DIRECTORS’ REPORTCORPORATE GOVERNANCE REPORT
Sandvik AB has its head office in Stockholm and is the Parent Company of the
Sandvik Group, with subsidiaries in about 70 countries. The Group has about 40,000
employees and revenues in more than 160 countries. Sandvik AB is a public company
with its shares listed on Nasdaq Stockholm (the “Stockholm Stock Exchange”).

Corporate governance within Sandvik
is based on external rules such as theSwedish Companies Act, the Stockholm Stock Exchange’s Rule Book for
Issuers, the Swedish Code of Corporate
Governance (the "Code") and otherrelevant laws and regulations. The Codeis available at corporategovernance­board.se. In 2019 Sandvik applied theCode without deviating from any of its
regulations.

The Sandvik Way

Sandvik’s corporate governanceframework, The Sandvik Way, implements these external rules andalso sets out the internal rules andprinciples for governance that apply
specifically within Sandvik. It is basedon four building blocks, as set forth in
the model below, and describes how

common ways of working have been
implemented throughout the entire
organization.
Oversight and Direction
This part outlines how the Groupis led and governed from the top.
The Board of Directors, elected at
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
lies with the business areas and divisions, with Group functions responsible for functional policies and processes supporting the business. Thispart is the main focus of this Corporate
Governance Report.

Culture and Enabling StructureThis building block sets the foundation for how we all shape our culture in
the company and enable a customer
oriented and responsible business.
Our operational controls and risk
frameworks are underpinned by the
ambitions and requirements of ourvision, core values (Customer Focus,
Innovation, Fair Play and Passion toWin), Code of Conduct and leadershipprinciples.
Operational System
The detailed controls and risk frameworks common across the Group aredetailed in the operational system. This
includes many aspects from planningand forecasting, policies, procedures
and controls to compliance, monitoring and audit. The operational system

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
48

S A N DV I K | A N N UA L R EP O R T 2019

Sandvik Materials Technology

Sandvik Machining Solutions

DIRECTORS’ REPORTCORPORATE GOVERNANCE MODELNOMINATION COMMITTEESHAREHOLDERS’ MEETING

EXTERNAL AUDITOR

AUDIT COMMITTEE

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

BUSINESS AREAS

GROUP FUNCTIONSDIVISIONS

represents the day-to-day controlsthat directly impact the work of ouremployees. As such, it is subject
to regular review and continuous
improvement.
Business Area Governance
The final building block in the frameworkcomprises the systems of businessarea governance, each reflecting theindependent challenges and opportunities each business faces in its own
industry sector. Customers, businesscycles, supply chain and industry risk
all vary across the three business areasand call for controls and management
systems tailored to the business,further complementing the group-wide
way of working detailed in the otherbuilding blocks. Business area governance is adopted by each businessarea within the overall framework of The
Sandvik Way and may include specificrules and procedures for each businessarea, division, business unit as well asother relevant parts of the operational
business structure.

Ownership structure

As of 31 December 2019 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 101,000 shareholders as of 31
December 2019. AB Industrivärden
was the largest owner with about 12.4
percent of the share capital. Of thetotal share capital at year-end, about
38.9 percent was owned by investors
outside Sweden.

Shareholders’ meeting

The General Meeting of Shareholders
is the highest decision-­making body.

At the Annual General Meeting, theshareholders are given the possibility
to exercise their voting rights in relation
to, for example, the Annual Report,
dividends, election of the Board andappointment of auditor, and other matters stipulated in the Companies Act,
the Articles of Association and, whereapplicable, the Code.
All shareholders who have beenentered in the share register and haveinformed the company of their attendance within the time limit stated in thenotice of the General Meeting are entitled to participate at Sandvik’s General
Meetings and vote according to thenumber of shares held. Shareholders
are also entitled to be represented by aproxy at the General Meeting.
All shares in Sandvik carry equal
voting rights with one vote per share.
2019 Annual General Meeting
Shareholders representing 53.40
percent of the share capital and votes
attended the Annual General Meeting
held on 29 April 2019 in Sandviken,
Sweden. Sven Unger, attorney-atlaw, was elected to chair the meeting.
Resolutions passed at the General
Meeting included the following:–– Dividend of 4.25 SEK per share–– Re-election of Board members Jennifer Allerton, Claes Boustedt, Marika
Fredriksson, Johan K­ arlström, Johan
Molin, Björn Rosengren, Helena
Stjernholm and Lars Westerberg.
Re-election of Johan Molin as Chairman of the Board.
–– Re-election of PricewaterhouseCoopers AB as auditor–– Guidelines for remuneration of senior executives

Ten largest shareholders,
31 December 2019, %AB Industrivärden

12.4

Swedbank Robur Funds

4.4

Alecta Pension InsuranceBlackRockAMF Insurance and Funds
Vanguard1)

LE Lundbergföretagen AB

SEB Investment Management
Norges Bank

Nordea Funds

6.6
2.8
2.6

2.5
2.4
2.3
1.8
1.3

Source: Monitor by Modular Finance AB
1) 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 theGroup
For additional information about theAnnual General Meeting, including theminutes, refer to: home.sandvik.
2020 Annual General Meeting
The next Annual General Meeting will
be held on 28 April 2020 in Sandviken,
Sweden. More information is available
at: home.sandvik.

Nomination Committee

The 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
the Nomination Committee, valid untila General Meeting resolves a change.

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49

DIRECTORS’ REPORTIn addition to financial reporting and themonitoring and follow-up of daily operations and profit trend, Board meetings
address the goals and strategies forthe operations, significant acquisitions
and investments, as well as mattersrelating to the capital structure. Senior
executives report business plans andstrategic issues to the Board on an
ongoing basis.

Sandvik’s Annual General Meeting 2019 was held at the Göransson Arena,
Sandviken, Sweden.

In accordance with this instruction, theNomination Committee shall consistof representatives of the four largest
shareholders, in terms of the numberof votes, on the final business day inAugust plus the Chairman of the Board(convener).
Nomination Committee
for 2020 AGM
For the 2020 Annual General Meeting,
the Nomination Committee consists of Fredrik Lundberg, Chairman(Industrivärden), Hans Sterte (Alecta),
Marianne Nilsson (Swedbank Robur
Funds), Anders Oscarsson (AMF andAMF 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. The Nomination Committee was informed of theresults of the Board’s own evaluation.
Due to the upcoming change of President and CEO, the Committee instead
met with the Presidents of Sandvik’s
three business areas that presented
their respective business area strategy
Nomination Committee’s tasks
ahead of the 2020 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
50

S A N DV I K | A N N UA L R EP O R T 2019and market conditions for 2020. 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 Directors

The Board of Directors is responsible
for the company’s organization and the
management of the company’s business. The Board is required to continuously monitor the company’s and theGroup’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 of assets
and the company’s financial conditionin general are controlled in a satisfactory manner.
The President is appointed by the
Board and is responsible for the daily
operations pursuant to guidelines andinstructions 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 and adopted
each year. The review is based on suchaspects as the Board’s evaluation of
the individual and collective work thatthe Board performs.

Composition
As of 31 December 2019 Sandvik’s
Board consisted of eight members
elected by the Annual General Meeting.
Björn Rosengren left the Board, effective 1 February 2020, in connection
with leaving his position as President
and CEO. The new President and CEO,Stefan Widing, is proposed to be elected
as a new Board member by the 2020
Annual General Meeting.
The Nomination Committee communicated before the 2019 Annual
General Meeting that the Nomination
Committee had applied rule 4.1 of
the Code as the diversity policy. The
current Board composition is the resultof the work of the Nomination Committee prior to that General Meeting.
The Board consists of members withexperience 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, tradeunions are entitled to representation on
the Board and they have appointed two
members and two deputies.
The Board members are presented
on pages 54–55.
Independence
Helena Stjernholm is not regarded
as independent in relation to major
shareholders in the company and Björn
Rosengren was not regarded as independent in relation to the company andits executive management. The other six
Board members elected by 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
the Board complies with the independence requirements of the Code.
Board proceedings during 2019
During the year, the Board held fourteen
meetings. The Presidents of all business areas presented their goals andstrategies. The Board also reviewed

DIRECTORS’ REPORT

the strategies and results from anumber of the divisions (all divisions
are reviewed in an 18 month rolling
period). The Board addressed mattersrelated to the overall Group strategy,
long-term financial and sustainability
targets, IT, risk management, humanresources, such as incentive programs,
environment, health and safety, andissues concerning investments andoperational restructuring and reviewed
previously made investments. Further, the Board handled matters withrespect to acquisitions and divestments, such as the sale of Varel Oil &Gas and the internal separation of the
Sandvik Materials Technology (SMT)
business with an intention to evaluate
the listing of SMT as a separate group.
The Remuneration Committee, Audit
Committee and the Acquisitions andDivestitures Committee reported fromtheir respective meetings. In respect of
the Audit Committee, reported matters
included ERM, compliance, SpeakUp
and Code of Conduct, internal control
and internal audit as well as the result of
the external audit. The Committees also
submitted matters for resolution by the
Board and the minutes and reports fromthese meetings were made available to
the Board members. In June 2019 theBoard visited Sandvik’s operations inFinland.
Remuneration of the Board
As resolved at the 2019 Annual General
Meeting, the fee to the Chairman of theBoard is 2,550,000 SEK and the fee toeach of the non-executive Board mem-bers elected by the General Meeting is690,000 SEK.
In addition, 300,000 SEK was paid to
the Chairman of the Audit Committee
and 170,000 SEK to each of the otherCommittee members, in total 640,000
SEK. The Chairman of the Remuneration Committee was paid 145,000
SEK and each of the other Committee
members 115,000 SEK, in total 375,000
SEK. No remuneration was paid tothe members of the Acquisitions andDivestitures Committee.
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 theBoard and to identify the possible need

Name

Function

Thomas Andersson

Deputy2)Claes Boustedt

Marika Fredriksson
Johan Karlström

Tomas Kärnström

MemberMemberJohan Molin

Chairman

Björn Rosengren4)

Helena Stjernholm

Lars Westerberg

Deputy2)MemberMemberMember13

Claes Boustedt

14

Marika Fredriksson

14

Tomas Kärnström

14

Johan Karlström

The tasks of the Committees and theirwork procedures are stipulated in written instructions issued by the Board.
The Committees’ primary task is toprepare issues and present them to theBoard for resolution.

Audit
Committee
5

Remuneration
Committee
3

Acquisitions
and Divestitures
Committee
5514Thomas Lilja

5
3

14

Mats W Lundberg

14

Johan Molin

14

Björn Rosengren

14

Lars Westerberg1)

14

Helena Stjernholm1)

14

5
5

3

5

2

5

1

1) Helena Stjernholm replaced Lars Westerberg as member of the Remuneration Committee on
29 April 2019.

Independentin acc. with
the Code
Yes

Yes

Member2)

14

Thomas Andersson

MemberThomas Lilja

Mats W Lundberg

14

Jennifer Allerton

Yes

Member2)

Board

Total number of meetings

MemberMemberBoard Committees

Attendance at board and committee meetings in 2019

Composition of the Board as of 31 December 2019

Jennifer Allerton

for further expertise and experience,
the work of the Board and its members
is evaluated annually. In 2019 the evaluation, which was led by the Chairman of
the Board, was carried out by way ofeach Board member responding anonymously to an online questionnaire. The
Chairman also held separate evaluation
discussions with all Board members.
The compiled results of the evaluations
were presented to the Board as well as
to the Nomination Committee.

Yes

Shareholding,number1)
31 Dec 2019

Elected

0

2012

2,500

2017

10,00020,000
5,000

2,889

3,560
Yes

No5)

No5)
Yes

0

260,0003)

2015
2015

Remuneration
Committee

Chairman2011

Acquisitions
and Divestitures
Committee

MemberMember

2006

2016

2015

2015

119,1812016

180,000

2010

5,000

Audit
Committee

2016

MemberMemberChairman

ChairmanMemberMember1) 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) Left the Board, effective 1 February 2020.
5) H elena Stjernholm is not regarded as independent in relation to major shareholders in the company and Björn Rosengren is not regarded as
independent in relation to the company and its executive management.

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DIRECTORS’ REPORT

Remuneration Committee
As from the 2019 Annual General
Meeting the members of the Remuneration Committee are Johan Molin(Chairman of the Committee), Johan
Karlström and Helena Stjernholm. The
tasks of the Remuneration Committee
are, among others, those prescribedby the Code, which include preparing
proposals regarding guidelines forremuneration of senior executives
and long-term incentive programs forsenior executives.
Based on the recommendationsof the Remuneration Committee, theBoard decides the remuneration andterms of employment for the President,
who in turn decides on the remuneration to be paid to the Group Executive
Management in consultation with theRemuneration 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 39 and Note 3.5.
During 2019 the Remuneration Committee held three meetings but also
worked substantially between thesemeetings to prepare the appointment of
a new President and CEO of Sandvik. At
an extra Board meeting held in October
2019 the Committee presented its proposal for the Board to appoint Stefan
Widing as the new President and CEO
of Sandvik.
Audit Committee
During 2019 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:–– Monitoring the financial reportingand ensuring its reliability–– Effectiveness of the system of internal control and internal audit–– Planning, scope and follow-up of theinternal and external audit for the year–– Assistance to the Nomination Committee with regards to proposal for
auditor–– Monitoring of the external auditor’s
independence and objectivity vis-àvis the company, including the extent
to which the auditor provides otherservices than auditing services tothe company–– The Group’s systematic processes
for overall corporate risk management (ERM), as well as more detailed52

S A N DV I K | A N N UA L R EP O R T 2019risk management matters including
legal disputes, compliance, corporate investigations, IT security,
accounting procedures, taxation,
treasury, finance operations, insurance coverage and pension issues–– The development and effectiveness of compliance processes, withspecial focus on the roll-out of a newcompliance program, the Compliance House–– Sandvik’s Code of Conduct, somespecific cases managed throughSpeakUp, Sandvik’s global whistleblowing system, as well as the overall
effectiveness of the system–– Sandvik’s sustainable business strategy and materiality analysis
During 2019 the Audit Committee held
five meetings at which Sandvik’s external auditor and representatives of thecompany’s management were present.
Acquisitions and Divestitures
Committee
During 2019 the members of theAcquisitions and Divestitures Committee were Johan Molin (Chairman of theCommittee), Claes Boustedt and Helena
Stjernholm. The Committee was established in 2018 to provide a better process for preparing major or strategicallyimportant acquisitions and divestitures
for Board decisions. The Committee
meets on an ad hoc basis, at the requestof the President and CEO in consultation
with the Chairman of the Board.
During 2019 the Acquisitions andDivestitures Committee held fivemeetings and reviewed matters mostly
related to the project to internally separate and evaluate a listing of Sandvik
Materials Technology.

President and Group
Executive Management

The President is accountable for Groupdecision-making in all areas delegatedby the Board. In order to ensure a fullGroup perspective in these matters,
the President has appointed the Group
Executive Management as an advisory
forum, focusing on how to achieveGroup targets, strategies, structure
and organization. The Group Executive
Management meets each month and its
members are accountable for implementing the President’s decisions.
In 2019 the Group Executive Management consisted of:–– Björn Rosengren, President and CEO(succeeded by Stefan Widing on
1 February 2020)–– Tomas Eliasson, Executive Vice President and CFO–– Klas Forsström, President of Sandvik
Machining Solutions (until 30 June2019)–– Lars Bergström, Acting President of
Sandvik Machining Solutions (from 1
July 2019)–– Lars Engström, President of Sandvik
Mining and Rock Technology (until 31
March 2019)–– Henrik Ager, President of Sandvik
Mining and Rock Technology (from 1
April 2019)–– Göran Björkman, President of­Sandvik Materials Technology–– 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
The President and other members of
the Group Executive Management arepresented further on pages 56–57.

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 divisions
based on product offering or brand.
The division is the highest operational
level in the Sandvik organizational
structure. Certain divisions that are
based on a product offering are also
divided into business units representing a defined part of the productoffering.
Visit home.sandvik for more detailed
information relating to the Group’s business activities and product portfolios.

Group functions

There are four Group functions within
Sandvik: Communications, Finance, HR
and Legal. Group functions specifically focus on setting the appropriate
enabling structures and processes thatare common for the Group or covera specific area for which the Group is
responsible.

DIRECTORS’ REPORT

External auditor

At the 2019 Annual General Meeting,the audit firm PricewaterhouseCoopers
AB was re-elected auditor of Sandvik
AB for the period until the 2020 Annual
General Meeting. Peter Nyllinge is theauditor-in-charge.
The auditor continuously audits
and monitors the company’s generalaccounting and the execution by
the Board and the President of theirrespective responsibilities.
The progress of the audit is reported
regularly during the year to the management teams of individual companies
and the business areas, the Audit
Committee and the Board. The auditor
meets with the Board at least once a
year without the President or any othermember of the Group Executive Management attending.
The independence of the external
auditor is guaranteed by the Audit
Committee having determined theprinciples for allowing non-audit services to be provided by the auditor and,in some cases, pre-approving nonaudit services.
Audit fees are paid continuously overthe period in office on an approved
current account basis. For detailed
information on fees paid to the auditor,
see Note 3.6.

Internal control over financial
reporting

The Sandvik organization manages awell-established financial reporting
process aimed at ensuring a high levelof internal control.
The internal control system aligns
with the conceptual framework of
COSO, which is based on five key
components that provide an effective
framework for describing and designing the internal control system implemented in the organization. The fivecomponents are Control Environment,
Risk Assessment, Control Activities,
Information and Communication,and Monitoring and Follow-up. The
application of the COSO framework is
described below.
Sandvik’s Board of Directors is ultimately responsible for the governanceof risk management including internal
control over financial reporting.
Control environment
Sandvik internal control over financial
reporting forms an integral part of theoperational system described in The
Sandvik Way on page 48 which also

includes risk assessments, policies,
procedures and compliance.
The Sandvik Financial Reporting Policies and Procedures govern control overfinancial 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 procedures and therisk and control matrix which defines amandatory minimum of control activities that contribute to the mitigation ofrisks to acceptable levels. The processof rolling-out the common framework
to the Sandvik entities is completed inGroup Functions and Sandvik Mining
and Rock Technology and is expected
to be completed in 2020 in the otherbusiness areas.
Risk assessment and risk
management
The Enterprise Risk Management (ERM)
process at Sandvik includes the areaof financial reporting. Read more about
the Enterprise Risk Management (ERM)
program on page 44. Key risks noted inlocal assessments and observations
made by Internal and External Audit arealso taken into consideration to ensurethat adequate controls exist to mitigate
these risks.
Control activities
Mandatory control activities include
business process controls, IT controls
and corporate governance controls
focusing on compliance with policies
and procedures. Internal controls are
tailored per each operational entity
based on risks and applicability. Entity
management and process owners are
responsible for ensuring that internal
controls are operated as per agreed
design.
At Group level, Group Control manages the reporting process to ensure
the completeness and accuracy offinancial reporting and compliance withIFRS requirements.
Controllers in the divisions and business areas perform analytical reviews
and investigations, conduct businesstrend analyses and update forecasts.
Information and communication
Policies and procedures related tofinancial reporting are updated andcommunicated on a regular basis to all
entities.
Results of monitoring and status of
improvement activities related to internal controls are included in the CFO
report which is part of the agenda for
the Audit Committee meetings.
Quarterly interim reports are
published externally and are supplemented by investor meetings attended
by members of the Group Executive
Management.
Monitoring and follow-up
Entity management as well as local andglobal process owners are responsible
for testing the effectiveness of internal
controls through self-assessments on
a quarterly basis and according to therequirements in the Sandvik Internal
Control Framework. Results of theself-assessment testing of controls
including test evidence are reported
and consolidated in a Governance, Risk
and Compliance IT tool. The tool also
requires reporting of action plans withthe purpose to remediate ineffective
controls.
Business areas and divisions are tomonitor the remediation of ineffective controls. The Audit Committeemonitors the effectiveness of internal
controls related to financial reportingpresented by management with potential deficiencies and suggested actions.
The Board reviews all quarterlyinterim reports as well as the Annual
Report prior to publishing. The Audit
Committee reports to the Board
regarding internal controls matters
including matters for resolution. Minutes from Audit Committee meetings
are made available to Board members.

Internal audit

Internal Audit is subordinated to the
Audit Committee and the Head ofInternal Audit reports to the Audit
Committee.
Internal audits include, as a basis,the Group’s policies for corporate
governance, risk management andinternal control regarding areas such as
financial reporting, compliance with theCode of Conduct and IT.
The outputs of the audits include
action plans and programs for improvement. Findings are reported to thebusiness area management and to the
Audit Committee.

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AUDITOR ’S REPORT

AUDITOR’S REPORT
Unofficial translation
To the general meeting of the shareholders of Sandvik AB (publ),
corporate identity number 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 2019. The annual accounts andconsolidated accounts of the company are included on pages
38–122 and pages 135–136 in this document.
In our opinion, the annual accounts have been prepared inaccordance with the Annual Accounts Act and present fairly, in allmaterial respects, the financial position of parent company and thegroup as of 31 December 2019 and its financial performance andcash flow for the year then ended in accordance with the Annual
Accounts Act. The consolidated accounts have been preparedin accordance with the Annual Accounts Act and present fairly, inall material respects, the financial position of the group as of 31
December 2019 and their financial performance and cash flow
for the year then ended in accordance with International Financial
Reporting Standards (IFRS), as adopted by the EU, and the Annual
Accounts Act.
A corporate governance statement has been prepared and is inagreement with the Annual Accounts Act. The statutory administration report and the corporate governance statement are consistent with the other parts of the annual accounts and consolidated accounts.
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 annual accounts and consolidated accounts are consistent with the content of the additional
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.
Our audit approach
Audit scope
We designed our audit by determining materiality and assessing
the risks of material misstatement in the consolidated financial
statements. In particular, we considered where management
made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions andconsidering future events that are inherently uncertain. As in all of
our audits, we also addressed the risk of management override ofinternal controls, including among other matters consideration ofwhether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of theGroup, the accounting processes and controls, and the industry inwhich the Group operates.
Sandvik performs its business via its subsidiaries in a large number of territories. Operationally, the business is organized in divisions that are aligned in the Group’s three Business Areas. There
are joint functions at various levels of the Group to support theoperational activities of the divisions.
In order to tailor our overall audit approach, we have updated ourunderstanding of how the Group’s business is organized, about
important systems and processes as well as the internal controls
put in place to provide comfort to management and the directors of the precision of the financial reporting. For this purpose,
we have held many interviews with management at various levelsof the Group and heads of Group functions on the business andthe Group strategy. We have also obtained and read management
reports, policies, instructions as well as planning and governing
documents. In addition, we have had a close dialogue with bothGroup Internal Audit and Group Internal Controls in order to shareknowledge and coordinate activities when relevant.
With all of this as a starting point and for the purpose of
expressing an opinion on the consolidated accounts as a whole,
we decided that approximately 80 reporting units were the mostimportant and should be in scope for the Group audit. Financial
reporting from less significant units were covered through analytical procedures that were used to conclude whether extended
audit procedures were necessary. Most subsidiaries of the Groupare also subject to statutory audit requirements. The central teamwas responsible for the audit of significant IT systems, processes,
transaction flows and functions including the consolidation and theparent company accounts. The local teams were responsible for
auditing items related to the operations in each reporting unit thatemanates from local production and sales activities.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether
the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are consideredmaterial if individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on
the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality for the consolidated financial
statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,timing and extent of our audit procedures and to evaluate the effectof misstatements, both individually and in aggregate on the financial statements as a whole.
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.

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AUDITOR ’S REPORTKey audit matter

How our audit addressed the Key audit matter

Revenue recognition in the appropriate period
The Group manufactures and sells a number of products and services to its customers globally, mainly through its own distribution
network. Sales contracts contain various performance obligations
and other terms and the determination of when significant performance obligations have been met varies albeit a specific point intime can often be established.
The Group has analyzed its various sales contracts and concluded on the principles for deciding in which period or periods theGroup’s sales transactions should be recognized as revenue.
Disclosures in note 2 and the accounting policies provide additional information on how the Group accounts for its revenue.

Our audit included but was not limited to the following activities:–– Mapped and evaluated selected systems and processes forrevenue recognition and tested a sample of key controls.
–– Evaluated whether the Group accounting principles for revenue
recognition comply with IFRS.
–– Tested a sample of sales transactions for compliance with theGroup accounting principles.
–– Performed data analytical procedures to identify and evaluate asample of manual and automatic journal entries.
–– Traced disclosure information to accounting records and othersupporting documentation.

Measurement of acquired intangible assets
The majority of Sandvik’s intangible assets have been acquired
externally, mostly through acquiring businesses, representing significant amounts. Assets with indefinite useful life such as goodwill
are not subject to yearly depreciation. Instead, an annual test willshow whether the carrying amount for the cash generating unit canstill be supported. Sandvik has acquired and divested several businesses containing intangible assets during 2019.
There are a number of instances where management’s judgment
is decisive for the accounting treatment in connection with acquiring and divesting of businesses. Management’s estimates of theintangible assets’ potential to generate future cash flows and otherassumptions are also decisive when preparing the annual impairment tests.
Note 12 contains additional information on the Group’s intangible
assets and the significant assumptions applied in the annual impairment tests.

Measurement of inventory
Sandvik keep significant stock of raw materials, spare parts andwork-in-progress at its production units and stores of finishedgoods mostly at its sales units and distribution centers. Measurement of inventory is important for a fair presentation of grossmargin.
A due process is required to prepare accurate reporting of theacquisition cost when procurement, production and logistical processes are complex. Establishing product costing requires many
instances of management judgment with effect on the reported
values. This includes considering normal production levels, foreign
currency, prices of raw materials and allocation of other direct andindirect costs. For finished goods, assessment is needed of obsolescence and how sellable the products are. Finally, there is a complexity in monitoring and measuring volumes particularly for some
raw materials and work in progress as well as eliminating effects
from intra group transactions.
The accounting policies include the Group’s accounting principles for measuring inventory and note 17 provides additional information on the line item.

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Our audit included but was not limited to the following activities:–– Assessed the model used by the Group for impairment testingand evaluated the significant assumptions for establishing forecasted cash flows and discount interest rates used for calculating the value-in-use of the cash generating units. In our evaluation, we have compared with the historic business performanceand the Group’s forecasts and strategic planning as well as withexternal data sources when possible and relevant.
–– Evaluated that the purchase price allocations of the significant
acquisitions made during the year meet the requirements of
IFRS and have been prepared according to generally accepted
practices. Assessed that significant assumptions used tomeasure values of acquired assets are reasonable.
–– Tested that previously acquired intangible assets belonging togroups of assets held for sale or discontinued operations havebeen identified, measured correctly according to the Groupaccounting policy and derecognized from the balance sheet atthe appropriate point in time.
Our audit included but was not limited to the following activities:–– Mapped and evaluated selected systems and processes forinventory and tested a sample of key controls for establishingcost.
–– Tested, on a sample basis, stocks of raw materials to actual
prices. Assessed the reasonableness of the product costing forwork in progress and finished goods.
–– Participated in stock takes at a great number of locations andtested the cut-off of deliveries in or out of inventory.
–– Obtained the Group’s monitoring controls of slow movers andassessments of obsolescence as well as net selling prices.

AUDITOR ’S REPORTKey audit matter
Accounting for non-current assets held for sale
Accounting for sales of non-current assets and liabilities and presentation of discontinued operations contain several judgments that
affects timing, presentation of the income statement and measurement of balance sheet items. These judgments may, as an example,
have an effect on reported EBITDA for the continuing operations
and other KPIs.
Divestments of businesses are complicated transactions that
often run over an extended period of time from when a sales process is initiated until it has been finalized and agreed commitments
have expired. Sandvik has completed several divestments that havebeen presented as discontinued operations during the last few
years.
During Q4 2019 Sandvik reached an agreement to sell Varel Oil
and Gas requiring an impairment test of the assets held for sale.
There is additional information in the income statement and innote 30 regarding non-current assets held for sale and discontinued operations.
Costs for efficiency measures
Following a softer market activity in its short cycle businesses,
Sandvik announced a program to increase efficiency and reduce
cost in the Q2 Interim report. The program has been executed during the second half of the year. Both the costs for executing the efficiency measures and the expected reduction of cost for running thebusiness going forward are significant.
An accurate reporting of an efficiency program involves management estimates on the timing and measurement of costs for reducing staff, exiting agreements and the other costs that the efficiency
measures give rise to as well as the presentation of the effects on
the business going forward.
The accounting policies include the Group’s accounting principles for measuring restructuring costs and note 21 provides additional information on the line item.

Other Information than the annual accounts andconsolidated accounts
This document also contains other information than the annual
accounts and consolidated accounts and is found on pages 1–37
and 142–144. The Board of Directors and the Managing Director 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 materiallyinconsistent 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 otherinformation, we are required to report that fact. We have nothing toreport in this regard.
Responsibilities of the Board of Director's andthe Managing Director
The Board of Directors and the Managing Director 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 Managing Director 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.

How our audit addressed the Key audit matter
Our audit included but was not limited to the following activities:–– Read the sale agreements for divested businesses andassessed whether the classification was in accordance withaccounting standards.
–– Obtained and evaluated the forecasts prepared by the group of
future revenue and expenses from outstanding Mining Systems
customer contracts.
–– Assessed management’s valuation of other assets, liabilities
and contingent liabilities relating to disposed businesses.
–– Traced disclosure information to accounting records and othersupporting documentation.

Our audit included but was not limited to the following activities:–– Read the detailed plan for efficiency measures presented to theboard as documentation to support the decision.
–– Obtained evidence on a sample basis that the criteria forrecording provisions were met in Q3 and Q4.
–– Assessed management’s measurement of provisions throughevaluation of a sample of supporting documentation.
–– Tested actual costs to contracts, payments and other evidence
on a sample basis.
–– Traced disclosure information to accounting records and othersupporting documentation and read the presentation of theeffects of the program for efficiency measures in the annual
report.

In preparing the annual accounts and consolidated accounts,
The Board of Directors and the Managing Director 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 Managing Director 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 Board of
Director’s responsibilities and tasks in general, among other things
oversee the company’s financial reporting process.
Auditor’s responsibility
Our objectives are to obtain reasonable assurance about whether
the annual accounts and consolidated accounts as a whole arefree from material misstatement, whether due to fraud or error, andto issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guaranteethat an audit conducted in accordance with ISAs and generally
accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these annual
accounts and consolidated accounts.
A further description of our responsibility for the audit of theannual accounts and consolidated accounts is available on Revisorsinspektionen’s website: www.revisorsinspektionen.se/revisornsansvar. This description is part of the auditor´s report.

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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
Director's and the Managing Director of Sandvik AB (publ) for theyear 2019 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
Director's and the Managing Director 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 Director's andthe Managing Director
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’ equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company’sorganization and the administration of the company’s affairs.
This includes among other things continuous assessment of thecompany's and the group's financial situation and ensuring thatthe company´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 Managing Director
shall manage the ongoing administration according to the Boardof Directors’ guidelines and instructions and among other matterstake measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets ina 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 Managing Director inany 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.
A further description of our responsibility for the audit of theadministration is available on Revisorsinspektionen’s website:www.revisorsinspektionen.se/revisornsansvar. This description ispart of the auditor’s report.
PricewaterhouseCoopers AB, Torsgatan 21, 113 97 Stockholm,
was appointed auditor of Sandvik AB (publ) by the general meetingof the shareholders on the 29 April 2019 and has been the company’s auditor since the general meeting of the shareholders on
27 April 2018.

Stockholm 6 March 2020
PricewaterhouseCoopers AB

Peter Nyllinge
Auditor-in-charge
Authorized Public Accountant

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Magnus Svensson Henryson
Authorized Public Accountant