G13 Intangible assets

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Net carrying amount
	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, 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
Amortizations for the year	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

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

Cost
January 1, 2022	4,155	3,156	273	159	7,744	621	1,099	1,434	2,264	34,278	10,117	49,817	57,560
Discontinued operations	–143	–195	0	–64	–402	–19	–72	–1	–18	–1,352	–34	–1,496	–1,898
Additions	209	442	9	–	661	187	82	9	–	–	7	285	946
Business combinations	–	–	–	–	–	43	135	230	478	10,552	3,755	15,193	15,193
Divestments and disposals	–4	–4	–5	–	–13	–	–45	–2	–	–	–10	–59	–72
Impairment losses	–	–	–	–	–	–	–	–	–	–88	–	–88	–88
Reclassifications	–	7	–6	6	7	–	37	–	–30	–	–22	–15	–8
Translation differences	162	93	24	13	291	66	65	192	307	4,182	1,371	6,182	6,474
December 31, 2022	4,380	3,499	294	114	8,287	899	1,301	1,863	3,001	47,572	15,184	69,820	78,107

Accumulated amortizations and impairment losses
January 1, 2022	3,261	2,205	157	119	5,742	244	728	488	415	–	2,135	4,011	9,752
Discontinued operations	–140	–161	–	–43	–345	–13	–58	–1	–3	–	–3	–78	–423
Divestments and disposals	–4	–4	–	–	–8	–	–44	–2	0	–	–11	–59	–67
Impairment losses	–	16	–	–	16	–	–	–	–	–	19	19	35
Reversal of impairment losses	–	–	–	–	–	–	–	–	–	–	–4	–4	–4
Reclassifications	–	2	–3	0	–1	0	8	–1	–31	–	–19	–43	–44
Amortizations for the year	220	335	11	1	567	59	103	134	114	–	1,155	1,565	2,132
Translation differences	114	63	15	11	203	24	45	54	31	–	236	391	594
December 31, 2022	3,450	2,455	180	87	6,173	313	782	674	526	–	3,506	5,801	11,974

Net carrying amount
December 31, 2022	930	1,044	114	27	2,114	585	519	1,189	2,475	47,572	11,677	64,019	66,134

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

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2021¹⁾

2022

Cost of goods and services sold

–310

–569

Selling expenses

–404

–1,034

Administrative expenses

–285

–251

Research & development

–264

–278

Total

–1,263

–2,132

1)	The income statement for 2021 has been reclassified since SMT was classified as discontinued operations in 2022. Consequently the figures for the Balance.

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

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2021¹⁾

2022

Cost of goods and services sold

Selling expenses

–18

Administrative expenses

–1

–4

Research & development

–55

–12

Other operating expenses

–88

Total

–56

–118

1)	The income statement for 2021 has been reclassified since SMT was classified as discontinued operations in 2022. Consequently the figures for the Balance sheet and Income statement will not reconcile for 2021.

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 are tested for impairment annually and whenever events or changes in circumstances indicates that the carrying amount has been impaired. The tests resulted in impairment losses of SEK 118 million (56).

Goodwill

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Goodwill by cash generating unit	2021	2022
	Carrying amount

Sandvik Manufacturing and Machining Solutions
Walter Group	3,473	4,571
Seco Tools	667	576
Sandvik Coromant	3,102	4,370
Dormer Pramet	348	370
Business area level	13,631	15,489
Total	21,222	25,377

Sandvik Mining and Rock Solutions
Business area level	9,954	15,785
Total	9,954	15,785

Sandvik Rock Processing Solutions
Business area level	1,712	6,369
Total	1,712	6,369

Discontinued operations	1,352	–
Other operations	39	41
Group total	34,278	47,572

Impairment tests of goodwill

As stated above, the carrying amount of goodwill in the consolidated balance sheet is SEK 47,572 million (34,278), essentially related to a number of major business combinations.

In 2022, there has been no changes to the business areas that has caused the cash generating units (CGUs) to change. Former business area Sandvik Materials Technology, was divested during the year, and has not been subject to any impairment test in Sandvik in 2022. That means that goodwill is tested for impairment 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 experienceand the 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 at normalized levels for most CGUs. The future revenues in 2023 are higher due to the acquisitions in 2022, but in 2024 and onwards the revenues and margins are assumed 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 (2), 2 percent for Sandvik Rock Processing Solutions business area level (3), 3 percent for Sandvik Coromant (2) and Dormer Pramet (2) and 2 percent for Walter Group (2), Seco Tools (2) and Sandvik Manufacturing and Machining Solutions 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 9.4 percent and 11.7 percent; Sandvik Mining and Rock Solutions 11.4 percent (11.7), Sandvik Rock Processing Solutions 11.7 percent (10.1), Walter Group 10.4 percent (9.7), Seco Tools 9.6 percent (9.6), Sandvik Coromant 9.4 percent (9.7), Dormer Pramet 9.9 percent (9.7) and Sandvik Manufacturing and Machining Solutions 9.8 percent (9.7). The specific risks of the CGUs have been adjusted for future cash flow forecasts.

Goodwill attributable to Sandvik Rock Processing Solutions amounting to SEK 88 million was written down in the fourth quarter due to a closure of a smaller business. The cost is booked in other operating income and expenses.

The impairment testing of goodwill performed during the fourth quarter 2022 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 of 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:

Patents10–20 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

Sandvik applies the IFRS IC’s agenda decision for cloud computing arrangements from 2021. Configuration or customization costs in cloud computing arrangements that Sandvik can control will be capitalized.

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 these valuation techniques, 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.