G15 Leases

Leases with Sandvik as lessee

Right-of-use assets
Right-of-use assets	Land and buildings	Plant and machinery	Fixture and fittings	Total
Accumulated acquisition cost
Opening balance adjustment at January 1, 2019	2,539	295	554	3,389
Additions	351	83	297	730
Remeasurements	66	10	9	86
Business combinations	21	–	–	21
Divestments and disposals	–49	–1	–11	–61
Reclassifications	–11	3	3	–5
Translation differences for the year	58	3	13	72
Transfer asset held for sale	–73	–19	–2	–94
At December 31, 2019	2,902	374	864	4,137

Depreciation and impairment losses
Depreciation for the year	608	106	275	989
Impairment losses	17	6	0	23
Divestments and disposals	–2	1	–6	–7
Reclassifications	–3	–1	9	5
Translation differences for the year	–4	–1	–3	–7
Transfer asset held for sale	–27	–8	–1	–36
At December 31, 2019	589	103	274	966

Net carrying amount
At December 31, 2019	2,313	271	590	3,172

Accumulated acquisition cost
At January 1, 2020	2,902	374	864	4,137
Additions	431	94	227	753
Remeasurements	214	–10	11	215
Business combinations	26	0	0	26
Divestments and disposals	–197	–51	–107	–355
Reclassifications	2	–54	56	3
Translation differences for the year	–187	–8	–60	–257
At December 31, 2020	3,190	345	990	4,523

Depreciation and impairment losses
At January 1, 2020	589	103	274	966
Depreciation for the year	541	127	320	987
Impairment losses	0	4	0	5
Reversal of impairment losses	–3	0	0	–3
Divestments and disposals	–82	–43	–97	–222
Reclassifications	–5	–26	22	–8
Translation differences for the year	–57	–4	–31	–92
At December 31, 2020	983	159	489	1,632

Net carrying amount
At December 31, 2020	2,207	185	501	2,891

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Depreciation per line in the income statement	2019	2020
Cost of goods sold	–277	–300
Selling expenses	–298	–255
Administrative expenses	–375	–355
Research and Development expenses	–39	–79
Total	–989	–987

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	2019	2020
Cost of goods sold	–23	3
Selling expenses	0	–4
Total	–23	–1

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Amounts recognized in the income statement
	2019	2020
Depreciations for the year	–989	–987
Impairment losses/reversal of impairment losses	–23	–2
Interest expenses related to lease liabilities	–111	–104
Expenses for low value assets	–80	–51
Expenses for short-term leases	–42	–49
Expenses related to variable lease expenses not included in the lease liability	–4	–3
Gains/losses related to sale and leaseback transactions	0	–1
Total amounts recognized in the income statement	–1,249	–1,197
The total cash outflow for leases during the year	–1,071	–1,118

Contracts not yet commenced

Contracts not yet commenced amounted to SEK 111 million (27). For maturity analysis of the lease liability, see note G28.

Financial leases with Sandvik as lessor

The Group’s investments in financial leases amounted to SEK 3,751 million (3,413) at year-end 2020. Finance income was SEK 187 million (93). Variable fees recognized in profit(loss), and unguaranteed residual values accruing to the benefit of the lessor, were minor. The gross investment and the present value of minimum lease payments fall due as follows:

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	Nominal fee		Present value

	2019	2020	2019	2020
Within one year	1,883	1,898	1,763	1,841
Between one and five years	1,529	1,851	1,450	1,768
Later than five years	1	2	0	2
Net carrying amount	3,413	3,751	3,213	3,611

Operating leases with Sandvik as lessor

The planned residual value of the Group’s rental fleet is SEK 983 million (1,071). Depreciation for the year amounted to SEK 523 million (472). Loss on disposed assets was SEK –6 million (–14). The future minimum lease payments under non-cancellable leases amount to SEK 663 million (782). Variable fees amounted to SEK 2 million (10). Future minimum lease payments under non-cancellable cancel operating lease contracts fall due as follows:

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	2019	2020
Within one year	384	375
Between one and five years	398	287
Later than five years	0	0
Net carrying amount	782	663

Accounting principles

Right-of-use assets

In the consolidated financial statements, leases when Sandvik being a lessee are recognized as right-of-use assets and when being a lessor either as a finance lease or an operational lease.

Impairment and reversals of impairment

Impairment and reversals of impairment is applicable also for right-of-use assets. For details see section in note G13.

Sandvik as a lessee

For all contracts an evaluation is done to identify if a lease exists by testing if Sandvik has the right to obtain substantially all of the economic beneﬁts from use of the identiﬁed assets and has the right to direct the use of the identified asset and that the supplier has no substantial rights of substitution.

Sandvik has decided to separate non-lease components from the lease components in contracts concerning buildings. The non-lease component cost should then be recognized as an expense and not be included in the calculation of a right-of-use asset and lease liability for asset class buildings. For all other asset classes non-lease components are included in the calculation of a right-of-use asset and lease liability.

The lease contracts are assessed at the commencement date whether the lessee is reasonably certain to exercise an option to extend the lease; or to exercise an option to purchase the underlying asset; or not to exercise an option to terminate the lease. In cases of open-ended contracts local law can provide protection to the lessee from being given notice. This requires the Sandvik lessee to determine the contract period instead of considering the termination clause. The lessee then determines the length of the contract period based on factors such as the importance of building to the business, any planned or made leasehold investments and the market situation for premises.

The leasing liability and right-of-use asset is calculated by using the implicit rate in the contract. If the implicit rate cannot be identified the incremental borrowing rate is instead applied, which is the interest rate the company had been given if the investment had been financed through a loan from a financial institute. The measurement of the right-of-use asset includes amount of initial measurement of lease liability, lease payments at or before the commencement date, any initial direct cost and restoration costs. Sandvik depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

After commencement date the carrying amount of the lease liability and the right-of-use asset is remeasured to reflect any modification or reassessment of a lease contract.

Sandvik has chosen to apply the two expedients concerning leases shorter than one year and low value assets that need to be taken into consideration when a lease contract is recognized.

Sandvik as a lessor

As a lessor, Sandvik classiﬁes each of its leases as either an operating lease or a ﬁnancial lease. The substance of the transaction rather than the form of the contract determines if it is a ﬁnance or operating lease. This also includes contracts identiﬁed under IFRS 15 Revenue from Contracts with customers containing buy-back clauses, which means under certain circumstances that control hasn’t transferred to the customer and instead lease accounting under IFRS 16 Leases apply.

A ﬁnance lease is a lease that transfers substantially all the risks and rewards resulting from ownership of an underlying asset to the lessee. An operating lease is a lease that does not transfer substantially all the risks and rewards as a result from ownership of an underlying asset. A sublease should also be classiﬁed as ﬁnance or operational lease by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset, for example, an item of property, plant or equipment.

When the agreement is recognized as an operating lease the asset is classified as tangible assets and valued at cost less accumulated depreciation. The cost of an asset comprises the acquisition value and any initial direct costs related to the contract. The lease payments and the depreciations are included in profit or loss on a straight-line basis over the term of the lease.

Financial lease contracts are recognized as a receivable at an amount equal to the net investment in the lease and revenues are recognized in accordance with the revenue recognition principles.

Sandvik provides financing of equipment sold by the different divisions or business areas. Sandvik Financial Services mainly finances customers in the mining and construction sectors who invest in Sandvik capital equipment. To arrange financing solutions, the Sandvik customers can choose between different product offerings.

The financing offering is provided through five separate legal entities. To manage the correlating credit and financial risks, a proper credit assessment and collection procedures are implemented. Furthermore all tactical and operational decisions related to our financing exposure are following the financial framework as well as Sandvik policies and procedures.

Sandvik Financial Services is responsible for identifying and assessing its key risks related to end customer financing, as well as managing and monitoring them. Risk management is carried out in accordance with the Sandvik policies, in particular the Customer Finance procedures. All transactions are assessed based on the commercial risk of the buyer, country (political) and the product risk. All customers receive a rating using an in-house credit rating model. Different types of securities are used to support the financing, in most cases the asset is held as a security using pledges or retention of title, improving the LGD (Loss Given Default). ECA (Export Credit Agency) support is used when the risk level needs to be balanced.