Statement of compliance
The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS). Since the Parent Company is a company that is active in the EU, only EU-approved IFRS are applied. The consolidated accounts have also been prepared in accordance with Swedish law, with application of the Swedish Financial Reporting Board’s recommendation RFR 1 Supplementary accounting regulations for Groups. The Parent Company’s annual accounts have been prepared in accordance with Swedish law, and with application of the Swedish Financial Reporting Board’s recommendation RFR 2 Reporting for legal entities. This means that application of the IFRS valuation and disclosure rules includes the deviations reported in the Parent Company’s accounting principles.
New and revised standards 2010
The following standards and amendments to standards apply from 1 January, 2010.
– Amendments to IAS 27R entail that changes in shareholdings in a subsidiary, whereby the majority shareholder does not lose controling influence, are recognized as equity transactions instead of the previous goodwill.
The following standards and amendments to standards apply from 1 January, 2010, but have not yet had any impact on the consolidated income statement and balance sheet.
– Amendments to IFRS 3R entail a number of changes in the reporting of business acquisitions, which will influence the size of the recognized goodwill, recognized earnings in the acquisition period and future recognized earnings.
Future IFRS amendments
IFRS 9 Financial instruments, which is part of a complete revision of IAS 39, will entail a decrease in the number of valuation categories for financial assets. IFRS 9 has not yet been approved by EU but will probably be applied from 2013. Pending the completion of all sections of the standard, Kinnevik has not evaluated the effects of the new standard. It is estimated that other future standards and improvements of IFRS will not have any significant impact on the financial statements for Kinnevik, other than in the form of supplementary information in some cases.
Basis of preparation of consolidated accounts
The consolidated financial statements have been prepared on a historical cost basis, except for investments in forest and other biological assets, derivative financial instruments and certain financial assets valued at fair value through profit and loss. The consolidated statements are presented in Swedish kronor (SEK) and all values are rounded to the nearest million except when otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group as of 31 December each year. The financial statements of subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies.
The consolidated financial statements include the Parent Company and all companies in which the Parent Company controls more than 50% of the votes or in any other way exercises a controlling influence.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the result for the part of the reporting year during which the Group has control.
The consolidated accounts are prepared using the purchase method. The difference between the acquisition value of shares in a subsidiary and the fair value of identifiable assets and liabilities of that subsidiary at the time of acquisition is reported as goodwill.
Intercompany transactions, balance sheet items and unrealized gains on transactions between companies are eliminated. Unrealized losses are also eliminated, unless the transaction evidences the need to write down the transferred asset.
Non-controlling interest
Non-controlling interest – consisting of the profit/loss portion and net assets in Group companies that do not accrue to the Parent Company’s shareholders – are reported as a special item in consolidated shareholders’ equity. In the consolidated income statement, the non-controlling interest share is included in reported earnings and information is given in connection with the Statement of income.
Foreign currency translation
The functional and presentation currency of the Parent Company and its Swedish subsidiaries is Swedish kronor (SEK). Transactions in foreign currencies are initially recorded in the functional currency exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. Realized and unrealized exchange gains/losses on receivables and liabilities of an operating nature are reported in operating income, while exchange rate differences on financial assets and liabilities in foreign currencies are reported among financial items. Korsnäs has elements of its borrowing in foreign currency, which is aimed at balancing net exposure of current receivables and liabilities. The translation differences of these loans are recognized in operating profit.
As at the reporting date, the assets and liabilities of subsidiaries that have not the same functional currency as the Group are translated at the rate of exchange ruling at the balance sheet date. Their income statements are translated at the average exchange rates for the year. The exchange differences arising on the translation are taken in other comprehensive income and as a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation are recognized in the income statement through Other comprehensive income.
Long-term monetary balances between the Parent Company and subsidiaries may be deemed to represent an extension or a contraction of the Parent Company’s net investment in the subsidiary. Foreign currency differences arising on such balances are therefore charged as other comprehensive income as a translation difference.
Intangible assets
Intangible assets with a finite useful life are measured on initial recognition at cost and are then carried at cost less accumulated amortization and any accumulated impairment losses. Amortization is calculated on a straight-line schedule based on the acquisition value of the asset and its estimated useful life.
Goodwill consists of the amount by which the acquisition value exceeds the fair value of the Group’s share in the identifiable net assets of the acquired subsidiary/associated company at the time of acquisition. Goodwill from the acquisition of subsidiaries is reported as intangible assets. Intangible assets including goodwill are tested for impairment annually to identify any possible need of a write-down and is reported at its acquisition value less accumulated write-downs. Gains or losses on the divestment of a unit include the remaining reported value of the goodwill relating to the divested unit.
Goodwill is distributed among cash-generating units when it is tested with respect to a possible need for a write-down.
Tangible and biological assets
Tangible assets are recognized at cost less deduction of accumulated depreciation and any impairment. The cost includes the purchase price, as well as expenses and borrowing costs directly attributable to the asset being put into position and in working order for utilization according to the purpose of the acquisition. Depreciation is calculated on a straight-line schedule based on the acquisition value of the asset and its estimated useful life. The assets residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year-end.
Forest and other biological assets are recorded at their fair value.
Impairment
Assets are assessed with respect to the reduction in their value whenever events or changes in circumstances indicate that the reported value might not be recoverable.
To calculate the impairment requirement, assets are grouped in cash-generating units. An impairment loss is done in the amount by which the assets’ reported value exceeds its recovery value. The recovery value is the higher of an assets’ fair value, less the cost of sale and the value in use. The value in use comprises the present value of deposits and disbursements attributable to the asset during the time it is expected to be in use in operations, plus the present value of the net sales value at the end of the useful life.
Financial instruments
A financial asset or financial liability is recognized in the balance sheet when the
Company becomes a party to the instrument’s contractual terms. Accounts receivable are recognized when the invoice is sent. A liability is recognized when the counterparty has performed and there is a contractual obligation to pay, even if the invoice has not yet been sent.
A financial asset is derecognized from the balance sheet when the rights in the contract are realized, expired or the Company loses control over them. The same applies for a portion of a financial asset. A financial liability is derecognized from the balance sheet when the obligation in the contract is met or in some other manner is extinguished. The same applies for a portion of a financial liability.
Acquisition and divestment of financial assets are reported on the transaction date, which is the date on which the Company commits to acquire or divest the assets, except in the case the Company acquires or divests listed securities when settlement date reporting is applied.
Financial assets
Financial assets, with the exception of loan receivables, trade receivables and assets held to maturity, are valued at their fair value through profit and loss.
The fair value of financial instruments traded on an active market is based on the market prices listed on the closing date. The listed market price used for the Group’s financial assets is the current bid price. For companies with two classes of shares the market price for the most liquid share class is used.
Kinnevik’s unlisted holdings within the New Ventures business area are valued using the International Private Equity and Venture Capital Valuation Guidelines, whereby a collective assessment is made to establish the valuation method that is most suitable for individual holdings. Firstly, it is considered whether any new transactions have been implemented at arm’s length in the holdings, such as rights issues directed to shareholders other than Kinnevik. If no transactions were recently implemented in the holdings, a valuation will be conducted by applying relevant multiples to the Company’s historical and forecast key figures, such as EBITDA, the size of the loan portfolio (companies in the financial sector), the number of hectares of land (companies in the agricultural sector), whereby a comparison will be made with a selected group of comparable companies. In such a comparison, consideration will be given to potential adjustments due to, for example, difference in size, history or geographic market between the current holding and the group of comparable companies. In the event that there are other methods that would better reflect the fair value of the holding, the outcome from this method will be compared with the outcome from other relevant methods. After that, an assessment will be made of which method that best reflects the market capitalization of the current holding and the holding valued according to this method.
Financial assets held to maturity are valued at the accrued cost by using the effective interest method.
When establishing the fair value of other financial instruments, methods that in every individual case are assumed to provide the best estimation of fair value have been used. For assets and liabilities maturing within one year, a nominal value adjusted for interest payments and premiums is assumed to provide a good approximation to fair value.
Information is provided in Note 30 for the Group per class of financial instruments that are valued at fair value in the balance sheet, distributed in the three levels stated below:
Level 1: Fair value established based on listed prices in an active market for the same instrument.
Level 2: Fair value established based on valuation techniques with observable market data, either directly (as a price) or indirectly (derived from a price) and not included in Level 1.
Level 3: Fair value established using valuation techniques, with significant input from data that is not observable in the market.
Associates
Companies in which the Group has significant influence and which is not a subsidiary are regarded as associated companies.
In accordance with IAS 28 point 1, listed and unlisted holdings in associated companies within the business areas Major Listed Holdings and New Ventures are reported at their fair value. When establishing the fair value of holdings in associates the same methods as for financial instruments are used.
Other unlisted associated companies are accounted for using the equity method. Adjustments are made to bring into line any dissimilar accounting policies that may exist before the Group’s interest in earnings is calculated.
Adjustments for intra-group profits/losses arising out of transactions with associated companies are made in connection with the calculation of the Group’s consolidated interest in earnings and capital. Elimination of such intra-group profits/losses occurs in pace with their realization through the sale of the particular assets to external parties and/or by reduction of the Group’s ownership interest in the associated company.
Loan receivables and trade receivables
Loan receivables and other receivables are non-derivative financial assets with defined or definable payments and defined maturities that are not listed on an active market. The values established are amortized cost, and the valuation is based on the effective interest method (using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument).
Trade receivables, which generally have 30-90 day terms, are recognized and carried at invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable.
Bad debts are written off when identified.
Trade receivable pertain to a large number of customers mainly in Sweden and the rest of Europe. The Group deals solely with well-established and creditworthy counterparties, which reduces the credit risk.
Credit risks pertaining to the Group’s other financial assets, which include cash and cash equivalents, are the risks of failure to pay by counterparties. The maximum risk corresponds to the financial instruments’ reported value.
Financial liabilities
Financial liabilities not held for trading are measured at accrued acquisition value, which is determined based on the effective interest rate calculated when the liability was assumed. This means that surplus and deficit values as well as direct costs in conjunction with assuming of loans are distributed over the term of the liability.
Long-term liabilities have an expected term of exceeding one year, while current liabilities have a term of less than one year.
Trade payables have short expected term and are valued at nominal value.
Accounting for derivatives and hedging
The Group’s derivative instruments consist primarily of futures contracts to cover the risk of changes in power prices. All derivatives are reported initially and continually at their fair value in the balance sheet. Changes in the value of derivatives categorized as a cash flow hedge are reported as other comprehensive income and are reversed to the income statement in pace with effect of the hedge cash flow on earnings. Any ineffective portion of the change in value is reported directly in the income statement.
Inventories
Inventory of raw materials, consumables, work in progress and finished goods are valued at the lower of cost and net sales value. Inventory is valued on a First-In, First-Out (FIFO) basis.
Felling rights, representing the cost to acquire the right to fell timber on land that the Group does not own, are valued at acquisition cost and are expensed when the corresponding wood is used in production or sold. Felling rights are reclassified as raw materials (logs and timber) as the timber is harvested based on the relationship between the remaining book value of the felling rights and the estimated volume of recoverable timber.
The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than VAT), and transport, handling and other costs directly attributable to the acquisition of inventories. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.
Net sales value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
Employee remuneration
The Group has one defined benefit multi-employer plan, which is insured with the mutual insurance company Alecta (ITP plan). There is a lack of information to permit the reporting of the Group’s proportional share of the defined benefit commitment and of the plan assets and costs associated with this plan. Consequently, the plan is reported as if it were a defined contribution plan, which means that the expenses incurred are reported as a cost.
In addition, the Group has one defined benefit pension plan covering employees in Sweden. The cost of providing benefits in accordance with this plan is determined via the Projected Unit Credit Method (PUCM method) on the basis of actuarial assumptions. Deviation from the actual pension expenses and return represent actuarial gains and losses. All actuarial gains and losses, plus any supplements for payroll taxes, are charged to other comprehensive income. Pension commitments are reported as a liability in the balance sheet. The liability is calculated on the basis of company-specific actuarial assumptions, with due consideration of such features as the estimated future pension increases.
Share-based remuneration
Kinnevik has share saving programmes for which the fair value, calculated at the date of allotment, of the allotted share-based instruments is expensed over the vesting period and is recognized directly in equity. The cost is based on the Group’s assessment of the number of shares that will be allotted. Fair value is restated on every balance-sheet date, to reflect calculations of social security costs expensed continuously over the vesting period in the various companies.
Other provisions
Provisions are reported when the Group has a legal or contractual obligation to fulfill the obligation, when it is likely that a payment or some other form of compensation is required to settle the undertaking and a reliable estimate of the amount can be made. Provisions are reported at their discounted present value when the time horizon exceeds two years. A provision for restructuring is reported when the Group has presented a detailed plan for the implementation of the measures and the plan has been communicated to the parties involved and soundly based anticipation is created.
Revenue recognition
Sale of products
Revenue from the sale of products, net of allowance for returns and discounts, is recognized when products are delivered and significant risks and benefits associated with ownership of the goods are transferred and can be reliably measured.
Rendering of services
Revenue from the sale of services is recognized at the time the service is rendered to the customer, after deductions for discounts.
Interest
Revenue is recognized as the interest accrues to the net carrying amount of the financial assets.
Dividends received
Dividends received are recognized when the shareholders’ right to receive the payment is assessed as certain.
Research and Development costs
Research and development costs are charged to the income statement during the year they arise, unless the Company can demonstrate that the amount will be able to generate future economic benefit.
Marketing costs
Advertising costs and other marketing activities are expensed as they arise.
Income tax
The total tax on the year’s income consists of current and deferred tax. Taxes are stated in the income statement except when the underlying transaction is charged to other comprehensive income or directly against equity, in which case the related tax effect is also stated in equity. Current tax expense is the tax that is to be paid or received for the year in question, plus correction of tax expense for earlier periods. Deferred tax is calculated on the basis of the temporary differences between the book values of assets and liabilities and their value for tax purposes. The amounts are calculated on the basis of how these differences can be expected to be evened out and using the tax rates and rules in effect or announced as of the closing date. Temporary differences are not recorded in the case of differences attributable to interests in subsidiaries and associated companies that are not expected to be taxable in the foreseeable future. In the consolidated financial statements, untaxed reserves are divided into deferred tax liability and equity. The deferred tax asset component of deductible temporary differences and tax loss carry forwards is only recorded in so far as it is likely that these will result in a lower tax payment in the future.
Dividends paid
For dividends in kind, the net assets market value is recorded as dividend. Cash dividends to shareholders are recorded in the accounting period the dividend is approved.
Leases
Leases are classified in the consolidated accounts as financial leases or operational leases. A financial lease is when the financial risk and benefits are associated with the ownership of an item is essentially transferred from the lessee to the lessor, regardless of whether or not the lessee retains the legal right of ownership of the asset. For financial leases, the leasing asset is reported as an asset and the obligation for future payments as a liability in the balance sheet. An operating lease is a lease that does not fulfill the conditions for financial leases. For operating leases, the rental expense is reported in the lessee’s accounts distributed equally over the period during which the asset is used, even if the payments are made according to some other schedule.
Cash flow statement
For purposes of the Parent Company and the consolidated cash-flow statements, the Group include cash and investments with original duration of maximum three months among cash and bank. The book value of these items corresponds to fair value.
Significant judgments and assumptions
The preparation of the annual financial statements and consolidated financial statements includes a number of estimates and assumptions. The application of these estimates and assumptions affects the reporting and disclosures. Accounting policies that require more significant judgments by the Board and the management in the application of IFRS, and assumptions and estimations in matters that are inherently uncertain, are summarized below.
In accordance with IAS 28, that deals with accounting for shares in associated companies, Kinnevik can recognize such shares at fair value through profit or loss or apply the equity method of accounting. The Board and management has made the judgment that an accounting at fair value through profit or loss most often reflects in the best way how the Group follows and evaluates its shares in associated companies. Shares in associated companies are therefore most often reported at fair value in the balance sheet, whereas the change in fair value affects the result for the year. Consequently, the reported results and equity of Kinnevik are primarily affected by changes in the fair value of the shares and only indirectly by the reported results of the associated companies, as opposed to an accounting according to the equity method.
Valuation of unlisted holdings are to a higher degree based on estimates and assumptions than valuation of holdings traded on an active market.
Actuarial assumptions and other assumptions and estimations when estimating the provisions for pensions (Note 21) and other provisions (Note 22) could have a material impact on the financial statements. The estimates used are based on experience, market information and practice, and are regularly reviewed.