Accounting policies

General information

Industrivärden is a listed holdings company that invests in and works long- term to develop and create value in its portfolio companies. Operations are conducted by the Parent Company, AB Industrivärden (publ), where some of the wholly owned subsidiaries have a supporting function. The Parent Company is a Swedish limited company with its principal place of business in Stockholm, Sweden. Headquarters address: Storgatan 10, 114 51 Stockholm, Sweden.

Prerequisities for preparation

The financial statements are presented in Swedish kronor (SEK), which is the functional currency and also the presentation currency for the Parent Company and Group.

Transactions in foreign currency are translated to the functional currency using the exchange rate in effect on the transaction date. Assets and liabilities in foreign currency are translated to the functional currency using the exchange rate in effect on the balance sheet date.

All amounts are stated in millions of Swedish kronor (SEK mn), unless otherwise stated. Amounts stated are rounded per individual line items, which means that tables and calculations do not always add up. Amounts stated in text, within parentheses, refer to the corresponding value in the previous year.

Conformity with norms and laws

The consolidated financial statements have been prepared in accordance with IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) as endorsed by the EU. In addition, Swedish Financial Reporting Board recommendation RFR 1, Supplementary Reporting Rules for Groups, has been applied.

The annual report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act and with application of RFR 2, Accounting for Legal Entities.

New or revised IFRS Accounting Standards and interpretations from the IFRS Interpretations Committee (IFRIC) have not had any significant effect on the Group’s or Parent Company’s result of operations or financial position during the year.

Principles of consolidation

According to IFRS 10, Industrivärden is classified as an Investment Entity and as such does not consolidate certain subsidiaries. Subsidiaries that serve in a supporting function for the Parent Company are consolidated in accordance with the acquisition method. Subsidiaries that are investments are measured at fair value through profit or loss. 

Associated companies that are investments are not consolidated, but are measured at fair value through profit or loss, in accordance with IFRS 9 and IAS 28, and are presented under the line item Equities. 

Parent Company reporting

The Parent Company reports participations in subsidiaries at cost, while associated companies and other holdings are carried at fair value. The capital gain or loss generated upon the sale of shares and participations is calculated accordingly.

Dividends

Dividend income is recognized when the right to receive the dividend has been determined.

Tax

The Group’s total income tax consists of current tax and deferred tax. According to the Income Tax Act, the Parent Company is classified as an investment company and therefore applies certain, special tax rules. Other companies in the Group apply the general rules of the Income Tax Act.

The main principles concerning taxation of investment companies are that dividends received and interest income are taxable, while dividends paid, interest expenses and management costs are tax deductible. In addition, capital gains on sales of shares are tax exempt, but in return, a standardized level of income, which amounts to 1.5% of the market value of the equities portfolio at the start of the financial year, is taxed. The standardized level of income does not apply for unlisted shares and market-listed shares where the holding corresponds to at least 10% of the number of votes. In order for market-listed shares to be excluded from the standardized income calculation, they must have been held for at least one year. The tax rules for investment companies entail that the Parent Company, as an intermediary, has the option to avoid a taxable surplus by paying dividend. Any tax-loss carryforwards are deductible and may be accumulated in order to be deducted from future taxable surpluses. As a result of applicable rules, the Parent Company normally does not pay any income tax and therefore nor does it report any deferred tax assets for tax-loss carryforwards. Subsidiaries that are taxed in accordance with the general rules of the Income Tax Act report, where applicable, deferred tax calculated on temporary differences. In addition, the tax rules for investment companies also entail that the Parent Company can neither pay nor receive Group contributions. 

Earnings per share

Earnings per share is calculated as net income for the year divided by the weighted average number of shares outstanding.

Tangible fixed assets

Equipment is carried at cost after deducting accumulated depreciation and any impairment losses. Depreciation is recognized on a straight-line basis over the asset’s estimated useful life, which is estimated to be between three and five years. An estimation of an asset’s residual value and useful life is made yearly.

Leases are recognized as a right of use measured at cost less depreciation. In addition, a lease liability is recognized, measured as the present value of lease payments that have not been paid at that point in time.

Financial instruments

Financial assets and liabilities are classified in the following categories: financial assets and liabilities measured at amortized cost, and financial assets and liabilities measured at fair value through profit or loss. The classification of financial assets is based on the Group’s business model and the cash flow characteristics of the assets. Financial liabilities are classified at amortized cost, apart from derivatives, which are measured at fair value through profit or loss.

All listed shareholdings and equity derivatives are measured at fair value through profit or loss. Purchases and sales of financial instruments are recognized as per the transaction date. 

Cash and cash equivalents

In addition to cash and bank balances cash and cash equivalents include short-term financial investments with a maturity of less than three months from the date of acquisition.

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 shares or reduces the exercise price upon the purchase of shares.

The fair value of issued options is determined on the balance sheet date, and the difference between fair value and the difference in value against premiums received as liability is reported in the income statement as Change in value of shares, etc.

Statement of cash flows

The statement of cash flows for the Parent Company and the Group is prepared using the direct method.

Employee compensation

Pensions

The Group has both defined contribution and defined benefit pension plans. Costs for defined contribution pension plans are expensed in pace with payment of premiums. Defined benefit pension plans with Alecta are reported as defined contribution plans, since insufficient information is available to report these as defined benefit plans. No current employees have defined benefit plans. The pension liability pertains to defined benefit pension obligations, calculated annually for the Group in accordance with IAS 19 with the assistance of an independent actuary. All changes in the pension liability are recognized when they arise. Service and interest costs are recognized in the income statement, while remeasurements such as of actuarial gains and losses are recognized in other comprehensive income.

 Long-term incentive programs

Industrivärden’s current long-term incentive programs are share savings programs where employees can invest a certain portion of their fixed annual salary in Industrivärden shares, and after three years receive performance shares, conditional upon continued employment and outcome based on performance targets. 

The share savings programs are classified as equity-settled programs in accordance with IFRS 2. Reporting of such share-based compensation pro- grams entails that the instrument’s fair value on the grant date is allocated over the term of the program and is reported under the line Management cost in the income statement, with a corresponding adjustment of share- holders’ equity. On every book-closing date during the vesting period,

the expected number of granted shares and the effect of any change of previous assessment of the number of granted shares is reported in the income statement under the line Management cost with a corresponding adjustment of shareholders’ equity. Social security costs attributable to a share savings program are expensed over the term of the program.

Industrivärden has entered into a share swap agreement to limit the cost of the programs described above. The share swap is remeasured on a continuing basis at fair value in accordance with IFRS 9, and the change in value is reported in income statement as Management cost. Allocation of shares within the Company’s share savings programs does not give rise to any dilution effect regarding earnings per share.

Significant assessments and estimations

In preparation of the financial statements, the Executive Management has determined that there are no significant areas that rely on large assessments and estimations that affect reported amounts.