Applied rules
The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS) as adopted by the EU and with application of RFR 1.
The annual report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act and with application of RFR 2.
The most important accounting policies applied are specified below. Unless otherwise stated, these are unchanged compared with preceding years.
New or revised IFRSs and IFRIC interpretations have not had any effect on the Group’s or Parent Company’s result of operations or position.
Basis of presentation
Industrivärden applies the cost method except for equity investments and derivative instruments, which are mainly stated at fair value through profit or loss. Industrivärden has elected to report continuing changes in the market value of all holdings of listed shares and equity derivatives through profit or loss.
Principles of consolidation
The consolidated financial statements, which have been prepared using the purchase method, apply – in addition to the Parent Company – to all companies in which the Parent Company directly or indirectly has a controlling interest.
Associate accounting
Associated companies are companies in which Industrivärden has a significant but not controlling influence. Shares in associated companies are carried at market value. The capital gain or loss generated upon the sale of shares in associated companies is calculated accordingly.
Recognition of income
Dividend income from stocks is recognized from the day on which trading takes place ex-rights. Changes in value of financial assets and derivative instruments are recognized on a current basis through profit or loss under the heading Change in value of stocks, etc.
Reporting of financial assets and liabilities
Financial assets and liabilities are classified in the following categories: financial assets and liabilities carried at fair value through profit or loss, loan receivables, and other financial liabilities. The classification depends on the purpose for which the financial item was acquired. Purchases and sales of financial instruments are reported as per the transaction date.
Reporting of convertible loans
The convertible loans, which are issued in euros, consists of two components: a debt component and an option component. The debt component is initially measured at fair value, and thereafter at amortized cost using the effective interest method. This entails that the loan is revalued over its term at nominal value.
This revaluation is reported as a change in value in the income statement, while the coupon interest is reported as an interest expense. The option component is reported as a liability, since the currency is different from the functional currency. In accordance with IAS 39, the option is measured on a continuous basis at fair value through profit or loss in the item Change in value of stocks, etc. Transaction costs are allocated over the term of the loan and are included in the change in value reported in the income statement.
Assets and liabilities in foreign currency
Transactions, assets and liabilities in foreign currency are translated to the functional currency using the exchange rates in effect on the transaction date or on the day the items were restated. The Parent Company’s functional currency is SEK.
Issued stock options
Option premiums received are booked as a liability and are deducted from premiums paid upon repurchase. If an issued option expires without being exercised, the premium is recognized as income. Upon exercise of an issued option, the premium increases the exercise price upon the sale of the shares or reduces the exercise price upon the purchase of shares.
On the balance sheet date, the market value of issued options is determined, and the difference between it and provisioned premiums is recognized in income. The outstanding options are carried on the balance sheet as accrued income and accrued expenses, respectively.
Hedging of fixed interest rates through effective cash flow hedges
The interest coupon portion is reported as a continuing interest expense, while other market value changes of the hedge (swap) are reported directly against the hedging reserve in shareholders’ equity, under the condition that the hedge is effective.
Non-current assets
Property, plant and equipment are carried at cost less depreciation.
Cash and cash equivalents
Cash and cash equivalents include – in addition to cash and bank balances – short-term financial investments with remaining terms of less than three months.
Borrowings
Borrowings are carried initially at fair value net of transaction costs and thereafter at amortized cost using the effective interest rate method.
Pensions
Pension liability refers to defined benefit individual pension obligations – all calculated annually for the Group in accordance with IAS 19 with the assistance of an external actuary. In accordance with UFR 6, defined benefit pension plans insured with Alecta are reported as defined contribution plans, since Alecta has not been able to provide adequate information. Industrivärden has elected at the Group level to utilize the so-called corridor in reporting actuarial gains and losses.
Short-term derivative and equity trading
Industrivärden’s short-term trading consists of trading in stock options, short-term equity investments and financial instruments coupled to short-term equity investments.
Share-based incentive program
The 2008 Annual General Meeting of AB Industrivärden resolved that all employees of the Group would be offered stock options in Industrivärden at market terms and in other respects in accordance with the Board’s complete proposal to the Annual General Meeting. The program involved the issuance of a maximum of 1,000,000 stock options for 1,000,000 Class C shares and has been secured through a total return swap. The offer was fully subscribed.
In accordance with the terms of the offer, the exercise price per share was set at SEK 106.80. The options can be exercised to purchase Class C shares in the Company during the period July 1, 2008, through May 31, 2013. Under the condition that the respective employees remain employed by Industrivärden three years after purchasing their options, the Company will pay a subsidy for their option purchase corresponding to 75% of the option premium paid (gross, before tax). The Company’s costs for the subsidy will be covered by revenue from the sale of the options. No options were exercised during the year.
Parent Company
As in the Group, listed shares in the Parent Company are carried at market value. In its reporting of pensions, the Parent Company complies with the Pension Obligations Vesting Act (Tryggandelagen) and FAR accounting recommendation no. 4, Reporting of pension liabilities and pension costs.
Changed accounting policies for the Parent Company
Effective January 1, 2010, the Parent Company also applies the revised IAS 1 Presentation of Financial Statements. This change has affected the Parent Company’s reporting retrospectively and entails that income and expenses that were previously reported directly against shareholders’ equity are now reported in a separate statement directly after the income statement.
The Parent Company also applies a new accounting policy concerning the reporting of associated companies following an amendment to the Annual Accounts Act, Ch. 4, Section 14b. Associated companies are now reported at fair value also in the Parent Company. This has affected the comparison year 2009 in the balance sheet and income statement as follows: Change in value of stocks, etc., by SEK +1,931 M; shares in associated companies by SEK +4,784 M; and retained earnings by SEK +2,853 M.