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.
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,
- and 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 2.20, 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, 2018. Presented below are the standards that Duni applies for the first time with respect to the financial year commencing on January 1, 2018. The new rules have no retractive effect on Duni and the comparative figures for 2017 have therefore not been restated.
Other standards, changes and interpretations which enter into force as regards the financial year commencing on January 1, 2018 have no material impact on the consolidated financial statements.
IFRS 9 Financial instruments (adopted by the EU)
Duni has applied the standard as of January 1, 2018 and, in accordance with the standard, comparative figures have not been restated. IFRS 9 replaces the parts of IAS 39 covering the recognition and derecognition of financial instruments from the balance sheet, the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.
With the exception of the Parent Company’s reporting, Duni has no income statement or balance sheet transition effects from this standard. The Parent Company’s transition effect concerns provisions for intra-Group receivables as a consequence of IFRS 9. This means that a provision is made for intra-Group receivables even if it is not considered an expected loss for the Group. The provision amounts to SEK 0.7 m, which is carried to equity in the Parent Company.
The new hedge accounting rules in IFRS 9 are more compatible with the Company’s risk management in practice as the standard introduces a more principle-based approach to hedge accounting. Duni’s previous hedging arrangements qualified for hedge accounting under IFRS 9 and the hedging documentation has been updated in accordance with this.
IFRS 15 Revenues from Contracts with Customers (adopted by the EU)
IFRS 15 is the new standard for revenue recognition and replaces IAS 18 Revenue and IAS 11 Construction Contracts. Duni has applied the prospective transition method, according to which the comparative figures have not been restated.
Application of the new standard has not had any material impact on Duni’s income statement or balance sheet.
The recognition of returned goods in the balance sheet has changed and they are recognized at their gross amount in the balance sheet as of January 1, 2018. Estimated returned goods are recognized as a provision and the cost of sold goods with respect to the recognized returned goods increases inventories instead of being recognized at its net amount in the liability for the provision for estimated returns as in the past. Inventories at year-end increased by SEK 6 m as a result of this change.
Other standards, changes and interpretations which enter into force as regards the financial year commencing on January 1, 2018 have no material impact on the consolidated financial statements.
A number of new standards and interpretations enter into force as regards financial years beginning after January 1, 2018, and these have not been applied in conjunction with the preparation of this financial report. These new standards and interpretations are expected to impact Duni’s financial reports as follows:
IFRS 16 Leases
IFRS 16 was published in January 2016. Implementation of the standard results 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.
The standard will primarily impact the reporting of Duni’s operating leases. Duni will recognize the accumulated effect of initial IFRS 16 application as an adjustment to the opening balance on the initial application date and the transition will not have any impact on shareholders’ equity. The lease liability is measured at the present value of the remaining lease payments. The right-of-use asset for all identified leases subject to the new standard equals the amount of the lease liability. The expenses for these leases will be recognized in the income statement as depreciation and interest expenses, which will impact income metrics such as EBITDA, EBIT and net financial items. Duni has chosen to apply the practical exemptions for short-term leases (leases of 12 months or less) and leases of low-value assets (the underlying asset’s value is less than USD 5 k) and not recognize an asset and liability for them. Instead, these leases are recognized as recurring expenses in the income statement. Duni has chosen to divide its leases into portfolios and use the same discount rate on lease portfolios with similar characteristics.
For a bridge between obligations for operating leases at December 31, 2018 and the lease liability recognized upon transition to IFRS 16, see Note 37.
Applicable from January 1, 2019
IFRS 16 Leases will be applicable to financial years beginning on or after January 1, 2019. Duni has chosen to use the simplified transition method for transition to IFRS 16 where comparative figures are not restated.
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
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 and/or liability to minority shareholders. 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 fair value for the assets of the acquired subsidiary, in the event of a “bargain purchase”, the difference is reported directly in the Consolidated 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 holding’s proportionate share of the identifiable net assets of the acquired company. This choice of principle is made for each individual business acquisition. Duni has recognized non-controlling interests at fair value in subsidiaries Terinex Siam in Thailand, Sharp Serviettes in New Zealand, Biopac UK Ltd in the UK and BioPak Pty Ltd in Australia.
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 consideration will be based on the Company’s normalized average financial performance for the two closed financial years preceding the date the option is exercised.
Duni has an obligation to acquire the remaining 25% of the shares in Kindtoo Ltd (Biopac UK Ltd). The minority owners have a put option during the period from August 2020 to March 2021, whereby the redemption price is determined by the future income.
Duni has an obligation to acquire the remaining 20% of the shares in BioPak Pty Ltd in five years. One of the minority shareholders of BioPak Pty Ltd has a put option during the period from October 2023 to April 2024, whereby the redemption price is determined by the future income. The liability is equivalent to the discounted expected redemption price of the option, which is calculated using a profit multiple at par with that used in the initial transaction. This liability to minority shareholders was measured at SEK 336 m at year-end. The value will change depending on the company’s growth and profitability in the coming five years.
As a result of the aforementioned options, these companies are recognized as if they were fully consolidated and a liability corresponding to the discounted expected redemption price for the options is recognized 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 related is recognized directly in equity and separated from other changes in equity. The liability to minority shareholders is recognized as a derivative instrument.
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. 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 at the closing day rate
b) revenue and expenses for each of the income statements are translated at the average exchange rate
c) all exchange rate differences which arise are reported 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 the Consolidated statement of 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.
2.6.1 Revenue recognition
Duni applies IFRS 15 Revenue from Contracts with Customers as of January 1, 2018 and has chosen the prospective transition method. The new standard has not had any impact on Duni’s income statement or balance sheet. 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 control over the goods is transferred, which occurs when the goods are delivered to the customer or wholesaler and there are not any unfulfilled obligations that could impact approval of the goods. Delivery occurs when the goods have been transported to the specific location, the risk of obsolete or lost goods has been transferred to the customer or wholesaler and they have accepted the goods in accordance with the contract, the deadline for complaints against the contract has expired or Duni has objective evidence that all criteria for acceptance have been met.
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. Revenue is recognized only to the extent it is highly probable that no substantial reversal will occur. A liability is recognized for expected volume discounts in relation to sales until the balance sheet date. Given that the magnitude of returns has been stable in the past years, it is highly probable that there will not be any substantial reversal of recognized revenue. The validity of customer agreements, entitlement to discounts, customer bonuses and returns, and the estimated quantity of returns or customer bonuses is reassessed at each balance sheet date. 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
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 relationships, trademarks and licenses
Identifiable acquired customer relationships are recognized at fair value and are attributable to acquisitions made from 2013 onwards. The relationships are amortized on a straight-line basis over an estimated useful life of 10 years.
Acquired trademarks and licenses are recognized at cost. Trademarks and licenses have a determinable useful life and are recognized at cost 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 exist to use or sell 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 exist to complete the development and to use or sell the intangible asset; and
(f) the expenditures 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 assets
Buildings and land primarily include plants and offices. All tangible assets are recognized at cost less depreciation. Cost 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 cost 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 cost 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|
|Paper machinery||15-17 years|
|Other machinery||10 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.
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.
Duni will apply the new accounting standard for leases, IFRS 16, as of January 1, 2019. What the standard implies can be found in section 2.1.1 above and the transition effects are disclosed in Note 37.
Duni leases various properties, cars and forklifts. Rental contracts vary in length and may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis and the lease liabilities include the net present value of the lease payments. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group’s incremental borrowing rate. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
2.11 Financial assets and liabilities
Duni applies IFRS 9, issued by the IASB in July 2014, as of January 1, 2018. The application of this standard resulted in changes in accounting principles. Duni did not opt for early application of IFRS 9 in previous periods. The Group opted to continue applying the hedge accounting rules of IAS 39 upon application of IFRS 9. As is permitted in the IFRS 9 transition rules, the Group opted to not restate comparative figures.
Duni’s new principles for the classification and measurement of financial assets are based on an assessment of both (i) the company’s business model for managing financial assets and (ii) the characteristics of the contractual cash flows from the financial asset.
Financial assets are initially measured at fair value plus, if the asset is not recognized at fair value through profit or loss, transaction costs directly attributable to the purchase. Transaction costs attributable to financial assets measured at fair value through profit or loss are recognized as an expense in the income statement directly.
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 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.
The Group’s derivatives are measured at fair value in the balance sheet. In cases where hedge accounting is applied or if the derivatives comprise a package of options in respect of acquired subsidiaries, the changes in value are recognized through other comprehensive income. In other cases, the changes in value are recognized through profit or loss, including cases where they financially hedge the risk but hedge accounting is not applied. See more below in the section entitled Derivative instruments and hedge accounting.
2.11.1 Assets measured at amortized cost
Duni only classifies its financial assets as assets measured at amortized cost when the following requirements are met:
- the asset is part of a business model with the goal of collecting contract sure cash flows, and
- the contract terms create cash flows that solely consist of capital and interest on the outstanding capital at specific points in time.
The following financial assets are measured at amortized cost: Financial assets, Other receivables, Accrued revenue, Accounts receivable and Cash and cash equivalents. These assets were measured at amortized cost under the previous policies as well.
2.11.2 Assets measured at fair value through profit or loss
Duni does not have any other financial assets except derivative instruments measured at fair value through profit or loss.
2.11.3 Assets measured at fair value through other comprehensive income
Duni does not have any other financial assets except derivative instruments measured at fair value through other comprehensive income.
2.11.4 Financial liabilities measured at amortized cost
Long-term and short-term interest-bearing liabilities and other financial liabilities such as accounts payable and accrued expenses are included in this category. These liabilities are measured at amortized cost.
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.
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.
2.11.5 Financial liabilities measured at fair value through profit or loss
Duni does not have any other financial liabilities except derivative instruments measured at fair value through profit or loss.
2.11.6 Financial liabilities measured at fair value through other comprehensive income
Duni does not have any other financial liabilities except derivatives instruments measured at fair value through other comprehensive income.
2.11.7 Derivative instruments and hedge accounting
Derivative instruments are recognized in the balance sheet at the transaction date and measured at fair value, upon both initial recognition and subsequent measurement. Recognition of subsequent changes in value depends on whether the derivative has been identified as a hedging instrument and, if such is the case, the nature of the hedged item. If a hedging arrangement has not been identified, the change in value of the derivative instrument is recognized in the income statement with the exception of any call and put options agreed with minority shareholders during business combinations. These are recognized directly in equity as a transaction with minority shareholders. Duni identifies certain derivatives as either hedges of forecast cash flows or hedges of a net investment in a foreign operation.
To meet the requirements of hedge accounting, certain documentation concerning the hedging instrument and its relationship to the hedged item is required. Duni also documents goals and strategies for risk management and hedging measures, as well as an assessment of the effectiveness of the hedging arrangement in terms of offsetting changes in fair value or cash flow for hedged items, both at the start of the hedge and then on an ongoing basis.
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.
Cash flow hedges
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 profit or loss attributable to the ineffective part is reported immediately in the income statement under Other net profits/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.
The Group hedges its future interest payments using interest rate swaps. The Group enters into interest rate swaps that have the same critical terms as the hedged object. Critical terms can be the reference rate, interest conversion dates, payment dates, due dates and the nominal amount. The Group does not hedge 100% of its loans and therefore only identifies the share of outstanding loans corresponding to the nominal amounts of the swaps. Ineffectiveness could arise because of CVA/DVA adjustment to the interest rate swap. There was not any ineffectiveness attributable to interest rate swaps in 2018 and 2017.
Net investment hedges
Hedges of net investments in foreign operations are recognized similarly to cash flow hedges. The share of a gain or loss on a hedging instrument considered an effective hedge is recognized in other comprehensive income and accumulated in equity. The gain or loss attributable to the ineffective part is recognized immediately in the income statement as other revenue or other expenses. Accumulated gains and losses in equity are reclassified to profit or loss when foreign operations are fully or partially divested.
In 2018, the Parent Company entered into currency forward contracts and raised bank loans in AUD totaling AUD 21 m, which were identified as hedging the net investment in Biopak Pty Ltd. There was no ineffectiveness to be recognized from hedges of net investments in foreign operations.
2.11.8 Impairment of receivables
As of January 1, 2018, Duni measures future expected credit losses related to investments in debt instruments measured at amortized cost or fair value with changes through other comprehensive income based on forward-looking information. The Group chooses the provision method based on whether or not a material increase in credit risk has occurred. In accordance with the rules of IFRS 9, the Group applies a simplified method for impairment testing of accounts receivable. As a result of the simplification, the provision for expected credit losses is calculated based on the risk of loss for the entire term of the receivable and is recognized upon initial recognition of the receivable.
2.11.9 Calculation of fair value
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.
2.11.10 Derecognition of financial assets and liabilities
Financial instruments are derecognized from the balance sheet when all risks and rewards have been transferred to another party or when obligations have been met.
2.11.11 Accounting principles applied until December 31, 2017
The switch from IAS 39 to IFRS 9 only resulted in a change in terminology. Duni previously classified Cash and Bank Balances, Other Receivables, Accrued income and Accounts receivable as Loan receivables and accounts receivable, which are now Financial assets measured at amortized cost. Duni previously only recognized impairment losses on receivables if there were objective evidence of impairment for a financial asset or a group of financial assets. The change in policy has not resulted in any significant differences.
Inventories are recognized at lower of cost and net realizable value. Cost is determined using the first in, first out method (FIFO). The cost 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 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.
2.15 Employee benefits
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.
2.15.2 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.
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.
2.17 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.
2.18 Emission rights
Duni participates in the EU’s emission rights trading system. Received emission rights are initially measured at cost, 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.
2.19 Government assistance
Government grants are recognized at fair value when there is reasonable certainty that the grant will be received and that Duni will meet the conditions associated with the grant. 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.
2.20 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.
As does the Group, the Parent Company applies the new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
Otherwise, the principles regarding the Parent Company are unchanged compared with the preceding year.
2.20.1 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.
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.
Liability for minority shareholder put option
The liability for put options to priority shareholders is recognized in the Parent Company at the lower of cost or net realizable value. The Group recognizes this liability as a long-term derivative liability.
Intangible assets in the Parent Company are recognized at cost 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 assets in the Parent Company are recognized at cost less accumulated depreciation and any impairment losses in the same manner as for the Group, but any write-ups are added.
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.
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.