The most significant accounting principles applied in the
preparation of these consolidated financial accounts are set out below
Basis of presentation for consolidated financial
accounts
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 Boards (IASB) and the
interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) as adopted within the EU, the Swedish Annual Accounts Act, the
Swedish Financial Accounting Standards Council recommendation RR 30
‘Supplementary Accounting Rules’. The Parent Company’s financial statements have
been prepared in accordance with the Swedish Annual Accounts Acts and the
Standards Council recommendation RR 32:06 ‘Reporting by Legal Entities’.
The annual report and financial statements have been prepared in
accordance with the cost method for valuation except for currency, interest, and
commodity derivative instruments that are measured at fair value and reported in
the income statements. 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 further disclosure Note 4. Actual outcome
can vary from these estimates and assumptions under different circumstances.
Standards and Pronouncements not in effect
The following new standards, and the revisions and interpretations of
current standards have been published and are mandatory for the Group reports of
the financial year starting 1 January 2008 or later but have not been applied in
advance by the Group.
IAS 1 Supplemental – Presentation of financial
statements:
Presentation of financial statements (as of January 1,
2009). This change to the standards is still under approval by the EU. The
changes involve the form and designations in the financial statements. Future
financial statements for the Group will therefore be affected when this standard
is fully adopted.
IAS 23 Borrowing costs
Borrwoing costs (as of January
1, 2009) This change to the standards is still under approval by the EU. This
change requires that companies recognise as part of the cost of the asset any
borrowing costs that are directly attributable to the acquisition, construction
or production of a qualifying asset that takes a substantial period to complete
for its intended use or sale. The alternative of immediately recognising
borrowing costs will no longer be available. The Group will apply IAS 23
(Changes) beginning on January 1, 2009 but this is not currently relevant for
the Group since there are no such assets for which borrowing costs can be
recognised.
IAS 27 Consolidated and separate financial
statements
This change to the standards is still under approval by the
EU. The changes require, among other things, that accounts attributable to
minority interests shall always be presented including when the minority share
is negative, that transactions with minority interests are recognised as equity,
and that where the parent no longer retains control any remaining interest is
recognised at fair value. This change to the standard will affect presentation
of future transactions.
IFRS 2 Share-based payment
Vesting conditions and
cancellations (as of January 1, 2009). This change to the standards is still
under approval by the EU. The changes affect the definition of payment terms for
services, and adds a new concept, ”non-vesting conditions” (conditions that are
defined as not vesting). The standard specifies that ”non-vesting conditions”
shall be recognised at the estimated fair value of the equity instrument. Goods
or services that are obtained from another party that fulfil the vesting
requirements shall be recognised as an expense regardless whether the
”non-vesting conditions” are met. This change has no affect on the Groups’
consolidated financial statements.
IFRS 3 Business Combinations
This change to the
standards is still under approval by the EU. Changes apply for future dates for
business combinations concluded after the standard is adopted. Applying this
standard will involve changes to how future business combinations are reported,
including reporting of transactions costs, conditional consideration and
successive purchases.
The group will apply this standard as of the financial year
beginning January 1, 2010. Changes to the standard will not have any effect on
previous business combinations but will have an effect on the reporting of
future transations.
IFRS 8 Operative segments
IFRS 8 replaces IAS 14 and
adapts segment reporting to the requirements of USA Standard SFAS 131,
Disclosures about segments of an enterprise and related information. The new
standard requires that segment information is reported from the perspective the
management, so that it is presented the same as for internal reporting. The
Group will apply IFRS 8 as of January 1, 2009. Management will continue to
analyze any effect the standard will have, however, our current assessment is
that the standard will not have any effect on Group financial reports.
IFRIC 14, ’IAS 19’ – The limit on a defined benefit asset,
minimum funding requirements and their interaction*
This interpretation
is still undergoing approval by the EU. IFRIC 14 provides guidance in assessing
the limitations set out in IAS 19 for the amount of excess that can be reported
as an asset. This also describes how retirement assets or liabilities can be
affected by statutory or contractual requirements for minimum financing. The
Group will apply IFRIC 14 as of 1 January 2008 but this is not expected to
change the financial reporting.
* There is currently no official translation to Swedish.
Consolidation
Subsidiaries
The
consolidated financial reports are for AarhusKarlshamn AB and all qualifying
subsidiaries. Such subsidiaries are all companies in which the Group exercises a
decisive influence in determining financial and operation strategies to the
extent usually associated with shareholding of more the 50% of the voting
rights. Subsidiaries are consolidated as of the date of acquisition (the date
when the decisive influence is transferred to the Group) and to the date of
disposal (date when the decisive influence terminates).
Purchase method
Acquisition of subsidiaries is
reported using the purchase method. The cost of acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities
incurred plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially as the fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of cost of
acquisition over the fair value of the Group’s share of the subsidiary and the
fair value of the identifiable net assets of the subsidiary as of the
acquisition date is recorded as goodwill. Inter-company transactions, balances,
and unrealised gains on transactions between group companies 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.
Associated Companies
Associated companies are those
businesses in which the Group has significant, but not decisive, influence in
determining financial and operation strategies, usually through ownership of
between 20 and 50 % of voting rights. Shares in associated companies are
reported using the equity method as of the date the Group acquires the
significant influence. In using the equity method of accounting, the Group
recognizes the fair value of shares in associates corresponding to the Group’s
ownership share in the associate’s equity, including goodwill and other excess
values. The Group’s share of its associates’ post-acquisition profits or losses
adjusted for any amortizations, impairment loss is recognized in the
consolidated income statements. The cumulative movements are adjusted against
the carrying amount of the investment.
Differences at the time of acquisition between acquisition value
for the shares and the Groups share of the fair value net of identifiable
assets, liabilities and contingent liabilities are reported according to IFRS 3
Business combinations. The equity method is applied up to the time when the
significant influence terminates.
Minority interests
Transactions with minority
interests are treated the same as transactions with external parties. Sale of
participations to minority interests resulting in gain or loss are reported in
the consolidated income statement. Acquisition of minority interests can result
in goodwill if the cost exceeds the carrying amount of the acquired net
assets.
Foreign currency translation
Functional and
presentation currency Items included in the financial statement of each of the
Group’s foreign 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 kronor, which is the
Parent Company’s functional and presentation currency.
Transactions and balances
Foreign currency
transactions are translated into the functional currency using the exchange
rates prevailing at 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
are recognised as of the reporting date in the income statement. The Group does
not use hedge accounting.
Group companies
The results and financial position of
all group foreign entities (none having the currency of a hyperinflationary
economy) having a functional currency other than the presentation currency are
translated to the 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 recognised in equity. When a foreign
subsidiary is sold, any exchange rate 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.
Exchange rates
The following rates were used to
translate currency:
Currency / Average rate / Closing
rate
EUR / 9.25 / 9.42
DKK / 1.24
/ 1.26
GBP / 13.48 / 12.85
LKR / 0.06 / 0.06
MXN / 0.62 /
0.59
USD / 6.74 / 6.40
Segment reporting
The Group’s operations are
organically divided into business segments based on product. The Group’s
marketing operations also reflect this structure. The business segments
therefore make up the Group’s primary segments and
the geographical markets
are the secondary segments. 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 or losses from the sale of
financial investments, interest expenses, and tax expenses. Assets and
liabilities not attributed to a segment include income tax liabilities,
financial investments and financial liabilities.
Revenue recognition
Income reflects the fair value of
goods sold excluding VAT and discounts after eliminating intra-group sales.
Sales are reported on delivery of the goods, after customer acceptance and the
receivable can reasonably be deemed as safe. Interest income is reported
allocated over the maturity of the security using the effective interest
method.
Employee benefits
a) Pensions Obligations
Group
companies operate various pension schemes. These schemes are generally funded
through payments to insurance companies or trustee administered funds,
determined by periodic actuarial calculations. The Group has both defined
benefit and defined contribution plans. A defined benefit plan is a pension plan
that 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 compensation. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into a separate entity.
The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees
the benefits relating to employee service in the current and prior periods. The
liability recognised in the balance sheet in respect to defined benefit pension
plans is the present value of the defined benefit obligation at the balance
sheet date less the fair value of plan assets, together with adjustments for
unrecognised actuarial gains or losses. The defined benefit obligation is
calculated annually by independent actuaries using the projected unit credit
method. This calculation is not done annually since the obligations are
negligible. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rates of
high-quality corporate 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 liability.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions exceeding the greater of 10 percent of the
value of the plan assets and 10 percent of the defined benefit obligation are
charged or credited to income over the employees’ expected average remaining
working lives. Past-service costs are recognised immediately in income, unless
the changes to the pension plan are conditional on the employees remaining in
service for a specified period of time. In this case, the past-service costs are
amortised on a straight-line basis over the vesting period.
b) Compensation on termination
Employees receive compensation
on termination before normal retirement age or when they voluntarily accept
termination in exchange for such compensation. The Group recognises severance
payments where it is under a manifest obligation either to give notice to
employees following a detailed, formal plan without right to rescission or to
provide compensation in the event of notice being given as a result of an offer
made as an incentive for voluntary resignation.
Leasing
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 so classified. Total payments made for
operating leases are charged to the income statement on a straight-line basis
over the period of the lease (after deduction for any incentives.)
Product development
Research and development expenses
are those related to work whose purpose is primarily to optimise the attributes
and function of oils and special fats, either for the finished product in which
these oils and fats are ingredients or to add value to the finished product
through greater efficiency in the production process. All such activities in the
Group do not meet the requirements for activating IAS 38 and therefore all
product development expenses are recognised as they arise.
Impairment of non-financial assets
Assets with
indefinite useful lives are tested for impairment annually rather than being
depreciated. Assets that are subject to amoritsation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment reflects the excess of the asset’s carrying
cost over its recoverable amount. The recoverable amount is the higher of the
asset’s fair value less any selling costs and value in use. For the purpose of
evaluation of impairment, assets are grouped on the basis of the lowest level on
which there are separately identifiable cash flows (cash generating units).
Assets, other than financial assets and goodwill, for which impairment loss was
previously recognised are tested for any reversal should be made every balance
sheet date.
Borrowing
All borrowing costs are recognised in the
period to which they can be attributed.
Intangible assets
Goodwill
Goodwill represents the
excess of the cost of an acquisition over the fair value of the Group’s share of
the net identifiable assets and contingent liabilities of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries
is included in intangible assets. Goodwill that is 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 be
benefited by the acquisition. Goodwill is carried at cost less accumulated
excess amortisation. Gains and losses on the disposal of an entity include the
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 immediately in income.
Other intangible assets
Other intangible assets
include such assets as capitalised expenditure on IT, patents and trademarks,
and such. These assets have a defined useful life and are carried at cost less
accumulated amortisation and impairment loss. Cost associated with maintaining
an intangible asset is recognised as part of the carrying cost 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 recognised as they arise. Other intangible
assets are amortised using the straight-line method over their estimated useful
lives, normally 5 to 10 years.
Tangible assets
Land and buildings comprise mainly
factory buildings and offices. All tangible fixed assets are carried at cost
less accumulated amortisation. Historical cost includes expenditure that is
directly attributable to the acquisition of the 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 charged to the income statement in the financial period they
arise.
Land is not depreciated. Depreciation on other tangible assets is
calculated using the straight-line method to allocate their cost to their
residual values over their estimated useful lives. 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, impairment loss
is recognised immediately to its recoverable amount.
Assets’ residual value and useful life are reviewed every
reporting date and is adjusted as required. Gains and losses on disposals are
determined by comparing proceeds with the carrying amount.These are included in
the income statement.
Inventory
Inventories are stated at the lower of cost
or net selling price. Cost is calculated using the first-in-first-out principle
(FIFO). Cost of finished goods and products in progress include direct material
costs, direct labour and other direct manufacturing costs and a reasonable
allocation of indirect manufacturing expenses based on normal productions
capacity, excluding borrowing costs. Net selling price is the estimated sales
price in normal circumstances less costs to completion and variable selling
expenses
Financial instruments
A financial asset or financial
liability is reported in the balance sheet when the Company enters a contract
for the instrument. Liability is recognised when the counterparty has performed
and a contractual duty to pay arises, even if no invoice is received.
A financial asset removed from the balance sheet when the rights
in the contract are realised, matures or the Company loses control of them. 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.
The Group classifies its financial instruments in the following
categories:
Financial assets at fair value through profit or loss, and loans
and receivables. The former category is primarily commodity and currency
derivatives. All such hedges are measured at fair value through profit and loss.
The Group also has financial assets categorized as financial assets at fair
value through profit or loss, and Loans and receivables. The Group does not use
hedge accounting.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They
arise when the Group provides money, goods or services directly to a debtor
(most often 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
record date. Loans and receivables are recognised in accounts receivable and
other receivables in the balance sheets.
Accounts receivable
Accounts receivable are recognised
initially at fair value and carried thereafter at amortised cost using the
effective interest method, less provisions for doubtful accounts. Provision for
impairment of trade receivables is recognised when there is objective evidence
that the Company will not receive the cash flow due since the initial
recognition of the receivables’ terms. 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 stated in the income statement as other external expenses.
Share Capital
Ordinary shares are classified as share
capital. Transaction expenses that are directly attributable to new share issues
or options are reported, net of tax, in equity as a deduction from issue
proceeds.
Debts to banks and credit institutions
Borrowings are
initially recognised at fair value, which is the issue proceeds net of
transaction costs. Borrowings are subsequently stated at amortised cost and any
difference between proceeds (net of transactions costs) and redemption value is
recognised in the income statement allocated over the period of the borrowing,
using the effective interest method.
Accounts payable – trade
Accounts
payable-trade are initially recognised at fair value and subsequently at
amortised cost using the effective interest method.
Provisions
Provisions are stated 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
reasonably estimated. No provisions are made for future operating losses.
Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and, if appropriate, the risks
specific to the obligation.
Restructuring
A provision for restructuring is
reported when the Group has adopted a comprehensive and formal restructuring
plan, and the restructuring has either been started or published.
Income tax
Income tax reported in the income
statement includes taxes due on net profit. Income tax is determined using the
tax rates and laws that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled. Tax
expenses stated include both current tax due and deferred income tax.
Deferred income tax is provided in full, using the liability
method, on the temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the balance sheet. The principle
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 are recognised only to the extent it is
probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred income tax assets are reduced
where it is no longer probable that future taxable profit will be available
against which 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 equivalents
Cash equivalents comprise
balances with less than three months’ maturity including cash, bank deposits and
other short-term securities.
Cash flow analysis
Cash flows are categorised
as follows: Operations, investments, and financincing- The Group uses the
indirect method for the presentation of cash flows from operating
activities.
Changes to operating assets and liabilities for the year have
adjusted for effects of exchange rate differences. Acquisitions and disposals
are presented in investing activities. The assets and liabilities of the
acquisitions and disposals as of the record date are not included in the
analysis of net cash used in investing activities nor in net changes of balance
sheet items reported as investing or financing activities.
Earnings per share
Earnings per share are
calculated based on Group net profit/loss for the year attributable to equity
holders in the Parent and on a weighted average number of ordinary shares in
issue.
Transfer pricing
Pricing between Group
companies is done at market.
Dividends
Dividend to shareholders in the
Parent Company is recognised as a liability in the Group financial statements
for the period the dividend was approved by its shareholders.
Accounting principles for the Parent
Company
The Parent Company has prepared its financial reports
according to the Swedish Annual Accounts Acts (Årsredovisningslagen) and the
Swedish Financial Accounting Standards Council (Redovisningsrådets
rekommendation) RR 32:06 ‘Accounting for legal entities’. No differences against
the Groups accounting principles have been identified.