Basis of Reporting for the Parent Company and the Group
The consolidated accounts for the MSAB-group have been prepared in accordance to the Swedish Act for Annual Financial Reporting, recommendation RFR 1:1 - Supplementary Accounting Rules for Corporate Groups and the International Financial Reporting Standards (IFRS) as adopted by the European Union.
The consolidated financial statements have been prepared in accordance with the acquisition value method except for revaluations of financial assets and liabilities (including derivative instruments) which are stated as fair value through the income statement. The Swedish Act for Annual Financial Reporting demands complementary information regarding consolidated accounts which is regulated in recommendation RFR 1:1, Supplementary Accounting Rules for Corporate Groups. The annual accounts för the parent company Melker Schörling AB is prepared in accordance with the Swedish Act for Annual Financial Reporting and statements from the Swedish Financial Accounting Standards Council's emergency group and in accordance with RFR 2:1, Accounting for Corporate Entities. As a main rule, this means the international accounting rules IFR/IAS which have been adopted by the European Union is adopted by the parent company to the extent possible, but some exceptions occurs which mostly can be derived from the Swedish Act for Annual Financial Reporting. According to RFR 2:1, the accounting in the parent company means that financial fixed assets which are not associated companies has been valued to fair value.
Valuation of Financial Instruments
Accounting recommendation IAS 39 Financial Instruments: Accounting and valuation means that, among others, financial instruments in the consolidated accounts mainly shall be valued using fair value at the end of the accounting period. Listed shares are valued to the closing price as of the end of the acounting period. On a group level, MSAB has reported all listed shares to fair value over the income statement. Also associated companies have been reported using the same procedure as in accordance with IAS 28 item 1. Hence, associated companies are not reported by using the equity method, but in a way which is considered more fair for an investment company. Shares in subsidiaries are not valued at fair value in accordance with IAS 39. Subsidiaries in the consolidated accounts are consolidated using the acquisition accounting method. To report listed shares fair value over the income statement makes the accounting and the balance sheet's equity as coherent as possible to the changes in the total reported net asset value.
Regarding the parent company there is certain specific rules for fair value as the Swedish Act for Annual Financial Reporting does not allow valuation through fair value for associated companies nor subsidiaries. Only listed shares which are not associated companies or subsidiaries may be reported at fair value and its changes to be reported over the income statement. Listed associated companies and subsidiaries will therefore continue to be valued using the acquisition method.
The consolidated accounts includes the parent company and companies where the parent company has controlling influence. Subsidiaries are included in the consolidated accounts from the day when controlling influence occurs and are excluded from the day when controlling major influence ceases to exist. The consolidated accounts are reported by using the acquisition method. When using the acquisition method, the parent company's acquisition value related to subsidiaries is eliminated against the subsidiaries equity at the acquisition day. The equity of the acquired subsidiaries are determined by valuing assets and liabilities to fair value at the acquisition day. When the acquisition value of the shares in subsidiaries is higher than identified assets and liabilities the net is reported as goodwill in the balance sheet. Impairment tests are conducted at the end of respective accounting period to determine the potential need of write-downs. Acquired companies are included in the results from the acquisition date. Divested companies are included in the results until the divestment date.
Transactions with Minority Stakes
The group reports transaktions with minority shareholders as transcations with third parties. Acquisitions of minority stakes where the acquisition price exceeds the acquired share of the subsidiaries reported net assets is reported as goodwill. Divestments to minority shareholders where the acquisition price differs from the value of the divested share of the subsidiaries reported net assets is reported as profit or loss in the income statement.
Associated companies are defined as companies where MSAB does not have the majority of votes but between 20 to 50 %. Currently, MSAB has between 20 and 50 % of the votes in Hexagon, HEXPOL and AAK. In the consolidated accounts, the shares in associated companies are valued at fair value and in the parent company to the acquisition value. The results from divestments of shares in associated companies are calculated using the same method.
Financing costs are charged against earnings during the period to which they apply.
- Current tax is the tax which is calculated on the taxable result for the period including corrections made derived from earlier periods.
- Defereed taxes refers to temporary taxable differences which shall be paid in the future and taxes which represents a reduction of future tax derived from deductable temporary differences, deductable loss carried forward and other tax deductions.
Receivables and debt
Provisions regarding loss risks is determined after individual assessment. Translation of receivables and debts in foreign currencies is made at the rate at the balance day. The difference between the acquistion value and the balance day's value is taken up as income.
Financial instruments are valued and reporter in accordance with the rules in IAS 39 and in the parent company in accordance with RFR 2:1. The change in fair value is reported in the income statement.
Common shares are classified as equity. Transaction costs which directly can be refereed to new shares or options are reported, net of tax, as a deduction from the issue payment in the equity.
Calculation of Fair Value
The fair value of a financial instrument which is traded on an active market (e.g. financial assets which can be sold) is based on listed market prices on the balance day. The listed market price which is used for the Group's financial assets is the current buy price.
Net Asset Value
The net asset value is MSABs most important key figure as it statues the value of the company's assets which basically is the fair value of the underlying share portfolio less the company's net debt and minority stakes.
MSABs most important financial risk is share risk. Share risk includes share price risk, liquidity risk and counter party risk. Share price risk is defined as the risk that the value of the shares decreases due to changes on the stock market. This is the most important risk in MSABs operations. De active ownership has a central role in the company's business model and the purpose is to create and implement value enhancing measures in the holdings. Generally, MSAB's holdings have a historical track record of solid value growth. MSAB's contribution to the holdings value creation should decrease the share price risk and hence also reduce the portfolio risk for MSAB. Furthermore, the role as an active owner gives a comprehensive understanding for the holdings operations, environment and continued development. Through a balanced composition of different holdings in the portfolio the exposure to industry- and sector specific risks are mitigated. This composition also leads to reduced volatility and a more stable return on the capital over time.
The company has one segment, portfolio management.
Income received as dividends from shares are reported as income at the date when they are received. For shares which has been held since the start of the year until the end of the year the change in value is the difference between the fair value at these points in time. For shares which have been acquired during the year, the change in value is the difference between the acquisition value and the fair value at the end of the period. For shares divested during the year the change in value is the difference between the payment received and the fair value for the last reported period. All changes in value are reported under "Värdeförändring" in the income statement.
Financial leasing agreements are reported in the group as fixed assets and as short- or long term interest bearing liabilities. Operational leasing agreements are expensed straight-line over the leasing period. Currently the group only has operational leasing agreements.
Transcactions with Associated Companies
There have been no transactions between MSAB and its wholly owned subsidiaries, except interest transactions. Remuneration of senior executives and the board of directors are agreed on market terms. No transactions have been made with publically listed associated companies.
Important Estimations and Assessments regarding Accounting Purposes
Estimations and assessments are continously evaluated and are based on historical experience and other factors as future events which, under the current circumstances, seems reasonable.