Fixed Assets Management KA/Group Business Control

Document Information Title: Fixed Assets Management Description: Responsible: KA/Robert Burning Valid as of: 1 September 2010 Reviewed: 1 September 2012

Background In January 2008, Sandvik implemented a new steering model The intent was to increase transparency by aligning internal and external income statements A key component of the change was to replace calculated depreciation with scheduled depreciation in COGS, Administration, Sales and R&D A concern with the change was that it would negatively impact the willingness to invest in Fixed Assets A number of actions, detailed on the following slides, were proposed in order to minimize these risks

Proposed Actions to Manage Risks Continue with present investment process Cash flow based investment appropriation request (no depreciation) Production cost (PK) calculated both with and without depreciation Comparisons to be done excluding depreciation Implement a number of new KPI’s (appendix 1) Scheduled depreciation time Depreciated assets (%) Investment ratio Investment invoicing (%) Cont’d These measures are included in the Fixed Assets Monitor report

Proposed Actions to Manage Risks Focus on estimating useful life correctly, to avoid large swings in profitability Increase knowledge of consolidated business approach and design measures accordingly Production units to be measured on productivity, delivery precision etc Incentives to be based on Group/BA/PA performance and local performance No incentives based on local income statement Follow up by “Fixed Assets Monitor” on a consolidated level Group/BA/PA/CS (Appendix 2) The Fixed Asset Monitor report is available in the Business Control Toolbox on the intranet

Scheduled Depreciation Time Appendix 1 Definition The average estimated remaining lifetime in years If the metric is decreasing over time it would indicate an exit strategy for the business Example of report Theoretical Calculation Plant and machinery (net) Scheduled depreciation* BPC Account Calculation (A121000 Plant and machinery at cost + A121900 Accum. depreciation, plant and machinery) A780100 Scheduled depreciation, ref. to other COGS* * A780100 Scheduled depreciation, ref. to other COGS, with reversed sign in the calculation

Depreciated Assets (%) Appendix 1 Definition Portion of the assets that has been depreciated For a specific asset, in combination with scheduled depreciation time the lifetime of the asset is given Example of report Theoretical Calculation Accumulated depreciation*. Plant and machinery (gross) BPC Account Calculation A121900 Accum. depreciation, plant and machinery* A121000 Plant and machinery at cost * A121900 Accum. depreciation, plant and machinery with reversed sign in the calculation

Investment Ratio Example of report Theoretical Calculation Appendix 1 Definition New investments compared to depreciation for the period If the metric is considerably less than 1 it indicates that the business should be invested in or exited Example of report Theoretical Calculation Investment (yearly) Scheduled depreciation (yearly)* BPC Account Calculation A014100.Bought Investments A784001 Scheduled depreciation, ref. to other COGS* * A780100 Scheduled depreciation, ref. to other COGS, with reversed sign in the calculation

Investment Invoicing (%) Appendix 1 Definition Investments compared to external invoicing Example of report Investments External invoicing Theoretical Calculation BPC Account Calculation A014100 Investments (A301100 Own invoicing, external customers + A301200 Own invoicing, external customers, Rental + A330000 Other direct shipments,external customer)

Fixed Asset Monitor Report Appendix 2