1. Fixed Assets Management KA/Group Business Control

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

3. 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

4. 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

5. 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

6. 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
(A Plant and machinery at cost +
A Accum. depreciation, plant and machinery)
A Scheduled depreciation, ref. to other COGS*
* A Scheduled depreciation, ref. to other COGS, with reversed sign in the calculation

7. 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
A Accum. depreciation, plant and machinery*
A Plant and machinery at cost
* A Accum. depreciation, plant and machinery with reversed sign in the calculation

8. 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
A Bought Investments
A Scheduled depreciation, ref. to other COGS*
* A Scheduled depreciation, ref. to other COGS, with reversed sign in the calculation

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

10. Fixed Asset Monitor Report
Appendix 2