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, licenses, trademarks etc.	Goodwill	Other	Subtotal
Cost
At January 1, 2019	4,009	3,022	227	132	7,389	476	937	2,296	15,605	3,412	22,727	30,116
Additions	203	313	9	7	533	29	81	20	156	2	289	822
Business combinations	–	–	15	–	15	–6	0	312	917	464	1,687	1,703
Divestments and disposals	–129	–320	–3	–3	–456	–24	–126	–1,196	–5	–916	–2,268	–2,723
Reclassifications	–8	–1	4	23	19	–	19	0	–	–4	15	34
Translation differences for the year	26	24	4	3	57	7	10	81	561	114	774	831
At December 31, 2019	4,101	3,038	257	163	7,558	482	921	1,514	17,233	3,073	23,224	30,782

Accumulated amortization and impairment losses
At January 1, 2019	2,660	1,637	106	106	4,508	110	637	950	–	1,661	3,357	7,866
Business combinations	–	–	3	–	3	–	0	–	–	5	5	9
Divestments and disposals	–112	–312	2	–3	–425	–9	–109	–1,196	–	–915	–2,229	–2,653
Impairment losses	52	10	–	–	62	–	10	839	2,853	436	4,138	4,200
Reclassification	–6	6	14	4	17	0	7	0	–	–11	–4	14
Amortizations for the year	333	321	14	5	673	58	75	120	–	281	534	1,207
Translation differences for the year	14	6	2	3	25	1	8	–6	–	39	42	66
At December 31, 2019	2,940	1,668	140	116	4,863	160	629	706	2,853	1,496	5,844	10,708

Net carrying amounts
At December 31, 2019	1,161	1,370	117	47	2,694	322	292	807	14,380	1,577	17,381	20,074

Cost
At January 1, 2020	4,101	3,038	257	163	7,558	482	921	1,514	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	–65	–2,853	–50	–3,005	–3,284
Reclassifications	0	–58	11	–	–46	0	78	–11	–	10	77	31
Translation differences for the year	–86	–23	–13	–13	–135	–22	–34	–64	–948	–195	–1,264	–1,399
At December 31, 2020	4,114	2,987	255	148	7,503	492	1,001	1,648	15,217	3,884	22,244	29,747

Accumulated amortization and impairment losses
At January 1, 2020	2,940	1,668	140	116	4,863	160	629	706	2,853	1,496	5,844	10,708
Business combinations	–	–	–	–	–	–	3	–	–	–	3	3
Divestments and disposals	–22	–173	–7	0	–202	0	–32	–66	–2,853	–50	–3,000	–3,203
Impairment losses	41	51	–	–	92	0	1	0	304	0	305	396
Reclassifications	–2	–53	5	0	–50	0	2	–9	–	5	–2	–52
Amortization for the year	287	385	12	10	694	40	69	90	–	200	399	1,092
Translation differences for the year	–54	–13	–7	–12	–86	–9	–27	3	–	–82	–115	–200
At December 31, 2020	3,189	1,866	143	114	5,310	191	644	725	304	1,569	3,433	8,743

Net carrying amount
At December 31, 2020	925	1,121	112	34	2,193	301	357	923	14,913	2,315	18,811	21,004

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	2019	2020
Cost of sales	–140	–123
Selling expenses	–47	–39
Administrative expenses	–629	–585
Research & development	–391	–345
Total	–1,207	–1,092

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Impairment losses/reversal of impairment losses per line in the income statement
	2019	2020
Cost of sales	–16	–1
Selling expenses	–1,276	0
Administrative expenses	–1	–1
Research & development	–53	–91
Other operating expenses	–2,853	–304
Total	–4,200	–396

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 396 million (4,200).

Goodwill

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Carrying amount

1)	In 2020 Sandvik Coromant and Dormer Pramet are new CGUs and have been separated from business area level SMM.
2)	In 2020, CGU Metrologic and Wolfram are included in business area level SMM but were own CGUs in 2019. Metrologic amounted to SEK 2,544 million and Wolfram amounted to SEK 1,595 million in 2019.

Goodwill by cash-generating unit

2019

2020

Sandvik Manufacturing and Machining Solutions

Walter

1,124

1,119

Seco Tools

423

442

Sandvik Coromant

621

2,267¹⁾

Dormer Pramet

131

320¹⁾

Business area level

5,274²⁾

4,787

Total

7,573

8,937

Sandvik Mining and Rock Technology

Business area level

5,441

4,706

Total

5,441

4,706

Sandvik Materials Technology

Business area level

1,324

1,234

Total

1,324

1,234

Other operations

Group total

14,380

14,913

Impairment tests of goodwill

As stated below, the carrying amount of goodwill in the consolidated balance sheet is SEK 14,913 million (14,380), essentially related to a number of major business combinations.

During 2020, Sandvik redefined the cash-generating units (CGUs) within the business area Sandvik Manufacturing and Machining Solutions. In the previous year the following CGUs were applied: Walter, Seco Tools, Wolfram and Sandvik Manufacturing and Machining Solutions business area level. The new CGUs for which impairment tests have been performed are Sandvik Coromant, Seco Tools, Dormer Pramet, Walter and Sandvik Manufacturing and Machining Solutions business area level. Sandvik has redefined the CGUs to reflect the core divisions, which are all competing brands with separate operations and cash flows. The other divisions (Wolfram, Applied Manufacturing Technologies and Additive Manufacturing) are tested within the SMM business area level, as their purpose is to support and/or generate synergies with the core divisions. For the business areas Sandvik Mining and Rock Technology and Sandvik Materials Technology, respectively, the CGUs are unchanged, which means that goodwill is tested for impairment at the 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 and are consistent with external information. The most material assumptions when determining the value in use include anticipated demand, growth rate, operating margin, working capital requirements and the discount rate.

The factor used to calculate growth in the terminal period after four years was 2 percent for Seco Tools (2), Walter (2), Sandvik Coromant (not applicable last year), Dormer Pramet (not applicable last year), Sandvik Manufacturing and Machining Solutions business area level (2), Sandvik Materials Technology business area level (2) and 3 percent for Sandvik Mining and Rock Technology business area level (3). Need of working capital beyond the four-year period is deemed to increase approximately as the expected growth in the terminal period. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders’ equity. Since 2020 Sandvik calculates a pre-tax discount rate for each CGU, which varied between 10.1 and 12.6 percent; Sandvik Mining and Rock Technology 12.6 percent, Sandvik Manufacturing and Machining Solutions 10.1 percent, Sandvik Coromant 11.7 percent, Seco Tools 10.6 percent, Dormer Pramet 10.5 percent, Walter 11.1 percent and Sandvik Materials Technology 10.2 percent. Last year all CGUs applied a pre-tax discount rate of 10 percent before tax. The specific risks of the CGUs have been adjusted for in the future cash flow forecasts.

Goodwill attributable to the Sandvik Mining and Rock Technology business area amounting to SEK 304 million was written down in the second quarter due to an expected closure of smaller business. The cost is booked in other operating income and expenses. For more information, see note G32.

The impairment testing of goodwill performed during 2020 did not indicate any other 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 participations in associated companies.

Research and development

Expenditure on research activities related to the obtaining of new scientific or technical knowledge is expensed as incurred. Expenditure on development activities, whereby the research results or other knowledge is applied to accomplish new or improved products or processes, is recognized as an intangible asset in the balance sheet, provided the product or process is technically and commercially feasible and the company has sufficient resources to complete development, and is subsequently able to use or sell the intangible asset.

The carrying amount includes the directly attributable expenditure, such as the cost of materials and services, costs of employee benefits, fees to register intellectual property rights and amortization of patents and licenses. Other expenses for development are expensed as incurred. In the balance sheet, capitalized development expenditure is stated at cost less accumulated amortization and any impairment losses.

Other intangible assets

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 10–20 years and some with indefinite useful life
Customer relationships 10 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.

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.