DIRECTORSʼ REPORTCORPORATE GOVERNANCE REPORT
Sandvik AB has its head office in Stockholm and is the Parent Company of the
Sandvik Group, with subsidiaries in more than 60 countries. The Group has about
43,000 employees and sales in more than 150 countries. Sandvik AB is a publiccompany with its shares listed on Nasdaq Stockholm (the “Stockholm Stock
Exchange”)
Corporate governance within Sandvik
is based on external rules such as
the Swedish Companies Act, theStockholm Stock Exchange’s Rule
Book for Issuers, the Swedish Codeof Corporate Governance (the"Code") and other relevant laws andregulations. The Code is available
from corporategovernance­board.
se. In 2017 Sandvik applied the Code
without deviating from any of its
regulations.
THE SANDVIK WAY
Sandvik’s corporate governanceframework, The Sandvik Way, implements these external rules and also
sets out the internal rules and princi-

ples for governance that apply specifically within Sandvik. It is based on fourlevels, as set forth in the model below,
and describes how common ways
of working have been implemented
throughout the entire organization.

lies with the business areas andproduct areas, with Group functions
responsible for functional policies andprocesses supporting the business.
This level is the main focus of thisCorporate Governance Report.

Oversight and Direction
This level outlines how the Groupis led and governed from the top.
The Board of Directors, elected by
the Shareholders’ Meeting, sets thestrategic direction for the Group. The
President carries this out through theGroup Executive Management whose
members manage and oversee theoperations of the Group. The main
operational responsibility in the Group

Culture and Enabling StructureThis level sets out the requirements
and ambitions underpinning ouroperations. Our business philosophy isshaped by our Vision to excel, guided
by our Core Values (Customer Focus,
Innovation, Fair Play and Passion toWin), translated into the behaviors weoutline in our Code of Conduct andmotivated through the qualities outlined in Sandvik’s Leadership Model.

THE SANDVIK WAY

OVERSIGHT & DIRECTION
Shareholders’ Meeting& Board of Directors

President & Group
Executive Management

Business Areas &Group Functions

Legal Entity & Country Coordination

Group Councils

CULTURE & ENABLING STRUCTURE
VisionCore Values

Code of Conduct

Leadership Model

Risk
Assessments

Policies &Procedures

Policy Compliance
Programs
Financial Internal Control

Performancetracking &Performance reviews
ReportingSpeak Up & Investigations

AUDITING

Group
Strategies

Strategic Planning
Three-year plan Forecasts & Targets

MONITORINGOPERATIONAL SYSTEM

External & Internal

Self-assessments

Analysis & Continuous improvements
BUSINESS AREA GOVERNANCE
Sandvik Mining and Rock Technology

58 | Sandvik Annual Report 2017

Sandvik Materials Technology

Sandvik Machining Solutions

DIRECTORSʼ REPORTCORPORATE GOVERNANCE MODELNOMINATION COMMITTEESHAREHOLDERS’ MEETING

EXTERNAL AUDITOR

AUDIT COMMITTEE

BOARD OF DIRECTORSREMUNERATION COMMITTEEINTERNAL AUDITPRESIDENT & GROUP EXECUTIVE MANAGEMENTSPEAK UP &BUSINESS ETHICS

BUSINESS AREAS

GROUP FUNCTIONSPRODUCT AREAS

Operational System
The operational system in The
Sandvik Way is at the core of how
we work on a day-to-day basis in the
Sandvik Group. It contains information and ways of working for the whole
Sandvik Group related to strategicplanning, risk management, internal
controls and compliance, as well
as Sandvik’s monitoring activities,
including performance tracking andcompliance self-assessment for thebusiness units. This is also where ourgroup-wide policies and procedures
are collected.
Business Area Governance
Whereas the three top levels of The
Sandvik Way set the group-wide wayof working that applies across all of
the business areas, product areas andGroup functions, the business areasand product areas have their own
tailored governance systems basedon The Sandvik Way.
OWNERSHIP STRUCTURE
As of 31 December 2017 Sandvik’s
share capital amounted to1,505,263,107.60 SEK represented
by 1,254,385,923 shares. According
to the share register, Sandvik had
about 103,000 shareholders as of 31
December 2017. AB Industrivärden
was the largest owner with about
11.8 percent of the share capital. Of
the total share capital at year-end,
37 percent was owned by investors
outside Sweden.
SHAREHOLDERS’ MEETINGThe General Meeting of Shareholders is the highest decision-­making
body. At the Annual General Meet-ing, the shareholders are given thepossibility to exercise their voting
rights in relation to, for example, theAnnual Report, dividends, electionof the Board and appointment ofauditor, and other matters stipulated
in the Companies Act, the Articles of
Association and, where applicable,
the Code.
All shareholders who have beenentered in the share register andhave informed the company of theirattendance within the time limit
stated in the notice of the General
Meeting are entitled to participate at
Sandvik’s General Meetings and voteaccording to the number of shares
held. Shareholders are also entitledto be represented by a proxy at theGeneral Meeting.
All shares in Sandvik carry equal voting rights, namely one vote per share.
2017 Annual General Meeting
Shareholders representing 49.52
percent of the share capital and votes
attended the Annual General Meeting
held on 27 April 2017 in Sandviken,
Sweden. Sven Unger, attorney-at-law,was elected to chair the meeting.
Resolutions passed at the General
Meeting included the following:–– Dividend of 2.75 SEK per share–– Election of Marika Fredriksson
as new member of the Board andre-election of Board members
Jennifer Allerton, Claes Boustedt, Johan Karlström, Johan
Molin, Björn Rosengren, Helena
Stjernholm and Lars Westerberg.
Re-election of Johan Molin as
Chairman of the Board.
–– Guidelines for remuneration ofsenior executives

TEN LARGEST SHAREHOLDERS,
31 DECEMBER 2017, %AB Industrivärden

11.8

AMF Insurance and Funds

2.7

Alecta Pension Insurance
Handelsbanken Pension
Swedbank Robur Funds

L E Lundbergföretagen AB

SEB Investment Management
JP Morgan Chase*

Fourth Swedish National Pension Fund
Nordea Investment Funds

6.1
2.6
2.5
2.4
1.9
1.8
1.4
1.4

Source: Euroclear* Shares held in trust–– A long-term incentive program in
the form of a performance share
program for about 350 senior
executives and key employees in
the Group–– Re-election of KPMG AB as auditor
For additional information about theAnnual General Meeting, including
the minutes, refer to home.sandvik.
2018 Annual General Meeting
The next Annual General Meeting will
be held on 27 April 2018 in Sandviken,
Sweden. More information is available
at home.sandvik.
NOMINATION COMMITTEEThe Nomination Committee is apreparatory body that prepares proposals for, among other things, theelection of the Board of Directors, theChairman of the Board and auditors
as well as fees for adoption at theGeneral Meeting. The Annual General
Meeting has adopted an instruction
for the Nomination Committee, which
includes a procedure for appointing

Sandvik Annual Report 2017 | 59

DIRECTORSʼ REPORT

Sandvik’s Annual General Meeting 2017 was held at the Göransson Arena, Sandviken,
Sweden.

the Nomination Committee, valid
until a General Meeting resolves ona change. In accordance with this
instruction, the Nomination Committee should consist of representativesof the four largest shareholders, interms of the number of votes, on the
final business day in August plus the
Chairman of the Board (convener).
Nomination Committee for 2018 AGM
For the 2018 Annual General Meeting,
the Nomination Committee consists of Fredrik Lundberg, Chairman(Industrivärden), Kaj Thorén (Alecta),
Pär Boman (Handelsbanken Pension),
Anders Oscarsson (AMF Insur-

NOMINATION COMMITTEE’STASKS AHEAD OF THE 2018
ANNUAL GENERAL MEETING– Proposal concerning the Chairmanof the Meeting– Proposal concerning the number ofBoard members– Proposal concerning remunerationof each Board member– Proposal concerning the Board andChairman of the Board– Proposal concerning auditor andremuneration of the auditor– If deemed necessary, proposal
for changes to the Nomination
Committee’s instruction concerning
the procedure for appointment of
the Nomination Committee for theforthcoming Annual General Meetingand its assignment

60 | Sandvik Annual Report 2017

ance and Funds) and Johan Molin(Sandvik’s Chairman of the Board).
Up to the date of the Annual General
Meeting, the Nomination Committee
met on three occasions. ThroughSandvik’s Chairman of the Board, theNomination Committee was informedof the results of the Board’s own
evaluation. The Committee also met
with Sandvik’s President to review
the company’s operations, stage ofdevelopment and overall strategy. The
Nomination Committee discussed thegeneral criteria that Board members
should fulfill, including the independence requirement, and reviewed thenumber of Board assignments thateach Board member has in othercompanies. The Nomination Committee applied rule 4.1 of the Code as thediversity policy. This rule states thatthe Board shall have an appropriatecomposition in view of the company’s
operations, phase of development andother relevant circumstances, display
diversity and breadth in terms of qualifications, experience and backgroundof the Board members elected by theGeneral Meeting and that the company shall strive for gender balance.
BOARD OF DIRECTORSThe Board of Directors is responsible
for the company’s organization andthe management of the company’sbusiness. The Board is required tocontinuously monitor the company’s
and the Group’s financial position.

The Board is to ensure that thecompany’s organization is designed
in a way that ensures that the financial statements, the management ofassets and the company’s financial
condition in general are controlled ina satisfactory manner.
The President is appointed by the
Board and is responsible for the daily
operations pursuant to guidelines
and instructions issued by the Board.
The distribution of responsibilities
between the Board and the President
is laid down in the Board’s Procedural
Guidelines which are reviewed andadopted each year. The review isbased on such aspects as the Board’s
evaluation of the individual and collective work that the Board performs.
In addition to financial reporting
and the monitoring and follow-up
of daily operations and profit trend,
Board meetings address the goals
and strategies for the operations, significant acquisitions and investments,
as well as matters relating to the capital structure. Senior executives reportbusiness plans and strategic issues
to the Board on an ongoing basis.
Composition
As of 31 December 2017 Sandvik’s
Board consisted of eight members
elected by the Annual General Meeting.
The Nomination Committee communicated before the 2017 Annual
General Meeting that the Nomination
Committee had applied rule 4.1 of theCode as the diversity policy. The current Board composition is the result of
the work of the Nomination Committee prior to that General Meeting.
The Board consists of members withexperiences from different geographic areas and different industry
sectors and, excluding the President,
42 percent of the Board members
elected by the General Meeting are
women.
Pursuant to Swedish legislation,
trade unions are entitled to representation on the Board and they
have appointed two members andtwo deputies.
The Board members are presented
on pages 146–147.
Independence
Helena Stjernholm is not regarded
as independent in relation to major
shareholders in the company andDIRECTORSʼ REPORT

Björn Rosengren is not regarded as
independent in relation to the company and its executive management.
The other six Board members electedby the General Meeting are all independent in relation to Sandvik and its
executive management, as well as
the company’s major shareholders.
Accordingly, the composition of theBoard complies with the independence requirements of the Code.
Board proceedings during 2017
During the year, the Board held 13
meetings. The Board addressed strategic issues. The executive managements of all business areas presented
their goals and strategies. The Board
also addressed matters related toIT, human resources, such as incentive programs, environment, healthand safety, and issues concerninginvestments and the review of previously made investments, as well as
acquisitions and divestments, such as
the sale of the Sandvik Process Systems and Hyperion businesses. The
Remuneration and Audit Committees
submitted reports from their respective meetings and the minutes fromthese minutes were made available
to the Board members. In the autumn
of 2017 the Board visited the Sandviksite in Fairlawn, US.
Remuneration of the Board
As resolved at the 2017 Annual General Meeting, the fee to the Chairmanof the Board is 2,200,000 SEK and
the fee to each of the non-executive

Board members elected by the General Meeting is 630,000 SEK.
In addition, 275,000 SEK was paid
to the Chairman of the Audit Committee and 150,000 SEK to each of theother Committee members, in total
575,000 SEK. The Chairman of theRemuneration Committee was paid
125,000 SEK and each of the otherCommittee members 100,000 SEK, intotal 325,000 SEK.
For more detailed information on
remuneration of the Board members,see Note 3.5.
Evaluation of the work of the Board
To ensure the quality of the work of
the Board and to identify the possible need for further expertise andexperience, the work of the Board andMember3

Johan Karlström

13

Thomas Lilja

13

Tomas Kärnström

13

Johan Molin

13

Björn Rosengren

713

Helena Stjernholm

13

Lars Westerberg

7

7

13

Mats W Lundberg

Remuneration
Committee

67Jürgen M Geissinger2)

6

12

6

7

Audit
Committee

Remuneration
Committee

1) E lected new Board member at the Annual General Meeting 2017.
2) L eft the Board in conjunction with the Annual General Meeting 2017.

MemberIndependentin acc. with
the Code
Yes

Shareholding,number1)
31 Dec 2017

Elected612

2012

10,000MemberYes

20,000MemberYes

5,000

MemberMember2)

Mats W Lundberg

Deputy2)Yes

Member2)

Johan Molin

Chairman

Helena Stjernholm

MemberLars Westerberg

13

Marika Fredriksson1)

Tomas Kärnström

Björn Rosengren

6

13

Claes Boustedt

Deputy2)Thomas Lilja

Audit
Committee

13

Thomas Andersson

Thomas Andersson

Johan Karlström

13

Jennifer Allerton

Function

Marika Fredriksson

Board

Total number of meetings

Name

Claes Boustedt

BOARD COMMITTEES
The tasks of the Committees andtheir work procedures are stipulated
in written instructions issued by the
Board. The Committees’ primary task
is to prepare issues and present themto the Board for resolution.

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS IN 2017

COMPOSITION OF THE BOARD AS OF 31 DECEMBER 2017

Jennifer Allerton

its members is evaluated annually. In
2017 the evaluation, which was led by
the Chairman of the Board, was carried out by way of each Board member
responding to an online questionnaire.
The Chairman also held separate
evaluation meetings with all Board
members. The compiled results were
presented to the Board. The Chairman of the Board also presented theresults of the evaluations at a meetingwith the Nomination Committee.

MemberMember

2,500
2,889
3,560

Yes

No
No

Yes

0

260,0003)

95,21604)

180,000

2015
2015
2017

Chairman

2011

Member

2006
2016
2015
2015
2016
2016
2010

ChairmanMemberMemberMember1) Pertains to own and closely related persons’ shareholdings in Sandvik AB.
2) Employee representatives (both members and deputy members participate in Board meetings). Thomas Lilja (member) and Mats W Lundberg(deputy) represent Unionen/Ledarna/Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Thomas Andersson (deputy)
represent IF Metall.
3) In addition 1,000,000 call options in Sandvik AB.
4) Acquired 5,000 shares on 12 February 2018.

Sandvik Annual Report 2017 | 61

DIRECTORSʼ REPORT

Remuneration Committee
During 2017 the members of theRemuneration Committee were the
Chairman of the Board Johan Molin(Chairman of the Committee), Johan
Karlström and Lars Westerberg. The
tasks of the Remuneration Committee are, among others, those prescribed by the Code, which include
preparing proposals regarding
guidelines for remuneration of senior
executives and long-term incentive
programs for senior executives.
Based on the recommendationsof the Remuneration Committee,
the Board decides the remunerationand terms of employment for the
President, who in turn decides on the
remuneration to be paid to the Group
Executive Management in consultation
with the Remuneration Committee.
For guidelines, remuneration andother benefits payable to the Group
Executive Management, refer to
Proposal regarding guidelines for the
remuneration of senior executives on
page 48 and Note 3.5.
During 2017 the Remuneration
Committee held seven meetings. The
increased number of meetings was
mainly driven by the replacement of
two members of the Group Executive
Management during 2017.
Audit Committee
During 2017 the members of the
Audit Committee were Claes Boustedt (Chairman of the Committee),
Helena Stjernholm and Lars Westerberg. Areas addressed by the Audit
Committee mainly related to:–– Financial reporting–– Effectiveness of the system ofinternal control–– Planning, scope and follow-up of theinternal and external audit for the year–– The Group’s systematic processes
for risk management, including
legal disputes, IT, accounting procedures, taxation, treasury, finance
operations and pension issues–– The development and effectiveness of compliance processes andSpeak Up, Sandvik’s global whistleblowing system–– Sandvik’s sustainable businessstrategy and materiality analysis–– Preparation for election of new
auditor62 | Sandvik Annual Report 2017

During 2017 the Audit Committee
held six meetings at which Sandvik’s
external auditor and representativesof the company’s management were
present.
PRESIDENT AND GROUP EXECU�TIVE MANAGEMENTThe President is accountable forGroup decision-making in all areasdelegated by the Board. In order toensure a full Group perspective inthese matters, the President has
appointed the Group Executive Management as an advisory forum, focusing on how to achieve Group targets,
strategies, structure and organization.
The Group Executive Management
meets each month and its members
are accountable for implementing thePresident’s decisions.
In 2017 the Group Executive Management consisted of:–– Björn Rosengren, President and CEO–– Tomas Eliasson, Executive Vice
President and CFO–– Klas Forsström, President of
Sandvik Machining Solutions, from
1 April 2017–– Lars Engström, President of Sandvik
Mining and Rock Technology–– Göran Björkman, President of­Sandvik Materials Technology, from
1 November 2017–– Jessica Alm, Executive Vice
President and Head of Group
Communications–– Johan Kerstell, Executive Vice
President and Head of Human
Resources–– Åsa Thunman, Executive Vice
President and General Counsel–– Jonas Gustavsson, President of
Sandvik Machining Solutions, until
31 March 2017–– Petra Einarsson, President of­Sandvik Materials Technology, until
31 October 2017
The President and other members of
the Group Executive Management arepresented further on pages 148–149.
BUSINESS AREAS
The Sandvik organization model isbased on a decentralized businessmodel with three separate businessareas – Sandvik Machining Solutions,
Sandvik Mining and Rock Technology
and Sandvik Materials Technology –based on distinct product offerings.

Each business area has full responsibility and accountability for its
respective business results.
Each of the three business areas
is organized in a number of productareas based on product offering or
brand. The product area is the highest
operational level in the Sandvik organizational structure. Where the productarea structure is based on the productoffering, each product area is organized in business units representing
defined parts of the product offering.
Visit home.sandvik for moredetailed information relating to theGroup’s business activities and product portfolios.
GROUP FUNCTIONSThere are currently four Groupfunctions within Sandvik: Communications, Finance, HR and Legal. Group
Functions specifically focus on setting
the appropriate enabling structuresand processes that are common for
the Group or cover a specific area forwhich the Group is responsible.
EXTERNAL AUDITORAt the 2017 Annual General Meeting, the audit firm KPMG AB was
re-elected auditor of Sandvik AB
for the period until the 2018 Annual
General Meeting. Joakim Thilstedt isthe auditor-in-charge.
The auditors continuously audit
and monitor the company’s generalaccounting and the execution by
the Board and the President of theirrespective responsibilities.
The progress of the audit isreported regularly during the year to
the management teams of individualcompanies and the business areas,
to the Group Executive Management,
the Audit Committee and to the Board.
The auditor meets with the Board atleast once a year without the President
or any other member of the Group
Executive Management attending.
The independence of the external
auditor is guaranteed by a requirement that the Audit Committee
pre-approves non-audit services tobe provided by the auditors.
Audit fees are paid continuously
over the period in office on an
approved current account basis. For
detailed information on fees paid tothe auditor, see Note 3.6.

DIRECTORSʼ REPORTBREACH OF THE STOCKHOLMSTOCK EXCHANGE’S RULE BOOKIn December 2017 the Disciplinary
Committee of the Stockholm Stock
Exchange found that Sandvik hadbreached the Stockholm Stock
Exchange’s Rule Book for Issuers(the "Rule Book”) and imposed a fineon Sandvik amounting to one annual
fee, equivalent to an amount of SEK
3,105,000. The Disciplinary Committee found that Sandvik had contravened section 3.1 of the Rule Bookby mistakenly publishing its interim
report for the second quarter of 2017
on the company’s website before
the report was disclosed in a correctmanner as stipulated in the Rule Book.

control matrix which defines a mandatory minimum of control activities that
contribute to the mitigation of risks toacceptable levels. The process of rolling-out the common framework to the
Sandvik entities is well underway.

INTERNAL CONTROL OF FINANCIALREPORTING
Sandvik’s finance organization
manages a well-established financial
reporting process aimed at ensuring
a high level of internal control.
The internal control system aligns
with the conceptual framework of
COSO, which is based on five key
components that jointly facilitate
good internal control. The five components are Control Environment,
Risk Assessment, Control Activities,
Information and Communicationand Monitoring and Follow-up. The
application of the COSO framework is
described below.

Control activities
In each legal entity, the finance staff is
responsible for accurate accounting
and the closing of books. At Grouplevel, Group Control manages thereporting process to ensure the completeness and accuracy of financial
reporting and compliance with IFRS
requirements. Both statutory andmanagement reporting is conductedin close cooperation with productareas, business areas and specialist
functions such as tax, treasury andlegal to ensure the correct reportingof the income statement, balance
sheet, equity and cash flow.
Controllers in the product and business areas perform analytical reviews
and investigations, conduct businesstrend analyses and update forecasts.
They investigate certain issues
related to the financial information as
and when needed. All business areas
present their financial performance in
written reports to the Group Executive Management on a monthly andquarterly basis.

Control environment
The Sandvik Way regulates the governance of the Sandvik Group. It includes
delegation of responsibilities, including
signatory and authorization principles
for decision making and cost approvals, and request and approval procedures in respect to investments andacquisitions, among other items.
The Sandvik Financial Reporting
Policies and Procedures govern
control over financial reporting. These
documents contain detailed instructions regarding accounting policies
and financial reporting procedures
to be applied by all Sandvik reporting
entities
A Sandvik Financial Internal Control
Framework has been developed andincludes key components such as;
well-defined roles and responsibilities,
internal control policy and the risk andRisk assessment and risk
management
The Enterprise Risk Management(ERM) process at Sandvik encompasses the area of financial reporting.
Key risks noted in local assessments
and observations made by Internaland External Audit are also taken
into consideration to ensure that
adequate controls exist to mitigate
these risks.

Information and communication
Financial reports setting out theGroup’s financial position and theearnings trend of operations are
submitted regularly to Sandvik’s
Board. The Board deals with all quarterly interim reports as well as theAnnual Report prior to publishing andmonitors the audit of internal control
and financial statements conductedby Internal Audit and the external
auditors.

Quarterly interim reports are
published externally and are supplemented by investor meetings
attended by the Group Executive
Management.
Monitoring and follow-up
Each legal entity manager and theirrespective finance organization
is ultimately responsible for continuously monitoring the financial
information of the various entities.
The Audit Committee is to ensurethat the company’s financial reports
are produced in accordance withlegislation, applicable accounting
standards and other requirements forlisted companies. The Audit Committee prepares issues and presents
them to the Board for resolution.
The external auditors review thethird-quarter interim report and study
the financial reports prepared forthe other quarters. In conjunction
with the close of the third quarter,
the external auditors perform a moredetailed examination of the level ofinternal control over the financial
reporting as part of a hard-close
audit, which includes an assessmentof the Parent Company’s reportingand internal control over financial
reporting in the business areas, subsidiaries and Group functions.
Internal audit
The Internal Audit function audits
the corporate governance, internal control and risk-management
procedures. Internal Audit is subordinated to the Audit Committee and thehead of the unit reports to the Audit
Committee.
Internal audits include, as a basis,the Group’s policies for corporate
governance, risk management andinternal control with regard to areas
such as financial reporting, compliance with the Code of Conduct
and IT. The outputs of the audits
include action plans and programs for
improvement.
Findings are reported to the Group
Executive Management and the business area management and to the
Audit Committee.

Sandvik Annual Report 2017 | 63

AUDITOR’S REPORT

AUDITOR’S REPORTTO THE ANNUAL MEETING OF THE SHAREHOLDERS
OF SANDVIK AB (PUBL), CORP. ID. 556000-3468
Report on the annual accounts and consolidated accounts
Opinions
We have audited the annual accounts and consolidated accountsof Sandvik AB (publ.) for the year 2017. The annual accounts andconsolidated accounts of the company are included on pages
46-122 in this document.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act, and present fairly, in all material respects, the financial position of the parent company as of 31
December 2017 and its financial performance and cash flow for theyear then ended in accordance with the Annual Accounts Act. The
consolidated accounts have been prepared in accordance with theAnnual Accounts Act and present fairly, in all material respects, thefinancial position of the group as of 31 December 2017 and theirfinancial performance and cash flow for the year then ended inaccordance with International Financial Reporting Standards (IFRS),
as adopted by the EU, and the Annual Accounts Act.
A corporate governance statement has been prepared. The
statutory administration report and the corporate governancestatement are consistent with the other parts of the annual
accounts and consolidated accounts, and the corporate governance statement is in accordance with the Annual Accounts Act.
We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for theparent company and the group.
Our opinions in this report on the the annual accounts andconsolidated accounts are consistent with the content of theadditional report that has been submitted to the parent company's audit committee in accordance with the Audit Regulation(537/2014) Article 11.

Basis for Opinions
We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards
in Sweden. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance withprofessional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with theserequirements.This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit
Regulation (537/2014) Article 5.1 have been provided to the audited
company or, where applicable, its parent company or its controlled
companies within the EU.
We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinions.
Key Audit Matters
Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of theannual accounts and consolidated accounts of the current period.
These matters were addressed in the context of our audit of, andin forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Accounting for Assets held for sale and discontinued operations

See disclosure 30 and accounting principles on pages 82 in the annual accounts and consolidated accounts for detailed informationand description of the matter.

Description of key audit matter
The Group has completed the divestment of product area Mining
Systems. The divested businesses has been deconsolidated fromthe financial statements apart from the ongoing contracts to be
finalized by the Group that was not part of the divestment. The contracts are still presented as a discontinued operation in the income
statement and as a disposal Group held for sale within the balance
sheet. The result of the discontinued operations amounts to –52
million SEK for 2017.
The remaining contracts involves complex estimates on the projected final revenue and cost to complete.
The Group has during 2017 completed the divestment of productarea Process Systems which by 1 December 2017 has been deconsolidated from the financial statements.
The Group has also during 2017 decided to divest product area
Hyperion and the Material Technology operations Welding andStainless wire. These businesses are presented as disposal groups
held for sale within the balance sheet.
Accounting treatments for discontinued operations and Assets
held for sale require specific conditions to be met and judgments
to be made by Group management. There are also detailed related
disclosure requirements.

Response in the audit
We have assessed the divestments of Mining Systems and Process Systems by obtaining and reviewing sales agreements andother relevant documentation.
We have evaluated the internal control of the business in relation to monitoring of the remaining ongoing contract as well as
challenged managements assumptions on final project forecasts.
Assessment have also been made through sampling of project
estimates for which we have evaluated the underlying assumptions used by the business for revenue recognition and provisions,
if any.
We have assessed the assumptions applied by the Group forpresenting remaining ongoing contract within Mining Systems as
a discontinued operation, as well as the presentation of Hyperion
and Welding and Stainless wire operations as held for sale, by
obtaining and reviewing minutes and other relevant documentation of the sales processes and board decisions as well as holding
discussions with Group management.
We have further assessed whether the assets and liabilities presented as held for sale have been accurately identified and appropriately measured at the balances sheet date.
We have also reviewed the Annual Report disclosures forcompleteness.

Sandvik Annual Report 2017 | 123

AUDITOR’S REPORT

Valuation of acquired intangible assets and the parent company's shares in Group companies

See disclosure 12 and 14 respectively and accounting principles on pages 79-80 and 82 in the annual accounts and consolidated accounts fordetailed information and description of the matter.

Description of key audit matter
The carrying value of acquired intangible assets of goodwill,patents, licenses, trademarks, etc. is 17,376 million SEK as at 31
December 2017, which represents approximately 16 % of total
assets. Annually, or if certain indicators of impairment exist, goodwill
is subject to an impairment test which is complex and contains
significant elements of judgment. An impairment test must be
performed for each identified cash-generating unit.
The impairment test as required by IFRS is to be performed taking
into account both forecasted internal and external assumptions
and plans. Examples of such judgments are future cash flows andthe discount rate to be used considering that estimated future payments are subject to risk.
The parent company holds shares in Group companies of 32,558
million SEK as at 31 December 2017. If the book value of the shares
exceeds the equity in a given Group company, a similar type of
impairment test is performed using the same methodology andassumptions as is done in respect of goodwill in the Group.

Response in the audit
We have obtained and assessed the Group's impairment tests
to ascertain whether they are carried out in accordance with thetechniques prescribed by IFRS.
In addition, we have assessed the reasonableness of future
cash flows and discount rate by obtaining and evaluating Groupmanagement’s written documentation and plans. We have also
had discussions with Group management and performed retrospective review over prior period estimates.
We have assessed the methodology used and an importantpart of our work has been to evaluate how changes in assumptions may affect the valuation.
We have assessed the reasonableness of the allocation of
goodwill to cash-generating units. The assessment was conducted through interviews with Group management and evaluation of the Group's documentation of the allocation.
We have reviewed the Annual Report disclosures for completeness, assessed whether the disclosures are in line with theassumptions used by management in their valuation and thatthey are, in all material respects, in accordance with disclosuresrequired by IFRS.

Provisions for pensions

See disclosure 20 and accounting principles on pages 80-81 in the annual accounts and consolidated accounts for detailed informationand description of the matter.

Description of key audit matter
The Group has a pension obligation that mainly concerns the United
Kingdom, the United States, Sweden, Finland and Germany. Before
reduction by the fair value of plan assets, this pension obligation isvalued at 26,339 million SEK as at 31 December 2017.
Estimation of the value of the pension obligation relies upon anumber of assumptions, including mortality, inflation, and discountrates that are applied to estimate the present value of future pension payments. The Group engages external actuaries to performthese complex calculations.
Changes to the assumptions which the calculations are based on
could have a significant impact on total comprehensive income aswell as on the balance of the pension obligation.

Response in the audit
We have examined the external actuarial report that is used by theGroup for valuation of its pension obligation.
We have critically assessed the key assumptions used for discount rate, inflation, salary increases and mortality within the calculations against assumptions used by other comparative companies and externally obtained market data.
We have reviewed and assessed the documentation supporting
significant changes in plan assets and significant events impacting the obligation.
We have also reviewed the Annual Report disclosures for completeness and assessed whether they are in line with the assumptions and sensitivity analysis used.

Other Information than the annual accounts and consolidated
accounts
This document also contains other information than the annual
accounts and consolidated accounts and is found on pages 1-45,
127–144 and 146–152. The Board of Directors and the President andCEO are responsible for this other information.
Our opinion on the annual accounts and consolidated accounts
does not cover this other information and we do not express any
form of assurance conclusion regarding this other information.
In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In
this procedure we also take into account our knowledge otherwise
obtained in the audit and assess whether the information otherwise
appears to be materially misstated.
If we, based on the work performed concerning this information,
conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report inthis regard.

Responsibilities of the Board of Directors and the President
and CEO
The Board of Directors and the President and CEO are responsible for the preparation of the annual accounts and consolidated
accounts and that they give a fair presentation in accordancewith the Annual Accounts Act and, concerning the consolidated
accounts, in accordance with IFRS as adopted by the EU. The
Board of Directors and the President and CEO are also responsible
for such internal control as they determine is necessary to enable
the preparation of annual accounts and consolidated accounts
that are free from material misstatement, whether due to fraud or
error.
In preparing the annual accounts and consolidated accounts
The Board of Directors and the President and CEO are responsible for the assessment of the company’s and the group's ability tocontinue as a going concern. They disclose, as applicable, mattersrelated to going concern and using the going concern basis ofaccounting. The going concern basis of accounting is however
not applied if the Board of Directors and the President and CEO
intend to liquidate the company, to cease operations, or has no
realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Boardof Director’s responsibilities and tasks in general, among otherthings oversee the company’s financial reporting process.

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AUDITOR’S REPORT

Auditor’s responsibility
Our objectives are to obtain reasonable assurance about whether
the annual accounts and consolidated accounts as a whole are freefrom material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinions. Reasonableassurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with ISAs and generally accepted
auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisionsof users taken on the basis of these annual accounts and consolidated accounts.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout
the audit. We also:–– Identify and assess the risks of material misstatement of theannual accounts and consolidated accounts, whether due tofraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinions. The risk of notdetecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, or the override of internal control.
–– Obtain an understanding of the company’s internal control relevant to our audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s
internal control.
–– Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures
made by the Board of Directors and the President and CEO.

–– Conclude on the appropriateness of the Board of Directors’
and the President and CEO's, use of the going concern basisof accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit
evidence obtained, as to whether any material uncertainty
exists related to events or conditions that may cast significant
doubt on the company’s and the group's ability to continue as agoing concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to therelated disclosures in the annual accounts and consolidated
accounts or, if such disclosures are inadequate, to modify our
opinion about the annual accounts and consolidated accounts.
Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause a company and a group to cease to continue
as a going concern.
–– Evaluate the overall presentation, structure and content of theannual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated
accounts represent the underlying transactions and events in amanner that achieves fair presentation.
–– Obtain sufficient and appropriate audit evidence regarding thefinancial information of the entities or business activities within
the group to express an opinion on the consolidated accounts.
We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our
opinions.
We must inform the Board of Directors of, among other matters,
the planned scope and timing of the audit. We must also inform ofsignificant audit findings during our audit, including any significant
deficiencies in internal control that we identified.
We must also provide the Board of Directors with a statementthat we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors,
we determine those matters that were of most significance in theaudit of the annual accounts and consolidated accounts, including
the most important assessed risks for material misstatement, andare therefore the key audit matters. We describe these matters in
the auditor’s report unless law or regulation precludes disclosure
about the matter.

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AUDITOR’S REPORT

Report on other legal and regulatory requirements
Opinions
In addition to our audit of the annual accounts and consolidated
accounts, we have also audited the administration of the Board of
Directors and the President and CEO of Sandvik AB (publ.) for theyear 2017 and the proposed appropriations of the company's profit
or loss.
We recommend to the general meeting of shareholders that the
profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of
Directors and the President and CEO be discharged from liability
for the financial year.
Basis for Opinions
We conducted the audit in accordance with generally accepted
auditing standards in Sweden. Our responsibilities under thosestandards are further described in the Auditor’s Responsibilities
section. We are independent of the parent company and the groupin accordance with professional ethics for accountants in Sweden
and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors and the President
and CEO
The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend,
this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and thegroup's type of operations, size and risks place on the size of theparent company's and the group’s equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This
includes among other things continuous assessment of the company’s and the group's financial situation and ensuring that thecompany's organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise
are controlled in a reassuring manner.
The President and CEO shall manage the ongoing administrationaccording to the Board of Directors' guidelines and instructions
and among other matters take measures that are necessary to
fulfill the company's accounting in accordance with law and handle
the management of assets in a reassuring manner.

Auditor’s responsibility
Our objective concerning the audit of the administration, andthereby our opinion about discharge from liability, is to obtain
audit evidence to assess with a reasonable degree of assurance
whether any member of the Board of Directors or the President and
CEO in any material respect:–– has undertaken any action or been guilty of any omission which
can give rise to liability to the company, or–– in any other way has acted in contravention of the Companies
Act, the Annual Accounts Act or the Articles of Association.
Our objective concerning the audit of the proposed appropriationsof the company’s profit or loss, and thereby our opinion about this,is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with generally
accepted auditing standards in Sweden will always detect actions
or omissions that can give rise to liability to the company, or thatthe proposed appropriations of the company’s profit or loss are notin accordance with the Companies Act.
As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment andmaintain professional scepticism throughout the audit. The examination of the administration and the proposed appropriations of
the company’s profit or loss is based primarily on the audit of theaccounts. Additional audit procedures performed are based on
our professional judgment with starting point in risk and materiality.
This means that we focus the examination on such actions, areas
and relationships that are material for the operations and where
deviations and violations would have particular importance for thecompany’s situation. We examine and test decisions undertaken,
support for decisions, actions taken and other circumstances thatare relevant to our opinion concerning discharge from liability. Asa basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Boardof Directors' reasoned statement and a selection of supporting
evidence in order to be able to assess whether the proposal is inaccordance with the Companies Act.
KPMG AB, Box 382, 101 27, Stockholm, was appointed auditor of
Sandvik AB (publ.) by the general meeting of the shareholders on
the 27 April 2017. KPMG AB or auditors operating at KPMG AB havebeen the company's auditor since financial years before 1994.

Stockholm 6 March 2018
KPMG AB
Joakim Thilstedt
Authorized Public Accountant

126 | Sandvik Annual Report 2017