Note 2 Significant accounting principles

The consolidated financial statements for Lary 1 have been prepared in accordance with EU-approved International Financial Reporting Standards (IFRS). Pursuant to the rules of exemption for non-listed companies, Lary 1 has chosen not to apply IAS 33 Earnings Per Share and IFRS 8 Operating Segments. Additionally, the group is applying the Annual Accounts Act (“Årsredovisningslagen”) and the Swedish Financial Reporting Board’s recommendation RFR 1, Supplementary Accounting Rules for Groups.

New, amended standards and improvements that entered into force in 2017 have not had any significant effect on the group’s financial reports for the fiscal year.

The financial reports are presented in Swedish kronor, the parent company’s functional currency and the reporting currency of both the parent company and the group. All amounts, unless otherwise indicated, are rounded to the nearest thousand.

Fixed assets and long-term debt essentially consist of amounts expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities essentially consist of amounts expected to be recovered or paid within 12 months of the balance sheet date.

In the consolidated financial statements, items are valued at their acquisition cost, aside from certain financial instruments that are valued at their fair market value through profit or loss. The essential accounting principles applied are described below.

New, amended standards and interpretations that have not yet entered into effect

The new, amended standards and interpretations that have been issued, but which enter into force for fiscal years beginning after January 1, 2017, have not yet been adopted by the group. The new, amended standards and interpretations considered to have an effect on the group’s financial reports during the period when they will first be applied are described below.

Effective January 1, 2018, IFRS 15 Revenue from Contracts with Customers will replace the existing IFRS standards related to revenue reporting, such as IAS 18 Revenue and IAS 11 Construction Contracts. IFRS 15 provides a revenue recognition model for nearly all income originating from customer contracts, aside from leasing contracts, financial instruments, and insurance contracts. According to IFRS 15, the basic principle for revenue recognition is that a company must report income in a manner that reflects the transfer of the contracted goods or services to the customer and reflects the amount the company expects to receive in exchange for the goods or services. Revenue is recognized when the customer receives control of the products or services.

Management estimates that implementation of IFRS 15 will not have any effect on the group’s financial reports in 2018. The group recognizes revenue when products are delivered, which may be around 1-2 days earlier than when the customer assumes control of the products. A day’s worth of sales amounts to about SEK 5 Mil and is not considered to be material for an adjustment. Since revenue is distributed relatively evenly over the course of the year, this effect is about equally strong at different times in the year and mostly changes due to robust sales growth.

Beginning in 2018, IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 involves changes in how financial assets are classified and valued, within the context of an impairment model based on expected loan losses as opposed to actual losses, and modifies the principles for hedge accounting with the aim, among other things, of simplifying and increasing conformity with the company’s internal risk management strategies.

Management estimates that implementation of IFRS 9 will have a limited effect on the group’s financial reports in 2018, but the work has not yet been completed. Work is underway in developing appropriate impairment models.

Starting in 2019, IFRS 16 Leases will replace the existing IFRS standard related to reporting leasing contracts, such as IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease.

IFRS 16 primarily affects lessees and the main effect is that all leasing contracts currently being reported as operating leases must be reported in a manner similar to that of financial leasing contracts. This means that assets and liabilities must also be reported for operating leases, as well as the cost of depreciation and interest – which is different from current practice since leased assets and related liabilities are not reported and leasing expenses are recognized on a straight-line basis as leasing costs.

As an operating lessee, the group will be affected by the introduction of IFRS 16. Monetary calculations of the effect of IFRS 16 and the choice of transitional approaches have yet to be carried out. The information provided in Note 11 on operating leases gives an indication of the type and scope of currently existing contracts.

Management estimates that other new, amended standards that have yet to enter into force will not have any significant effect on the group’s financial reports once they are applied for the first time.

Consolidated financial statements

Subsidiaries are companies that are under the controlling interest of Lary 1 AB. A controlling interest exists if Lary 1 AB has an influence on the investment object, is exposed to or entitled to a variable rate of return from its engagement, and can apply its influence over the investment to affect this return. In the assessment of whether a controlling interest exists, the existence of any voting shares or de facto control is considered.

Subsidiaries are included in the consolidated financial statements from the date of their acquisition up to the date when the parent company no longer has a controlling interest in the subsidiary. The accounting principles for subsidiaries have been adjusted as needed in order to agree with the group’s accounting principles. All intra-group transactions, balances, and unrealized profits and losses attributable to intra-group transactions have been eliminated from the consolidated financial statements.

Business combinations

Mergers and acquisitions are reported pursuant to the acquisition method.

The purchase price for the acquired business is valued at the fair market value at the time of acquisition, which is calculated as the sum of the fair market values at the time of acquisition of all acquired assets, accrued or assumed liabilities, as well as shares of equity issued in exchange for control of the acquired business. Acquisition-related expenses are reported in the profit and loss statement when they occur.

The purchase price also includes the fair market value at the time of acquisition of any assets or liabilities resulting from an agreement with a conditional purchase price. Changes in the fair market value of a conditional purchase price acquisition arising due to additional information about facts and conditions that were in existence at the time of the acquisition and were received after the acquisition date qualify as adjustments during the appraisal period and are retroactively adjusted with a corresponding adjustment of goodwill. Conditional purchase price acquisitions that are classified as equity are not revalued and the subsequent adjustment is recognized in equity. Any other changes to the fair market value due to a conditional additional purchase amount are reported in the profit and loss statement.

Identifiable acquired assets and assumed liabilities are reported at fair market value on the date of acquisition with the following exceptions:

  • Deferred tax assets or tax liabilities or assets or liabilities attributable to the acquired company’s wage agreements with employees are reported and valued in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively.
  • Liabilities or equity instruments attributable to the acquired company’s share-based awards or to the exchange of the acquired company’s share-based awards with the acquiring company’s share-based assets are valued at the time of acquisition in accordance with IFRS 2 Share-based Payment.
  • Assets (or disposal groups) classified as “Held for sale” pursuant to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are valued in accordance with the IFRS standard.

In the case of business acquisitions where the sum of the purchase price, any non-controlling interest, and the fair market value of prior share holdings on the acquisition date exceeds the fair market value of identifiable acquired net assets at the time of acquisition, the difference is reported as goodwill in the “Report on the financial position”. If the difference is negative, this is reported as a “gain from a low-cost acquisition” directly in the profit and loss statement after verification of the difference.

For each business acquisition, existing non-controlling share holdings in the acquired company are valued at either fair market value or the value of the proportionate share of those non-controlling holdings in the acquired company’s identifiable net assets.

Goodwill

Goodwill appearing in the consolidated financial statements consists of the difference between the acquisition cost and the group’s share of the fair market value of an acquired subsidiary’s identifiable assets and liabilities on the date of the acquisition. At the time of acquisition, goodwill is reported at acquisition cost, but after the first reporting date, it is valued at acquisition cost less any accumulated impairment charges. When assessing the need for impairment, goodwill is allocated to cash-generating units. Any impairment of goodwill is immediately reported as an expense and is not reversed.

Revenue

Revenue is reported at the actual value of consideration received or expected to be received, less value-added tax, rebates, returns, and similar deductions. The group reports revenue when the amount can be reliably measured, it is likely that future financial benefits will accrue to the company, and special criteria have been met.

The group’s revenue is derived from the sale of medical devices that are primarily manufactured at the factory in Hörby. Revenue from the sale of products is reported when the products are delivered and the right of ownership has been transferred to the customer, meeting all of the conditions below:

  • The company has transferred the essential risks and benefits associated with owning the products.
  • The company is no longer involved in the ongoing management normally associated with ownership and does not exercise any real control over the products sold.
  • The income can be reliably calculated.
  • The financial benefits associated with the transaction are likely to inure to the company, and
  • The expenses incurred or expected to arise as a result of the transaction can be reliably calculated.

Dividend and interest income

Dividend income is recognized once the owner’s right to receive payment has been established.

Interest income is recognized evenly over its effective term via application of the effective interest method.

Leasing contracts

A financial leasing contract is an agreement where the financial risks and benefits associated with the ownership of an asset are essentially transferred from the lessor to the lessee. Other leasing contracts are classified as operating leases. The group holds only operating leases. Leasing fees for operating leases are expensed on a straight-line basis over the lease term unless another systematic approach provides a better reflection of the financial benefit to the user over time.

Foreign currency

Items contained in the financial reports of various group business units are reported in the currency used in the main economic environment in which each respective unit primarily conducts its business (functional currency). In the consolidated financial statements, all amounts are converted to Swedish kronor (SEK), which is the parent company’s functional and reporting currency.

Foreign currency transactions for the various business units are convereted into the respective unit’s functional currency according to the exchange rates in effect on the date of the transaction. On each balance sheet date, foreign currency monetary items are converted at the exchange rate in effect on that date. Non-monetary items valued at fair market value in a foreign currency are converted at the exchange rate in effect at the time a fair market value was determined. Non-monetary items valued at their historical cost in a foreign currency are not recalculated.

Exchange rate differences are recognized during the period in which they appear in the profit and loss statement, except for hedging transactions that satisfy the conditions for hedge accounting of cash flow or net investments, where profits and losses are reported in “Other comprehensive income”.

In the consolidated financial statement, the assets and liabilities of foreign subsidiaries are converted into Swedish kronor using the exchange rate in effect on the balance sheet date. Income and expense items are converted at the average exchange rate during the period unless the rate has fluctuated significantly during the period, in which case, the exchange rate on the transaction date is used. Any translation differences that arise are reported in “Other comprehensive income” and transferred to the group’s translation reserve. Upon divestment of a foreign subsidiary, such translation differences are reported in the profit and loss statement as part of the capital gain/loss.

Goodwill and adjustments to fair market value from the acquisition of a foreign company are treated as the acquired company’s assets and liabilities and are converted at the exchange rate in effect on the balance sheet date.

Borrowing costs

Borrowing costs directly attributable to the purchase, construction, or production of an asset that requires a considerable amount of time to complete for its intended use or sale are incorporated in the asset’s acquisition cost until the date the asset is completed for its intended use or sale. Interest income from temporary placement of any borrowed funds for the aforementioned assets is deducted from the borrowing costs included in the asset’s acquisition cost. Other borrowing costs are reported in the profit and loss statement for the period in which they were incurred.

Employee compensation

Compensation to employees in the form of wages, bonuses, paid vacations, paid sick leave, etc. as well as retirement benefits is recognized as it is incurred. Retirement benefits and other post-employment compensation are classified as defined-contribution or defined-benefit retirement plans. The ITP plan offered through Alecta is a defined-benefit retirement plan. However, pursuant to UFR 10, the plan is reported as if it were a defined-contribution plan. For more information, see Note 12.

Defined-contribution plans

The group pays set fees to a separate independent legal entity for defined-contribution plans and is not obliged to pay any additional fees. These costs are recognized as the benefits are earned, which normally coincides with the dates when the premiums are paid.

Taxes

The tax expense consists of the sum of current and deferred taxes.

Current taxes

Current taxes are calculated on the taxable income for the period. Taxable income differs from the reported profit or loss in the income statement as it has been adjusted for non-taxable income and non-deductible expenses as well as income and expenses that were taxable or deductible in other periods. The group’s actual tax liability is calculated according to the tax rates in effect on the balance sheet date.

Deferred taxes

Deferred tax is reported on temporary differences between the carrying amount of assets and liabilities in the financial statements and the taxable value used for calculating taxable profit. Deferred taxes are reported in accordance with the “balance sheet method”. In principle, deferred tax liabilities are recognized for any taxable temporary differences, while deferred tax assets are recognized for any deductible temporary differences where it is likely that the amounts can be applied against future taxable surpluses. Deferred tax liabilities and deferred tax assets are not recognized if the temporary difference is attributable to goodwill or is incurred as a result of a transaction constituting the initial recognition of an asset or liability (that is not a business combination) and does not affect the reported or taxable income at the time of the transaction.

Deferred tax liabilities are reported as taxable temporary differences attributable to investment in subsidiaries, except in cases where the group can control the timing of the reversal of the temporary differences and it is unlikely that such a reversal will occur in the foreseeable future. With regard to such investments, deferred tax assets attributable to deductible temporary differences will only be recognized to the extent it is likely that these amounts may be applied against future taxable surpluses and that this is not likely to happen in the foreseeable future.

The carrying amount of deferred tax assets is assessed on each reporting date and reduced insofar it becomes unlikely that sufficient taxable surpluses will be available to be offset, in whole or in part, by the deferred tax asset.

Deferred taxes are calculated using the expected tax rates for the period in which the assets were recovered or liabilities adjusted based on the prevailing or announced tax rates (and tax laws) in effect on the balance sheet date.

Deferred tax assets and tax liabilities are offset since they relate to income tax debited by the same authority and since the group intends to adjust the tax with a net amount.

Current and deferred taxes for the period

Current and deferred taxes are reported as an expense or income item in the profit and loss statement, except where the taxes are attributable to transactions reported in “Other comprehensive income” or directly posted to “Shareholder’s equity”. In such cases, the taxes are also reported in “Other comprehensive income” or directly posted to “Shareholder’s equity”. For current and deferred taxes originating from the recognition of business combinations, the tax effect must be reported in the acquisition estimate.

Property, plant, and equipment (PP&E)

Property, plant, and equipment is reported at its acquisition cost less any accumulated depreciation and/or impairment charges.

The acquisition cost consists of the purchase price, expenses directly attributable to delivering and/or installing the asset and equipping it for use, as well as estimated expenses for disassembly and removal of the asset and restoration of the installation site to its original state. Additional expenses are either included in the asset value or reported as a separate asset when it is likely that future economic benefits attributable to the item will inure to the benefit of the group and that the acquisition cost for such expenses can be reliably calculated. All other expenses for repairs and maintenance as well as incremental expenses are reported in the profit and loss statement for the period in which they were incurred.

Where the difference in the wear and tear of a PP&E asset’s significant components is considered to be substantial, the asset is divided into its components.

Depreciation of PP&E is reported such that the asset’s acquisition cost, reduced by the calculated residual value at the end of its useful lifespan, is amortized on a straight line basis over its estimated useful life. Depreciation begins when the PP&E asset can be put into use. The useful lifespans of property, plant, and equipment are estimated at:

Buildings 25 years
Machinery and other technical installations 3-8 years
Inventory and equipment 3-8 years

Land is not depreciated.

Estimated useful lifespans, residual values, and depreciation methods are reviewed at least at the end of each accounting period; the effect of any changes in estimates is reported in future periods.

The carrying amount of a PP&E asset is deducted from the balance sheet in the event of any decommissioning or disposal or if no future economic benefits are expected from the decommissioning/disposal of the asset. The profit or loss obtained from decommissioning or disposing of the asset, amounting to the difference between any net income obtained from the disposal and the carrying amount of the asset, is recognized in the profit and loss statement during the period in which the asset is removed from the balance sheet.

Intangible assets

Acquisition via separate purchases

Intangible assets with defined useful lifespans that have been acquired separately are reported at their acquisition cost less any deductions for accumulated depreciation and/or impairment charges. Depreciation is recognized on a straight-line basis over the asset’s estimated useful lifespan. Estimated useful lifespans and depreciation methods are reviewed at least at the end of each fiscal year; the effect of any changes in estimates is reported in future periods.

Acquisition as a part of a business combination

Intangible assets that have been acquired through a business combination are identified and reported separately from goodwill where they meet the definition of an intangible asset and their fair market value can be reliably calculated. The acquisition cost of such intangible assets is their fair market value at the time of the business combination.

Like separately purchased intangible assets, after the initial reporting date, intangible assets acquired through a business combination are reported at their acquisition cost less any deductions for accumulated depreciation and/or impairment charges.

Trademarks

The group’s trademarks were acquired through mergers and acquisitions and have been valued at their fair market value at the time of each business combination. After the initial reporting date, the trademarks are reported at their acquisition cost less any deductions for accumulated impairment charges. The group’s trademarks are considered to have an indefinite useful lifespan and are subject to review for impairment whenever there is an indication of impairment, or at least on an annual basis.

The acquired trademarks in the group derive from the acquisition of the Atos group in 2016. The assessment that the useful life of these trademarks are indefinite is based on the following circumstances. These are well-established trademarks within their respective areas, which the group intends to maintain and further develop. The trademarks are considered to be of significant economic significance as the form an integral part of the product offering to the market, by signaling quality and innovation in the products. The trademarks are considered to affect the pricing and competitiveness regarding the products. Due to their connection with the ongoing operations, these are considered to have an indefinite useful life and are expected to be used as long as relevant activities are in progress.

Taking into account the assessment that the cash flows attributable to the trademarks can not be distinguished from other cash flows within the respective cash-generating unit, impairment test for both goodwill and trademarks are jointly carried out by calculating the recoverable amount of the cash-generating units where the goodwill and the trademarks are allocated.

Customer relationships

Customer relationships are reported at their acquisition cost less any accumulated depreciation and/or impairment charges. Depreciation is recognized on a straight-line basis over the estimated useful life of the customer relationship, which has been set at 10-12 years. The estimated useful life is based on the remaining lifespan of the patients using the group’s products, which is an average of 8-9 years after they start using the products. However, the relationships are considered to have a longer useful life than this since the collaboration with hospitals and other customers is considerably longer.

Technology

The group’s technology consists of intellectual property rights, including patents and know-how related to specific product groups. Patents and similar rights acquired via business combinations are reported at their fair market value at the time of the merger or acquisition. Technology is reported at its acquisition cost less any accumulated depreciation and/or impairment charges. Depreciation is recognized on a straight-line basis over the estimated useful life of the technology, which has been set at 13-25 years. The estimated useful life is based on the lifespan of patients as well as the calculated useful life of the products.

Internally-generated intangible assets derived from the group’s product development (development of new products and production processes) are only reported if the following conditions have been met:

  • It is technically feasible to completely produce the intangible asset and use or sell it.
  • The group intends to produce the intangible asset and use or sell it.
  • The conditions are in place to use or sell the intangible asset.
  • The intangible asset is likely to be able to generate future economic benefits.
  • There are adequate technical, financial, and other resources to completely develop the intangible asset and use or sell it, and
  • The expenses attributable to the intangible asset during its development can be reliably calculated.

If it is not possible to report an internally-generated intangible asset, the development costs are reported as an expense during the period in which they are incurred.

After the initial reporting date, internally-generated intangible assets are reported at acquisition cost less any deductions for accumulated depreciation and/or impairment charges. The estimated useful lifespan is 3-5 years. Estimated useful lifespans and depreciation methods are reviewed at least at the end of each fiscal year; the effect of any changes in estimates is reported in future periods. If there is any indication that impairment charges are required, the carrying cost of the development expenses is reviewed.

Other intangible assets

Other intangible assets mainly consist of capitalization of the development costs of the group’s business systems. These assets are valued at their acquisition cost less any deductions for accumulated depreciation. Depreciation is recognized on a straight-line basis over the asset’s estimated useful lifespan, which is normally 5 years.

Impairment of property, plant, and equipment and intangible assets, excluding goodwill

On each balance sheet date, the group analyzes the carrying amounts for tangible and intangible assets in order to assess whether these assets have become impaired. If this is the case, the asset’s recoverable amount is calculated in order to determine the amount of any impairment charge. Where it is not possible to calculate a recoverable amount for a particular asset, the group calculates the recoverable amount for the cash-generating unit the asset belongs to.

Intangible assets with undefined useful lifespans and intangible assets that are not yet ready for use must be reviewed either on an annual basis or whenever there is an indication of impairment to see if impairment is required.

The recoverable amount is the larger of the fair market value less sales costs or its useful value. In calculating the useful value, the future estimated cash flow is discounted to its net present value using a discount rate before taxes that reflects current market perceptions of the time value of money as well as the risks associated with the asset.

If the recoverable amount for an asset (or cash-generating unit) is calculated at a lower value than the carrying amount, the carrying amount of the asset (or cash-generating unit) is written down to the recoverable amount. An impairment charge must be immediately recognized in the profit and loss statement.

Where an impairment charge is later reversed, the asset’s (or cash-generating unit’s) carrying amount is increased to the reassessed estimated recovery value (ERV), but the increased carrying amount may not exceed the carrying amount that would have been calculated if no impairment charges had been applied to the asset (or cash-generating unit) in prior years. A reversal of an impairment charge is reported directly in the profit and loss statement.

Financial instruments

A financial asset or liability is recognized on the balance sheet when the group becomes subject to the instrument’s contractual terms. A financial asset is removed from the balance sheet once the contractual right to cash flow from the asset no longer exists, is adjusted, or when the group no longer controls it. A financial liability or share of a financial liability is removed from the balance sheet once the contractual obligation has been extinguished or eliminated in another way.

On each balance sheet date, the group assesses whether there are any objective indications that a financial asset or group of financial assets is in need of impairment due to events that have occurred. Examples of such events include a materially impaired financial condition of the counterparty or non-payment of overdue amounts.

Financial assets and liabilities that are not recognized at fair market value via the profit and loss statement during the next reporting period have been recognized in the initial reporting period at fair market value with the addition of any deductions for transaction costs. Financial assets and liabilities that are recognized at fair market value via the profit and loss statement during the next reporting period have been recognized in the initial reporting period at fair market value. During the next reporting period, the financial instruments are valued at amortized cost or fair market value, depending on the initial classification according to IAS 39.

During the initial reporting period, a financial instrument is classified in one of the following categories:

Financial assets:

a) Fair market value via the profit and loss statement
b) Loans and receivables
c) Investments held to maturity
d) Marketable financial assets

Financial liabilities:

a) Fair market value via the profit and loss statement
b) Other financial liabilities valued at amortized cost

Fair market value of financial instruments

The fair market value of financial assets and liabilities is determined in the following manner:
The fair market values of financial assets and liabilities that trade on an open market are determined based on the listed market prices.

The fair market values of other financial assets and liabilities are determined according to generally accepted valuation models, such as discounted future cash flow, and the use of information obtained from actual market transactions.

For all financial assets and liabilities, the carrying amount is considered to be a good approximation of the fair market value unless specifically indicated otherwise in the following notes.

Amortized cost

Amortized cost refers to the amount at which an asset or liability was initially reported less any amortization, additions or deductions of accumulated accrual in accordance with the effective interest method applied to the initial difference between the amount received/paid and the amount to be received/paid on the maturity date, and any write-downs.

The effective interest rate is the interest rate that determines the initial carrying amount of the financial asset or liability upon discounting all future expected cash flow over the expected maturity.

Extinguishment of financial assets and liabilities

Financial assets and liabilities are extinguished and reported as a net amount when there is a legal right to extinguish them and the intent is to adjust the items via a net amount or simultaneously divest the asset and adjust the liability.

Cash and cash equivalents

Cash and cash equivalents include cash and bank balances as well as other short-term liquid investments that can easily be converted to cash and are subject to an insignificant risk of fluctuation in value. In order to be classified as “Cash and cash equivalents”, the maturity must not exceed three months from the time of acquisition. Cash and bank balances are categorized as “Loans and receivables”, which means they are valued at their amortized cost. Since bank funds are payable on demand, the amortized cost is equal to the nominal amount. Short-term investments are categorized as “Held for trading” and are valued at their fair market value, with changes in value recognized in the profit and loss statement.

Accounts receivable

Accounts receivable are categorized as “Loans and receivables”, which means they are valued at their amortized cost. However, since the expected maturity of account receivable is short, account receivable are reported at their nominal amount without any discounting. Deductions are made for account receivable that are considered to be doubtful. Impairment of accounts receivable is reported in operating expenses.

Accounts payable

Accounts payable are categorized as “Other financial liabilities”, which means they are valued at their amortized cost. However, since the expected maturity of accounts payable is short, these liabilities are reported at their nominal amount without any discounting.

Liabilities to credit institutions and other loan liabilities

Interest-bearing bank loans, checking overdraft facilities, and other loans are categorized as “Other financial liabilities” and are valued at their amortized cost according to the effective interest method. Any differences between the loan amounts received (net after transaction costs) and the repayment or amortization of loans is reported over the maturity of the loan.

Derivative instruments

The group enters into derivative transactions in order to manage interest rate risks. The group does not apply hedge accounting and all derivative instruments are therefore categorized as “Fair market value via the profit and loss statement” in the sub-category “Held for trading”. Derivative instruments with a positive fair market value are reported as “Other receivables” (long-term or short-term). Derivative instruments with a negative fair market value are reported as “Other financial liabilities”. Changes in the value of derivative instruments are reported in net financial income(loss).

Inventory

Inventory is valued at the lower of the weighted average cost and the net realizable value. The net realizable value is the estimated sales price after deductions for estimated completion costs and any estimated sales-related costs.

Provisions

Provisions are reported when the group has an existing obligation (legal or informal) as a result of an event that has occurred, where it is likely that an outflow of resources is required to settle the obligation and the amount can be reliably estimated.

The allocated amount is the best estimate of the amount required to settle the existing obligation by the balance sheet date, taking into account any risks or uncertainties associated with the obligation. When a provision is calculated by estimating the payments needed to settle the obligation, the amount reported must equal the current value of these payments.

Where part or all of an amount required to settle a provision is expected to be reimbursed by a third party, the reimbursement must be reported separately as an asset in the “Report on the financial position” whenever it is virtually certain it will be received if the company settles the obligation and the amount can be reliably calculated.

Cash flow

The group’s report on cash flow shows the changes in the company’s cash and cash equivalents during the fiscal year and has been prepared in accordance with the indirect method. The reported cash flow only includes transactions that resulted in proceeds or payments.

Important determinations and assumptions for accounting purposes

The preparation of financial reports requires the company’s management to make qualified assessments and estimates that affect assets and liabilities as well as income and expenses reported during the period, along with other information provided in the financial statements. These estimates are based partly on past experience and partly on expectations of future events and are reviewed periodically. If other assumptions are made or other conditions emerge, the actual outcome could differ from these estimates and assessments.

Where applicable, assessments and assumptions that could have a significant impact on the group’s results and financial position have been listed in the respective notes. Estimates and assessments that could have a meaningful impact on the group’s results and financial position include the valuation of identifiable assets and liabilities from acquisitions (Note 28), goodwill (Note 17), and intangible assets with indefinite useful lives (Note 17) as well as deferred taxes (Note 15).