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 37,000
employees and revenues in more than 160 countries. Sandvik AB is a public company
with its shares listed on Nasdaq Stockholm.
Corporate governance within Sandvik
is based on external rules such as theSwedish Companies Act, the Nordic
Main Market Rulebook for Issuers, theSwedish Code of Corporate Govern­ance (the "Code") and other relevantlaws and regulations. The Code isavailable at corporategovernance­board.se. In 2020, Sandvik applied
the Code without deviating from anyof its regulations.

The Sandvik Way

Sandvik’s corporate governanceframework, The Sandvik Way, imple­
ments the external rules mentioned
above and also sets out the internal
rules and principles for governancethat apply specifically within Sandvik.
It is based on four building blocks,
as set forth in the model below, anddescribes how common ways ofworking 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 theGroup lies with the business areas
and divisions, with Group functions
responsible for functional policies
and processes supporting the busi­
ness. This part is the main focus of
this Corporate Governance Report.

Culture and Enabling StructureThis building block sets the foun­dation for how we all shape ourculture in the company and enable acustomer oriented and responsible
business. Our operational controls
and risk frameworks are underpinnedby the ambitions and requirements ofour purpose, core values (Customer
Focus, Innovation, Fair Play andPassion to Win), Code of Conduct andleadership principles.
Operational System
The detailed controls and risk frame­works common across the Group aredetailed in the operational system.
This includes many aspects fromplanning and forecasting, policies,
procedures and controls to com­pliance, monitoring and audit. The

The Sandvik Way

OVERSIGHT & DIRECTION
Shareholders’ Meeting& Board of Directors

President & Group
Executive Management

Business Areas &Group Functions

Legal Entity & Coun­
try Coordination

Group Councils

CULTURE & ENABLING STRUCTURE
PurposeCore Values

Code of Conduct

Leadership Model

Risk
Assessments

Strategic Planning
Three-year plan Forecasts & Targets

Policies &Procedures

Policy Compliance
Programs
Financial Internal Control

Performancetracking &Performance reviews
ReportingSpeak Up & Investigations

AUDITING

Group
Strategies

MONITORINGOPERATIONAL SYSTEM

External & Internal

Self-assessments

Analysis & Continuous improvements
BUSINESS AREA GOVERNANCE

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43

DIRECTORS’ REPORTCORPORATE GOVERNANCE MODELNOMINATION COMMITTEESHAREHOLDERS’ MEETING

EXTERNAL AUDITOR

AUDIT COMMITTEE

BOARD OF DIRECTORSREMUNERATION COMMITTEEINTERNAL AUDITPRESIDENT & GROUP EXECUTIVE MANAGEMENTACQUISITIONS ANDDIVESTITURES COMMITTEESPEAK UP &BUSINESS ETHICS

BUSINESS AREAS

GROUP FUNCTIONSDIVISIONS

operational system represents the
day-to-day controls that directly
impact the work of our employees.
As such, it is subject to regular review
and continuous improvement.
Business Area Governance
The final building block in the frame­
work comprises the systems of busi­
ness area governance, each reflect­
ing the independent challenges andopportunities each business faces in
its own industry sector. Customers,
business cycles, supply chain andindustry risk all vary across the busi­
ness areas and call for controls andmanagement systems tailored to thebusiness, further complementing thegroup-wide way of working detailed
in the other building blocks. Busi­
ness area governance is adopted
by each business area within theoverall framework of The Sandvik
Way and may include specific rules
and procedures for each businessarea, division, business unit as well asother relevant parts of the opera­
tional business structure.

Ownership structure

As of December 31, 2020 Sandvik’s
share capital amounted to SEK
1,505,263,107.60 represented by
1,254,385,923 shares. According to
the share register, Sandvik had about
106,000 shareholders as of Decem­
ber 31, 2020 and AB Industrivärden
was the largest owner with about 12.5
percent of the share capital. Of thetotal share capital at year-end, about

44

43 percent was owned by investors
outside Sweden.

Ten largest shareholders,
December 31, 2020, %Shareholders’ meeting

Alecta Pension Insurance

The General Meeting of Sharehold­ers is the highest decision-­making
body. At the Annual General Meet­ing, 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 with one vote per share.
2020 Annual General Meeting
Shareholders representing 56.2
percent of the share capital and votes
attended the Annual General Meeting
held on April 28, 2020 in Sandviken,
Sweden. Due to the Covid-19 pan­demic, shareholders participatedmainly through proxy or advancevoting. Sven Unger, attorney-at-law,was elected to chair the meeting.

S A N DV I K | A N N UA L R EP O R T 2020

AB Industrivärden

12.5

Swedbank Robur Funds

3.4

BlackRock
Vanguard

Lundbergföretagen AB

AMF Pension and Funds
SEB Funds

Norges Bank

Handelsbanken Funds

5.1
2.9
2.6
2.4
2.3
2.2
1.7
1.5

Source: Monitor by Modular Finance AB

Resolutions passed at the General
Meeting included the following:– No dividend– Re-election of Board members
Jennifer Allerton, Claes B­ oustedt,
Marika Fredriksson, Johan
­Karlström, Johan Molin and Helena
Stjernholm. Election of Stefan
Widing and Kai Wärn as new Board
members. Re-election of Johan
Molin as Chairman of the Board.
– Re-election of Pricewaterhouse­
Coopers AB as auditor– Revised instruction for the Nomina­tion Committee– Guidelines for the remuneration ofsenior executives– A long-term incentive program in
the form of a performance share
program for about 350 senior
executives and key employees in
the Group– Authorization for the Board to
decide on acquisition of the­company’s own shares

Sandvik’s Annual General Meeting at the Göransson Arena in
Sandviken, Sweden. Due to the Covid-19 pandemic, only nine
shareholders and representatives participated in person.

For additional information about theAnnual General Meeting, including
the minutes, refer to: home.sandvik.
2021 Annual General Meeting
The next Annual General Meeting will
be held on April 27, 2021. More infor­
mation 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 until
Nomination Committee’s tasks
ahead of the 2021 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 assignmenta General Meeting resolves a change.
In accordance with this instruction,
the Nomination Committee shallconsist of members appointed byeach of the four largest shareholders
in terms of the number of votes on
the final business day in August plus
the Chairman of the Board (convener).
Nomination Committee
for 2021 AGM
For the 2021 Annual General Meeting,
the Nomination Committee consistsof Fredrik Lundberg, Chairman(Industrivärden), Ann Grevelius(Alecta), Marianne Nilsson (Swedbank
Robur Funds), Lars Pettersson(Lundbergs) and Johan Molin(Sandvik’s Chairman of the Board).
Up to the date of this Annual
Report, the Nomination Committee
met on three occasions. The Nomina­tion Committee was informed of theresults of the Board’s own evaluation.
The Committee met with the Pres­
ident and CEO that presented theCompany’s strategy. The Nomination
Committee discussed the generalcriteria that Board members should
fulfill, including the independence
requirement, and reviewed the num­
ber of Board assignments that each
Board member has in other com­panies. 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
and other relevant circumstances,display diversity and breadth in termsof qualifications, experience andbackground of the Board members
elected by the General Meeting andthat the company shall strive forgender balance.

Board of Directors

The 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
and adopted each year. The review
is based on such aspects as theBoard’s evaluation of the individualand 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, sig­
nificant acquisitions and investments,

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45

DIRECTORS’ REPORT

as well as matters relating to the capi­
tal structure. Senior executives reportbusiness plans and strategic issues
to the Board on an ongoing basis.
Composition
As of December 31, 2020 Sandvik’s
Board consisted of eight members
elected by the Annual General Meet­
ing. The Nomination Committee com­municated before the 2020 Annual
General Meeting that the Nomination
Committee had applied rule 4.1 of theCode 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, 43 per­cent of the Board members electedby 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 (one of which left his
position as deputy on December 15,2020).
The Board members are presented
on pages 50–51.
Independence
Marika Fredriksson and Helena
Stjernholm are not regarded as inde­
pendent in relation to major share­

holders in the company and Stefan
Widing is not regarded as independ­
ent in relation to the company and its
executive management. The otherfive Board members elected by theGeneral Meeting are all independ­
ent in relation to Sandvik and its
executive management, as well as
the company’s major shareholders.
Accordingly, the composition of the

Name

Function

Thomas Andersson

Deputy2)Claes Boustedt

Marika Fredriksson

Johan Karlström

Tomas Kärnström

Thomas Lilja

MemberMemberKai Wärn

13

Claes Boustedt

13

Marika Fredriksson

12

Tomas Kärnström

13

Johan Karlström

Audit
Committee
5

Remuneration
Committee
2512Thomas Lilja

Acquisitions
and Divestitures
Committee
8

8
2

13

Mats W Lundberg1)

13

Johan Molin2)

13

3

2

8

Helena Stjernholm

13

5

2

8

Stefan Widing5)

121

Björn Rosengren3)

7

Lars Westerberg4)2

6

Kai Wärn 6)1) Resigned as deputy employee representative as of December 15, 2020.
2) Replaced Lars Westerberg as member of the Audit Committee as of April 28, 2020.
3) Resigned as President and CEO as well as Board member as of February 1, 2020.
4) R esigned as Board member at the 2020 Annual General Meeting and thereby also as memberof the Audit Committee.
5) Appointed President and CEO as of February 1, 2020 and participated at Board meetings solely
in this function before being elected Board member at the 2020 Annual General Meeting.
6) Elected Board member at the 2020 Annual General Meeting.

Independentin acc. with
the Code

MemberMember2)

Member13

Thomas Andersson

Member2)

Stefan Widing

Helena Stjernholm

13

Jennifer Allerton

MemberChairman

Board

Total number of meetings

MemberJohan Molin

Board proceedings during 2020
During the year, the Board held 13
meetings. The President presented
his 100-day plan after joining the com­pany and started a strategy review.
The Presidents of all business areas
presented their goals and strategies.

Attendance at Board and Committee meetings in 2020

Composition of the Board as of December 31, 2020

Jennifer Allerton

Board complies with the independ­ence requirements of the Code.

MemberMember

Yes

Yes

No4)
Yes

Shareholding,number1)
Dec 31, 2020

Elected

0

2012

2,500

2017

2,889

2006

10,00020,0003)
5,000

4,840

Yes

260,0005)

No4)43,152

No4)
Yes

5,000

12,000

2015
2015

Audit
Committee

Chairman

2011

2016

2015

2016

2020

Remuneration
Committee

Acquisitions
and Divestitures
Committee

MemberMemberMemberMemberChairmanMemberChairmanMember2020

1) 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) represents Unionen/
Ledarna/Swedish Association of Graduate Engineers. Tomas Kärnström (member) and Thomas Andersson (deputy) represent IF Metall.
3) In addition 10,000 shares were acquired on January 29, 2021.
4) M arika Fredriksson and Helena Stjernholm are not regarded as independent in relation to major shareholders in the company and Stefan Widing
is not regarded as independent in relation to the company and its executive management.
5) In addition 1,000,000 call options in Sandvik AB.

46

S A N DV I K | A N N UA L R EP O R T 2020

DIRECTORS’ REPORTThe Board also reviewed the strat­egies and results from a number ofthe divisions. The Board received
regular updates on the impact of theCovid-19 pandemic on the businessand took some strategic decisions
based thereon. The Board addressed
matters related to the overall Groupstrategy, long-term financial andsustainability targets, IT, risk man­agement, human resources, such as
incentive programs, environment,
health and safety, and issues con­cerning investments and operational
restructuring and reviewed previously
made investments. Further, the Board
handled matters with respect toacquisitions and divestments, such as
the decision to proceed with the pro­
cess to separate the Sandvik Materi­
als Technology (SMT) business areawith the target to distribute SMT to theshareholders and separately list it, theacquisition of CGTech and the signingof the acquisition of DSI Underground.
The Remuneration Committee, Audit
Committee and the Acquisitions andDivestitures Committee reported fromtheir respective meetings. In respectof the Audit Committee, reported mat­ters included accounting principles,
financial outcome, ERM, compliance,
Speak Up and Code of Conduct, inter­
nal control and internal audit as wellas the result of the external audit.
The Committees also submit­
ted matters for resolution by the
Board and the minutes and reports
from these meetings were madeavailable to the Board members.
In September 2020, the Board
visited Sandvik’s operations in
Gimo and Fagersta, taking specificprecautions due to the Covid-19
restrictions.
Remuneration of the Board
As resolved at the 2020 Annual Gen­
eral Meeting, the fee to the Chairmanof the Board is SEK 2,550,000 andthe fee to each of the non-executive
Board members elected by the Gen­
eral Meeting is SEK 690,000.
In addition, SEK 300,000 was paid
to the Chairman of the Audit Commit­
tee and SEK 170,000 to each of theother Committee members, in total
SEK 640,000. The Chairman of theRemuneration Committee was paid

SEK 145,000 and each of the otherCommittee members SEK 115,000,
in total SEK 375,000. No remuner­
ation was paid to the members of
the Acquisitions and Divestitures
Committee.
For more detailed information on
remuneration of the Board members,
see note G4.

Executive Management, refer to the
Guidelines for the remuneration ofsenior executives on pages 38–40
and note G4.
During 2020 the Remuneration
Committee held two meetings.

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 and expe­
rience, the work of the Board and its
members is evaluated annually. In
2020, the evaluation, which was led
by the Chairman of the Board, wascarried out by way of each Board
member responding anonymously toan online questionnaire. The Chair­
man also held separate evaluation
discussions with all Board members.
The compiled results of the evalua­tions were presented to the Board aswell as to the Nomination Committee.

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.
Remuneration Committee
During 2020 the members of theRemuneration Committee were
Johan Molin (Chairman of theCommittee), Johan Karlström andHelena Stjernholm. The tasks of
the Remuneration Committee are,among others, those prescribed by
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,
the Board decides the remunerationand terms of employment for the
President, who in turn decides on
the remuneration to be paid to theGroup Executive Management in
consultation with the Remuneration
Committee.
For guidelines, remuneration andother benefits payable to the Group

Audit Committee
As of the 2020 Annual General
Meeting the members of the Audit
Committee are Claes Boustedt(Chairman of the Committee), Johan
Molin and Helena Stjernholm. Areas
addressed by the Audit Committee
mainly related to:– Monitoring the financial reportingand ensuring its reliability– Effectiveness of the system ofinternal control and internal audit– Planning, scope and follow-up of
the internal 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-à-vis the company, including
the extent to which the auditor pro­vides other services than auditing
services to the company– The Group’s systematic processes
for overall corporate risk man­agement (ERM), as well as moredetailed risk management matters
including legal disputes, compli­
ance, corporate investigations, IT
security, accounting procedures,taxation, treasury, finance oper­
ations, insurance coverage andpension issues– The development and effective­
ness of compliance processes,with special focus on the roll-outof the compliance program, theCompliance House– Sandvik’s Code of Conduct, somespecific cases managed throughSpeak Up, Sandvik’s global whistleblowing system, as well as theoverall effectiveness of the system– Sandvik’s sustainable businessstrategy and materiality analysis
During 2020 the Audit Committee
held five meetings at which Sandvik’s
external auditor and representativesof the company’s management were
present.

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DIRECTORS’ REPORT

Acquisitions and Divestitures
Committee
During 2020 the members of theAcquisitions and Divestitures Com­mittee were Johan Molin (Chairmanof the Committee), Claes Boustedt
and Helena Stjernholm. The purposeof the Committee is to provide a
better process for preparing major or
strategically important acquisitions
and divestitures for Board decisions.
The Committee meets on an ad hoc
basis, at the request of the President
and CEO in consultation with the
Chairman of the Board.
During 2020 the Acquisitions andDivestitures Committee held eight
meetings and reviewed mattersmostly related to the separation andpotential distribution and listing of
the Sandvik Materials Technology
business area, the acquisitions of
DSI Underground, CGTech, Miranda
Tools’ business, Allied Construction
Products and QCT as well as thedivestiture of Sandvik’s Exploration
business.

President and Group
Executive Management

The 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 Grouptargets, strategies, structure andorganization. The Group Executive
Management meets each monthand its members are accountablefor implementing the President’s
decisions.
In 2020, the Group Executive Man­
agement consisted of:– Stefan Widing, President and CEO(succeeding Björn Rosengren as
of February 1, 2020) and Presidentof Sandvik Manufacturing andMachining Solutions (as of October
1, 2020)– Tomas Eliasson, Executive Vice
President and CFO– Lars Bergström, President of
Sandvik Machining Solutions (until
September 30, 2020), President of
the Sandvik Manufacturing Solu­
tions business area segment (as48of October 1, 2020 until December
31, 2020)– Nadine Crauwels, President of the
Sandvik Machining Solutions busi­
ness area segment (as of October
1, 2020)– Henrik Ager, President of Sandvik
Mining and Rock Technology– 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
On January 1, 2021, Anders
Svensson took on the position as
President of the new business area
Sandvik Rock Processing Solutions
and joined the Group Executive
Management.
The President and other membersof the Group Executive Management
are presented further on pages
52–53.

Business areas

The Sandvik organizational model isbased on a decentralized businessmodel. As of January 1, 2021 there
are four separate business areas– Sandvik Mining and Rock Solu­
tions, Sandvik Manufacturing andMachining Solutions, Sandvik Mate­rials Technology and Sandvik Rock
Processing Solutions – each basedon distinct product offerings. Eachbusiness area has full responsibility
and accountability for its respective
business results.
Sandvik Manufacturing andMachining Solutions is divided
into two business area segments– Sandvik Machining Solutions andSandvik Manufacturing Solutions.
Further, each of the four businessareas is organized in a number ofdivisions based on product offeringor brand. The division is the high­est operational level in the Sandvik
organizational structure. Certain
divisions that are based on a productoffering are also divided into business
units representing a defined part ofthe product offering.

S A N DV I K | A N N UA L R EP O R T 2020

For an overview of Sandvik’s organ­
izational model, refer to pages 2–3
and visit home.sandvik for moredetailed information relating to theGroup’s business activities and prod­
uct portfolios.

Group functions

There are four Group functions within
Sandvik: Communications, Finance,
HR and Legal. Group functions
specifically focus on setting theappropriate enabling structures andprocesses that are common for theGroup or cover a specific area forwhich the Group is responsible.

External auditor

At the 2020 Annual General Meeting,the audit firm Pricewaterhouse­
Coopers AB was re-elected auditorof Sandvik AB for the period until the2021 Annual General Meeting. Peter
Nyllinge is the auditor-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 isreported regularly during the year to
the management teams of individ­
ual companies and the businessareas, the Audit Committee and theBoard. The auditor meets with theBoard at least once a year without
the President or any other memberof 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
non-audit services.
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 G5.

Internal control over financial
reporting

The Sandvik organization manages awell-established financial reporting
process aimed at ensuring a highlevel of internal control.

DIRECTORS’ REPORTThe internal control system aligns
with the conceptual framework of
COSO, which is based on five key
components that provide an effec­
tive framework for describing anddesigning the internal control system
implemented in the organization. The
five components are Control Envi­ronment, Risk Assessment, Control
Activities, Information and Communi­
cation, and Monitoring and Follow-up.
The application of the COSO frame­
work is described below.
Sandvik’s Board of Directors is
ultimately responsible for the govern­ance of 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 43, which also
includes risk assessments, policies,
procedures and compliance.
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 procedures andthe risk and control matrix which
defines a mandatory minimum ofcontrol activities that contribute to
the mitigation of risks to acceptablelevels. Internal control implementa­tion has been completed in Group
Functions and is continued in all busi­
ness areas. 85 percent is expected
to be completed in mid-2021 and theremaining 15 percent will be com­pleted before mid-2022.
Risk assessment and risk
management
The Enterprise Risk Management(ERM) process at Sandvik includes
the area of financial reporting. Read
more about the Enterprise Risk Man­
agement (ERM) program on page 54.
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.
Control activities
Mandatory control activities include
business process controls, IT
controls and corporate governancecontrols focusing on compliancewith policies and procedures. Inter­
nal controls are tailored per each
operational entity based on risks andapplicability. Entity management andprocess owners are responsible for
ensuring that internal controls areoperated as per agreed design.
At Group level, Group Control man­ages the reporting process to ensure
the completeness and accuracy offinancial reporting and compliancewith IFRS requirements.
Controllers in the divisions andbusiness areas perform analyticalreviews and investigations, conductbusiness trend 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 statusof improvement activities related
to internal controls are included in
the CFO report which is part of theagenda 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.

tool also requires reporting of actionplans with the purpose to remediate
ineffective controls.
Business areas and divisions are tomonitor the remediation of ineffec­
tive controls. The Audit Committeemonitors the effectiveness of internal
controls related to financial report­
ing presented by management withpotential 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 control 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 suchas financial reporting, compliancewith the Code of Conduct and IT.
The outputs of the audits include
action plans and programs for
improvement. Findings are reported
to the business area management
and to the Audit Committee.
Due to the Covid-19 pandemic
and the global travel restrictions, wedeveloped an off-site audit method­
ology to continue executing the audit
assignments remotely and provide
assurance to the Audit Committee.

Monitoring and follow-up
Entity management as well as
local and global process owners
are responsible for testing theeffectiveness of internal controls
through self-assessments on aquarterly 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

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49

AUDITORS’ REPORT

AUDITORS’ 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 2020. The annual accounts andconsolidated accounts of the company are included on pages
36–124 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 December 31, 2020 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,
in all material respects, the financial position of the Group as ofDecember 31, 2020 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 the
Parent 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 judgments; 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 finan-cial 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 many territories. Operationally, the business is organized in divisions thatare aligned with the Group’s three Business Areas. There are joint
functions at various levels of the Group to support the operational
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
with respect to precision of the financial reporting. For this purpose, we have held interviews with management at various levelsof the Group and heads of Group functions to discuss the businessand the Group’s strategy. We have also obtained and read management reports, policies, instructions and planning and steering
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, we decided thatapproximately 80 reporting units were the most important andshould be in scope for the Group audit. Financial reporting fromless significant units were covered through analytical proceduresthat were used to conclude whether extended audit procedures
were necessary. Most subsidiaries of the Group are also subject
to statutory audit requirements. The central team was responsible
for the audit of significant IT systems, processes, transaction flows
and functions including the consolidation and the parent company
accounts. The local teams were responsible for auditing items
related to the operations in each reporting unit that emanates fromlocal production and sales activities.
We have considered the impact Covid-19 has had on our audit
and tailored our procedures to properly cover any new and/or
increased risks. On an overall level we have been able to conduct
our audit although the pandemic has led to other ways of working
and use of digital tools for communication and collection of audit
evidence.
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 judgment, we determined certain
quantitative thresholds for materiality, including the overall groupmateriality 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 ouraudit procedures and to evaluate the effect of misstatements, bothindividually and in aggregate on the financial 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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AUDITORS’ REPORTKey audit matter
Revenue recognition in the appropriate period
The Group manufactures and sells 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 in time can often be
established. The Group has analyzed its various sales contracts andconcluded on the principles for deciding in which period or periods
the Group’s sales transactions should be recognized as revenue.
Disclosures in notes G2, G3 and P2 provide additional information
on how the Group accounts for its revenue.
Measurement of acquired intangible assets
The majority of Sandvik’s intangible assets have been acquired
externally, mostly through acquiring businesses and represent 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 2020. There are a number of instances where management’s judgment is decisive for theaccounting treatment in connection with acquiring and divestingof businesses. Management’s estimates of the intangible assets’potential to generate future cash flows and other assumptions arealso decisive when preparing the annual impairment tests.
Note G13 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 centres. Measurement of inventory is important for a fair presentation of grossmargin. A due process is required to prepare accurate reporting of
the acquisition cost when procurement, production and logisticalprocesses 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.
Notes G18 and P14 provide information about the the Group’s
accounting principles for measuring inventory and additional information on the line item.

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How our audit addressed the Key audit matter
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.
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 whether 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 to measure values of acquired assets are reasonable.
– Traced disclosure information to accounting records and othersupporting documentation.
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 many locations and tested thecut-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.
– Traced disclosure information to accounting records and othersupporting documentation.

AUDITORS’ REPORTKey audit matterCosts for efficiency measures
Sandvik has announced a number of measures to mitigate effects
from the Covid-19-pandemic during 2020 with actions supporting
short-term and long-term savings. Efficiency measures to mitigate
a slower demand environment and to ensure optimized efficiency
cover initiatives across all business areas. As of December 31, 2020,
the Group has recorded a provision for restructuring amounting to
SEK 2.6 bn. Both the costs for executing the efficiency measuresand the expected reduction of cost for running the business 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 othercosts that the efficiency measures give rise to as well as the presentation of the effects on the business going forward.
Note G24 provide information on the Group’s accounting principles for measuring restructuring costs and additional informationon 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 1–36
and 129–144, and the Statutory Sustainability Report and Sustainable Business Report on pages 2–3, 9–11, 54–60 and 129–140.
This other information also contains the Remuneration report that
we expect to receive after the release of the Auditors’ report. The
Board of Directors and the Managing Director are responsible forthis 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 thework performed concerning this information, conclude that there isa material misstatement of this other information, we are required
to report that fact. We have nothing to report 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 detailed plans for efficiency measures presented tothe board as documentation to support the decisions.
– Obtained evidence on a sample basis that the criteria forrecording provisions were met.
– 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 thecosts relating to programs 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 forthe assessment of the company’s and the group’s ability to continue 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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AUDITORS’ 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 2020 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’s organization 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 April 28, 2020 and has been the company’s
auditor since the general meeting of the shareholders on April 27,
2018.

Stockholm, March 5, 2021
PricewaterhouseCoopers AB

Peter Nyllinge
Authorized Public Accountant
Lead Partner

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Magnus Svensson Henryson
Authorized Public Accountant