Note 12. Intangible assets and property, plant and equipment, Group

For 2017, the impairment losses/reversal of impairment losses amounted to –45 million SEK and were related to the business areas Sandvik Mining and Rock Technology –40 million SEK and Sandvik Machining Solutions –5 million SEK.

For 2018, the impairment losses/reversal of impairment losses amounted to –39 million SEK and was related to the business area Sandvik Mining and Rock Technology.

Additional information

Items of property, plant and equipment totaling 293 million SEK (281) have been pledged as security for liabilities. In 2018, contractual commitments for the acquisition of property, plant and equipment amounted to 222 million SEK (231).

Borrowing costs included in the cost of assets during the year amounted to zero for 2018 and 2017.

Disclosure regarding government grants in the Group

Government grants during the year amounted to 8 million SEK (10).

Impairment tests of goodwill

Goodwill was impairment tested in the fourth quarter 2018. As stated below, the carrying amount of goodwill in the consolidated balance sheet is 15,605 million SEK (11,911), essentially related to a number of major business combinations.

Consolidated goodwill is allocated to the cash-generating units stated above. The recoverable amount of all of the cash-generating units has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a four-year period, which are in turn based on the three-year plans prepared annually by each of the business areas and approved by Sandvik Group Executive Management. These plans are founded on the business areas’ strategies and an analysis of the current and anticipated business climate, and the impact this is expected to have on the market in which the business area operates. A range of economic indicators, which differ for each market, and external and internal studies of these, are used in the analysis of the business situation. The forecasts form the basis for how the values of the material assumptions are established.

The assumptions mentioned below reflect past experience and are consistent with external information. The most material assumptions when determining the value in use include anticipated demand, growth rate, operating margin, working capital requirements and the discount rate. The factor used to calculate growth in the terminal period after four years was 2% for Walter (2), Seco Tools (2), Wolfram (2), Sandvik Machining Solutions business area level (2), Sandvik Materials Technology business area level (2) and Hyperion (2), and 3% for Sandvik Mining and Rock Technology business area level (3). Need of working capital beyond the four-year period is deemed to increase approximately as the expected growth in the terminal period. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders’ equity and was assumed to amount to 10% (10) before tax. These assumptions apply to all cash-generating units. The specific risks of the cash-generating units have been adjusted for in the future cash flow forecasts.

In 2017, Goodwill attributable to Hyperion, amounting to 950 million SEK, was classified as assets held for sale and measured at cost. Hyperion was divested in 2018.

The testing of Goodwill did not indicate any impairment requirement. Sensitivity in the calculations where impairment was not carried out implies that the goodwill value would be maintained even if the discount rate was increased by 2 percentage points or if the long-term growth rate was lowered by 2 percentage points. The goodwill value would also be maintained, given an operating margin drop by 2 percentage points.

Other impairment tests

Property, plant and equipment and intangible assets with a definite useful life were tested for impairment when an indication for impairment was identified. The tests resulted in impairment losses of –25 million SEK (332) for 2018. For property, plant and equipment the amount was –64 (287) million SEK and for intangible assets 39 (45) million SEK (excluding goodwill).