DIRECTORSʼ 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 42,000
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
the Swedish Companies Act, theStockholm Stock Exchange’s Rule
Book for Issuers, the Swedish Code ofCorporate Governance (the "Code")and other relevant laws and regulations. The Code is available from
corporategovernance­board.se. In 2018
Sandvik applied the Code without deviating from any of its regulations.
THE SANDVIK WAY
Sandvik’s corporate governanceframework, The Sandvik Way, implements these external rules and also
sets out the internal rules and principles for governance that apply specifically within Sandvik. It is based on fourlevels, as set forth in the model below,
and describes how common ways
of working have been implemented
throughout the entire organization.
Oversight and Direction
This level outlines how the Groupis led and governed from the top.
The Board of Directors, elected by
the Shareholders’ Meeting, sets thestrategic direction for the Group. The
President carries this out throughthe Group Executive Management
whose members manage and oversee
the operations of the Group. The
main operational responsibility in theGroup lies with the business areas
and divisions, with Group functions
responsible for functional policies andprocesses supporting the business.
This level is the main focus of thisCorporate Governance Report.
Culture and Enabling StructureThis level sets out the requirements
and ambitions underpinning ouroperations. Our business philosophy isshaped by our Vision to excel, guided
by our Core Values (Customer Focus,
Innovation, Fair Play and Passion toWin), translated into the behaviors weoutline in our Code of Conduct andmotivated through the qualities outlined in Sandvik’s Leadership Model.
Operational System
The operational system in The
Sandvik Way is at the core of how

THE SANDVIK WAY

OVERSIGHT & DIRECTION
Shareholders’ Meeting& Board of Directors

President & Group
Executive Management

Business Areas &Group Functions

Legal Entity & Country Coordination

Group Councils

CULTURE & ENABLING STRUCTURE
VisionCore Values

Code of Conduct

Leadership Model

Risk
Assessments

Policies &Procedures

Policy Compliance
Programs
Financial Internal Control

Performancetracking &Performance reviews
ReportingSpeak Up & Investigations

AUDITING

Group
Strategies

Strategic Planning
Three-year plan Forecasts & Targets

MONITORINGOPERATIONAL SYSTEM

External & Internal

Self-assessments

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

58 | Sandvik Annual Report 2018

Sandvik Materials Technology

Sandvik Machining Solutions

DIRECTORSʼ REPORTCORPORATE GOVERNANCE MODELNOMINATION COMMITTEESHAREHOLDERS’ MEETING

EXTERNAL AUDITOR

AUDIT COMMITTEE

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

BUSINESS AREAS

GROUP FUNCTIONSDIVISIONS

we work on a day-to-day basis in the
Sandvik Group. It contains information and ways of working for the whole
Sandvik Group related to strategicplanning, risk management, internal
controls and compliance, as well
as Sandvik’s monitoring activities,
including performance tracking andcompliance self-assessment for theorganization. This is also where ourgroup-wide policies and procedures
are collected.
Business Area Governance
Whereas the three top levels of The
Sandvik Way set the group-wide wayof working that applies across all of
the business areas, divisions andGroup functions, the business areas
and divisions have their own tailored
governance systems based on The
Sandvik Way.
OWNERSHIP STRUCTURE
As of 31 December 2018 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 2018. AB Industrivärden
was the largest owner with about 12.1
percent of the share capital. Of thetotal share capital at year-end, about
35 percent was owned by investors
outside Sweden.
SHAREHOLDERS’ MEETINGThe 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 othermatters 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.
2018 Annual General Meeting
Shareholders representing 55.22
percent of the share capital and votes
attended the Annual General Meeting
held on 27 April 2018 in Sandviken,
Sweden. Sven Unger, attorney-at-law,was elected to chair the meeting.
Resolutions passed at the General
Meeting included the following:–– Dividend of 3.50 SEK per share–– Re-election of Board members
Jennifer Allerton, Claes Boustedt,
Marika Fredriksson, Johan Karlström, Johan Molin, Björn Rosengren, Helena Stjernholm and Lars
Westerberg. Re-election of Johan
Molin as Chairman of the Board.
–– Election of PricewaterhouseCoopers AB as new auditor–– Guidelines for 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

TEN LARGEST SHAREHOLDERS,
31 DECEMBER 2018, %AB Industrivärden

12.1

Swedbank Robur Funds

3.9

Alecta Pension Insurance
AMF Insurance and Funds
Handelsbanken Pension

L E Lundbergföretagen AB
Vanguard1)
BlackRockSEB Investment Management
Nordea Investment Funds

6.5
2.7
2.6
2.4

2.4
2.4
1.8
1.4

Source: Monitor by Modular Finance AB

1) Shares held in trust.

For additional information about theAnnual General Meeting, including
the minutes, refer to home.sandvik.
2019 Annual General Meeting
The next Annual General Meeting will
be held on 29 April 2019 in Sandviken,
Sweden. More information is available
at home.sandvik.
NOMINATION COMMITTEEThe Nomination Committee is apreparatory body that prepares proposals for, among other things, theelection of the Board of Directors, theChairman of the Board and auditors
as well as fees for adoption at theGeneral Meeting. The Annual General
Meeting has adopted an instruction
for the Nomination Committee, which
includes a procedure for appointing
the Nomination Committee, valid
until a General Meeting resolves ona change. In accordance with this
instruction, the Nomination Committee shall consist of representativesof the four largest shareholders, interms of the number of votes, on the
final business day in August plus the
Chairman of the Board (convener).

Sandvik Annual Report 2018 | 59

DIRECTORSʼ REPORT

evaluation of the individual and collective work that the Board performs.
In addition to financial reporting
and the monitoring and follow-up
of daily operations and profit trend,
Board meetings address the goals
and strategies for the operations, significant acquisitions and investments,
as well as matters relating to the capital structure. Senior executives reportbusiness plans and strategic issues
to the Board on an ongoing basis.

Sandvik’s Annual General Meeting 2018 was held at the Göransson Arena,
Sandviken, Sweden.

Nomination Committee for 2019 AGM
For the 2019 Annual General Meeting,
the Nomination Committee consistsof Fredrik Lundberg, Chairman (Industrivärden), Kaj Thorén (Alecta), Pär
Boman (Handelsbankens Pensions­stiftelse and others), Marianne Nilsson(Swedbank Robur) and Johan Molin(Sandvik’s Chairman of the Board).
Up to the date of the Annual General
Meeting, the Nomination Committee
met on three occasions. ThroughSandvik’s Chairman of the Board, theNomination Committee was informedof the results of the Board’s own
evaluation. The Committee also met
with Sandvik’s President to review
the company’s operations, stage ofdevelopment and overall strategy. The
Nomination Committee discussed thegeneral criteria that Board members
NOMINATION COMMITTEE’STASKS AHEAD OF THE 2019
ANNUAL GENERAL MEETING– Proposal concerning the Chairmanof the Meeting– Proposal concerning the number ofBoard members– Proposal concerning remunerationof each Board member– Proposal concerning the Board andChairman of the Board– Proposal concerning auditor andremuneration of the auditor– If deemed necessary, proposal
for changes to the Nomination
Committee’s instruction concerning
the procedure for appointment of
the Nomination Committee for theforthcoming Annual General Meetingand its assignment

60 | Sandvik Annual Report 2018

should fulfill, including the independence requirement, and reviewed thenumber of Board assignments thateach Board member has in othercompanies. The Nomination Committee applied rule 4.1 of the Code as thediversity policy. This rule states thatthe Board shall have an appropriatecomposition in view of the company’s
operations, phase of development andother relevant circumstances, display
diversity and breadth in terms of qualifications, experience and backgroundof the Board members elected by theGeneral Meeting and that the company shall strive for gender balance.
BOARD OF DIRECTORSThe Board of Directors is responsible
for the company’s organization andthe management of the company’sbusiness. The Board is required tocontinuously monitor the company’s
and the Group’s financial position.
The Board is to ensure that thecompany’s organization is designed
in a way that ensures that the financial statements, the management ofassets and the company’s financial
condition in general are controlled ina satisfactory manner.
The President is appointed by the
Board and is responsible for the daily
operations pursuant to guidelines
and instructions issued by the Board.
The distribution of responsibilities
between the Board and the President
is laid down in the Board’s Procedural
Guidelines which are reviewed andadopted each year. The review isbased on such aspects as the Board’s

Composition
As of 31 December 2018 Sandvik’s
Board consisted of eight members
elected by the Annual General Meeting.
The Nomination Committee communicated before the 2018 Annual
General Meeting that the Nomination
Committee had applied rule 4.1 of theCode as the diversity policy. The current Board composition is the result of
the work of the Nomination Committee prior to that General Meeting. The
Board consists of members with experiences from different geographic
areas and different industry sectors
and, excluding the President, 42 percent of the Board members elected by
the General Meeting are women.
Pursuant to Swedish legislation,
trade unions are entitled to representation on the Board and they
have appointed two members andtwo deputies.
The Board members are presented
on pages 146–147.
Independence
Helena Stjernholm is not regarded
as independent in relation to major
shareholders in the company and
Björn Rosengren is not regarded as
independent in relation to the company and its executive management.
The other six Board members electedby the General Meeting are all independent in relation to Sandvik and its
executive management, as well as
the company’s major shareholders.
Accordingly, the composition of theBoard complies with the independence requirements of the Code.
Board proceedings during 2018
During the year, the Board held twelve
meetings. The executive managements of all business areas presented
their goals and strategies. The Board
also reviewed the strategies andresults from a number of the divi-DIRECTORSʼ REPORT

sions (all divisions are reviewed in an
18 month rolling period). The Board
addressed matters related to overall
Group strategy, IT, human resources,
such as incentive programs, environment, health and safety, and issues
concerning investments and operational restructuring and the review ofpreviously made investments. Further,
the Board handled matters withrespect to acquisitions and divestments, such as the sale of Sandvik’s
50% stake in Fagersta Stainless andthe stainless wire business and theacquisitions of the Metrologic Group,
Inrock and Dura-Mill. The Remuneration Committee, Audit Committee
and the Acquisitions and Divestitures Committee reported from theirrespective 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 resultof the external audit. The Committees
also submitted matters for resolution
by the Board and the minutes andreports from these meetings weremade available to the Board members.
In the autumn of 2018 the Board visited Sandvik’s operations in China.
Remuneration of the Board
As resolved at the 2018 Annual General Meeting, the fee to the Chairmanof the Board is 2,400,000 SEK and
the fee to each of the non-executive
Board members elected by the General Meeting is 660,000 SEK.

In addition, 285,000 SEK was paid to
the Chairman of the Audit Committee
and 160,000 SEK to each of the otherCommittee members, in total 605,000
SEK. The Chairman of the Remuneration Committee was paid 135,000
SEK and each of the other Committee members 110,000 SEK, in total
355,000 SEK. No remuneration was
paid to the members of the Acquisitions and Divestitures 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
the Board and to identify the possible need for further expertise andexperience, the work of the Board andits members is evaluated annually. In
2018 the evaluation, which was led by
the Chairman of the Board, was carried out by way of each Board member
responding to an online questionnaire.
The Chairman also held separate
evaluation meetings with all Board
members. The compiled results were
presented to the Board. The Chairman of the Board also presented theresults of the evaluations at a meetingwith the Nomination Committee.
BOARD COMMITTEES
The tasks of the Committees andtheir work procedures are stipulated
in written instructions issued by the
Board. The Committees’ primary task
is to prepare issues and present themto the Board for resolution.

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS IN 2018
MemberBoard

Total number of meetings

12

Jennifer Allerton

12

Thomas Andersson

12

Claes Boustedt

12

Marika Fredriksson

11

Johan Karlström

Audit
Committee

512Mats W Lundberg

12

Thomas Lilja

2

5

12

Tomas Kärnström

Remuneration
Committee

Acquisitions
and Divestitures
Committee
2

2
2

11

Johan Molin

12

Björn Rosengren

12

Helena Stjernholm

12

Lars Westerberg

12

2
5
5

2

Audit
Committee

Remuneration
Committee

2
2

COMPOSITION OF THE BOARD AS OF 31 DECEMBER 2018

Name

Function

Thomas Andersson

Deputy2)Jennifer Allerton
Claes Boustedt

Marika Fredriksson
Johan Karlström

Tomas Kärnström

MemberYes

MemberYes

MemberMember2)

Member2)

Johan Molin

Chairman

Helena Stjernholm

MemberBjörn Rosengren

Lars Westerberg

Yes

MemberThomas Lilja

Mats W Lundberg

Independentin acc. with
the Code

Deputy2)MemberMemberYes

Shareholding,number1)
31 Dec 2018

Elected

0

2012

2,500

2017

10,00020,000
5,000

2,889

3,560
Yes

No4)

No4)
Yes

0

260,0003)

2015
2015

2011

MemberMember

2006

2016

2015

2015

104,9032016

180,000

2010

5,000

ChairmanAcquisitions
and Divestitures
Committee

2016

ChairmanMemberMemberMemberChairmanMember1) 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) 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.

Sandvik Annual Report 2018 | 61

DIRECTORSʼ REPORT
Remuneration Committee
During 2018 the members of theRemuneration Committee were
Johan Molin (Chairman of theCommittee), Johan Karlström andLars Westerberg. The tasks of theRemuneration 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 the Group
Executive Management in consultation
with the Remuneration Committee.
For guidelines, remuneration andother benefits payable to the Group
Executive Management, refer to
Proposal regarding guidelines for the
remuneration of senior executives on
page 88 and Note 3.5.
During 2018 the Remuneration
Committee held two meetings.
Audit Committee
During 2018 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 ofinternal control and internal audit–– Planning, scope and follow-up of
the internal and external audit for
the year, with special focus on thechange of audit firm decided by the2018 Annual General Meeting–– 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, compliance, corporate investigations, IT
security, accounting procedures,

62 | Sandvik Annual Report 2018

taxation, treasury, finance operations, insurance coverage andpension issues–– The development and effectiveness of compliance processes,with special focus on the roll-out of
the GDPR processes–– Sandvik’s Code of Conduct, somespecific cases managed throughSpeakUp, Sandvik’s global whistleblowing system, as well as theoverall effectiveness of the system–– Sandvik’s sustainable businessstrategy and materiality analysis
During 2018 the Audit Committee held
five meetings at which Sandvik’s external auditor and representatives of thecompany’s management were present.
Acquisitions and Divestitures
Committee
The Acquisitions and Divestitures
Committee was established in April
2018 to provide a better process
for preparing major or strategicallyimportant acquisitions and divestitures for Board decision. The Committee currently consists of Johan
Molin (Chairman of the Committee),
Claes Boustedt and Helena Stjernholm. 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 2018 the Acquisitions andDivestitures Committee held two
meetings and reviewed matters related
to strategically important acquisitions,which were later reported to the Board.
PRESIDENT AND GROUPEXECUTIVE MANAGEMENTThe 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 andits members are accountable for implementing the President’s decisions.
In 2018 the Group Executive Management consisted of:–– Björn Rosengren, President and CEO–– Tomas Eliasson, Executive Vice
President and CFO–– Klas Forsström, President of
Sandvik Machining Solutions–– Lars Engström, President of Sandvik
Mining and Rock Technology (willbe succeeded by Henrik Ager on 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 148–149.
BUSINESS AREAS
The Sandvik organization model isbased on a decentralized businessmodel with three separate businessareas – Sandvik Machining Solutions,
Sandvik Mining and Rock Technology
and Sandvik Materials Technology –based on distinct product offerings.
Each business area has full responsibility and accountability for its
respective business results.
Each of the three business areas
is organized in a number of divisions
based on product offering or brand.
The division is the highest operational
level in the Sandvik organizational
structure. Where the division structure is based on the product offering,some divisions are also organized inbusiness units representing definedparts of the product offering.
Visit home.sandvik for moredetailed information relating to theGroup’s business activities and product portfolios.
GROUP FUNCTIONSThere are four Group functions within
Sandvik: Communications, Finance,
HR and Legal. Group functions specifically focus on setting the appropriate
enabling structures and processes
that are common for the Group or
cover a specific area for which theGroup is responsible.
EXTERNAL AUDITORAt the 2018 Annual General Meeting,the audit firm PricewaterhouseCoopers AB was elected new auditor of
Sandvik AB for the period until the2019 Annual General Meeting. Peter
Nyllinge is the auditor-in-charge.

DIRECTORSʼ REPORTThe auditor continuously audit
and monitor the company’s generalaccounting and the execution by
the Board and the President of theirrespective responsibilities.
The progress of the audit isreported regularly during the year to
the management teams of individualcompanies and the business areas,
the Audit Committee and to the Board.
The auditor meets with the Board atleast once a year without the President
or any other member of the Group
Executive Management attending.
The independence of the external
auditor is guaranteed by 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 3.6.
INTERNAL CONTROL OVERFINANCIAL REPORTING
Sandvik’s finance organization
manages a well-established financial
reporting process aimed at ensuring
a high level of internal control.
The internal control system aligns
with the conceptual framework of
COSO, which is based on five key
components that provide an effective framework for describing andanalyzing the internal control system
implemented in the organization. The
five components are Control Environment, Risk Assessment, Control Activities, Information and Communicationand Monitoring and Follow-up. The
application of the COSO framework is
described below.
Sandvik internal control overfinancial reporting forms an integral part of the operational systemdescribed in The Sandvik Way on
page 58 which also includes risk
assessments, policies, procedures
and compliance. Sandvik’s Board of
Directors is ultimately responsible forthe governance of risk management
including internal control over financial reporting.
Control environment
The Sandvik Way regulates the governance of the Sandvik Group. It includes
delegation of responsibilities, including
signatory and authorization principles

for decision making and cost approvals, and request and approval procedures in respect to investments andacquisitions, among other items.
The Sandvik Financial Reporting
Policies and Procedures govern control over financial reporting. These
documents contain detailed instructions regarding accounting policies
and financial reporting procedures
to be applied by all Sandvik reporting
entities.
A Sandvik Financial Internal Control
Framework has been developedand includes key components suchas well-defined roles and responsibilities, internal control policy andthe risk and control matrix which
defines a mandatory minimum ofcontrol activities that contribute to
the mitigation of risks to acceptablelevels. The activities include business process controls, IT controls
and entity-wide controls focusing on
compliance with policies and procedures. The process of rolling-out
the common framework to the
Sandvik entities is nearly completed
in Sandvik Mining and Rock Technology and is well underway in the otherbusiness areas and Group functions.
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 Management (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
In each legal entity, the finance staff
is responsible for accurate accounting and the closing of books. At
Group level, Group Control manages
the reporting process to ensure
the completeness and accuracy offinancial reporting and compliancewith IFRS requirements. Both statutory and management reporting is
conducted in close cooperation withdivisions, business areas and Groupfunctions such as Tax, Treasury andLegal to ensure the correct reportingof the income statement, balance
sheet, equity and cash flow.

Controllers in the divisions andbusiness areas perform analyticalreviews and investigations, conduct business trend analyses andupdate forecasts. They investigate
certain issues related to the financial
information as and when needed. All
business areas present their financial
performance in written reports to theGroup Executive Management on amonthly and quarterly basis.
Information and communication
Financial reports setting out theGroup’s financial position and theearnings trend of operations are
submitted regularly to Sandvik’s
Board. 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 and process
owners are responsible for testing
the effectiveness of internal controls through self-assessments on aquarterly basis and according to therequirements in the Sandvik Internal
Control Framework. The Audit Committee monitors the effectiveness ofinternal controls related to financial
reporting presented by managementwith potential deficiencies and suggested actions.
The Board reviews all quarterlyinterim reports as well as the Annual
Report prior to publishing.
Internal audit
The Internal Audit function audits
the corporate governance, internal
control and risk-management procedures. Internal Audit is subordinatedto the Audit Committee and the Headof Internal Audit reports to the Audit
Committee.
Internal audits include, as a basis,the Group’s policies for corporate
governance, risk management andinternal control with regard to areas
such as financial reporting, compliance with the Code of Conduct
and IT. The outputs of the audits
include action plans and programs for
improvement.
Findings are reported to the Group
Executive Management, the businessarea management and to the Audit
Committee.

Sandvik Annual Report 2018 | 63

AUDITOR’S REPORT

AUDITOR’S REPORTTO THE ANNUAL MEETING OF THE SHAREHOLDERS
OF SANDVIK AB (PUBL), CORP. ID. 556000-3468
Report on the annual accounts and consolidated accounts
Opinions
We have audited the annual accounts and consolidated accountsof Sandvik AB (publ) for the year 2018. The annual accounts andconsolidated accounts of the company are included on pages
46-122 in this document.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material
respects, the financial position of the parent company as of 31
December 2018 and its financial performance and cash flow for theyear then ended in accordance with the Annual Accounts Act. The
consolidated accounts have been prepared in accordance with
the Annual Accounts Act and present fairly, in all material respects,
the financial position of the Group as of 31 December 2018 andtheir financial performance and cash flow for the year then ended inaccordance with International Financial Reporting Standards (IFRS),
as adopted by the EU, and the Annual Accounts Act. A corporate
governance statement has been prepared and is in agreement with
the Annual Accounts Act. The statutory administration report andthe corporate governance statement are consistent with the otherparts 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 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.
Other matter
The audit of the annual accounts for the financial year 2017 was
performed by another auditor who submitted an auditor’s report
dated 6 March 2018, with unmodified opinions in the Report on theannual accounts.
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.
A fundamental part of our first year audit was to obtain an understanding of how the Group’s business is organized, about important systems and processes as well as the internal controls put inplace to provide comfort to management and the directors of the
precision of the financial reporting. For this purpose we initially held
many interviews with management at various levels of the Groupand heads of Group functions on the business and the Group strategy. We also obtained and read management reports, policies,
instructions as well as planning and governing documents.
The first year audit also included obtaining adequate audit evidence on the opening balances. Alongside other activities, we haveread the preceding auditor’s planning, assessments and conclusions and we have evaluated work performed in select areas.
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 a number of 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 financial statements
as a whole. These and qualitative considerations, were used todetermine the scope of our audit and the nature, timing and extent
of our audit procedures. The quantitative thresholds are also used
to evaluate any effect of potential misstatements, individually or inaggregate, 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.

Sandvik Annual Report 2018 | 123

AUDITOR’S REPORTKey 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 specfic point intime can often be established. The new accounting standard IFRS
15 has been implemented starting from 1 January 2018. As a consequence, 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.
Disclosure note 2 and the accounting policies provide additional
infomation on how the Group accounts for its revenue and how the
implementation of the standard IFRS 15 has affected the Group’s
financial reporting.
Measurement of acquired intangible assets
The majority of Sandvik’s intangible assets have been acquired
externally, mostly through acquiring businesses, these 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 2018.
There are a number of instances where management’s judgment
is decisive for the accounting treatment in connection with acuiring and divesting of businesses. Management’s estimates of theintangible assets’ potential to generate future cash flows and otherassumptions are also decisive for the annual impairment tests.
The note 13 contains additonal 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.
It is demanding to prepare accurate reporting of the acquisition
cost when procurement, production and logistical processes arecomplex. Establishing product costing requires many instancesof 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 and indirect
costs. For finished goods, assessment is needed of obsolescenceand how sellable the products are. Finally, there is a complexity inmonitoring and measuring volumes particularly for some raw materials and work in progress.
The accounting policies include the Group’s accounting principles for measuring inventory and note 17 provides additional information on the line item.

124 | Sandvik Annual Report 2018

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 the Group’s work to implement IFRS 15 and assessed
whether Sandvik’s accounting principles comply with the new
accounting standard.
–– 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 infomation 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 that the purchase price allocations of the signficant
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 establishingvolumes and cost.
–– 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. Sandvik retain the responsibility for the financial outcome ofseveral major customer contracts that were ongoing at the date ofagreeing the divestment of Mining Systems. The remaining revenue
and expense under the customer contracts have been estimatedand presented as discontinued operations in the income statement.
There is additional information in the income statement and innote 30 regarding non-current assets held for sale and discontinued operations.

Other Information than the annual accounts and consolidated
accounts
This document also contains other information than the annual
accounts and consolidated accounts and is found on pages 1–45
and 146–152. 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 Directors and the 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.
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 intends
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
Directors’ responsibilities and tasks in general, among other things
oversee the company’s financial reporting process.

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 the businesses disposed
during the last few years as well as that the application was consistent over time.
–– Traced disclosure infomation to accounting records and othersupporting documentation.

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 ISA’s 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.
Report on other legal and regulatory requirements
Opinions
In addition to our audit of the annual accounts and consolidated
accounts, we have also audited the administration of the Board of
Directors and the Managing Director of SandvikAB (publ) for theyear 2018 and the proposed appropriations of the company’s profit
or loss.
We recommend to the general meeting of shareholders that the
profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of
Directors and the Managing Director be discharged from liability forthe 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.

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AUDITOR’S REPORT

Responsibilities of the Board of Directors and the 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’s 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 27 April 2018 and has been the company’s auditor since that date.

Stockholm, 6 March 2019
PricewaterhouseCoopers AB

Peter Nyllinge
Auditor-in-charge
Authorized Public Accountant

126 | Sandvik Annual Report 2018

Magnus Svensson Henryson
Authorized Public Accountant