AAK Annual Report 2018

Associated companies Associates are those companies where the Group has significant influence, but not a controlling influence over operational and financial management, usually through an ownership interest of between 20 percent and 50 percent of the voting rights. As of the date at which the significant influence is acquired, investments in associated companies are recognized in the consolidated financial statements using the equity method. The equity method means that the value of the shares in the associated companies recognized for the Group corresponds to the Group’s interest in the equity of the associates plus Group-related goodwill and any residual values of Group-related surplus or shortfall in value. The consolidated income statement reports the Group’s share of profit of associated companies, adjusted for any amortization, impairment or dissolution of acquired surplus or shortfall values, as other financial revenue. Dividends received from associated companies reduce the carrying amount of the investment. The equity method is used until significant influence ceases. 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 (func- tional currency). The consolidated financial statements are presented in Swedish krona which is the Parent’s functional and presentation currency. Transactions and balance sheet items Foreign currency transactions are translated into the func- tional 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 have a functional currency other than the presentation currency are translated into the Group’s presentation currency as follows: 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 The following rates were used to translate currency: Currency Average rate Closing rate EUR 10.26 10.16 DKK 1.38 1.36 GBP 11.58 11.31 MXN 0.45 0.45 USD 8.71 8.87 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 oper- ating 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 busi- ness 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 as from January 1, 2018 Revenue comprises the fair value of goods sold excluding VAT and discounts after eliminating intra-group sales. Sales are recognized as revenue at a point time when control of the goods has transferred to the customer in accordance with the terms of the contract, which occurs when the goods are delivered to the customer. Revenue from sales is recognized based on the price specified in the contract, net of discounts. In addition to pre-agreed discounts, there are also volume discounts which are set annually. The revenue is reduced by the expected discounts at the time of sale. No element of financing is deemed present as the sales are made with a credit term of 30-45 days. The Group’s obligation to repair or replace faulty products under the standard warranty terms is recognized as a warranty provision on a monthly basis. A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional. Prepayments are reported as a liability on the line item Accrued expenses and prepaid income in the Balance Sheet. 66 2 Note Summary of significant accounting policies