Note 12. Intangible assets and property, plant and equipment, Group

Intangible assets

	Internally generated intangible assets					Acquired intangible assets						Total
	Capitalized R&D expenditure	IT software	Patents, licenses, trademarks etc	Other	Subtotal	Capitalized R&D expenditure	IT software	Patents, licenses, trademarks etc	Goodwill	Other	Subtotal
Cost
At 1 January 2018	3,779	2,744	231	162	6,916	151	799	2,064	11,911	2,376	17,301	24,217
Additions	192	274	9	9	484	45	80	—	—	1	127	611
Business combinations	—	—	—	—	—	254	34	129	3,198	967	4,582	4,582
Divestments and disposals	–53	–74	–63	–41	–231	—	–44	–7	–1,016	–216	–1,284	–1,514
Reclassifications	16	37	44	–8	89	19	45	–18	909	137	1,093	1,181
Translation differences for the year	74	41	7	10	132	7	24	128	602	147	908	1,039
At 31 December 2018	4,009	3,022	227	132	7,389	476	937	2,296	15,605	3,412	22,727	30,116

At 1 January 2019	4,009	3,022	227	132	7,389	476	937	2,296	15,605	3,412	22,727	30,116
Additions	203	313	9	7	533	29	81	20	156	2	289	822
Business combinations	—	—	15	—	15	–6	0	312	917	464	1,687	1,703
Divestments and disposals	–108	–320	4	–3	–427	–23	–126	–6	–5	—	–160	–588
Reclassifications	–8	–1	4	23	19	0	19	0	0	–4	15	34
Translation differences for the year	27	25	4	3	59	7	10	81	561	97	756	815
At 31 December 2019	4,123	3,038	264	163	7,587	483	922	2,705	17,233	3,971	25,314	32,901

Accumulated amortization and impairment losses
At 1 January 2018	2,317	1,448	111	126	4,002	59	549	821	0	1,410	2,839	6,841
Business combinations	—	—	—	—	—	—	22	—	—	—	22	22
Divestments and disposals	–44	–71	–13	–40	–167	—	–42	–7	—	–122	–171	–338
Impairment losses	30	—	—	8	38	—	—	1	—	—	1	39
Reversal of impairment losses	—	—	—	—	—	—	–1	—	—	—	–1	–1
Reclassifications	—	–10	–8	—	–17	—	39	–14	—	140	165	147
Amortization for the year	317	263	12	3	594	49	48	106	—	168	371	965
Translation differences for the year	40	7	4	9	59	2	21	43	—	65	131	190
At 31 December 2018	2,660	1,637	106	106	4,508	110	637	950	0	1,661	3,357	7,866

At 1 January 2019	2,660	1,637	106	106	4,508	110	637	950	0	1,661	3,357	7,866
Business combinations	—	—	3	—	3	—	0	—	—	5	5	9
Divestments and disposals	–102	–312	4	–3	–413	–9	–108	–6	—	—	–123	–535
Impairment losses	52	10	—	—	62	—	10	839	2,853	436	4,138	4,200
Reversal of impairment losses	—	—	—	—	—	—	0	—	—	—	0	0
Reclassifications	0	—	14	4	17	0	7	0	0	–11	–4	14
Amortization for the year	333	321	14	5	673	58	75	120	—	281	534	1,208
Translation differences for the year	14	6	2	3	25	1	8	–6	—	39	42	67
At 31 December 2019	2,956	1,662	142	116	4,876	160	629	1,897	2,853	2,411	7,950	12,827

Net carrying amounts
At 1 January 2018	1,462	1,295	120	37	2,914	92	250	1,243	11,911	966	14,462	17,376
At 31 December 2018	1,349	1,384	121	26	2,880	366	300	1,345	15,605	1,753	19,370	22,250

At 1 January 2019	1,349	1,384	121	26	2,880	366	300	1,345	15,605	1,753	19,370	22,250
At 31 December 2019	1,167	1,376	122	47	2,711	323	293	808	14,380	1,560	17,363	20,074

Amortization for the year is included in the following lines in the 2018 income statement
Cost of sales	—	–84	—	–1	–85	–7	–26	–102	—	–32	–167	–252
Selling expenses	—	–8	—	–2	–10	–37	–7	–2	—	–134	–180	–190
Administrative expenses	–317	–171	–12	—	–500	–5	–15	–2	—	–2	–24	–524
Total	–317	–263	–12	–3	–595	–49	–48	–106	—	–168	–371	–966

Amortization for the year is included in the following lines in the 2019 income statement

Cost of sales	–1	–81	0	–4	–86	–7	–31	0	—	–15	–53	–140
Selling expenses	–4	–14	–4	—	–22	–19	–4	–2	—	–1	–26	–47
Administrative expenses	–328	–227	–6	–4	–565	–32	–40	–117	—	–265	–454	–1,019
Total	–333	–321	–11	–7	–673	–58	–75	–120	—	–281	–534	–1,207

Impairment losses/Reversal of impairment losses per line in the income statement 2018
Cost of sales	—	—	—	—	—	—	—	—	—	—	—	—
Selling expenses	—	—	—	8	8	—	—	—	—	—	—	8
Administrative expenses	30	—	—	—	30	—	—	1	—	—	1	31
Total	30	—	—	8	38	—	—	1	—	—	1	39

Impairment losses/Reversal of impairment losses per line in the income statement 2019

Cost of sales	—	10	—	—	10	—	6	—	—	—	6	16
Selling expenses	—	—	—	—	—	—	1	839	2,853	436	4,129	4,129
Administrative expenses	52	—	—	—	52	—	2	—	—	—	2	54
Total	52	10	—	—	62	—	10	839	2,853	436	4,138	4,200

For 2019, the impairment losses/reversal of impairment losses amounted to –4,200 million SEK (39), of which 4,051 million SEK was related to the ongoing divestment of Varel. Other impairment was related to the business area Sandvik Mining and Rock Technology.

Property, plant and equipment

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	Land and buildings	Plant and machinery	Equipment, tools, fixtures and fittings	Construction in progress	Total
Cost
At 1 January 2018	16,411	39,660	6,287	2,376	64,734
Additions	373	1,421	274	2,035	4,103
Business combinations	7	232	25	—	264
Divestments and disposals	–493	–3,213	–585	–237	–4,528
Reclassifications	753	3,038	439	–1,432	2,798
Translation differences for the year	489	929	154	42	1,613
At 31 December 2018	17,541	42,067	6,591	2,786	68,984

Opening adjustment IFRS 16	–123				–123
At 1 January 2019	17,418	42,067	6,591	2,786	68,862
Additions	208	1,692	349	2,082	4,332
Business combinations	4	178	14	—	196
Divestments and disposals	–430	–1,975	–479	–130	–3,013
Reclassifications	252	1,303	288	–2,084	–240
Translation differences for the year	278	637	109	24	1,048
Transfer asset held for sale	–124	–734	–9	–23	–890
At 31 December 2019	17,605	43,169	6,865	2,657	70,296

Accumulated depreciations and impairment losses
At 1 January 2018	7,599	27,942	4,793	—	40,335
Additions	—	—	—	—	—
Business combinations	2	130	19	—	150
Divestments and disposals	–243	–2,395	–532	—	–3,170
Impairment losses	45	80	4	—	129
Reversal of impairment losses	–109	–83	0	—	–192
Reclassifications	346	1,197	193	—	1,736
Depreciation for the year	540	2,635	417	—	3,592
Translation differences for the year	242	685	118	—	1,046
At 31 December 2018	8,423	30,188	5,012	—	43,622

Opening adjustment IFRS 16	–93				–93
At 1 January 2019	8,330	30,188	5,012	—	43,529
Additions	—	—	—	—	—
Business combinations	1	104	10	—	115
Divestments and disposals	–339	–1,740	–439	—	–2,518
Impairment losses	25	310	1	—	335
Reversal of impairment losses	–15	–14	0	—	–29
Reclassifications	–9	–365	17	—	–357
Depreciation for the year	545	2,575	435	—	3,554
Translation differences for the year	127	452	84	—	664
Transfer asset held for sale	–71	–563	–7	—	–641
At 31 December 2019	8,593	30,947	5,113	—	44,653

Net carrying amount
At 1 January 2018	8,811	11,718	1,493	2,376	24,398
At 31 December 2018	9,118	11,879	1,578	2,788	25,363
At 1 January 2019	9,118	11,879	1,578	2,788	25,363
At 31 December 2019	9,012	12,221	1,752	2,657	25,643

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Impairment losses/Reversal of impairment losses per line in the income statement
2018	Land and buildings	Plant & Machinery	Equip., tools etc	Construction in progress	Total
Cost of sales	–63	5	4	–2	–56
Selling expenses	—	—	—	—	—
Administrative expenses	—	–8	—	—	–8
Total	–63	–3	4	–2	–64

2019
Cost of sales	9	296	1	0	306
Selling expenses	—	—	—	—	—
Administrative expenses	—	—	—	0	0
Total	9	296	1	0	306

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Impairment losses/Reversal of impairment losses per business area
2018	Land and buildings	Plant & Machinery	Equip., tools etc	Construction in progress	Total
Sandvik Machining Solutions	35	19	4	—	58
Sandvik Mining and Rock Technology	—	1	0	—	1
Sandvik Materials Technology	–106	–22	—	—	–127
Other Operations	8	–1	0	—	6
Total	–63	–3	4	—	–62

2019
Sandvik Machining Solutions	–15	40	0	—	25
Sandvik Mining and Rock Technology	—	0	0	—	0
Sandvik Materials Technology	—	105	—	—	105
Other Operations	25	151	1	—	176
Total	9	295	1	—	306

Impairment tests

Property, plant and equipment and intangible assets with a definite useful life were tested for impairment when an indication for impairment was identified. The tests resulted in impairment losses of 4,506 million SEK (–25) for 2019. For property, plant and equipment the amount was 306 million SEK (–64) where of 203 million SEK is related to the ongoing divestment of Varel. For intangible assets 4,200 million SEK (39), including the impairment related to the ongoing divestment of Varel of 4,051 million SEK.

Additional information

Items of property, plant and equipment totaling 234 million SEK (293) have been pledged as security for liabilities. In 2019, contractual commitments for the acquisition of property, plant and equipment amounted to 385 million SEK (222).

Borrowing costs included in the cost of assets during the year amounted to zero for 2019 and 2018.

Disclosure regarding government grants in the Group

Government grants during the year amounted to 48 million SEK (8).

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Goodwill by cash–generating unit	2018	2019
	Carrying amount

Sandvik Machining Solutions
Walter group	1,141	1,124
Seco Tools	239	423
Wolfram	1,574	1,595
Metrologic	2,606	2,544
Business area level	1,583	1,887
Total	7,143	7,573

Sandvik Mining and Rock Technology
Business area level	4,643	5,441
Total	4,643	5,441

Sandvik Materials Technology
Business area level	1,224	1,324
Total	1,224	1,324

Other operations
Varel	2,554	—
Total	2,554	—

Other	41	42
Group total	15,605	14,380

Impairment tests of goodwill

Goodwill was impairment tested in the fourth quarter 2019. As stated below, the carrying amount of goodwill in the consolidated balance sheet is 14,380 million SEK (15,605), essentially related to a number of major business combinations and the ongoing divestment of Sandvik Drilling and Completions (Varel).

Consolidated goodwill is allocated to the cash-generating units stated above. The recoverable amount of all of the cash-generating units has been assessed based on estimates of value in use. Calculations of value in use are based on the estimated future cash flows using forecasts covering a four-year period, which are in turn based on the three-year plans prepared annually by each of the business areas and approved by Sandvik Group Executive Management.

These plans are founded on the business areas’ strategies and an analysis of the current and anticipated business climate, and the impact this is expected to have on the market in which the business area operates. A range of economic indicators, which differ for each market, and external and internal studies of these, are used in the analysis of the business situation. The forecasts form the basis for how the values of the material assumptions are established.

The assumptions mentioned below reflect past experience and are consistent with external information. The most material assumptions when determining the value in use include anticipated demand, growth rate, operating margin, working capital requirements and the discount rate.

The factor used to calculate growth in the terminal period after four years was 2 percent for Walter (2), Seco Tools (2), Wolfram (2), Sandvik Machining Solutions business area level (2), Sandvik Materials Technology business area level (2) and 3 percent for Sandvik Mining and Rock Technology business area level (3). Need of working capital beyond the four-year period is deemed to increase approximately as the expected growth in the terminal period. The discount rate consists of a weighted average cost of capital for borrowed capital and shareholders’ equity and was assumed to amount to 10 percent (10) before tax. These assumptions apply to all cash-generating units. The specific risks of the cash-generating units have been adjusted for in the future cash flow forecasts.

Goodwill attributable to Varel OAG was impaired in October 2019 following the fair value assessment taking place when the business was classified as Disposal group for sale and also moved from the business area Sandvik Mining and Rock Technology to Other operations. The impairment of Goodwill amounted to 2,776 million SEK and the impairment of patents, licenses and trademark related to the ongoing divestment of Varel amounted to 1,275 million SEK. Varel OAG is expected to be divested early March 2020. For more information, see Note 30.

The testing of Goodwill did not indicate any other impairment requirement. Sensitivity in the calculations where impairment was not carried out implies that the goodwill value would be maintained even if the discount rate was increased by 2 percentage points or if the long-term growth rate was lowered by 2 percentage points. The goodwill value would also be maintained, given an operating margin drop by 2 percentage points.