Accounting principles

For a more comprehensive description of the Company’s accounting policies, please see the Annual Report 2018.

THE GROUP’S ACCOUNTING POLICIES

GENERAL INFORMATION

The consolidated financial statements include the Swedish Parent Company, Nilar International AB (publ), 556600-2977 and its subsidiaries. The Group’s business consists of development, production, marketing and sales of batteries and associated products. The development, manufacturing and production is mainly performed by the Swedish subsidiary Nilar AB in Gävle. Development and sales are partly carried out by Nilar Inc., located in Colorado, USA.

The Parent Company is a limited liability company based in Sweden. The address of the head office is Stockholmsvägen 116B, 187 30 Täby.

SUMMARY OF IMPORTANT ACCOUNTING POLICIES AND DISCLOSURES

The consolidated financial statements in their Swedish original form have been prepared in accordance with IFRS as adopted by the EU and in accordance with the Council for financial reporting’s recommendation, RFR 1, Supplementary accounting rules for groups, and the Annual Accounts Act. The English translation of the consolidated financial statements, although professionally translated, cannot guarantee compliance with generally accepted IFRS terminology. The consolidated financial statements have been prepared in accordance with the cost method.

In addition to these standards, both the Swedish Companies Act and the Annual Accounts Act require certain supplementary disclosures to be made.

The accounting policies applied in the preparation of the consolidated financial statements are disclosed in the respective notes in order to provide a better understanding of the respective accounting field. See the table below for reference to the note in which each significant accounting policy is used and the applicable IFRS standard that is deemed to have significant influence.

IMPORTANT ESTIMATES AND ASSESSMENTS FOR ACCOUNTING PURPOSES

Preparing financial reports in accordance with IFRS requires important accounting estimates to be made. In addition, the management needs to make certain assessments in the application of the company’s accounting policies. The areas subject to a high degree of assessment or complexity, or areas in which assumptions and estimates are of considerable importance to the consolidated financial statements, are indicated in the following table. The estimates and assumptions are regularly reviewed, and the effect on the carrying amounts is recognized in the income statement.

Estimates and assessments are continually evaluated and are based on historical experience and other factors, including the anticipation of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The estimates for accounting purposes that result from these assumptions, by definition, seldom equal the related actual results.

CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated financial statements have been prepared in accordance with International Reporting Standards and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as endorsed by the European Union (EU). The Swedish Annual Accounts Act and RFR 1 ”Supplementary Accounting Rules for Group Companies”.

The Parent Company applies the same accounting policies as the Group, with the exceptions mentioned under the section “The Parent Company’s accounting policies”. The Parent Company applies the Swedish Annual Accounts Act (Årsredovisningslagen) and Recommendation RFR 2 “Accounting for Legal Entities”, of the Swedish Financial Accounting Standards Council. The deviation that arise from IFRS policies do so due to the application of the Swedish Annual Accounts Act and the Swedish tax regulations.

Basis of the preparations of the consolidated financial statements

The consolidated financial statement has been prepared based on the assumption of going concern. The Group applies the historical cost method when preparing the financial statements, if nothing else is described below. The Group’s reporting currency is Swedish kronor (SEK), which is the Parent Company’s functional currency.

Basis of consolidation

The consolidated financial statements incorporate financial statements of the Parent Company and its subsidiaries. The financial reports for the Parent Company and the subsidiaries that are incorporated in the consolidated financial statements regard the same reporting and are prepared according to the same accounting policies.

All intragroup transactions, assets and liabilities are eliminated and therefore not included in the consolidated financial statements.

Subsidiaries

The consolidated financial statements incorporate subsidiaries in which the Parent Company has more than 50 percent of the shares or entities controlled by the Parent Company and its subsidiaries. Consolidation of a subsidiary begins when the Company obtains control and ceases when the Company loses control of the subsidiaries.

Non-controlling interests

Non-controlling interests is equity in a subsidiary not attributable, directly or indirectly, to a parent. Their part of the results is included in the reported results of the consolidated financial statements and the net assets are recognized in the equity of the consolidated financial statements.

Translation of financial statements of foreign subsidiaries

The foreign subsidiaries’ financials are converted to the currency applied in the consolidated financial statements, which is Swedish krona (SEK). The subsidiaries’ income statements are translated using the average exchange rate of the period and the balance sheets are translated using the exchange rate of the balance sheet date. Surplus values that were recognized when a foreign subsidiary has been acquired, such as goodwill and other previously not recorded intangible assets, are considered at each subsidiary and are thus converted to the exchange rate of the closing date. Foreign exchange differences arising on such translation are recognized in “Other comprehensive income”.

Gross accounting

Gross accounting is applied throughout the report for assets and liabilities, except when both an asset and a liability exists towards the same counterpart and they legally are offsettable. Gross accounting is also applied for income and expenses if nothing else is stated.

Classification of assets and liabilities

Fixed assets, long-term liabilities and provisions are expected to be recovered or become due later than twelve months after the closing date. Current assets, short-term liabilities and provisions are expected to be recovered or become due within twelve months after the closing date.

Related-party transactions

Transactions with related parties are conducted with terms comparable to third party transactions. Parties are considered to be related if the Company has the control or significant influence regarding making financial or operational decisions. It also includes the companies and physical persons that have the potential to exercise control or significant influence over the Group’s financial or operational decisions.

Business combinations

Business combinations are reported according to the acquisition method. The purchase price for the business combination is measured at fair value at the time of acquisition, which is calculated as the sum of the fair values at the date of acquisition of the assets, accrued or assumed liabilities and equity shares issued in exchange for control over the acquired business. Acquisition-related expenses are recognized in the income statement as they arise. The purchase price also includes the fair value at the date of acquisition of the assets or liabilities resulting from an agreement on contingent consideration. Changes in the fair value of a contingent consideration arising from additional information obtained after the date of acquisition if facts and circumstances at the date of acquisition qualify as adjustments in the valuation period and adjusted retroactively, with the corresponding adjustment of goodwill. Contingent consideration that is classified as equity is not revalued and the subsequent regulation is reported within equity. All other changes in the fair value of a contingent additional consideration are reported in the income statement.

The identifiable acquired assets and liabilities assumed are reported at fair value at the acquisition date, with the following exceptions:

  • Deferred tax receivable or debt and liabilities or assets attributable to the acquired company’s employee benefits agreement are recognized and valued in accordance with IAS 12 income taxes and IAS 19 employee benefits.
  • Liabilities or equity instruments relating to the equity-related allocations of the acquired entity or to the exchange of share-based allocations of the acquiree against the share- The acquisition date in accordance with IFRS 2 share-based payment.
  • Assets (or disposal group) classified as being held for sale in accordance with IFRS 5.

Non-current assets held for sale and discontinued operations are valued in accordance with that standard.

For business combinations where the sum of the purchase price, any non-controlling interest and fair value at the time of acquisition of previous shareholdings exceeds fair value at the time of acquisition of identifiable acquired net assets, the difference is reported as goodwill in the balance sheet. If the difference is negative, this is reported as a gain on an acquisition at a low price directly in the result after a review of the difference.

For each business combination, previous non-controlling interest in the acquired company is valued at either fair value or the value of the proportional share of the non-controlling interest of the acquired company’s identifiable net assets.

Non-recurring items

Non-recurring items are recognised separately in the financial statements when this is necessary for explaining the Group’s results. Non-recurring items refer to significant income or expense items that are recognised separately because of the importance of their nature or amount.

Segment recognition

The Group consists of only one reportable segment, Nilar, as it is at this level that the Group’s management team has responsibility for the allocation of resources and assesses the business’s results.

Operating segments are reported in a way that is consistent with the internal reporting submitted to the highest executive decision-maker. The highest executive decision-maker is the role with responsibility for allocating resources and making assessments of the results of the operating segments. The executive management team of the Group has been identified as having this role.

INCOME

Changes in accounting principles

New or amended IFRS standards and new interpretations 2018

IFRS 15 Revenue from contracts with customers

Since 1 January 2018, the group has applied IFRS 15, which replaces IAS 18 “Revenue”. The introduction of the standard has not brought about any significant effects and there is no transitional effect in equity to present. No translation of comparative figures has taken place.

An analysis has been made of the group’s different types of agreements with customers to determine whether they qualify to be a contract under IFRS 15. A majority of the contracts are in accordance with the current price list where the customer receives the product at the time it is delivered, and the control passes to the customer. Invoicing and revenue are based on a pre-agreed price.

Nilar’s revenue consists of 100% of product sales of systems. Revenue recognition is done at present on delivery and when the control has been transferred to the customer. The company has no contractual assets, contractual liabilities or remaining performance commitments.

OPERATING EXPENSES

The income statement is presented in the functional form. The functions are as follows:

Cost of goods sold includes cost of handling and manufacturing costs including payroll and material costs, purchased services, facility costs and depreciation of tangible fixed assets used in the production process.

Development costs include costs for the own R&D organization, hired consultants and depreciation and write-downs for intangible assets such as patents and capitalized development costs.

Selling expenses include costs for the own sales organization and depreciation of property, plant and equipment used by the group’s sales organization. Provisions to, and reversals of reserves for doubtful accounts receivable, are also included in the function Selling expenses in the income statement.

Administrative expenses relate to the costs of boards, management and staff functions in the Group, and depreciation and write-downs of tangible assets used by the Group’s administrative functions.

EMPLOYEES, EMPLOYEE BENEFIT EXPENSES AND REMUNERATION TO THE BOARD

Short-term employee benefits

Short-term benefits, such as wages, salaries, social security contributions costs, holiday remuneration and bonuses are recognized in the period in which the employees render the related services.

Pensions

Nilar’s long-term employee benefit plan only include defined contribution plans.

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Obligations for contributions to defined-contribution pension plans are recognized as an employee benefit expense in the income statement in the periods during which services are rendered by employees.

Employee share-option plan

A share-based incentive program is an employee option plan that is equity-settled in accordance with IFRS 2. According to IFRS 2, the fair value is determined at the grant date of the equity. Share-based payments are expensed on a straight-line basis over the vesting period, based on the Group´s estimate of equity instruments that will vest, with a corresponding increase in equity. The fair value of the employee share options is estimated at grant date, using the Black-Scholes model for pricing of options.

The accumulated cost that is recognized at each reporting date shows to which extent the vesting period has past and the estimated number share-based instruments that will be vested.

OTHER OPERATING INCOME

Government grants

Government grants are measured at fair value when there is reasonable assurance that the entity will comply with the conditions attaching to them and the grants will be received.

Government grants related to assets are recognized in the statement of financial position as a deduction of the grant in arriving at the carrying amount of the asset. Grants related to income are presented as part of profit or loss, either separately or under a general heading such as “Other income”.

FINANCIAL INCOME AND EXPENSES

Financial income and expenses consist of interest income from bank funds and receivables, interest expenses on loans, dividend income and exchange rate differences.

The interest component of financial lease payments is recognized in the income statement in accordance with the effective interest method, whereby interest is distributed so that each accounting period is charged with an amount based on the liability recognized during the period in question. Issue expenses and similar direct transaction costs for raising loans are included in the acquisition cost of the borrowing and are expensed in accordance with the effective interest method.

TAX

Income tax expense represents the sum of the tax currently payable and deferred tax. Income tax is recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the tax effect is also recognized in other comprehensive income or in equity.

Current tax is the tax currently payable or refundable for the year, including adjustment of current tax related to prior periods. The tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is calculated in accordance with the balance sheet method. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases. Deferred tax assets are recognized for all tax-deductible temporary differences, for example carryforward of unused tax losses, to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable the sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities is offset if there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax is attributed to the same entity in the Group and the same taxation authority.

INTANGIBLE ASSETS

Intangible assets

Intangible assets with finite useful lives are carried at cost less amortization and impairment losses. Amortization is recognized on a systematic basis over depreciated during the assets estimated useful life. The useful life is reviewed at the end of each reporting period and adjusted if needed. When determining the depreciable amount of an asset, the residual value is considered.

Development expenditures activities are recognized as an intangible asset when they qualify for recognition according to IAS 38 and are estimated to amount a significant proportion of the product’s development as a whole. Other development expenditures are recognized as an expense.

The most important criteria for capitalization of development expenditures are that the asset will generate probable future economic benefits or cost savings, and there are technical and commercial conditions to complete the development.

The development expenditure capitalized are generated externally as well as internally and includes direct costs for services used. Directly attributable costs that are capitalized as part of the product development, production processes, production facility project and implementation of software systems include expenditures to third parties and employees.

Amortization shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

The following depreciation periods are applied:

  • Patents 5 years
  • Capitalized development expenditures 7 years

Impairment of intangible assets

If there is any indication that an intangible asset has suffered an impairment loss, the recoverable amount of the asset is estimated. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. The recoverable amount is the higher of net realizable value and value in use. Testing of the recoverable amount is done for cash generating units.

Impairment losses recognized in prior periods are reversed if the asset’s recoverable amount is estimated to exceed the carrying amount. The loss is reversed only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognized for the asset in prior years.

TANGIBLE ASSETS

Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Expenses related to repair and maintenance activities are recognized in profit or loss as incurred. Expenses for improvements of an asset’s performance increases the value of the asset. The Group applies component depreciation, which means that each part of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the assets and is recognized in profit or loss as other operating income or other operating expenses.

Property, plant and equipment are depreciated on a systematic basis over its estimated useful life. The useful life is reviewed at the end of each reporting period and adjusted if needed.

When determining the depreciable amount of an asset, the residual value is considered. A straight-line depreciation method is used for all types of assets.

The following depreciation periods are applied: 5 years

Impairment of tangible assets

If there is any indication that a tangible asset has suffered an impairment loss, the recoverable amount of the asset is estimated. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. The recoverable amount is the higher of net realizable value and value in use. Testing of the recoverable amount is done for cash generating units.

Impairment losses recognized in prior periods are reversed if the asset’s recoverable amount is estimated to exceed the carrying amount. The loss is reversed only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognized for the asset in prior years.

FINANCIAL INSTRUMENTS BY CATEGORY

Financial assets

Purchases and sales of financial assets are recognized on the transaction date, i.e. the date that the Group commits to purchase or sell the asset. Financial instruments are initially measured at fair value including transaction costs, which is applied for all assets that are not measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are initially recognized at fair value with transactions costs in profit or loss. Financial assets are derecognized when the right to receive cash flows have expired or is transferred and the Group has transferred substantially all of the risks and rewards of the ownership. Financial assets available for sale and financial assets measured at fair value through profit or loss are recognized after the acquisition at fair value. Loan and trade receivables are recognized after the purchase at amortized cost with application of the effective interest method.

Financial assets and liabilities are offset and reported on a net basis in the balance sheet when a legal right to offset the carrying amounts exists and there is an intention to settle them on a net basis or to simultaneously realize the asset and settle the debt. The legal right must not be dependent on future events and it must be legally binding for the company and counterparty, both during normal business activities and in the event of order cancellation, insolvency or bankruptcy.

The Group assesses the future anticipated credit losses that are connected to assets recognized at accrued costs. The Group recognizes a credit reserve for anticipated credit losses at each reporting date. The loss provisions regarding financial assets are based on assumptions of the risk of bankruptcy and anticipated losses. The Group makes its own assessments of the assumptions and choices regarding input data for calculating the impairment. These are based on history, known market conditions and forward-looking estimates at the end of each reporting period. For assessment of the credit reserve for accounts receivable, see Note 17.

Financial liabilities

Accounts payable

Accounts payable are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. Accounts payable are classified as current liabilities if they fall due within one year or earlier. If not, they are recognized as long-term liabilities.

Derivative instruments and hedging instruments

At the end of 2018 and 2017 the Group had no derivative contracts.

Fair value

In the event that fair value deviates from the book value, information about fair value is presented in the relevant note. On the balance sheet dates in 2017 and 2016 there were no financial assets and liabilities recognized at fair value.

Convertible debt instrument

Convertible debt instruments issued by the Company that can be converted to shares through the use of a conversion option are recognized as a compound instrument and are classified as a financial liability and an equity instrument. Convertible debt instruments where both the holder and Nilar can call for conversion have the same accounting treatment.

The fair value of the liability at the date of issuance is estimated as the present value of future cash flows discounted with the prevailing market interest rate for similar non-convertible instruments. The fair value of the part classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole.

Transaction costs relating to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Interest expenses are recognized in the income statement and calculated using the effective interest method.

Nilar estimates that the interest rate on the convertible debt instruments of 6% is the interest rate that the Group would have to pay for a loan without any right of conversion but otherwise with the same conditions as the convertible debt, and hence the full convertible loan amount has been allocated to the liability component.

Borrowing costs

Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs that are directly attributable to the financing of an asset that take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of that asset. Other borrowing costs are recognized in profit or loss in the period in which they are incurred. IFRS 13 Fair Value Measurement contains a valuation hierarchy with regard to input to the valuation. This valuation hierarchy is divided into three levels, consistent with the levels introduced in IFRS 7 Financial Instruments: Disclosures. The three levels are:

  • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has access to at the valuation date.
  • Level 2: Inputs other than quoted prices included in Level 1, which are directly or indirectly observable for the asset or liability. It can also refer to inputs other than quoted prices that are observable for the asset or liability, such as interest rates, yield curves, volatility and multiples.
  • Level 3: Unobservable inputs for the asset or liability. At this level should be taken into account assumptions that market participants would use in pricing the asset or liability including risk assumptions.

Changes in accounting principles

New or amended IFRS standards and new interpretations 2018

IFRS 9 replaces IAS 39. The standard entails new principles for the classification of financial assets, insurance accounting and for credit reserve. For means of payment, receivables and liabilities with variable interest rates and short-term receivables and liabilities, the fair value is equated with the carrying amount. Hedging of future currency flows is not applied within the group and thus has no impact. Thus, IFRS 9 does not affect the income statement and balance sheet of Nilar.

IFRS 9 replaces the “losses incurred” model from IAS 39 with a model for “expected loan losses”. According to IAS 39, loan losses were only reported when objective loss events were observed, while according to IFRS 9 they are reported on expectation basis without any loss events occurring. The group has concluded that the introduction of IFRS 9 impairment requirements does not result in any change in write-downs as at 1 January 2018. The group has used the exception not to convert comparative figures for previous periods of seeing classification and measurement (including impairment).

INVENTORIES

Inventories

Inventories are stated at the lower of cost or net realizable value. The costs of inventories are determined using the first-in, first-out (FIFO) basis. The inventory consists of; materials, assets held for sale and assets in the process of production. The cost of inventories comprises all costs of purchase and costs for import duties and freight. Net realizable value is the estimated selling price less estimated cost of sales.

SHARE CAPITAL AND OTHER CONTRIBUTED CAPITAL

Equity is divided between capital attributable to Parent Company shareholders and non-controlling interests. Value transfers in the form of e.g. dividends from the Parent Company and the Group shall be based upon the Board’s established statement on the proposed dividend. This statement has to take into account the legal precautionary rules to avoid dividends greater than what financial coverage exists for.

Share capital

Ordinary shares are classified as equity. Transaction costs directly attributable to the issue of new shares or options are recognized net after tax in equity as a deduction from the issue settlement. When financial liabilities are eliminated through the repayment of part or all of the loan being through issued shares, the shares are valued at fair value and the difference between this value and the book value of the loan is recognized in the income statement. In the event that the lender is, directly or indirectly, a shareholder and acts as a shareholder, the issued amount corresponds to the book value of the financial liability which is thereby eliminated (so-called set-off issue). In this way there is no gain or loss to recognize in the income statement.

Other contributed capital

Refers to equity contributed by the owners.

SHARE-BASED INSTRUMENTS

A share-based incentive program is an employee option plan that is equity-settled in accordance with IFRS 2. According to IFRS 2, the fair value is determined at the grant date of the equity. Share-based payments are expensed on a straight-line basis over the vesting period, based on the Group´s estimate of equity instruments that will vest, with a corresponding increase in equity. The fair value of the employee share options is estimated at grant date, using the Black-Scholes model for pricing of options.

DEFERRED TAX

Deferred tax is calculated in accordance with the balance sheet method. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases. Deferred tax assets are recognized for all tax-deductible temporary differences, for example carryforward of unused tax losses, to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable the sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities is offset if there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax is attributed to the same entity in the Group and the same taxation authority.

NET CASH/NET DEBT

Cash flow

Cash and cash equivalents include cash on hand and demand deposits and highly liquid investments with a maturity of less than three months and which are subject to an insignificant risk of changes in value. Short term bank overdrafts are included in cash and cash equivalents. Cash flow is presented in the statement of cash flow. Cash flow from operating activities is presented using the indirect method.

LEASING

Leases

Leases, in which substantially all the risks and rewards of ownership has been transferred to the Group, are classified as finance leases. Finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. Lease payments is allocated between finance expenses and a reduction of the lease obligation. Property, plant and equipment that are leased are depreciated over the estimated useful lives.

Leases in which substantially all risks and rewards of ownership not are transferred to the lessee are classified as operating leases. Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the lease term. In the event that lease incentives are received to enter the lease agreement, such incentives are considered.

Nilar only holds leases that are classified as operating leases.

Changes in accounting principles

New standards and interpretations that come into force in 2019 and beyond

IFRS 16 Leases were adopted in 2017 with effect from 1 January 2019. The new standard covers rules for both lessors and lessees. Nilar is a lessee for primarily premises, cars and machinery, which means that the accounting changes from 2019. The change will have no effect on the result, but on the other hand, transfer within the income statement and Nilar’s initial estimate is that IFRS 16 will have a small positive effect on operating profit and a minor effect on earnings after financial items. Furthermore, the balance sheet will be affected by the fact that the present value of future leasing fees is reported as an asset or liability.

Nilar has chosen to report the transition to the new standard with the simplified method. The relief rule of not establishing one comparative year has been applied. Leases less than 12 months or ending within 12 months of the transition date are classified as short-term contracts and are therefore not included in the reported leasing debt.

TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties

Transactions have been made with related parties on terms equivalent to those that prevail in commercial transactions.

The internal prices of transactions between Group companies are based on the arm’s-length principle (i.e. between parties that are independent of each other and well informed and that have an interest in the transactions).

PLEDGED ASSETS AND CONTINGENT LIABILITIES

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Nilar. A contingent liability can also be a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

OTHER PROVISIONS

Provisions

Provisions are recognized when the Group has a present, legal or constructive, obligation as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, for example from an insurance contract, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably.

Provisions for warranties is based on historical warranty data and the current trends that can indicate that future demands can deviate from the historical data.

 

THE PARENT COMPANY’S ACCOUNTING POLICIES

ACCOUNTING POLICIES

The Parent Company applies standard RFR 2 Accounting for legal entities, issued by the Swedish Financial Reporting Board.

Application of RFR 2 means that the Parent Company should, as far as possible, apply all IFRS approved by the EU within the framework of the Annual Accounts Act and the Social Security Act and take into account the relationship between reporting and taxation. The Parent Company applies other accounting principles than the Group in the cases listed below.

Presentation of financial statements

The Parent Company’s financial statements are prepared in accordance with the Swedish Annual Accounts Act, (Årsredovisningslagen). The income statement consists of two statements produced separately: income statement and statement of comprehensive income. The statement of change in equity is prepared in accordance with the format used by the Group but contains the columns specified in the Swedish Annual Accounts Act. Differences in the presentation of the Parent Company’s financial statements compared to presentation of the Group’s consolidated financial statements mainly refers to titles, financial income and expenses and items within equity.

Investment in subsidiaries

Investments in subsidiaries are accounted for in the Parent Company at historical cost less impairment losses. The purchase price also includes fair value of assets and liabilities that are part of the contingent consideration. Acquisition-related costs and contingent considerations (if any) are included in the carrying amount.

If there is any indication that shares in subsidiaries have suffered an impairment loss, the recoverable amount of the asset is estimated. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. The impairment is recognized and incorporated in the “Result from participations in Group companies”.

Shareholders’ contributions and Group contributions

Shareholders’ contributions are capitalized in shares and participations by the giver, to the extent there is no impairment loss. All Group contributions are recognized as appropriations in the income statement.

Changed accounting policies

The changes in RFR 2 Accounting for legal entities that have come into force and apply for the financial year 2018 have not had any significant impact on the Parent Company’s financial reports.

Changes in RFR 2 that have come into force

IFRS 9 Financial instruments

In RFR 2, there are exceptions to applying IFRS 9 to legal entities and instead stipulate provisions for accounting of financial instruments in RFR 2, which shall be applied by the companies that choose to apply the exemption. The changes in RFR 2 regarding IFRS 9 shall be applied to fiscal years beginning January 1, 2018. Nilar has chosen to apply the exception and the changes in RFR 2 are not deemed to have any significant impact on the parent company’s financial reports.

IFRS 15 Revenue from contracts with customers

Due to the connection between accounting and taxation, the rules in IFRS 15 regarding revenue recognition of performance obligations that are fulfilled over time when performing assignments at a fixed price need not be applied in legal person. The assignments may be reported as revenue when the work is substantially completed (the method of completion). The changes in RFR 2 regarding IFRS 15 shall be applied to fiscal years beginning January 1, 2018. The parent company’s revenues are limited and the changes in RFR 2 have not had any significant impact on the parent company’s financial reports.

Changes in RFR 2 that have not yet come into force

IFRS 16 Leases

Due to the connection between accounting and taxation, the rules in IFRS 16 need not be applied in legal person. Reporting of leasing agreements is instead made in accordance with rules in RFR 2. The changes in RFR 2 regarding IFRS 16 shall be applied to financial years beginning January 1, 2019. The parent company has no significant leasing agreements and will not be affected by the changes in RFR 2.