AAK Annual Report 2017

54 Foreign currency translation of foreign subsidiaries’ financial statements Functional and presentation currency Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic environment in which they operate (functional currency). The consolidated financial statements are presented in Swed- ish krona which is the Parent’s functional and presentation currency. Exchange rate differences that arise in translation of Group companies are recognized as a separate item in comprehensive income. Transactions and balance sheet items Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rate are recognized as of the end of the reporting period in the income statement. Group companies The results and financial position of foreign subsidiaries (none of which has the currency of a hyperinflationary economy) that KDYH D IXQFWLRQDO FXUUHQF\ RWKHU WKDQ WKH SUHVHQWDWLRQ FXUUHQF\ DUH WUDQVODWHG LQWR WKH *URXS¶V SUHVHQWDWLRQ FXUUHQF\ DV IROORZV Assets and liabilities are translated at the closing day rate. Income and expenses are translated at average exchange rates. All exchange differences are charged directly to other comprehensive income and are recognized as a separate part of equity. When a foreign subsidiary is sold, any exchange differences are recognized in profit or loss as part of the gain or loss on the sale. Goodwill and fair value adjustments arising in the acquisition of foreign operations are treated as assets and liabilities of the entity and translated at the closing day rate. Exchange rates 7KH IROORZLQJ UDWHV ZHUH XVHG WR WUDQVODWH FXUUHQF\ Currency Average rate Closing rate EUR 9.65 9.83 DKK 1.30 1.32 GBP 11.04 11.06 MXN 0.45 0.42 USD 8.53 8.18 Segment reporting An operating segment is the part of the Group that conducts business operations from which it may generate revenue and incur expenses for which discrete financial information is available. The operating results of an operating segment are followed up by the Group’s chief operating decision-maker in order to evaluate its performance and allocate resources to the operating segment. The Group’s operations are divided up into operating segments based on which parts of the operations the Group’s chief operating decision-maker monitors, that is, according to the management approach. AAK’s business operations are organized in such a way that the Group’s highest executive decision-maker, that is the CEO, monitors earnings, returns and cash flows generated by the Group’s various products. Each operating segment has a manager who is responsible for day-to- day operations and who regularly reports to the CEO on the outcome of the operating segment’s performance and its resource requirements. Where the CEO monitors profit/loss and determines resource allocations based on the product that the Group produces and sells, these constitute the Group’s operating segments. The Group’s operations are organically divided into business segments based on product. The marketing organization also reflects this structure. Segment reporting is submitted in accordance with IFRS 8 for the Group only. For each segment, the results, assets and liabilities directly attributable to or items that can reliably be attributed to the segment are included in that segment. Assets and liabilities not attributed to segments include tax assets and tax liabilities, financial investments and financial liabilities, as well as cash and cash equivalents and interest-bearing receivables. Revenue recognition Revenue comprises the fair value of goods sold excluding VAT and discounts after eliminating intra-group sales. Sales are recognized on delivery of the goods, after customer acceptance and after the receivable can reasonably be deemed safe. Interest income is recognized allocated over the maturity of the security using the effective interest method. Insurance compensation is recognized as revenue when the amount can be measured in a reliable way and it is probable that the revenue will flow to the Group. Employee benefits a) Pension liabilities A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate legal entity. The Group has no legal or constructive obligations to pay further contributions if this legal entity does not hold sufficient assets to pay all employee benefits relating to employee service in the current or prior periods. The fees paid in exchange for the employee performing services for the company are recognized as expenses in the period in which the services are performed. A defined benefit pension plan is a pension plan that is not a defined contribution plan. The characteristic feature of a defined benefit plan is that it defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality mortgage bonds that are denom- inated in the same currency in which the benefits will be paid, and that have terms of maturity approximating the terms in the related pension commitment.