Note 2 – Summary of Important Accounting Principles

This Note sets forth the most important accounting principles applied in the preparation of the annual report. Subject to the exceptions stated below, these principles have been applied consistently for all presented years. The consolidated financial statements cover Duni AB and its subsidiaries.

2.1 Bases for preparation of the financial statements

Compliance with IFRS

The consolidated financial statements for the Duni Group have been prepared in accordance with the Swedish Annual Accounts Act, RFR 1, ”Supplementary Accounting Rules for Groups”, and the International Financial Reporting Standards (IFRS) and interpretations from the IFRS Interpretations Committee (IFRS IC) as adopted by the EU.

Cost method

The consolidated financial statements have been prepared in accordance with the cost method, except for:

  • available-for-sale financial assets, financial assets and liabilities (including derivative instruments) measured at fair value through profit or loss,
  • financial assets and liabilities (including derivative instruments) classified as hedge instruments and
  • defined benefit pension plans – plan assets measured at fair value.

The preparation of financial statements in compliance with IFRS requires the use of a number of important estimates for accounting purposes. Furthermore, when applying the Group’s accounting principles, management must make certain judgments. The areas which involve a high degree of judgment, which are complex, or such areas in which assumptions and estimates are of material significance for the consolidated financial statements, are set forth in Note 4.

The Parent Company applies the Swedish Annual Accounts Act and RFR 2, Accounting for Legal Entities. In those cases where the Parent Company applies different accounting principles than the Group, such fact is stated separately in section 2.22, Parent Company’s accounting principles.

2.1.1 Changes in accounting principles and disclosure

Duni applies the new and amended standards and interpretations from the IASB and statements from the IFRIC as adopted by the EU and which are mandatory starting on January 1, 2017. Presented below are the standards that Duni applies for the first time with respect to the financial year commencing on January 1, 2017, and which have had an impact on the consolidated financial statements:

Disclosure Initiative: Amendments to IAS 7. The amendments to IAS 7 entail extended disclosure requirements for financial liabilities. An entity must explain changes in liabilities relating to financing activities. This includes changes attributable to cash flows (such as raising and repaying loans) and non-cash items such as acquisitions, divestments, accrued interest and unrealized exchange rate differences. These disclosures are made in Note 31.

Other standards, changes and interpretations which enter into force as regards the financial year commencing on January 1, 2017 have no material impact on the consolidated financial statements.

IFRS 9 Financial Instruments (adopted by the EU)

Material requirements

IFRS 9 Financial Instruments addresses the classification, measurement and recognition of financial assets and liabilities and introduces new rules regarding hedge accounting. The complete version of IFRS 9 was issued in July 2014. It replaces the parts of IAS 39 covering the classification and measurement of financial instruments and introduces a new impairment model.

Impact

Duni has assessed its financial assets and liabilities and does not expect any material impact on the Company’s income statement or balance sheet.

Other financial assets held by Duni include:

  • Debt instruments that are currently classified as assets held until maturity and measured at amortized cost, which appear to satisfy the requirement for measurement at amortized cost in accordance with IFRS 9.

Duni does not expect the classification, measurement or recognition of the Group’s financial assets and liabilities to have any material impact. Nor will Duni’s recognition of financial liabilities be changed, since the new requirements only affect the recognition of financial liabilities that are recognized at fair value in the income statement, and the Group has no liabilities of that type. The rules regarding derecognition from the balance sheet have been carried over from IAS 39 Financial Instruments: Recognition and Measurement, and have not changed.

The new hedge accounting rules in IFRS 9 are more compatible with the Company’s risk management in practice. Generally, it will become easier to apply hedge accounting since the standard introduces a more principle-based approach to hedge accounting. Duni’s current hedging arrangements will continue to quality for hedge accounting under IFRS 9 and Duni has updated the hedging documentation in accordance with this. On the transition to IFRS 9, hedge accounting will not affect the Company’s income statement or balance sheet.

Changes in the fair value of currency forward contracts attributable to forward points and changes in the time value of currency option contracts will be recognized in a new hedging reserve within equity in the future. The amounts are recognized against the hedged transaction when it occurs. The new model for the calculation of credit loss reserves is based on expected credit losses instead of established credit losses in accordance with IAS 39, which may result in earlier recognition of credit losses. The model is to be applied to financial assets that are recognized at amortized cost, debt instruments that are measured at fair value in other comprehensive income, contractual assets in accordance with IFRS 15 Revenue from Contracts with Customers, lease receivables, loans and certain financial guarantees. Duni is not affected by these changes in the credit loss reserve. The current reserve already covers this change.

The new standard also introduces extended disclosure requirements and changes in presentation.

Applicable from January 1, 2018

Duni will apply the new rules retroactively from January 1, 2018 with the help of the practical transition provisions in the standard. The comparative figures for 2017 will not be restated, with the exception of changes in the fair value of currency forward contracts attributable to forward points, which will be recognized in the hedging reserve.

IFRS 15 Revenue from Contracts with Customers (adopted by the EU)

Material requirements

IFRS 15 is the new standard for revenue recognition. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts. IFRS 15 is based on the principle of revenue being recognized when the customer gains control over the sold product or service – a principle which replaces the earlier principle that revenue is recognized when the risks and rewards have been transferred to the purchaser. A company may choose between full retroactivity or forward-looking application with additional disclosures.

Impact

Management has assessed the effects of the new standard and has identified the following areas which will be affected:

  • Consignment sales where revenue recognition depends on transfer of control rather than transfer of risks and rewards
  • The recognition of returned goods in the balance sheet will be changed since they must be recognized at their gross amount in accordance with IFRS 15 (separate recognition of the right to repossess goods from the customer and the obligation to make a refund)

The consequences of IFRS 15 will not have any material impact on Duni’s income statement or balance sheet. IFRS 15 has extended disclosure requirements that will affect Duni.

Applicable from January 1, 2018

The transition method applied is fully retroactive application.

IFRS 16 Leases

Material requirements

IFRS 16 was published in January 2016. Implementation of the standard will result in almost all lease agreements being recognized in the balance sheet, since a difference is no longer made between operating and finance leases. According to the new standard, an asset (the right to use a leased asset) and a financial obligation to make lease payments must be recognized. Short-term leases and leases involving low amounts are exempted. For lessors, recognition will in all essential respects be unchanged.

Impact

The standard will primarily affect the reporting of Duni’s operating leases. At the balance sheet date, the Group’s non-terminable operating leases amounted to SEK 210 m; see Note 37. Duni is not yet done assessing the extent to which these obligations will be recognized as assets and liabilities, and how this will affect the Group’s income and classification of cash flows. Short-term leases and leases involving low amounts will be expensed in the income statement on a straight-line basis. The assessment of how many leases fall under short-term leases and leases involving low amounts was not yet complete at the end of 2017.

Operating income, the equity ratio and the net debt/equity ratio will also be affected by the new standard. The size of the effect of this change on these items has not yet been assessed.

Applicable from January 1, 2019

IFRS 16 Leases has not yet been adopted by the EU, but is expected to be applicable to financial years beginning on or after January 1, 2019. At present, Duni does not intend to opt for early application of the standard. Duni plans to apply the simplified transition method and will not restate comparative figures.

No other changes to the IFRS or IFRIC interpretations that have not yet entered into force are expected to have any material impact on Duni.

2.2 Consolidated accounts

2.2.1 Subsidiaries

Subsidiaries are all companies (including companies for specific purposes) in which the Group is entitled to formulate financial and operational strategies in a manner which normally is a concomitant of a shareholding in excess of 50% of the voting rights of shares or units or where the Group, through agreements, exercises a controlling influence. Subsidiaries are included in the consolidated financial statements commencing on the day on which the controlling influence is transferred to the Group. They are removed from the consolidated financial statements as of the day on which the controlling influence ceases.

The acquisition method is used for reporting the Group’s business acquisitions. The purchase price for the acquisition of a subsidiary consists of the fair value of transferred assets, liabilities and the shares issued by the Group. The purchase price also includes the fair value of all assets or liabilities which are a consequence of an agreement regarding a conditional purchase price. Acquisition-related costs are expensed when incurred. Identifiable acquired assets and assumed liabilities in a business acquisition are initially measured at fair value on the acquisition date. For each acquisition, Duni determines whether all non-controlling interests in the acquired company are recognized at fair value or at the interest’s proportional share in the net assets of the acquired company.

The amount by which the purchase price, any non-controlling interests, and the fair value on the acquisition date of earlier shareholdings exceeds the fair value of the Group’s share of identifiable acquired net assets is recognized as goodwill. If the amount is less than the fair value of the assets of the acquired subsidiary, in the event of a bargain purchase, the difference is recognized directly in the statement of comprehensive income.

Intra-group transactions, balance sheet items and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated, but any losses are regarded as an indication of possible impairment. Where appropriate, the accounting principles for subsidiaries have been changed to ensure consistent application of the Group’s principles.

2.2.2 Transactions with non-controlling interests

The Group applies the principle of reporting transactions with non-controlling interests as transactions with the Group’s shareholders. Upon acquisitions from non-controlling interests, the difference between the purchase price paid and the actual acquired share of the carrying amount of the subsidiary’s net assets is recognized in equity. Gains or losses upon divestments to non-controlling interests are also recognized in equity. Duni recognizes non-controlling interests in an acquired company either at fair value or at the proportionate share of the acquired company’s identifiable net assets. This choice of principle is made for each individual business acquisition. Duni has non-controlling interests in subsidiaries Terinex Siam in Thailand and Sharp Serviettes in New Zealand, which are recognized at fair value.

Duni has an obligation to acquire the remaining 20% of the shares in Sharp Serviettes. The minority owners have a put option in the April-June period for 2019, 2020 and 2021. In the event that the option is exercised, the purchase price will be based on the Company’s normalized average financial performance for the two closed financial years preceding the date the option is exercised. As a result of the option, Duni recognizes a non-controlling interest and allocates the interest’s share of the income to the interest. The Group also recognizes a liability corresponding to the discounted expected redemption price for the options with elimination of the non-controlling interest attributable to the option. The difference between the liability for the option and the non-controlling interest to which the option relates is recognized directly in equity and separated from other changes in equity.

2.2.3 Affiliated companies

Affiliated companies are all companies in which the Group has a significant, but not controlling, influence, which generally is the case with shareholdings corresponding to between 20% and 50% of the voting rights. Participations in affiliated companies are recognized in accordance with the equity method and initially measured at the acquisition value. At present, Duni has no affiliated companies.

2.3 Segment reporting

Operating segments are reported in a manner which is consistent with the internal reporting provided to the highest executive decision-maker. The highest executive decision-maker is the function which is responsible for the allocation of resources and assessment of the income of the operating segment. In Duni, this function has been identified as Group Management, which makes strategic decisions. As from January 1, 2017, Duni’s segment reporting covers four business areas, based on the operating income following allocation of shared expenses to each business area. For a detailed description, see Note 5.

2.4 Translation of foreign currency

2.4.1 Functional currency and reporting currency

Items included in the financial statements for the various units in the Group are valued in the currency which is used in the economic environment in which the relevant company primarily operates (functional currency). In the consolidated financial statements, the Swedish krona (SEK) is used; this is the Parent Company’s functional currency and reporting currency.

2.4.2 Transactions and balance sheet items

Transactions in foreign currency are translated to the functional currency in accordance with the exchange rates applicable on the transaction date. Exchange rate gains and losses which arise in conjunction with payments of such transactions and in conjunction with translation of monetary assets and liabilities in foreign currency at the exchange rate on the balance sheet date are recognized in the income statement. Exchange rate differences on lending and borrowing are recognized in net financial items, while other exchange rate differences are included in operating income. Exceptions apply when the transactions constitute hedging which satisfies the conditions for hedge accounting of cash flows or of net investments, since gains /losses are recognized in other comprehensive income. Duni applies hedge accounting via interest rate swaps, with part of the interest rate risk hedged at a fixed rate.

2.4.3 Group companies

The results of operations and financial position of all Group companies (of which none has a high inflation currency as their functional currency) which have a functional currency other than the reporting currency are translated to the Group’s reporting currency as follows:

a)      assets and liabilities for each of the balance sheets are translated using the exchange rate at the balance sheet date

b)      revenue and expenses for each of the income statements are translated using the average exchange rate

c)      all exchange rate differences that arise are recognized in other comprehensive income.

Upon consolidation, exchange rate differences which arise as a consequence of translation of net investments in foreign operations are transferred to other comprehensive income. Upon the full or partial divestment of a foreign business, the exchange rate differences which are recognized in other comprehensive income are transferred to the income statement and recognized as a part of capital gains/losses.

Goodwill and adjustments of fair value which arise upon the acquisition of a foreign business are treated as assets and liabilities of such business and translated using the exchange rate at the balance sheet date.

2.5 Cash flow statement

The cash flow statement is prepared using the indirect method. The reported cash flow covers only transactions which result in payments being received or made. Cash and cash equivalents in the cash flow statement meet the definition of cash and cash equivalents in the balance sheet, see 2.13.

2.6 Revenue

2.6.1 Revenue recognition

Revenue includes the fair value of what has been, or will be, received for sold goods in the Group’s operating activities. Revenue is recognized exclusive of value added tax, returns and discounts and after elimination of intra-Group sales. Duni also has service revenue in the form of sales of financial and administrative services from the Group’s accounting center. This revenue is not of a substantial amount and is unallocated as part of revenue in the income statement.

Duni recognizes revenue when the amount thereof can be measured in a reliable manner and it is likely that future economic benefits will accrue to the Company. The amount of revenue is not deemed measurable in a reliable manner until all obligations associated with the sale have been fulfilled or have lapsed. Duni bases its assessments on historic results and thereupon takes into consideration the type of customer, type of transaction and special circumstances in each individual case.

Sales of goods are recognized as revenue when a Group company has delivered products to customers and when responsibility for the products has passed to the customer. The responsibility is governed by the delivery terms and conditions. The customer’s acceptance consists of delivery approval, conditions for approval having expired, or the fact that the Group has objective evidence that all criteria for approval are fulfilled. Delivery does not occur before the products have been dispatched to a designed place and the risks and opportunities associated with the products (obsolescence, gain or loss upon future sale) have passed to the customer.

In those cases where Duni’s products are sold with volume discounts and the customers are entitled to return defective products, the sales revenues are recognized based on the price stated in the sales contract, net of estimated volume discounts and returns at the time of the sale. Accumulated experience is used to assess and make provision for discounts and returns. The assessment of volume discounts is based on expected annual purchases. No financial component is deemed to be established since the sale takes place with an average credit period of 45 days, which is in accordance with market practice.

2.6.2 Dividend income

Dividend income is recognized when the right to receive the payment has been established.

2.7 Intangible assets

2.7.1 Goodwill

Goodwill comprises the amount by which the acquisition value exceeds the fair value of the Group’s share of the identifiable net assets of acquired subsidiaries at the time of acquisition. Goodwill on acquisition of subsidiaries is recognized as intangible assets. Goodwill is reviewed annually to identify any impairment and recognized at acquisition value less accumulated impairment losses. Impairment of goodwill is not reversed. Gains or losses upon the divestment of a unit include the remaining carrying amount of the goodwill which relates to the divested unit.

Detailed information regarding Duni’s definition of cash-generating units upon the allocation of goodwill is provided in Note 21.

2.7.2 Customer relations, trademarks and licenses

Identifiable acquired customer relations are recognized at fair value and are attributable to acquisitions made from 2013 onwards. The relations are amortized on a straight-line basis over an estimated useful life of 10 years.

Acquired trademarks and licenses are recognized at acquisition value. Trademarks and licenses have a determinable useful life and are recognized at acquisition value less accumulated amortization. Trademarks and licenses are amortized on a straight-line basis in order to allocate their cost over their estimated useful life (3-10 years).

2.7.3 Research and development

Capitalized research expenses relate primarily to expenditure for the implementation of the SAP ERP system.

Research expenses are recognized when incurred.

Expenditure incurred in development projects (relating to design and testing of new or improved products) are recognized as intangible assets when the following criteria are fulfilled:

(a)   it is technically feasible to finish the intangible asset so that it can be used or sold;

(b)   management intends to finish the intangible asset and use or sell it;

(c)    conditions are established for the use or sale of the intangible asset;

(d)   the way in which the intangible asset will generate probable future economic benefits can be demonstrated;

(e)    adequate technical, financial and other resources are available to complete the development and to use or sell the intangible asset; and

(f)     the expenses which relate to the intangible asset during its development can be calculated in a reliable manner.

Other development expenditure which does not fulfill these conditions is recognized as an expense when incurred. Development expenditure previously recognized as an expense is not recognized as an asset in a subsequent period. Capitalized development expenses are recognized as intangible assets and the assets are amortized from the time the asset is ready for use on a straight-line basis over the estimated useful life (3–10 years).

2.8 Tangible fixed assets

Buildings and land primarily include plants and offices. All tangible fixed assets are recognized at acquisition value less depreciation. The acquisition value includes expenses directly related to the acquisition of the asset, as well as interest expenses in conjunction with the construction of qualifying assets.

Additional expenses are added to the carrying amount of the asset or recognized as a separate asset only where it is likely that the future economic benefits associated with the asset will flow to the Group and the asset’s acquisition value can be measured in a reliable manner. The carrying amount of the replaced part is derecognized from the balance sheet. All other forms of repairs and maintenance are recognized as expenses in the income statement during the period in which they are incurred.

Land is not depreciated. In order to allocate their acquisition value down to the estimated residual value over the estimated useful life, other assets are depreciated on a straight-line basis as follows:

Type of asset Useful life
Buildings 20-40 years
Paper machinery 15-17 years
Other machinery 10 years
Vehicles 5 years
Equipment, tools and installations 3-8 years

The residual value and useful life of the assets are assessed on each balance sheet date and adjusted as required.

Gains or losses from divestments are established through a comparison between the sales revenue and the carrying amount, and are recognized in other operating income or other operating expenses in the income statement.

2.9 Impairment of non-financial assets

With respect to goodwill and other assets with an undetermined useful life, an annual assessment is conducted to ascertain that the recoverable amount, i.e. the higher of net realizable value or value in use, exceeds the carrying amount. With respect to other non-financial assets, a similar assessment is carried out as soon as there are indications that the carrying amount is too high. The asset’s value is written down to the recoverable amount as soon as it is shown that it is lower than the carrying amount.

2.10 Leases

Fixed assets which are used under leases are classified in accordance with the financial terms of the lease agreement. Leases of fixed assets, where the Group in all essential respects holds the financial risks and benefits associated with ownership, is classified as finance leases. Finance leases are recognized at the beginning of the lease period at the lower of the fair value of the leased item or the present value of the minimum lease payments. Other leases agreements are classified as operating leases. Payments made during the lease term (less deductions for any incentives from the lessor) are recognized as an expense in the income statement on a straight-line basis over the lease term.

2.11 Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial asset was acquired. Management determines the classification of the financial assets upon initial recognition and reviews this decision on each subsequent reporting date.

2.11.1 General principles

Purchases and sales of financial assets are recognized on the transaction day – the date on which the Group undertakes to purchase or sell the asset. Financial instruments are initially recognized at fair value plus transaction expenses, which applies to all financial assets which are not recognized at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognized initially at fair value, while related transaction expenses are recognized in the income statement. Financial assets are removed from the balance sheet when the right to receive cash flows from the instrument has expired or has been transferred and the Group has largely transferred all risks and benefits associated with ownership. Financial assets measured at fair value through profit or loss are recognized after the acquisition date at fair value. Loans and receivables are recognized at amortized cost applying the effective annual interest rate method.

The fair value of listed financial assets corresponds to the listed bid price on the balance sheet date. The fair value of unlisted financial assets is determined by using valuation techniques such as recently completed transactions, the price of similar instruments or discounted cash flows. The fair value of currency forwards is determined based on the applicable forward rate on the balance sheet date, while interest rate swaps are valued based on future discounted cash flows.

The Group assesses on each balance sheet date whether there is any objective evidence of impairment of a financial asset or a group of financial assets, such as the discontinuation of an active market or that it is unlikely that the debtor will be able to meet its obligations. The impairment is calculated as the difference between the carrying amount of the asset and the present value of estimated future cash flows, discounted to the financial asset’s original effective rate of interest. The carrying amount of the asset is written down and the impairment charge is reported in the consolidated income statement. If a loan or an investment which is held to maturity carries variable interest, the relevant effective rate of interest established in accordance with the agreement is used as the discount rate when establishing impairment. As an expediency, the Group can establish impairment on the basis of the fair value of the instrument applying an observable market price. Impairment of accounts receivable is described below in the section on loans and receivables.

Financial assets and liabilities are set off and recognized at a net amount in the balance sheet only when there is a legal right to set off the recognized amounts and there is an intention to settle them with a net amount or to simultaneously realize the asset and settle the debt. The legal right may not be dependent on future events and must be legally binding on the Company and the counterparty, both in normal business operations and in the event of suspension of payments, insolvency or bankruptcy.

2.11.2 Financial assets measured at fair value through profit or loss

Financial assets measured at fair value through profit or loss consist of financial assets that are held for trading. A financial asset is classified in this category if it is acquired primarily in order to be sold within a short time. Derivative instruments are classified as held for trading if they are not identified as hedge instruments. Duni holds derivative instruments in the form of currency forward contracts and interest-rate swaps on borrowings.

Duni applies hedge accounting in accordance with IAS 39 on the interest rate swaps entered into for hedging payments of variable interest. Changes in the value of derivatives designated for hedge accounting are recognized in Other comprehensive income.

Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise they are classified as fixed assets.

2.11.3 Hedge accounting

The effective part of changes in fair value on a derivative instrument which is identified as a cash flow hedge and which satisfies the conditions for hedge accounting is recognized in Other comprehensive income. The gain or loss attributable to the ineffective part is recognized immediately in the income statement under Other net gains/losses. The gain or loss attributable to the effective part of an interest rate swap which hedges borrowings at a variable interest rate is recognized in the income statement in Financial expenses.

Information regarding the fair value for various derivative instruments used for hedging purposes is provided in Note 29. Changes in the hedging reserve in equity are set forth in the Statement of changes in equity. The entire fair value of a derivative which constitutes a hedge instrument is classified as a fixed asset or long-term liability when the outstanding term of the hedged item exceeds 12 months, and as a current asset or short-term liability when the outstanding term of the hedged item is less than 12 months. Derivative instruments held for trading are always classified as current assets or short-term liabilities.

2.11.4 Loans and receivables

Loan receivables and accounts receivable are financial assets which are not derivative instruments. They have determined or determinable payments and are not listed on an active market. They are included in current assets, with the exception of items payable more than 12 months after the balance sheet date, which are classified as fixed assets. Impairment of accounts receivable is recognized in the income statement in the sales function and impairment of loan receivables is recognized as a financial item. Cash and cash equivalents in the balance sheet are also included in this classification.

Accounts receivable and loans receivables are initially recognized at fair value and thereafter at accrued acquisition value applying the effective interest rate method, less any provisions for impairment.

A provision is made for impairment of accounts receivable when there is objective evidence that the Group will be unable to receive all amounts which are due and payable according to the original terms of the receivables. Significant financial difficulties of the debtor, the probability that the debtor will go into bankruptcy or undergo financial restructuring, and non-payment or delayed payment (payment overdue by more than 30 days) are regarded as indications that impairment may exist. The size of the provision is determined by the difference between the carrying amount of the asset and the present value of estimated future cash flows.

2.12 Inventories

Inventories are recognized at lower of the acquisition value and net realizable value. The acquisition value is determined using the first in, first out method (FIFO). The acquisition value of finished goods and work in progress consists of design expenses, raw materials, direct salaries, other direct expenses and associated indirect manufacturing expenses (based on normal production capacity). Loan expenses are not included. The net realizable value is the estimated sales price in operating activities, less applicable variable selling expenses.

2.13 Cash and cash equivalents

In both the balance sheet and the cash flow statement, cash and cash equivalents include cash, bank balances and other short-term investments which mature within three months of the date of acquisition.

2.14 Financial liabilities

The Group classifies its financial liabilities in the following categories: financial liabilities valued at fair value through profit or loss and financial liabilities measured at amortized cost. The classification depends on the purpose for which the financial liability was acquired. Management determines the classification of the financial liabilities upon initial recognition and reviews this decision on each subsequent reporting date.

2.14.1 Financial liabilities measured at fair value through profit or loss

Derivative instruments with a negative fair value which do not meet the criteria for hedge accounting are measured at fair value through profit or loss. For a description of the derivative instruments held by Duni and for further information regarding their recognition, please see section 2.11 Financial assets measured at fair value through profit or loss.

Derivative instruments which satisfy the rules for hedge accounting, including the interest rate swaps taken out by Duni, are measured at fair value via Other comprehensive income. For a more detailed description of the recognition of derivative instruments designated for hedging, see 2.11.3.

Liabilities in this category are classified as short-term liabilities if they are expected to be settled within 12 months; otherwise they are classified as long-term liabilities.

2.14.2 Financial liabilities measured at amortized cost

Borrowings and other financial liabilities such as accounts payable are included in this category. Accounts payable comprise obligations to pay for goods or services which have been acquired from suppliers in the course of operating activities. Accounts payable are classified as short-term liabilities if they fall due for payment within one year or less (or during a normal operational cycle if longer). If not, they are recognized as long-term liabilities.

Financial liabilities are initially measured at fair value, net of transaction costs. Thereafter, financial liabilities are measured at amortized cost, and any difference between the amount received (net of transaction costs) and the repayment amount is recognized in the income statement allocated over the loan period, applying the effective interest rate method. In the event of early repayment of loans, any pre-payment interest penalties are reported in the income statement at the time of settlement. Loan expenses are charged to income for the period to which they relate. Distributed dividends are recognized as a liability after the Annual General Meeting has approved the dividend.

Borrowings and other financial liabilities are classified as short-term liabilities unless the Group is unconditionally entitled to defer payment of the debt for at least 12 months after the balance sheet date.

2.15 Income taxes

Reported income taxes includes tax which is to be paid or received regarding the current year, adjustments regarding the current tax for previous years, and changes in deferred taxes.

All tax liabilities/tax assets are measured at the nominal amount in accordance with the tax rules and tax rates decided upon or announced and which in all likelihood will be adopted.

With respect to items reported in the income statement, the associated tax consequences are also recognized in the income statement. The tax consequences of items recognized directly in equity are recognized in equity, and the tax consequences of items recognized reported in comprehensive income are recognized in comprehensive income.

Deferred tax is calculated in accordance with the balance sheet method on all temporary liabilities which arise between accounting and tax values of assets and liabilities.

Deferred tax assets with respect to loss carry-forwards or other future taxable deductions are recognized to the extent it is likely that the deduction may be set off against surpluses in conjunction with future taxation. Deferred tax liabilities relating to temporary differences attributable to investments in subsidiaries and branches are not recognized in the consolidated financial statements since the Parent Company can, in all cases, determine the date for reversal of the temporary differences and it is not deemed likely that a reversal will be made within the foreseeable future.

2.16 Employee benefits

2.16.1 Pensions

Duni has various pension plans. The pension plans are normally financed through payments to insurance companies or managed funds, where the payments are determined based on periodic actuarial calculations. Duni has both defined benefit and defined contribution pension plans. A defined contribution pension plan is a pension plan pursuant to which Duni pays fixed contributions to a separate legal entity. Duni has no legal or informal obligations to pay additional contributions if the legal entity has insufficient assets to pay all compensation to employees relating to the employee’s service during a current or earlier period. A defined benefit plan is a pension plan which is not a defined contribution plan. The distinguishing feature of defined benefit plans is that they state an amount for the pension benefit an employee will receive after retirement, normally based on one or more factors such as age, period of employment and salary.

The liability recognized in the balance sheet with respect to defined benefit plans is the present value of the defined benefit obligation on the balance sheet date, less the fair value of the plan assets. The defined benefit pension obligation is calculated annually by independent actuaries applying the projected unit credit method. The present value of a defined benefit obligation is determined by discounting the estimated future pension payments using the rate of interest on investment-grade corporate bonds issued in the same currency as the currency in which payments are to be made, with terms to maturity comparable to the relevant pension liability. Approximately one half of pension obligations relate to Sweden. Swedish mortgage bonds are considered to be corporate bonds.

Swedish mortgage bonds correspond to investment-grade corporate bonds in the sense that the market for mortgage bonds has a high turnover and is considered to be liquid and deep; furthermore, these bonds often have a triple A rating and thus are extremely creditworthy.

Actuarial gains and losses arising from experience-based adjustments and changes in actuarial assumptions are recognized in “Other comprehensive income” during the period in which they arise.

Expenses relating to employment in earlier periods are recognized directly in the income statement.

In respect of defined contribution plans, Duni pays contributions to publicly or privately administered pension insurance plans pursuant to contractual obligations or on a voluntary basis. The Group has no further payment obligations when the contributions are paid. The contributions are recognized as personnel expenses when they fall due for payment. Prepaid contributions are recognized as an asset to the extent the Group may benefit from cash repayments or a reduction in future payments.

2.16.2 Compensation upon termination of employment

Compensation upon termination of employment is paid when an employee’s employment is terminated by Duni prior to the normal retirement date or when an employee accepts voluntary severance in exchange for certain compensation. Duni recognizes severance compensation when the Group is demonstrably obligated either to terminate an employee pursuant to a detailed formal plan without the possibility of recall, or to provide compensation upon termination as a result of an offer made to encourage voluntary severance. Benefits payable more than 12 months after the balance sheet date are discounted to present value.

2.17 Provisions

Provisions for environmental restoration measures, restructuring expenses and any legal claims are recognized when the Group has a legal or informal obligation as a consequence of earlier events, it is likely that an outflow of resources will be required to settle the obligation, and the amount can be calculated in a reliable manner. Duni recognizes provisions for restructuring expenses, see Note 9. No provisions are made for future operating losses.

2.18 Fixed assets held for sale and discontinued operations

Fixed assets which are held for sale (or divestment groups) are classified as fixed assets held for sale if their carrying amount will primarily be recovered through a sales transaction, not through ongoing use. Fixed assets (or divestment groups) classified as fixed assets which are held for sale are recognized at the lower of the carrying amount and the fair value less selling expenses. Such assets may constitute a part of a company, a divestment group or an individual fixed asset. As regards the reported financial year, Duni has no fixed assets which meet the criteria for recognition as fixed assets held for sale.

2.19 Emission rights

Duni participates in the EU’s emission rights trading system. Received emission rights are initially measured at the acquisition value, i.e. SEK 0. Values are not adjusted up. A provision is made if an emission rights deficit is identified between owned rights and the rights which will need to be delivered due to emissions made. The value of any surplus emission rights is recognized only when realized upon an external sale.

2.20 Government assistance

Government grants are recognized at fair value when there is reasonable certainty that the grant will be received and that Duni will satisfy the conditions associated with the aid. Government grants relating to costs are allocated over periods and recognized in the income statement in the same periods as the costs which the grant is intended to cover.

2.21 The Parent Company’s accounting principles

The Parent Company prepares its annual report pursuant to the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s Recommendation RFR 2, Accounting for Legal Entities. RFR 2 entails that the Parent Company’s annual report for the legal entity shall apply all IFRSs and statements approved by the EU, insofar as possible within the scope of the Swedish Annual Accounts Act and taking into consideration the connection between accounting and taxation. The Recommendation states which exceptions and supplements are to be made compared with accounting pursuant to IFRS.

The principles regarding the Parent Company are unchanged compared with the preceding year.

2.21.1 Differences between the accounting principles of the Group and the Parent Company

Differences between the accounting principles of the Group and the Parent Company are set forth below. The accounting principles stated below have been applied consistently to all periods presented in the Parent Company’s financial statements.

Subsidiaries
Shares in subsidiaries are recognized in the Parent Company pursuant to the cost method. In the Parent Company, acquisition costs are recognized as shares in subsidiaries. Received dividends and Group contributions are recognized as financial income.

Intangible fixed assets
Intangible fixed assets in the Parent Company are recognized at acquisition value less accumulated amortization and any impairment losses. Goodwill recognized in the Parent Company is acquisition goodwill; the useful life is thus estimated by company management to be no more than 20 years. Amortization of goodwill takes place on a straight-line basis over an estimated useful life of 20 years.

Tangible fixed assets
Tangible fixed assets in the Parent Company are recognized at acquisition value less accumulated depreciation and any impairment losses in the same manner as for the Group, but any write-ups are added.

Leased assets
All lease agreements are recognized in the Parent Company pursuant to the rules for operating leases.

Allocation to pensions
The Parent Company recognizes pension liabilities based on a calculation pursuant to the Swedish Pension Obligations (Security) Act.

Income tax
Due to the connection between accounting and taxation, the deferred tax liability on untaxed reserves in the Parent Company is recognized as a part of the untaxed reserves.

Presentation of income statement and balance sheet
The Parent Company complies with the form for presentation of income statements and balance sheets as set forth in the Swedish Annual Reports Act. This entails, among other things, a different presentation regarding equity and that provisions are reported as a separate main heading in the balance sheet.