Consolidated balance sheet

Intangible non-current assets

TESTING OF GOODWILL
The Group’s recognised goodwill amounts to SEK 1,997 million (1,767), allocated as above to the units where impairment testing is performed. Goodwill is not monitored internally at a level lower than the business areas, and impairment testing is therefore performed at that level. The business areas coincide with the Group’s operating segments. Impairment testing took place most recently in March 2020.

The recoverable amount was based on value in use, calculated from a current estimate of cash flows over the year ahead. Forecast earnings and investments in working capital and non-current assets for the next financial year, 2020/2021, are based on previous outcomes and experiences. The forecast is produced on the basis of a relatively detailed budgeting process for the various parts of Group. The major components of the cash flow are sales, the various operating costs and investments in working capital and non-current assets.

The sales forecast is based on judgements taking into account factors such as order bookings, the general economy and the market situation. The forecast for operating costs is based on current pay agreements and previous years’ levels of gross margins and overheads, adapted to expectations for the year ahead taking into account factors as referred to for the sales forecast. Anticipated investments in working capital and non-current assets are linked to the growth in sales.

Since the operations are deemed to be in a phase that is representative of the long-term perspective, the cash flow from the first forecast year is extrapolated by a long-term growth rate of 2 percent (2) per year for all business areas. Cash flows were discounted applying a weighted cost of capital corresponding to roughly 11 percent (10) before tax. The key assumptions that have the greatest effect on the recoverable amount are gross margin, discount rate and long-term growth rate, where gross margin is most important. Neither a 1-percent increase in the discount rate, a 1-percentage point decrease in long-term growth, nor a 1-percent decrease in the margin shows a need for impairment. These calculations show that value in use significantly exceeds the carrying amount. Consequently, impairment testing indicated no impairment. The margin for impairment is considerable for all business areas and it is not judged that any possible changes in important assumptions that may reasonably expected to lead to impairment.

OTHER IMPAIRMENT TESTING
Each year, trademarks are tested for impairment, applying the same policies as for goodwill. No events or changed circumstances have been identified motivating impairment testing of other intangible assets currently being amortised.

Property, plant and equipment

Leases
The effect on the group from the transition to IFRS 16 Leases is described in note 1 Accounting and valuation principles. The method chosen by the Group for the transition to IFRS 16 means that comparative figures are not recalculated. The transition effect from previous accounting standard to IFRS 16 is described in the tables below. Future minimum lease payments amounting to 564 MSEK at the end of March 2019 have been discounted with the incremental borrowing rate. At the transition to IFRS 16 a weighted average incremental borrowing rate of 1 percent was used. Leases for which the underlying asset is of low value and short term-leases have been exempted and extension periods have been added. The opening lease liability with IFRS 16 in the beginning of April 2019 amounted to 558 MSEK. At the end of 2019/2020, the lease liability amounted to 627 MSEK whereof 169 were short-term and 458 long-term. The average remaining lease term at the end of March 2020 was 34 months. The Group’s right-of-use assets relate primarily to leased premises, vehicles, and other leases (e.g. leases of production equipment, office equipment, and other assets not considered individually significant). Depreciation on right-of-use assets is specified in note 8 Depreciation/ amortisation. Interest expense on lease liabilities amounted to 8 MSEK in the financial year 2019/2020. In addition to the interest expense, the cash flow statement was affected by instalment on the lease liability, amounting to 162 MSEK. The effect from low-value and short-term leases is not included in these amounts.

Taxes

Inventories

Financial risks and risk management

RISK MANAGEMENT POLICY AND OBJECTIVES
Addtech strives for structured and efficient management of the financial risks that arise in operations, which is manifest in the financial policy adopted by the Board of Directors. The financial operations are not conducted as a separate line of the business; they are merely intended to constitute support for the business and reduce risks in the financial operations. The policy stipulates goals and risks in the financial operations, and how they are to be managed. The financial policy expresses the goal of minimising and controlling financial risks. The policy defines and identifies the financial risks that arise at Addtech and how responsibility for managing these risks is distributed in the organisation. The financial risks defined in the financial policy are transaction exposure, translation exposure, refinancing risk, interest rate risk, margin risk, liquidity risk and issuer/borrower risk. Operational risks, that is, financial risks related to operating activities, are managed by each subsidiary’s management according to principles in the financial policy and subordinate process descriptions approved by the Group’s Board of Directors and management. Risks such as translation exposure, refinancing risk and interest rate risk are managed by the Parent Company, Addtech AB. Financial derivatives with external counterparties may only be entered by Addtech AB. The subsidiaries hedge their risk via Addtech AB which, in turn, obtains hedges on the external market.

CURRENCY RISK
The Addtech Group conducts extensive trade abroad and a material currency exposure therefore arises in the Group, which must be managed in such a way as to minimise the impact on earnings resulting from exchange rate fluctuations.

The Group applies decentralised responsibility for currency risk management. This involves risk identification and risk hedging occurring at subsidiary level. It is important to capitalise on the size of the Group and natural conditions to match flows, and the subsidiaries must therefore hedge their risk via the Parent Company which, in turn, obtains hedges on the external market.

For Addtech, currency risk arises 1) as a result of future payment flows in foreign currency, known as transaction exposure, and 2) because parts of the Group’s equity comprise net assets in foreign subsidiaries, known as translation exposure. Monetary financial assets and liabilities in currencies other than each Group company’s functional currency occur to a limited extent.

TRANSACTION EXPOSURE
Transaction exposure comprises all future contracted and forecast ingoing and outgoing payments in foreign currency. The Group’s currency flows usually pertain to flows in foreign currency from purchases, sales and dividends. Transaction exposure also comprises financial transactions and balances. During the year, the Group’s payment flows in foreign currencies were distributed as follows:

The effects of exchange rate fluctuations are reduced by buying and selling in the same currency, through currency clauses in customer contracts and, to a certain degree, by forward purchases or sales of foreign currency. In the industry, currency clauses are a common method for handling uncertainty associated with future cash flows. A currency clause means that compensation is paid for any changes in the exchange rate exceeding a certain predefined level during the contract period. If these thresholds are not reached, for example when the exchange rate changes by less than 2 percentage points, no compensation is paid. The currency clauses adjust the exchange rate change between the time the order is placed and the invoice date. Currency clauses are symmetrically designed, meaning that compensation is charged or credited when the exchange rate rises or falls beyond the predefined thresholds.

Of consolidated net sales, currency clauses cover about 10 percent (12) and sales in the purchasing currency make up about 38 percent (39). In certain transactions, there is a direct link between the customer’s order and the associated purchase order, which is a good basis for effective currency risk management. However, in many cases the dates of the orders do not coincide, which may reduce the effectiveness of these measures. The subsidiaries have reduced their currency exposure by using forward foreign exchange contracts. At the end of the financial year, there were outstanding forward foreign exchange contracts in a gross amount of SEK 183 million (166), of which EUR equalled SEK 115 million (117), JPY SEK 0 million (15), USD SEK 34 million (24), PLN SEK 22 million (4), DKK SEK 2 million (4), GBP SEK 9 million (1) and NOK SEK 1 million (0). Of the total contracts, SEK 148 million (113) matures within six months, SEK 35 million (51) within 12 months and SEK 0 million (2) within 18 months. Hedge accounting does not apply to forward foreign exchange contracts and they are classified as a financial asset measured at fair value through profit or loss. Hedge accounting applies to embedded derivatives consisting of currency clauses, and they are classified as derivatives used in hedge accounting. The cash flow effect from embedded derivatives normally occurs within six months.

The Group has a net exposure in several currencies. If each separate currency pair changes by 5 percent, the aggregate effect on profit would total about SEK 68 million (46), all else being equal. Inflows and outflows in the same currency mean that the Group’s exposure is relatively limited. Currency flows in the Parent Company are mainly in Swedish kronor (SEK). To the extent that internal and external loans and investments in the Parent Company are in foreign currency, 100 percent of the capital amount is hedged.

Translation exposure
The translation exposure of the Addtech Group is currently not hedged.
The Group’s net assets are divided among foreign currencies as follows:

When translating the income statement of units with a functional currency other than SEK, a translation effect arises when exchange rates vary. With the present distribution of Group companies’ different functional currencies, a change of 1 percentage point in the exchange rates would have an effect of SEK +/- 72 million (64) on net sales and SEK +/- 8 million (5) on operating profit.

The exchange rates applied in the financial accounts are shown in the following table:

FINANCING AND LIQUIDITY
The overall objective of Addtech’s financing and debt management is to secure financing for the operations in both the long and short term, and to minimise borrowing costs. The capital requirement is to be secured through an active and professional borrowing procedure comprising overdraft and other credit facilities. Raising of external financing is centralised at Addtech AB. Adequate payment capacity is to be achieved through contractual credit facilities. Surplus liquidity is primarily used to pay down outstanding credits. The Parent Company is responsible for the Group’s long-term financing as well as its supply of liquidity. The Parent Company provides an internal bank which lends to and borrows from the subsidiaries. The Group’s and Parent Company’s non-current and current interest-bearing liabilities are shown in Notes 24 and 25.

To manage surpluses and deficits in different currencies, Addtech uses currency swaps from time to time. This allows the Group to reduce its financing costs and the Company’s liquid funds to be used in an efficient manner.

Refinancing risk
The refinancing risk is the risk of Addtech not having access to sufficient financing on each occasion. The refinancing risk increases if Addtech’s credit rating deteriorates or if Addtech becomes too dependent on one source of financing. If all or a large part of the debt portfolio matures on a single or a few occasions, this could involve the turnover or refinancing of a large proportion of the loan volume having to occur on disadvantageous interest and borrowing terms.

In order to limit the refinancing risk, the procurement of long-term credit facilities is commenced no later than nine months before the credit facility matures. On 31 March 2020, the Group’s credit facilities amounted to SEK 3,800 million (2,001), represented by bank overdraft facilities of SEK 1,300 million (1,301) and other agreed credit facilities of SEK 2,500 million (700). During the year, overdraft facilities increased by SEK 0 million (200) while other agreed credit facilities increased by SEK 1,800 million (300). At 31 March 2020, the Group had utilised SEK 156 million (1,031) of the bank overdraft facilities and SEK 1,600 million (700) of the other credit facilities. Unutilised bank overdraft facilities and credit facilities amounted to SEK 2,028 million (270). The Group’s credit facilities are contingent upon loan covenants, the conditions of which are fulfilled with a wide margin. For covenants, Addtech uses two ratios: EBITDA/net financial items and equity/assets.

INTEREST RATE RISK
The interest rate risk is regulated by ensuring that the average fixed interest term of the debt portfolio varies between 0-3 years. The debt portfolio consists of bank overdraft facilities and outstanding external loans. The interest rate at 31 March 2020 was variable, that is, 0-3 months. Addtech’s main exposure to interest rate risk is in its debt portfolio. Aside from the pension liability, interest-bearing external debt totals SEK 2,616 million (1,996).

With the current net financial debt, the impact on the Group’s net financial items would be SEK +/- 20 million if interest rates were to fluctuate by 1 percentage point.

ISSUER/BORROWER RISK AND CREDIT RISK
Issuer/borrower risk and credit risk are defined as the risk of Addtech’s counterparties failing to fulfil their contractual obligations. Addtech is exposed to credit risk in its financial transactions, that is, in investing its surplus liquidity and executing forward foreign exchange transactions, and in its commercial operations in connection with accounts receivable and advance payments to suppliers. Maximum credit risk exposure from financial assets is consistent with the carrying amount of those assets.

Addtech’s financial function at the Parent Company is responsible for assessing and managing issuer/borrower risk. The financial policy prescribes that surplus liquidity only be invested with counterparties that have a very high credit rating. As in prior years, in 2019/2020 no surplus funds were invested with any counterparties other than Swedish banks, aside from the Group’s normal bank contacts.

To utilise its subsidiaries’ detailed knowledge of Addtech’s customers and suppliers, Addtech has each company assess the credit risk in its commercial transactions. New customers are assessed before credit is granted, and credit limits set are strictly enforced. Short credit periods are the goal, and avoiding excessive concentration of business with individual customers and with specific sectors helps minimise risks. No individual customer accounts for more than 4 percent (3) of total credit exposure during a one-year period. The equivalent figure for the ten largest customers is about 17 percent (12). Exposure per customer segment and geographic market is presented in Note 5.

Bad debt losses totalled SEK 7 million (7) during the year, equal to 0 percent (0) of net sales.

Prepaid expenses and accrued income

Note 20

Equity

GROUP
Other contributed capital

Refers to equity contributed by shareholders.

TRANSLATION RESERVE
The translation reserve includes all exchange differences arising on the translation of the financial reports of foreign operations prepared in a currency other than the Group’s presentation currency for financial reports. The Parent Company and Group present their financial reports in Swedish kronor (SEK).

HEDGING RESERVE
The hedging reserve includes the effective portion of the accumulated net change in fair value for a cash-flow hedging instrument attributable to hedge transactions that have not yet occurred.

RETAINED EARNINGS, INCLUDING PROFIT FOR THE YEAR
Retained earnings including profit for the year include earnings in the Parent Company and its subsidiaries. Prior provisions to the legal reserve are included in this equity item.

REPURCHASED SHARES
Repurchased shares includes the cost of treasury shares held by the Parent Company. At the end of the reporting period, the Group’s holding of treasury shares was 1,049,918 (1,141,387).

DIVIDEND
After the reporting period, the Board of Directors proposed a dividend of SEK 4.00 per share. The dividend is subject to approval by the Annual General Meeting on 28 August 2020.

PARENT COMPANY

RESTRICTED RESERVES
The purpose of the statutory reserve is to save a portion of net profit that will not be used to cover a loss carried forward.

STATUTORY RESERVE
The purpose of the statutory reserve is to save a portion of net profit that will not be used to cover a loss carried forward.

RETAINED EARNINGS
Retained earnings comprises the previous year’s unrestricted equity, less any dividend paid. Together with profit for the year and any fair value reserve, retained earnings constitute the sum of unrestricted equity, that is, the amount available to be paid as dividends to shareholders.

NUMBER OF SHARES
The number of shares at 31 March 2020 consisted of 3,229,500 Class A shares, entitling the holders to 10 votes per share, and 64,968,996 Class B shares, entitling the holders to one vote per share. The quotient value of the share is SEK 0.75.The Company has repurchased 1,049,918 Class B shares within the framework of the Company’s ongoing repurchasing programme. After subtracting repurchased shares, the number of Class B shares is 63,919,078.

Non-current interest-bearing liabilities

Provisions for pensions and similar obligations

Addtech has defined-contribution and defined-benefit pension plans in Sweden, Switzerland and the UK. The plans cover a large number of employees. Subsidiaries in other countries have mainly defined-contribution pension plans. The Parent Company’s data on pensions are reported in accordance with the Swedish Act on Safeguarding Pension Obligations.

DEFINED-CONTRIBUTION PLANS
These plans are mainly retirement pension plans, disability pensions and family pensions. Premiums are paid on an ongoing basis during the year by each Group company and the size of the premium is based on the salary. The pension cost for the period is included in profit or loss.

Obligations for retirement pensions and family pensions for salaried employees in Sweden are secured by insurance in Alecta. According to statement UFR 3 of the Swedish Financial Reporting Board, this is a defined-benefit plan covering multiple employers. For the 2019/2020 financial year, the Company did not have access to information enabling it to report this plan as a defined-benefit plan. Thus the pension plan according to ITP2 and secured by insurance in Alecta is recognised as a defined-contribution plan. The year’s fees for pension insurance with Alecta totalled SEK 31 million (30). Fees for the next financial year are considered to be in line with those for the year reported. The collective consolidation level for Alecta was 133 percent (144) in March 2020. The pension plan according to ITP1 is recognised as a defined-contribution plan.

DEFINED-BENEFIT PLANS
These pension plans primarily comprise retirement pensions. Each employer generally has an obligation to pay a lifelong pension and vesting is based on the number of years of employment. The employee must subscribe to the plan for a certain number of years to be fully entitled to retirement benefits. Each year increases the employee’s entitlement to retirement benefits, which is recognised as pension earned during the period and as an increase in pension obligations. Both funded and unfunded pension plans apply in Sweden, Switzerland and the UK. The funded pension obligations are secured by plan assets that are managed by insurance companies. The Group estimates that SEK 4 million (1) will be paid in 2020/2021 to the funded defined-benefit plans. The total number of commitments of 963 (902) included in the obligation consists of 132 active (71), 488 paid-up policy holders (518) and 343 pensioners (313).

The discount rate used is equivalent to the interest rate on high-quality corporate bonds or mortgage bonds with a maturity equivalent to the average maturity of the obligation and currency.

For Swedish pension liabilities, the interest rate for Swedish housing bonds is used as a basis and for pension liabilities in Switzerland and the UK, the interest rate for corporate bonds is used. The weighted average maturity for the commitment is around 18 years (18), which is used as a basis on which to determine the discount rate. Future increases in pensions are based on inflation assumptions. In Sweden, the remaining period of employment (life expectancy) is based on DUS 14, statistical tables prepared by Insurance Sweden and Försäkringssällskapet (the Insurance Society), in Switzerland on BVG 2015, and in the UK on S3PA, CMI 2019.

The sensitivity analyses are based on a change in an assumption, while all other assumptions are held constant. The same method, the projected unit credit method, is used to calculate the sensitivity in the defined-benefit obligation as to calculate the pension obligation recognised in the balance sheet.

Current interest-bearing liabilities

Accrued expenses and prepaid income

Provisions

Premises
The provision for premises refers to premises that the Group has vacated and cannot sublet or use during the remainder of the lease.

Personnel
The provision refers to costs of personnel, including estimated remuneration upon termination of employment in connection with changes in operations. A provision is made when there is an approved restructuring plan and the restructuring has been announced.

Warranties
Recognised provisions for warranties associated with products and services are based on calculations performed based on historical data or, in specific cases, on an individual assessment.

Other
Other includes provisions not classified under premises, personnel or warranties, such as equipment that cannot be used due to changes in operations. All provisions are classified as short-term and are expected to lead to an outflow of resources within 12 months of the balance sheet date.