The principal accounting policies applied in the preparation of these consolidated financial accounts are set out below.
Basis of presentation of the annual report and consolidated financial statements
The Group’s consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standard Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted within the EU, the Swedish Annual Accounts Act, and the Swedish Financial Reporting Board’s recommendation RFR 1 ‘Supplementary accounting rules for groups of companies’. The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s recommendation RFR 2 ‘Accounting for legal entities’.
The annual and consolidated financial statements have been prepared on a historical cost basis, with the exception of currency, fixed-income and commodity derivative instruments, which are measured at fair value through profit or loss. Preparing these financial statements requires that the Board of Directors and the Company management use certain critical accounting estimates and assumptions. These estimates and assumptions can materially affect the income statement, balance sheet and other information contained herein, including contingent liabilities; see Note 4. Actual outcome can vary from these estimates under different assumptions or circumstances.
New and changed standards applied by the Group
None of the new standards and changes in and interpretations of existing standards that have been published and are obligatory for the consolidated financial statements for financial years starting on January 1, 2015 or later have had any material impact on the consolidated financial statements.
New standards and interpretations that have not yet been applied by the Group
A number of new standards and interpretations enter into force for financial years that start after January 1, 2015 and were not applied when preparing these financial statements. None of these are expected to have any significant effect on the Group’s financial statements, except those shown below:
IFRS 9 Financial instruments
IFRS 9 ’Financial instruments’ concerns the classification, valuation and reporting of financial assets and liabilities. The full version of IFRS 9 was published in July 2014. It replaces the parts of IAS 39 that concern the classification and valuation of financial instruments. IFRS 9 retains a mixed valuation approach, but simplifies this approach in certain respects. There will be three valuation categories for financial assets, amortised cost, fair value through other comprehensive income and fair value through the income statement. How an instrument should be classified depends on the company’s business model and the characteristics of the instrument. Investments in own capital instruments must be recognised at fair value through the income statement, but it is also possible, when the instrument is first recognised, for it to be recognised at fair value through other comprehensive income. No reclassification to the income statement will then take place in connection with disposal of the instrument. IFRS 9 also introduces a new model for calculating credit loss reserves based on expected credit losses. For financial liabilities, the classification and valuation are not changed except where a liability is recognised at fair value through the income statement based on the fair value alternative. Changes in value attributable to changes in own credit risk must then be recognised in other comprehensive income. IFRS 9 reduces the requirements for application of hedge accounting by replacing the 80-125 criterion with requirements for an economic relationship between hedging instruments and hedged items and for the hedging quota to be the same as that used in risk management. Hedging documentation is also changed slightly compared with that prepared under IAS 39. The standard must be applied for the financial year beginning January 1, 2018. Earlier application is permitted. The standard has not yet been adopted by the EU. The Group has not yet evaluated the full effect of the introduction of the standard.
IFRS 15 Revenue from contracts with customers
IFRS 15 ‘Revenue from contracts with customers’ governs how revenue should be recognised. The principles on which IFRS 15 is based are designed to give users of financial statements more useful information about the company’s revenue. The extended duty of disclosure means that information on revenue type, the time of settlement, uncertainties linked to recognition of revenue and cash flow attributable to the company’s contracts with customers must be provided. According to IFRS 15, revenue must be recognised when the customer gains control over the product or service sold and is able to use the product or service and gain benefit from it.
IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and the associated SIC and IFRIC. IFRS 15 enters into force on January 1, 2018. The standard has not yet been adopted by the EU. Premature application is permitted. The Group has not yet evaluated the effects of the introduction of the standard.
IFRS 16 Leases
In January 2016, IASB published a new leasing standard that will replace IAS 17 Leases and the associated interpretations IFRIC 4, SIC-15 and SIC-27. The standard requires that assets and liabilities attributable to all leases, with some exceptions, be recognised in the balance sheet. This recognition is based on the view that the lessee has a right to use an asset during a specific period of time and also has an obligation to pay for this right. The recognition for the lessor will be essentially unchanged. The standard is applicable for a financial year beginning January 1, 2019 or later. Premature application is permitted. The EU has not yet adopted the standard. The Group has not yet evaluated the effects of IFRS 16.
No other of the IFRS or IFRIC interpretations that have not yet entered into force are expected to have any significant impact on the Group.
Consolidated financial statements
The consolidated financial statements cover AAK AB and all its subsidiaries. Subsidiaries are all companies (including structured entities) over which the Group has a controlling influence. The Group controls a company when it is exposed to or is entitled to variable return from its holding in the company and is able to affect the return by exerting influence in the company. Subsidiaries are included in the consolidated financial statements as from the date on which the controlling influence is transferred to the Group. They are excluded from the consolidated financial statements as from the date on which the controlling influence ceases.
The acquisition of subsidiaries is recognised using the purchase method of accounting. The cost of acquisition is measured as the fair value of the assets provided as consideration, liabilities incurred and shares issued by the Group. Transaction costs relating to acquisitions are expensed as they are incurred. Identifiable assets acquired and liabilities and obligations assumed in an acquisition are measured initially at fair value at the acquisition date. For each acquisition, the Group determines whether all non-controlling interests in the acquired companies are to be recognised at fair value or according to the proportional share of the acquired company’s net assets. The excess of the purchase price, any non-controlling interests and the fair value of previous shareholdings at the acquisition date over the fair value of the Group’s interest in identifiable net assets is recognised as goodwill. If this amount is less than the fair value for the acquired subsidiary’s assets, the difference is recognised directly in the statement of comprehensive income.
All intra-group transactions, balances and unrealised gains on transactions are eliminated, unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Transactions with holders of non-controlling interests
The Group handles transactions with holders of non-controlling interests in the same ways as transactions with the Group’s shareholders. In the event of acquisitions from holders of non-controlling interests, the company recognises the difference between the purchase price paid and the actual acquired portion of the carrying amount of the subsidiary’s net assets in equity. Gains and losses on disposals to holders of non-controlling interests are also recognised in equity.
When the Group no longer holds a controlling or significant influence, each shareholding is remeasured at fair value and the change in the carrying amount is recognised in the income statement. Fair value is used as the primary carrying amount and forms the basis for ongoing recognition of the remaining ownership interest as an associate company, joint venture or financial asset. All amounts relating to divested units previously recognised under “Other comprehensive income” are recognised as though the Group had directly disposed of the respective assets or liabilities. This can result in amounts previously recognised in “Other comprehensive income” being reclassified as earnings.
If the equity interest in an associate is reduced but significant influence still remains, where relevant only a proportional share of the amounts previously recognised in “Other comprehensive income” is recognised as earnings.
Associates are those companies where the Group has significant influence, but not a controlling influence over operational and financial management, usually through an ownership interest of between 20 percent and 50 percent of the voting rights. As of the date at which the significant influence is acquired, investments in associated companies are recognised in the consolidated financial statements using the equity method. The equity method means that the value of the shares in the associated companies recognised for the Group corresponds to the Group’s interest in the equity of the associates plus Group-related goodwill and any residual values of Group-related surplus or shortfall in value. The consolidated income statement reports the Group’s share of profit of associated companies, adjusted for any amortisation, impairment or dissolution of acquired surplus or shortfall values, as other financial revenue. Dividends received from associated companies reduce the carrying amount of the investment.
The equity method is used until significant influence ceases.
Foreign currency translation of foreign subsidiaries’ financial statements
Functional and presentation currency
Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic environment in which they operate (functional currency). The consolidated financial statements are presented in Swedish krona which is the Parent’s functional and presentation currency. Exchange rate differences that arise in translation of Group companies are recognised as a separate item in comprehensive income.
Transactions and balance sheet items
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rate are recognised as of the end of the reporting period in the income statement.
The results and financial position of foreign subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional currency other than the presentation currency are translated into the Group’s presentation currency as follows:
- Assets and liabilities are translated at the closing day rate.
- Income and expenses are translated at average exchange rates.
- All exchange rate differences are charged directly to comprehensive income and are recognised as a separate item. When a foreign subsidiary is sold, any exchange differences are recognised in the income statement as part of the gain or loss on the sale.
Goodwill and fair value adjustments arising in the acquisition of foreign operations are treated as assets and liabilities of the entity and translated at the closing day rate.
The following rates were used to translate currency:
An operating segment is the part of the group that conducts business operations from which it may generate revenue and incur expenses for which discrete financial information is available. The operating results of an operating segment are followed up by the group’s chief operating decision-maker in order to evaluate its performance and allocate resources to the operating segment. The Group’s operations are divided up into operating segments based on which parts of the operations the group’s chief operating decision-maker monitors, that is, according to the management approach. AAK’s business operations are organised in such a way that the group’s highest executive decision-maker, that is the CEO, monitors earnings, returns and cash flows generated by the Group’s various products. Each operating segment has a manager who is responsible for day-to-day operations and who regularly reports to the CEO on the outcome of the operating segment’s performance and its resource requirements. Where the CEO monitors profit/loss and determines resource allocations based on the product that the Group produces and sells, these constitute the Group’s operating segments.
The Group’s operations are organically divided into business segments based on product. The marketing organization also reflects this structure. Segment reporting is submitted in accordance with IFRS 8 for the Group only. For each segment, the results, assets and liabilities directly attributable to or items that can reliably be attributed to the segment are included in that segment. Items not attributable in this way include interest and dividend revenues, gains and losses from the sale of financial investments, interest expenses, and tax expenses. Assets and liabilities not attributed to a segment include tax assets and tax liabilities, financial investments and financial liabilities.
Revenue comprises the fair value of goods sold excluding VAT and discounts after eliminating intra-group sales. Sales are recognised on delivery of the goods, after customer acceptance and after the receivable can reasonably be deemed safe. Interest income is recognised allocated over the maturity of the security using the effective interest method. Insurance compensation is recognised as revenue when the amount can be measured in a reliable way and it is probable that the revenue will flow to the Group.
a) Pension liabilities
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate legal entity. The group has no legal or constructive obligations to pay further contributions if this legal entity does not hold sufficient assets to pay all employee benefits relating to employee service in the current or prior periods. A defined benefit pension plan is a pension plan that is not a defined contribution plan.
The characteristic feature of a defined benefit plan is that it defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality mortgage bonds that are denominated in the same currency in which the benefits will be paid, and that have terms of maturity approximating the terms in the related pension commitment.
Past-service costs are recognised immediately in the income statement.
The net interest rate is calculated by the discount rate being applied to defined benefit plans and to the fair value of plan assets. This expense is included in the personnel costs in the income statement.
Actuarial gains and losses as a result of experience-based adjustments and changes in actuarial assumptions are recognised in other comprehensive income in the period in which they arise.
b) Termination benefits
Employees receive compensation on termination before normal retirement age or when they voluntarily accept termination in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed, formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
c) Variable remuneration
Annual variable remuneration is based on meeting set targets determined on an annual basis. These targets are related to the performance of the Company. The Group recognises costs as and when earnings occur.
In 2010, the Group introduced an incentive programme for senior managers and key personnel within the Group. The programme ended in December 2015. The company assesses that the incentive programme should be treated under IAS 32 as it is not covered by the regulations in IFRS 2. In making this assessment, the company has taken account of the fact that options have not been issued as market-based remuneration and that the programme lacks conditions for repurchase by the company upon termination of employment or that the options may only be used if the holder is still employed by the company.
Leasing is classified as operating leasing when the risks and benefits of ownership are retained by the lessor. All leasing agreements within the Group are classified as operating leases. Operating lease payments are recognised in the income statement on a straight-line basis over the period of the lease.
Product development work is an integral part of production relating to process improvement measures that is expensed on a continuous basis as a part of the product cost as it arises. Research and development expenses are those related to work whose purpose is primarily to optimise the attributes and function of oils and speciality fats, either for the finished product in which these oils and fats are ingredients or to improve the efficiency of the production process of the finished product.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary on the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill recognised separately is allocated to cash-generating units for the purpose of annual impairment testing. Goodwill is allocated to the cash-generating units that are expected to benefit from the acquisition. Goodwill is recognised at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the remaining carrying amount of goodwill relating to the entity sold.
When acquiring operations where cost is less than the net value of the acquired assets, borrowings, and any contingent liabilities, the difference is recognised directly in the income statement.
Other intangible assets
Other intangible assets include such assets as capitalised expenditure on IT, patents and trademarks. These assets have a defined useful life and are carried at cost less accumulated amortisation and impairment losses. The cost associated with maintaining an intangible asset is recognised as part of the carrying value or as a separate asset only when it is probable that the future economic benefit associated with the asset will flow to the Group and the cost of the asset can be reliably measured. Other expenditures are expensed as they arise. Other intangible assets are amortised using the straight-line method over their estimated useful lives, normally 5 to 10 years.
Property, plant and equipment
Land and buildings comprise mainly factory buildings and offices. All property, plant and equipment is carried at cost, less accumulated depreciation. Acquisition cost includes expenditure that is directly attributable to the acquisition of an asset.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the assets will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance are expensed in the financial period in which they arise.
Land is not depreciated. Depreciation of other property, plant and equipment is allocated on a straight-line basis over the estimated useful lives of the assets to reduce their cost to residual values. Depreciation periods of between 3 and 15 years are used for plant and machinery, equipment, tools, fixtures and fittings. Industrial buildings and research laboratories are depreciated over 20 and 25 years, respectively, and office buildings over 50 years. When an asset’s carrying amount may not be recoverable, the asset is immediately impaired to its recoverable amount.
Assets’ residual value and useful life are reviewed at the end of every reporting period and adjusted as required.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.
Impairment of non-financial assets
Assets with indefinite useful lives are tested for impairment annually rather than being amortised. All assets are assessed in terms of impairment whenever events or changes in circumstances indicate that an asset’s carrying amount exceeds its recoverable amount. Impairment reflects the excess of an asset’s carrying amount over its recoverable amount. The recoverable amount is either the asset’s fair value less any selling costs or its value in use, whichever is greater. For the purposes of assessment, assets are grouped on the basis of the lowest level at which there are separate identifiable cash flows (cash-generating units). Assets, other than financial assets and goodwill, for which impairment loss was previously recognised, are tested at the end of every reporting period to ascertain whether any reversal should be made.
Inventories are stated at cost or net selling price, whichever is lowest. Cost is calculated using the first-in-first-out principle (FIFO) or weighted average prices. The nature and area of use of the product determines the method used. The cost of finished goods and work in progress includes direct material costs, direct labour and other direct manufacturing costs and a reasonable allocation of indirect manufacturing expenses based on normal production capacity, excluding borrowing costs. Net selling price is the estimated sale price in the ordinary course of business, less costs of completion and applicable variable costs to sell.
Financial income and expenses
Financial income consists of interest income on funds invested (including, where applicable, financial assets available for sale), dividend income, gains on the sale of financial assets available for sale, and gains on hedging instruments recognised in profit or loss. Dividend income is recognised when the right to receive payment has been established. Results from the sale of financial instruments are recognised when the risks and benefits associated with ownership of the instruments have been transferred to the buyer and the Group no longer has control of the instrument. Financial expenses consist of interest expenses on loans, the effect of the resolution of present value calculations for provisions, impairment of financial assets and those losses on hedging instruments recognised in profit or loss. Borrowing expenses are recognised in profit or loss, except where they are directly attributable to the acquisition, construction or production of assets that take considerable time to complete for their intended use or sale, in which case they are included in the cost of those assets. No borrowing expenses have been capitalised during the past two years. Exchange gains and losses are recognised net.
The Group classifies its financial assets in the following categories: financial assets measured at fair value in profit or loss and loan receivables and accounts receivables. The classification is dependent on the purpose for which the financial asset was acquired. Management establishes the classification of financial assets at initial recognition.
(a) Financial assets recognised at fair value through profit or loss
Financial assets recognised at fair value through profit or loss are financial assets held for trading. A financial asset is classified under this category if it is acquired for the primary purpose of being sold shortly thereafter. Derivatives are classified as being held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current assets.
(b) Loan receivables and accounts receivables
Loan receivables and accounts receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included in current assets, with the exception of items with a maturity of more than 12 months after the end of the reporting period, which are classified as non-current assets. The Group’s loan receivables and accounts receivables consist of accounts receivables and other receivables, as well as cash and cash equivalents in the balance sheet.
A financial asset or financial liability is recognised in the balance sheet when the Company enters a contract for the instrument (i.e. on the relevant business day).
A financial liability is recognised when the counterparty has performed and a contractual duty to pay arises, even if no invoice is received.
A financial asset is derecognised when the rights to cash flow in the contract mature or the rights are transferred in a transaction that transfers essentially all risks and remunerations from ownership to the assets transferred. This also applies to parts of financial assets.
A financial liability is removed from the balance sheet when the duty in the contract is performed or otherwise extinguished. This also applies to parts of financial liabilities. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They arise when the Group provides money, goods or services directly to a debtor (usually a customer) with no intention of trading the receivable. These are recorded as current assets when the maturity is less than 12 months from the transaction date. Loans and receivables are recognised in “Accounts receivables” and “Other receivables” in the balance sheet.
Loan receivables and accounts receivables are recognised after the acquisition date at amortised cost using the effective interest rate method. Financial instruments are initially recognised at fair value plus transaction costs, which applies to all financial assets that are not recognised at fair value through profit or loss, for which attributable transaction costs are instead recognised in the income statement.
Derivative instruments are recognised in the balance sheet on the date of contract and at fair value, both initially and upon subsequent revaluation. The method of recognising gain or loss arising from revaluation depends on whether the derivative is identified as a hedging instrument, and, in such event, the nature of the item being hedged. The Group identifies certain derivatives as either:
(a) hedging of fair value regarding a recognised asset or liability or a firm commitment (fair-value hedging),
(b) hedging of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedging).
When the transaction is undertaken, the Group documents the relationship between the hedging instrument and the hedged item, as well as the hedge’s role in the Group’s risk management objectives and strategy. The Group also documents its assessment, both when it enters into hedging contracts and on an ongoing basis, as to whether the derivative instruments used in hedging transactions are effective in terms of counteracting changes in fair value or cash flow that are attributable to the hedged items.
The Company’s derivative instruments consist of OTC or “over-the-counter” derivatives concluded with financial counterparties, listed standardised derivatives and sales and purchase contracts that do not meet the exemption criteria for being recognised as a derivative (that is, that are not deemed to be for own use). According to IAS 39, only contracts not designed for physical delivery may be measured at market price. AAK’s business model permits (enables) the net settlement of purchase and sales contracts entered into for physical delivery. Derivatives that are not used as hedging instruments for which hedge accounting is applied are recognised at fair value in the income statement.
Hedging of fair value
Changes in fair value of a derivative that has been formally identified for hedging of fair value and meets the conditions for hedge accounting are recognised on the same line in the income statement as any change in fair value attributable to the hedged risk for the hedged asset or liability. The Group applies hedging of fair value for raw materials and foreign currency in sales and purchase contracts. The gain or loss attributable to the ineffective portion is recognised with immediate effect in profit or loss in ”Raw materials and consumables and changes in inventory”.
Cash flow hedges
The effective portion of changes in fair value in a derivative instrument, identified as a cash flow hedge and that fulfils the conditions for hedge accounting, is recognised in other comprehensive income. The gain or loss attributable to the ineffective part is recognised with immediate effect in the income statement, item “Other financial items”.
Amounts in equity are reversed to the income statement. for those periods during which the hedged item affects profit or loss (e.g. when the forecast sale that is hedged takes place). The gain or loss that is attributable to the effective portion of an interest rate swap that hedges variable-rate borrowing is recognised in the income statement, item “Financial expenses”. The gain or loss attributable to the ineffective portion is recognised in the income statement item “Other financial items”. If a hedge of a forecast transaction subsequently leads to the recognition of a non-financial asset (e.g. inventory or property, plant and equipment), the gains and losses previously recognised in equity are transferred from equity and included in the initial cost of the asset. Such transferred amounts will later be recognised in “Cost of goods sold” where they relate to inventory or in “Depreciation” where they relate to non-current assets.
When a hedging instrument matures or is sold, or when the hedge no longer qualifies for hedge accounting and accumulated gains or losses relating to the hedge are booked in equity, these gains/losses remain in equity and are recognised in profit or loss when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to take place, the accumulated profit or loss recognised in equity is immediately transferred to the “Other operating income” item in the income statement.
Determining fair value
The fair value of instruments that do not have listed prices is determined using valuation techniques such as discounted cash flow models, in which all assessed and determined cash flows are discounted using a zero coupon yield curve.
The fair value of derivatives is determined using valuation techniques. The valuation is based on models that discount cash flows using forward curves for underlying variables such as raw materials and exchange rates. The assessed and determined cash flows are discounted by a zero coupon interest rate curve. The Group’s credit risk is taken into consideration in the valuation at fair value.
Accounts receivables are recognised initially at fair value and thereafter at amortised cost using the effective interest method, less provisions for impairment. Provision for impairment of accounts receivables is recognised when there is objective evidence that the Group will not receive all the cash flow due according to the original amounts of the receivables. Provisions are measured as the difference between the assets’ carrying amount and the present value of future cash flows discounted at the financial asset’s original effective interest rate. Such provisions are recognised in the income statement as “Other external expenses”.
Ordinary shares are classified as share capital. Transaction expenses that are directly attributable to new share issues or options are recognised, net of tax, in equity as a deduction from the proceeds.
Liabilities to banks and credit institutions
Borrowings are initially recognised at fair value, net of transaction costs. Borrowings are subsequently stated at amortised cost and any difference between proceeds (net of transaction costs) and redemption value is recognised in the income statement, allocated over the period of the borrowing using the effective interest method.
Accounts payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of past events, and it is more likely than not that an outflow of resources will be required to settle the obligations and the amount can be estimated reliably. No provisions are made for future operating losses. If the effect of when in time payment is made is significant, provisions are calculated through discounting the expected future cash flow at an interest rate before tax that reflects current market assessments of the time value of money and, if applicable, the risks associated with the debt.
A provision for restructuring is recognised when the Group has adopted a comprehensive and formal restructuring plan, and the restructuring has either been started or published.
Tax expenses for the period comprise both current tax due and deferred income tax. Tax is recognised in the income statement, apart from when tax is attributable to items recognised in other comprehensive income or directly in equity. In such cases, tax is also recognised in other comprehensive income. Income tax is determined using the tax rules that have been enacted or announced by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Tax expenses stated include both current tax due and deferred income tax.
Deferred tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. The principal temporary differences arise from depreciation of property, plant and equipment, provisions for pensions and other post-retirement benefits and tax losses carried forward. The tax rates enacted in each country are used in determining deferred income tax.
Deferred income tax assets for tax-deductible temporary differences and loss carry-forwards are recognised only to the extent it is likely that it will be possible to utilise these items. The value of deferred tax assets is derecognised when it is no longer deemed likely that they can be utilised.
Deferred income tax assets are recognised on temporary differences arising from investments in subsidiaries, except where the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the difference will not be reversed in the foreseeable future.
Cash and cash equivalents
Cash equivalents comprise balances with less than three months’ maturity, including cash, bank deposits and other current securities.
Cash flow statement
Payments in and out have been divided up into three categories: operating activities, investing activities and financing activities. The indirect method is used for flows from operating activities.
The changes during the year in operating assets and operating liabilities have been adjusted for the effects of changes in exchange rates. Acquisitions and disposals are recognised under investing activities. The assets and liabilities that acquired and divested companies had at the time of the change are not included in the analysis of the changes in operating capital, nor in changes to balance sheet items recognised under investing and financing activities.
Earnings per share
The calculation of earnings per share is based on the consolidated profit attributable to the Parent’s shareholders and the weighted average number of shares outstanding during the year.
When determining earnings per share after dilution, a company must base its calculations on the company’s shares and stock options which could result in dilution being exercised. Compensation from these instruments will be deemed to have been received from the issuing of ordinary shares at the average market price for ordinary shares during the period. The difference between the number of issued ordinary shares and the number of ordinary shares that should have been issued at the average market price for ordinary shares during the period shall be treated as an issue of ordinary shares without consideration. According to paragraph 47 of IAS 33, options and stock options only have a dilutive effect when the average market price for ordinary shares during the period exceeds the exercise price for options or stock options.
Pricing between Group companies is carried out on market terms.
DividendThe dividend to shareholders in the Parent is recognised as a liability in the consolidated financial statements in the period when the dividend was approved by the shareholders.
Accounting policies – Parent
The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s recommendation RFR 2 ‘Accounting for legal entities’. No differences with the Group’s accounting policies have been identified.