G32 Divestments, assets held for sale and discontinued operations

The divestments of business combinations executed in 2020 are set out below. There were no divestments during 2019.

Business area	Company/Unit	Divestment date	Annual revenue	No. of employees
Other operations	Sandvik Drilling & Completions (Varel)	March 12, 2020	2,100 MSEK in 2019	1,100
Sandvik Materials Technology	Sandvik Powder Solutions Business	April 6, 2020	68 MSEK in 2019	30

Divestments

In March, the divestment of Sandvik Drilling and Completions (Varel), meaning the operations related to the oil and gas industry, was completed to the private equity firm Blue Water Energy and its co-investor, the privately owned Nixon Energy Investments. Sandvik still remains as minority owner of 30 percent of the company and holds a position on the board. The remaining holding is incorporated in Group Activities. The contribution to Sandvik’s earnings per share from the minority ownership, reported in associated companies, have been limited during the year. The divestment impacted the other operating expenses by SEK –547 million of which SEK –520 million is the realized effect from reversal of accumulated currency translation in Other comprehensive income. The divestment generated a positive cash flow impact of SEK 704 million net of transaction costs. Sandvik Drilling and Completions (Varel) was presented as other operations in 2019. See below under Assets held for sale.

In April, the divestment of the Sandvik Powder Solutions Business for powder-based HIP products to Metal Technology Co. Ltd. (MTC) was completed but the transaction had no major impact on Sandvik.

Assets and liabilities included in divestments 2020

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	Other operations	SMT

	Sandvik Drilling & Completions (Varel)	Sandvik Powder Solutions Business	Total
Intangible assets	19	77	96
Property, plant and equipment	272	21	293
Other non-current assets	62	8	70
Inventories	577	41	618
Receivables	555	13	568
Other current assets	59	2	61
Cash and cash equivalents	53	0	53
Interest-bearing loans and borrowings	–123	–9	–132
Other liabilities and provisions	–426	–50	–476
Deferred tax assets/liabilities, net	54	4	58
Net identifiable assets	1,102	107	1,209
Gain (loss) on divestments of business combinations	–547	–79	–626
Consideration received after divestment costs	757	28	785
Less: Cash and cash equivalents in the divested entities	–53	0	–53
Impact on the Group’s cash and cash equivalents, divested operations	704	28	732

Asset held for sale

During October 2020 Sandvik signed an agreement to divest its Exploration business to Drillman, a subsidiary of the M Group of companies, which is 100 percent owned and operated in Australia. Drillman provides equipment and technical support to the Geotechnical, Mineral Exploration, Horizontal, Directional and Upstream Gas Drilling sectors, among others. The deal includes exploration rigs, consumables and production stock, along with selected trademarks and patents. The business is currently reported in Sandvik Mining and Rock Technology. Since the recovery of the investment is principally through the sale. the assets and liabilities were classified as a disposal group held for sale. The disposal group was measured at fair value less costs to sell. Closing of the transaction is expected during the first half of 2021.

During October 2019 Sandvik signed an agreement to divest the segment Oil and Gas which is the majority of Drilling and Completions (Varel) to the private equity firm Blue Water Energy and its co-investor, the privately owned Nixon Energy Investments. Since the recovery of the investment principally was through the sale, the assets and liabilities were classified as a disposal group held for sale 2019. The disposal group was measured at fair value less costs to sell. The transaction triggered a write-down of goodwill and other intangible assets in 2019 with an effect on net result of SEK 3,900 million in other operating expenses.

Assets and liabilities held for sale

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	2019	2020
Intangible assets	18	2
Property, plant and equipment	249	0
Other non-current assets	169	53
Inventories	571	245
Receivables	729	61
Other current assets	46	0
Cash and cash equivalents	34	0
Total assets	1,815	361
Interest-bearing loans and borrowings	126	0
Other liabilities and provisions	754	171
Total liabilities	880	171
Total equity and liabilities	880	171

Discontinued operations

The Mining Systems business was divested to FLSmidth and Nepean already in 2017, however a number of ongoing projects were kept to be delivered by Sandvik in 2017–2019, through an operational agreement with FLSmidth. The majority of the projects were completed by the end of 2019, however Mining Systems still has some personnel and guarantees that expire in 2021.

Income Statement for discontinued operations

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	2019	2020
Revenue	295	6
Cost of sales and services	–385	–13
Gross profit	–90	–8
Selling expenses	–29	6
Administrative expenses	–45	–27
Other operating income	4	2
Other operating expenses	–44	–5
Operating loss	–204	–32
Net financial items	–1	0
Loss after financial items	–205	–32
Loss for the year	–205	–32

Cash flow Statement for discontinued operations

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	2019	2020
Cash flow from operating activities	–152	–67
Cash flow from investing activities	16	2
Cash flow from financing activities	–2	0
Cash flow from discontinued activities	–138	–66

Accounting principles

Assets held for sale and discontinued operations

Disposal groups held for sale

Disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. To be highly probable, actions to complete the transaction are initiated and the transaction is expected to be completed within one year. The disposal group is measured at the lower of the carrying amount and fair value less costs to sell.

An impairment loss is recognized for any initial or subsequent write-down of the disposal group to fair value less costs to sell.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

Discontinued operations

To qualify as discontinued operations, a component of the Group must, in addition to having been classified as a disposal group held for sale, also represent a separate major line of business or be a part of a single coordinated plan to dispose of a separate major line of business.

Loss of control of a wholly-owned subsidiary with an interest retained

When the Group disposes of a significant part of its interest, and therefore loses control of a subsidiary, it deconsolidates the subsidiary. If the retained interest in the entity fulfills the criteria of being an associate, it is accounted for at fair value at the disposal date, and subsequently accounted for using the equity method. The gain or loss of the transaction is the difference between the fair value of the consideration received as well as the fair value of the retained interest, and the carrying value of the former subsidiary’s net assets (including any related goodwill), and is recorded in the income statement. Any portion of the gain or loss related to the remeasurement of the retained interest to fair value is disclosed separately.

Distribution to owners

When Sandvik is committed to distribute a disposal group to its owner, assets and liabilities will be reclassified to “held for distribution to owners”. Sandvik is committed to the distribution when the disposal group is available for immediate distribution and the distribution is highly probable. To be highly probable, actions to complete the distribution are initiated and the distribution is expected to be completed within one year. The decision of distribution shall have be taken at appropriate level within the organization.