | — | –11 | — | –104 | –115 | –115 |
| Impairment losses Reclassifications |
10 — |
1 — |
2 –2 |
— –5 |
13 –7 |
— — |
— 1 |
— 9 |
— — |
22 –4 |
22 6 |
35 –1 |
| Amortization for the year | 196 | 125 | 8 | 15 | 344 | — | 12 | 54 | — | 128 | 194 | 538 |
| Translation differences for the year | –3 | –1 | –2 | 1 | –5 | — | –1 | 2 | — | 6 | 7 | 2 |
| At 31 december 2011 | 809 | 750 | 93 | 57 | 1,709 | 0 | 299 | 382 | — | 547 | 1,228 | 2,937 |
| Net carrying amounts | ||||||||||||
| 1 January 2010 | 931 | 258 | 155 | 9 | 1,353 | 0 | 27 | 437 | 11,135 | 1,185 | 12,784 | 14,137 |
| 31 December 2010 | 908 | 317 | 149 | 13 | 1,387 | 0 | 21 | 353 | 10,334 | 1,098 | 11,806 | 13,193 |
| 1 January 2011 | 908 | 317 | 149 | 13 | 1,387 | 0 | 21 | 353 | 10,334 | 1,098 | 11,806 | 13,193 |
| 31 December 2011 | 969 | 356 | 143 | 0 | 1,468 | 0 | 33 | 327 | 9,034 | 945 | 10,339 | 11,807 |
| Amortization for the year is included in the following lines in the 2010 income statement |
||||||||||||
| Cost of sales | — | –6 | –2 | — | –8 | — | –7 | –37 | — | –69 | –113 | –121 |
| Selling expenses | — | –6 | –5 | –2 | –13 | — | –1 | –10 | — | –64 | –75 | –88 |
| Administrative expenses | –189 | –102 | –6 | –4 | –301 | — | –11 | –10 | — | –3 | –24 | –325 |
| Total | –189 | –114 | –13 | –6 | –322 | — | –19 | –57 | — | –136 | –212 | –534 |
| Amortization for the year is included in the following lines in the 2011 income statement |
||||||||||||
| Cost of sales | — | –5 | — | –10 | –15 | — | –3 | –2 | — | –51 | –56 | –71 |
| Selling expenses | — | –7 | –1 | — | –8 | — | –1 | –51 | — | –67 | –119 | –127 |
| Administrative expenses | –196 | –113 | –7 | –5 | –321 | — | –8 | –1 | — | –10 | –19 | –340 |
Total –196 –125 –8 –15 –344 — –12 –54 — –128 –194 –538
| Cost | Land and buildings | Plant and machinery | Equipment, tools, fix tures and fittings |
Construction in progress |
Total |
|---|---|---|---|---|---|
| At 1 January 2010 Additions |
13,131 304 |
34,061 943 |
5,528 258 |
2,732 1,666 |
55,452 3,171 |
| Business combinations | 21 | 178 | 4 | — | 203 |
| Divestments and disposals | –183 | –1,071 | –226 | –24 | –1,504 |
| Reclassifications | 200 | 1,540 | 101 | –1,842 | –1 |
| Translation differences for the year | –650 | –1,368 | –281 | –65 | –2,364 |
| At 31 december 2010 | 12,823 | 34,283 | 5,384 | 2,467 | 54,957 |
| At 1 January 2011 | 12,823 | 34,283 | 5,384 | 2,467 | 54,957 |
| Additions | 739 | 1,289 | 367 | 2,460 | 4,855 |
| Business combinations | 192 | 209 | 10 | 3 | 414 |
| Divestments and disposals | –197 | –1,373 | –317 | –13 | –1,900 |
| Reclassification to assets held for sale | –47 | –325 | –9 | –31 | –412 |
| Reclassifications | 266 | 1,194 | 159 | –1,569 | 50 |
| Translation differences for the year | –41 | –429 | –58 | –18 | –546 |
| At 31 december 2011 | 13,735 | 34,848 | 5,536 | 3,299 | 57,418 |
| Accumulated depreciation and impairment losses | |||||
| At 1 January 2010 | 4,960 | 20,166 | 3,807 | 28,933 | |
| Business combinations | 5 | 29 | 3 | 37 | |
| Divestments and disposals | –106 | –983 | –212 | –1,301 | |
| Reclassifications | –1 | 8 | 1 | 8 | |
| Depreciation for the year | 416 | 2,584 | 448 | 3,448 | |
| Impairment losses | 43 | 1 | 11 | 55 | |
| Translation differences for the year | –305 | –951 | –219 | –1,475 | |
| At 31 december 2010 | 5,012 | 20,854 | 3,839 | 29,705 | |
| At 1 January 2011 | 5,012 | 20,854 | 3,839 | — | 29,705 |
| Business combinations | 13 | 76 | 4 | — | 93 |
| Divestments and disposals | –142 | –1,043 | –272 | — | –1,457 |
| Reclassifications | — | –24 | 21 | — | –3 |
| Depreciation for the year | 442 | 2,465 | 423 | — | 3,330 |
| Impairment losses | 107 | 449 | 11 | 114 | 681 |
| Reclassification to assets held for sale | –7 | –147 | –4 | — | –158 |
| Translation differences for the year | –39 | –394 | –41 | — | –474 |
| At 31 december 2011 | 5,386 | 22,235 | 3,981 | 114 | 31,716 |
| Net carrying amounts | |||||
| 1 January 2010 | 8,171 | 13,895 | 1,721 | 2,732 | 26,519 |
| 31 December 2010 | 7,811 | 13,430 | 1,544 | 2,467 | 25,252 |
| 1 January 2011 | 7,811 | 13,430 | 1,544 | 2,467 | 25,252 |
| 31 December 2011 | 8,349 | 12,613 | 1,555 | 3,185 | 25,702 |
| Impairment losses/reversals of impairment losses | Equipment, tools, | Construction in | |||
| per line in the income statement | Land and buildings | Plant and machinery | fixtures and fittings | progress | Total |
| Impairment losses | |||||
| Administrative expenses | –4 | — | –3 | — | –7 |
Cost of sales –98 –449 –8 –114 –669 Other operating expenses –5 — — — –5 Total –107 –449 –11 –114 –681
Items of property, plant and equipment for a total of 206 MSEK (207) have been pledged as security for liabilities.
In 2011, contractual commitments for the acquisition of property, plant and equipment amounted to 404 MSEK (242).
| Borrowing costs 2011 | Machinery |
|---|---|
| Borrowing costs included in the cost of assets during the year |
2 |
| Interest rate for determining borrowing costs included in cost |
3.84% |
| Borrowing costs 2010 | Machinery |
| Borrowing costs included in the cost of assets during the year |
1 |
| Interest rate for determining borrowing costs included in cost |
3.72% |
Goodwill was tested for impairment at the balance sheet date of 31 December 2011. As stated below, the carrying amount of goodwill in the consolidated balance sheet is 9,034 MSEK (10,334), essentially related to a number of major business combinations.
| Carrying amount | ||
|---|---|---|
| Goodwill by cash-generating unit | 2011 | 2010 |
| Sandvik Tooling | ||
| Walter Group | 992 | 999 |
| Diamond Innovations | 730 | 718 |
| Wolfram | 1,366 | 1,385 |
| Business area level | 940 | 932 |
| Total | 4,028 | 4,034 |
| Sandvik Mining and Construction | ||
| Exploration | 464 | 465 |
| Extec/Fintec | 1,028 | 1,015 |
| Shanghai Jianshe Luqiao | 95 | — |
| Business area level | 1,984 | 2,086 |
| Total | 3,571 | 3,566 |
| Sandvik Materials Technology | ||
| MedTech | — | 1,298 |
| Business area level | 1,152 | 1,146 |
| Total | 1,152 | 2,444 |
| Seco Tools and other | 283 | 290 |
| Group total | 9,034 | 10,334 |
Consolidated goodwill is allocated to 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 with the exception of the MedTech business, which is recognized at fair value minus selling expenses. Calculations of value in use are based on the estimated future cash flows using forecasts covering a fiveyear period, which are in turn based on the three-year plans prepared annually by each of the business areas. These plans are founded on the business areas' strategies and an analysis of the current and anticipated business climate, and the impact this is expected to have on the market in which the business area operates. A range of economic indicators, which differ for each market, and external and internal studies of these, are used in the analysis of the business situation. Under normal circumstances, a growth rate of 3% was applied for the remainder of the forecast of the five-year period.
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 five years is 3% (3). Need of working capital beyond the five-year period is deemed to remain on the same level as in the fifth year. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders' equity and was assumed to amount to 10% (10) before tax. These assumptions apply to all cash-generating units.
Production and marketing processes of acquired businesses have, in most cases, been integrated into other Sandvik operations to such an extent that it is no longer possible to identify the cash flows and assets of the originally acquired businesses. For such reason, the impairment tests were largely made at a higher level although in no case above segment level. At present, the activities of Walter, Diamond Innovations, Wolfram, MedTech, Exploration, Extec/Fintec and Shanghai Jianshe Luqiao are also conducted in such a way that it has been possible to separately test goodwill allocated to these acquisitions.
In line with Sandvik's new strategic direction and as a result of the limited strategic connection and weak profitability, Sandvik has initiated a process for the purpose of divesting the operation in MedTech. Accordingly, goodwill attributable to MedTech was impaired and charged to selling expenses in the consolidated income statement in the amount of 1,160 MSEK in 2011. The recoverable amount of this goodwill consists of its fair value less selling expenses and totals 125 MSEK after impairment. The recoverable amount was based on indicative offers received. At 31 December 2011, this value was reclassified to assets held for sale. Goodwill attributable to Shanghai Jianshe Luqiao was impaired and charged to selling costs in the amount of 80 MSEK in 2011. The recoverable amount of the goodwill attributable to the operation in Shanghai Jianshe Luqiao consists of its value in use. Impairment of this goodwill was the result of declining demand in the markets served by the company's customers.
Various tests performed on goodwill values did not indicate any impairment requirement. Sensitivity in the calculations in which no impairment was made implies that no impairment loss would be required even if the discount rate were increased by 1 percentage point or if the long-term growth rate were lowered by 1 percentage point.
Capitalized development projects that are not yet available for use were tested and resulted in an impairment loss of 10 MSEK (0).
| Patents and other Intangible assets intangible assets |
|
|---|---|
| Cost | |
| At 1 January 2010 | 111 |
| Additions | 17 |
| Divestments and disposals | –8 |
| At 31 december 2010 | 120 |
| At 1 January 2011 | 120 |
| Additions | 16 |
| Divestments and disposals | –23 |
| At 31 december 2011 | 113 |
| Patents and other intangible assets |
|
|---|---|
| Accumulated amortization | |
| At 1 January 2010 | 94 |
| Amortization for the year | 1 |
| At 31 december 2010 | 95 |
| At 1 January 2011 | 95 |
| Amortization for the year | 1 |
| At 31 december 2011 | 96 |
| Net carrying amount at end of year | 17 |
| Total | –1 | –1 |
|---|---|---|
| Administrative expenses | –1 | –1 |
| Amortization for the year is included in the following lines in the income statement |
2011 | 2010 |
| Property, plant and equipment | Land and buildings | Plant and machinery | Equipment, tools, fixtures and fittings |
Construction in progress |
Total |
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2010 | 1,045 | 10,372 | 1,052 | 1,333 | 13,802 |
| Additions | 20 | 173 | 34 | 680 | 907 |
| Acquired through business combinations | — | 22 | — | — | 22 |
| Divestments and disposals | — | –169 | –33 | — | –202 |
| Reclassifications | 49 | 636 | 52 | –737 | 0 |
| At 31 december 2010 | 1,114 | 11,034 | 1,105 | 1,276 | 14,529 |
| At 1 January 2011 | 1,114 | 11,034 | 1,105 | 1,276 | 14,529 |
| Additions | 43 | 234 | 53 | 1,075 | 1,405 |
| Divestments and disposals | –4 | –152 | –60 | — | –216 |
| Reclassifications | 67 | 485 | 20 | –572 | 0 |
| At 31 december 2011 | 1,220 | 11,601 | 1,118 | 1,779 | 15,718 |
| Revaluations | |||||
| At 1 January 2010 | 41 | — | — | — | 41 |
| At 31 december 2010 | 41 | — | — | — | 41 |
| At 1 January 2011 | 41 | — | — | — | 41 |
| At 31 december 2011 | 41 | — | — | — | 41 |
| Accumulated depreciation | |||||
| At 1 January 2010 | 448 | 6,097 | 676 | — | 7,221 |
| Acquired through business combinations | — | 11 | — | — | 11 |
| Divestments and disposals | — | –148 | –29 | — | –177 |
| Depreciation for the year | 32 | 631 | 84 | — | 747 |
| At 31 december 2010 | 480 | 6,591 | 731 | — | 7,802 |
| At 1 January 2011 | 480 | 6,591 | 731 | — | 7,802 |
| Divestments and disposals | –1 | –125 | –59 | — | –185 |
| Depreciation for the year | 32 | 666 | 82 | — | 780 |
| Impairment losses | 359 | 11 | — | 370 | |
| At 31 december 2011 | 511 | 7,491 | 765 | — | 8,767 |
| Net carrying amounts | |||||
| 1 January 2010 | 638 | 4,275 | 376 | 1,333 | 6,622 |
| 31 December 2010 | 675 | 4,443 | 374 | 1,276 | 6,768 |
| 1 January 2011 | 675 | 4,443 | 374 | 1,276 | 6,768 |
| 31 December 2011 | 750 | 4,110 | 353 | 1,779 | 6,992 |
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| 15,428 | 14,755 | |
| 338 | 231 | |
| 500 | 490 | |
| 50 | — | |
| –1 | –48 | |
| 16,315 | 15,428 | |
| Parent Company | |||
|---|---|---|---|
| Shares in Group Companies | 2011 | 2010 | |
| Accumulated impairment losses | |||
| At beginning of year | –391 | –389 | |
| Impairment losses for the year | –3 | –2 | |
| Total | –394 | –391 | |
| Accumulated revaluations | |||
| At beginning of year | — | — | |
| Revaluations for the year | 16 | — | |
| Total | 16 | — | |
| carrying amount at year-end | 15,937 | 15,037 | |
| According to balance sheet at 31 December; company, domicile | Corp. Reg. number |
No. of shares |
Holding, % 2) |
Carrying amount 000s SEK |
No. of shares |
Holding, % 2) |
Carrying amount 000s SEK |
|---|---|---|---|---|---|---|---|
| SWEDEN | |||||||
| C.O. Öberg & Co:s AB, Sandviken | 556112-1186 | 2,000 | 100 | 0 | 2,000 | 100 | 0 |
| Dropler High Tech AB, Sandviken | 556332-0380 | 1,000 | 100 | 119 | 1,000 | 100 | 119 |
| Elasis Svenska AB, Sandviken | 556307-8947 | 100,000 | 100 | 110 | 100,000 | 100 | 110 |
| Förvaltningsbolaget Predio 4 KB, Sandviken | 916624-2181 | — | 03) | 0 | — | 0,3) | 0 |
| Gimo Utbildningsaktiebolag, Gimo | 556061-4041 | 1,000 | 91 | 2,591 | 1,000 | 91 | 2,591 |
| Gusab Holding AB, Sandviken | 556001-9290 | 1,831,319 | 100 | 53,474 | 1,831,319 | 100 | 53,474 |
| Gusab Stainless AB, Mjölby | 556012-1138 | 200,000 | 100 | 32,474 | 200,000 | 100 | 32,474 |
| Industri AB Skomab, Sandviken | 556008-8345 | 2,000 | 100 | 99,346 | 2,000 | 100 | 99,346 |
| Malcus AB, Sandviken | 556350-7903 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Rammer Svenska AB, Sandviken | 556249-4004 | 3,000 | 100 | 851 | 3,000 | 100 | 851 |
| Tamrock Svenska AB, Sandviken | 556189-1085 | 100 | 100 | 123 | 100 | 100 | 123 |
| AB Sandvik Antenn, Sandviken | 556350-7895 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Automation, Sandviken | 556052-4315 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Belts, Sandviken | 556041-9680 | 25,000 | 100 | 2,500 | 25,000 | 100 | 2,500 |
| AB Sandvik Bruket, Sandviken | 556028-5784 | 13,500 | 100 | 1,698 | 13,500 | 100 | 1,698 |
| AB Sandvik Communication, Sandviken | 556257-5752 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| AB Sandvik Construction Segment, Malmö 1) | 556659-6952 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Coromant, Sandviken 1) | 556234-6865 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Coromant Sverige AB, Stockholm 1) | 556350-7846 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Export Assistance AB, Sandviken | 556061-3746 | 80,000 | 100 | 0 | 80,000 | 100 | 0 |
| AB Sandvik Falken, Sandviken | 556330-7791 | 1,000 | 100 | 120 | 1,000 | 100 | 120 |
| Sandvik Far East Ltd. AB, Sandviken | 556043-7781 | 10,000 | 100 | 10,000 | 10,000 | 100 | 10,000 |
| Sandvik Försäkrings AB, Sandviken | 516401-6742 | 1,500 | 100 | 15,000 | 1,500 | 100 | 15,000 |
| AB Sandvik Hard Materials, Stockholm 1) | 556234-6857 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Hard Materials Norden AB, Stockholm | 556069-1619 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Besöksservice AB, Sandviken 1) | 556235-3838 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Intellectual Property AB, Sandviken | 556288-9401 | 1,000,000 | 100 | 3,499,950 | 1,000,000 | 100 | 3,499,950 |
| AB Sandvik International, Sandviken 1) | 556147-2977 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Klangberget, Sandviken | 556135-6857 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Materials Technology EMEA AB, Stockholm | 556734-2026 | 501,000 | 100 | 50,100 | 501,000 | 100 | 50,100 |
| AB Sandvik Materials Technology, Sandviken 1) | 556234-6832 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Mining and Construction AB, Sandviken 1) | 556664-9983 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Mining and Construction Sverige AB, Sandviken 1) | 556288-9443 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Mining and Construction Tools AB, Sandviken 1) | 556234-7343 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Nora AB, Nora | 556075-0506 | 80,000 | 100 | 135,000 | 80,000 | 100 | 135,000 |
| Sandvik Powdermet AB, Surahammar | 556032-6760 | 360 | 60 | 71,732 | 360 | 60 | 71,732 |
| AB Sandvik Process Systems, Sandviken 1) | 556312-2992 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Rock Tools, Sandviken | 556081-4328 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Rotary Tools AB, Köping | 556191-8920 | 101,000 | 100 | 150,177 | 101,000 | 100 | 150,177 |
| AB Sandvik Service, Sandviken | 556234-8010 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| AB Sandvik Skogsfastigheter, Sandviken | 556579-5464 | 1,000 | 100 | 51 | 1,000 | 100 | 51 |
| AB Sandvik Steel Investment, Sandviken | 556350-7853 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Stål Försäljnings AB, Stockholm 1) | 556251-5386 | 1,000 | 100 | 50 | 1,000 | 100 | 50 |
| Sandvik Systems Development AB, Sandviken 1) | 556407-4184 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Tooling AB Sandviken 1) | 556692-0038 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Sandvik Tooling Sverige AB Sandviken 1) | 556692-0053 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| AB Sandvik Tranan, Sandviken | 556330-7817 | 1,000 | 100 | 24,610 | 1,000 | 100 | 9,088 |
| Sandvik Utbildnings AB, Sandviken | 556304-8791 | 910 | 91 | 91 | 910 | 91 | 91 |
| AB Sandvik Vallhoven, Sandviken | 556272-9680 | 6,840 | 100 | 1,800 | 6,840 | 100 | 1,800 |
| Sandvik Västanbyn AB, Sandviken | 556590-8075 | 1,000 | 100 | 100 | 1,000 | 100 | 100 |
| Direct holdings | 2011 | 2010 | ||||||
|---|---|---|---|---|---|---|---|---|
| According to balance sheet at 31 December; company, domicile | Corp. Reg. number |
No. of shares |
Holding, % 2) |
Carrying amount 000s SEK |
No. of shares |
Holding, % 2) |
Carrying amount 000s SEK |
|
| AB Sandvik Västberga Service, Stockholm | 556356-6933 | 1,000 | 100 | 100 | 1,000 | 100 | 100 | |
| Sandvik Örebro AB, Sandviken | 556232-7949 | 10,000 | 100 | 167 | 10,000 | 100 | 167 | |
| AB Sandvik Örnen, Sandviken | 556330-7783 | 1,000 | 100 | 120 | 1,000 | 100 | 120 | |
| Sandvikens Brukspersonals Byggnadsförening upa, Sandviken |
785500-1686 | — | 100 | 0 | — | 100 | 0 | |
| Scandinavian Handtools AB, Sandviken | 556093-5875 | 1,000 | 100 | 50 | 1,000 | 100 | 50 | |
| Steebide International AB, Sandviken | 556048-3405 | 15,000 | 100 | 1,000 | 15,000 | 100 | 1,000 | |
| Dormer Tools AB, Halmstad | 556240-8210 | 80,000 | 100 | 25,145 | 80,000 | 100 | 25,145 | |
| AB Trellbo, Sandviken | 556251-6780 | 1,000 | 100 | 120 | 1,000 | 100 | 120 | |
| Walter Norden AB, Halmstad | 556752-4698 | 15,000 | 100 | 1,500 | 15,000 | 100 | 1,500 | |
| Sandvik Mining and Construction Köping AB 1) | 556776-9525 | 1,000 | 100 | 100 | 1,000 | 100 | 100 | |
| Wire Sandviken AB 1) | 556779-3897 | 1,000 | 100 | 100 | 1,000 | 100 | 100 | |
| Sandvik IT Services AB 1) | 556788-9059 | 1,000 | 100 | 100 | 1,000 | 100 | 100 | |
| AB Ascet, Sandviken | 556285-0882 | 1,000 | 100 | 120 | 1,000 | 100 | 120 | |
| Sandvik Venture AB 1) | 556868-7155 | 1,000 | 100 | 100 | — | — | — | |
| Sandvik Credit AB | 556843-7296 | 10,000 | 100 | 50,000 | — | — | — |
| Direct holdings | 2011 | 2010 | |||||
|---|---|---|---|---|---|---|---|
| According to balance sheet at 31 December; company | No. of shares |
Holding, %2) |
Carrying amount 000s SEK |
No. of shares |
Holding, %2) |
Carrying amount 000s SEK |
|
| AUSTRALIA | Sandvik Australia Pty. Ltd. | — | 183,4) | 1,539,205 | — | 63,4) | 1,202,442 |
| Sandvik Australian Ltd. Partnership | — | 99 | — | — | 99 | – | |
| BRAZIL | Dormer Tools S.A. | 2,137,623,140 | 100 | 200,000 | 2,137,623,140 | 100 | 200,000 |
| Sandvik do Brasil S.A. | 1,894,797,190 | 100 | 577,468 | 1,894,797,190 | 100 | 330,298 | |
| Sandvik Materials Technology do Brasil S.A. | 10,877,380 | 100 | 31,489 | 10,877,380 | 100 | 31,489 | |
| Sandvik MGS S.A. | 14,999,998 | 100 | 198,290 | 14,999,998 | 100 | 192,400 | |
| Sandvik Mining and Construction do Brasil S.A. | 85,329,996 | 100 | 438,649 | 85,329,996 | 100 | 195,225 | |
| BULGARIA | Sandvik Bulgaria Ltd. | — | 100 | 0 | — | 100 | 0 |
| CHILE | Sandvik Credit Chile S.A. | 9,900 | 99 | 39,631 | 9,900 | 99 | 39,631 |
| CHINA | Sandvik China Holding Co Ltd. | — | 100 | 668,890 | — | 100 | 668,890 |
| Sandvik Materials Technology (China) Ltd. | — | 443) | 207,854 | — | 443) | 207,854 | |
| CZECH REPUBLIC Sandvik CZ s.r.o. | — | 100 | 0 | — | 100 | 0 | |
| DEMOCRATIC REPUBLIC OF |
|||||||
| CONGO | Sandvik Mining and Construction DRC S.P.R.L. | 9,990 | 100 | — | 9,990 | 100 | — |
| GERMANY | Sandvik Materials Technology GmbH | — | 13) | 1,486 | — | 13) | 1,486 |
| Sandvik Holding GmbH | — | 13) | 367 | — | 13) | 367 | |
| GREECE | Sandvik A.E. Tools and Materials | 5,529 | 100 | 1,867 | 5,529 | 100 | 908 |
| HUNGARY | Sandvik Magyarorszag Kft. | — | 100 | 3,258 | — | 100 | 3,258 |
| INDIA | Sandvik Asia Ltd. | 16,030,246 | 175) | 277,028 | 16,030,246 | 175) | 277,028 |
| IRELAND | Sandvik Mining and Construction Logistics Ltd. | 100 | 100 | 5,508 | 100 | 100 | 5,508 |
| JAPAN | Sandvik K.K. | 2,600,000 | 100 | 224,701 | 2,600,000 | 100 | 224,701 |
| KENYA | Sandvik Kenya Ltd. | 35,000 | 96 | 0 | 35,000 | 96 | 0 |
| KOREA | Sandvik Korea Ltd. | 752,730 | 100 | 46,856 | 752,730 | 100 | 46,856 |
| MALI | Sandvik Mining and Construction Mali | 25,000 | 100 | 3,462 | 25,000 | 100 | 3,462 |
| MEXICO | Sandvik Méxicana S.A. de C.V. | 406,642,873 | 903) | 71,000 | 406,642,873 | 903) | 71,000 |
| MONGOLIA | Sandvik Mongolia LLC. | 400,000 | 100 | 2,682 | 400,000 | 100 | 2,682 |
| NETHERLANDS | Sandvik Finance B.V. | 18,786 | 100 | 7,017,620 | 18,786 | 100 | 7,017,620 |
| PERU | Sandvik del Perú S.A. | 6,562,795 | 100 | 26,025 | 6,562,795 | 100 | 26,025 |
| POLAND | Sandvik Polska Sp. z.o.o. | 3,211 | 100 | 93,197 | 3,211 | 100 | 93,197 |
| SLOVAKIA | Sandvik Slovakia s.r.o. | — | 100 | 1,238 | — | 100 | 1,238 |
| SWITZERLAND | Sanfinanz AG | — | — | — | 1,000 | 100 | 735 |
| 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 | 15,936,685 | 15,037,592 |
1) Subsidiaries conducting business on behalf of the Parent Company. 2) Refers to voting rights, which also equals share of capital unless otherwise indicated. 3) Remaining shares are held by other Group companies.
4) Share of capital 94%. 5) Shares up to an ownership interest of 100% are held by other Group companies.
Sandvik AB's holdings of shares and participations in subsidiaries. Indirect holdings in operating Group companies
| Group holding, % | 2011 1) | 2010 1) | |
|---|---|---|---|
| SWEDEN | Sandvik Heating Technology AB | 100 | 100 |
| Sandvik SRP AB | 100 | 100 | |
| Sandvik Treasury AB | 100 | 100 | |
| Seco Tools AB | 602) | 602) | |
| ALGERIA | Sandvik Mining and Construction Algerie SpA | 100 | 100 |
| ARGENTINA | Sandvik Argentina S.A. | 100 | 100 |
| Sandvik Mining and Construction Argentina S.A. Walter Argentina S.A. |
100 100 |
100 100 |
|
| AUSTRALIA | Sandvik Mining and Construction Redhead Pty Ltd | 100 | 100 |
| Sandvik Australia Pty. Ltd. | 100 | 100 | |
| Sandvik Shark Pty. Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Perth Pty. Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Adelaide Pty. Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Pty. Ltd. Australia | 100 | 100 | |
| Sandvik Mining and Construction Tomago Pty. Ltd. | 100 | 100 | |
| Sandvik RC Tools Australia Pty. Ltd. | 100 | 100 | |
| Walter Australia Pty. Ltd. | 100 | 100 | |
| AUSTRIA | Walter Austria GmbH | 100 | 100 |
| Wolfram Bergbau und Hütten AG | 100 | 100 | |
| Sandvik in Austria Ges.m.b.H. | 100 | 100 | |
| Sandvik Mining and Construction GmbH | 100 | 100 | |
| Sandvik Mining and Construction Materials Handling GmbH & Co. KG | 100 | 100 | |
| BELGIUM | Walter Benelux N.V./S.A. | 100 | 100 |
| BRAZIL | Walter do Brasil Ltda. | 100 | 100 |
| CANADA | Sandvik Canada Inc. | 100 | 100 |
| CHILE | Sandvik Chile S.A. | 100 | 100 |
| Sandvik Mining and Construction Chile S.A. | 100 | 100 | |
| CHINA | Sandvik International Trading (Shanghai) Co. Ltd. Sandvik Mining and Construction (China) Co. Ltd. |
100 100 |
100 100 |
| Sandvik Mining and Construction Trading (Shanghai) Co. Ltd. | 100 | 100 | |
| Sandvik Hard Materials (Wuxi) Co. Ltd. | 100 | 100 | |
| Sandvik Process Systems (Shanghai) Co. Ltd. | 100 | 100 | |
| Sandvik Round Tools Production Co. Ltd. | 100 | 100 | |
| Sandvik Tooling Production (Langfang) Co. Ltd. | 100 | 100 | |
| Sandvik Tooling Sales and Trade (Shanghai) Ltd. | 100 | 100 | |
| Sandvik (Qingdao) Ltd. | 100 | 100 | |
| Walter Wuxi Co. Ltd. | 100 | 100 | |
| Shanghai Jianshe Luqiao Machinery Co. Ltd. | 80 | — | |
| COLOMBIA | Sandvik Colombia S.A.S. | 70 | 70 |
| CROATIA | Sandvik, za trgovinu d.o.o. | 100 | 100 |
| CZECH REPUBLIC | Sandvik Chomutov Precision Tubes s.r.o. | 100 | 100 |
| Walter CZ s.r.o. | 100 | 100 | |
| DENMARK | Sandvik A/S | 100 | 100 |
| FINLAND | Sandvik Mining and Construction Finland Oy | 100 | 100 |
| Sandvik Mining and Construction Oy | 100 | 100 | |
| FRANCE | Safety S.A.S. | 100 | 100 |
| Sandvik Mining and Construction Chauny S.A.S. | 100 | 100 | |
| Sandvik Hard Materials S.A.S. Sandvik Materials Technology France S.A.S. |
100 100 |
100 100 |
|
| Sandvik Mining and Construction Lyon S.A.S. | 100 | 100 | |
| Sandvik Mining and Construction France S.A.S. | 100 | 100 | |
| Sandvik Tooling France S.A.S. | 100 | 100 | |
| Gunther Tools S.A.S. | 100 | 100 | |
| Safety Production S.A.S. | 100 | 100 | |
| Walter France S.A.S. | 100 | 100 | |
| GERMANY | Sandvik Mining and Construction Crushing Technology GmbH | 100 | 100 |
| Prototyp-Werke GmbH | 100 | 100 | |
| Sandvik Materials Technology Deutschland GmbH | 100 | 100 | |
| Sandvik Mining and Construction Europe GmbH | 100 | 100 | |
| Sandvik Mining and Construction Supply GmbH | 100 | 100 | |
| Sandvik Tooling Deutschland GmbH | 100 | 100 | |
| TDM Systems GmbH | 100 | 75 | |
| Walter AG | 100 | 100 | |
| Walter Deutschland GmbH | 100 | 100 | |
| Werner Schmitt PKD-Werkzeug GmbH | 100 | 100 | |
| GHANA | Sandvik Mining and Construction Ghana Ltd. | 100 | 100 |
| HONG KONG | Sandvik Hong Kong Ltd. | 100 | 100 |
| HUNGARY | Walter Hungaria Kft. | 100 | 100 |
| INDIA INDONESIA |
Walter Tools India Pvt. Ltd. PT Sandvik Indonesia |
100 100 |
100 100 |
| PT Sandvik Mining and Construction Indonesia | 100 | 100 | |
| PT Sandvik SMC | 100 | 100 | |
| IRELAND | Diamond Innovations International Sales | 100 | 100 |
| ITALY | Sandvik Italia S.p.A. | 100 | 100 |
| Walter Italia S.R.L. | 100 | 100 | |
| JAPAN | Sandvik Mining and Construction Japan K.K. | 100 | 100 |
| Sandvik Tooling Supply Japan K.K. | 100 | 100 | |
| Walter Tooling Japan K.K. | 100 | 100 | |
| KAZAKHSTAN | Sandvik Mining and Construction Kazakhstan | 100 | 100 |
| Group holding, % |
|---|
| ------------------ |
| Group holding, % | 2011 1) | 2010 1) | |
|---|---|---|---|
| KOREA | Sandvik SuhJun Ltd. | 100 | 100 |
| Walter Korea Ltd. | 100 | 100 | |
| MALAYSIA | Sandvik Malaysia Sdn. Bhd. | 100 | 100 |
| Sandvik Mining and Construction (Malaysia) Sdn. Bhd | 100 | 100 | |
| Walter Malaysia Sdn. Bhd. | 100 | 100 | |
| MEXICO | Sandvik de México S.A. de C.V. | 100 | 100 |
| Sandvik Mining and Construction de México S.A. de C.V. | 100 | 100 | |
| Walter Tools S.A. de C.V. | 100 | 100 | |
| NETHERLANDS | Sandvik Benelux B.V. | 100 | 100 |
| NEW ZEALAND | Sandvik New Zealand Ltd. | 100 | 100 |
| NIGERIA | Sandvik Mining and Construction Nigeria Ltd. | 100 | 100 |
| NORWAY | Sandvik Norge A/S | 100 | 100 |
| Sandvik Riser Technology A/S | 100 | 100 | |
| Teeness ASA | 100 | 100 | |
| Sandvik Tamrock A/S | 100 | 100 | |
| PERU | Sandvik del Peru S.A. | 100 | 100 |
| PHILIPPINES | Sandvik Philippines Inc. | 100 | 100 |
| Sandvik Tamrock (Philippines) Inc. | 100 | 100 | |
| POLAND | Walter Polska Sp. z.o.o. | 100 | 100 |
| Sandvik Mining and Construction Sp. z.o.o. | 100 | 100 | |
| ROMANIA | Sandvik SRL | 100 | 100 |
| RUSSIA | LLC Sandvik | 100 | 100 |
| OOO Walter | 100 | 100 | |
| Sandvik Mining and Construction CIS LLC | 100 | 100 | |
| Sandvik-MKTC OAO | 100 | 100 | |
| SERBIA | Sandvik Srbija d.o.o. | 100 | 100 |
| SINGAPORE | Kanthal Electroheat (SEA) Pte. Ltd. | 100 | 100 |
| Sandvik Mining and Construction S.E. Asia Pte. Ltd. | 100 | 100 | |
| Sandvik South East Asia Pte. Ltd. | 100 | 100 | |
| Walter AG Singapore Pte. Ltd. | 100 | 100 | |
| SLOVENIA | Sandvik d.o.o. | 100 | 100 |
| SOUTH AFRICA | Sandvik Mining and Construction RSA (Pty) Ltd. | 100 | 100 |
| Sandvik (Pty) Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Delmas (Pty) Ltd. | 100 | 100 | |
| SPAIN | Sandvik Española S.A. | 100 | 100 |
| Walter Tools Iberica S.A.U. | 100 | 100 | |
| SWITZERLAND | Sandvik AG Santrade Ltd. |
100 100 |
100 100 |
| Walter (Schweiz) AG | 100 | 100 | |
| TAIWAN | Sandvik Hard Materials Taiwan Pty. Ltd. | 100 | 100 |
| Sandvik Taiwan Ltd. | 100 | 100 | |
| TANZANIA | Sandvik Mining and Construction Tanzania Ltd. | 100 | 100 |
| THAILAND | Sandvik Thailand Ltd. | 100 | 100 |
| Walter (Thailand) Co. Ltd. | 100 | 100 | |
| TURKEY | Walter Cutting Tools Industry and Trade LLC | 100 | 100 |
| UK | Dormer Tools Ltd. | 100 | 100 |
| SMC Mobile Crushers and Screens Swadlincote | 100 | 100 | |
| Sandvik Materials Technology UK Ltd. | 100 | 100 | |
| Sandvik Ltd. | 100 | 100 | |
| Sandvik Medical Solutions Ltd. | 100 | 100 | |
| Sandvik Mining and Construction Ltd. | 100 | 100 | |
| Sandvik Osprey Ltd. | 100 | 100 | |
| Walter GB Ltd. | 100 | 100 | |
| UKRAINE | Sandvik Ukraine | 100 | 100 |
| US | Diamond Innovations Inc. | 100 | 100 |
| Diamond Innovations International Inc. | 100 | 100 | |
| Sandvik Wire and Heating Technology Corporation | 100 | 100 | |
| Sandvik Thermal Process Inc. | 100 | 100 | |
| Pennsylvania Extruded Tube Co. | 70 | 70 | |
| Precision Dormer LLC | 100 | 100 | |
| Sandvik Customer Finance LLC | 100 | 100 | |
| Sandvik Inc. | 100 | 100 | |
| Sandvik Medical Solutions Tennessee | 100 | 100 | |
| Sandvik Medical Solutions Oregon Inc. | 100 | 100 | |
| Sandvik Mining and Construction USA LLC | 100 | 100 | |
| Sandvik Process Systems LLC | 100 | 100 | |
| Sandvik Special Metals LLC | 100 | 100 | |
| Walter USA LLC | 100 | 100 | |
| ZAMBIA | Sandvik Mining and Construction Zambia Ltd. | 100 | 100 |
1) Refers to share of capital, which also corresponds to voting rights for the total number of shares, unless otherwise stated. 2) Share of votes 89% (89).
| Group | 2011 | 2010 |
|---|---|---|
| Accumulated share of equity | ||
| At beginning of year | 467 | 385 |
| Acquisitions | — | 62 |
| Share of profits for the year | 7 | 38 |
| Less dividend received | –12 | –6 |
| Translation differences during the year | –6 | –12 |
| carrying amount at end of year | 456 | 467 |
| 2011 | Country | Revenue | Profit | Assets | Liabilities | Equity | Group's share, % |
|---|---|---|---|---|---|---|---|
| Owned directly by Sandvik AB | |||||||
| Oerlikon Balzers Sandvik Coating AB | Sweden | 116 | 25 | 70 | 20 | 50 | 49.0 |
| Carpenter Powder Products AB | Sweden | 230 | 13 | 196 | 35 | 161 | 40.0 |
| Owned indirectly by Sandvik AB | |||||||
| Bellataire LLC | USA | 36 | 0 | 73 | 7 | 66 | 50.0 |
| Eimco Elecon | India | 256 | 19 | 184 | 2 | 178 | 25.1 |
| Fagersta Stainless AB | Sweden | 1,827 | –43 | 850 | 473 | 377 | 50.0 |
| Precorp Inc. | USA | 162 | 12 | 174 | 61 | 113 | 49.0 |
| Associates owned by Seco Tools | 107 | 12 | 65 | 25 | 40 | ||
| 2010 | Country | Revenue | Profit | Assets | Liabilities | Equity | Group's share, % |
| Owned directly by Sandvik AB | |||||||
| Oerlikon Balzers Sandvik Coating AB | Sweden | 89 | 10 | 61 | 17 | 44 | 49.0 |
| Carpenter Powder Products AB | Sweden | 168 | 12 | 178 | 29 | 149 | 40.0 |
| Owned indirectly by Sandvik AB | |||||||
| Bellataire LLC | USA | 44 | –9 | 79 | 7 | 72 | 50.0 |
| Eimco Elecon | India | 246 | 22 | 272 | 80 | 192 | 25.1 |
| Fagersta Stainless AB | Sweden | 1,715 | 56 | 967 | 431 | 536 | 50.0 |
| Precorp Inc. | USA | 188 | 21 | 154 | 55 | 99 | 49.0 |
| Associates owned by Seco Tools | 100 | 10 | 59 | 25 | 34 |
The close of the reporting period for the associate Eimco Elecon is 31 March 2011. Dividend paid in 2011 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.
| Parent Company's shares in associated companies | 2011 | 2010 |
|---|---|---|
| Cost | ||
| At beginning of year | 66 | 4 |
| Acquisitions | — | 62 |
| carrying amount at end of year | 66 | 66 |
| Corp. Reg. No. | Share of capital and voting rights, % | |
|---|---|---|
| 2011 | ||
| Oerlikon Balzer Sandvik Coating AB, Stockholm | 556098-1333 | 49 |
| Carpenter Powder Products AB, Torshälla | 556223-2594 | 40 |
| 2010 | ||
| Oerlikon Balzer Sandvik Coating AB, Stockholm | 556098-1333 | 49 |
| Carpenter Powder Products AB, Torshälla | 556223-2594 | 40 |
| Group | 2011 | 2010 |
|---|---|---|
| Non-current financial investments | ||
| Available-for-sale investments | ||
| Shares and participations | 80 | 78 |
| Total | 80 | 78 |
Since it has not been possible to measure the fair value of these shares and participations reliably, these assets are measured at cost.
| Group | 2011 | 2010 |
|---|---|---|
| Non-current receivables | ||
| Derivatives designated as hedging instruments | 491 | 700 |
| Funded pension plans | 1,573 | 1,484 |
| Other noninterest-bearing receivables | 736 | 714 |
| Other interest-bearing receivables | 429 | 524 |
| Total | 3,229 | 3,422 |
| Other current receivables | ||
| Derivatives held as investments | 1 | 3 |
| Derivatives designated as hedging instruments | 490 | 486 |
| Due from customers for contract work | 1,261 | 869 |
| Other noninterest-bearing receivables | 2,647 | 2,485 |
| Other interest-bearing receivables | 455 | 480 |
| Advances to suppliers | 456 | 353 |
| Total | 5,310 | 4,676 |
| Parent Company | 2011 | 2010 |
| Non-current receivables | ||
| Derivatives | 5 | 41 |
| Other noninterest-bearing receivables | 1 | 20 |
| Other interest-bearing receivables | 21 | — |
| Total | 27 | 61 |
| Other current receivables | ||
| Derivatives | 153 | 196 |
| Other noninterest-bearing receivables | 213 | 325 |
| Other interest-bearing receivables | 2 | 0 |
| Total | 368 | 521 |
| Group | ||
|---|---|---|
| Construction contracts | 2011 | 2010 |
| Contract costs incurred and recognized profits (less recognized losses) |
9,958 | 8,806 |
| Advances received | 1,247 | 1,025 |
| Amounts retained by customers | 50 | 84 |
| Gross amount due from customers | 1,261 | 869 |
| Gross amount due to customers | 1,616 | 1,205 |
| Group | Parent Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Raw materials and consumables | 6,659 | 4,872 | 1,587 | 1,220 |
| Work in progress | 5,543 | 4,948 | 1,729 | 1,723 |
| Finished goods | 13,875 | 11,600 | 707 | 732 |
| Total | 26,077 | 21,420 | 4,023 | 3,675 |
Cost of sales of the Group includes impairment of inventories of 379 MSEK (317) while cost of sales of the Parent Company includes impairment of 181 MSEK (156). There were no significant reversals of impairment losses during 2011 and 2010.
Age analysis of trade receivables
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Group | Gross | Allowance for bad debts |
Net carrying amount |
Gross | Allowance for bad debts |
Net carrying amount |
| Current receivables | 11,679 | –102 | 11,577 | 10,272 | –131 | 10,141 |
| Past due receivables 0–3 months |
2,406 | –61 | 2,345 | 2,149 | –73 | 2,076 |
| Past due receivables 3–12 months |
749 | –143 | 606 | 455 | –139 | 316 |
| Past due receivables >12 months |
406 | –371 | 35 | 523 | –318 | 205 |
| Total | 15,240 | –677 | 14,563 | 13,399 | –661 | 12,738 |
Group
| 2011 | 2010 |
|---|---|
| 2,099 | 4,417 |
| –267 | –2,318 |
| 1,832 | 2,099 |
| 475 | 22 |
| –458 | 453 |
| 17 | 475 |
| 2,574 | 4,439 |
| –267 | –2,318 |
| –458 | 453 |
| 1,849 | 2,574 |
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. The Parent Company's and the Group's presentation 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 entire change in cash-flow hedges transferred to profit/loss for the year is attributable to operating result for both 2011 and 2010.
Retained earnings including profit or loss for the year comprises the earned profit of the Parent Company and its subsidiaries and associated companies.
As a result of the new strategy and organization, Sandvik has reviewed the Group's financial goals. These goals are to be viewed in the context of the aim of enhancing value creation and being a world leader in certain segments, as well as an assessment of global growth and adequate financial security. The updated objectives for the Group are as follows:
| Growth, total | 8% | (8% organic) |
|---|---|---|
| Return on capital employed | 25% | (25%) |
| Net debt/equity ratio | <0.8 | (0.7–1.0) |
| Dividend payout percentage | 50% | (>50%) |
Equity is defined as total shareholders' equity, including non-controlling interests.
| Equity | 2011 | 2010 |
|---|---|---|
| Share capital | 1,424 | 1,424 |
| Other paid-in capital | 1,057 | 1,057 |
| Reserves | 1,849 | 2,574 |
| Retained earnings including profit for the year | 28,160 | 27,525 |
| Equity attributable to equity holders of the Parent |
32,490 | 32,580 |
| non-controlling interests | 1,401 | 1,233 |
| Total equity | 33,891 | 33,813 |
The Board of Directors has proposed to the 2012 Annual General Meeting a dividend of 3.25 SEK per share (3.00). The proposal corresponds to 70% 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 | SEK/share | Share capital SEK | |
|---|---|---|---|
| Share capital at 31 December 2009 | 1,186,287,175 | 1.20 | 1,423,544,610 |
| Share capital at 31 December 2010 | 1,186,287,175 | 1.20 | 1,423,544,610 |
| Share capital at 31 December 2011 | 1,186,287,175 | 1.20 | 1,423,544,610 |
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 2011 is estimated to amount to 4,077 MSEK (3.25 SEK per share). This amount is not 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 OMX Stockholm. Shares can also be traded in the US in the form of ADRs (American Depositary Receipts).
In conjunction with the acquisition of all outstanding shares of Seco Tools AB, 1.2 shares in Sandvik AB were offered for each series B share in Seco Tools AB. In the event of full acceptance of the offer, 69,195,888 new shares will be issued
Undistributable reserves may not be paid to the shareholders in the form of dividends.
and the total number of shares in Sandvik AB will amount to 1,255,483,063.
| 2011 | 2010 | |
|---|---|---|
| Country risk reserve | 10 | 2 |
| Total other untaxed reserves | 10 | 2 |
The purpose of the statutory reserve has been to tie up part of the net profits that is not needed to cover an accumulated deficit. The statutory reserve amount includes amounts that before 1 January 2006 were included in 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 postemployment benefits to employees throughout the Group. The plans are structured in accordance with local regulations and local practice. In recent years, Sandvik has sought to move more pensions toward defined-contribution solutions 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 pension arrangements are described below.
Workers are covered by the SAF/LO Plan, which is a multiemployer collectively bargained defined-contribution pension plan common for several industry sectors. Salaried employees are covered by the ITP Plan, which is also a multiemployer collectively bargained pension plan for several industry sectors. The ITP Plan applies to all white-collar employees, of which newly hired are offered the
defined contribution solution that the Confederation of Swedish Enterprise and the Negotiation Cartel for Salaried Employees in the Private Business Sector have agreed on (ITP 1). Earlier hired employees remain in the old ITP Plan (ITP 2). The old-age pension obligation under the ITP 2 Plan is of the definedbenefit kind and Sandvik mainly provides for this pension under the so-called FPG/PRI system. However, the commitment for family pension, also classified as a defined-benefit plan, is insured with Alecta. Sufficient information to use defined-benefit accounting for this plan was not available but these pension benefits insured with Alecta are accounted for as if the plan were a definedcontribution plan. At the end of 2011, Alecta reports a plan surplus of 113% (146). Such surplus reflects the fair value of Alecta's plan assets as a percentage of plan commitments, measured in accordance with Alecta's actuarial assumptions which are different from those under IAS 19. Alecta's surplus may be distributed to the policyholders and/or to the insurees.
In addition, the Parent Company has made supplementary defined-benefit pension commitments to a limited number of Executive Group Management members.
At 31 December 2011, the defined-benefit obligation amounted to 2,837 MSEK (2,214). The fair value of the plan assets held by the Sandvik Pension Foundation in Sweden was 1,847 MSEK (1,943).
The employees of the Group's US subsidiaries have mainly been entitled to participate in the defined-benefit pension plans sponsored by their respective employer. These plans are closed for new entrants and new employees are instead offered a defined-contribution solution.
In the US part of the Group, there are also commitments for post-retirement medical benefits. At 31 December 2011, the present value of remaining definedbenefit pension obligations was 4,011 MSEK (3,263 ). The fair value of plan assets was 2,718 MSEK (2,494).
Sandvik guarantees a number of defined-benefit pension plans in the UK. These plans are funded through trusts, which provide pension benefits based on a participant's salary when reaching pension age and length of service. All definedbenefit plans were closed for new entrants in 2006. Subsequent newly hired employees are being offered participation in a defined-contribution plan.
At 31 December 2011, the present value of remaining defined-benefit pension obligations was 4,485 MSEK (4,137) and the fair value of plan assets was 3,863 MSEK (3,441).
In Finland, Sandvik sponsors a funded defined-benefit pension plan. 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.
At 31 December 2011, the present value of the defined-benefit pension obligations was 1,978 MSEK (1,994). The fair value of the plan assets held by the related Finnish pension foundation was 2,392 MSEK (2,574).
In Germany, Sandvik has defined-benefit pension plans. Until 2008, these plans were unfunded. During 2008, Sandvik formed a foundation, a so-called Contractual Trust Agreement (CTA), which covers the current employees within most of Sandvik's German companies. The pension commitments for retirees and paid-up policyholders are still unfunded. The present value of the defined benefit obligations at 31 December 2011 was 1,611 MSEK (1,609). The fair value of the plan assets amounted to 786 MSEK (783).
The present value of defined-benefit pension obligations in other countries was 1,907 MSEK (1,797). The fair value of related plan assets was 1,230 MSEK (1,212).
The total cost for the more significant defined-benefit pension plans is presented below:
| Total defined-benefit pension cost | –417 | –538 |
|---|---|---|
| Gains (losses) on settlements | –10 | –13 |
| Employee contributions | — | 44 |
| Past service cost | –23 | –7 |
| Amortization of unrecognized gains and losses | –55 | –80 |
| Expected return on plan assets | 734 | 722 |
| Interest expense | –734 | –804 |
| Current service cost | –329 | –400 |
| Pension cost | 2011 | 2010 |
Total pension costs for defined-contribution and defined-benefit plans were as follows:
| Total pension cost | –1,747 | –1,466 |
|---|---|---|
| Defined-benefit plans | –417 | –538 |
| Defined-contribution plans | –1,330 | –928 |
| Defined-contribution and defined-benefit plans | 2011 | 2010 |
The cost for defined-contribution plans also includes plans recognized in accordance with local regulations and the cost for the defined-benefit commitments insured with Alecta.
Actual return on plan assets during 2011 was 310 MSEK (1,094).
Pension costs are included in profit and loss on the lines cost of sales, selling expenses, administrative expenses, research and development costs, and financial expense. Financial expense includes a portion, 140 MSEK (185), of the interest expense above that pertains to deficits in pension plans.
If the fair value of plan assets for a certain pension plan exceeds the present value of the obligation, an asset is recognized considering the restrictions described in the "Significant accounting policies" section. The amounts recognized in the balance sheet are allocated between non-current financial receivables and provisions as follows:
| Provision for pensions/medical benefits | 2011 | 2010 |
|---|---|---|
| Funded plans recognized as non-current receivables | 1,573 | 1,484 |
| Pension plans recognized as provisions for pensions | –2,358 | –2,264 |
| Provisions for pensions/medical benefits, net | –785 | –780 |
Actuarial gains and losses for a specific plan are recognized over the expected average remaining working lives of the employees participating in the plan to the extent that the total gain or loss exceeds the greater of 10% of the present value of the obligations or 10% of the fair value of any plan assets.
A summary of the recognized net obligation for the most significant plans for defined-benefit pensions and medical benefits follows:
| Net obligation | 2011 | 2010 |
|---|---|---|
| Wholly or partly funded plans | ||
| Present value of defined-benefit obligations | –15,331 | –13,486 |
| Fair value of plan assets | 12,836 | 12,447 |
| net liability, funded plans | –2,495 | –1,039 |
| Unfunded plans | ||
| Present value of defined-benefit obligations | –1,498 | –1,528 |
| Funded and unfunded plans | ||
| Unrecognized past service costs | 18 | 38 |
| Unrecognized actuarial losses (+) and gains (–), net |
3,384 | 1,789 |
| Pension liability for plans recognized in accordance with iAs 19 |
–591 | –740 |
| Pension liability for plans recognized in accordance with local regulations |
–194 | –40 |
| Provisions for pensions/medical benefits, net | –785 | –780 |
The consolidation ratio, that is, the value of plan assets in relation to the present value of comparable obligations, amounted at year-end 2011 to 84% (92).
| Composition of plan assets, % | 2011 | 2010 |
|---|---|---|
| Shares and equity-based securities | 35 | 40 |
| Interest-bearing securities | 49 | 45 |
| Other | 16 | 15 |
| Total | 100 | 100 |
The fair value of plan assets at 31 December 2011 (and 31 December 2010) includes loans to Sandvik entities totaling 70 MSEK (47) and the value of properties leased to Sandvik of 206 MSEK (212).
Movements in the recognized obligations for pensions and medical benefits, and in plan assets are set out in the following tables:
| Movements in the obligations | 2011 | 2010 |
|---|---|---|
| Obligations for defined-benefit plans at | ||
| beginning of year | –15,014 | –15,966 |
| Current service cost and interest expense | –1,062 | –1,204 |
| Pensions paid | 618 | 634 |
| Effects of business combinations and settlements | –52 | 217 |
| Actuarial gains (+)/losses (–) | –1,181 | 136 |
| Foreign exchange differences | –138 | 1,169 |
| Obligations for defined-benefit plans at end of year | –16,829 | –15,014 |
| Movements in plan assets | 2011 | 2010 |
|---|---|---|
| Fair value of plan assets at beginning of year | 12,447 | 12,620 |
| Expected return on plan assets | 734 | 722 |
| Actuarial gains(+)/losses(–) | –424 | 372 |
| Pensions paid, net | –609 | –598 |
| Contributions from employers | 558 | 526 |
| Effects of business combinations and settlements | 31 | –252 |
| Foreign exchange differences | 99 | –943 |
| Fair value of plan assets at end of year | 12,836 | 12,447 |
Sandvik estimates that about 500 MSEK (400) will be paid in 2012 to existing defined-benefit pension plans.
The movements in the net pension and medical-benefit liability are presented in the following table:
| 2011 | 2010 | |
|---|---|---|
| Net liability at beginning of year | –780 | –1,123 |
| New plans, incl. those of newly acquired companies | — | — |
| Pension cost for the year for defined-benefit plans | –417 | –538 |
| Contributions from Group companies | 558 | 544 |
| Movement in the net liability due to foreign | ||
| exchange differences | 8 | 213 |
| movement in net liability for defined-benefit plans | ||
| recognized in accordance with iAs 19 | 149 | 219 |
| Movement in pension plans recognized in | ||
| accordance with local regulations | –154 | 124 |
| Provisions for pensions, net | –785 | –780 |
| Key actuarial assumptions (weighted average, %) | 2011 | 2010 |
| Discount rate | 4.6 | 5.1 |
| Expected return on plan assets | 6.1 | 6.1 |
| Expected rate of salary increases | 3.1 | 3.4 |
| Expected inflation | 2.4 | 2.5 |
| Change in medical cost trend | 8.5 | 8.9 |
| Unrecognized actuarial gains |
| end of year | 3,384 | 1,789 | 2,359 | 2,353 | 932 |
|---|---|---|---|---|---|
| Unrecognized gains and losses at | |||||
| Translation difference | 45 | –11 | –56 | 120 | 20 |
| Amortization of actuarial gains and losses |
–55 | –80 | –110 | –10 | –5 |
| Difference between anticipated and actual return on plan assets |
424 | –372 | –783 | 2,087 | 31 |
| Experience adjustments arising on plan liabilities |
99 | –25 | 73 | –30 | 167 |
| Changed assumptions relating to obligations |
1,082* | –82 | 882 | –746 | –137 |
| Unrecognized gains and losses at beginning of year |
1,789 | 2,359 | 2,353 | 932 | 856 |
| (–) and losses (+) | 2011 | 2010 | 2009 | 2008 | 2007 |
*The change is mainly due to assumptions regarding a reduction in the discount rate.
The Parent Company's recognized pension provision was 368 MSEK (99). 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, including Seco Tools, are members of the foundation. The total fair value of the assets held by the foundation was 1,847 MSEK (1,943), which was 325 MSEK lower than the capital value of the pension obligations, compared with 17 MSEK higher in 2010. The deficit was recognized as a liability in the companies.
The Parent Company's funded obligations mainly comprise ITP Plans.
The trend in the capital value of the company's proprietary obligations:
| 2011 | Funded obligations |
Unfunded obligations |
Total |
|---|---|---|---|
| Capital value at beginning of year | –1,500 | –88 | –1,588 |
| Pension cost for the year excl. | |||
| interest expense | –76 | –12 | –88 |
| Interest expense | –63 | –1 | –64 |
| Pensions paid | 59 | 6 | 65 |
| +/– effects of settlements and | |||
| business combinations | 1 | — | 1 |
| Other changes | –114 | 7 | –107 |
| capital value at end of year | –1,693 | –88 | –1,781 |
| of which insured with FPG/PRI | –1,682 | –67 | –1,749 |
| 2010 | Funded obligations |
Unfunded obligations |
Total |
| Capital value at beginning of year | –1,423 | –116 | –1,539 |
| Pension cost for the year excl. | |||
| interest expense | –59 | –29 | –88 |
| Interest expense | –66 | –1 | –67 |
| Pensions paid | 54 | 3 | 57 |
| +/– effects of settlements and | |||
| business combinations | 1 | 55 | 56 |
| Other changes | –7 | — | –7 |
| capital value at end of year | –1,500 | –88 | –1,588 |
| of which insured with FPG/PRI | –1,489 | –60 | –1,549 |
| Movement in the assets of the pension foundation | 2011 | 2010 | |
| Fair value of assets at beginning of year | 1,511 | 1,474 | |
| Actual return on assets | –74 | 29 | |
| Net amount refunded to employers | 0 | 8 | |
| Fair value of assets at end of year | 1,437 | 1,511 | |
| Reconciliation of the recognized pension liability | 2011 | 2010 | |
| Capital value at end of year | –1,781 | –1,588 | |
| Fair value of the assets of the foundation at end of year | 1,437 | 1,511 | |
| Surplus/deficit value of foundation assets | –24 | –22 | |
| Recognized net liability | –368 | –99 | |
| The recognized pension cost for the year comprises | |||
| the following items | 2011 | 2010 | |
| Current service cost excl. interest expense | –88 | –88 | |
| Interest expense | –64 | –67 | |
| Return on separated assets | –74 | 29 | |
| Effects of settlements, etc. | –107 | — | |
| costs for pension under own management | –333 | –126 | |
| Defined-contribution plans | |||
| Pension premiums for the year | –522 | –430 | |
| subtotal | –855 | –556 | |
| Special employer's contribution | –160 | –107 | |
| Premium for credit insurance policy | 0 | 0 | |
| Total pension cost for the year | –1,015 | –663 | |
| Change in surplus value of separated assets | 65 | 125 | |
| net pension cost for the year | –950 | –538 | |
| Composition of the foundation's assets, % | 2011 | 2010 | |
| Shares and equity-based securities | 15 | 27 | |
| Interest-bearing securities | 64 | 61 | |
| Other | 21 | 12 | |
| Total | 100 | 100 | |
| Key actuarial assumptions, % | 2011 | 2010 | |
| Discount rate for the ITP Plan | 3.84 | 3.84 |
| Provisions for restructuring measures |
||||
|---|---|---|---|---|
| Group | Provisions for warranties |
and personnel related provisions |
Other provisions | Total |
| Balance at 31 December 2010 | 407 | 723 | 644 | 1,774 |
| Provisions made during the year | 264 | 1,049 | 510 | 1,823 |
| Provision taken over by acquisition | 36 | — | 14 | 50 |
| Provisions used during the year | –176 | –235 | –64 | –475 |
| Provisions reversed during the year | –12 | –18 | –20 | –50 |
| Translation differences | –1 | –5 | –15 | –21 |
| Balance at 31 December 2011 | 518 | 1,514 | 1,069 | 3,101 |
| of which current | 274 | 874 | 572 | 1,720 |
| of which non-current | 244 | 640 | 497 | 1,381 |
| Parent Company | ||||
| Balance at 31 December 2010 | 21 | 143 | 18 | 182 |
| Provisions made during the year | 9 | 173 | 2 | 184 |
|---|---|---|---|---|
| Provisions used during the year | –3 | –34 | — | –37 |
| Balance at 31 December 2011 | 27 | 282 | 20 | 329 |
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.
Other provisions include provisions for onerous contracts, for lease commitments relating to abandoned premises, and for environmental issues.
Provisions classified as current are expected to result in an outflow of resources within twelve months from the balance sheet date.
Provisions carried by newly acquired companies at acquisition date amounted to 50 MSEK (0).
Non-current interest-bearing liabilities fall due as follows:
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Within one to five years |
Later than five years |
Total | Within one to five years |
Later than five years |
Total | |
| Loans from financial institutions | 1,816 | — | 1,816 | 463 | — | 463 |
| Loans from Group companies | 150 | 151 | 301 | 42 | 1 | 43 |
| Other liabilities | 11,100 | 2,855 | 13,955 | 9,191 | 4,895 | 14,086 |
| Total | 13,066 | 3,006 | 16,072 | 9,696 | 4,896 | 14,592 |
| Group | 2011 | 2010 |
|---|---|---|
| Non-current liabilities | ||
| Bond issues | 19,901 | 20,033 |
| Other | 381 | 245 |
| Total | 20,282 | 20,278 |
| Total | 1,853 | 674 |
|---|---|---|
| Other | 458 | 299 |
| Bond issues | 1,395 | 375 |
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 | 2011 | 2010 |
|---|---|---|
| Other non-current liabilities | ||
| Derivatives designated as hedging instruments | 176 | 247 |
| Other | 33 | 39 |
| Total | 209 | 286 |
| Total | 4,322 | 3,760 |
|---|---|---|
| Other | 1,882 | 1,993 |
| Gross amount due to construction contract customers |
1,616 | 1,205 |
| Bills payable | 123 | 76 |
| Derivatives designated as hedging instruments |
700 | 483 |
| Derivatives held for trading | 1 | 3 |
| Total | 3,116 | 2,683 |
|---|---|---|
| Other | 695 | 594 |
| Expenses related to finance | 749 | 622 |
| Personnel related | 1,672 | 1,467 |
| Parent Company | 2011 | 2010 |
A decision was made to divest the instrument and implant section of Sandvik MedTech that is part of Sandvik Materials Technology. The sale is expected to take place in the first six months of 2012. On 31 december 2011, the disposal group included assets of 747 MSEK, less liabilities totaling 108 MSEK.
| Assets classified as held for sale: | |
|---|---|
| Intangible assets | 272 |
| Property, plant and equipment | 260 |
| Inventories | 113 |
| Trade receivables and other receivables | 102 |
| 747 | |
| Liabilities directly attributable to assets classified as held for sale: |
|
| Accounts payable and other liabilities | 83 |
| Deferred tax liabilities | 25 |
| 108 | |
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.
In 2005, Sandvik AB implemented a reorganization of ownership and management of intellectual property rights. All Swedish-owned patents and trademarks were transferred to Sandvik Intellectual Property AB (IP Company). As a result of the reorganization, the Swedish National Tax Board did not approve the IP company's tax returns and the Public Commissioner filed an appeal against the Tax Board's decision relating to Sandvik AB.
The Public Commissioner requested that Sandvik AB be taxed in 2005 for a capital gain of 18,097 MSEK, which arose in the Group in conjunction with the reorganization. In June 2010, the Administrative Court approved the Public Commissioner's appeal pertaining to additional taxation of Sandvik AB for 2005. The decision has been appealed to the Administrative Court of Appeal. The decision, if it gains legal force, entails that Sandvik AB will be taxed for additional earnings of 18,097 MSEK for 2005. Because the decision will not impact the Group's earnings, Sandvik has not made any provision, since any additional tax expense of about 5 billion SEK will correspond to the tax value of the increased amortization in the IP Company and this tax value, according to IFRS policies, would then be recognized as income. For further details, refer to the Risk and Risk Management section.
| Group | Parent Company | |||
|---|---|---|---|---|
| Contingent liabilities | 2011 | 2010 | 2011 | 2010 |
| Bills discounted | 39 | 24 | — | — |
| Other surety undertakings and contingent liabilities |
1,577 | 1,635 | 12,006 | 11,228 |
| Total | 1,616 | 1,659 | 12,006 | 11,228 |
| of which for subsidiaries | 11,526 | 10,721 |
The Parent Company's surety undertakings and contingent liabilities amounted to 12,006 MSEK (11,228), of which 7,850 MSEK (7,826) 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, and to financial institutions relating to local borrowings, guarantees on advances received and various types of performance bonds.
The Group's surety undertakings and contingent liabilities amounted to 1,616 MSEK (1,659) and comprised mainly guarantees to financial institutions for various types of performance bonds, chiefly relating to construction contracts entered into by Sandvik Mining and Construction.
Pledged assets for own liabilities and provisions.
| 2011 | 2010 |
|---|---|
| 206 | 207 |
| 108 | 108 |
| 314 | 315 |
No assets of the Parent Company had been pledged at 2011 and 2010 year-ends.
Under the IFRS 7 disclosure requirements, the method applied to the valuation of financial instruments measured at fair value in the balance sheet is presented below. The valuation is divided into three levels:
Level 1: Fair value is determined according to prices listed on an active market for the same instrument.
Level 2: Fair value is determined based on either directly (as a price) or indirectly (derived from prices) observable market data that is not included in level 1.
Level 3: Fair value is determined based on input data that is not observable in the market.
All of Sandvik's financial instruments are included in Level 2.
The following is a summary of the methods and assumptions primarily applied to determine the fair value of the financial instruments presented in the table below.
The fair value of listed securities is determined based on the listed average price of the asset on the balance sheet date with no supplement for transaction costs on the acquisition date.
The fair value of foreign exchange contracts is determined based on the listed price. The fair value of interest-rate swaps is based on discounting estimated future cash 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 marketbased interest rate of similar instruments on the balance sheet date.
All valuation techniques applied are accepted in the market and take into account all parameters that the market would consider in its pricing. These techniques are reviewed regularly so as to ensure their reliability. Applied assumptions are compared against actual outcomes to identify any needs for adjusting the measurement or forecasting tools.
For means of payment, receivables and liabilities with variable interest and current receivables and liabilities (for example, trade receivables and accounts payable), the fair value has been considered to correspond to the carrying amount.
| Financial instruments measured at fair value | 2011 | 2010 | |
|---|---|---|---|
| Financial assets | |||
| Derivatives | Foreign exchange contracts | 749 | 771 |
| Foreign currency options | 16 | 16 | |
| Interest-rate swaps | 153 | 60 | |
| Commodity and electricity | |||
| derivatives | 64 | 325 | |
| Total | 982 | 1 172 | |
| Financial liabilities | |||
| Derivatives | Foreign exchange contracts | 560 | 707 |
| Foreign currency options | — | — | |
| Interest-rate swaps | 201 | 15 | |
| Commodity and electricity | |||
| derivatives | 117 | — | |
| Total | 878 | 722 | |
Financial assets and liabilities and financial derivatives are stated at fair value, except for current and non-current borrowings, which are measured at amortized cost. Calculation at fair value would increase the Group's non-current borrowings by 1,276 MSEK (1,077). When measuring interest-bearing liabilities, the company's Swedish and European bond loans have then been remeasured at listed market prices when available. Other non-current debt has been remeasured in accordance with the principles described above. Current loans,
which include outstanding commercial papers with a fixed interest period of less than 12 months, have not been remeasured.
The table below shows the fair value of financial assets and liabilities compared with their carrying amounts. Fair value is the amount at which an asset or liability can be sold between well-informed partners who are independent in relation to each other and who have a vested interest in completing the transaction.
| Balance-sheet items | Derivatives for hedge accounting1) |
trading 2) | Assets at fair value through profit and loss Derivates held for |
financial assets | Available-for-sale | Loans and receivables | Total carrying amount | Fair value | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Financial investments | — | — | — | — | 80 | 78 | — | — | 80 | 78 | 80 | 78 | |
| Trade receivables | — | — | — | — | — | — | 14,418 | 12,738 | 14,418 | 12,738 | 14,418 | 12,738 | |
| Other receivables 3) | — | — | — | — | — | — | 1,023 | 1,277 | 1,023 | 1,277 | 1,023 | 1,277 | |
| Derivatives 4) | 701 | 1,043 | 281 | 146 | — | — | — | — | 982 | 1,189 | 982 | 1,189 | |
| Cash and cash equivalents | 5,591 | 4,783 | 5,591 | 4,783 | 5,591 | 4,783 | |||||||
| Total financial assets | 701 | 1,043 | 281 | 146 | 80 | 78 | 21,032 | 18,798 | 22,094 | 20,065 | 22,094 | 20,065 | |
| Derivatives for hedge accounting1) |
Liabilities at fair value through profit and loss Derivates held for trading 2) |
Other financial liabilities |
Total carrying amount |
Fair value | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial liabilities | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
| Borrowings 5) | — | — | — | — | 30,715 | 27,203 | 30,715 | 27,203 | 31,991 | 28,280 |
| Derivatives 6) | 575 | 352 | 303 | 381 | — | — | 878 | 733 | 878 | 733 |
| Accounts payable | — | — | — | — | 8,133 | 6,889 | 8,133 | 6,889 | 8,133 | 6,889 |
| Due to associates | — | — | — | — | 63 | 47 | 63 | 47 | 63 | 47 |
| Other liabilities 7) | — | — | — | — | 123 | 77 | 123 | 77 | 123 | 77 |
| Total financial liabilities | 575 | 352 | 303 | 381 | 39,034 | 34,216 | 39,912 | 34,949 | 41,188 | 36,026 |
1) Of which 23 MSEK (645) pertains to cash-flow hedges recognized in the hedging reserve in equity and 103 MSEK (46) pertains to fair-value hedges recognized in profit or loss. 2) Of which –27 MSEK (–239) pertains to financial hedges; hedge accounting is not applied.
3) Comprises parts of the Group's non-current receivables, accrued income and other receivables recognized in the balance sheet.
4) Derivatives form part of the other receivables recognized in the balance sheet. 5) Recognized in the balance sheet as non-current and current liabilities to financial institutions and other liabilities.
6) Derivatives form part of the other liabilities recognized in the balance sheet. 7) Form part of the Group's non-current liabilities, accrued expenses and other liabilities recognized in the balance sheet.
In addition to fair value adjustment, interest and currency movement effects are included.
| 2011 | 2010 | |
|---|---|---|
| Assets and liabilities at fair value (Derivatives) | –473 | 205 |
| Loans and accounts receivables | 470 | –156 |
| Available-for-sale financial assets | 0 | 6 |
| Financial liabilities | –1,870 | –1,733 |
The company's financial liabilities amounted to 39,912 MSEK (34,949) at year-end.
| 2011 | 2010 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Nominal amounts | <6 months | 6–12 months | 1–5 years | >5 years | <6 months | 6–12 months | 1–5 years | >5 years | ||
| Bank loans | SEK | –2,495 | –2,451 | –4,674 | — | –3,438 | –32 | –3,596 | — | |
| Commercial papers | SEK | –200 | — | — | — | — | — | — | — | |
| MTN | SEK | –831 | –923 | –7,571 | –3,433 | –171 | –495 | –5,074 | –5,336 | |
| EMTN | EUR | –349 | — | –5,968 | — | –371 | — | –6,418 | — | |
| Private placement | USD | –142 | –142 | –1,140 | –5,798 | –146 | –146 | –1,168 | –6,195 | |
| Derivatives | ||||||||||
| – Currency derivatives | –154 | 52 | 279 | — | –273 | 11 | 39 | 66 | ||
| – Interest-rate derivatives | 118 | –58 | 137 | –49 | 94 | –45 | 172 | –128 | ||
| – Commodity and electricity derivatives |
–49 | –18 | 10 | — | 134 | 134 | 46 | 6 | ||
| Finance leases | –15 | –15 | –76 | –59 | –15 | –15 | –89 | –72 | ||
| Accounts payable | –8,133 | — | — | — | –6,889 | — | — | — | ||
| Total | –12,250 | –3,555 | –19,004 | –9,339 | –11,075 | –588 | –16,088 | –11,659 |
The maturity structure of the Group's financial liabilities is also presented in the Report of the Directors in the financial risk section.
Periods when hedged cash flows are expected to occur and affect earnings
| –23 –83 |
–25 –65 |
–19 0 |
1 17 |
1 9 |
–7 –8 |
–4 21 |
2 44 |
18 87 |
|---|---|---|---|---|---|---|---|---|
| –167 | ||||||||
| –60 | –40 | 19 | 16 | 8 | –1 | 25 | 42 | 236 |
| Q 1 2012 |
Q 2 2012 |
Q 3 2012 |
Q 4 2012 |
Q 1 2013 |
Q 2 2013 |
Q 3 2013 |
Q 4 2013 |
2014 and later |
The Group's sales to associated companies amounted to 1,127 MSEK (978). The Group's purchases from associated companies amounted to 496 MSEK (396). Advances have been made to associated companies in the amount of 0 MSEK (0). Interest income on loans to associated companies amounted to 0 MSEK (0). Guarantees have been made for the obligations of associated companies in the amount of 0 MSEK (0). All transactions are carried out on market terms.
Sales to Group companies from the Parent Company amounted to 13,944 MSEK (13,482), or 80% (76) of total sales. The share of exports was 73% (72). The Parent Company's purchases from Group companies amounted to 2,357 MSEK (2,563), or 14% (18) 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 MSEK (0). All transactions are effected on an arm's length basis.
Except as indicated in Note 3.5, Information on benefits to the Board of Directors and senior executives, and in the description of the Board of Directors on page 40, no transactions took place with persons closely associated with the company.
| 2011 | 2010 | |
|---|---|---|
| Cash and cash equivalents – Group | ||
| Cash and cash equivalents comprise: | ||
| Cash and bank | 3,109 | 3,172 |
| Short-term investments comparable to cash and cash equivalents |
2,483 | 1,611 |
| Total in the balance sheet | 5,592 | 4,783 |
| Total in the cash-flow statement | 5,592 | 4,783 |
| Cash and cash equivalents – Parent Company | ||
|---|---|---|
| Cash and cash equivalents comprise: | ||
| Cash and bank | 8 | 12 |
| Total in the balance sheet | 8 | 12 |
| Total in the cash-flow statement | 8 | 12 |
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 |
||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Interest and dividend paid | |||||
| Dividend received | — | 6 | 1,710 | 3,357 | |
| Interest received | 189 | 48 | 70 | 102 | |
| Interest paid | –1,837 –1,883 –1,401 –1,189 | ||||
| Total | –1,648 –1,829 | 379 | 2,270 |
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Adjustment for non-cash items, etc. | ||||
| Changes in value of financial instruments | — | — | 431 | –618 |
| Unappropriated results of associated companies |
9 | –27 | — | — |
| Gains and losses on disposal of property, plant and equipment |
97 | –121 | 9 | –85 |
| Provisions for pensions | 106 | –52 | 269 | –29 |
| Other provisions | 1,348 | 64 | 163 | 102 |
| Appropriations | — | — | 8 | –2 |
| Unrealized foreign exchange differences | — | — | –8 | –707 |
| Other | –201 | 6 | –172 | 11 |
| Total | 1,359 | –130 | 700 –1,328 | |
| 2011 | 2010 | |||
| Acquisitions of subsidiaries and other business operations – Group |
||||
| Net assets acquired: | ||||
| Non-current assets | 495 | 198 | ||
| Inventories | 185 | 44 | ||
| Operating receivables | 264 | 38 | ||
| Cash and cash equivalents | 93 | 3 | ||
| Total assets | 1,037 | 283 | ||
| Provisions | –93 | — | ||
| Operating liabilities | –604 | –22 | ||
| Other liabilities | –257 | –2 | ||
| Total provisions and liabilities | –954 | –24 |
| Purchase consideration paid | –431 | –1,219 |
|---|---|---|
| Less cash and cash equivalents of divested operations | 93 | 3 |
| Effect on cash and cash equivalents | –338 | –1,216 |
Purchase consideration recognized as a liability –72 –60
The business combinations effected during 2010 and 2011 are set out below. Annual revenue and number of employees reflect the situation at the date of the respective acquisition.
| Business area | Company | Acquisition date | Annual revenue | No. of employees |
|---|---|---|---|---|
| Seco Tools | AOB, France | 23 July 2010 | 40 | 50 |
| Seco Tools | NCI and DTC, USA | 29 December 2010 | 275 | 180 |
| Sandvik Mining and Construction | SJL, China | 9 October 2011 | 500 | 500 |
the tables below.
On 9 October 2011, shares corresponding to 80% of equity in the Chinese company Shangai Jianshe Luqiao Machinery Co. Ltd (SJL) were acquired. The company's business operations are marketed under the SHANBAO brand, generate sales of 500 MSEK and employee approximately 500 people. The company became part of the Sandvik Mining and Construction business area on the acquisition date and from 2012 will be included in the new Sandvik Construction business area.
Consideration transferred for the acquisition comprised cash and loans from the seller. No equity instruments were issued in connection with the acquisi-
Sandvik Mining and Construction Fair value recognized in the Group Intangible assets 150 Property, plant and equipment 322 Financial assets 23 Inventories 185 Current receivables 264 Cash and cash equivalents 93 Interest-bearing liabilities –264 Noninterest-bearing liabilities –690 Net identifiable assets and liabilities 83 Non-controlling interests 17 Goodwill 172 Purchase consideration 239 Cash and cash equivalents in acquired businesses –93 Part of consideration entered as a liability –73 Net cash outflow 73
The value of acquired assets and assumed liabilities were determined preliminarily pending a final valuation. A fair-value measurement increased net assets by 97 MSEK.
The value of non-controlling interests was calculated as the proportionate share of the company's net assets and amounted to 17 MSEK on the acquisition date.
Goodwill arose as a result of synergy effects in the form of, for example, improved production processes, integration of production capacity, joint R&D activities and sales synergies through additional product programs.
Goodwill is not expected to be tax deductible. For more detailed information about goodwill, refer to Note 13.
tions. Direct acquisition expenses amounted to 10 MSEK and were charged to
SJL is a leader in the development and manufacturing of crushing and sorting equipment, including expendable materials and service, for the Chinese mining and engineering industry. The company also has a considerable presence outside China in terms of its competitive and cost-efficient crushing and sorting solutions. The fair value of assets and liabilities in acquired companies are presented in
administrative expenses in the Group's incomes statement.
The fair value of trade receivables amounted to 233 MSEK.
| Cash and cash equivalents | 166 |
|---|---|
| Loan from seller | 73 |
| 239 |
| seco Tools | Fair value recognized in the Group |
|---|---|
| Intangible assets | 32 |
| Property, plant and equipment | 166 |
| Inventories | 44 |
| Current receivables | 38 |
| Cash and cash equivalents | 3 |
| Noninterest–bearing liabilities | –24 |
| Net identifiable assets and liabilities | 259 |
| Goodwill | 37 |
| Purchase consideration | 296 |
| Cash and cash equivalents of acquired businesses | –3 |
| Finalized purchase consideration | –37 |
| Anticipated additional purchase consideration | –23 |
| Net cash outflow | 233 |
| Sandvik Tooling | Sandvik Mining and Construction |
Sandvik Materials Technology |
Seco Tools |
Total | |
|---|---|---|---|---|---|
| Contributions as of acquisition date | |||||
| Revenue | — | 105 | — | — | 105 |
| Loss for the year | — | –33 | — | — | –33 |
| Contributions as though the acquisition date had been 1 January 2011 | |||||
| Revenue | — | 632 | — | — | 632 |
| Loss for the year | — | –68 | — | — | –68 |
| Sandvik Tooling | Sandvik Mining and Construction |
Sandvik Materials Technology |
Seco Tools |
Total | |
|---|---|---|---|---|---|
| Contributions as of acquisition date | |||||
| Revenue | — | — | — | 19 | 19 |
| Profit for the year | — | — | — | 2 | 2 |
| Contributions as though the acquisition |
| date had been 1 January 2010 | |||||
|---|---|---|---|---|---|
| Revenue | — | — | — | 318 | 318 |
| Profit for the year | — | — | — | 11 | 11 |
On 1 September 2011, the remaining 25% of the shares in TDM System GmbH were acquired for 23 MSEK. The purchase was settled in cash and, consequently, the holdings totaled 100%. The Group recognized a reduction of 5 MSEK in the non-controlling interest and a reduction of 18 MSEK in retained earnings.
Sandvik Aktiebolag, corporate registration number 556000-3468, is a registered Swedish limited liability company, with the address of SE-811 81 Sandviken, Sweden, On 20 December 2011, the company's registered office was changed from Sandviken to Stockholm.
Sandvik's shares are quoted on the NASDAQ OMX Stockholm. Shares can also be traded in the US in the form of ADRs (American Depositary Receipts).
The 2011 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 not less than 1,000,000,000 and no more than 4,000,000,000.
At the end of 2011, 1,186,287,175 shares with a quotient value of 1.20 SEK per share had been issued. Shareholders have a preferential right to subscribe to newly issued shares issued for cash or with terms and conditions concerning rights of setoff. All shares are fully negotiable.
Shareholdings that directly and indirectly represent at least 10% of the voting rights are held by AB Industrivärden (12.2%).
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 agreements between the companies in the Group and the Parent Company's directors or employees if those persons give notice of termination, or their services are improperly terminated, or the employment is terminated as a consequence of a public takeover bid.
Board statement in accordance with Chap. 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, we refer to the Report of the Directors.
The company's financial position at 31 December 2011 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 at the end
of the year is in the form of two unutilized credit facilities amounting to 650 MEUR and 5,000 MSEK, respectively, 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 in 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.
Sandviken, 15 February 2012 Sandvik Aktiebolag (publ) Board of Directors
The Board of Directors and the President propose that:
| the profits brought forward from the preceding year | 9,860,986,935 |
|---|---|
| and the profit for the year | –380,492,052 |
| SEK | 9,480,494,883 |
| be appropriated as follows: | |
| a dividend of 3.25 SEK per share | 4,076,754,250* |
| profit carried forward | 5,403,740,633 |
| SEK | 9,480,494,883 |
| *Includes newly issued shares in 2012. |
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 2 May 2012.
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, and that such financial reports give a true and fair view of the results of operations and financial position of the Parent Company and of the Group, respectively, and that the Report of the Directors pertaining to the Parent Company and the Group gives a fair view of the development of the company's and the Group's activities, financial position and results of operations, and further presents the significant risks and uncertainties facing the company and the entities that are members of the Group.
Sandviken, 15 February 2012
Anders Nyrén Johan Karlström Jan Kjellgren Chairman Director Director
Tomas Kärnström Fredrik Lundberg Hanne de Mora
Director Director Director
Egil Myklebust Simon Thompson Lars Westerberg Director Director Director
Olof Faxander President and CEO
Our audit report was submitted on 16 February 2012
KPMG AB
George Pettersson Authorized Public Accountant
sandvik Annual Report 2011 97
We have audited the annual accounts and the consolidated accounts of Sandvik AB (publ) for the year 2011. The annual accounts and the consolidated accounts are included in the printed version of this document on pages 14–97.
The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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 the parent company as of 31 December 2011 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act, and 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 2011 and of their financial performance and cash flows in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. A Corporate Governance Report has been prepared. The Board of Director's report and the Corporate Governance Report are consistent with the other parts of the annual accounts and the consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.
In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Sandvik AB (publ) for the year 2011.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We recommend to the annual 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 Directors and the Managing Director be discharged from liability for the financial year.
Sandviken 16 February 2012
KPMG AB
George Pettersson Authorized Public Accountant
Sandvik Annual Report 2011 99
Sandvik has been conducting an extensive sustainability program for many years and reports the results of its work in this Sustainability Report. For Sandvik, the concept of sustainable development encompasses responsibility for the environment, health, safety, business ethics and human rights, and is part of systematic risk management activities aimed at creating new business opportunities while retaining a good reputation. A Code of Conduct and environmental, health and safety management systems form the foundation of the Group's sustainability activities. This work is carried out on a decentralized basis within the business areas and is based on policies, objectives, targets and performance indicators established at Group level.
Sandvik has an explicit responsibility for the company's impact on society, the economy and the environment. Sandvik complies with the laws and regulations that exist in countries where the company has operations and respects international normsand declarations on human rights and labor legislation adopted by the UN and the ILO. Moreover, Sandvik respects the following four basicenvironmental principles that are summarized in ISO 26000:
• Environmental responsibility: In excess of what is prescribed in regulations, assume responsibility for the negative impact by actively working to improve the environmental performance of its own operations, and the operations of others, in areas where Sandvik has the opportunityto exert an influence.
Sandvik has committed to follow the OECD's Guidelines for Multinational Enterprises and theGroup'scorporate responsibility is summarized inaCode of Conduct that was adopted by the Board in 2004. The Code contains the corporate responsibility in the areas of business ethics, suppliers, employee work conditions and development, human rights, the environment and social commitments. The Code has been translated into 14 languages and is available in Englishfromthe Sandvik website (www.sandvik.com).
In 2008,GroupExecutive Management establishedanew environment, health and safetypolicyfor allGroupunits. This policyis availablefromSandvik's website, www.sandvik.com.
Sandvik's ambition is to be a strong contributor in creating a sustainable world. This ambition includes actively creating and developing new business opportunities and, in this respect, to not only focus on how we conduct business, but also on how our products contribute to sustainable development. To ensure the success of this, Sandvik has prioritized the following focus areas with aims and objectives:
| Focus area | Aim | Objective |
|---|---|---|
| Employees | • Promote and protect the safety, health and well-being of individuals. |
• Further reduce the frequency of occupational injuries, illnesses and incidents. • Improve health and well-being among employees. • All major production, service, and distribution units shall be certified in accordance with OHSAS 18001 (or an equivalent standard) within two years of acquisition or establishment. |
| • Create a flexible and high-performing organization. | • Create the conditions for committed and empowered employees. • Create the conditions for high diversity and inclusive leadership. |
|
| Environment | • All major production, service, and distribution units shall be certified in accordance with ISO 14001 within two years of acquisition or establishment. |
|
| • Optimize the use of the Earth's resources: energy, materials and water. |
• More efficient use of energy and input materials. • Increased recovery of materials and by-products. |
|
| • Minimize emissions to air, land and water. | • Reduced emissions to air and water. • Reduced environmental impact from the use of hazardous chemicals. |
|
| • Sandvik's products shall help enhance the efficiency of cus tomer processes in their efforts to minimize their environ mental impact and create a safer work environment. |
• Increased number of products that support sustainability principles. | |
| Suppliers | • Ensure responsible sourcing. | • Introduce robust processes for ensuring supplier compliance with Sandvik's Supplier Code of Conduct. |
| Business ethics | • Ensure zero tolerance in respect of corruption. | • Introduce robust processes to minimize the risk of bribes in all business processes, thus fulfilling the requirements stipulated in the UK Bribery Act. |
Proceeding from Sandvik's sustainability strategy (see preceding page) and Code of Conduct, risks and opportunities are analyzed. Objectives and targets are set as part of efforts to minimize risks and leverage the possibilities available in an efficient and effective manner. Group Executive Management,supported by the Board, establishes Sandvik's Code of Conduct, goals and performance indicators, and each business area assumes responsibility for ensuring compliance with the Code and that the goals are cascaded down and achieved in the organization. In addition, each business
area is responsible for the assessment of sustainability risks(environment,health and safety, business ethics, human rights) in its operations, and there are specific organizations appointed in each business area to coordinate issues and support the localmanagementteams. At Group level, various councils exist for example, for HR, purchasing and EHS (Environment, Health and Safety) to co-ordinate the work among the business areas and to draft common policies, objectives, targets and indicators for Group Executive Management. The diagram below shows the management process for sustainability activities. The various councils have representatives from each business area and the relevant Group staff functions.
Indicators and key figures are reported onaquarterly basis to Group Assurance, which analyzes the results and presents them to the Board, Group Executive Managementand the entire organization. Training is another key factor in Sandvik's sustainability strategy.Aprogram is in progress to train all company employees with respect to the implications of environmental and social responsibility and business ethics. Sandvik has an established risk managementprocess for evaluating both financial and non-financial risks. The evaluation process does not only encompass the company's own operations but also risks related to the geographic locations in which it conducts business and the risks associated with its suppliers. The risk management process is described in the section that starts on page 27 of Sandvik's Annual
Report. The independent Group Assurance function is also responsible for ensuring the adequate functionality ofmanagementsystems,internal control and risk management as well as compliance with the Code of Conduct. This unit continuously monitors the Group's operations, mainly by way of internal audits, and reports to the Board's Audit Committee and Group ExecutiveManagementonaquarterly basis.
As part of Sandvik's corporate responsibility in issues relating toenvironment,health and safety, the Group has an objective that all major production-related units (production, service, machinery rebuilding and distribution/warehouse) units shall be certified in accordance with ISO 14001 and OHSAS 18001, within two years of their acquisition or establishment. The term "major" is defined as sites with 25 employees or more. During the year, two new units were certified in accordance with ISO 14001 and OHSAS 18001. The total number of certified units is presented in the table on page 102. In addition, Sandvik operates about 20 maintenance workshops within customer operations (mainly mines), that have alsobeencertified.
Sandvik endeavorsto engage in an open dialog with all of its key stakeholdersregarding how activities are conducted, explaining priorities, how decisions are made and what results are achieved. Thisis essential to be able to focus on the correct aspects of the
sustainability program. The Group's operations affect, and are affected by,anumber of stakeholders. Sandvik assumes its responsibility in relation to these by openly disclosing information and inviting dialog concerning its sustainability activities. Refer to the diagram on page 101.
Sandvik has identified fivestakeholder groupsof particular significance for the company:shareholders,employees, customers,suppliersand society.
Key sustainability issues are communicated to stakeholders primarily through the sustainability report. Dialog with stakeholdersisin part conducted at Group level but also, toalarge degree, at local level in the companiesthroughout the world. The results ofstakeholder dialogsinfluence how Group Executive Management and the Board determine key sustainability issues.
Sandvik endeavorsto generate an attractive return and growth in value forinvestorsin the Sandvik share. Nearly 70% ofshareholders are found in Sweden. More information about the company's ownership structure is available on Sandvik's website, www.sandvik.com. Dialog with shareholdersis primarily conducted via the Board of Directors and at the Annual General Meeting, but also throughawell-developed Investor Relationsfunction. During the year,stakeholder-related dialogstook place withanumber of Socially Responsible Investment (SRI) analysts and otherstakeholder-related dialogs were conducted with the assistance of external parties. Among
other aspects, these dialogsrevealed that Sandvik works with relevantsustainability aspectsinaresponsible manner. In addition, it emerged that Sandvik is expected to assess future environmental and socialrisks connected to, for example, changesin legislation regulating carbon dioxide emissions and risks associated with customers. Stakeholders also expect Sandvik to develop risk management in the supply chain, particularly with respect to human rightsissues. Sandvik's financialrisks are described on pages 30–35 and Sandvik's financial progress is presented in the Report of the Directors and in the financialstatementsin the Annual Report. These includeapresentation of the Group's financial goals and outcome in relation to these goals. The table below shows how the value created through the Group's operations has been generated and themannerin which it was distributed among the variousstakeholders. Apart from allocations of carbon dioxide emission allowances (see page 26), Sandvik received no significant government grants during the year.
Customer contacts are handled locally through Sandvik's worldwide sales organization. Increasing demandsimposed by Sandvik's customers on sustainability programs are becoming ever-more evident asa result of customers' growing focus on sustainability issues, which intensifiesthe focus on supplier audits. Many of these demands relate to workplace safety and the environment. For example, customers more often insist that Sandvik should have systemsin
place for compiling data on carbon dioxide emissionsto enable them to calculate the total carbon dioxide emissionsin the entire value chain. Questionsrelated to the new European Community Regulation on chemicals and theirsafe use (REACH) are also common. Many customers, notably those of Sandvik Mining and Construction, are imposing higher demands on equipment safety. Customers also want to be assured that Sandvik complies with all international conventions on human rights. Sandvik has long had the strategy of offering customers products with extended service life and more effective resource utilization. In addition, these products will haveaminimal environmental impact when used in customer processes and be recyclable. Group Executive Management decided in 2009 to introduceanew long-term objective to increase the number of productsthatsupportsustainability principles. Implementation of this objective in the organization commenced during the year.
Sandvik's employees are represented on the Parent Company's Board. Dialogs are also held directly with employees at local level, for example, at annual review discussions. The trade union organizations at Sandvik inEuropework togetherthrough theEuropeanWorksCouncil,which discusses the company's sustainability work. It has emergedfromdiscussions with employees and their trade unions that employees feel that the environment, health and safety, absenteeism and dis-
| MSEK | Stakeholder | 2011 | 2010 | 2009 | 2008 |
|---|---|---|---|---|---|
| Sales | Customers | 94,084 | 82,654 | 71,937 | 92,654 |
| Economic value generated | 94,084 | 82,654 | 71,937 | 92,654 | |
| Production costs | Suppliers | 56,054 | 44,758 | 46,859 | 53,287 |
| Employee wages and benefits2) | Employees | 24,014 | 22,885 | 22,441 | 23,129 |
| Payments to providers of capital | Credit providers | 1,969 | 1,617 | 2,060 | 2,217 |
| Payments to providers of capital | Shareholders | 3,807 | 1,188 | 3,926 | 5,111 |
| Payments to governments | Public sector | 3,173 | 2,391 | 885 | 2,876 |
| Economic value distributed | 89,017 | 72,839 | 76,171 | 86,620 | |
| Retained in company | 5,067 | 9,815 | –4,234 | 6,034 |
1) The table includes Seco Tools.
2) Employee wages and benefits comprise wages to employees including amounts paid to the public sector (employer's contributions and
unemployment benefit funds) on behalf of employees.
| Management system | isO 14001 | OHsAs 18001 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Current number of units |
Number of units certified |
% certified |
Current number of units |
Number of units certified |
% certified |
Current number of units |
Number of units certified |
% certified |
Current number of units |
Number of units certified |
% certified |
|
| Production units | 137 | 132 | 96 | 140 | 133 | 95 | 137 | 132 | 96 | 140 | 132 | 94 |
| Service, machinery rebuilding units | 24 | 24 | 100 | 24 | 23 | 96 | 24 | 24 | 100 | 24 | 24 | 100 |
| Distribution units | 5 | 5 | 100 | 5 | 5 | 100 | 5 | 5 | 100 | 5 | 5 | 100 |
| Total production-related units | 166 | 161 | 97 | 169 | 161 | 95 | 166 | 161 | 97 | 169 | 161 | 95 |
crimination are key issues. Competence development and evaluations of work performances are further key areas.
Sandvik's sustainabilityprogramis evaluated annually byanumber of SRI analysts and rating agencies. In 2011, Sandvik has been included in the following indexes:
The average number of employeesin the Sandvik Group by geographical area and genderis presented in Note 3. During the year, personnel turnover was 8% (8). Mobility within the company (the proportion of positions filled internally in relation to the total number of positions filled) was
38% (43). Sandvik's new strategy that was presented in Septemberrequired some structural cutbacksfor both Sandvik Materials Technology and Sandvik Mining and Construction. These cutbacks were not volume related, but wereaconsequence ofredefined operations and changed management models. Sandvik handled the redundancies mainly among staff positions, in the most responsible and efficient manner possible. Voluntary redundancies being the method most commonly used.
Anew HR strategy was developed during the year and appliesfrom1January 2012. The key areas ofthisstrategy are Safety First, Diversity and Inclusion, Empowered Employees, Innovation, Talent Management, Performance Management and ExcellentLeaders.More details about the strategy can befoundon page 24 of the Report of the Directors. Targets within these areas will be followed up from 1January 2012.
The vast majority of Sandvik's employees work outside Sweden. The employees atsubsidiariesin more than 60 countries havea wide variety of nationalities and collectively speakalarge number of languages. This diversity in the Group isthus considerable and is also essential for Sandvik to be able to createahigh-performing organization and
to secure the availability of the right expertise at the right time forthe needsthat exist within the company. It is also believed that increased diversitymakesSandvik more innovative and efficient asacompany. This high level of diversity issecured by offering equalrights and equal opportunitiesto all employees, but this work also involves creating an inclusive environment andamanagement approach that nurturesthe differences among people.
Sandvik hasthe objective of creating the conditionsforahigh level of diversity at the workplace and, as part of this work, Sandvik has aimed to increase the proportion of female employees and to ensure that employees are recruited based on theirskills and suitability ratherthan their gender. At year-end 2011, the proportion of women was 17.9% (17.6) of the total number of employees, 11% (9) of the total number of Board members and Presidents and 14.6% (13.9) of the total number of managers/ supervisors, which isaslight increase compared with 2010. Otherrelevant performance indicatorsregarding distribution by gender are shown in the diagrams below.
In 2011,anumber of activities and programs were pursued to improve the balance between men and women.Afew examples include the Diversity Management program foridentified key female employeesin the Sandvik Materials Technology business
The diagrams below show the distribution between the number of women and men at year-end, broken down by geographic market.
Number of women, managers/supervisors
sandvik Annual Report 2011 103
area and workshopsinvolving the business area management team at Sandvik Tooling and the management team at Sandvik Coromant aimed atraising the level of awareness in the diversity area.Anumber of local and regional initiatives were conducted in this area in the Sandvik Mining and Construction business area. We are also seeing the results of many years of work in this area at Sandvik Coromant in Sandviken, Sweden, where the share of female managers has grown from 12% to 16% in the past two years. In 2010 and 2011, Sandvik'starget wasfor all unitsto initiateaprogram to improve the gender balance. About 60% of unitsreported at year-end that they had implemented this program. Some examples are described above.
Anew target for 2012 was set in the area of Diversity and Inclusion under the new HR strategy to create the conditions for greater diversity and an inclusive environment. The target is"GroupExecutive Management,businessarea managers and managementgroupswhoreport to these teams are to conduct Diversity and InclusionWorkshopsby the end of the year." In addition, new targets will be established in 2012 perbusinessarea, corporate function and country regarding the percentage of women of the total number of employees and managerial positions based on the data established in 2012.
Sandvik's development and competitiveness are closely related to employees' competency development and well-being. In its sustainability work, theGrouphas decided to focus on creating efficient competency development in the long-term and enhancing employee job satisfaction. Asa result,aGroup-wideannual employee survey will be introduced in 2012. The target for 2012 is that 100% of employees will be invited to respond to the survey and the percentage of respondents will be more than 75%.
The resultsfromthe survey will primarily be used as material for discussions on how work situations can be improved,but will also help identify common development areas for Sandvik asaGroup.The survey will also give employees' immediate managers feedback that can be used as abasis of their developmentplans.
All of the company's employees are entitled to an individual performance dialog that includessetting targetsforthe year as well as an individual development plan. The performance dialog takes place between employee and manager. In 2011,such dialogs were held with 79% (74) of Sandvik's employees, which was an improvement on the preceding year, but wasstill quite far away from the target of 100%. For 2012, the target has been adjusted to 95%, which takesinto consideration the continuous mobility among employees overayear.
The number of training days per employee and region during the year is described in the diagram on page 103.A key training component is providing education concerning Sandvik's sustainability activities and Code of Conduct. At yearend 2011, 84% (86) of employees hadbeen trained in the Group's sustainability work and Code of Conduct. The lower percentage is due to employee turnover and new employees not having yetbeentrained.
Lost Time Injury Frequency Rate by market area
2010 2011
LTI and LTIFR
| Objective | Target |
|---|---|
| Further reduce the frequency of occupa tional injuries, illnesses and incidents. |
• Reduce the Lost Time Injury Fre quency Rate by 50% before year end 2012 (base year: 2008). |
| Improve health and well-being among employees. |
• All units will introduce a health and well-being program before year end 2012. |
| All major production, service, and distri bution units shall be certified in accord ance with OHSAS 18001 (or an equivalent standard) within two years of acquisition or establishment. |
| Health and safety | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Number of fatalities due to work-related injuries |
4 | 0 | 0 | 2 | 1 |
| Number of Lost Time Injuries1) | 392 | 459 | 425 | 717 | 827 |
| Lost Time Injury Frequency Rate2) | 4.6 | 5.6 | 5.0 | 8.1 | 10.3 |
| Number of reported Near Misses | 15,767 | 11,649 | 10,556 | 6,346 | 3,179 |
| Number of Near Misses per Lost Time Injury |
40 | 25 | 25 | 9 | 4 |
| Lost days due to Lost Time Injuries |
6,524 | 8,789 | 8,523 | 11,286 | 12,603 |
| Working Days Lost by employee due to Lost Time Injuries |
0.15 | 0.21 | 0.20 | 0.25 | 0.31 |
| Total absence (from scheduled work), % |
2.4 | 2.3 | 2.3 | 2.3 | 2.6 |
1) Work-related injury (own employees) resulting in minimum one day's absence from
work. 2) Lost Time Injury Frequency Rate is defined as the number of Lost Time Injuries per million work hours.
Assumption: Employees are assumed to work 2,000 hours a year.
TheGrouphasadedicated focus on continuing to reduce the frequency of occupational injuries, illnesses and incidents, and improving health and well-being among employees. TheGroup'shealth and safety objectives and targets are described on the preceding page.
Sandvik's variousproduction-related units present potential risks for occupational illnesses and injuries. The risk of injuries is alsosignificantin the sales process, for example, inconjunctionwith travel to and from customers and while visiting customers' plants or facilities. The tableonthe preceding page provides an overview of Sandvik's results as regards health and safety. Regrettable, four workrelated fatalities occurred during the year. In February,acontracted worker drowned atawater purification plant at Sandvik Mining and Construction's unit in Patancheru, India. In June, two employees died at Sandvik Materials Technology's plant in Sandviken, Sweden. An argon gas leak arose which led toalack of oxygen and the employees suffocated. In September, an employee, who was servicingadrillingrig atamining customer inRussia,was badly crushed and later died of his injuries. Every singlework-related fatality is unacceptable and Sandvik is continuing to intensify all work to prevent accidents. In light of these fatalities, Sandvik has updated its contingency plans to ensure the best coordination of resources to protect our employees.
Since 2008, the number of Lost Time Injuries and the Lost Time Injury Frequency Rate have declined by 45% and 44%, respectively, illustrated by the figure on the preceding page. The trend in 2011 remained positive. Sandvik's target is to reduce the Lost Time Injury Frequency Rate by 50%from2008through2012. The number of Lost Time Injuries declined by 15% and the Lost Time Injury Frequency Rate fell 19% compared with the preceding year. The number of Lost Days due to Lost Time Injuries decreased 26% during the year. The Lost Time Injury Frequency Rate for Sandvik'sbusiness areas and markets are shown in the diagram on the preceding page. The positive trend can be seen in all threebusiness areas. Sandvik continues to encourage reporting of Near Misses, since theseprovide an early indication of the measures that must be taken to prevent accidents. In 2011, the number of reported Near Misses continued to rise. The ratio between Near
Misses and Lost Time Injuries was 40.
The most important activities for preventing accidents are various types of training, risk identification, assurance that the correct protective equipment is used and regular safety meetings at changes of shifts. In certain countries, GPS equipment has beeninstalled onatrial basis on company cars to minimize speeding and excessively long periods of driving.
At year-end, more than 75% of Sandvik's units reported thatahealth and wellbeingprogramhad been introduced.
Human rights and employee conditions Sandvik is committed to ensuring that all employees are treated with dignity and that it complies with allrecognized human rights and working conditions acrossthe organization and with business partners. Thisis essential to attract and retain competent personnel and to meet the expectations of allstakeholders. Any violation of Sandvik's policiesin respect of human rights and employee conditions could also havea major negative impact on Sandvik's credibility. Regular basic training is held covering the company's core values, policies and risksregarding human rights and laborlegislation. In addition,regularinternal audits are conducted at units deemed to be particularly exposed to these risks. The results of the audits are presented to local executives, country managers, Group Executive Management and the Board. No incidents involving human rights abuses were reported in 2011. To raise the level of understanding in the organization regarding the risksrelating to human rights and labor issues when Sandvik undertakes operations in high-risk countries, analyses have been conducted ofalarge number of countriesin Asia, Africa and South America. These analyses are available on Sandvik'sintranet forthose active in these countries. Risks of thistype arise not only within the Group's own operationsin these countries, but also among suppliers and customers.
Sandvik's operations generate an environmental footprint, particularly in countries in which production takes place. Sandvik's keyenvironmentalaspects are summarized below:
• Environmental liabilities in conjunction with company acquisitions.
Risks associated with emissions primarily relate to the emission of carbon dioxide and acid gases to the atmosphere. These emissions are mainly caused by the company's use of fossil fuels in conjunction with production, heating and transportation, and indirectlyfrompurchasesof electricity produced by combustion of fossil fuel. The Report of the Directors(page 26) presentsinformation on licensed operations in Sweden and environmental liabilities. Sandvik's Swedish units conduct licensed operationsin accordance with Swedish environmental legislation at the plantsin Sandviken, Gimo, Stockholm, Halmstad, Hallstahammar, Surahammar, Svedala and Köping. The environmental permitsfor these sitesrelate to such activities asthe manufacturing of ingots/CC-blooms/ CC-billets, bar, tube,strip and wire products,rock-drilling products and ceramics, metal powder, cemented-carbide products, castings and various equipment andtools.
Sandvik hasthe objective of enhancing the efficiency of its use of input materials. The input materials deemed to be mostrelevant to Sandvik are varioustypesof metallic raw materials and water. Metallic raw materials are primarily used by Sandvik Materials Technology, toalesser extent by Sandvik Tooling and partially by Sandvik Mining and Construction. Production at Sandvik Mining and Construction is mainly based on purchased components. The table on page 106 presents Sandvik's use of metallic raw materials. Sandvik Materials Technology'ssitesin Sandviken and Hallstahammar are the major users ofraw materialsin the Group. The raw materials most important to Sandvik Materials Technology are iron, nickel, chromium,manganeseand molybdenum, eitherin alloys or as part ofscrap metal. Of these materials, 80% (81) is derived from recycled scrap. The key raw materialsfor Sandvik Tooling are tungsten carbide and cobalt, but more unusual elementssuch astantalum are also used. Sandvik Mining and Construction usesiron and manganese raw material for the manufacture of castings. Approximately 89% (88) of these materials are derived from scrap. In total for the Group, about 80% (81) of metallic raw materials are derived from scrap. Although the recovery level is already high today, Sandvik continuously
endeavors to increase the proportion of recovered raw materials to secureasustainable utilization of raw materials and to reduce itsenvironmentalimpact. This is accomplished through buying back used products and the recycling of waste productsfrom the Group's own manufacturing plants. Sandvik Materials Technology is participating inaSwedish research project into developing methods for utilizing other types of waste products, such as slag from the melting process. Sandvik Tooling is continuously increasing recycling materials from cemented-carbide products through buy-backs from customers. This resulted in areduced need for material purchases from mines. Sandvik Coromant's program for recycling of soldcementedcarbide inserts represents an integral part of this sustainability work. Buy-backs of cemented-carbide products from customers have alsobeen introduced in other product areas, which means that the need for primary material is further reduced. During the year, Sandvik Mining and Construction continued to develop recycling of the tungsten material in drill bits. In 2011,some 8% of the annual production ofrock-drillingtoolswas collected, corresponding to approximately 6%
of the annual consumption of tungsten carbide for manufacturing new tools.
Water isavaluable resource, with shortages affecting many parts of the world, and therefore its efficient use is crucial. Sandvik endeavors to reduce consumption of fresh water (purchased water). During the year, Sandvik's purchased freshwater consumption was at the same level as in 2010. The table below shows the trend in freshwater consumption at Sandvik since 2007. Groundwater and surface wateris harvested at some 30 production units. One country with very limited access to water, and where Sandvik's water consumption is significant, is India. All production sites in India have introduced systems for the treatment of all wastewater, which is subsequently re-used in their operations.
Sandvik's objective is to reduce its energy use. The table below and the diagrams on the next page show the trend in the use of energy at Sandvik as well as the distribution of energy use by the business areas and various markets. During the year, the use of energy in relation to sales volume displayedapositive trend. Sandvik's target for the period 2008 through 2012 is to reduce total energy use (electricity and fossil fuels) by 10% in relation to sales volume. During the year, the total use of energy for comparable units fell 15% in relation to sales volume. The reason for the decrease is that Sandvik had higher sales volumes but maintained approximately the same level of energy use.Energy-enhancementactivities have progressed according to plan. An energy-enhancementproject hasbeencarried out since2009at Sandvik Materials Technology in Sandviken, which accounts for slightly more than 39% of the Group's energy use. The aim of the project is to identify andimplementenergy-enhancement activities. Effects of measures are verified by performings measurements before and after implementation. Some examples of measures being studied include:
| Objective | Target |
|---|---|
| More efficient use of energy and input materials. |
• Reduce the use of energy in relation to sales volume by 10% before year-end 2012 (base year: 2008). • Reduce consumption of fresh water in rela tion to sales volume by 10% before year-end 2012 (base year: 2008). |
| Reduced emissions to air and water. |
• All major production, service and distribu tion units shall report waste water dis charged from sites before year-end 2012. • Reduce carbon dioxide emissions from internal use of fossil fuels and electricity by 10% in relation to sales volume before year end 2012 (base year: 2008). • All carbon dioxide emissions from transporta tion shall be reported before year-end 2012. |
| Increased recovery of materials and by-products. | |
| Increased number of products that support sustainability principles. | |
| Reduced environmental impact from the use of hazardous chemicals. | |
| All major production, service and distribution units shall be certified in accordance |
| Water consumption | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Water consumption (thousands m3) | 8,400 | 8,900 | 7,100 | 6,600 | 6,800 |
| of which purchased freshwater (thousands m3) |
3,400 | 3,400 | 3,200 | 3,600 | 3,500 |
| of which groundwater (thousands m3) | 600 | 600 | 600 | 500 | 500 |
| of which harvested surface water (thousands m3) |
4,400 | 4,900 | 3,300 | 2,500 | 2,800 |
| Energy use | 2011 | 2010 | 2009 | 2008 | 2007 |
| Use of energy (TJ) | 9,100 | 9,100 | 7,500 | 8,900 | 8,800 |
| of which fossil fuels (TJ) Direct energy | 3,700 | 3,900 | 2,900 | 3,400 | 3,400 |
of which electricity (TJ) Indirect energy1) 5,400 5,200 4,600 5,500 5,400 1) Use of energy does not include the energy used by electricity producers to generate the electricity.
| Raw materials consumption | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Consumption of metallic raw materials (thousand metric tons) |
352 | 359 | 252 | 350 | 399 |
| of which recovered (%) | 80 | 81 | 78 | 79 | 78 |
with ISO 14001 within two years of acquisition or establishment.
The project's target is to reduce energy use by 10%, corresponding to about 230 TJ per year. The measuresthat have been identified and planned to date correspond to savings of 190 TJ per year. About 37% of the identified savings measures have been implemented. Many otherGroupentities are working on similar programs,such as Sandvik Mining and Construction's production unitsin Tampere and Turku in Finland.
In Japan, Sandvik Coromant introduced an electricity saving program that is offered to customers. Thisprogramwas produced to help in the Japanese government's request to reduce electricity consumption by 15% since several nuclear power plants were renderednon-operationalin conjunction with the earthquake at the beginning of 2011. Theprogramhas been received with great interest.
Sandvik's impact on climate change primarily arises from emissions of carbon dioxide. The combustion of fossil fuels also generates emissions of the greenhouse gases N2Oand CH4,but Sandvik estimates that this figure represents less than 0.5% of total carbon dioxide emission equivalents.
Sandvik's objective is to reduce carbon dioxide emissions from the internal use of fossil fuels and electricity. The table below shows the trend of the Group's carbon dioxide emissions and the diagrams on the preceding page show emissions in relation to sales volume and emissions per business area and market. During the year, Sandvik's carbon dioxide emissions from the use of electricity and combustion of fossil fuels remained unchanged despite higher sales volumes and, thus, lower production volumes. Carbon dioxide emissions for comparable units in relation to sales volume fell 19% compared with 2010. Of total energy, 40% (43) comprised fossil fuels and 60% (57) electricity. In most cases when conducting calculations of carbon dioxide emissions related to the generation of electricity, factors used in the calculation of carbon dioxide emissions were obtained from the suppliers of the electricity used at the plants. Otherwise, factors from the International Energy Agency Data Services were applied. In addition to emissions related to the internal use of fossil fuels and electricity, carbon dioxide emissions are also generated from various forms of transportation, such as the transport of materials and products and passenger transportation. In 2009, Sandvik began reporting carbon dioxide emissions from passenger transports. Since the results showed that thepercentageof carbon dioxide emissions from passenger transports was low (<10%) and the uncertainty of the measurements was high, emissions from passenger transports were not reported during the year. Instead,asurvey of carbon dioxideemissions from transports of goods was taken. The survey indicated that emissions from goods transports were higher thanemissions from electricity consumption and from the combustion of fossil fuels. The survey also revealed that the clearly dominate emissions category was air transportation of goods. More extensive carbon dioxide readings from the transportation of goods will be taken in 2012. In the long term, the company will be able to better monitor the Group's total impact on the environmentand presentamore comprehensive report in line with the Greenhouse Gas Protocol (www.ghgprotocol.org).
Sandvik's objective is toreduceemissions to air and water. In addition to emissions
| Produced waste | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Waste (thousand metric tons)1) | 433 | 417 | 280 | 166 | 171 |
| of which, hazardous waste (thousand metric tons) |
36 | 34 | 27 | 32 | 28 |
| of which, to landfill (thousand metric tons) |
366 | 358 | 231 | 109 | 105 |
| 1) Excluding scrap metal that has been internally or externally recycled. | |||||
| Carbon dioxide emissions | 2011 | 2010 | 2009 | 2008 | 2007 |
| Carbon dioxide emissions | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Carbon dioxide emissions (thousand metric tons CO2)1) |
538 | 559 | 479 | 566 | 547 |
| of which from combustion of fossil fuels (thousand metric tons CO2). Direct |
242 | 260 | 195 | 224 | 226 |
| of which use of electrical energy (thousand metric tons CO2). Indirect2) |
296 | 299 | 284 | 342 | 321 |
1) Excluding emissions from the transport of raw materials and finished products as well as travel.
2) Emissions are calculated using factors from electricity suppliers or the International Energy Agency Data Services. Emissions also include emissions from electricity generation.
| Emissions of process water | 2011 | 2010 | 2009 |
|---|---|---|---|
| Volume of process water discharged (thousands m3) | 2,300 | 2,200 | 1,400 |
| Emissions to water | 2011 | 2010 |
|---|---|---|
| Nitrogen (kg) | 329,000 379,000 | |
| Phosphorous (kg) | 12,400 | 1,300 |
| COD (kg) | 170,000 201,000 | |
| Nickel (kg) | 210 | 180 |
| Chromium (kg) | 80 | 60 |
| Emissions to air | 2011 | 2010 |
| NMVOC (kg)1) | 61,000 | 62,000 |
| SO2 (kg) | 71,000 | 69,000 |
| NOX (kg) | 462,000 441,000 | |
1) Non-Methane Volatile Organic Compounds. Only from combustion of fossil fuels.
Energy use in relation to sales volume
of carbon dioxide to air, Sandvik has significant emissions of such acid gases as sulfur dioxide (SO2)andvariousforms of nitrogen oxides (NOX). Sulfur dioxide mainly originates from the combustion of oils and coke. Emissions of NOX are derived from the smelting processes in Sandviken and Hallstahammar, and from pickling plants for the pickling and cleaning of metal surfaces, and the combustion of fossil fuels. The table in page 107 details emissions of SO2 and NOX in addition to emissions of NMVOCs (Non-Methane Volatile Organic Compounds). SO2 emissions are calculated from the volume of oil and coke burned, while NMVOC emissions are calculated from the combustion of all fossil fuels. Estimations of emissions of NOX from pickling plants and smelting processes are based on random sampling. Emissions from the combustion of fossil fuels are calculated using factors from the Swedish Environmental Protection Agency.
Emissions to water comprise another environmental effect in the Group, where the objective is toreduceemissions. Emissions mainly consist of fertilizers, such as phosphorous and nitrogen, in addition to metals from pickling plants. The table on page 107showsemissions to water. To monitor total emissions to water, the volume of process water dischargedfollowing treatment is also measured. Refer to the table on page 107. This table also presents the waste volumesproducedduring 2011. The increase of the pasttwo years is attributable to the acquisition of Wolfram Bergbau, whichconductsmining activities in Austria. Waste comprises sludge from dressing plants. No major
changes were noted for comparable units compared with earlier years.
Responsibility for supplier chain Sandvik is becoming increasingly dependent on the performance of itssupply chains.Asignificant portion of the added value of Sandvik's products and services arisesfromexternalsuppliers.Accordingly, Sandvik needs, and is obliged to, ensure that itssupplychain adheres to Sandvik's standards. When itpurchases raw materials, components and services, Sandvik is fully aware of and respects stakeholders'concern regarding both the social and environment effects of the company'sbusinessoperations. While Sandvik endeavors to meet its long-term strategy forprofitablegrowth, the company has also undertaken to contribute to sustainabledevelopment by assuming social and environmental responsibility for conducting ethicallysoundbusinesswith its suppliers. This ensures that sustainability, includingbusinessethics, are integrated components of the management of the supplychain.
Sandvik has establishedaCode of Conduct forsuppliersdescribing the standards for ensuring that working conditionsthroughoutthe SandvikGroup'ssupplychain are protected, that employees are treated with respect and dignity, that manufacturing processes are environmentally friendly and that the operations are conducted ethically. Sandvik expects companies in its supplychain to comply with all applicable laws,rules and ordinances and to strivesto exceed good practice standards both internationally and within the industry. The Code of Conduct detailsthe minimum requirementsfor becomingaSandvik supplier and the qualification criteria that Sandvik expectsitssuppliersto continuously improve upon. Sandvik's Code of Conduct forsuppliersis available from the Sandvik website (www.sandvik.com).
Sandvik hasaGroup-wide process for supplier evaluations. The evaluation comprises two components: Supplier Approval and Supplier Qualification. Supplier Approval includes the Group-wide mandatory minimum requirements, including the minimum requirements of the Code of Conduct, that apply to all companies who want to become Sandvik suppliers. Supplier Qualification involves an evaluation of the supplier based onthe Code of Conduct's qualification criteria. Suppliers are evaluatedusingthree processes with varying degrees of detail, dependingonthe risk of non-compliance with the Code. These three levels are: full evaluation–high-risksuppliers,basicevaluation–medium and low-risk suppliers and internal evaluation–minor-risk suppliers. The risk assessment of suppliers is basedonthree factors: the country in
| Supplier | Deviation | Action |
|---|---|---|
| Foundry, India May 2009 to June 2011 |
Child labor | Sandvik demanded that the supplier establish better procedures for checking ages and actions plans for child labor, following Indian law. Sandvik provided advice and assistance in conjunction with implementation. The supplier carried out all of the changes required, which was confirmed by unannounced audits. |
| Foundry, India June 2011-ongoing |
Health and safety in the workplace |
Sandvik demanded that the supplier seek advice from external experts regarding health and safety to improve conditions in the foundry. This matter has not yet been completed and the results will be verified in 2012 by performing another audit. |
| Forge, China June 2011-ongoing |
Environment | Sandvik demanded that the supplier introduce an environmental policy and engage the local authorities to implement waste and lubricant management systems. This matter has not yet been completed and the results will be verified in 2012 by performing another audit. |
| Foundry, Malaysia December 2011 |
Forced labor | Sandvik demanded that the supplier introduce a system forbidding the confiscation of passport and other identity documents and that the supplier recognize and guarantee full freedom of movement. This matter has not yet been completed and will be followed up in 2012. |
| Staffing company, China 2011 |
Minimum wages and social costs |
Sandvik demanded that suppliers working inside Sandvik's own plants comply with the supplier code's minimum standards and accordingly introduce a system guaranteeing minimum wages and social costs for workers. To be fol lowed up in 2012. |
| Staffing company, India 2011 |
Minimum wages and social costs |
Sandvik demanded that suppliers working inside Sandvik's own plants comply with the supplier code's minimum standards and accordingly introduce a system guaranteeing minimum wages and social costs for workers. Such a system was implemented in 2011. |
which the company is domiciled, the category of goods or services and Sandvik's knowledge of suppliers. The responsibility for carrying out these supplier evaluations rests with each Sandvik business area.
In 2011, Sandvik'sGroupExecutive Managementapprovedthe newsupplier evaluationprocess.Aprogrammanager was appointed for implementing theprocesses throughout the organization.Acompleteset of instructions, templates and educational materials were developed and publishedon the Sandvik intranet. More than 200 managers andpurchaserswere trained during the year in how to implement the newprocess.Activities were initiated withacoordinated focus on identified high-risksuppliers.Sandvik'sprocesses demand that all high-risksuppliers are examined by qualified auditors. This work first began in 2008 when Sandvik employed its firstsupplierauditor to focus on high-risk countries. Sandvik currently has five qualifiedsupplierauditors, and plansare inplaceto train and certify parttime auditorsfromvarious Sandvik units, as well as to engage third-party companies in these audits to accelerate theprocess.A total of 111 high-risksuppliersin India, China, Brazil and Malaysia were audited in 2011. This figure is significantly higher than in 2010 when 49supplierswere audited in India, China and Thailand.
Sandvik's experience ofsupplierevaluations is that there are major shortcomings regarding compliance with various types of requirements.Anumber of deviations fromSandvik's Code of Conduct and/or local legislation were identified, particularly in India and China.Asummary of the deviations are presented in the diagram on the preceding page. Certain suppliercategories are particularly critical, such asfoundriesand staffing companies. The deviations mainly relate to basic legal requirements in the respective countries, for example, minimum ages, minimum wages, workinghours,environmental issues and employee health and safety. Unfortunately,problemsofbusinessethics, such as bribes, are alsoacommon occurrence in certain countries.When deviations are confirmed,suppliersare encouraged to prepare and implementa planof corrective measures withinaspecified timeframe. Examples of measures are
provided in the table on the preceding page. Sandvik's highest priority is to develop thesupplierin question to meet the minimum requirements of the Code. Sandvik provides support and training for thesupplierto assist inplanningand carryingoutthe improvements that may be required. Asafinal resort, if thesupplieris unable or unwilling to improve, the supplieris phasedoutof Sandvik'ssupply chain.Avery common observation is that manysuppliersarenotsufficiently aware of even the most basic legal requirements in their own countries.Forthis reason, Sandvik has established the practice of trainingsuppliers,notonly in Sandvik's Code of Conduct forsuppliers,butalso in national laws, prior to performingasupplierevaluation.Atotal of more than 500 suppliershaveundergonesuch training, with 142suppliersbeing trained in 2011.
Sandvik isresponsible for working to combat corruption in all itsforms, which means having clear policies, identifying andmanaging risks, training personnel and implementing robust measuresfor when violations have been confirmed. Sandvik'srisks relating to business ethics are regarded as significant,especiallythe risk of bribesin connection with marketing and sales, and risksrelated to purchasing in countriesin which corruption is widespread. The use of agents and distributorsrepresentsaparticularly large risk,since monitoring of these is more difficult than the monitoring of Sandvik's own operations. The development of corruption in various countriesin which Sandvik is active is continually monitored via, for example, Transparency International's website (www.transparency.org). The risk of breaches of local antitrust and competition legislation is also high. To minimize these businessrisks, continual training and internal audits are conducted. In 2011, Group ExecutiveManagementdecided to intensify its efforts to combat corruption. Sandvik will introduce processes to ensure that the risk of bribery is minimized through the Group, withaparticular focus on highrisk countries and processes where the risk of bribery is high. These activities will also enable Sandvik to meet the requirements of the UK Bribery Act, which isanewly adopted law in the UK that will haveavariety of effects on Sandvik.Astudy was conducted to identify any gaps that require attention in order to comply with the new legislation.Anew organization is being
established to implement the new processes and to ensure going forward that Sandvik is taking allreasonable action to avoid bribery.
Sandvik's responsibility also includes the implementation ofaprocessfor managing the reporting of divergencesfromthe Code. Employees are encouraged to report behavior that departsfromthe Code to their immediate supervisor in the respective unit or, if there isafeeling that such action willnothave any effect, toamore senior manager, the company's human resources department or theGroup'sGeneralCounsel.Notifications that are received centrally in theGroupare investigated by the head ofGroupAssurance and theGroup'sGeneralCounsel.Whistleblowers are guaranteed that there will be noreprisals for such notifications or for participation in the company's investigation ofacomplaint. In 2011, 31 cases of non-compliancewith the Code of Conduct were reported centrally. Examples of the cases reported are harassment, discrimination, conflict of interests, bribery, unethical behavior among managers and leaks of sensitive information to competitors. In addition, some 70 cases of corruption were handled in local companies. All these cases have been investigated and corrective measures have been taken, including the dismissal of employees.
Sandvik conductsproprietaryoperations in the forms of research and development, manufacturing, sales and distribution in more than 60 countries and has production-related plants in 33 countries. With its global coverage, Sandvik is available to its customers directly orthroughits distributors and agents in more than 130 countries. Accordingly, Sandvik affectsa high number of local communities. The most significant positive impact is the contribution toeconomicand social development in the form of high-qualified jobs and tax payers. In itsroleas an employer, Sandvik influences competency development in the countries in which it operates and has an excellentopportunityto positively influence the standard of life for its employees. With its advanced products, Sandvik can also contribute totechnological advances andagreater level of safety at various workplaces. Sandvik'spolicy with respect to social commitment is that
each Sandvik company shall strive to gain an understanding of the society in which it operates, makeaconstructive contribution to local matters and promote development of the region. To act in accordance with this policy, Sandvik encourages its employees to participate in community programsand initiatives that are beneficial for the inhabitants in regions where Sandvik has operations. Sandvik doesnot pursueanyGroup-wideprojects in this area,butall activities are arranged locally by the various companies. Examples of the Group'scommitment include:
In certain countries, community and working life is marked by the presence of serious transmittable diseases. For example, HIV/ AIDS is an extremely serious problem particularly in southern Africa. Sandvik has extensive HIV/AIDS programs in South Africa, Zimbabwe, Tanzania, Zambia, and Malawi and to some extent in Ghana and the Democratic Republic of Congo.Asummary of the HIV/AIDS programs in these countries is presented in the table below. Sandvik hasimplementedprograms to educate and counsel employees and their families and, in some cases, the community near to Sandvik's operations, about HIV/ AIDS. Training in these matters is provided daily, usually in conjunction with the safety meetings that are held prior to work commencing. Counseling is provided by private
organizations with whom Sandvik cooperates and the Group's own counselors. These meetings not only address HIV/ AIDS matters, but also identify other factors that may affect an individual, such as stigma. Preventive work and risk controls are conducted in connection with training and counseling. The main focus is placed on changing the attitude to partners and the use of condoms. Measures and support are offered to all employees who test HIV positive. In addition to the opportunity to receive testing and free condoms, antiretroviral drugs are offered to people who are within the scope of the program.
This is the sixth year that Sandvik has publishedaSustainability Report. This report describes theGroup'sobjectives/ targets, strategies,controls,responsibilities, risks andopportunitiesfromasustainability perspective and also presents theGroup'sresultsfromafinancial, environmental and social perspective. The Sustainability Report has been independently reviewed in accordance with Far's standard "RevR6Assurance of Sustainability Reporting" and AccountAbility's "AA1000AS (2008)." The latter of these is an internationally accepted standard that provides the requirements for conducting assurance of sustainability reports. It requires that the auditor provide assurance on the nature and extent of adherence to AccountAbility's three principles. Information regarding AccountAbility is available on the organization's website (www. accountability21.net).
The sustainability report comprisesinformation found at the following locations:
The report in thissection thatsummarizes objectives/targets,strategies, controls, responsibilities,risks, opportunities and resultsfromasustainability perspective.
The Sandvik Worldpublicationthat presentsanumber of examples concerning projects that have been completed to achieve theGroup'senvironmental and social objectives.
This Sustainability Report refers to the 2011 fiscal year. Unless otherwise stated, the same accounting policies are applied in the Sustainability Report as in the rest of the Annual Report, and the report covers the entire operations of the Group, but excludes Seco Tools, associated companies and joint ventures. Specific methods of measurement and assumptions are presented in connection with the respective indicators in the report.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 2011 for all active reporting units (approximately 300), unless otherwise stated.
This Sustainability Report is based on the Swedish Annual Accounts Act, the Swedish Society of Financial Analysts' recommendations relating to Corporate Responsibility and the third generation of guidelines (G3) issued by the internationally recognized organization Global Reporting Initiative (GRI). Further information regarding GRI is available on the organization's website www.globalreporting.org. The report corresponds with the GRI level B+, which means that at least 20 indicators are presented and that the report has been subjected to external review. Sandvik has adopted AccountAbility's AA1000APS (2008) principles for accountability. This requires involvingstakeholdersin identifying and understanding sustainability issues and assuming responsibility for, reporting on and explaining decisions, actions and results.
| Recipients Education Counseling |
||
|---|---|---|
| Employees 7 7 |
6 | 5 |
| Families of employees 6 6 |
6 | 5 |
| Other inhabitants 5 5 |
4 | 0 |
The number denotes the number of countries in which Sandvik offers programs for the respective categories.
We have been engaged by Sandvik's Executive Management to review Sandvik's Sustainability Report 2011. The Sustainability Report is presented on pages 24–26 and 100-111 of Sandvik's 2011 Annual Report and in the documents GRI Index 2011 and AA1000APS 2011 on www. sandvik.com/sustainability. It is Sandvik's Executive Management that is responsible for the ongoing activities regarding sustainable developmentfromthe perspectives of financial, environmental and social responsibility, and for the preparation and presentation of the Sustainability Report in accordance withapplicablecriteria. Our responsibility is to expressa conclusion on the Sustainability Report based onourreview.
We have performedourreview in accordance with RevR6Assurance of Sustainability Reports issued by Far (the institute for the accountancy profession in Sweden) as well as AA1000 AS, type 2, issued by AccountAbility.Areviewconsists of making inquiries, primarily of persons responsible for different sustainability matters and for preparing the Sustainability Report, andapplyinganalytical and other review procedures.Areview is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. The procedures performed in the review consequently donotenable us to obtain an assurance that would make us aware of all significant matters that might be identified in an audit. Accordingly, we donot express an audit opinion.
Our assurance does not comprise the assumptions used by Sandvik or whether or not it is possible for Sandvik to reach certain future targets described in the report (e.g. goals, expectations and ambitions).
The criteria on whichourreview are based on are the parts of the Sustainability Reporting Guidelines G3,publishedby the Global Reporting Initiative (GRI), which areapplicableto the Sustainability Report, as well as the specific measurement and reporting principles, Fair Play reporting, that Sandvik has developed and disclosed on www.sandvik.com/sustainability. We consider these criteria suitable for the preparation of the Sustainability Report.
Far require us to act in accordance with Far Code of Ethics for professional accountants. In accordance with AA1000AS (2008), we confirm that we are independent of Sandvik AB. Our review has been performed byamultidisciplinary team specialized in reviewing economic,environmental and social issues in sustainability reports, and with experiencefromthe industry Sandvik operates within.
Our review has, based on an assessment of materiality and risk, among other things included the following procedures:
•Pre-announcedvisits to Sandvik's facilities located in Australia, India, Canada, Netherlands, Switzerland and Sweden.
•Review of qualitative information and statements, as well as the report on compliancewith legislation, permits and conditions related to sustainability.
Based onourreview procedures, nothing has come toourattention that causes us to believe that Sandvik´s 2011 Sustainability Report has not, in all material respects, been prepared in accordance with the above stated criteria and that Sandvik has not adhered to the AA1000APS principles inclusivity, materiality and responsiveness to the extent reported on www.sandvik.com/sustainability in the document AA1000APS 2011.
The following is other information that has not affected our conclusion above. The principles inclusivity, materiality and responsiveness apply to the extent reported in the description on www.sandvik.com/sustainability in the document AA1000APS 2011 which includes the following points that requires further attention:
Sandviken 16 February 2012 KPMG AB
George Pettersson Authorized Public Accountant
ÅseBäckström Expert member of Far
Anders Nyrén,b. 1954. Chairman of the Board since 2010. Director since 2002, Vice Chairman of the Board.
Education and business experience: B.Sc. (Econ.), MBA. President and Chief Executive Officer of AB Industrivärden since 2001, Executive Vice President and CFO of Skanska AB 1997–2001, various executive positions within AB Wilhelm Becker, STC Scandinavian Trading Co AB, STC Venture AB, OM International AB, Securum AB and Nordbanken 1979–1997. Current Board assignments: Vice Chairman of Svenska Handelsbanken AB, Director of Telefonaktiebolaget LM Ericsson, AB Industrivärden, SCA, SSAB AB, AB Volvo, Ernströmgruppen, Stockholm School of Economics and Stockholm School of Economics Association. Shareholding in Sandvik (own and closely related persons): 4,500. Not independent in relation to major shareholders in the company.
Olof Faxander,b. 1970.
Director since 2011. Education and business experience: M.Sc. (Materials Science) and B.Sc. (Business Administration). President and CEO of SSAB AB 2006-2010, Executive Vice President of Outokumpu Oy. Current Board assignments: Director of Confederation of Swedish Enterprise and the Steel and Metal Employers Association. Shareholding in Sandvik (own and closely related persons): 9,639. Not independent in relation to the company and Group Executive Management. Johan Karlström,b. 1957.
Director since 2011. Education and business experience: M.Sc. Eng. CEO and President of Skanska AB since 2008, various senior positions at BPA (currently Bravida) 1995–2000. Current Board assignments: Director of Skanska AB. Shareholding in Sandvik (own and closely related persons): 5,000.
Director since 2006. Education and business experience: M.Sc. Eng., B.Sc. (Econ.), D.Econ Honorary, D.Tech. Honorary. Active inLE Lundbergföretagen AB since 1977 and Chief Executive Officer since 1981. Current Board assignments: Chairman of the Board of Holmen AB and Hufvudstaden AB, Vice Chairman of Svenska Handelsbanken AB,Director of LE Lundbergföretagen AB, AB Industrivärden and Skanska AB.
Shareholding in Sandvik (own and closely related persons): 6,040,000, via LELundbergföretagen AB 27,500,000 and via AB Industrivärden 144,577,252. Not independent in relation to major shareholders in the company.
Education and business experience: LLB. Chief Executive Officer of Norsk Hydro1991–2001, President of Confederation of Norwegian Enterprise 1989– 1990, President of Norwegian Employers' Confederation 1987–1988, various positions within NorskHydro1971–1987. Consultant to the National Insurance Administration 1968–1971. Current Board assignments:— Shareholding in Sandvik (own and closely related persons):10,000.
Director since 2006.
Education and business experience:B.Sc. (Econ.), MBA, IESE, Barcelona. One of thefoundersand owners, also Chairman of the Board of the management company a-connect(group)ag since 2002, partner in McKinsey&Company Inc. 1989– 2002, various positions within brand management andcontrollingwithin Procter&Gamble1986–1989. Current Board assignments:Director of AB Volvo. Shareholding in Sandvik (own and closely related persons):0.
Director since 2008. Education and business experience: M.A. (Geology). Various positions with Anglo AmericanGroup1995–2007 including director of Anglo Americanplc 2005–2007, Director of AngloGold Ashanti 2004–2008, Chairman of Tarmac 2004–2007, Director of SG Warburg 1994–1995, NM Rothschild&Sons Ltd. 1984–1995.
Current Board assignments:Chairman of Tullow Oilplc.,Director of Newmont Mining Corporation and AMECplc. Shareholding in Sandvik (own and closely related persons):0.
Director since 2010. Education and business experience: M.Sc. and B.Sc., CEO and President of Autoliv Inc. 1999–2007, Gränges AB 1994–1999 and ESAB 1991–1994. Various positions in ESAB and ASEA from1972. Current Board assignments: Chairman of
Husqvarna AB, Director of SSAB AB, AB Volvo and Stena AB. Shareholding in Sandvik (own and closely related persons): 12,000.
Director since 2006 (Employee representative). Education and business experience: Principal safety representative Sandvik MaterialsTechnology.Various positions within Sandvik since 1986. Current Board assignments:— Shareholding in Sandvik (own and closely related persons):2,865.
Directorsince2008 (Employee representative). Education and business experience: Research engineer, Sandvik Tooling Sverige AB. Various positions within Sandvik since 1981. Current Board assignments: Director of AB Sandvik Hard Materials. Shareholding in Sandvik (own and closely related persons):570.
Bo Westin,b. 1950. Director since 1999 (Employee representative). Education and business experience: Chairman Union Committee, Metal Workers' Union, Sandvik Mining and Construction Köping AB and various operator positions within Sandvik Mining and Construction since 1973. Current Board assignments:Director of Sandvik Mining and Construction Köping AB. Shareholding in Sandvik (own and closely related persons):0.
Director since 2010 (Employee representative). Education and business experience: M.Sc. Eng., Flow Manager at Sandvik MaterialsTechnology,various positions within Sandvik since 2000. Current Board assignments:— Shareholding in Sandvik (own and closely related persons): 7,137.
Percy Barnevik,b. 1941. Chairman of the Board of Sandvik AB 1983–2002.
KPMG AB
Auditor in charge: George Pettersson, b. 1964. Authorized Public Accountant. Other auditing assignments: Auditor in charge for such companies asHolmen AB, LE Lundbergföretagen AB, Modern TimesGroupMTG AB and Skanska AB. Shareholding in Sandvik (own and closely related persons): 0.
Bo Severin,b. 1955. Secretary to the Sandvik Board of Directors since 2000. Education and business experience: Master of Laws. GeneralCounselin Sandvik AB. Current Board assignments:— Shareholding in Sandvik (own and closely related persons):15,534.
President and Chief Executive Officer of Sandvik since 2011. Education and business experience: M.Sc. (Materials Science) and B.Sc. (Business Administration). President and Chief Executive Officer of SSAB AB 2006–2010, Executive Vice President of Outokumpu Oy.
Current Board assignments: Director of the Confederation of Swedish Enterprise and the Steel and Metal Employers Association.
Shareholding in Sandvik (own and closely related persons): 9,639.
Senior Executive Vice President of Sandvik AB 2000–2011. Acting President of Sandvik Mining and Construction from 5September up and including December 2011.
Education and business experience: B.Sc. (Econ.), Executive Vice President and Head of IT, Sandvik AB 2004–2009, Executive Vice President and CFO, Sandvik AB 2000–2004, Executive Vice President of Kanthal 1992–2000, Administration Manager,Uddeholm Tooling 1989–1992,controllerpositions within Härnösands Grafit AB, Kanthal AB and Asea/ABB 1974–1989. Current Board assignments: Director of Seco Tools AB. Shareholding in Sandvik (own and closely related persons): 37,424.
Senior Executive Vice President of Sandvik AB since 2010.CFOof Sandvik AB since 2009.
Education and business experience: B.Sc. (Econ.), CFO Vin&Sprit AB 2002–2009, CFO Adcore AB 2000–2001, Director of Finance Handelsbanken Markets 1997–2000, various financial manager and controller positions at the Swedish Match and STORA Groups between 1984–1996. Current Board assignments: Director of Svevia AB. Shareholding in Sandvik (own and closely related persons): 8,316.
Anna vikström Persson,b. 1970. Executive Vice President and Head of Human Resources of Sandvik AB since 1March 2011. Education and business experience: Master of Laws. Head ofGroupHuman Resources at SSAB AB 2006–2011. FormerHead of Human Resources for Ericsson's Swedish operations. Current Board assignments: Director of Know IT. Shareholding in Sandvik (own and
closely related persons): 2,617.
Executive Vice President and Head of IT, sourcing and strategysinceOctober 2011. Education and business experience: B.Sc. (Econ.). Various positions at The Boston ConsultingGroup1994–2011. Current Board assignments:— Shareholding in Sandvik (own and closely related persons): 0.
Executive Vice President. General Counselof Sandvik AB since 2000. Education and business experience: Master of Laws. LegalCounselof Sandvik AB since 1988. Current Board assignments:— Shareholding in Sandvik (own and closely related persons): 15,534.
President of Sandvik Toolingbusiness area since 2000. Education and business experience: M.Sc. Eng. Various positions within research, development and production, and the management group of Sandvik Coromant 1976–2000. Current Board assignments: Director of Haldex AB. Shareholding in Sandvik (own and closely related persons): 23,315.
President of Sandvik Mining and Constructionbusinessareafrom2003 to5September 2011.
President of Sandvik Materials Technology businessareafrom2002 up to and including April 2011.
President of Sandvik Materials Technology businessarea since1May 2011. Education and business experience: M.Sc. Eng. Various senior positions at Sandvik.
Current board assignments: Director of the Steel and Metal Employers Association. Shareholding in Sandvik (own and closely related persons): 2,530.
| Business Development | Peter Larson | Intellectual Property | Jacob Eisenberg |
|---|---|---|---|
| IT | Göran Kördel | Communications | Anders Wallin |
| Business Control | Fredrik Söderberg | Investor Relations | Jan Lissåker |
| Real Estate | Carl Larsson | Legal Affairs | Bo Severin |
| Financial Control | Björn Wahlborg | HR | Anna Vikström Persson |
| Financial Services | Anders Örbom | Taxes and Financial Projects | Pierre Jansson |
| Group Assurance | Bernth Nilsson |
Information regarding Board assignments and holdings of shares is valid as of 31 December 2011.
The Annual General Meeting will be held at the Göransson Arena, Sätragatan 15, Sandviken on Wednesday,2May 2012 at 5.00 p.m.
Shareholderswishing to attend the Meeting must notify the company either by letter to Sandvik AB, c/o Computershare AB, Box 610, SE-182 16 Danderyd, Sweden or by telephone +46 26 26 09 40 from9.00 a.m. to 4.00 p.m. on weekdays, or via the Internet on theGroup'swebsite (www.sandvik.com). Such notification must reach Sandvik ABnotlater than Wednesday, 25 April 2012.Shareholders must also have been entered in the Share Register kept by Euroclear Sweden AB notlater than Wednesday, 25 April 2012 to be entitled to attend the Meeting.
Shareholderswhoseshares are registered in the name ofanomineemust have them temporarily re-registered with Euroclear Sweden AB in their own names notlater than Wednesday, 25 April 2012 to be entitled to attend the Meeting. Note that this procedure alsoappliesto shareholdersusingabank'sshareholder deposit account and/or trading via the Internet.
In notification of your intent to attend the Meeting,pleasestate your name, personal or corporate registration number, address and telephone number, and details of any assistants. If youplanto be represented at the Meeting by proxy, such proxy must be sent to Sandvik AB prior to the Meeting.
The Board and the Presidentproposethat the 2012 Annual General Meeting declareadividend of 3.25 SEK per share.
Theproposedrecord date is Monday, 7May 2012. If this motion is adopted by the Meeting, it is expected that dividends will be paid on Thursday, 10 May 2012. Dividends will be sent tothosewho,on the record date, are entered in the Share Register or on the separate List of Assignees, etc. To facilitate the distribution of dividends,shareholderswhohave changed addressshouldreport their change of address to their bank in sufficient time prior to the record date.
Sandvik's Annual Report for 2011 comprises the formal financial statements, meaning the Report of the Directors, income statements and balance sheets, with accompanyingnotes,etc., and is printed separately inareduced number of copiesfor theshareholderswhohave ordered the printed reports. In addition to the information in the Annual Report, the SandvikGroupis presented in the The Sandvik World, which is distributed to allshareholdersin April 2012.
The formal Annual Report is available on the Group's website (www.sandvik.com) and can be ordered inaprinted format.
| 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Invoiced sales, MSEK | 94,084 | 82,654 | 71,937 | 92,654 | 86,338 | 72,289 | 63,370 | 54,610 | 48,810 | 48,700 |
| change, % | +14 | +15 | –22 | +7 | +19 | +14 | +16 | +12 | 0 | 0 |
| of which organic, % | +20 | +17 | –30 | +5 | +18 | +14 | +14 | +15 | +5 | –7 |
| of which structural, % | 0 | +1 | 0 | +2 | +3 | +1 | –1 | –1 | +2 | +10 |
| of which currency, % | –5 | –2 | +10 | 0 | –2 | –1 | +3 | –2 | –7 | –3 |
| Operating result, MSEK | 10,148 | 11,029 | –1,412 | 12,794 | 14,394 | 12,068 | 9,532 | 7,578 | 4,967 | 5,771 |
| as % of invoicing | 11 | 13 | –2 | 14 | 17 | 17 | 15 | 14 | 10 | 12 |
| Result after financial items, MSEK | 8,179 | 9,412 | –3,472 | 10,577 | 12,997 | 11,113 | 8,819 | 6,877 | 4,187 | 5,063 |
| as % of invoicing | 9 | 11 | –5 | 11 | 15 | 15 | 14 | 13 | 9 | 10 |
| Consolidated net result for the year, MSEK | 5,861 | 6,943 | –2,596 | 7,836 | 9,594 | 8,107 | 6,392 | 5,111 | 2,788 | 3,436 |
| Shareholders' equity, MSEK | 33,891 | 33,813 | 29,957 | 36,725 | 29,823 | 27,198 | 24,5071) | 23,5511) | 21,440 | 23,205 |
| Equity ratio, % | 34 | 38 | 33 | 36 | 35 | 41 | 41 | 46 | 46 | 48 |
| Net debt/equity ratio, multiple | 0.8 | 0.7 | 1.0 | 0.9 | 1.0 | 0.6 | 0.7 | 0.5 | 0.5 | 0.5 |
| Rate of capital turnover, % | 100 | 92 | 73 | 101 | 112 | 115 | 112 | 108 | 98 | 97 |
| Cash and cash equivalents, MSEK | 5,592 | 4,783 | 7,506 | 4,998 | 2,006 | 1,745 | 1,559 | 1,720 | 1,972 | 2,175 |
| Return on shareholders' equity, % | 17.3 | 22.1 | –7.9 | 24.8 | 34.4 | 31.8 | 27.4 | 21.7 | 12.8 | 14.9 |
| Return on capital employed, % | 16.0 | 17.4 | –1.3 | 19.9 | 27.0 | 27.6 | 23.7 | 20.5 | 13.4 | 15.4 |
| Investments in property, plant and equipment2), MSEK |
4,994 | 3,378 | 4,006 | 6,634 | 4,811 | 4,175 | 3,665 | 2,967 | 3,153 | 2,357 |
| Total investments2), MSEK | 5,332 | 4,493 | 6,161 | 7,766 | 9,480 | 5,455 | 3,950 | 3,278 | 3,260 | 5,066 |
| Cash flow from operations2), MSEK | 7,764 | 12,149 | 11,792 | 9,335 | 5,076 | 7,741 | 7,266 | 5,322 | 6,421 | 7,190 |
| Cash flow, MSEK | 907 | –2,642 | 2,471 | 2,764 | 179 | 357 | –380 | –207 | –104 | 48 |
| Number of employees, 31 December | 50,030 | 47,064 | 44,355 | 50,028 | 47,123 | 41,743 | 39,613 | 38,421 | 36,930 | 37,388 |
1) Total equity, including minority interest. 2) As of 2006 excluding rental fleet.
| SEK | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 |
|---|---|---|---|---|---|---|---|---|---|---|
| Basic earnings1) | 4.63 | 5.59 | –2.24 | 6.30 | 7.65 | 6.45 | 4.95 | 3.85 | 2.20 | 2.70 |
| Diluted earnings2) | 4.63 | 5.59 | –2.24 | 6.29 | 7.65 | 6.45 | 4.90 | 3.75 | 2.15 | 2.70 |
| Equity | 27.4 | 27.5 | 24.4 | 30.00 | 24.10 | 22.00 | 19.80 | 18.30 | 17.20 | 18.60 |
| Dividend (2010 as proposed) | 3.25 | 3.00 | 1.00 | 3.15 | 4.00 | 3.25 | 2.70 | 2.20 | 2.10 | 2.00 |
| Direct return3), % | 3.8 | 2.3 | 1.2 | 6.4 | 3.6 | 3.3 | 3.6 | 4.1 | 4.2 | 5.2 |
| Payout percentage4), % | 70 | 54 | — | 50 | 52 | 50 | 55 | 57 | 94 | 73 |
| Quoted prices, Sandvik share, highest | 135 | 133 | 90 | 108 | 151 | 106 | 79 | 56 | 50 | 52 |
| lowest | 73 | 76 | 41 | 42 | 96 | 71 | 54 | 46 | 35 | 38 |
| year-end | 84 | 131 | 86 | 49 | 111 | 100 | 74 | 54 | 50 | 39 |
| No. of shares at year-end, million | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,235.2 | 1,250.1 | 1,250.1 |
| Average no. of shares, million | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,186.3 | 1,216.9 | 1,255.8 | 1,250.1 | 1,252.5 |
| P/E ratio5) | 18.2 | 23.5 | — | 7.8 | 14.5 | 15.4 | 15.0 | 13.9 | 22.1 | 14.2 |
| Quoted price, % of equity6) | 307 | 476 | 352 | 163 | 462 | 452 | 374 | 293 | 288 | 209 |
1) Profit/loss for the year per share.
2) Profit/loss for the year per share after dilution of outstanding convertible program.
3) Dividend divided by the quoted price at year-end. 4) Dividend divided by basic earnings per share.
5) Market price of share at year-end in relation to earnings per share.
6) Market price of share at year-end, as a percentage of equity per share. Supplementary definitions on page 67.
| Invoiced sales | Operating result and operating margin | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2009 | 2008 | 2011 | 2010 | 2009 | 2008 | |||||
| MSEK | MSEK | MSEK | MSEK | MSEK | % | MSEK | % | MSEK | % | MSEK | % | |
| Sandvik Tooling | 27,160 | 23,893 | 19,078 | 25,975 | 5,896 | 22 | 4,296 | 18 | –527 | –3 | 5,461 | 21 |
| Sandvik Mining and | ||||||||||||
| Construction | 41,481 | 35,182 | 32,621 | 38,651 | 5,246 | 13 | 4,665 | 13 | 466 | 1 | 4,996 | 13 |
| Sandvik Materials Technology | 18,379 | 17,703 | 15,328 | 21,480 | –1,619 | –9 | 1,540 | 9 | –1,137 | –7 | 1,187 | 6 |
| Seco Tools* | 7,026 | 5,838 | 4,871 | 6,513 | 1,408 | 20 | 1,098 | 19 | 307 | 6 | 1,332 | 21 |
* Seco Tools, an independent, exchange-listed group of companies that markets tools for metal cutting, is part of the Sandvik Group.
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