G13 Intangible assets

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	Internally generated intangible assets					Acquired intangible assets							Total
	Capitalized R&D expenditure	IT software	Patents and licenses	Other	Subtotal	Capitalized R&D expenditure	IT software	Patents and licenses	Trademarks	Goodwill	Other	Subtotal
Cost
January 1, 2020	4,101	3,038	257	163	7,558	482	921	828	685	17,233	3,073	23,224	30,782
Additions	175	222	9	0	405	32	69	7	–	–2	3	109	514
Business combinations	–	–	–	–	–	–	3	–	269	1,788	1,043	3,103	3,103
Divestments and disposals	–76	–192	–9	–1	–279	0	–37	–40	–25	–2,853	–50	–3,005	–3,284
Reclassifications	0	–58	11	–	–46	0	78	–11	–	–	10	77	31
Translation differences	–86	–23	–13	–13	–135	–22	–34	–27	–38	–948	–195	–1,264	–1,399
December 31, 2020	4,114	2,987	255	148	7,503	492	1,001	756	891	15,217	3,884	22,244	29,747

Accumulated amortizations and impairment losses
January 1, 2020	2,940	1,668	140	116	4,863	160	629	407	299	2,853	1,496	5,844	10,708
Business combinations	–	–	–	–	–	–	3	–	–	–	–	3	3
Divestments and disposals	–22	–173	–7	0	–202	0	–32	–40	–25	–2,853	–50	–3,000	–3,203
Impairment losses	41	51	–	–	92	0	1	–	–	304	0	305	396
Reclassification	–2	–53	5	0	–50	0	2	–9	–	–	5	–2	–52
Amortizations	287	385	12	10	694	40	69	47	43	–	200	399	1,092
Translation differences	–54	–13	–7	–12	–86	–9	–27	5	–2	–	–82	–115	–200
December 31, 2020	3,189	1,866	143	114	5,310	191	644	410	314	304	1,569	3,433	8,743

Net carrying amount
December 31, 2020	925	1,121	112	34	2,193	301	357	346	576	14,913	2,315	18,811	21,004

Cost
January 1, 2021	4,114	2,987	255	148	7,503	492	1,001	756	891	15,217	3,884	22,244	29,747
Additions	187	229	10	4	431	115	77	2	–	0	18	212	642
Business combinations	–	–	–	–	–	–	32	611	1,255	17,987	5,844	25,730	25,730
Divestments and disposals	–199	–88	2	0	–285	–	–36	–10	–	–304	–56	–405	–691
Reclassifications	–	–8	–6	–7	–21	–	3	–3	–	–	37	38	17
Translation differences	52	36	12	14	115	14	22	77	118	1,378	390	1,999	2,114
December 31, 2021	4,155	3,156	273	159	7,744	621	1,099	1,434	2,264	34,278	10,117	49,817	57,560

Accumulated amortizations and impairment losses
January 1, 2021	3,189	1,866	143	114	5,310	191	644	410	314	304	1,569	3,433	8,743
Divestments and disposals	–199	–79	0	0	–277	–	–27	–10	–	–304	–14	–354	–631
Impairment losses	2	53	–	6	61	–	1	–	–	–	–	1	62
Reclassifications	–	–	–4	–10	–14	–	–6	3	1	–	17	15	1
Amortization	238	343	14	–2	594	46	91	60	69	–	442	709	1,303
Translation differences	31	22	4	11	67	6	24	25	31	–	121	207	274
December 31, 2021	3,261	2,205	157	119	5,742	244	728	488	415	–	2,135	4,011	9,752

Net carrying amount
December 31, 2021	894	952	116	40	2,002	378	372	946	1,849	34,278	7,981	45,806	47,809

Amortization for the year is included in the following lines in the income statement

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	2020	2021
Cost of goods and services sold	–123	–320
Selling expenses	–39	–426
Administrative expenses	–585	–287
Research and development expenses	–345	–270
Total	–1,092	–1,303

Impairment losses/reversal of impairment losses per line in the income statement

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	2020	2021
Cost of goods and services sold	–1	0
Administrative expenses	–1	–1
Research and development expenses	–91	–61
Other operating expenses	–304	–
Total	–396	–62

Impairment tests of intangible assets

Intangible assets with a definite useful life were tested for impairment when an indication for impairment was identified. Intangible assets with an indefinite useful life were tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount has been impaired. The tests resulted in impairment losses of SEK 62 million (396).

Goodwill

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Carrying amount

Goodwill by cash-generating unit

2020

2021

Sandvik Mining and Rock Solutions¹⁾

Business area level

3,200

9,954

Total

3,200

9,954

Sandvik Rock Processing Solutions¹⁾

Business area level

1,506

1,712

Total

1,506

1,712

Sandvik Manufacturing and Machining Solutions

Walter group

1,887

3,473

Seco Tools

442

667

Sandvik Coromant

2,267

3,102

Dormer Pramet

320

348

Business area level

4,020

13,631

Total

8,937

21,222

Sandvik Materials Technology

Business area level

1,234

1,352

Total

1,234

1,352

Other Operations

Group total

14,913

34,278

1)	In 2021 business area Sandvik Mining and Rock Technology was divided into two business areas, Sandvik Mining and Rock Solutions and Sandvik Rock Processing Solutions.

Impairment tests of goodwill

As stated above, the carrying amount of goodwill in the consolidated balance sheet is SEK 34,278 million (14,913), essentially related to a number of major business combinations.

During 2021, Sandvik has divided business area Sandvik Mining and Rock Technology into business area Sandvik Mining and Rock Solutions and business area Sandvik Rock Processing Solutions which has resulted in two new cash-generating units (CGUs). Goodwill for each business area is included in each CGU and was already separately reported before Sandvik Mining and Rock Technology was divided into the new CGUs. The reason for this structural change is to further accelerate profitable growth within rock processing, based on Crushing and Screening addressing separate parts of the value chain and facing different competition to other Sandvik Mining and Rock Technology divisions. For the business areas Sandvik Manufacturing and Machining Solutions and Sandvik Materials Technology, respectively, the CGUs are unchanged. That means that goodwill is tested for impairment at the business area level for Sandvik Materials Technology and on the division/business area level for Sandvik Manufacturing and Machining Solutions with the following CGUs: Sandvik Coromant, Seco Tools, Dormer Pramet, Walter Group and Sandvik Manufacturing and Machining Solutions business area level. Consolidated goodwill is allocated to the CGUs stated above. The recoverable amount of all of the CGUs has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a four-year period, which are in turn based on the three-year plans prepared annually by each of the business areas and approved by Sandvik Group Executive Management. These plans are founded on the business areas’ strategies and an analysis of the current and anticipated business climate, and the impact this is expected to have on the market in which the business area operates. A range of economic indicators, which differ for each market, and external and internal studies of these, are used in the analysis of the business situation. The forecasts form the basis for how the values of the material assumptions are established. The assumptions mentioned below reflect past experience, current and future situation and are consistent with external information. The most material assumptions when determining the value in use include anticipated demand, growth rate, operating margin, working capital requirements and the discount rate. Past assumptions have been impacted by Covid‑19 with lower margins and revenues but current margins are on normalized levels for most CGU´s. The future revenues in 2022 are higher due to the acquisitions in 2021 but in 2023 and onwards the revenues and margins are expected to be normalized.

The factor used to calculate growth in the terminal period after four years was 2 percent for Sandvik Mining and Rock Solutions business area level (not applicable last year), 3 percent for Sandvik Rock Processing Solutions business area level (not applicable last year). 2 percent for Walter Group (2), Seco Tools (2), Sandvik Coromant (2), Dormer Pramet (2), Sandvik Manufacturing and Machining Solutions business area level (2) and Sandvik Materials Technology business area level (2). Need of working capital beyond the four-year period is deemed to increase approximately as the expected growth in the terminal period. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders’ equity. Sandvik calculates a pre-tax discount rate for each CGU, which varied between 9.6 percent and 11.7 percent; Sandvik Mining and Rock Solutions 11.7 percent (not applicable last year), Sandvik Rock Processing Solutions 10.1 percent (not applicable last year), Walter Group 9.7 percent (11.1), Seco Tools 9.6 percent (10.6), Sandvik Coromant 9.7 percent (11.7), Dormer Pramet 9.7 percent (10.5), Sandvik Manufacturing and Machining Solutions 9.7 percent (10.1) and Sandvik Materials Technology 8.8 percent (10.2). The specific risks of the CGUs have been adjusted for in the future cash flow forecasts.

The impairment testing of goodwill performed during the fourth quarter 2021 did not indicate any impairment requirements. Sensitivity in the calculations implies that the goodwill value would be maintained even if the discount rate was increased by 2 percentage points or if the long-term growth rate was lowered by 2 percentage points. The goodwill value would also be maintained, given an operating margin drop by 2 percentage points.

Accounting principles

Intangible assets

Goodwill

Goodwill acquired in a business combination represents the excess of the cost of the business combination over the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Goodwill is measured at cost less any accumulated impairment losses and is reported as an indefinite useful life intangible asset. Goodwill is allocated to CGUs that are expected to benefit from the synergies of the business combination. Impairment losses on goodwill are not reversed. Goodwill arising on the acquisition of an associated company is included in the carrying amount of participation in associated companies.

Other intangible assets

Other intangible assets acquired by the company are recognized at cost less accumulated amortization and any impairment losses. Capitalized expenditure for the development and purchase of software for the Group’s IT operations are included here.

Intangible assets also include patents, trademarks, licenses, customer relationships and other rights. They are split between acquired and internally generated intangible assets.

Amortization of intangible assets

Amortization is charged to profit or loss for the year on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment annually or as soon as there is an indication that the asset may be impaired. Intangible assets with a finite useful life are amortized as of the date the asset is available for use.

The estimated useful lives are as follows:

Patents 10–20 years
Trademarks 3–20 years and some with indefinite useful life
Customer relationships 3–12 years
Capitalized development costs 3–10 years
Software for IT operations 3 years

Impairment and reversals of impairment

Assets with an indefinite useful life are not amortized but tested annually for impairment. Assets that are amortized or depreciated are tested for impairment whenever events or changed circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized in the amount by which the carrying amount of an asset exceeds its recoverable amount, which is the greater of the fair value less selling costs and value in use.

In assessing value in use, the estimated future cash flows are discounted to their present value using a rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.

In respect to intangible fixed assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized.

Borrowing costs

Borrowing costs attributable to the construction of qualifying assets are capitalized as a portion of the qualifying asset’s cost. A qualifying asset is an asset that takes a substantial time period to get ready for its intended use or sale. The Group considers a period in excess of one year to be a substantial time period. For the Group, the capitalization of borrowing costs relating to intangibles is mainly relevant for capitalized expenditure for the development of new data systems.

Cloud computing arrangements

During the year an agenda decision was published by IFRS Interpretations Committee (IFRS IC) on configuration or customization costs in cloud computing arrangements. The consequence of the agenda decision is that some intangible assets might have to be expensed retroactively or reclassified in the balance sheet. Another consequence is that it will not be possible to capitalize future configuration or customization costs in cloud computing arrangements to the same extent as today in future financial reports. Sandvik is carrying out an analysis on the full effects of IFRS IC’s agenda decision. It is not considered to have any significant impact on the Group.

Critical estimates and key judgments

Impairment tests of goodwill

Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill has been impaired, for example due to a changed business climate or a decision taken either to sell or close down certain operations. In order to determine if the value of goodwill has been impaired, the CGU to which goodwill has been allocated must be valued using present value techniques. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. As can be deduced from this description, changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.

Impairment tests of other non-current assets

Sandvik’s intangible assets – excluding goodwill and certain trademarks– are stated at cost less accumulated amortization and any impairment losses. Other than goodwill and certain trademarks, Sandvik has not identified any intangible assets with indefinite useful lives. The assets are amortized over their estimated useful lives to their estimated residual values. Both the estimated useful life and the residual value are reviewed at least at each financial year-end.

The carrying amount of the Group’s non-current assets is tested for impairment whenever events or changes in circumstances indicate that the carrying amount will not be recovered. The carrying amount of intangible assets not yet available for use is tested annually. If such analysis indicates an excessive carrying amount, the recoverable amount of the asset is estimated. The recoverable amount is the higher of the asset’s fair value less selling costs, and its value in use. Value in use is measured as the discounted future cash flows of the asset, alternatively the CGU to which the asset belongs.

A call for an impairment test also arises when a non-current asset is classified as being held for sale, at which time it must be remeasured at the lower of its carrying amount and fair value less costs to sell.