BILIA ANNUAL REPORT Bilia AB (publ) Box 9003, SE Göteborg, Sweden Telephone Fax

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1 BILIA ANNUAL REPORT 08

2 CONTENTS Directors' Förvaltningsberättelse Report 1 Förslag till vinstdisposition 6 Consolidated Income Statement 7 Consolidated Resultaträkning Balance för koncernen Sheet 97 Report Balansräkning on changes för koncernen in consolidated equity 119 Consolidated Sammandrag avseende Cash Flow förändringar Statement 12 i koncernens eget kapital 11 Notes to the consolidated financial statements 13 Kassaflödesanalys för koncernen Noter till de finansiella rapporterna koncernen 13 Income Statement for Parent Company 53 Balance Sheet for Parent Company 54 Resultaträkning för moderbolaget 53 Summary of changes in Parent Company equity 56 Balansräkning för moderbolaget 54 Cash Flow Statement for Parent Company 57 Sammandrag avseende förändringar Notes to the Parent Company financial statements 58 i moderbolagets eget kapital 56 Kassaflödesanalys för moderbolaget 57 Signatures 68 Noter till de finansiella rapporterna moderbolaget 58 Audit Report 69 Five-year review 70 Underskrifter 68 Definitions 72 Revisionsberättelse 69 The Bilia share 73 Femårsöversikt 70 Board of Directors 77 Definitioner 72 Corporate Governance Report 79 Bilia-aktien 73 Management 82 Styrelse 77 Information on Annual General Meeting 84 Bolagsstyrningsrapport 79 Ledning 82 Årsstämmoinformation 84 Denna information har avlämnats enligt lag om Värdepappersmarknaden den XX mars This information has been furnished in accordance with the Securities Market Act of 17 March II Bilia Årsredovisning 2008

3 DIRECTORS REPORT Group and Parent Company The Board of Directors and Managing Director of Bilia AB (publ), Corp. ID no , hereby submit their annual report and consolidated financial statements for financial year Operations general Bilia is Scandinavia s largest car chain, with a leading position in servicing and sales of cars and transport vehicles plus supplementary services. The Group has 101 facilities in Sweden, Norway and Denmark plus an online auction site, Netbil. Bilia s vision is to be the best service company in the business with the goal of having the most satisfied customers in our showrooms, our stores and our workshops. The customer should find dealing with Bilia a pleasant experience. Bilia has a well-developed range of services and products in the Service Business, which includes workshop services, spare parts, store sales and fuel sales. Bilia is constantly developing new services and service concepts to simplify car ownership for our customers. Our Car Business includes sales of new and used cars, transport vehicles, customer financing and supplementary services. Bilia sells cars from Volvo, Renault, Ford, Land Rover, Hyundai, Nissan, Honda, BMW and Mini as well as transport vehicles from Renault, Ford, Hyundai and Nissan. Bilia will cease selling Land Rover and Mini during Ownership Bilia had 22,144 shareholders at the end of 2008, compared with 25,282 a year earlier. The proportion of institutional ownership amounted to 19.2 per cent (15.4), while the proportion of foreign ownership amounted to 10.0 per cent (14.7). In 2007 Bilia bought back a total of 1,000,000 shares, equivalent to 4.7 per cent of the share capital, for a total of SEK 115 M. As of 31 December 2008, the company s holding of its own shares amounted to 1,000,000 shares (1,000,000). The Bilia share The total number of shares in the company is 21,459,255. All issued shares are of Series A. It is also possible to issue B shares according to the Articles of Association, but this has not been done. All issued shares have equal rights in the company and are entitled to one vote at the Annual General Meeting (AGM). Bilia s shares are listed on NASDAQ OMX Stockholm and can be transferred freely there, subject to the rules of the exchange. Board members Mats Qviberg and Sven Hagströmer and their close family members control, directly and indirectly via Investment AB Öresund, approximately 41 per cent (39) of the shares in the company. Bilia has no knowledge of any shareholders agreements be - tween Bilia s shareholders. There are no special rules in the Articles of Association concerning amendment of the same or appointment/dismissal of Board members. The 2008 AGM authorised the Board of Directors to buy back Bilia shares equivalent to no more than 10 per cent of the total number of shares. In the event of significant changes in the company s ownership structure that affect the conditions or content of their jobs, the MD and certain top executives are entitled to terminate their own employment and obtain 24 months salary, less any salary received by the employee from other service during the last 12 months. The same right to compensation also exists in the event of termination by the company. Bilia s service and distribution agreements all contain clauses entailing that the agreement will be terminated if the company is transferred to a new owner who is not an authorised dealer or workshop for the same brand; however, the clauses cannot be applied as long as Bilia is listed on the stock exchange. Key figures Group Net turnover, SEK M 14,280 15,402 14,056 Operating profit/loss, excluding items affecting comparability, SEK M Operating margin, excluding items affecting comparability, % Operating profit/loss, SEK M Profit/loss before tax, SEK M Net profit/loss for the year, SEK M Return on capital employed, % Return on equity, % Net debt/equity, times Cash flow from operating activities, SEK M Equity/assets ratio, % Earnings/loss per share, SEK Equity per share, SEK Number of employees, 31 December 3,553 3,961 3,458 Bilia Annual Report

4 Directors Report cont d. Notable events during the year Bilia sold a property in Västerås. Bilia acquired all shares in Bilforum AS and Bilforum Finans AS, which represent Volvo, Renault and Land Rover in the Stavanger area. On 20 February, Bilia s subsidiary Säfveån won a longstanding dispute in the District Court of Gothenburg. The opposite party, Pacta, appealed the judgement on 11 March to the Court of Appeal for western Sweden. Bilia concluded an agreement on the sale of properties in Sweden to a subsidiary of Corem Property Group. Bilia acquired the real estate company A/S Selandia Ejendomsselskab. At the same time one of the properties, Lyngby, was sold. Bilia concluded an agreement on the sale of four properties in Copenhagen to a subsidiary of Corem Property Group. The Market Court convicted Bilia and seven other Volvo dealers in Skåne and Blekinge of violating the competition rules. Bilia was ordered to pay a restraint-of-trade fine of SEK 6 M, which was just under 5 per cent of the Swedish Competition Authority s original fine of SEK 122 M. An extraordinary shareholders meeting resolved to issue subordinated debentures in an amount of no more than SEK M with an associated issue of no more than 5,364,813 warrants. The issue is secured up to an amount of SEK 100 M by a subscription commitment and guarantee from Investment AB Öresund. The outcome of the new issue as per 31 December 2008 was to bring in SEK 87 M to Bilia, before issue expenses of SEK 6 M, by the issuance of subordinated debentures in an amount of SEK 87 M and an associated issue of 4,352,284 warrants. The warrants entitle holders to subscribe to an equal number of Series A Bilia shares for SEK 20 each. Sales and earnings Net turnover amounted to SEK 14,280 M (15,402). Adjusted for exchange rate changes and comparable operations, net turnover decreased by SEK 2,158 million or 14 per cent. The decline is mainly attributable to lower sales of new cars. Operating loss amounted to SEK 57 M (profit: 169). Items affecting comparability affected the loss by a net of SEK 41 M ( 8). The difference compared with last year, excluding items affecting comparability, was SEK 193 M. The result from customer financing, excluding gross profit attributable to rental income from long-term leasing of cars sold with repurchase agreements, amounted to SEK 87 M (97). Items affecting comparability amounted to SEK 41 M ( 8) and consist of SEK 124 M ( ) from the sale of property, SEK 124 M ( 18) in costs for action programmes, SEK 29 M ( ) in impairment of acquired surplus values, mainly goodwill, and SEK 12 M ( 12) in costs for disputes. Last year includes a changed pension plan in Bilia s Norwegian operation, which increased the profit by SEK 22 M. Net financial items amounted to SEK 82 M ( 19). The de - terioration is mainly attributable to increased net debt and a higher interest rate level. Net financial items for the year have been charged with costs of SEK 10 M in connection with the signing of a new bank agreement and issue expenses of SEK 6 M. This includes a profit share of SEK 22 M (22) from the indirect shareholding in Volvofinans Bank AB. Net loss for the year was SEK 110 M (profit: 100) and loss per share SEK 5.35 (EPS: 4.75). Exchange rate changes reduced the profit by SEK 5 M. Performance analysis, Group Group, SEK M Operating profit/loss, excluding items affecting comparability Items affecting comparability Gain from sale of property 124 Structural costs etc Impairment losses 29 Changed pension plan in Norway 22 Disputes Operating profit/loss Profit/loss before tax excluding items affecting comparability Items affecting comparability Gain from sale of property/shares 126 Structural costs etc Impairment losses 29 Changed pension plan in Norway 22 Disputes New bank agreement, issue expense etc. 16 Profit/loss before tax Bilia Annual Report 2008

5 Cars divided into Service and Car Businesses Service and Car Businesses Net turnover, SEK M 2) Operating profit/loss, SEK M Operating margin, % Service Business 1) 4,940 4,792 4, Car Business 1) 9,982 11,388 10, ) Service includes workshop services, spare parts, accessories and fuel in the car operation. The Car Business includes sales of new and used cars and customer financing. 2) Net turnover does not include eliminations for internal sales. Share of Cars net turnover, % Service, 33 (30) Car, 67 (70) Share of Cars employees, % Service, 80 (80) Car, 20 (20) Growth, Service, % Growth, Car, % Cars History of car sales in Sweden, Norway and Denmark Number of new cars Deliveries 1) Order backlog 1) New cars Sweden 18,690 23,336 21,231 1,330 2,991 2,507 Norway 5,906 6,459 5, , Denmark 4,749 6,719 6, Total Cars 29,345 36,514 33,784 1,974 4,736 3,674 1) As from 2007, transport vehicles are included in the reported number of units. The comparative figures have also been adjusted for transport vehicles. 400, , , , Sweden Norway Denmark 08 Key figures Net turnover, SEK M Operating profit/loss, SEK M Operating margin, % Return on operational capital employed, % Sweden 8,775 9,774 8, Norway 3,803 3,548 3, Denmark 1,687 2,065 1, Total Cars 14,265 15,387 14, Bilia Annual Report

6 Directors Report cont d. Investments and disposals Investments and disposals amounted to SEK 49 M ( 64). Re - placement investments represented SEK 39 M (52), expansion investments SEK 54 M (48), environmental investments SEK 5 M (4) and investments in new construction and additions to properties SEK 14 M (31). Net investments in leased vehicles and finance leases amounted to SEK 63 M ( 199). Financial position Total assets decreased by SEK 1,629 M to SEK 5,414 M (7,043). The decline is mainly attributable to sales of properties, fewer cars with guaranteed residual values (leased vehicles), lower inventories and trade receivables. Cash flow from operating activities amounted to SEK 383 M ( 305). Cash flow after net investments amounted to SEK 581 M ( 590). The cash flow for the year comes mainly from lower working capital (SEK 309 M) and sale of property (net about SEK 345 M). Net debt decreased by SEK 402 M to SEK 820 M. Equity amounted to SEK 1,229 M (1,507). The equity/assets ratio amounted to 23 per cent (21) at the end of the year. Goals and goal fulfilment Return on capital employed, % Return on equity, % Goal: at least 14 per cent Goal: at least 15 per cent Financial goals Bilia s overall financial objectives are to achieve: an operating margin of at least 2.2 per cent a return on capital employed of at least 14 per cent a return on equity of at least 15 per cent. Operating margin, % Goal: at least 2.2 per cent Personnel Skilled and motivated employees who are prepared to develop and step in when needed are a prerequisite for keeping Bilia s customers satisfied and loyal, which is crucial for Bilia s continued success. The basis for the professional development of the employees is the performance appraisal interview they have at least once a year with their immediate superior. The point of departure for the employee interview is the individual s existing knowledge, skills and needs. Together, the employee and his superior arrive at a plan that will promote personal development, job satisfaction and efficiency in the day-to-day work. Bilia Academy is the name of the Group s internal training unit, which was started in Bilia Academy conducts regular surveys of the training need. Tailored trainings are then put together aimed at target groups with different duties in Bilia. The training is aimed at enhancing competencies within specific areas, strengthening the corporate culture with Bilia s vision and core values, and at the same time contributing to an experience exchange and a broadened contact network for Bilia s employees. Bilia works continuously to improve the working environment at the Group s facilities. A good working environment is a prerequisite for healthy, happy and motivated employees. The ambition in the workshops is to create environments that are light, airy, clean and quiet. The average number of employees in the Group during the year amounted to 3,304 (3,536), of whom 2,026 (2,287) work in Sweden. The number of employees at 31 December 2008 was 3,553 (3,961). Key figures Average number of employees 3,304 3,536 3,063 Turnover per average number of employees, SEK 000 4,322 4,356 4,589 Value added per average number of employees, SEK Profit/loss before tax per average number of employees, SEK Average age Personnel Distribution of employees by function, % Distribution of employees by country, % Distribution of employees by education, % Age structure, number of employees, % Length of employment, % Sales, 18 (18) Workshop, 58 (57) Spare parts, 16 (15) Administration, 8 (10) Sweden, 63 (66) Norway, 23 (20) Denmark, 14 (14) Comprehensive school/upper secondary school, 85 (85) University education, 4 (4) Post-secondary educ., 11 (11) 29 years, 21 (23) years, 49 (47) years, 22 (23) 61 years, 8 (7) 0 9 years, 51 (51) years, 20 (20) years, 12 (12) years, 13 (13) 40 years, 4 (4) 4 Bilia Annual Report 2008

7 Guidelines for remuneration to senior officers A fee decided on by the Annual General Meeting is paid to the Chairman and members of the Board. The AGM for 2008 has decided on the following guidelines for compensation to the management. Remuneration to the Managing Director and other senior officers consists of basic salary, variable remuneration, other benefits and pension. By other senior officers is meant the five persons who, together with the Managing Director, make up the Group Management. For the composition of the Group Management, see Note 9, Employees and personnel costs. The distribution between basic salary and variable salary should be commensurate with the individual s powers and responsibilities. The Managing Director s variable remuneration may not exceed 52 per cent of his basic salary. The variable remuneration of other senior officers should not exceed per cent of their basic salary. The variable remuneration is based on performance goals and individual goals. Premium-based pension benefits and other benefits for the Managing Director and other senior officers are payable as a part of the total remuneration. The Board of Directors will propose to the 2009 AGM that the above compensation principles should apply for Risks Bilia s business operations are associated with risks. Bilia can influence certain factors, while others are beyond the Group s control. But the ambition is to identify threats and possibilities at an early stage so that steps can be taken quickly to avoid problems. Market trend Demand for Bilia s products and services is influenced by fluctuations in the business cycle. In recessionary periods, some customers choose to put off their car purchases. Factors that influence the market trend include the labour market situation, stock market performance, the ability of the customers to obtain financing, interest rates and fuel prices. The positioning of Bilia as a service company stabilises earnings. Collaboration with Volvofinans Bank AB and similar car financing companies is positive for Bilia, even though the prevailing turbulence on the financial market and the accelerating economic downturn are having a great impact on the car industry. The Service Business is less cyclical than the Car Business, since cars require service and repairs regardless of the state of the economy. However, a deep recession will also affect the Service Business to some extent. Representation Bilia s core business consists of distribution and servicing of cars and transport vehicles in Sweden, Norway and Denmark. Contractual terms with the manufacturers who have authorised Bilia as their representative are based on the EU s Block Exemption for the motor vehicle industry and equivalent national regulations. The current rules, which entered into force on 1 October 2003, have been aimed at putting the consumer first and encouraging greater competition in the distribution and aftermarket segment. This has been favourable for Bilia, which has, within the framework of applicable agreements with the manufacturers, systematically looked for ways to exploit its size and strong market position to gain business advantages, for example in purchasing and by seeking multibrand representation. The European Commission has initiated an evaluation of the market effects of the current Block Exemption. If it is not extended when it expires on 31 May 2010, or if it is replaced by a different kind of regulation, this may change the competitive situation for Bilia. There is always a risk that a manufacturer or a general agent will decide to revoke the authorisation and cancel the agreements, or, in the prevailing tough market situation, even become insolvent, creating uncertainties on the market. Competitiveness of the products Bilia is dependent on the ability of the Group s business partners to develop competitive products. Volvo, the single most important business partner for Bilia, launched a new model during the year, the XC60. All suppliers have developed and will develop new products with an environmental profile and fuel-efficient engines. Volvo has launched a new series of green cars designated DRIVe. The cars feature both low emissions and low fuel consumption. Ford recently launched both a new Fiesta and a new Ka. Ford has been a pioneer in the ethanol car sector in Sweden. A new Focus is coming next year. Renault is the only brand that has a light transport vehicle that is ethanol-powered: the new Renault Kangoo. A new Megane was launched in 2008 to positive reviews from the world s motor press. Hyundai is coming out with a brand new model, the i20, which will complement the smaller i10 green car. BMW s EfficientDynamics range has attracted great attention, and BMW has succeeded in combining a premium brand strategy with an environmental profile. Development of own services To maintain and strengthen its competitiveness, Bilia must develop services that appeal to the customers. Bilia s ability to develop new services also helps strengthen the suppliers brands. This development work requires resources. Bilia is confident that the Group has the size, structure and financial strength that are required to remain in the forefront of service development. Key persons In order to continue developing as a service company and thereby achieve growth and profitability, Bilia must be able to attract and develop skilled employees, both management and other staff. Bilia is an employer that encourages personal Bilia Annual Report

8 Directors Report cont d. advancement by offering employees interesting work duties, individualised training programmes, bonus programmes and personal involvement in the development of the Group. There is no guarantee that Bilia will succeed in the future in recruiting or keeping the people they need to run and develop the company. For financial risks see Note 30 Financial risks and finance policies. Environment Bilia s environmental policy states that the Group s services and products should have as little impact on nature as possible and thereby contribute to sustainable development. The environmental work should be pursued within the framework of the business concept and be governed by a holistic approach in which technology, economics and ecology are weighed together. Waste separation is another priority. Environmentally hazardous waste is managed in accordance with carefully planned procedures. Bilia also has systems, both proprietary and developed together with its partners, for managing and recycling waste from service and residual products from repairs. Bilia s employees are given training in environmental issues and receive environmental information regularly. All of Bilia s Swedish and Norwegian companies and most of the facilities in Denmark are environmentally certified to ISO The Group conducts activities that are subject to notification in accordance with the Environmental Code. In Sweden, 47 facilities are obligated to submit notification to the authorities due to petrol sales where no emissions may occur, 12 car washes due to effluents, and 9 facilities due to solvent emissions to the atmosphere. Activities requiring notification represent a small portion of Bilia s total operations. Private placements As of 31 December 2008 the new issue had brought in SEK 87 M to Bilia before issue expenses. The final result of the new issue which was concluded in January 2009 was to bring in SEK 100 M to Bilia, before issue expenses of SEK 6 M, by the issuance of subordinated debentures in an amount of SEK 100 M and an associated issue of 5,000,000 warrants entitling the bearer to subscribe for an equal number of Series A Bilia shares at SEK 20 per share. Notification of subscription of shares can be made up to and including 5 January If the warrants are fully exercised, the company s share capital will increase by SEK 50 M to SEK 265 M. For further information see Note 1, Key accounting principles, page 17. Disclosure of acquisition, transfer and holding of own shares The 2008 AGM also gave the Board of Directors a new authorisation to buy back the company s own shares. Bilia s holding of own shares as of 31 December 2008 amounted to 1,000,000 shares, repurchased during 2007, equivalent to a shareholding of 4.7 per cent. Bilia s shares have a quotient value of SEK 10. The purpose of all buy-backs has been to optimise the company s capital structure. The work of the Board One post-election meeting and five ordinary Board meetings were held during In addition to the above meetings, the Board also met once by telephone and once by correspondence. An agenda, along with in-depth information on important matters, is sent to each Board member in good time before each Board meeting. The Board dealt with such items of business as strategy, financial goals, follow-up of results, investments, acquisitions and follow-up of disputes with the Swedish Competition Authority and Pacta. During the year the Board decided to sell property in Sweden and Denmark. Corporate Governance Information on corporate governance in Bilia is provided on pages Parent Company Bilia AB is responsible for the Group s management, strategic planning, financing, accounting, public relations and business development. Furthermore, Bilia AB conducts training and IT activities, mainly for companies in the Group. The Parent Company s operating loss amounted to SEK 49 M (loss: 50). Future outlook With great uncertainty in the financial markets and layoffs being announced by many large employers, Bilia does not expect the economy to turn around in Bilia predicts that the total market in Sweden, Norway and Denmark during 2009 will decrease compared with Owing to the fact that Bilia s earnings are affected by various factors beyond the company s control, no earnings forecast is made. A review of the most important earnings-impacting factors is provided in the sensitivity analysis in note 30, Financial risks and finance policies. Events after the balance sheet date The new issue was concluded in January. Proposed treatment of unappropriated earnings The Board of Directors proposes that the earnings available for distribution, SEK 681 M, be disposed of as follows: SEK M To be carried forward 681 Total 681 Approval of the financial statements The financial statements were approved for publication by the Parent Company s Board of Directors on 26 February For further details concerning the company s results and financial position, please refer to the following financial statements with accompanying comments. 6 Bilia Annual Report 2008

9 CONSOLIDATED INCOME STATEMENT SEK M Note Continuing operations Net turnover 2, 3, 6 14,280 15,402 Cost of goods sold 6, 20 12,093 13,026 Gross profit 2,187 2,376 Other operating income Selling expenses 11 1,801 1,766 Administrative expenses Other operating expenses Operating profit/loss 3, 9, Financial income Financial expenses Shares in profits of associated companies Net financial items Profit/loss before tax Tax Profit/loss for the year from continuing operations Profit/loss from discontinued operation, net after tax Net profit/loss for the year Attributable to: Parent Company s shareholders Earnings/loss per share, SEK 14 Group Basic and diluted earnings/loss per share Proposed dividend per share Continuing operations Basic and diluted earnings/loss per share Proposed dividend per share Net turnover, SEK M 15,000 10,000 5, Net financial items, SEK M Net turnover decreased by 7 per cent to SEK 14,280 M (15,402). The decrease is mainly attributable to lower sales of new cars. Net turnover excluding acquisitions and currency effects decreased by 14 per cent or SEK 2,158 M. Operating profit/loss, excluding items affecting comparability, SEK M SEK M % Net financial items decreased to SEK 82 M ( 19). The decrease is due to higher interest rates, costs of SEK 10 M in connection with a new bank agreement and issue costs of SEK 6 M. The profit share from the indirect holding in Volvofinans Bank AB amounted to SEK 22 M (22). Operating loss excluding items affecting profitability amounted to SEK 16 M (profit: 177). Sweden decreased by SEK 108 M, Norway by SEK 43 M and Denmark by SEK 42 M. The operating margin decreased to 0.1 per cent from 1.2 per cent. Operating profit/loss, excluding items affecting comparability, SEK M Operating margin, % Operating profit/loss, excluding items affecting comparability per quarter, SEK M SEK M % Q1 Q 2 Q 3 Q 4 Demand for new cars in particular declined during the year. All quarterly earnings figures were at a lower level compared with the last two years. The Car Business has deteriorated considerably mainly due to lower sales of new cars and lower margins in sales of used cars. 2 1 Operating profit/loss, excluding items affecting comparability, SEK M Operating margin, % Performance analysis, Group Operating profit/loss Profit/loss before tax SEK M Profit/loss excluding items affecting comparability Items affecting comparability Gain from sale of property/shares Structural costs etc Impairment losses Changed pension plan in Norway Disputes New bank agreement, issue expense etc. 16 Accounting profit Bilia Annual Report 2008 Group 7

10 COMMENTS ON THE CONSOLIDATED INCOME STATEMENT Net turnover Net turnover amounted to SEK 14,280 M (15,402), a decline of 7 per cent. If net turnover is adjusted for acquisitions and exchange rate changes, the decrease was about SEK 2,158 M or 14 per cent. The main reason is lower sales of new cars. Net turnover in the Service Business increased by 3 per cent (7) to SEK 4,940 M (4,792). Adjusted for acquisitions and exchange rate effects, net turnover decreased by 5 per cent. The Swedish Service Business declined by 5 per cent ( ). The Danish Service Business declined by 14 per cent ( 2), while the Norwegian Service Business was unchanged (4). Net turnover in the Car Business decreased by 12 per cent (10) to SEK 9,982 M (11,388). If the Car Business is adjusted for comparable units and exchange rate effects, net turnover decreased by 18 per cent (2). The Swedish Car Business de - clined by 23 per cent ( ), the Norwegian declined by 5 per cent (4) and the Danish declined by 25 per cent (5). Revenues from customer financing declined by SEK 38 M to SEK 282 M (320). The decline is mainly due to lower revenues from long-term leases and commissions from finance companies. Operating profit/loss The operating loss for the Group amounted to SEK 57 M (profit: 169). The operating margin declined by 1.5 percentage points to 0.4 compared with All markets in the Group diminished. Operating profit in the Swedish operation declined by SEK 117 M to SEK 103 M. The operating loss in Norway amounted to SEK 28 M (profit: 15), and in Denmark the operating loss increased to SEK 49 M (loss: 7). In all countries, the decline was caused by falling car sales and lower margins on used cars. The operating loss in the Car Business increased by SEK 219 M to SEK 225 M. The Service Business showed a better result, however, with a profit increase of SEK 17 M to SEK 251 M. The improvement is attributable to a lower cost level, especially in Sweden. The margin in the Service Business increased from 4.9 per cent to 5.1 per cent, while the margin in the Car Business decreased to 2.2 per cent ( 0.1). The Car Business s deliveries declined by 20 per cent (8). Items affecting comparability Operating loss excluding items affecting comparability amounted to SEK 16 M (profit: 177). The operating margin decreased to 0.1 per cent from 1.2 per cent. Items affecting comparability reduced the profit by SEK 41 M (reduction: 8). The items consist of SEK 124 M ( ) from the sale of property in Sweden and Denmark, SEK 124 M ( 18) in costs for action programmes, SEK 29 M ( ) in impairment of acquired surplus values, mainly goodwill, and SEK 12 M ( 12) in costs for disputes (the Swedish Competition Authority and Pacta). Bilia s Norwegian operation changed its pension plan in 2007, which increased the 2007 profit by SEK 22 M. Net financial items Net financial items amounted to SEK 82 M ( 19), a decrease of SEK 63 M. The deterioration is mainly attributable to increased average net debt and a higher interest rate level. This year s net financial items were charged with SEK 6 M in issue expenses and SEK 10 M in costs for a new bank agreement. The profit share from the indirect holding in Volvofinans Bank AB is included in the amount of SEK 22 M (22). Profit/loss before tax Loss before tax amounted to SEK 139 M (profit: 150), a decrease of SEK 289 M. Items affecting comparability Items affecting comparability reduced the profit before tax by SEK 55 M (reduction: 8). The items consist of SEK 126 M ( ) from the sale of property and shares in Sweden, Norway and Denmark, SEK 124 M ( 18) in costs for action programmes, SEK 29 M ( ) in impairment of acquired surplus values, mainly goodwill, SEK 16 M ( ) in costs for bank agreements and a new issue, and SEK 12 M ( 12) in costs for disputes (the Swedish Competition Authority and Pacta). Bilia s Norwegian operation changed its pension plan last year, which increased the 2007 profit by SEK 22 M. Net loss for the year Net loss for the year amounted to SEK 110 M (profit: 100). This is equivalent to a loss per share of SEK 5.35 (EPS: 4.90), based on the number of shares outstanding. Profit from discontinued operation affected the result by SEK 1 M ( 6). The tax income amounted to SEK 28 M (expense: 44). Nontaxable revenue of SEK 110 M from the sale of property has been included in calculating this year s tax. In addition, an impairment loss of SEK 45 M has been recognised in tax assets. There were deductible tax-loss carryforwards in foreign entities of about SEK 200 M, which is not offset by a recorded tax asset. Corporate tax is based on the tax expense in the relevant country. Key ratios Return on capital employed decreased to 0.6 per cent from 7.8 per cent. Return on equity decreased from 6.3 per cent to 8.0 per cent. Items affecting comparability Return on capital employed excluding items affecting comparability amounted to 1.4 per cent (8.2). 8 Bilia Annual Report 2008 Group

11 CONSOLIDATED BALANCE SHEET SEK M Note Assets 5, 29, 32 Non-current assets Intangible assets 15 Intellectual property Goodwill Property, plant and equipment 16 Land and buildings Construction in progress 4 15 Equipment, tools, fixtures and fittings Leased vehicles 1,512 1,811 2,014 2,498 Long-term investments Interests in associated companies Financial investments 18, Long-term receivables Deferred tax assets Total non-current assets 2,641 3,127 Current assets Inventories Merchandise 20 1,750 2,529 Current receivables Current tax assets Trade receivables Deferred expenses and accrued income Other receivables Short-term investments 18, Cash and cash equivalents ,023 1,387 Total current assets 2,773 3,916 Total assets 3 5,414 7,043 Bilia Annual Report 2008 Group 9

12 CONSOLIDATED BALANCE SHEET SEK M Note Equity and liabilities 5, 29, 32 Equity Share capital Reserves 0 4 Retained earnings including net profit/loss for the year 1,014 1,288 Total equity 1,229 1,507 Non-current liabilities Debenture loan 24, Non-current interest-bearing liabilities 24, Other non-current liabilities Provisions for pensions Other provisions Deferred tax liabilities Total non-current liabilities 1,299 2,154 Current liabilities Current interest-bearing liabilities 24, Trade payables 640 1,167 Current tax liabilities 2 14 Other liabilities Accrued expenses and deferred income Other provisions Total current liabilities 2,886 3,382 Total liabilities 4,185 5,536 Total equity and liabilities 3 5,414 7,043 Pledged assets and contingent liabilities for the Group Pledged assets 33 1, Contingent liabilities 33 4,209 4,306 COMMENTS ON THE CONSOLIDATED BALANCE SHEET The Group s balance sheet total decreased by SEK 1,629 M to SEK 5,414 M (7,043). Two operations were acquired during the year in Stavanger, Bilforum AS and Bilforum Finans AS, which increased the balance sheet total by about SEK 170 M. The decrease is primarily attributable to reduced car stocks (about SEK 660 M), reduced trade receivables (SEK 300 M) and fewer cars sold with guaranteed residual values (about SEK 270 M). In addition, property sales reduced the balance sheet total by SEK 220 M. Financing Net debt decreased by SEK 402 M, amounting to SEK 820 M (1,222). The decrease is attributable to a decrease in interestbearing liabilities by SEK 427 M, mainly bank loans. The ratio of net debt to equity was 0.67, compared with 0.81 last year. Equity Equity amounted to SEK 1,229 M (1,507), a decrease of SEK 278 M (decrease: 177). A dividend was paid to the shareholders in the amount of SEK 164 M (172). There was no buy-back of own shares (115). See the table on page 11 for details on the change in equity. Key ratios The rate of turnover of capital employed amounted to a multiple of 5.0, compared with 5.8 last year, while the rate of turnover of total capital was 2.3 (2.4). The equity/assets ratio amounted to 23 per cent (21). Equity per share amounted to SEK (73.65), based on 20,459,255 shares (20,459,255). 10 Bilia Annual Report 2008 Group

13 REPORT ON CHANGES IN CONSOLIDATED EQUITY SEK M Number of shares Share capital Translation reserve Retained earnings incl. net profit/loss for the year Total equity Opening equity 1 Jan ,129, ,459 1,684 Buy-back of own shares (1,000,000 shares) Dividend (SEK 8.00 per share) Reduction of share capital 1,669, Exchange rate difference Net profit for the year Closing equity 31 Dec ,459, ,288 1,507 Opening equity 1 Jan ,459, ,288 1,507 Dividend (SEK 8.00 per share) Exchange rate difference 4 4 Net loss for the year Closing equity 31 Dec ,459, ,014 1,229 Translation reserve The translation reserve includes all exchange rate differences that arise when translating the financial statements of foreign entities that have prepared their financial statements in another currency than the currency in which the consolidated financial statements are presented. The Parent Company and the Group present their financial statements in Swedish kronor. The equity items in foreign entities are recognised at the historical rate. Retained earnings/loss including net profit/loss for the year Retained earnings including net profit/loss for the year include earnings in the Parent Company and its subsidiaries. Previous provision to the statutory reserve, including transferred share premium reserves, is included in this equity item. Bilia Annual Report 2008 Group 11

14 CONSOLIDATED CASH FLOW STATEMENT SEK M Note Operating activities 35 Profit/loss before tax from continuing operations Profit/loss before tax from discontinued operation 2 8 Depreciation/amortisation and impairment losses Other items not affecting cash Tax paid 7 33 Cash flow from operating activities before change in working capital Change in inventories Change in operating receivables Change in operating liabilities Cash flow from operating activities Investing activities Acquisitions and disposals of non-current assets Investments and disposals of financial assets 34 3 Acquisition of subsidiary/operation, net Disposal of subsidiary/operation, net 43 Disposal of discontinued operation, net 474 Cash flow from investing activities Remaining after net investments Financing activities Change in bank loans and other loans Buy-back of own shares 115 Dividend paid to Parent Company s shareholders Cash flow from financing activities Change in cash and cash equivalents, excluding translation differences Exchange difference in cash and cash equivalents 1 4 Change in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at year-end COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT Cash flow from operating activities Cash flow from operating activities amounted to SEK 383 M, compared with SEK 305 M last year. Inventories decreased by SEK 852 M, compared with an increase of SEK 293 M last year, and operating liabilities decreased by SEK 904 M ( 435). Investing activities Cash flow from investing activities amounted to SEK 198 M ( 285). Investments and disposals in non-current assets, including leased assets, amounted to SEK 49 M ( 64). Replacement investments amounted to SEK 39 M (52), expansion investments to SEK 54 M (48) and environmental investments to SEK 5 M (4). Investments in new construction and additions to properties amounted to SEK 14 M (31). Net investments in leased vehicles and finance leases amounted to SEK 63 M ( 199). Business combinations affected the cash flow statement by SEK 236 M ( 352) and relate to the acquisitions of Bilforum AS and Bilforum Finans AS, plus exercise of property options. Remaining after net investments Cash flow from operating activities was SEK 383 M ( 305), while cash flow from investments in leasing and non-current assets, interest-bearing receivables and business combinations was SEK 198 M ( 285), which means that cash flow after net investments amounts to SEK 581 M, compared with SEK 590 M last year. Financing activities Debts decreased by SEK 491 M (increase: 802). Dividends to shareholders amounted to SEK 164 M (172). There was no buyback of own shares (115). Net debt Net debt amounted to SEK 820 M, compared with SEK 1,222 M last year. 12 Bilia Annual Report 2008 Group

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Amounts in SEK M unless otherwise stated. NOTE 1 KEY ACCOUNTING PRINCIPLES Compliance with standards and legislation The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission for application within the EU. Furthermore, the Swedish Financial Reporting Board s recommendation RFR 1.1 Supplementary Accounting Rules for Groups has been applied. The Parent Company applies the same accounting principles as the Group, except in the cases described in the section entitled Parent Company accounting principles. The annual report and the consolidated accounts were approved for publication by the Board of Directors on 26 February The Consolidated Income Statement and Balance Sheet and the Parent Company Income Statement and Balance Sheet will be subject to adoption at the Annual General Meeting of Shareholders (AGM) that will be held on 16 April Valuation criteria applied in preparation of Parent Company and consolidated financial statements Assets and liabilities are measured at cost, except for certain financial assets and liabilities, which are measured at fair value. Financial assets and liabilities that are measured at fair value consist of derivative instruments measured at fair value through profit and loss or available-for-sale financial assets. Non-current assets and disposal groups held for sale are carried at the lower of the previous carrying amount and the fair value less selling expenses. Functional currency and reporting currency The Parent Company s functional currency is the Swedish krona, which is also the reporting currency for the Parent Company and the Group. This means that the financial statements are presented in Swedish kronor. Accounting estimates and judgements in the financial statements Preparing the financial statements in accordance with IFRS requires management to make accounting estimates and judgements as well as assumptions that influence the application of the accounting principles and the carrying amounts of assets, liabilities, revenue and expenses. Actual outcomes may differ from these estimates and judgements. The estimates and judgements are regularly reviewed. Changes in estimates are reported in the period in which the change is made if the change affects only that period, or in the period in which the change is made and future periods if the change affects both the current and future periods. Estimates by management related to the application of IFRSs that have a significant impact on the financial statements and estimates that may entail significant adjustments in the financial statements of subsequent years are described in greater detail in Note 37, Significant estimates and judgements. Key applied accounting principles The Group accounting principles presented below have been consistently applied to all periods presented in the consolidated financial statements, unless otherwise stated below. The Group accounting principles have been applied consistently to the reporting and consolidation of parent companies, subsidiaries and associated companies. Changed accounting principles The following new standards and interpretations have been applied in the preparation of the present financial statements: IFRIC 11 IFRS 2 Group and Treasury Share Transactions, clarifies firstly the classification of equity-settled payments where the company buys equity instruments from another party in connection with settlement, or where the shareholders of the company transfer the instruments, and secondly the classification of transactions in which the company s employees receive or are granted rights to equity instruments in the company s parent company. The interpretation is applied from financial year The interpretation is applied retrospectively. IFRIC 12 Service Concession Arrangements deals with the question of how a private sector operator should account for infrastructure and the rights and obligations that follow from contracts with a national, county or municipal government concerning, for example, financing, operation and development of the infrastructure. The interpretation is applied from financial year The interpretation is applied retrospectively. IFRIC 14 IAS 19 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction explains how the limit provided for in IAS 19 regarding defined-benefit assets is to be interpreted and also defines how this limit is affected by any minimum funding requirements in the pension plan. The interpretation also explains when a minimum funding requirement may give rise to a liability. The interpretation is applied from financial year The interpretation is applied retrospectively from the start of The interpretations have not had any effect on the Bilia s Group s consolidated income statements, balance sheets, cash flow statements or equity. Bilia Annual Report 2008 Group 13

16 Note 1 cont d. New IFRS standards and interpretations that have not yet begun to be applied A number of new standards and interpretations will enter into force during the coming financial years and have not been applied in the preparation of these financial statements. New or amended standards and interpretations that will become applicable from financial years after 2009 are not planned to be applied prematurely. Amended IFRS 2 Share-based Payment: Vesting conditions and cancellations: clarifies what conditions constitute vesting conditions, that all other conditions constitute non-vesting conditions and how non-vesting conditions are to be accounted for. The amendment is applied to financial years starting on 1 January 2009 or later. Revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements contain changes regarding consolidated accounts and accounting of business combinations. The revised standards are applied to financial years beginning on 1 July 2009 or later. IFRS 8 Operating Segments defines what an operating segment is and what information must be disclosed about them in the financial statements. The standard, which has been adopted by the EU, is applicable to financial years starting on 1 January 2009 or later. Revised IAS 1 Presentation of Financial Statements contains certain changes in the presentation of the financial statements and proposes new, discretionary names for the statements. The amendment does not affect the determination of the reported amounts. The amended IAS 1 is applied to financial years starting on 1 January 2009 or later. Amendments in IAS 23 Borrowing Costs state that borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that takes a substantial period of time to get ready for its intended use or sale must be capitalised. The amendment is applied to financial years starting on 1 January 2009 or later. Amendments in IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate. Applied to financial years starting on 1 January 2009 or later. The amendments concern accounting of dividends received from subsidiaries, jointly controlled entities or associated companies and how the formation of a new parent company is to be accounted for. The amendment is applied to financial years starting on 1 January 2009 or later. Amendments in IAS 32 Financial instruments: Presentation and IAS 1 Presentation of Financial Statements that have been made under the heading Puttable Financial Instruments and Obligations Arising on Liquidation entail that certain very limit ed types of financial instruments that have the character of equity instruments but previously had to be accounted for as li abilities shall instead be accounted for as equity. The interpretation is applied to financial years starting on 1 January 2009 or later. IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items. Applied to financial years starting on 1 January 2009 or later. The amendment consists of a clarification regarding how the rules in IAS 39 should be applied in two hedging cases. These cases involve a one-sided risk in a hedged item and inflation in a financial hedged item. IFRIC 13 Customer Loyalty Programmes addresses accounting and measurement of a company s obligations to provide customers with free or discounted goods or services if and when they choose to redeem loyalty award credits. The interpretation is applied to financial years starting on 1 July 2008 or later. IFRIC 15 Agreements for the Construction of Real Estate deals with the question of whether agreements for the construction of real estate are covered by IAS 11 Construction Contracts or IAS 18 Revenue, and when revenue from construction of real estate is to be recognised. The interpretation is applied to financial years starting on 1 January 2009 or later. IFRIC 16 Hedges of a Net Investment in a Foreign Operation states that it is only the risk in the functional currencies in the parent company and a given foreign operation that can be hedged. Furthermore, the interpretation includes answers to the questions of where in the Group the hedging instrument can be held if hedge accounting is applied and whether the consolidation method affects the amounts that are reclassified from equity to profit and loss, in other words step-by-step or direct consolidation. The interpretation is applied to financial years starting on 1 October 2008 or later. IFRIC 17 Distribution of Non-cash Assets to owners deals with questions in conjunction with the distribution of non-cash assets to owners. The interpretation is applied to financial years starting on 1 July 2009 or later. The above standards are not judged to have any effects on the consolidated financial statements. Presentation etc. Non-current assets and non-current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid within twelve months of the balance sheet date. Any departure from this principle is reported in a note to the relevant line item. Segment reporting A segment is a distinguishable component of the Group that either provides products or services that are different from those of other segments (business segments), or products or services within a certain economic environment (geographical segments), and that is subject to risks and returns that are different from those of other segments. The Group s internal reporting system is designed to keep track of the rate of return on the Group s sales of products and services, which is why the business segments are the primary segment reporting format. Segment information is disclosed in accordance with IAS 14 only for the Group. Consolidation principles Subsidiaries Subsidiaries are companies that are under the control of Bilia AB. Control is the power to govern, directly or indirectly, the financial and operating policies of an enterprise so as to obtain benefits from its activities. 14 Bilia Annual Report 2008 Group

17 Subsidiaries are accounted for by the purchase method. The consolidated cost is established at the acquisition date in an acquisition plan. The difference between the cost of the subsidiary shares and the fair value of identifiable assets, liabilities and contingent liabilities constitutes goodwill on consolidation. The financial statements of subsidiaries are included in the consolidated accounts as from the acquisition date until the date when control no longer exists. Associated companies Associated companies are those companies in which the Group has a significant, but not a controlling, influence over the operational and financial direction of the company, normally through shareholdings giving them between 20 and 50 per cent of the votes. As from the point in time when the significant influence is exercised, interests in associated companies are recognised in the consolidated accounts in accordance with the equity method. The equity method entails that the value of the shares in the associated companies carried in the consolidated accounts is equivalent to the Group s share of the associated companies equity plus goodwill on consolidation and any other remaining amounts of consolidated positive or negative goodwill. The Group s share of the associated companies net profits after tax and minority interest adjusted for amortisation, impairment or dissolution of acquired positive or negative goodwill is recognised in the Consolidated Income Statement as Shares in profits of associated companies. Dividends received from associated companies reduce the carrying amount of the investment. Any difference on the date of acquisition between the cost of the holding and the investor s share of the net fair value of the associated company s identifiable assets, liabilities and contingent liabilities is recognised in accordance with IFRS 3, Business Combinations. When the Group s share of recognised losses in the associated company exceeds the carrying amount of the investment in the Group, the carrying amount of the investment is reduced to zero. Deduction for losses is also made against long-term financial dealings without security, whose financial implications constitute part of the investor s net investment in the associated company. Continued losses are not recognised unless the Group has made guarantees to cover losses arising in the associated company. The equity method is applied until such time as the significant influence ceases to exist. Transactions eliminated on consolidation Intra-Group receivables and liabilities, revenue or expenses and unrealised profits or losses arising from intra-group transactions between subsidiaries are eliminated in their entirety when the consolidated accounts are prepared. Foreign currencies Transactions in foreign currencies Transactions in foreign currencies are translated to the functional currency at the exchange rate prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are translated to the functional currency at the rate prevailing on the balance sheet date. Exchange rate differences arising from translations are recognised in the Income Statement. Non-monetary assets and liabilities recognised at cost are translated at the exchange rate prevailing at the time of the transaction. Non-monetary assets and liabilities recognised at fair value are translated to the functional currency at the rate prevailing at the time the fair value was established. Financial statements of foreign entities Assets and liabilities in foreign entities, including goodwill and other corporate fair value adjustments, are translated to Swedish kronor at the rate prevailing on the balance sheet date. Revenue and expenses in foreign entities are translated to Swedish currency at an average rate which constitutes an approximation of the rates prevailing at the time of the transaction. Translation differences that arise when translating the accounts of foreign entities are recognised directly in equity as a translation reserve. On disposal of a foreign entity, the accumulated translation differences attributable to the entity are recognised in the Consolidated Income Statement. After 1 January 2004, i.e. the date of transition to accounting according to IFRS, translation differences have been recognised in the translation reserve included in equity. Revenue Sale of goods Revenue from the sale of goods is recognised in the Income Statement when the significant risks and rewards of ownership have been transferred to the buyer. The revenue is recognised at the fair value of what has been received. Revenue is not recognised if it is probable that the economic benefits will not flow to the Group. If considerable uncertainty exists regarding payment, associated costs or the risk of returns, revenue is not recognised. In cases where the sale of a product is combined with a future repurchase commitment at a guaranteed residual value, the transaction is reported as a lease, provided that the seller retains significant risks. The revenue from the transaction is not recognised at the time of sale, but is allocated on a straightline basis from the time of sale to the time of repurchase. Performance of service work Revenue from service work is recognised in the Income Statement based on the stage of completion on the balance sheet date (percentage-of-completion method). The stage of completion is determined by an assessment of services rendered and material employed at the balance sheet date. Leasing of cars Revenue from leased vehicles is recognised on a straight-line basis during the lease period. Commissions on transferred financial assets Commissions on transferred financial assets are recognised on a straight-line basis during the lease period and are calculated on the outstanding instalment and lease portfolios for which recourse liability exists. Bilia Annual Report 2008 Group 15

18 Note 1 cont d. Leases Operating leases Lessees Costs pertaining to operating leases are recognised in the Income Statement on a straight-line basis over the lease period. Benefits obtained in conjunction with the signing of a lease are recognised as a reduction in the lease payments on a straightline basis over the term of the lease. Variable payments are recognised as expenses in the periods they are incurred. Finance leases Lessees Minimum lease payments are allocated between interest expense and amortisation of the outstanding liability. The interest expense is allocated over the lease period so that each accounting period is charged with an amount corresponding to a fixed rate of interest for the liability recognised during that period. Variable payments are recognised as expenses in the periods in which they are incurred. Result from customer financing The Group s customer financing is extensive and accounts for a considerable portion of consolidated profit. Concentration on the core operation has led to an increase in the importance of customer financing in terms of being able to both analyse the Group s performance and forecast the Group s future earnings potential. Long-term leases, instalment receivables, current net return on financial contracts transferred to Volvofinans Bank AB, and other commissions associated with financing that have been transferred to finance companies are presented in Note 6, Result from customer financing. Consignment agreements The company can reduce its risks and tied-up capital by purchasing vehicles on commission or consignment from certain of Bilia s main suppliers. In the event a new car cannot be sold, Bilia can return it to the supplier, and a charge is paid to the supplier during the time the car is kept at Bilia. Financial income and expenses Financial income consists of interest income on invested funds (including available-for-sale financial assets), dividend income, gain on disposal of available-for-sale financial assets, gain on change in value of financial assets measured at fair value through profit and loss and gains on hedging instruments that are recognised in profit and loss. Interest income on financial instruments is recognised according to the effective interest method (see below). Dividend income is recognised when the right to receive dividend has been established. The gain or loss from disposal of a financial instrument is recognised when the economic risks and rewards incidental to ownership have been transferred to the purchaser and the Group no longer has control over the instrument. Financial expenses consist of interest expenses on loans, the effect of dissolution of present value calculation of provisions, loss on change in value of financial assets measured at fair value through profit and loss, recognition of impairment of financial assets and losses on hedging instruments that are recognised in profit and loss. All borrowing costs are recognised in profit or loss with application of the effective interest method, regardless of how the borrowed funds have been used. Exchange gains and losses are offset. The effective interest rate is the rate that discounts the estimated future receipts and payments through the expected life of a financial asset to the net carrying amount of the financial asset. The calculation includes all fees paid or received by the contracting parties that are a part of the effective interest rate, transaction costs and all other premiums or discounts. Taxes Income taxes consist of current tax and deferred tax. Income taxes are recognised in profit and loss except when the underlying transaction is posted directly to equity, whereby the associated tax effect is recognised in equity. Current tax is tax to be paid or received with respect to the current year, with the application of tax rates that have been enacted or substantively enacted by the balance sheet date. This item also includes adjustments of current tax attributable to earlier periods. Deferred tax is calculated in accordance with the balance sheet method, based on temporary differences between carrying amounts and tax bases of assets and liabilities. The following temporary differences are not taken into account: temporary difference arising on initial recognition of goodwill, initial recognition of assets and liabilities that are not business combinations and at the time of the transaction do not affect either recognised or taxable profit, and temporary differences attributable to interests in subsidiaries and associated companies that are not expected to be reversed in the foreseeable future. The valuation of deferred tax is based on how recognised values of assets or liabilities are expected to be realised or settled. Deferred tax is calculated using the tax rates and tax rules that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets pertaining to deductible temporary differences and tax-loss carryforwards are only reported to the extent that it is likely that they will be able to be used. The value of deferred tax assets is reduced when it is no longer deemed likely that they can be used. Financial instruments Financial instruments that are recognised in the Balance Sheet include on the asset side cash and cash equivalents, loans receivable, trade receivables, financial investments and derivatives. Trade payables, loans payable and derivatives are posted on the liability side. Recognition and derecognition in the Balance Sheet A financial asset or financial liability is recognised in the Balance Sheet when the company becomes a party to the contractual terms of the instrument. Trade debtors are recognised in the Balance Sheet when an invoice has been sent. A liability is recognised when the counterparty has performed its contractual obligations and there is a contractual obligation to pay, even if no invoice has been received. Trade creditors are recognised when an invoice has been received. A financial asset is derecognised when the entitlements in the contract are realised, mature, or fall outside the control of the company. The same applies to part of a financial asset. A 16 Bilia Annual Report 2008 Group

19 financial liability is derecognised when the obligation in the contract is discharged or otherwise extinguished. The same applies to part of a financial liability. A financial asset and a financial liability are offset and the net amount recognised in the Balance Sheet when, and only when, an entity has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The acquisition or disposal of financial assets is recognised on the trade date, which is the day when the company committed to acquire or dispose of the asset. Classification and measurement Financial instruments that are not derivatives are recognised initially at cost, equivalent to the fair value of the instrument plus transaction costs for all financial instruments except for those classified as financial assets that are recognised at fair value through profit and loss, which are recognised at fair value exclusive of transaction costs. A financial instrument is classified on initial recognition based on the purpose for which the instrument was acquired. The classification determines how the financial instrument is measured after initial recognition as described below. Derivative instruments are initially recognised at fair value, which means that transaction costs are charged to the profit for the period. After initial recognition, derivative instruments are recognised in the manner described below. Cash and cash equivalents consist of cash on hand and demand deposits at banks and similar institutions, as well as short-term, highly liquid investments with a maturity of less than three months from the acquisition date that are exposed to an insignificant risk of value fluctuations. Financial assets measured at fair value through profit and loss Derivative instruments consist of currency swaps, which are used to control the Group s equalisation of cash and cash equivalents in foreign currencies. Changes in value of currency swaps are recognised in Financial income or Financial expenses. All derivatives are recognised at fair value in the Balance Sheet under Other current receivables. Hedge accounting is not applied. Loan receivables and trade receivables This category consists of instalment receivables and trade receivables. Assets in this category are measured at amortised cost. Amortised cost is determined on the basis of the effective interest rate calculated at the acquisition date. Instalment receivables and trade receivables are recognised at the amount that is expected to be recovered less doubtful debts. Available-for-sale financial assets Available-for-sale financial assets include financial assets that cannot be classified in any other category or financial assets that the company has initially chosen to classify in this category. Holdings of shares and interests that are not recognised as subsidiaries or associated companies are recognised here. Assets in this category are measured continuously at fair value and changes in value are recognised in equity, except for changes due to recognition of impairment losses and interest on debt instruments and dividend revenue as well as exchange rate differences on monetary items, which are recognised in the Income Statement. When an asset is disposed of, accumulated gain/loss, which was previously recognised in equity, is recognised in the Income Statement. Financial liabilities measured at fair value through profit and loss Derivative instruments consist of currency swaps, which are used to control the Group s equalisation of cash and cash equivalents in foreign currencies. Changes in value of currency swaps are recognised in Financial income or Financial expenses. All derivatives are recognised at fair value in the Balance Sheet under Other current liabilities. Hedge accounting is not applied. Other financial liabilities Loans and other financial liabilities, for example trade payables, belong to this category. The liabilities are measured at amortised cost. The categories to which the Group s financial assets and liabilities have been assigned are shown in Notes 18 (Financial investments), 19 (Other receivables), 21 (Trade receivables), 23 (Cash and cash equivalents), 24 and 27 (Liabilities). Recognition of financial income and expenses is also dealt with above. Changes in value pertaining to operating receivables and liabilities are recognised in operating profit, while changes in value pertaining to financial receivables and liabilities are recognised in net financial items. Debenture loan The debenture loan amounts to SEK 87 M as per 31 December The loan is represented by 4,352,284 subordinated debentures with a nominal value of SEK 20 each or integral multiples thereof. The term of the debenture loan is from 12 January 2009 to 12 January 2016, when it falls due for payment. The annual interest rate on the debenture loan is 7 per cent. The interest falls due for payment in arrears on 12 January every year, the first time on 12 January 2010 and the last time on the date of maturity of the debenture loan, 12 January Each interest payment consists of interest for one year (360/360). If interest is to be calculated for a shorter period than one year, interest is calculated on the actual number of days in the interest period divided by 360. Subordinated debentures linked to the loan are listed on NASDAQ OMX Stockholm s Retail Bond List. Warrants The warrants, which are attributable to the debenture loan, can be exercised for subscription of one Bilia Series A share per warrant held. Notification of subscription of shares can be made up to and including 5 January Warrants not exercised within this period expire and thereby become worthless. Each warrant entitles the bearer to subscribe during the subscription period for one Series A Bilia share for SEK 20. Bilia Annual Report 2008 Group 17

20 Note 1 cont d. Property, plant and equipment Owned assets Property, plant and equipment are recognised in the Group at cost less accumulated depreciation and any impairment losses. The cost includes the purchase price plus costs directly attributable to the asset for bringing the asset to its location and to working condition for its intended use. Borrowing costs are not included in the cost of internally produced non-current assets. Leased assets Lessees Leases are classified in the consolidated accounts as either finance or operating leases. In the case of finance leases, the economic risks and rewards incidental to ownership are transferred substantially to the lessee. Otherwise the lease is classified as an operating lease. Assets that are leased under finance leases are recognised as assets in the Consolidated Balance Sheet and are initially measured at the lower of the fair value of the asset and the present value of the minimum lease payments at the commencement of the lease. The obligation to pay future lease payments is recognised as non-current and current liabilities. The leased assets are depreciated according to plan, while the lease payments are recognised as interest and repayment of the liabilities. In the case of operating leases, the lease payment is recognised as an expense over the term of the lease on the basis of use, which can differ from what has de facto been remitted as the lease payment during the year. Lessors Assets that are leased under operating leases are recognised as property, plant and equipment. These assets consist of owned cars that are leased under operating leases, and sold cars combined with a future repurchase commitment at a guaranteed residual value. Subsequent expenditures Subsequent expenditures are added to the cost only if it is probable that the future economic benefits associated with the asset will flow to the company and the cost of the asset can be measured reliably. All other subsequent expenditures are recognised as expense in the period they are incurred. A crucial factor in judging when a subsequent expenditure is to be added to the cost is whether the expenditure relates to replacement of identified components or parts thereof, in which case such expenditures are capitalised. When a new component has been created, the expenditure is also added to the cost. Any undepreciated carrying amounts on replaced components, or parts of components, are retired and recognised as expenses in conjunction with their replacement. Repairs are recognised as expenses when they occur. Principles of depreciation Depreciation is calculated straight-line over the estimated useful life of the asset. Estimated useful lives: Computer equipment 3 5 years Other non-current assets, excluding assets for lease 5 10 years Depreciation of leased vehicles is adjusted to each vehicle, based on its age and mileage. An annual assessment is made of an asset s residual value and useful life. Intangible assets Software Business combinations Software acquired via business combinations is recognised at fair value, which is equivalent to estimated replacement cost at the acquisition date less accumulated depreciation and any impairment losses. Development of software for business management systems Expenditures for research on software are recognised as expense when they are incurred. Expenditures for development of software and improved business management systems are recognised as an asset in the Balance Sheet if the process is technically usable, and if Bilia has sufficient resources to complete development and can subsequently use the intangible asset. The carrying amount includes costs of materials, direct costs for salaries, and overheads that can be attributed to the asset on a reasonable and consistent basis. Other expenditures for development are recognised in the Income Statement as expense when they are incurred. Expenditures for development of software recognised in the Balance Sheet are stated at cost less accumulated depreciation and any impairment losses. Other investments in software Other investments in software are recognised in the Group at cost less accumulated depreciation and any impairment losses. The cost includes the purchase price plus costs directly attributable to the asset for bringing the asset to its location and to working condition for its intended use. Customer relations Customer relations that have been acquired via business combinations are recognised at fair value, which is equivalent to cash flow valuation at the acquisition date less accumulated amortisation and any impairment losses. Property options Property options that have been acquired via business combinations are recognised at fair value, which is equivalent to cash flow valuation at the acquisition date less accumulated amortisation and any impairment losses. The property options were exercised in their entirety during Bilia Annual Report 2008 Group

21 Distribution rights Distribution rights that have been acquired via business combinations are recognised at fair value, which is equivalent to cash flow valuation at the acquisition date less accumulated amortisation and any impairment losses. and property options with an indeterminate useful life are subjected to impairment testing annually or as soon as there are indications that the asset in question has declined in value. Amortisable intangible assets are amortised from the date they are available for use. The calculated useful lives are: Trademarks Trademarks that have been acquired via business combinations are recognised at fair value, which is equivalent to cash flow valuation at the acquisition date less accumulated amortisation and any impairment losses. Non-competition clause Non-competition clauses that have been acquired via business combinations are recognised at fair value, which is equivalent to cash flow valuation at the acquisition date less accumulated amortisation and any impairment losses. Goodwill Goodwill represents the difference between the cost of the business combination and the fair value of identifiable assets, liabilities and contingent liabilities. The Group has not applied IFRS 3 retrospectively to acquisitions that took place prior to 1 January Goodwill attributable to these acquisitions is amortised in its entirety as of 1 January 2004 in accordance with an established plan. Goodwill is measured at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is subjected annually to impairment testing. In connection with business combinations where the cost is less than the net value of identifiable assets, liabilities and contingent liabilities, the difference is recognised directly in the Income Statement. Other intangible assets Other intangible assets acquired by the Group are recognised at cost less accumulated amortisation and any impairment losses. Expenditures for internally generated goodwill and internally generated trademarks are recognised in the Income Statement when the expenditure is incurred. Subsequent expenditures Subsequent expenditures for capitalised intangible assets are only recognised as an asset in the Balance Sheet when they increase the future economic benefits for the specific asset to which they are attributable. All other expenditures are recognized as expenses when they are incurred. Amortisation Amortisation is recognised in the Income Statement on a straight-line basis over the calculated useful lives of intangible assets, unless these useful lives are indeterminate. Goodwill Software 3 10 years Customer relations 5 10 years Distribution rights 10 years Trademarks 10 years Non-competition clause 6 years Inventories Inventories are carried at the lower of cost and net realisable value. The cost of other inventories is calculated by applying the first-in, first-out (FIFO) method and includes expenditures incurred in purchasing the inventory assets and bringing these assets to their current place and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs incurred to make the sale. The risk of obsolescence has thereby been taken into account. Impairment losses The carrying amounts of the Group s assets with the exception of assets for sale and disposal groups, inventories, plan assets used for financing of benefits to employees and deferred tax assets are tested at every balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable value is calculated. For assets exempted above, the valuation is tested according to the relevant standard. Impairment testing of property, plant and equipment and intangible assets In the case of goodwill and other intangible assets with an indeterminate useful life and intangible assets that are not yet ready for use, the recoverable amount is calculated annually. An impairment loss is recognised when the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount. An impairment loss is charged to the Income Statement. Impairment of assets attributable to a cash-generating unit (group of units) is first allocated to goodwill. Then a pro rata impairment is recognised of other assets included in the unit (group of units). The recoverable amount of other assets is the highest of fair value less selling expenses and the value in use. When calculating the value in use, future cash flows are discounted by a discount rate that takes into account the risk-free interest rate and the risk associated with the specific asset. Bilia Annual Report 2008 Group 19

22 Note 1 cont d. Impairment testing of financial assets The recoverable amount of assets belonging to the category Loan receivables and trade receivables, which are recognised at amortised cost, is calculated as the present value of future cash flows discounted at the effective interest rate that applied when the asset was initially recognised. Assets with a short maturity are not discounted. Reversal of impairment losses An impairment loss is reversed if there is an indication that the impairment no longer exists and a change has occurred in the basis for the calculation of the recoverable amount. An impairment loss recognised for goodwill is never reversed, however. An impairment loss is only reversed to the extent the carrying amount of the asset after reversal does not exceed the carrying amount that would have been recognised, less amortisation where applicable, if no impairment loss had been recognised. Impairment losses on investments held to maturity or loan receivables and trade receivables recognised at amortised cost are reversed if a subsequent increase in the recoverable value can objectively be attributed to an event that occurred after the impairment loss was recognised. Impairment losses on equity instruments that are classified as available-for-sale financial assets that were previously recognised in profit and loss may not subsequently be reversed in profit and loss. The impaired value is the basis upon which subsequent revaluations are done, which are recognised directly in equity. Impairment losses on interest-bearing instruments classified as available-for-sale financial assets are reversed in profit and loss if the fair value increases and the increase can objectively be attributable to an event that occurred after the impairment loss was recognised. Equity Buy-back of own shares Buy-back of own shares reduces the company s equity by the amount paid at the buy-back occasion. Dividends Dividends are recognised as a liability after the AGM has approved the dividend. Earnings per share Calculation of earnings per share is based on the consolidated net profit for the year attributable to the Parent Company s shareholders and on the weighted average number of shares outstanding during the year. In the calculation of diluted earnings per share, the earnings figure and the average number of shares are adjusted to take into account the diluting effects of potential ordinary shares. If operations are discontinued, a disclosure is made that earnings per share is stipulated as a total figure, for continuing operations and for discontinued operations. Employee benefits Defined-contribution plans Pension plans classified as defined-contribution plans are those where the company s obligation is limited to the contributions the company has undertaken to pay. In such cases, the size of the employee s pension is dependent on the contributions paid by the company to the plan or to an insurance company and the return on capital yielded by the contributions. Consequently, it is the employee who bears the actuarial risk (that the pension payment will be lower than expected) and the investment risk (that the invested assets will be insufficient to provide the expected payments). The company s obligations with regard to payments to defined-contribution plans are recognised as a cost in the Income Statement as they are earned by the employee s performance of services for the company during a period. Defined-benefit plans Sweden Obligations for old-age pension and family pension for salaried employees in Sweden are secured through the PRI system and by insurance in Alecta. According to a statement by the Swedish Financial Reporting Board UFR 3, insurance via Alecta is also a multi-employer defined-benefit plan. Bilia has not had access to information that makes it possible to account for this plan as a definedbenefit plan. The ITP pension plan that is secured via insurance in Alecta is therefore accounted for as a defined-contribution plan, but with supplementary information. Norway In Norway, all employees over 52 years of age are covered by defined-benefit pension plans. Other employees are covered by defined-contribution pension plans. Denmark In Denmark, all employees are covered by defined-contribution pension plans. General The Group s net obligation regarding defined-benefit plans is calculated separately for each plan by estimation of the future benefit entitlement which the employees have earned by their employment in both the current and previous periods. This benefit entitlement is discounted to a present value and any unrecognised costs for service during previous periods, as well as the fair value of any plan assets, are deducted. The discount rate is the year-end interest rate on a first-class corporate bond with a maturity corresponding to the Group s pension obligations. When there is not an active market for such corporate bonds, the market interest rate on government bonds with an equivalent maturity is used instead. The calculation is performed by a qualified actuary using the Projected Unit Credit Method. 20 Bilia Annual Report 2008 Group

23 When the calculation leads to an asset for the Group, the carrying amount of the asset is limited to the net of unrecognised actuarial losses and unrecognised costs for service during previous periods and the present value of future repayments from the plan or reduced future contributions to the plan. When the benefits in a plan are improved, the proportion of the increased benefit attributable to the employee s service during earlier periods is recognised as a cost in the Income Statement allocated on a straight-line basis over the average period until the benefits are fully earned. If the benefit is fully earned, a cost is recognised directly in the Income Statement. The corridor rule is applied. The corridor rule entails that the portion of the cumulative actuarial gains and losses that exceeds 10 per cent of either the present value of the obligations or the fair value of the plan assets, whichever is greater, is recognised in the Income Statement, divided by the expected average remaining working lives of the employees participating in that plan. Actuarial gains and losses are not otherwise taken into account. When there is a difference between how the pension cost is determined in a legal entity and the Group, a provision or a receivable is recognised regarding special payroll tax based on this difference. The present value of the provision or receivable is not calculated. Termination benefits A cost for benefits in conjunction with termination of personnel is only recognised if the company is demonstrably obligated by a formal detailed plan to terminate an employment before the normal retirement date, without a realistic possibility of withdrawal. When benefits are paid as an offer to encourage voluntary retirement, a cost is recognised if it is probable that the offer will be accepted and the number of employees that will accept the offer can be reliably estimated. Short-term employee benefits Short-term employee benefits are calculated without discounting and are recognised as a cost when the related services have been rendered. A provision is recognised for the expected cost of profitsharing and bonus payments when the Group has a present legal or constructive obligation to make such payments as a result of the fact that services have been rendered by employees and a reliable estimate of the obligation can be made. Provisions A provision is recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the effect of when in time payment is made is essential, provisions are calculated by discounting the expected future cash flow at an interest rate before tax that reflects current market assessments of the time value of money and, where applicable, the risks specific to the liability. Restructuring A restructuring provision is recognised when the Group has adopted a detailed and formal plan for the restructuring and the restructuring has either been commenced or been publicly announced. No provision is made for future operating expenses. Severance pay A provision for severance pay is recognised when the Group has established a plan for layoffs. Claims A provision for claims is recognised on the basis of historical data concerning claims costs for similar products and services. Warranties A provision for warranties is recognised when the underlying products or services have been sold. The provision is based on historical data on warranties and a balanced consideration of possible outcomes in relation to the probabilities associated with the outcomes for the purpose of calculating future warranty outcomes. Remediation of contaminated land In accordance with the Group s announced environmental principles and relevant legal requirements, a provision is recognised for remediation of contaminated land when the land has been contaminated. Onerous contracts A provision for onerous contracts is recognised when the un - avoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Disputes A provision for disputes is recognised when the Group has judged that the Group has a commitment and it is likely that an outflow of resources will be required to settle the commitment, and that a reliable estimate of the amount can be made. Non-current assets held for sale and discontinued operations It is inherent in the classification of a non-current asset (or a disposal group) as held for sale that its carrying amount will be recovered principally by sale and not by use. Immediately before classification as held for sale, the carrying amounts of the assets (or all assets and liabilities in a disposal group) are measured in accordance with the relevant Bilia Annual Report 2008 Group 21

24 Note 1 cont d. standards. On initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less selling expenses. The following assets, individual or part of a disposal group, are exempted from the measurement provisions described above: Deferred tax assets Assets arising from employee benefits Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement A gain is recognised for each increase in the fair value less selling expenses, but no more than to an amount equivalent to previous impairment losses. Losses due to impairment at the initial classification as held for sale are included in the Income Statement, even when it is a question of a revaluation. The same applies to gains or losses at subsequent revaluations. A discontinued operation is a part of a company s operations that represents a separate business segment or major line of business within a geographical area or a subsidiary that has been acquired exclusively for the purpose of being resold. Classification as a discontinued operation takes place on disposal or at a previous point in time when the operation meets the criteria for classification as held for sale. A disposal group that has been abandoned can also qualify for classification as a discontinued operation, but not until it has been abandoned and meets the size criteria set forth above. A company may not depreciate a non-current asset as long as it is classified as held for sale. Contingent liabilities A contingent liability is recognised when there exists a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events or when there exists an obligation that is not recognised as a liability or a provision due to the fact that it is not probable that an outflow of resources will be required. 22 Bilia Annual Report 2008 Group

25 NOTE 2 ALLOCATION OF REVENUES Group Net turnover/function Workshop 1,703 1,691 Spare parts 2,045 2,057 Petrol and other 1,192 1,044 Total Service Business 4,940 4,792 Sale of goods 9,536 10,939 Rental income, leasing Commissions Total Car Business 9,982 11,388 Computer and training services Eliminations Total 14,280 15,402 NOTE 3 SEGMENT REPORTING Segment reporting is prepared for the Group s business segments and geographical segments. The Group s internal reporting system is designed to keep track of the rate of return on the Group s goods and services, which is why the primary segment reporting format is business segments. The secondary segment reporting format for the Group is geographical segments. Intra-Group transactions consist primarily of lending and interest. Other transactions between Group companies are of a marginal scope. Internal prices between the different segments of the Group are set based on the assumption of arm s length transactions between independent, knowledgeable and willing parties. Interest rates are based on Bilia AB s borrowing rate at any given time plus a small margin. The segments earnings, assets and liabilities include directly attributable items and items that can be allocated among the segments in a reasonable and reliable manner. Unallocated items consist of administrative expenses, assets and liabilities, where all items are attributable to the Parent Company, plus tax expenses. The segments investments in property, plant and equipment and intangible assets include all investments except investments in expendable equipment and equipment of minor value. Business segments Business segments comprise the Group s primary segments. The Group consists of the following business segments: Cars: Bilia sells cars in Sweden, Norway and Denmark. New and used cars and transport vehicles as well as supplementary services such as financing and insurance are offered on all markets. The Car business segment also includes a welldeveloped range of services and products in workshop and spare parts as well as store sales. Fuel is also sold in Sweden. Other: Rental of premises situated in Germany is recognised in other operations. Geographical segments The Group s operations are divided into the following three geographical segments: Sweden, Norway and Denmark. The business segment Cars has business in all countries. Geographical segments comprise the Group s secondary segments. The information presented regarding the segment s net turnover pertains to the geographical segments grouped according to where the customers are located. Parent Company The Parent Company Bilia AB is responsible for the Group s management, strategic planning, financing, public relations and business development. Furthermore, Bilia AB conducts training and IT activities, mainly for companies in the Group. Bilia Annual Report 2008 Group 23

26 Note 3 cont d. Cars Other 1) Parent Company Eliminations Total Group Net turnover External net turnover 14,265 15, ,280 15,402 Internal net turnover Total net turnover 14,265 15, ,280 15,402 Profit/loss Operating profit/loss by business segment Net financial items by business segment Shares in profits of associated companies Tax expense for the year 2) Profit/loss from disposal of discontinued business segment, net after tax 1 6 Net profit/loss for the year Other disclosures Assets, non-interest-bearing 4,557 6, ,638 6,271 Assets, interest-bearing ,583 1,874 2,627 Interests in associated companies Eliminations 1,355 2,093 1,355 2,093 Total assets 5,414 7,043 Liabilities, non-interest-bearing 2,819 3, ,967 3,875 Liabilities, interest-bearing 1,578 2, ,307 2,237 3,776 Eliminations Total liabilities and equity 5,414 7,043 Investments, net Depreciation/amortisation Expenses other than depreciation and amortisation not matched by disbursements 3) Net turnover Assets Investments Information on geographical segments Sweden 8,775 9,774 2,809 3, Norway 3,803 3,548 1,556 2, Denmark 1,687 2, Other Parent Company , Eliminations ,355 2,093 Total Bilia Group 14,280 15,402 5,414 7, ) Other companies and items affecting comparability. Operating profit/loss includes items affecting comparability of SEK 131 M ( 8). Net financial items includes items affecting comparability of SEK 2 M ( ). 2) Pertains to unallocated tax expenses. 3) Items not affecting cash. 24 Bilia Annual Report 2008 Group

27 NOTE 4 DISCONTINUED OPERATIONS Profit/loss from discontinued operation Properties Group Net turnover 15 9 Administrative expenses 8 11 Financial income and expenses, net 5 6 Profit/loss before tax 2 8 Tax 1 2 Profit/loss from discontinued operation, net after tax 1 6 Earnings/loss per share, SEK Discontinued operation Basic and diluted earnings/loss per share Discontinued operation, Properties During the fourth quarter of 2007, Bilia s Board of Directors decided to begin the process of selling properties in Sweden and Denmark. As from 2008, the properties are accounted for under the heading Discontinued operations. The Swedish properties were disposed of in May 2008, and the Danish properties were disposed of in September This completes the winding-up process. NOTE 5 BUSINESS COMBINATIONS Effects of acquisitions in 2008 Bilforum AS and Bilforum Finans AS Bilforum AS and Bilforum Finans AS in Norway were acquired as per 1 January 2008 for SEK 66 M, which was paid in cash. Bilforum represents Volvo, Renault and Land Rover in the Stavanger area. During the accounting year, the subsidiaries charged the consolidated operating loss for 2008 with SEK 1 M. The underlying operating profit for 2008, excluding consolidation eliminations and adaptations to Bilia s accounting principles, amounted to SEK 2 M. Effects of the acquisition The acquisition has the following effects on the Group s assets and liabilities. The acquiree s net assets at the date of acquisition Carrying amounts in Bilforum before acquisition Fair value adjustment Fair value recognised in Group Intangible assets Property, plant and equipment Long-term investments 5 5 Inventories Trade receivables and other receivables Cash and cash equivalents 1 1 Interest-bearing liabilities Trade payables and other liabilities Net identifiable assets and liabilities Consolidated goodwill 20 Purchase consideration paid, cash 1) 66 Cash and cash equivalents (acquired) 2 Net effect on cash and cash equivalents 64 1) Including fees for legal services amounting to SEK 0.3 M. Goodwill arising in connection with the acquisition of Bilforum amounts to SEK 20 M. Acquired customer relations totalling SEK 13 M are recognised as intangible assets. These customer relations will be amortised over 10 years. Bilia Annual Report 2008 Group 25

28 Note 5 cont d. A/S Selandia Ejendomsselskab A/S Selandia Ejendomsselskab in Denmark was acquired as per 1 April 2008 for SEK 62 M, which was paid in cash. The acquisition has not had any effect on earnings. The acquiree s net assets at the date of acquisition Effects of the acquisition The acquisition has the following effects on the Group s assets and liabilities. Carrying amounts in A/S Selandia Ejendomsselskab before acquisition Fair value adjustment Fair value recognised in Group Property, plant and equipment Long-term investments 3 3 Trade receivables and other receivables 9 9 Interest-bearing liabilities Trade payables and other liabilities Net identifiable assets and liabilities Purchase consideration paid, cash 62 Cash and cash equivalents (acquired) Net effect on cash and cash equivalents 62 Eneqvist Fastighets AB Eneqvist Fastighets AB was acquired as per 7 May 2008 for SEK 110 M, which was paid in cash. The acquisition has not had any effect on earnings. Effects of the acquisition The acquisition has the following effects on the Group s assets and liabilities. The acquiree s net assets at the date of acquisition Carrying amounts in Eneqvist Fastighets AB before acquisition Fair value adjustment Fair value recognised in Group Property, plant and equipment Trade payables and other liabilities Net identifiable assets and liabilities Purchase consideration paid, cash 110 Cash and cash equivalents (acquired) Net effect on cash and cash equivalents 110 Effects of acquisitions in 2007 Hans Persson Bil AB In May 2007, Bilia acquired all the trading subsidiaries of Hans Persson Bil AB for SEK 329 M, which was paid in cash. These companies are dealers for Volvo, Renault and Ford. During the period of approximately eight months following the acquisition, the subsidiaries contributed SEK 13 M to the consolidated operating profit for The underlying operating profit for 2007, excluding consolidation eliminations and adaptations to Bilia s accounting principles, amounted to SEK 20 M. If the acquisition had occurred as of 1 January 2007, the Group s revenue would have increased by SEK 420 M and operating profit by SEK 0.5 M. Effects of the acquisition The acquisition has the following effects on the Group s assets and liabilities. The acquiree s net assets at the date of acquisition Carrying amounts in Hans Persson Bil AB s subsidiaries before the acquisition Fair value adjustment Fair value recognised in Group Intangible assets Property, plant and equipment Long-term investments Inventories Trade receivables and other receivables Cash and cash equivalents 6 6 Interest-bearing liabilities Trade payables and other liabilities Net identifiable assets and liabilities Consolidated goodwill 25 Purchase consideration paid, cash 1) 329 Cash and cash equivalents (acquired) 6 Net effect on cash and cash equivalents 323 1) Including fees for legal services amounting to SEK 0.9 M. 26 Bilia Annual Report 2008 Group

29 Goodwill arising in connection with the acquisition of Hans Persson Bil AB s subsidiaries amounts to SEK 25 M, equivalent to the difference between deferred tax, 28 per cent, and deducted tax on acquisition of properties at market value. Acquired customer relations totalling SEK 37 M are recognised as intangible assets. These customer relations will be amortised over 10 years. Bilgruppen i Enköping Sala AB and Bilgruppen in Kungsängen AB In June 2007, Bilia acquired the business in Bilgruppen i Enköping Sala AB and Bilgruppen i Kungsängen AB, which are Ford dealers in Sweden, for SEK 28 M, which was paid in cash. During the seven months following the acquisition, the subsidiary charged the Group s operating profit for 2007 with SEK 4 M. The underlying operating loss, excluding consolidation eliminations, amounted to SEK 3 M. If the acquisition had occurred as per 1 January 2007, the Group s revenues would have increased by about SEK 90 M. Effects of the acquisition The acquisition has the following effects on the Group s assets and liabilities. The acquiree s net assets at the date of acquisition Carrying amounts in Bilgruppen before acquisition Fair value adjustment Fair value recognised in Group Intangible assets Property, plant and equipment Inventories Trade receivables and other receivables 1 1 Trade payables and other liabilities Net identifiable assets and liabilities Consolidated goodwill 3 Purchase consideration paid, cash 1) 28 Cash and cash equivalents (acquired) Net effect on cash and cash equivalents 28 1) Including fees for legal services amounting to SEK 0.5 M. Goodwill arising in connection with the acquisition of the business in Bilgruppen amounted to SEK 3 M and is justified by a strong market position in Enköping and Sala. Acquired customer relations of SEK 12 M are recognised as intangible assets and will be amortised over 5 years. NOTE 6 RESULT FROM CUSTOMER FINANCING Group Rental income from long-term leasing Commissions received from finance companies Interest income and other income from instalment financing 2 2 Interest expenses for instalment receivables and long-term leasing 4 5 Depreciation, long-term leasing Other Total Of which: Finance Business Repurchase agreements NOTE 7 OTHER OPERATING REVENUES NOTE 8 OTHER OPERATING EXPENSES Group Gain on disposal of non-current assets Other Total Other operating revenue includes items affecting comparability of SEK 125 M ( ) pertaining to the sale of properties. Other operating revenues for last year includes items affecting comparability of SEK 22 M pertaining to changed pension plan in Norway. Group Loss on disposal of non-current assets 1 0 Impairment of non-current assets 1 0 Structural costs Other 5 4 Total Other operating expenses includes items affecting comparability pertaining to sale of property in the amount of SEK 1 M ( ), impairment of customer relations in the amount of SEK 1 M ( ) and restructuring in Sweden, Norway and Denmark in the amount of SEK 124 M ( 18). Bilia Annual Report 2008 Group 27

30 NOTE 9 EMPLOYEES AND PERSONNEL COSTS Average number of employees 2008 of whom men 2007 of whom men Parent Company Sweden Total in Parent Company Subsidiaries Sweden 1,977 1,747 2,247 1,954 Norway Denmark Total in subsidiaries 3,255 2,881 3,496 3,094 Group total 3,304 2,913 3,536 3,119 The executive management consists exclusively of men. The Board of Directors consists of two women and twelve men, of whom two men are deputies. Wages, salaries and other remuneration and social security contributions Wages, salaries and other remuneration Social security contributions Wages, salaries and other remuneration Social security contributions Parent Company (of which pension costs) 1) (9) (9) Subsidiaries 1, , (of which pension costs) (135) (112) Group total 1, , (of which pension costs) 2) (144) (121) 1) Of the Parent Company s pension costs, SEK 5 M (5) relate to the Board and Managing Director, and SEK 2 M (2) to other senior officers. The company s outstanding pension obligations to the Board and Managing Director amount to SEK 22 M (25), to other senior officers SEK 5 M (10) and to previous Managing Directors and other senior officers SEK 24 M (24). 2) Of the Group s pension costs, SEK 5 M (6) relate to the Board and Managing Director, and SEK 5 M (3) to other senior officers. The Group s outstanding pension obligations to the Board and Managing Director amount to SEK 22 M (25), to other senior officers SEK 11 M (16) and to previous Managing Directors and other senior officers SEK 25 M (24). Wages, salaries and other remuneration broken down by country and among Board, etc. and other employees Board and MD (14 persons) Other senior officers (5 persons) Other employees Board and MD (14 persons) Other senior officers (5 persons) Other employees Parent Company Sweden (of which bonus etc.) ( ) (0) ( ) ( ) Subsidiaries Sweden (of which bonus etc.) ( ) (1) (0) (1) Subsidiaries abroad Norway (of which bonus etc.) ( ) ( ) ( ) Denmark (of which bonus etc.) ( ) ( ) Group total , ,395 (of which bonus etc.) ( ) (1) (0) (1) 28 Bilia Annual Report 2008 Group

31 Remuneration to senior officers The Annual General Meeting approved the payment of fees to the Board of Directors and committee members. In addition, the AGM approved the payment of fees to the chairman of the Audit Committee and to the chairman and member of the Compensation Committee. No special fee is paid to the Managing Director for his work on the Board. The Board of Directors has appointed the Compensation Committee, which proposes compensation terms for the Managing Director and the rest of the Group Management. The committee presents its conclusions to the AGM, which makes decisions regarding the compensation principles. By other senior officers is meant the five persons who, together with the Managing Director, make up the Group Management. Remuneration and other benefits 2008 Parent Company, SEK 000 Director s fee/salary (excl. soc. sec. contr.) Bonus Pension costs Other benefits Total Pension obligations Chairman (Mats Qviberg) Board members (8) 1) 1,400 1,400 Audit and Compensation Committee (2) Employee representatives: Appointed (2) Deputies (2) MD, Jan Pettersson 3,906 4, ,890 21,932 Other senior officers (5) 2) 12, , ,805 11,080 Total 17, , ,580 33,012 1) Jack Forsgren, Heinrich Blauert, Sven Hagströmer, Ingrid Jonasson Blank, Gerard Versteegh, Jon Risfelt, Mats Holgerson and Eva Cederbalk. 2) Other senior officers include 2 senior officers from the Parent Company plus MDs in subsidiaries in Sweden, Norway and Denmark. Remuneration and other benefits 2007 Parent Company, SEK 000 Director s fee/salary (excl. soc. sec. contr.) Bonus Pension costs Other benefits Total Pension obligations Chairman (Mats Qviberg) Board members (8) 1) 1,400 1,400 Audit and Compensation Committee (2) Employee representatives: Appointed (2) Deputies (2) MD, Jan Pettersson 3,756 4, ,560 25,278 Other senior officers (5) 2) 8, , ,931 15,683 Total 14, , ,376 40,961 1) Jack Forsgren, Heinrich Blauert, Sven Hagströmer, Ingrid Jonasson Blank, Mats Årjes, Jon Risfelt, Mats Holgerson and Eva Cederbalk. 2) The Group Management was enlarged by 3 persons during the second half of the year: The MDs in Norway and Denmark and the head of business development. Other senior officers include 2 senior officers from the Parent Company plus MDs in subsidiaries in Sweden, Norway and Denmark. The Chairman of the Board has not received any other remuneration aside from his director s fee. A fee of SEK 175,000 was paid to each of the other Board members. Thus, fees totaling SEK 1,400,000 were paid to the Board members elected by the AGM, in accordance with the decision of the 2008 AGM. The AGM further decided that Audit Committee Chairman Heinrich Blauert should receive an extra fee of SEK 50,000, Audit Committee member Jack Forsgren should receive SEK 25,000, and Compensation Committee Chairman Jack Forsgren should receive SEK 25,000. Fees totaling SEK 110,000 were paid to the employee representatives on the Board. Thus, the total fees paid to the Board members amounted to SEK 1,885,000. Bonus for the MD, the Group s CFO and the head of business development is based on the Group s profit. Bonus for the MD of Bilia Personbilar AB and the MD of Bilia Personbil as is based on the Group s profit (20 per cent) and the profits of the individual subsidiaries (80 percent). Bonus for the MD of Bilia Personvogne A/S is based entirely on the profits of the subsidiaries. The MD s bonus for 2008 is maximised at SEK 2,000,000. The bonus for the rest of the management is maximised at per cent of basic salary plus an additional amount for individual goals. Other benefits pertains mainly to company cars. Defined-contribution pension The retirement age for Jan Pettersson is 60 years. Retirement pension premium is paid in the amount of 10 base amounts per year. Pension premium for early retirement pension (60 65 years) is paid in a fixed amount per year. Pension is payable in an amount corresponding to the value of the insurance at 60 years. Survivors pension is paid in an amount corresponding to the value of the insurance at the relevant final date. Pension premium for supplementary old-age pension (65 years) is paid in a fixed amount per year. Pension is payable in an amount corresponding to the value of the insurance at 65 years. Survivors pension is paid in an amount corresponding to the value of the insurance at the relevant final date. A pension premium is paid for bonus earned during the year in an amount corresponding to the sum of the bonus earned during the year. Pension is payable in an amount corresponding to the value of the insurance at 61 years. Survivors pension is paid in an amount corresponding to the value of the insurance at the relevant final date. Pension for the Group s CFO becomes payable at the age of 60 years. The pension agreement states that their pension premiums shall amount to 28 per cent of the fixed salary. By fixed salary is meant monthly salary multiplied by Pension is Bilia Annual Report 2008 Group 29

32 Note 9 cont d. payable in an amount corresponding to the value of the insurance at 60 years. The MD of Bilia Personbilar AB and the head of business development have a pension agreement with a pension premium amounting to 10 per cent of their fixed salary. Pension premium for supplementary old-age pension (65 years) is paid for the three persons in the Group Management who are employed in Sweden in an amount corresponding to 20 per cent of their pensionable salary in excess of 30 income base amounts. Pensionable salary includes fixed salary plus an average of the past three years bonuses. The size of the pension is based on the pension capital at retirement. Severance pay The employment contracts of the MD and other members of the Group Management contain special rules governing termination by the company. Four of the employees are entitled to 24 months salary, less any salary received by the employee from other service during the last 12 months. One employee is entitled to 12 months salary. In the event of significant changes in the company s ownership structure that affect the premises or content of their jobs, the MD and certain top executives in the Group are entitled to terminate their own employment with the right to 24 months salary, less any salary received by the employee from other service during the last 12 months. For information on post-employment employee benefits and equity compensation benefits, see Note 25 Pensions and Note 34 Related parties. Profit-sharing system for employees in the Bilia Group s Nordic operations The profit-sharing system for 2008 is based on the individual company s or region s operating profit and customer satisfaction. Each full-time employee in the Nordic region could receive a maximum profit share of SEK 10,000. A total of SEK 9 M (17), including payroll overhead, was allocated in the annual accounts for 2008 to cover profit shares for employees in the Nordic countries. Option programme In 2008, Investment AB Öresund issued share options for a total of 170,000 shares in Bilia AB to the Group Management and a number of key employees. The options expire in 2015 and the exercise price is SEK 20 per share. The option programme does not entail any dilution for Bilia s shareholders. The senior officers paid SEK 2 per option, which is the estimated market value. In 2007, Investment AB Öresund issued share options for a total of 210,000 shares in Bilia AB to Board members, members of the Group Management and a number of key employees altogether 42 persons. The options have a term of three years, expiring in September 2010, and an exercise price of SEK 120 per share. The option programme does not entail any dilution for Bilia s shareholders. The senior officers paid SEK 5 per option, which is the estimated market value. In 2006, Investment AB Öresund issued share options for a total of 200,000 shares in Bilia AB to 45 senior officers in the Bilia Group. The options have a term of three years, expiring on 31 May 2009, and an exercise price of SEK 110 per share. The option programme does not entail any dilution for Bilia s shareholders. The senior officers paid SEK 5 per option, which is the estimated market value. Since the issue, six persons have exercised their options. NOTE 10 OVERHEADS Fees and cost reimbursement to auditors Group, SEK KPMG AB Auditing assignments 4,394 4,697 Other assignments 2,323 1,120 Auditing assignments By auditing assignments is meant examination of the annual accounts, the accounting records and the administration of the Board of Directors and the Managing Director, other tasks that are incumbent upon the company s auditor to perform, and advice or other assistance arising from observations in connection with such examination or performance of such other tasks. All else is classified as other assignments. Other expenses Administrative expenses for the year include items affecting comparability pertaining to disputes with the Swedish Competition Authority of SEK 9 M (3) and with Pacta of SEK 3 M (9). NOTE 11 OPERATING EXPENSES Group Merchandise 10,780 12,025 Other external expenses 1, Personnel costs 1,971 1,931 Depreciation Impairment losses 37 7 Other operating expenses Total 14,473 15,256 Selling expense for the year includes items affecting comparability of SEK 28 M ( ) pertaining to impairment of goodwill. 30 Bilia Annual Report 2008 Group

33 NOTE 12 NET FINANCIAL ITEMS Group Interest income 9 9 Exchange rate difference, cash and cash equivalents Change in value, derivatives Dividends 0 0 Capital gain 2 2 Net other exchange rate changes 4 1 Financial income Interest expenses Exchange rate difference, cash and cash equivalents Change in value, derivatives Interest part of pension costs for the year Other financial expenses 16 Net other exchange rate changes 3 0 Financial expenses Shares in profits of associated companies Net financial items Exchange rate difference, cash and cash equivalents, and change in value, derivatives, comprise the effect of the Group s equalisation of cash and cash equivalents in foreign currencies against Swedish currency, and no net effect arises due to these transactions. Financial income includes items affecting comparability of SEK 2 M ( ) pertaining to sales of shares. Financial expenses include items affecting comparability of SEK 10 M ( ) pertaining to costs in conjunction with signing of a new bank agreement and SEK 6 M ( ) in issue expenses. NOTE 13 TAXES Recognised in the Income Statement Group Current tax expense ( )/tax income (+) Tax expense/income for the period 9 46 Adjustment of tax attributable to previous years Deferred tax expense ( )/tax income (+) Deferred tax pertaining to temporary differences 14 1 Deferred tax resulting from changes in tax rates 1 1 Deferred tax pertaining to appropriations 16 2 Deferred tax income in tax value in loss carryforwards capitalised during the year 13 4 Deferred tax expense resulting from utilisation of previously capitalised tax value in loss carryforwards Total recognised tax expense Group 2008 (%) (%) 2007 Reconciliation of effective tax Profit/loss before tax Tax according to tax rate applicable to Parent Company Effect of foreign tax rates Tax attributable to previous years Tax effect of non-deductible expenses Tax effect of non-taxable revenues Increase in tax-loss carryforwards without corresponding capitalisation of deferred tax Effect of changed tax rate for deferred tax Recognised effective tax Current tax assets amount to SEK 26 M (23) and represent the recoverable amount of current tax on the net profit for the year. Bilia Annual Report 2008 Group 31

34 Note 13 cont d. Recognised in the Balance Sheet Deferred tax assets and liabilities Deferred tax asset Deferred tax liability Net Group Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Intellectual property Land and buildings Plant and equipment Leased vehicles Inventories Trade receivables Operating receivables 4 4 Untaxed reserves Pension provisions Other provisions Interest-bearing liabilities Operating liabilities Tax-loss carryforwards Other Tax assets/liabilities Unreported deferred taxes recoverable Deferred tax assets pertaining to tax-loss carryforwards have not been recognised in the financial statements: Group Deductible deficits Total Deferred tax assets attributable to previous deductible tax-loss carryforwards in the Netherlands and Italy amount to SEK 90 M and in Norway to SEK 56 M ( ). Deferred tax assets have not been recognised for these items, since it is uncertain whether the Group will be able to utilise them for deduction from future taxable profits. Change in deferred tax in temporary differences and tax-loss carryforwards Group Balance as per 1 Jan Recognised in Income Statement Discontinued operation Acquisition/ disposal of business entity Balance as per 31 Dec Intellectual property Land and buildings Plant and equipment Leased vehicles Inventories Trade receivables Operating receivables Untaxed reserves Pension provisions Other provisions Interest-bearing liabilities 0 Operating liabilities Tax-loss carryforwards Other Tax assets/liabilities Bilia Annual Report 2008 Group

35 Group Balance as per 1 Jan Recognised in Income Statement Posted to equity Acquisition/ disposal of business entity Balance as per 31 Dec Intellectual property Land and buildings Plant and equipment Leased vehicles Inventories Trade receivables Operating receivables Untaxed reserves Pension provisions Other provisions Interest-bearing liabilities Operating liabilities Tax-loss carryforwards Other Tax assets/liabilities NOTE 14 EARNINGS/LOSS PER SHARE Earnings/loss per share for total, continuing and discontinued operations Basic and diluted SEK Earnings/loss per share Earnings/loss per share from continuing operations Earnings/loss per share from discontinued operations Calculation of the numerators and denominators used in the above calculations of earnings per share is explained below. Basic and diluted loss per share The calculation of loss per share for 2008 is based on the net loss for the year attributable to the Parent Company s ordinary shareholders, amounting to SEK 110 M (profit: 100), and a weighted average number of shares outstanding, amounting to 20,459,255 (21,063,501). The two components have been calculated in the following manner: Net profit/loss for the year attributable to the Parent Company s ordinary shareholders, basic and diluted Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Net profit/loss for the year attributable to the Parent Company s ordinary shareholders Profit/loss attributable to the Parent Company s ordinary shareholders, basic and diluted Weighted average number of ordinary shares outstanding, basic and diluted Thousands Total number of ordinary shares on 1 January 20,459 21,459 Effect of share buy-back 395 Weighted average number of ordinary shares during the year, basic and diluted 20,459 21,064 Diluted earnings per share and instruments that can cause potential dilution effects and changes after the balance sheet date. The outcome of the new issue which was concluded in January 2009 was to bring in SEK 100 M to Bilia by the issuance of subordin ated debentures in an amount of SEK 100 M and an associated issue of 5,000,000 warrants entitling the bearer to subscribe for an equal number of Series A Bilia shares at SEK 20 per share. Notification of subscription of shares can be made up to and including 5 January If all warrants are exercised, the number of outstanding shares will increase by 5,000,000. Bilia Annual Report 2008 Group 33

36 NOTE 15 INTANGIBLE ASSETS Software, internally developed Software, acquired Customer relations Property options Distribution right Group Accumulated costs At start of year Business combinations Acquisitions Disposals and retirements Repostings Translation differences for the year Accumulated amortisation and impairment losses At start of year Disposals and retirements Repostings 1 Amortisation for the year Impairment losses for the year 1 Translation differences for the year Carrying amount at year-end Amortisation Amortisation is included on the following Software, internally Software, Customer Property Distribution lines in the Income Statement: developed acquired relations options right Group Cost of goods sold Trademarks Non-competition clause Total intellectual property Goodwill Group Accumulated costs At start of year Business combinations Acquisitions 6 16 Disposals and retirements Repostings 8 1 Translation differences for the year Accumulated amortisation and impairment losses At start of year Disposals and retirements Repostings 1 Amortisation for the year Impairment losses for the year Translation differences for the year Carrying amount at year-end Bilia Annual Report 2008 Group

37 Amortisation and impairment losses Amortisation is included on the following lines in the Income Statement: Trademark clause property Goodwill Non-competition Total intellectual Group Cost of goods sold Impairment losses are included on the following lines in the Income Statement: Customer relations Goodwill Group Selling expenses 28 0 Other operating expenses 1 Total 1 28 Impairment tests for cash-generating units containing assets with an indeterminate useful life (goodwill plus property options) The following cash-generating units have considerable carrying amounts for goodwill and property options in relation to the Group s total carrying amounts: Bilia Personbilar AB, Region Stockholm (goodwill) Bilforum AS (goodwill) 18 Bilia Personbil as (goodwill) 23 Bilgruppen Bilia Personbilar AB (Goodwill) 3 Bilia Danmark A/S (property options) 10 Bilia Personbilar AB, Region Stockholm (goodwill) Impairment testing for Bilia Personbilar AB, Region Stockholm, was based on calculation of the value in use. This value is based on cash flow forecasts for a total of 5 years, the first of which is based on the budget for 2009 adopted by management. The total length of the forecast period (10 years) corresponds to the useful life of the unit s most important assets. A calculated residual value has been assigned to the business at the end of the forecast period. The cash flows forecasts after the first 5 years have been based on an annual growth rate of 3 per cent. The present values of the forecast cash flows have been calculated using a discount rate of 8.4 per cent after tax. The calculated recoverable amount for Bilia Personbilar AB, Region Stockholm, entailed a write-down of the goodwill item by SEK 2 M. Management judges that reasonable possible changes in margins in car sales and demand for service and repair work will not have such great effects that they would, individually, reduce the recoverable amount to a value lower than the carrying amount. The important assumptions in the 5-year forecast and the methods used to estimate values are as follows: Important variables and methods for estimating values Market share and growth Demand for new cars has historically followed the business cycle, while demand for service and repair work has been more stable. The market situation has been assumed to be at a lower level compared with 2008 at the beginning of the forecast period and with some recovery during the remainder of the period. The forecast agrees with previous experience and external information sources. Prices Prices have been assumed to increase with the expected rate of inflation. The forecast agrees with previous experience and external information sources. Personnel costs The forecast for personnel costs is based on some increase in real wages and planned efficiency improvements in the operations. The forecast agrees with previous experience and external information sources. Bilforum AS (goodwill) Impairment testing for Bilforum AS was based on calculation of the value in use. This value is based on cash flow forecasts for a total of 5 years, the first of which is based on the budget for 2009 adopted by management. The total length of the forecast period (10 years) corresponds to the useful life of the unit s most important assets. A calculated residual value has been assigned to the business at the end of the forecast period. The cash flows forecasts after the first 5 years have been based on an annual growth rate of 2.7 per cent. The present values of the forecast cash flows have been calculated using a discount rate of 8.9 per cent after tax. The recoverable amount for Bilforum AS is on a level with the carrying amount. Management judges that changes in margins in car sales and demand for service, repair work and cars may reduce the recoverable amount to a value that is lower than the carrying amount. The important assumptions in the 5-year forecast and the methods used to estimate values are as follows: Important variables and methods for estimating values Market share and growth Demand for new cars has historically followed the business cycle, while demand for service and repair work has been more stable. The market situation has been assumed to be at a lower level compared with 2008 at the beginning of the forecast period and with some recovery during the remainder of the period. The forecast agrees with previous experience and external information sources. Bilia Annual Report 2008 Group 35

38 Note 15 cont d. Prices Prices have been assumed to increase with the expected rate of inflation. The forecast agrees with previous experience and external information sources. Personnel costs The forecast for personnel costs is based on some increase in real wages and planned efficiency improvements in the operations. The forecast agrees with previous experience and external information sources. Bilia Personbil as (goodwill) Impairment testing for Bilia Personbil as was based on calculation of the value in use. This value is based on cash flow forecasts for a total of 5 years, the first of which is based on the budget for 2009 adopted by management. The total length of the forecast period (10 years) corresponds to the useful life of the unit s most important assets. A calculated residual value has been assigned to the business at the end of the forecast period. The cash flows forecasts after the first 5 years have been based on an annual growth rate of 2.7 per cent. The present values of the forecast cash flows have been calculated using a discount rate of 8.9 per cent after tax. The calculated recoverable amount for Bilia Personbil as entailed a write-down of the entire goodwill item. The important assumptions in the 5-year forecast and the methods used to estimate values are as follows: Bilgruppen Bilia Personbilar AB (goodwill) Impairment testing for Bilgruppen Bilia Personbilar AB was based on calculation of the value in use. This value is based on cash flow forecasts for a total of 5 years, the first of which is based on the budget for 2009 adopted by management. The total length of the forecast period (10 years) corresponds to the useful life of the unit s most important assets. A calculated residual value has been assigned to the business at the end of the forecast period. The cash flows forecasts after the first 5 years have been based on an annual growth rate of 3 per cent. The present values of the forecast cash flows have been calculated using a discount rate of 8.4 per cent after tax. The calculated recoverable amount for Bilgruppen Bilia Personbilar AB entailed a write-down of the entire goodwill item. The important assumptions in the 5-year forecast and the methods used to estimate values are as follows: Important variables and methods for estimating values Market share and growth Demand for new cars has historically followed the business cycle, while demand for service and repair work has been more stable. The market situation has been assumed to be at a lower level compared with 2008 at the beginning of the forecast period and with some recovery during the remainder of the period. The forecast agrees with previous experience and external information sources. Important variables and methods for estimating values Market share and growth Demand for new cars has historically followed the business cycle, while demand for service and repair work has been more stable. The market situation has been assumed to be at a lower level compared with 2008 at the beginning of the forecast period and with some recovery during the remainder of the period. The forecast agrees with previous experience and external information sources. Prices Prices have been assumed to increase with the expected rate of inflation. The forecast agrees with previous experience and external information sources. Prices Prices have been assumed to increase with the expected rate of inflation. The forecast agrees with previous experience and external information sources. Personnel costs The forecast for personnel costs is based on some increase in real wages and planned efficiency improvements in the operations. The forecast agrees with previous experience and external information sources. Bilia Denmark A/S (property options) The property options were exercised in their entirety during the year in conjunction with the disposal of the Danish properties. Personnel costs The forecast for personnel costs is based on some increase in real wages and planned efficiency improvements in the operations. The forecast agrees with previous experience and external information sources. 36 Bilia Annual Report 2008 Group

39 NOTE 16 PROPERTY, PLANT AND EQUIPMENT Contracts Land and buildings in progress Group Accumulated costs At start of year Business combinations Acquisitions Disposals and retirements Repostings Translation differences for the year Accumulated depreciation and impairment losses At start of year 72 4 Business combinations 0 66 Disposals and retirements 65 7 Depreciation for the year 4 9 Translation differences for the year Carrying amount at year-end Tax assessment values (in Sweden) 3 80 Carrying amounts (in Sweden) Depreciation and impairment losses Depreciation is included in the following lines in the Income Statement. Contracts Land and buildings in progress Group Cost of goods sold 2 2 Selling expenses 2 2 Administrative expenses 0 0 Profit from discontinued operation, net after tax 5 Total 4 9 No impairment losses have been recognised. Bilia Annual Report 2008 Group 37

40 Note 16 cont d. Equipment, tools, fixtures and fittings Leased vehicles Group Accumulated costs At start of year ,075 2,149 Business combinations Acquisitions Disposals and retirements ,009 1,200 Repostings Translation differences for the year ,764 2,075 Accumulated depreciation and impairment losses At start of year Business combinations Disposals and retirements Repostings Depreciation for the year Impairment losses for the year Translation differences for the year Carrying amount at year-end ,512 1,811 Finance leases (included above) Cost Accumulated depreciation Lease payments during the financial year Contractual future minimum lease payments: Within one year Present value Between one and five years Present value Depreciation and impairment losses Depreciation is included on the following lines in Equipment, tools, the Income Statement fixtures and fittings Leased vehicles Group Cost of goods sold Selling expenses Administrative expenses Total Impairment losses are included on the following lines in the Income Statement Equipment, tools, fixtures and fittings Leased vehicles Group Cost of goods sold Bilia Annual Report 2008 Group

41 Assets that are leased under operating leases are recognised as property, plant and equipment. These assets consist of owned cars that are leased under operating leases, and sold cars combined with a commitment to future repurchase at a guaranteed residual value. Regarding sold cars combined with a repurchase commitment, legal title has passed to the buyer. In some cases, lease payments are fixed for periods of three months based on Stibor or Cibor. In other cases, lease payments are linked to a portion of the consumer price index or similar index. Leases can be extended in most cases. A few of the leases permit Bilia to acquire the asset at the expiry of the rental period. Leases for premises, company cars and office equipment The Group s leases mainly pertain to premises for sales and servicing of cars and leasing of company cars and office equipment. At year-end 2008, the property leases covered about 390,000 sq.m (393,000). Leased assets that are sub-leased Income for sub-leased assets amounted to SEK 8 M (6) in Property, plant and equipment under construction Conversion of the plant in Albertslund in Denmark. NOTE 17 INTERESTS IN ASSOCIATED COMPANIES Group Carrying amount at start of year Business combinations 33 Share in associated company s profit 1) Carrying amount at year-end ) Share in associated company s profit after tax and minority interest in associated company. A dividend of SEK 3 M (3) has been received. Associated companies are accounted for in accordance with IAS 28, which provides that certain conditions must prevail in order for a company to be classified as an associated company. Bilia does not have a 20 per cent stake, but due to the fact that Bilia has owner representation on the Board of Directors and participates in the work with strategic matters, and that there are significant connections with the operations in this company, it is classified as an associated company. Consolidated values pertaining to 100 per cent of the associated company s revenue, profit, assets and liabilities are specified below Country Revenue Profit Assets Liabilities Equity Owned stake in % Associated companies Subsidiaries: AB Volverkinvest 19.8.Volvofinans Bank AB Sweden 1, ,867 22,279 2,588 Total 1, ,867 22,279 2, AB Volverkinvest owns 50% of Volvofinans Bank AB. The figures for the associated company pertain to the accounting period 1 October 2007 to 30 September More recent information on the associated company is not available at the time of preparation of the Bilia Group s consolidated accounts Country Revenue Profit Assets Liabilities Equity Owned stake in % Associated companies Subsidiaries: AB Volverkinvest 19.8.Volvofinans Bank AB Sweden 1, ,126 22,729 2,397 Total 1, ,126 22,729 2, AB Volverkinvest owns 50% of Volvofinans Bank AB. The figures for the associated company pertain to the accounting period 1 October 2006 to 30 September More recent information on the associated company is not available at the time of preparation of the Bilia Group s consolidated accounts. Bilia Annual Report 2008 Group 39

42 NOTE 18 FINANCIAL INVESTMENTS Group Financial investments that are non-current assets Available-for-sale financial assets Shares and interests, unlisted holdings where fair value cannot be determined 2 3 Deposits 7 7 Total 9 10 Financial investments that are current assets Available-for-sale financial assets Lending Instalment receivables 5 9 Total NOTE 19 LONG-TERM RECEIVABLES AND OTHER RECEIVABLES NOTE 22 DEFERRED EXPENSES AND ACCRUED INCOME Group Long-term receivables that are non-current assets Instalment receivables Promissory note loan 45 Other Total Other receivables that are current assets Work in progress 10 7 Value added tax 4 2 Bonus Claims 3 1 Derivatives 11 0 Other Total No impairment losses were recognised on receivables during the year ( ). NOTE 20 INVENTORIES Group Cost of goods sold for the Group includes recognition of SEK 21 M (37) in impairment losses on inventories. NOTE 21 TRADE RECEIVABLES Group Trade receivables are recognised after taking into account bad debt losses, which amounted to SEK 0 M (5). Impairment loss for the year amounts to SEK 3 M (6). Group Bonus 7 2 Deferred expenses Other accrued income Total NOTE 23 CASH AND CASH EQUIVALENTS Group The following items are included in cash and cash equivalents Cash and bank balances Balance in Group account with Parent Company 1 58 Cash on hand 5 26 Total according to Balance Sheet Short-term investments equivalent to cash Total according to Cash Flow Statement The effective interest rate for short-term investments in 2008 was 4.42 per cent (3.61). The short-term investments had an average maturity of 1 day (1). Short-term investments have been classified as cash and cash equivalents based on the fact that: They carry negligible risk for value fluctuations. They can easily be converted to cash. They have maturities of not more than three months from their date of acquisition. 40 Bilia Annual Report 2008 Group

43 NOTE 24 INTEREST-BEARING LIABILITIES The note contains information on the company s contractual terms regarding interest-bearing liabilities. For more information on the company s exposure to interest rate risk and risk of exchange rate changes, see Note 30 Financial risks and finance policies. Group Non-current liabilities Debenture loan 87 Bank loans Personnel fund 5 5 Finance lease liabilities Current liabilities Overdraft facilities 29 0 Current portion of bank loans Current portion of finance lease liabilities Total 937 1,386 Terms and repayment periods Collateral for bank loans in the form of floating charges has been pledged in an amount of SEK 817 M ( ) and in the form of assets in an amount of SEK 214 M ( ). Group Lender Currency Nominal interest rate, % Maturity Nominal amount Carrying amount Nominal interest rate, % Maturity Nominal amount Carrying amount Debenture loan SEK Handelsbanken SEK Nordea SEK Nordea NOK Nordea DKK Nordea/Handelsbanken (Club deal) SEK SEB SEK Handelsbanken SEK DNB NOK Nykredit DKK Volvofinans Bank AB SEK DNB NOK Volvo Bilfinans AS NOK Ford Credit DKK Personnel fund SEK Finance lease liabilities SEK Total 937 1,386 Finance lease liabilities Group Minimum lease payment Interest Principal Minimum lease payment Interest Principal Within one year Between one and five years Total Bilia Annual Report 2008 Group 41

44 NOTE 25 PENSIONS Group Defined-benefit pension plans Present value of wholly or partly funded obligations Fair value of plan assets Present value of net obligations Unrecognised actuarial gains (+) and losses ( ) Net amount recognised regarding defined-benefit plans The net amount is recognised in the following items in the Balance Sheet Provisions for pensions Net amount in Balance Sheet Defined-benefit plans The Group has two defined-benefit plans, one in Sweden and one in Norway, that pay benefits to employees when they retire. The Norwegian plan provides for benefits that are based on average salary during the last ten years of employment adjusted for inflation. The Swedish plan provides for benefits that are based on a certain percentage of the final salary. Changes in the present value of the obligation for defined-benefit plans Obligation for defined-benefit plans at 1 January Benefits disbursed 6 92 Cost for service during current period Actuarial gains and losses 2 4 Benefits transferred/taken over 2 50 Exchange rate differences 7 11 Obligation for defined-benefit plans at 31 December Change in fair value of plan assets Fair value of plan assets at 1 January Contributions from employer 1 Benefits disbursed 4 53 Expected return on plan assets 5 5 Exchange rate differences 6 9 Fair value of plan assets at 31 December The plan assets consist of the following: Funded assets managed by Pensionsordning Vital Total plan assets Group Cost recognised in Income Statement Cost for service 4 34 Interest expense on obligation Expected return on plan assets 5 5 Change in plan in Norway 4 16 Recognised actuarial gains ( ) and losses (+) 2 4 Total net cost in Income Statement The cost is recognised on the following lines in the Income Statement Cost of goods sold 1 5 Selling expenses Administrative expenses Financial income/expense 1 2 Total Actual return on plan assets 5 5 Pension obligation Defined-benefit plans Other pensions Total Assumptions for defined-benefit obligations The important actuarial assumptions at the balance sheet date in Sweden and Norway (expressed as weighted averages), %: Sweden: Discount rate Expected return on plan assets Future salary increases Future pension increases Employee turnover rate Expected remaining working lives, years Income base amount Future increase in paid-up policies Norway: Discount rate Expected return on plan assets Future salary increases Future pension increases Assumptions regarding future mortality are based on published statistics and mortality rates. The average remaining lifetime of an individual who retires at the age of 65 is 21 years for men and 23 years for women. The total expected long-term rate of return on plan assets is 6.60 per cent. The expected long-term rate of return is based on the whole portfolio of plan assets and not on the sum of the rates of return of individual asset classes. 42 Bilia Annual Report 2008 Group

45 Historical information Present value of definedbenefit obligation Fair value of plan assets Unrecognised actuarial losses Obligations for old-age pension and family pension for salaried employees in Sweden are secured by insurance in Alecta. According to a statement by the Swedish Financial Reporting Board UFR 3, this is a multi-employer defined-benefit plan. For financial year 2008, Bilia has not had access to information that makes it possible to account for this plan as a defined-benefit plan. The ITP pension plan that is secured via insurance in Alecta is therefore accounted for as a defined-benefit plan. The year s contributions for pension insurance policies taken out in Alecta amount to SEK 5 M (9). Alecta s surplus can be distributed to the policyholders and/or to the insureds. At year-end 2008, Alecta s surplus in the form of the collective funding ratio 1) amounted to per cent (152.0). The collective funding ratio is the market value of Alecta s assets as a percentage of their insurance obligations calculated according to Alecta s actuarial assumptions, which do not agree with IAS 19. 1) Alecta publishes figures on the collective funding ratio every month on its website, Defined-contribution plans In Sweden the Group has defined-contribution pension plans for workers that are paid for entirely by the subsidiaries. In other countries there are defined-contribution plans that are paid for in part by the subsidiaries and in part by contributions paid by the employees. Payments are made to these plans on a regular basis in accordance with the rules in each plan. Group Costs for the year for defined-contribution plans 1) ) Includes SEK 5 M (9) pertaining to ITP plan funded in Alecta, see above. NOTE 26 PROVISIONS Non-current Current Group Restructuring costs 15 8 Severance pay, redundancy pay 5 Claims Warranty obligations Total Restructuring costs Severance pay, redundancy pay Claims Warranty obligations Total Group Carrying amount at start of year Provisions made during the year Amounts utilised during the year Unutilised amounts reversed during the year Increase of discounted amounts during the year Business combinations 2 2 Translation differences Carrying amount at year-end Payments Amount by which the provision is expected to be paid after more than twelve months 11 7 Restructuring costs The costs for restructuring have been calculated to be SEK 124 M, of which provision has been made in the Balance Sheet for SEK 13 M (7). Severance pay, redundancy pay No additional provision has been made in the Balance Sheet for costs for dismissed personnel (5). Claims Provisions for claims are based on calculations using historical data regarding claims costs for similar products and services. Warranty obligation Provisions have been made regarding obligations for sold new and used cars. The manufacturers have warranty liability for new cars and compensate Bilia for labour and parts under separate agreements in the different markets. If the compensation is less than an estimated cost for Bilia, the provision for both new and used cars is calculated based on historical data for warranty costs associated with these products. Bilia Annual Report 2008 Group 43

46 NOTE 27 OTHER LIABILITIES Group Other non-current liabilities Finance lease liability pertaining to cars sold with repurchase agreements Total Other current liabilities Finance lease liability pertaining to cars sold with repurchase agreements Value added tax Advance payments from customers Tax deducted at source Derivatives 9 6 Other Total NOTE 28 ACCRUED EXPENSES AND DEFERRED INCOME Group Accrued wages and salaries Accrued social security contributions Accrued rents 6 Accrual of service and security agreements Other accrued expenses Total NOTE 29 MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE Fair value Fair value and carrying amount are shown in the following Balance Sheet: Group Carrying amount Fair value Carrying amount Fair value Financial assets measured at fair value via the Income Statement Other assets/currency swaps Loan receivables and other receivables Long-term investments, non-interest-bearing Long-term investments, interest-bearing Trade and other receivables ,057 1,057 Short-term investments Deposits Available-for-sale financial assets Shares and interests Financial liabilities measured at fair value via the Income Statement Other liabilities/currency swaps Other financial liabilities Bank loans ,343 1,343 Personnel fund Finance lease liabilities Trade payables and other liabilities 2,296 2,296 3,077 3,077 Overdraft facilities Calculation of fair value The following summarizes the most important methods and assumptions that have been used to establish the fair value of the financial instruments in the above table. Derivative instruments Interest rate swaps are valued at current market price by using quoted market prices. Available-for-sale financial assets Fair value cannot be calculated on unlisted holdings, which are recognised at cost. Interest-bearing liabilities and finance lease liabilities Fair value is largely equivalent to carrying amount, since the interest rate on outstanding liabilities is variable. Instalment receivables Fair value is largely equivalent to carrying amount, since the interest rate on outstanding receivables is variable. Trade receivables and trade payables In the case of trade receivables and trade payables with a remaining life of less than one year, the carrying amount is deemed to reflect fair value. The carrying amount is deemed to reflect fair value in the case of trade receivables and trade payables with a life of more than one year as well, since variable interest is charged on the outstanding receivable/liability. Interest rates used to determine fair value All the company s assets and liabilities bear a variable interest rate, which means that fair value is equivalent to carrying amount. 44 Bilia Annual Report 2008 Group

47 NOTE 30 FINANCIAL RISKS AND FINANCE POLICIES General The main function of Bilia AB with Subsidiaries is to sell new and used cars, and in conjunction with this also supply workshop services, spare parts, accessories and fuel. The financing operation in the Bilia Group (hereinafter called Bilia) encompasses the following: financing of the Group with loans and other operating liabilities analysis, measurement and follow-up of currency risks, interest rate risks and operating risks is done continuously in order to reduce these risks administration of Group accounts and internal bank function in Bilia credit granting by the subsidiaries is overseen to ensure compliance with an appropriate credit policy Bilia s payment procedures and everything included in the concept of cash management control, monitoring and reporting of the outcome of Bilia s financing operation based on guidelines issued by the Board of Directors Goals of the financing operation The goals of Bilia s financing operation are to: ensure that the Group has access to the requisite loan financing secure the best possible terms for borrowing and investing ensure that credit risks, interest rate risks, liquidity risks, currency risks and operating risks are always kept within the limits stipulated in this finance policy Organisation and division of responsibilities The Parent Company Bilia AB The Managing Director of Bilia AB is responsible for all financial activities in the Group and ensures that they are conducted in accordance with the finance policy adopted by the Board of Directors. The Chief Financial Officer (CFO) is the head of the Finance Department and is responsible for ensuring that financing activities throughout Bilia are conducted in accordance with Bilia s policies, rules and instructions. The treasurer is in charge of the day-to-day activities of the Parent Company s Finance Department, which also has an internal bank function that is intended to serve all Group companies. The overall objective of the finance function is to provide cost-effective financing and to minimise the negative effects of currency fluctuations on the Group s earnings. Subsidiaries The managing director of each subsidiary is responsible for ensuring that the granting of credit by the company takes place in accordance with a credit policy adopted by the company s board of directors and that financing activities are otherwise conducted in accordance with the guidelines set forth in special instructions from Bilia AB. Contractual terms The Group s long-term financial assets consist in part of instalment receivables amounting to SEK 25 M (22) and in part of promissory note loans amounting to SEK 45 M ( ) pertaining to lending to the Corem Property Group s subsidiaries in conjunction with the sale of Bilia s Danish properties. The average credit period for instalment receivables is just under 3 years. A market rate of interest is charged on instalment receivables. Bilia has collateral for instalment receivables in the asset in question until full payment has been received. The promissory note loans fall due in 2013 and 2016 and carry a market rate of interest. The Group s current financial assets consist for the most part of SEK 664 M (965) in trade receivables and SEK 5 M (9) in instalment receivables that are expected to be repaid during the coming financial year, plus short-term investments of SEK 16 M (90). The average credit period for trade receivables is 25 days (21). Capital management The Group s equity, which is defined as total reported equity, amounted at year-end to SEK 1,229 M (1,507). Return on equity amounted to 8.0 per cent (6.3). The Annual General Meeting in 2008 gave the Board of Directors a mandate to approve the acquisition of up to 1,145,925 Bilia shares by the next AGM. In 2008 and up to 26 February 2009, no shares have been repurchased. In 2007, a total of 1,000,000 Bilia shares were repurchased for a total of SEK 115 M. According to Bilia s finance policy, one of the most important goals is to ensure that the Group has access to the requisite loan financing. Bilia s dividend policy prescribes that at least 50 per cent of the net profit for the year be distributed to the shareholders. In addition to regular dividends, Bilia has made extra distributions in kind on two occasions during the past five-year period: the spin-offs of Kommersiella Fordon (KFAB) in 2003 and Catena (property portfolio) in No dividend is proposed for 2008 (8.00). There has been no change in the Group s principles for capital management during the year. Financing agreements For 2008, Bilia s lenders require that EBITDA in relation to net interest expense should be at least 1.1, that interest-bearing liabilities in relation to equity should not exceed 1.0, and that the value of trade receivables and used cars in relation to the bank loans should not be less than 1.5. The ratios reported for 2008 were as follows: EBITDA to net interest expense 1.93, interest-bearing liability to equity 0.82 and trade debtors plus used cars to bank loans The banks requirement for EBITDA in relation to net interest expense, which applies to 12 months rolling values, is increasing to 1.35 for the first quarter of 2009, 1.8 for the second quarter of 2009 and 3.0 for the third quarter of The requirement on interest-bearing li - ability to equity is increasing to 0.85 for the first and second quarter of 2009 and to 0.8 for the third quarter of The lenders are contractually entitled to terminate the leases for renegotiation if the above requirements are not met. Financial risks and risk limitation The Group is exposed through its business operations to various kinds of financial risks. Bilia Annual Report 2008 Group 45

48 Note 30 cont d. By financial risks is meant fluctuations in the company s earnings and cash flow as a result of changes in exchange rates, interest rates, refinancing risks and credit risks. The Group s finance policy for managing financial risks has been formulated by the Board of Directors and comprises a framework of guidelines and rules in the form of risk mandates and limits for the financing activities. The various financial risks to which Bilia is exposed are described below. These risks are managed by Bilia AB s intern al bank at the head office in Göteborg. Liquidity risks By liquidity risk (also called financing risk) is meant the risk that financing cannot be obtained at all, or only at excessively in flated costs, due to disruptions in the financial system. According to the finance policy, the goal is that there should be sufficient cash funds and guaranteed credits to cover the coming 12 months. Furthermore, the maturities of the financial liabilities have been spread over time to limit the liquidity risk. In addition, contracts have been signed for lines of credit totalling SEK 900 M (1,982). The credit lines extend until November 2009, and SEK 322 M (671) was unutilised at year-end. Credit facilities and loans Currency Nominal amount Total amount Utilised Available Maturity SEK Maturity SEK Total Available cash and cash equivalents 114 Liquidity reserve 436 Maturity structure Interest-bearing financial liabilities. The following table shows the maturity structure of the financial liabilities on the balance sheet date. Group Lender Currency Nominal amount currency Total amount Within 1 mth 1 3 mths 3 mths 5 yrs and 1 yr 1 5 yrs longer Nominal amount currency Total amount Within 1 mth 1 3 mths 3 mths 5 yrs and 1 yrs 1 5 yrs longer Debenture loan SEK Handelsbanken SEK Nordea SEK Nordea NOK Nordea DKK Nordea/Handelsbanken (Club deal) SEK SEB SEK Volvo Bilfinans AS NOK DNB NOK Nykredit DKK Volvofinans Bank AB SEK DNB NOK Ford Credit DKK Personnel fund SEK Financial lease liability Total , , The Group s financial liability amounted to SEK 937 M (1,386) at year-end, and the maturity structure of the debt is shown in the table Maturity structure. Market risk Market risk is the risk that the fair value of or future cash flows from a financial instrument will fluctuate due to changes in market prices. Market risks are divided by IFRS into three types: currency risk, interest rate risk and other price risks. The main market risks that affect the Group are interest rate risks and currency risks. The Group s goal is to manage and control market risks within established parameters while simultaneously optimising the result of risk-taking within given limits. The parameters are set for the purpose of ensuring that the market risks will, in the short term (6 12 months), have only a marginal effect on the Group s earnings and position. In the longer term, however, lasting changes in exchange rates and interest rates will have an impact on the consolidated profit. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will vary due to changes in market rates. Interest rate risk can consist of change in fair value, known as price risk, and changes in cash flow, known as cash flow risk. A significant factor influencing interest rate risk is the fixed interest rate period. A short average fixed interest rate period in Bilia s loan portfolio means that large interest rate changes affect earnings almost immediately. A long fixed interest rate period, on the other hand, means that the financing cost may get out of 46 Bilia Annual Report 2008 Group

49 synch with the general price and inflation trend and therefore deviate significantly from the current cost of financing generally applicable in the sector. The Group s assets are primarily of a current nature. The goal of the finance policy is to minimize the effects of an interest rate change. Derivative instruments such as interest rate swaps are used to control the Group s interest rate risk. They may only be used by Bilia AB and only to meet the requirement of eliminating risk in a cost-effective manner prescribed by this finance policy. According to the finance policy, the goal is that at a net debt of less than SEK 500 M, the fixed interest rate period should be 0 6 months. If net debt exceeds SEK 500 M, the average fixed interest rate period should be no more than 9 months. At the balance sheet date, the Group had the following interest rate profile on its financial instruments: Carrying amounts in Variable interest rate Financial assets Financial liabilities 937 1,386 Sensitivity analysis The Group s purpose in managing interest rate risk is to mitigate the impact of short-term fluctuations on Group earnings. In the long term, however, lasting changes in interest rates will have an impact on the consolidated profit. At 31 December 2008, a general increase in the interest rate by 1 percentage point is expected to reduce the Group s profit before tax by about SEK 8 M (12). Currency risk The Group is exposed to different types of currency risks. The foremost exposure pertains to currency risk fluctuations on translation of the assets and liabilities of foreign subsidiaries to the Parent Company s functional currency, called translation exposure. Another area that is exposed to currency risks is payment flows in loans and investments in foreign currencies (financial exposure). Derivative instruments such as forward exchange contracts are used to control the Group s currency risks. They may only be used by Bilia AB or under its control and only to meet the requirement of eliminating risk in a cost-effective manner as prescribed by the finance policy. Subsidiaries All companies in Bilia are limited in their marketing and sales to their home market. Products are purchased according to price lists in the local currency. According to Bilia s instructions for financing in the subsidiaries, all financing must be in the local currency. In this way, no currency risk arises at the subsidiary level. In cases where currency risk nevertheless arises, it must be hedged, provided the currency risk on each occasion is not judged to be marginal. Currency swaps are used to eliminate exchange rate risks that arise in conjunction with the offsetting of positive balances in one currency against negative balances in another currency. Currency swaps are used to reduce the Group s interest expense on cash and cash equivalents and do not give rise to any currency risks. Currency swaps used by the company are shown below, broken down by currency and year. Group Currency swaps Currency SEK Currency SEK NOK DKK The Consolidated Income Statement includes exchange rate differences of SEK 0 M (0) in operating profit and SEK 1 M (1) in net financial items. Transaction exposure Transaction exposure is limited by the fact that all sales and purchases take place in the local currency. Translation exposure Foreign net assets in the Group are denominated in the following currencies: Group Currency Amount % Amount % NOK DKK EUR The Group has followed a policy of not hedging translation exposures in foreign currencies. Sensitivity analysis The Group s purpose in managing currency risk is to mitigate the impact of short-term fluctuations on Group earnings. In the long term, however, lasting changes in exchange rates will have an impact on the consolidated profit. A general decrease of the Swedish krona against other currencies by 10 per cent has been calculated to reduce the Group s profit before tax by about SEK 18 M (4) for Credit risk Credit risk exposure Carrying amount Group Long-term investments, non-interest-bearing Long-term investments, interest-bearing Short-term investments Trade and other receivables 752 1,057 Instalment receivables Total 1,162 1,467 Certain cars are sold with reservation of title, which means that in the event of payment default the Group has some security for its liability. Credit risks in financial activities Financial risk management entails an exposure to credit risks. These are mainly counterparty risks associated with receivables from banks and other counterparties that arise in connection with purchases of derivative instruments. Bilia Annual Report 2008 Group 47

50 Note 30 cont d. By counterparty risk is meant the risk that the counterparty to an agreement will default on its financial obligations. Financial agreements may only be entered into with counterparties included on the list issued by the MD of Bilia AB. List of permissible counterparties in currency swaps, forward contracts and other agreements off the Balance Sheet: Lender Maximum amount SEB 500 Handelsbanken 500 Nordea 500 Credit risks in trade receivables The risk that Bilia s customers will default on their obligations, in other words that payment will not be received for trade receivables, constitutes a customer credit risk. Credit checks are run on the Group s customers, whereby information on the customers financial status is requested from different credit agencies. The Group has established a credit policy for management of customer credits. The policy stipulates decision levels for different credit limits and how credits and doubtful debts are to be rated. In this context, credit is equated with liability for customers ability to pay that may remain after the credit has been taken over by Volvofinans Bank AB or another credit institution. As of the balance sheet date, no significant concentration exists for credit exposure. The maximum exposure to credit risk is shown by the carrying amount for the financial asset in question in the table below. Based on historic data, the Group does not find that any impairment of trade receivables not yet due is necessary at the balance sheet date. Most of the outstanding trade receivables are customers previously known to the Group with good credit ratings. Age analysis, trade receivables Group Gross Impairment Gross Impairment Trade receivables not due Overdue trade receivables 0 30 days Overdue trade receivables days Overdue trade receivables days Overdue trade receivables days Overdue trade receivables > 360 days Total Age analysis, instalment receivables Group Gross Impairment Gross Impairment Instalment receivables not due Overdue instalment receivables 0 30 days 2 0 Overdue instalment receivables days 0 Overdue instalment receivables days 0 Overdue instalment receivables days 0 Overdue instalment receivables > 360 days 0 Total The Group has reservation of title on cars sold equivalent to the market value that is judged to be on a level with outstanding instalment receivables. Recourse liability The Bilia companies have a repurchase commitment if lessees or borrowers default on their payment obligations for cars financed by Volvofinans Bank AB and brokered by Bilia. Bilia reserves a commission for cars brokered to Volvofinans Bank AB. The commission is received for the most part continuously over the term of the contract, and non-revenue commission attributable to financings with recourse liability not yet due amounts to about SEK 100 M. Credit losses for financings with recourse liability, which have historically been at a very low level, increased during 2008 and amounted to SEK 7 M (2). No need for additional provision for anticipated losses has been judged to exist, as the estimated market values of the cars are deemed to be at least equal to the recourse liability. Age analysis, recourse liabilities Group Gross Impairment Gross Impairment Recourse liabilities not due 3,723 3,403 Overdue recourse liabilities 0 30 days 5 10 Overdue recourse liabilities days 1 2 Overdue recourse liabilities days 1 1 Overdue recourse liabilities days 0 0 Overdue recourse liabilities > 360 days 0 0 Total 3,730 3, Bilia Annual Report 2008 Group

51 The three biggest customers account for 18.7 per cent (23.3) of the trade receivables, 94.5 per cent (95.0) of the instalment receivables and 2.0 per cent (2.0) of the recourse liabilities. Allowance account Group Trade receivables Instalment receivables Recourse liabilities Trade receivables Instalment receivables Recourse liabilities Opening balance Reversal of previous impairment losses Impairment losses for the year Translation difference 0 1 Closing balance NOTE 31 OPERATING LEASES Leases where the company is the lessee Non-cancellable lease payments amount to: Group Within one year Between one and five years 1,261 1,218 Later than five years 1,621 1,420 Total 3,226 2,970 Leases for premises, company cars and office equipment The Group s leases mainly pertain to premises for sales and servicing of cars and leasing of company cars and office equipment. At year-end 2008, the property leases covered about 390,000 sq.m. (393,000). In some cases, lease payments are fixed for periods of three months based on Stibor or Cibor. In other cases, lease payments are linked to a portion of the consumer price index or similar index. Leases can be extended in most cases. A few of the leases permit Bilia to acquire the asset at the expiry of the rental period. Income for sub-leased assets amounted to SEK 8 M (6) in Group Minimum lease payments Total lease costs Leases where the company is the lessor Assets that are leased under operating leases are recognised as property, plant and equipment. These assets consist of owned cars that are leased under operating leases and sold cars combined with a commitment to future repurchase at a guaranteed residual value. The future non-cancellable lease payments are as follows: Group Within one year Between one and five years Total The profit for 2008 includes rental income of SEK 164 M (167). A cost of SEK 14 M (11) is recognised for repairs and maintenance of leased cars. NOTE 32 CAPITAL COMMITMENTS Group During 2008 the Group concluded agreements to acquire SEK 5 M (8) worth of intangible non-current assets and property, plant and equipment. These commitments are expected to be settled during the following financial year. NOTE 33 PLEDGED ASSETS AND CONTINGENT LIABILITIES Recourse liability The Bilia companies have a repurchase commitment if lessees or borrowers default on their payment obligations for cars financed by Volvofinans Bank AB and brokered by Bilia. Bilia reserves a commission for cars brokered to Volvofinans Bank AB. The commission is received for the most part continuously over the term of the contract, and non-revenue commission attributable to financings with recourse liability not yet due amounts to about SEK 100 M. Credit losses for financings with recourse liability, which have historically been at a very low level, increased during 2008 and amounted to SEK 7 M (2). No need for additional provision for anticipated losses has been judged to exist, as the estimated market values of the cars are deemed to be at least equal to the recourse liability. Disputes From time to time, claims for payment have been made against Säfveån AB associated with the company s former business operations. In some cases, such claims have led to legal proceedings, but without success for the complainants. One proceeding is in progress. A claim has been made for about SEK 120 M, or SEK 90 M plus interest. It is Säfveån AB s opinion that these claims are largely unfounded. If Säfveån AB should nonetheless be obliged to pay compensation due to such a claim, the Bilia Group s risk is limited due to the fact that AB Volvo s now wholly-owned subsidiary KFAB pledged on Bilia s behalf to pay 43 per cent of any loss for Säfveån AB resulting from this claim when Bilia distributed all shares in KFAB to AB Volvo and Bilia s other shareholders in In a judgement handed down on 20 February 2008, the District Court of Gothenburg completely dismissed Pacta s claim against Säfveån AB. Säfveån was awarded compensation for litigation costs amounting to SEK 14 M. Pacta has appealed to the Court of Appeal. Bilia Annual Report 2008 Group 49

52 Note 33 cont d. The National Tax Board has questioned the deductibility for Bilia AB of costs and VAT associated with the previously described dispute related to the spin-off of KFAB in As a result, the Tax Board has imposed tax and additional charges on Bilia AB amounting to SEK 7 M. The company s judgement, which is shared by tax experts, is that Bilia has reported the costs and VAT in question in compliance with applicable tax rules and practice. Nevertheless, the company has set aside SEK 4 M for possible additional taxes. The Tax Board s decision has been appealed to the County Administrative Court. Pledged assets Group For own liabilities and provisions Real property 4 Floating charges 817 Leased vehicles and instalment receivables Assets 214 Documents and deposits Total pledged assets 1, Contingent liabilities Group Warranty obligations 6 6 Rent guarantees 1) Recourse liability 3,972 4,117 Total contingent liabilities 4,209 4,306 1) The amount pertains to rent guarantees pledged for Bilia AB s subsidiaries and Micro AB for the benefit of the property owners. The stipulated amount is the annual rent for leases of varying length. The leases expire between 2009 and NOTE 34 RELATED PARTIES Group Key management personnel consist of Board members, the Managing Director and other senior officers. Disclosures regarding wages, salaries and other remuneration to key management personnel are presented in Note 9, Employees and personnel costs. Other transactions are reported below: The company s Board members (Mats Qviberg and Sven Hagströmer) and their close family members control, directly and indirectly via Investment AB Öresund, approximately 41 per cent (39) of the votes in the company. Related party transactions Related party relationship Year Sale of goods and services to related parties Purchases of goods and services from related parties Commissions/ interest/ dividend Claim on related party at 31 December Debt to related party at 31 December Associated companies Associated companies Contingent liabilities for associated companies ,972 Contingent liabilities for associated companies ,117 Transactions with key management personnel are priced on market terms. Transactions with key management personnel The following compensation has been paid to key management personnel: Short-term employee benefits The total benefits are included in Personnel costs, see Note 9 Employees and personnel costs Board members 2 2 Senior officers Bilia Annual Report 2008 Group

53 NOTE 35 CASH FLOW STATEMENT Interest paid and dividends received Group Dividends received 0 0 Interest received 9 9 Interest paid Other financial items 9 25 Total Disposal of subsidiaries and other business units Disposal of assets and liabilities Intangible assets 25 Property, plant and equipment 623 Operating receivables 1 Cash and cash equivalents 1 Total assets 650 Depreciation/amortisation and impairment losses Group Depreciation/amortisation Impairment losses 37 7 Total Other items not affecting cash Group Capital gain/loss on sale of property, plant and equipment 124 Provisions for pensions Other Total Acquisition of subsidiaries and other business units Acquired assets and liabilities Intangible assets Property, plant and equipment Financial assets 8 43 Inventories Operating receivables Cash and cash equivalents 2 6 Total assets Provisions 6 49 Loans 33 Operating liabilities Total provisions and liabilities Capital gain/loss 124 Loans 217 Operating liabilities 39 Total provisions and liabilities 132 Sales price: 563 Less: Seller note 45 Purchase consideration received 518 Less: Cash and cash equivalents in disposed business 1 Impact on cash and cash equivalents 517 Unutilised credit facilities Unutilised credit facilities amount to NOTE 36 EVENTS AFTER THE BALANCE SHEET DATE Group The new issue which brought in SEK 100 M to Bilia before issue expenses of SEK 6 M was concluded in January The financial statements were approved for publication by the Parent Company s Board of Directors on 26 February Acquired net assets Purchase consideration: Purchase consideration paid Less: Cash and cash equivalents in acquired business 2 6 Impact on cash and cash equivalents Bilia Annual Report 2008 Group 51

54 NOTE 37 SIGNIFICANT ESTIMATES AND JUDGEMENTS Group The company s management has discussed with the Audit Committee the development, choice and disclosures concerning the Group s accounting principles and estimates, as well as the application of these principles and estimates. Certain critical accounting estimates that have been made in the application of the Group s accounting principles are described below. Goodwill The valuation has been based on impairment testing, which has in turn been based on five-year plans for the companies in question. See further Note 15 Intangible assets. Valuation of used cars Used cars are valued at the lower of their historical cost and net selling price. The net selling price is determined on the basis of the estimated selling price reduced by selling expenses. At yearend 2008, the historical cost exceeded the net selling price by SEK 50 M (36). Leases Guaranteed residual values Cars sold with guaranteed residual values are accounted for in the same manner as leased cars. The gross profit is realised gradually during the period up until the last date when the customer is entitled to invoke the guaranteed residual value. Estimates are periodically made of a future net selling price for cars sold with guaranteed residual values. If the estimated net selling price is less than the guaranteed residual value, the leased car s carrying amount is adjusted by the difference. Short- and long-term leasing Estimates are periodically made of future net selling prices. If the estimated net selling price is less than residual value according to the leasing calculation, the depreciation schedule is adjusted so that the residual value coincides with the net selling price at the end of the lease period. Service and repair contracts Under these contracts, Bilia carries out service and repairs for a monthly charge. The difference between revenue obtained and costs for service and repairs is recognised at the end of the contract period. The contracts are periodically analysed and provisions are made when the cost exceeds the revenue. Disputes Claims for damages In judging claims for payment that have from time to time been made against Säfveån AB associated with the company s business operations, Bilia consults legal experts who support Säfveån AB s opinion that these claims are largely unfounded. In a judgement handed down on 20 February 2008, the District Court of Gothenburg completely dismissed Pacta s claim against Säfveån AB. Pacta has appealed to the Court of Appeal. Taxes The National Tax Board has questioned the deductibility for Bilia AB of costs and VAT associated with the previously described dispute related to the spin-off of KFAB in As a result, the Tax Board has imposed tax and additional charges on Bilia AB amounting to SEK 7 M. The company s judgement, which is shared by tax experts, is that Bilia has reported the costs and VAT in question in compliance with applicable tax rules and practice. Nevertheless, the company has set aside SEK 4 M for possible additional taxes. The Tax Board s decision has been appealed to the County Administrative Court. For further information on disputes, see Note 33 Pledged assets and contingent liabilities. NOTE 38 INFORMATION ABOUT PARENT COMPANY Bilia AB (publ) is a Swedish-registered limited company domiciled in Göteborg (Gothenburg). The Parent Company s shares are registered on NASDAQ OMX Stockholm. The postal address to the head office is: Bilia AB (publ) Box 9003 SE Göteborg, Sweden Street address: Norra Långebergsgatan 3, Västra Frölunda Telephone: Corporate ID no.: The consolidated accounts for 2008 comprise the Parent Company and its subsidiaries, together called the Group. The Group also includes holdings in associated companies. 52 Bilia Annual Report 2008 Group

55 INCOME STATEMENT FOR PARENT COMPANY SEK M Note Net turnover Administrative expenses 3, Operating loss Result from financial items Result from interests in Group companies Other interest income and similar line items Interest expenses and similar line items Profit/loss after financial items Appropriations Profit/loss before tax Tax Net profit/loss for the year Bilia Annual Report 2008 Parent Company 53

56 BALANCE SHEET FOR PARENT COMPANY SEK M Note Assets 21, 24 Non-current assets Intangible assets 8 Intellectual property Property, plant and equipment 9 Equipment, tools, fixtures and fittings Long-term investments Interests in Group companies Other securities held as non-current assets Other long-term receivables Deferred tax asset Total non-current assets Current assets Current receivables Trade receivables 1 Receivables from Group companies 983 2,116 Other receivables Deferred expenses and accrued income ,015 2,125 Cash and bank balances Total current assets 1,104 2,185 Total assets 2,000 3, Bilia Annual Report 2008 Parent Company

57 BALANCE SHEET FOR PARENT COMPANY SEK M Note Equity and liabilities 21, 24 Equity 15 Restricted equity Share capital (21,459,255 shares) Statutory reserve Non-restricted equity Retained earnings Net profit/loss for the year Total equity 943 1,148 Untaxed reserves Provisions Provisions for pensions and similar obligations Non-current interest-bearing liabilities Debenture loan Liabilities to credit institutes 17, Liabilities to Group companies 20 Other liabilities Current liabilities Liabilities to credit institutes 17, Trade payables 15 4 Liabilities to Group companies Other liabilities Accrued expenses and deferred income ,208 Total equity and liabilities 2,000 3,164 Pledged assets and contingent liabilities for the Parent Company Pledged assets 25 1,535 None Contingent liabilities 25 1,117 1,019 Bilia Annual Report 2008 Parent Company 55

58 SUMMARY OF CHANGES IN PARENT COMPANY EQUITY SEK M Number of shares Restricted equity Non-restricted equity Share capital Statutory reserve Retained earnings Net profit/loss for the year Total equity Opening equity 1 Jan ,129, ,094 1,372 Buy-back of own shares (1,000,000 shares) Dividend (SEK 8.00 per share) Reduction of share capital 1,669, Group contributions and shareholders contributions Tax effect in Group contribution 2 2 Net profit for the year Closing equity 31 Dec ,459, ,148 Opening equity 1 Jan ,459, ,148 Dividend (SEK 8.00 per share) Group contributions and shareholders contributions Tax effect in Group contribution 3 3 Net loss for the year Closing equity 31 Dec ,459, Bilia Annual Report 2008 Parent Company

59 CASH FLOW STATEMENT FOR PARENT COMPANY SEK M Note Operating activities 27 Profit after financial items Other items not affecting cash 7 4 Tax paid 6 32 Cash flow from operating activities before change in working capital Change in operating receivables 16 7 Change in operating liabilities Cash flow from operating activities Investing activities Acquisitions and disposals Acquisition and disposal of financial assets Business combinations 350 Disposal of subsidiaries Cash flow from investing activities Remaining after net investments Financing activities New loans 380 1,144 Repayment of bank loans and other loans Shareholders contribution Buy-back of own shares 115 Dividend paid Group contributions paid 9 20 Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at year-end 1) ) Cash and cash equivalents SEK M Cash and bank balances Amount at year-end Bilia Annual Report 2008 Parent Company 57

60 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS Amounts in SEK M unless otherwise stated. NOTE 1 KEY ACCOUNTING PRINCIPLES The Parent Company has prepared its annual report in accordance with the Swedish Annual Reports Act (1995:1554) and the Swedish Financial Reporting Board s recommendation RFR 2.1 Accounting for Legal Entities. The statements regarding listed companies issued by the Swedish Financial Reporting Board are also applied. Under RFR 2.1, the Parent Company shall, in preparing the annual accounts for the legal entity, apply all IFRSs and statements approved by the EU whenever this is possible within the framework of the Annual Reports Act and the Act on Safeguarding of Pension Obligations, while taking account of the relationship between accounting and taxation. The recommendation stipulates what exceptions and supplements shall be made with respect to the IFRSs. Differences between Group and Parent Company accounting principles The differences between the Group and Parent Company accounting principles are presented below. The accounting principles for the Parent Company set forth below have been applied consistently to all periods presented in the Parent Company s financial statements. Presentation and formats The formats of the Parent Company s Income Statement and Balance Sheet conform to the schemes in the Annual Reports Act. The difference compared to IAS 1 Presentation of Financial Statements, which is applied to the presentation of the consolidated financial statements, lies mainly in the reporting of equity and the use of a separate heading for provisions in the Balance Sheet. Subsidiaries Interests in subsidiaries are accounted for in the Parent Company according to the cost method. Dividends received are only recognised as revenue provided that they derive from earnings earned after the acquisition. Dividends that exceed these earnings are regarded as a repayment of the investment and reduce the carrying amount of the interest. Revenue Rendering of services Revenue from the rendering of services is recognised in the Income Statement when the services have been rendered. Dividends Dividend income is recognised when the right to receive payment is judged to be certain. Financial instruments In the Parent Company, long-term investments are measured at cost less any impairment loss and short-term investments are measured at fair values. Financial instruments that are recognised in the Balance Sheet include on the asset side cash 58 Bilia Annual Report 2008 Parent Company and cash equivalents, loans receivable, trade receivables, financial investments and derivatives. Trade payables, loans payable and derivatives are posted on the liability side. Other financial liabilities This category consists of liabilities to credit institutions, debenture loan and trade payables. Financial liabilities that are not held for trading are valued at amortised cost. Derivatives In accordance with the rules in RFR 2.1, the Parent Company has chosen to apply (from 1 January 2005) Chap. 4 Section 14 a e of the Swedish Annual Reports Act, which permits currency and interest rate swaps to be measured at fair values. Financial guarantees The Parent Company s financial guarantees consist in the main of guarantees for the benefit of Group companies. Financial guarantees require the company to reimburse the holder of a debt instrument for losses the latter incurs due to the fact that a stipulated debtor fails to make payment when due under the terms of the contract. For accounting of financial guarantee contracts, the Parent Company applies one of the exemption rules allowed by the Swedish Financial Reporting Board, compared with the rules in IAS 39. The exemption rule pertains to financial guarantee contracts issued for the benefit of subsidiaries. The Parent Company recognises financial guarantee contracts as provision in the Balance Sheet when the company has an obligation for which payment is probably required to settle the obligation. Property, plant and equipment Property, plant and equipment in the Parent Company are recognised at cost less accumulated depreciation and any impairment losses in the same way as for the Group, but with the addition of any revaluations. Leased assets In the Parent Company, all leases are accounted for in accordance with the rules for operating leases. Employee benefits Defined-benefit plans In the Parent Company, different rules are applied to the calculation of defined-benefit plans than those given in IAS 19. The Parent Company follows the provisions of the Swedish Act on Safeguarding of Pension Obligations and the regulations of the Swedish Financial Supervisory Authority, since this is a prerequisite for tax deductibility. The most important differences compared with the rules in IAS 19 concern how the discount rate is determined, that calculation of the defined-benefit obligation is based on the current salary level without the assumption of future salary increases, and that all actuarial gains and losses are recognised in the Income Statement when they are incurred.

61 Taxes In the Parent Company, in contrast to the Group, untaxed reserves are recognised inclusive of deferred tax liability. In a similar manner, no allocation of part of appropriations is made to deferred tax expense in the Parent Company Income Statement. Group contributions and shareholders contributions for legal entities The company accounts for Group contributions and shareholders contributions in accordance with the statement from the Swedish Financial Reporting Board (UFR 2). Shareholders contributions are posted directly to the recipient s equity, and shares and interests to the donor s equity, to the extent impairment loss is not recognised. Group contributions are accounted for in accordance with their financial implications. This means that Group contributions that are paid for the purpose of minimising the Group s total tax are posted directly to retained earnings after deduction for their current tax effect. Group contributions that can be equated with dividends are accounted for as dividends. This means that Group contributions received and their tax effect are recognised in the Income Statement. Group contributions that can be equated with shareholders contributions are posted directly to the recipient s retained earnings, taking into account the current tax effect. The donor recognises the Group contribution and its tax effect as an investment in interests in Group companies, to the extent impairment loss is not recognised. NOTE 2 ALLOCATION OF REVENUES Parent Company Net turnover/function Computer and training services Other Total NOTE 3 EMPLOYEES AND PERSONNEL COSTS Sickness absence, % Parent Company Total sickness absence as a percentage of regular working hours Sickness absence of 60 days or more Sickness absence of up to 60 days Sickness absence broken down by gender, % 1) Men Women Sickness absence broken down by age category, % 1) 29 yrs years years ) Sickness absence as a percentage of total regular working hours for each group. Other information regarding the Parent Company s employees and personnel costs is furnished in Note 9 Employees and personnel costs. NOTE 4 OVERHEADS Fees and cost reimbursement to auditors Parent Company, SEK KPMG AB Auditing assignments Other assignments 1, Auditing assignments By auditing assignments is meant examination of the annual accounts, the accounting records and the administration of the Board of Directors and the Managing Director, other tasks that are incumbent upon the company s auditor to perform, and advice or other assistance arising from observations in connection with such examination or performance of such other tasks. All else is classified as other assignments. Other expenses Administrative expenses for the year do not include any items affecting comparability ( 2). NOTE 5 NET FINANCIAL ITEMS Parent Company Result from interests in Group companies Dividend Impairment 848 Capital gain on disposal of interests 73 5 Group contributions received Total Interest income and similar line items Interest income, Group companies Interest income, other 5 2 Exchange rate difference, cash and cash equivalents Change in value, derivatives Total Interest expenses and similar line items Interest expenses, Group companies Interest expenses, other Exchange rate difference, cash and cash equivalents Change in value, derivatives Interest part of pension costs for the year 1 1 Total NOTE 6 APPROPRIATIONS Parent Company Difference between recognised amortisation and amortisation according to plan: Intellectual property 2 3 Tax allocation reserves: Utilisation of tax allocation reserve, 2007 assessment 12 Provision to tax allocation reserve, 2008 assessment 33 Total Bilia Annual Report 2008 Parent Company 59

62 NOTE 7 TAXES Recognised in Income Statement Parent Company Current tax expense ( )/tax income (+) Tax expense/income for the period Deferred tax expense ( )/tax income (+) Deferred tax pertaining to temporary differences 4 1 Deferred tax resulting from changes in tax rates 1 Tax effect in Group contribution Total recognised tax expense 6 29 Parent Company 2008 (%) (%) 2007 Reconciliation of effective tax Profit/loss before tax Tax according to tax rate applicable to Parent Company Effect of changed tax rate for deferred tax 1 Tax effect of non-deductible expenses Tax effect of non-taxable revenues Recognised effective tax Parent Company Tax items posted directly to equity Tax effect in Group contribution 3 2 Total 3 2 Recognised in the Balance Sheet Deferred tax assets Deferred tax asset Parent Company Recognised deferred tax assets Deferred tax assets are attributable to the following: Pension provisions Tax assets Parent Company Balance as per 1 Jan Recognised in Income Statement Posted to equity Balance as per 31 Dec Pension provisions Interest-bearing liabilities 0 0 Tax effect in Group contribution Tax assets Parent Company Balance as per 1 Jan Recognised in Income Statement Posted to equity Balance as per 31 Dec Pension provisions Interest-bearing liabilities Tax effect in Group contribution Tax assets Bilia Annual Report 2008 Parent Company

63 NOTE 8 INTANGIBLE ASSETS Software, internally developed Software, acquired Total intellectual property Parent Company Accumulated costs At start of year Internally developed assets Acquisitions 1) Retirements Accumulated amortisation At start of year Repostings 2 2 Acquired amortisation 1) Retirements 2 2 Amortisation for the year Carrying amount at year-end ) During the year, Bilia AB acquired software from Bilia Personbilar AB and continued the previous amortisation plan. Amortisation Software, internally developed Software, acquired Total intellectual property Parent Company Administrative expenses NOT 9 PROPERTY, PLANT AND EQUIPMENT Equipment, tools fixtures and fittings Parent Company Accumulated costs At start of year Acquisitions 1) 4 1 Disposals and retirements Accumulated depreciation according to plan At start of year 10 9 Disposals and retirements 5 Acquired depreciation 1) 2 Depreciation for the year Accumulated impairment losses At start of year Carrying amount at year-end 3 2 1) During the year, Bilia AB acquired property, plant and equipment from Bilia Personbilar AB and continued the previous depreciation plan. Depreciation and impairment losses Depreciation and impairment losses are included on the following lines in the Income Statement: Depreciation Impairment losses Parent Company Administrative expenses 1 1 Leases for premises, company cars and office equipment The Parent Company s leases mainly pertain to premises for the head office and leasing of company cars and office equipment. At year-end 2008, the property leases covered about 1,000 sq.m.. In some cases, lease payments are fixed for periods of three months based on Stibor or Cibor. In other cases, lease payments are linked to a portion of the consumer price index or similar index. Leases can be extended in most cases. A few of the leases permit the Parent Company to acquire the asset at the expiry of the rental period. Leased assets that are sub-leased Income for sub-leased assets amounted to SEK 0 M (0) in Bilia Annual Report 2008 Parent Company 61

64 NOTE 10 SHARES AND INTERESTS IN GROUP COMPANIES Parent Company Accumulated costs At start of year 1,439 1,405 Acquisitions 351 Shareholders contribution Disposals Total 2,155 1,439 Accumulated impairment losses At start of year Impairment loss for the year 848 Total 1, Accumulated revaluations At start of year Total Carrying amount at year-end Specification of Bilia AB s and the Group s holdings of shares and interests in Group companies Subsidiaries Country Corporate ID no. Domicile Number of interests Carrying amount Stake in % Bilia Personbilar AB Sweden Göteborg 1,000, Netbil i Skandinavien AB Sweden Göteborg.Bilia Fordon Stockholm AB Sweden Stockholm 5, Bilia Center AB Sweden Göteborg 10, Hans Persson Fordon AB Sweden Göteborg 2, Hans Persson Fastighets AB Sweden Göteborg 5, Säfveån AB Sweden Göteborg 3,520, Bilia Personbil as Norway Oslo 150, Bilforum AS Norway Stavanger.Bilforum Finans AS Norway Stavanger Bilia Personvogne A/S Denmark Taastrup 45, Selandia Motor Company A/S Denmark Lyngby Ejendomsselskabet Hörskatten A/S Denmark Taastrup Bilia Holding AB Sweden Göteborg 160, Catena Automobile ALT HH GmbH Germany HRB Cologne Motoria Bil AB Sweden Göteborg 1, Sevonia AB Sweden Göteborg 25, AB Bilorama Sweden Göteborg 100, Bilia Danmark A/S 1) Denmark Taastrup 39 Other companies Carrying amount ) Bilia Denmark A/S was disposed of in Bilia Annual Report 2008 Parent Company

65 NOTE 11 OTHER SECURITIES HELD AS NON-CURRENT ASSETS Parent Company Accumulated costs At start of year Accumulated impairment losses At start of year Carrying amount at year-end 0 0 Share capital and premium Ordinary shares Thousands of shares Issued on 1 January 21,459 23,129 Reduction of shares 1,670 Issued on 31 December paid 21,459 21,459 As of 31 December 2008, the registered share capital comprised 21,459,255 ordinary shares (21,459,255). Holders of ordinary shares are entitled to a dividend that is established from year to year, and their shareholding entitles them to exercise one vote per share at the AGM. All shares have the same right to Bilia s remaining net assets. NOTE 12 OTHER LONG-TERM RECEIVABLES Parent Company Accumulated costs Additional promissory note loans 45 Carrying amount at year-end 45 Cash dividend After the balance sheet date, the Board of Directors proposed that no dividend be paid for financial year SEK 0.00 per ordinary share (8:00) NOTE 13 OTHER RECEIVABLES Parent Company Other receivables that are current assets Other 30 6 Total 30 6 NOTE 14 DEFERRED EXPENSES AND ACCRUED INCOME Parent Company Deferred expenses 2 2 Total 2 2 The dividend will be subject to adoption at the Annual General Meeting on 16 April Restricted reserves Restricted reserves may not be diminished by distribution of profits. Statutory reserve The purpose of the statutory reserve is to save some of the net profit for the year that is not used to cover a loss brought forward. Non-restricted equity Retained earnings Retained earnings consists of last year s non-restricted equity after any allocation to the statutory reserve and after any distribution of profits. Retained earnings and net profit for the year together comprise non-restricted equity, which is the amount that is available for distribution to the shareholders. NOTE 15 EQUITY Repurchased shares included in the equity item Retained earnings Carrying No. of shares amount Parent Company Opening repurchased shares 1,000,000 1,669, Repurchased during the year 1,000, Reduction for the year 1,669, Closing repurchased shares 1,000,000 1,000, NOTE 16 UNTAXED RESERVES Untaxed reserves: Parent Company Tax allocation reserve, 2007 assessment Tax allocation reserve, 2008 assessment Accumulated depreciation in excess of plan 5 3 Total untaxed reserves Bilia Annual Report 2008 Parent Company 63

66 NOTE 17 NOTE 18 PENSIONS Net liability LIABILITIES TO CREDIT INSTITUTIONS Parent Company Non-current liabilities Bank loans Current liabilities Overdraft facilities 217 Current portion of bank loans Total 549 1,287 Parent Company Pension liability 10 9 Other pensions 4 6 Total Of which credit insured via FPG/PRI: 10 9 Assets pledged for pension obligations None None Changes in net liability Net liability at beginning of year pertaining to pension obligations Cost recognised in the Income Statement for pensions under own auspices excluding taxes 1 2 Pension disbursements 1 1 Other change in capital value 1 Capital value of pension obligations pertaining to pensions under the company s own auspices at year-end Net pension obligations Costs for pensions Pensions under own auspices Cost excluding interest expense 1 1 Cost of pensions under own auspices 1 1 Pensions through insurance Insurance premiums 7 7 Subtotal 8 8 Special payroll tax on pension costs 1 1 Cost for credit insurance 0 0 Pension cost for the year 9 9 Recognised net cost attributable to pensions 9 9 Parent Company Costs for the year for defined-contribution plans 1) 8 8 1) Includes SEK 1 M (1) pertaining to ITP plan funded in Alecta, see above. For further information on pensions, equity compensation benefits and benefits to senior officers, see the Group s Note 9 Employees and personnel costs and Note 25 Pensions. NOTE 19 OTHER LIABILITIES Parent Company Non-current liabilities Debenture loan 87 Personnel fund 5 5 Total 92 5 Parent Company Current liabilities Value added tax 1 Tax deducted at source 1 1 Other Total Liabilities that fall due for payment more than five years after the balance sheet date Debenture loan 87 Personnel fund 5 5 Total 92 5 NOTE 20 ACCRUED EXPENSES AND DEFERRED INCOME Parent Company Accrued wages and salaries 5 4 Accrued social security contributions 4 4 Other accrued expenses Total Of the recognised net cost, SEK 1 M (1) is in operations and SEK 0 M (1) in net financial items. Defined-contribution plans The Parent Company has defined-contribution pension plans that are paid for entirely by the company. Payments are made to these plans on a regular basis in accordance with the rules in each plan. 64 Bilia Annual Report 2008 Parent Company

67 NOTE 21 MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE Fair value Fair value and carrying amount are shown in the following Balance Sheet: Parent Company Carrying amount Fair value Carrying amount Fair value Financial assets measured at fair value via the Income Statement Other assets/currency swaps Loan receivables and trade receivables Long-term investments, non-interest-bearing Available-for-sale financial assets Trade and other receivables 1,047 1,047 2,123 2,123 Cash and cash equivalents Financial liabilities measured at fair value via the Income Statement Other liabilities/currency swaps Other financial liabilities Debenture loan Bank loans ,070 1,070 Personnel fund Trade payables and other liabilities Overdraft facilities Calculation of fair value For a summary of the methods and assumptions that have mainly been used to determine fair value, see Group Note 29 Measurement of financial assets and liabilities at fair value. NOTE 22 FINANCIAL RISKS AND FINANCE POLICY Bilia AB Investments All investments of temporary excess liquidity must have high liquidity and low credit risk. Short-term investments may be made in instruments and with counterparties included in a list issued by the Managing Director of Bilia AB. The list is prepared to meet the following requirements: Short-term investments may be made in Swedish government securities with high liquidity with no limit on amounts. Short-term investments may be made in Swedish banks, no more than SEK 300 M per bank, with a commitment period of no more than 90 days. Short-term investments may be made in securities assigned a rating of K1 by Nordisk Rating and with a remaining maturity of no more than 90 days, to an amount of no more than SEK 50 M per issuer. For further information see the Group Note 30 Financial risks and finance policies. Shares in subsidiaries The Parent Company s shareholdings in the non-swedish subsidiaries entail a currency exposure for Bilia, called translation exposure. All decisions regarding hedging of the translation exposure of shareholdings in the non-swedish Group companies must be approved by the Board of Directors of Bilia AB. At present, Bilia AB does not hedge its shareholdings in foreign currencies. Maturity structure Interest-bearing financial liabilities. The following table shows the maturity structure of the financial liabilities on the balance sheet date. Parent Company Lender Nominal amount currency Total amount Within 1 mth 1 3 mths 3 mths 1 yrs 1 5 yrs 5 yrs and longer Nominal amount currency Total amount Within 1 mth 1 3 mths 3 mths 5 yrs and 1 yrs 1 5 yrs longer Currency Handelsbanken SEK Nordea SEK Nordea NOK Nordea DKK SEB SEK Nordea/Handelsbanken (Club deal) SEK Debenture loan SEK Personnel fund SEK Total ,292 1,287 5 Bilia Annual Report 2008 Parent Company 65

68 NOTE 23 OPERATING LEASES Leases where the company is the lessee Non-cancellable lease payments amount to: Parent Company Within one year 1 2 Between one and five years 3 0 Total 4 2 Leases for premises, company cars and office equipment The Parent Company s leases mainly pertain to premises for the head office and leasing of company cars and office equipment. At year-end 2008, the property leases covered about 1,000 sq.m (1,500). In some cases, lease payments are fixed for periods of three months based on Stibor or Cibor. In other cases, lease payments are linked to a portion of the consumer price index or similar index. Leases can be extended in most cases. A few of the leases permit the Parent Company to acquire the asset at the expiry of the rental period. Income for sub-leased assets amounted to SEK 0 M (0) in Parent Company Minimum lease payments 2 1 Total lease costs 2 1 NOTE 24 CAPITAL COMMITMENTS Parent Company In 2008 the Group entered into agreements to acquire intangible non-current assets for SEK 1 M ( ). NOTE 25 Parent Company PLEDGED ASSETS AND CONTINGENT LIABILITIES Disputes The National Tax Board has questioned the deductibility for Bilia AB of costs and VAT associated with the previously described dispute related to the spin-off of KFAB in As a result, the Tax Board has imposed tax and additional charges on Bilia AB amounting to SEK 7 M. The company s judgement, which is shared by tax experts, is that Bilia has reported the costs and VAT in question in compliance with applicable tax rules and practice. Nevertheless, the Group has set aside SEK 4 M for possible additional taxes. The Tax Board s decision has been appealed to the County Administrative Court. Pledged assets Parent Company For own liabilities and provisions Floating charges 750 Shares in subsidiaries 785 Total pledged assets 1,535 Contingent liabilities Parent Company Warranty obligations 0 Rent guarantees 1) Guarantee for the benefit of subsidiaries Total contingent liabilities 1,117 1,019 1) The amount pertains to SEK 229 M (182) in rent guarantees pledged for Bilia AB s subsidiaries and SEK 2 M (2) for Micro AB for the benefit of the property owners. The stipulated amount is the annual rent for leases of varying length. The leases expire between 2009 and Bilia Annual Report 2008 Parent Company

69 NOTE 26 RELATED PARTIES Parent Company The Parent Company has a related party relationship with its subsidiaries, see Note 10 Shares and interests in Group companies. Key management personnel consist of Board members, the Managing Director and other senior officers. Disclosures regarding wages, salaries and other remuneration to key management personnel are presented in Note 9 Employees and personnel costs. Other transactions are reported below: The company s Board members (Mats Qviberg and Sven Hagströmer) and their close family members control 41 (39) per cent of the votes in the company. Related party transactions Related party relationship Year Sale of goods and services to related parties Purchases of goods and services from related parties Commissions/ interest/ dividend Claim on related party at 31 December Debt to related party at 31 December Subsidiaries Subsidiaries , Contingent liabilities for subsidiaries ,115 Contingent liabilities for subsidiaries ,017 Transactions with key management personnel are priced on market terms. Transactions with key management personnel The following compensation has been paid to key management personnel: Short-term employee benefits 9 8 NOTE 27 CASH FLOW STATEMENT Interest paid and dividends received Parent Company Dividends received and Group contributions Interest received Interest paid Total Adjustment for non-cash items Parent Company Depreciation/amortisation 6 3 Provisions for pensions 1 1 Total 7 4 Acquisition of assets and liabilities and businesses Parent Company Acquired assets and liabilities Shares in subsidiaries Fastighetsbolaget motorspinnaren AB 0 Bilia Center AB 124 Hans Persson Fordon AB 20 Hans Persson Fastighets AB 146 Bilia Personvogne A/S 40 Ejendomsselskabet Hörskatten A/S 10 Selandia Motor Company A/S 10 Total assets 350 Acquired net assets 350 Disposal of assets and liabilities and businesses Parent Company Disposal of assets and liabilities Shares in subsidiaries Bilia Personbilar i Västerås AB 6 Bilia Fordon AB 15 Bilia Personbilar i Enköping AB 0 Bilia Danmark A/S 0 Bilia Fordon Stockholm AB 12 Total assets Disposal of net assets Purchase consideration: Purchase consideration received Impact on cash and cash equivalents Unutilised credit facilities Unutilised credit facilities amount to NOTE 28 EVENTS AFTER THE BALANCE SHEET DATE Parent Company The new issue which brought in SEK 100 M to Bilia before issue expenses of SEK 6 M was concluded in January The financial statements were approved for publication by the Parent Company s Board of Directors on 26 February Purchase consideration: Purchase consideration paid 350 Impact on cash and cash equivalents 350 Bilia Annual Report 2008 Parent Company 67

70 SIGNATURES The Board of Directors and the Managing Director ensure that the annual accounts have been prepared in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in accordance with the international accounting standards referred to in Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards. The annual accounts and the consolidated accounts give a true and fair view of the Parent Company s and the Group s financial position and results of operations. The Directors Report for the Parent Company and the Group provides a true and fair summary of the development of the Parent Company s and the Group s activities, financial position and results of operations while describing significant risks and uncertainties faced by the Parent Company and the companies included in the Group. Göteborg, 26 February 2009 Mats Qviberg Chairman Jack Forsgren Heinrich Blauert Sven Hagströmer Board member Board member Board member Ingrid Jonasson Blank Gerard Versteegh Jon Risfelt Board member Board member Board member Mats Holgerson Eva Cederbalk Patrik Nordvall Board member Board member Board member appointed by employee organisation Tommy Strandhäll Board member appointed by employee organisation Jan Pettersson Managing Director, CEO and Board member Our Audit Report was submitted on 27 February 2009 KPMG AB Johan Dyrefors Authorised Public Accountant The annual report and the consolidated accounts were approved for publication by the Board of Directors on 26 February The Consolidated Income Statement and Balance Sheet and the Parent Company Income Statement and Balance Sheet will be subject to adoption at the Annual General Meeting of Shareholders (AGM) that will be held on 16 April Bilia Annual Report 2008

71 AUDIT REPORT To the Annual General Meeting of the Shareholders of Bilia AB Corp. ID no We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the Managing Director of Bilia AB for The annual accounts and the consolidated accounts are included in the printed version of this document on pages These accounts and the administration of the company are the responsibility of the Board of Directors and the Managing Director, who also ensure that the annual accounts are prepared in compliance with the Swedish Annual Accounts Act and that the consolidated accounts are prepared in compliance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the Swedish Annual Accounts Act. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We have conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles and their application by the Board of Directors and the Managing Director and significant estimates made by the Board of Directors and the Managing Director when preparing the annual accounts and consolidated accounts, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we have examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the Managing Director. We have also examined whether any board member or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Reports Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion as set out below. The annual accounts have been prepared in accordance with the Annual Reports Act and give a true and fair view of the Company s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with International Financial Accounting Standards, IFRSs, as adopted by the EU and the Swedish Annual Accounts Act and give a true and fair view of the Group s results of operations and financial position. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the Annual General Meeting of Shareholders that the Income Statements and Balance Sheets of the Parent Company and the Group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposal in the Directors Report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Göteborg, 27 February 2009 KPMG AB Johan Dyrefors Authorised Public Accountant Bilia Annual Report

72 FIVE-YEAR REVIEW SEK M, unless otherwise stated ) Income Statement Net turnover 11,592 12,074 14,056 15,402 14,280 Operating profit/loss, excluding items affecting comparability Operating profit/loss Net financial items Profit/loss before tax Tax Profit/loss for the year from continuing operations Profit/loss from discontinued operation Net profit/loss for the year Balance Sheet Equity 1,490 1,286 1,684 1,507 1,229 Balance sheet total 5,103 5,962 6,064 7,043 5,414 Capital employed 1,898 2,498 2,175 3,190 2,485 Net debt 317 2) , Net debt/equity, times ) Cash Flow Statement Cash flow from operating activities Investments and disposals in non-current assets, including leased assets Key ratios Return on capital employed excluding items affecting comparability, % Return on capital employed, % Return on equity, % ) Operating margin, excluding items affecting comparability, % Operating margin, % Interest coverage ratio, times Profit margin, % Equity/assets ratio, % ) Rate of capital turnover, times Per share data Earnings/loss per share, SEK Equity per share, SEK ) Cash flow from operating activities, SEK Dividend per share, SEK ) Share price at year-end, SEK P/E ratio, times Other information Wages, salaries and other remuneration 1,011 1,089 1,291 1,414 1,414 Employees 2,927 2,888 3,063 3,536 3,304 1) Bilia s property portfolio, Catena AB, was spun off and the shares distributed to Bilia s shareholders in April ) Calculated excluding subordinated shares of Series C. 3) No proposed dividend. For information on calculations of the number of shares, see Data per share under the section headed The Bilia share. 70 Bilia Annual Report 2008

73 Net turnover, SEK M 5,000 4,000 3,000 2,000 1, Q1 Q2 Q3 Q4 Operating profit/loss, excluding items affecting comparability, SEK M Q1 Q2 Q3 Q4 Net turnover declined progressively from quarter to quarter in Excluding acquisitions and currency effects, net turnover decreased by 2 per cent during the first quarter, 4 per cent during the second quarter, 18 per cent during the third quarter and 28 per cent during the fourth quarter. The decrease is mainly attributable to lower car sales. Demand for new cars in particular declined during the year. All quarterly earnings figures were at a lower level compared with the last two years. The Car Business has deteriorated considerably due to lower sales of new cars and lower margins in sales of used cars. Profit/loss before tax, SEK M Q1 Q2 Q3 Q4 Loss before tax for the fourth quarter amounted to SEK 146 M (profit: 38). If items of a non-recurring nature are excluded, loss before tax was SEK 6 M (profit: 61). The quarter was particularly affected by structural costs, SEK 96 M ( 15), impairment of goodwill, SEK 29 M ( ), and costs for bank agreements and a new issue, SEK 16 M ( ). Return on equity, % Capital employed, SEK M Return on equity amounted to 8.0 per cent (6.3). The goal for return on equity is at least 15 per cent. 5,000 4,000 3,000 2,000 1, Capital employed increased by SEK 705 M to SEK 2,485 M (3,190). Acquisitions account for about SEK 45 M. Inventories decreased by about SEK 850 M and other operating assets decreased by about SEK 925 M. Interest-bearing assets increased by about SEK 45 M, while operating liabilities decreased by about SEK 1,040 M. Net debt/equity, times Equity/assets ratio, % The ratio of net debt to equity improved during the year and amounted to 0.67, compared with 0.81 last year The equity/assets ratio increased during the year, amounting to 22.7 per cent (21.4). Return on capital employed, % Return on capital employed decreased to 0.6 per cent from 7.8 per cent last year. Return on capital employed excluding items affecting comparability amounted to 1.4 per cent (8.2). The goal for return on capital employed is at least 14 per cent. Bilia Annual Report

74 DEFINITIONS Average number of employees Paid hours worked in relation to normal annual working hours worked in each country. Capital employed Balance sheet total less non-interest-bearing current liabilities and provisions as well as deferred tax liability. Dividend yield Dividend in relation to the average share price during the year. EBITDA/net interest expense Operating profit excluding items affecting comparability plus depreciation (excluding depreciation attributable to repurchase agreements) in relation to net financial items excluding items affecting comparability and the part of interests in the profits of associated companies that does not affect cash. Equity/assets ratio Equity in relation to balance sheet total. Net debt Net debt consists of interest-bearing liabilities less cash and cash equivalents, interest-bearing current and longterm receivables and leased vehicles. Operating margin Operating profit in relation to net turnover. Operational capital employed All non-interest-bearing assets less non-interest-bearing current liabilities and provisions. Payout ratio Dividend in relation to profit for the year. Price/Earnings ratio Share price at year-end in relation to earnings per share. Price/equity ratio Share price at year-end in relation to equity per share. Profit margin Net profit for the year in relation to net turnover. Rate of capital turnover Net turnover in relation to average balance sheet total. Return on capital employed Operating profit plus interest expense included in the business and financial income in relation to average capital employed (see definition above). Return on equity Net profit for the year in relation to average equity. Return on operational capital employed Operating profit plus financial income, and a certain reduction for companies that include financing in their own Balance Sheet, in relation to average operational capital employed (see definition above). Tax The division of untaxed reserves into deferred tax liability and retained earnings has been done on the basis of a tax rate of 26.3 per cent. Value added Operating profit excluding items affecting comparability plus payroll expenses, including payroll overheads. 72 Bilia Annual Report 2008

75 THE BILIA SHARE Bilia s A-share has been listed on NASDAQ OMX Stockholm since In October 2003 it moved to the O-list, where it is found under the Small Cap heading in NASDAQ OMX Stockholm s list system. The share is traded under the ticker code BILI A and is in cluded in NASDAQ OMX Stockholm s SX 25 Consumer Discretionary index. One round lot is 100 shares. At 31 December 2008, the share capital amounted to SEK 215 M (215), divided among 21,459,255 Series A shares. The quotient value is SEK 10 per share. Each share represents one vote. All Series A shares are entitled to an equal share in Bilia s assets and profits. Total return 83 per cent in 2008 During 2008 the NASDAQ OMX Stockholm Consumer Discretionary index fell by 33.5 per cent. The Bilia share fell from SEK to during the year. The highest price paid, SEK , was quoted on 8 January The lowest price paid was SEK on 22 December Bilia s shareholders received a total return of 83 per cent ( 1.4) in The calculation is based on share price performance and reinvestment of the dividend (SEK 8.00). Bilia s market capitalisation at year-end was SEK 345 M (2,200), based on the total number of shares. A total of 7.8 million Bilia shares (10.2) were traded in 2008 at a value of SEK 415 M (1,200). This turnover represented 38 per cent (48) of the weighted average number of shares. By comparison, the turnover rate on NASDAQ OMX Stockholm was 152 per cent. The P/E ratio based on the loss in 2008 was 3, compared with 22 for Beta coefficient The volatility of the price of a single share compared with the volatility of the stock market as a whole is known as the beta coefficient, or beta. If the beta is greater than 1, this means that the share price fluctuates more than the average for the exchange. A value less than 1 indicates that the share is less sensitive than the exchange as a whole. The Bilia share s beta for the past five years is This means that the price fluctuations for the Bilia share have been lower than the average price fluctuations on NASDAQ OMX Stockholm. Number of shareholders declines Bilia had 22,144 shareholders at the end of 2008, compared with 25,282 a year earlier. Most shareholders own relatively small lots. Of the shareholders, 95.6 per cent (96.4) owned fewer than 1,000 shares. The proportion of institutional ownership amounted to 19.2 per cent (15.4), while the proportion of foreign ownership amounted to 10.0 per cent (14.7). Among others, Investment AB Öresund and Mats Qviberg with family increased their holdings in Bilia during the year. Together with HQ funds, they were the three largest shareholders in the company at the end of the year. Dividend policy Over a business cycle, Bilia s dividend should provide the shareholders with a competitive dividend yield in comparison with similar listed companies. Good dividend growth is also striven for, and the dividend should amount to at least 50 per cent of the net profit for the year. Bilia s earning capacity, cash flow, investment needs and overall financial position are also taken into account when determining the size of the dividend. An effort is also made to ensure that Bilia has an optimal capital structure at any given time. No proposed dividend The Board of Directors proposes to the AGM of 16 April 2009 that no dividend be paid for the financial year 2008 (8.00). Proposed buy-back of own shares The Board of Directors proposes that the AGM authorise the Board to resolve to buy back Bilia shares over NASDAQ OMX Stockholm, as long as the company s own holding never exceeds 10 per cent of the total number of shares. Option programme In 2008, Investment AB Öresund issued share options for a total of 170,000 shares in Bilia AB to the Group Management and a number of key employees. The options expire in November 2015 and the exercise price is SEK 20 per share. The option programme does not entail any dilution for Bilia s shareholders. The senior officers paid SEK 2 per option, which is the estimated market value. In September 2007, Investment AB Öresund issued share options for 210,000 shares in Bilia AB. The options have a term of three years and the exercise price is SEK 120 per share. The price per option is SEK 5. The participants in the option programme are Board members, members of the Group Management and a number of key employees, altogether 42 persons. The participants have purchased between 2,000 and 10,000 share options each. The option programme does not entail any dilution for Bilia s shareholders. In 2006, Investment AB Öresund issued share options for a total of 200,000 shares in Bilia AB to 45 senior officers in the Bilia Group. The options have a term of three years, expiring on 31 May 2009, and an exercise price of SEK 110 per share. The option programme does not entail any dilution for Bilia s shareholders. The senior officers paid SEK 5 per option, which is the estimated market value. Since the issue, six persons have exercised their options. Bilia Annual Report

76 The Bilia share cont d. Persons with insider status Trading in shares by persons with insider status in the company is called insider trading. The law requires such trading to be reported to the Swedish Financial Supervisory Authority. Bilia is obligated to report which persons have insider status to the Swedish Financial Supervisory Authority. These individuals must report their shareholdings and any changes in them. Certain closely-related natural persons and legal entities are also covered by the reporting obligation. The major shareholders, board members, secretary to the board, auditors, management group and certain employees in the accounting and finance departments are considered to have insider status in Bilia. A complete list of persons with insider status can be found on the Swedish Financial Supervisory Authority s website at Shareholder information Bilia s information to the stock market and its shareholders should be characterised by correctness, relevance, openness and speed. Shareholders wishing to receive the annual report and half-year reports directly through the mail should notify VPC AB. Bilia s press releases, quarterly reports and annual reports are available under the Investor Relations tab at Additional information on the company, its financial performance and the Bilia share can also be found there. It is also possible to subscribe to press releases and send queries directly to the company online. Analyses of Bilia The Bilia share is analysed above all by Swedish brokerage houses and banks. The following analysts cover Bilia regularly: Stefan Cederberg, Enskilda Securities, Mats Liss, Swedbank Markets, Patric Lindqvist, Hagströmer & Qviberg, Andreas Lundberg, Handelsbanken, Data per share Earnings/loss, SEK ) ) ) 5.35 Equity, SEK 1) Cash flow from operating activities, SEK ) ) ) Share price at year-end, SEK P/E ratio, times Price/equity ratio, % Dividend yield, % Dividend, SEK ) Payout ratio, % ) Calculated based on the number of shares outstanding at the end of each year. For 2008 and 2007 the number of shares outstanding was 20,459,255, for 2006 it was 21,459,255, and for 2005 and 2004 it was 23,129,155. 2) Calculated after buy-back of 2,569,906 shares during May-June, resulting in a weighted average number of shares of 24,139,415. 3) Calculated after buy-back of 1,669,900 shares during February-December, resulting in a weighted average number of shares of 22,461,755. 4) Calculated after buy-back of 1,000,000 shares during August, resulting in a weighted average number of shares of 21,063,501. 5) No proposed dividend. 74 Bilia Annual Report 2008

77 Turnover of Bilia share 3,500 3,000 2,500 2,000 1,500 1, Number of shares traded, 000 (incl. after-hours trading) Source: NASDAQ OMX Total return of Bilia share Price of Bilia share Series A share, SEK OMX Stockholm PI Source: NASDAQ OMX Series A share, SEK OMX Stockholm PI Source: NASDAQ OMX Change in share capital Year No. of shares Change Share capital, SEK M Change, SEK M Reason ,000, ,000,000 6,000, Bonus issue ,032,486 32, New issue at conversion ,046,667 14, New issue at conversion ,076,925 30, New issue at conversion ,674,669 10,597, New issue at conversion ,554,512 3,120, Share buy-back ,400,490 1,154, Share buy-back/reduction ,699,061 1,701, Share buy-back/reduction ) 60,845,603 35,146, Share buy-back/reduction/lowering of par value of share/subordinated shares, Series C ,129,155 37,716, Redemption subordinated shares, Series C ,459,255 1,669, Share buy-back/reduction 1) Of which subordinated shares, Series C, 37,716,448 shares, SEK 377 M. Bilia Annual Report

78 The Bilia share cont d. Ownership by categories, % Öresund, 26 (25) Swedish private > 500, 25 (23) Swedish private < 500, 10 (9) Swedish unit trusts, 10 (13) Foreign owners, 10 (15) Swedish institutions, 19 (15) Distribution of shares, 31 Dec Shareholding Total number of shareholders Per cent of total number of shareholders Combined ownership no. of shares Per cent of share capital 1 1,000 21, ,144, ,001 10, ,460, , , ,205, , ,649, Total number of shareholders 22, ,459, Ten largest shareholders 2008 Total Stake, per cent Investment AB Öresund 5,682, Mats Qviberg and family 1,424, HQ fonder 1,408, Bilia AB repurchased own shares 1,000, Lannebo fonder 670, AB Traction 652, Arne Bergström 650, Andra AP-fonden 314, SEB Private Bank S.A. NQI 230, CBNY-DFA-INT SML CAP V (formerly Citibank) 227, Total 12,261, Remaining shareholders 9,197, Total number of shares 21,459, Bilia Annual Report 2008

79 BOARD OF DIRECTORS Mats Qviberg born 1953, Chairman Education: M.Sc. in Business Administration from the Stockholm School of Economics. Work experience: SEB , Carnegie Current posts: Chairman of HQ AB. Deputy chairman of Investment AB Öresund. Member of the boards of Fabege AB and SkiStar AB. Shareholding in Bilia AB: 1,443,200 shares and 507,050 warrants (with family). Elected to the Board of Bilia AB: Member since Independence: Considered to be dependent in relation to Bilia s major shareholders, but independent in relation to Bilia. Drives: Volvo V70 Ingrid Jonasson Blank born 1962 Education: M.Sc. in Business Administration from the School of Business, Economics and Law in Göteborg. Work experience: Active in the ICA Group since Current posts: Executive Vice President, ICA Sverige AB. Member of the boards of Sveriges Annonsörer AB, Forma Publishing Group AB and a number of ICA AB s subsidiaries. Shareholding in Bilia AB: 25,000 call options. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Porsche Heinrich Blauert born 1941, Chairman of the Audit Committee Education: Bachelor of Laws. Work experience: Legal counsel at AB Volvo , Managing Director of Ernst Nilsson AB , Managing Director of Association of Swedish Engineering Industries Current posts: Chairman of the Foundation of the Museum of Science and Technology in Stockholm. Member of the board of Stora Fonden for the National Museum of Science and Technology. Shareholding in Bilia AB: 4,000 shares, 6,000 call options and 1,000 warrants. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Volvo XC70 Eva Cederbalk born 1952 Education: M.Sc. in Business Administration from the Stockholm School of Economics. Work experience: SEB , MD of Dial Försäkring AB , head of e-business at If Skadeförsäkring AB and MD of Netgiro International AB Current posts: MD of SBAB, Sveriges Bostadsfinansierings AB. Member of the boards of Bostadsgaranti AB and Försäkrings AB Bostadsgaranti. Shareholding in Bilia AB: 25,000 call options. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: BMW X3 Jack Forsgren born 1945, Chairman of the Compensation Committee Education: M.Sc. (Political Science) Work experience: Managing Director and CEO of Mölnlycke AB and of Nobel Biocare AB. Current posts: Chairman of Unfors Instruments AB and Maquire AB. Deputy chairman of the Swedish Exhibition Centre. Member of the boards of Stampen AB, Chalmers Industriteknik, Liberala Tidningar AB and Promedia AB. Shareholding in Bilia AB: 6,000 shares, 25,000 call options and 1,500 warrants. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Volvo V70 Sven Hagströmer born 1943 Education: Studies at Stockholm University. Work experience: Gränges , Investor , Hagströmer & Qviberg AB Current posts: Chairman of Investment AB Öresund, Avanza AB and ework AB. Shareholding in Bilia AB: 15,000 shares and 3,750 warrants. Elected to the Board of Bilia AB: Member since Independence: Dependent in relation to Bilia s major shareholders, but independent in relation to Bilia. Drives: Volvo XC60 Mats Holgerson born 1953 Education: M.Sc. in Business Administration from the Stockholm School of Economics. Work experience: Esso , Statoil (MD of Statoil Norge ), MD of Dial Försäkring , MD of Statoil Detaljhandel Skandinavia and MD of Menigo Food Service Current posts: Chief Operating Officer of ICA AB. Member of the board of Hemtex AB. Shareholding in Bilia AB: 25,000 call options. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Volvo V50 Jan Pettersson born 1949, MD Education: Degree in economics from Stockholm University Work experience: Active in the motor vehicle industry since 1973, Kinnevik Group , Managing Director of Toyota and Svensk Motor AB Current posts: Managing Director and CEO of Bilia AB since 10 June Member of the boards of Active Driving AB, Volvofinans Bank AB and the Swedish Automobile Servicing and Retailing Employers Association (MAF). Shareholding in Bilia AB: 120,000 shares (with family), of which 50,000 via endowment insurance, 66,000 call options and 28,750 warrants via endowment insurance. Elected to the Board of Bilia AB: Member since Independence: Dependent in relation to Bilia, but independent in relation to Bilia s major shareholders. Drives: Volvo XC70 Bilia Annual Report

80 Board of Directors cont d. Jon Risfelt born 1961 Education: M. Eng. in Chemical Engineering, Royal Institute of Technology. Work experience: Ericsson, SAS, American Express, Nyman & Schultz, Europolitan and Gambro Renal. Current posts: Chairman of Wayfinder AB and Ortvius AB. Member of the boards of TeliaSonera AB, AB Ångpanneföreningen and Enea AB. Shareholding in Bilia AB: 3,500 shares, 21,500 call options and 875 warrants. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Volvo V70 Gerard Versteegh born 1960 Education: M.Sc. in Business Administration from Stockholm University. Work experience: Arbuthnot Latham Bank Current posts: Working chairman of Commercial Estates Group Ltd. Member of the boards of Alm Equity AB and Neonet AB. Shareholding in Bilia AB: 11,700 shares and 10,000 call options. Elected to the Board of Bilia AB: Member since Independence: Yes. Drives: Vespa GTS Tommy Strandhäll born 1970 Education: Vocational training in vehicle technology. Work experience: Employed by Bilia since 1988, training project at Metall (Swedish Metalworkers Union) and LO (Swedish Trade Union Confederation). Current posts: President of local branch of Metall in Göteborg and president of the Group union Bilia LO branches Sweden. Shareholding in Bilia AB: Elected to the Board of Bilia AB: Appointed by the LO branches in the Bilia Group since Drives: Ford Fiesta ST Patrik Nordvall born 1967 Education: Process engineering training and IHM Business School Senior training. Work experience: Employed by Bilia since 1986 and currently head of the real estate department in Stockholm. Current posts: Shop steward in Bilia Personbilar AB, Region Öst and in the Group. Shareholding in Bilia AB: 126 shares. Elected to the Board of Bilia AB: Appointed by the PTK (Council for Negotiation and Co-operation) branches in the Bilia Group since Drives: Volvo V40 Dragan Mitrasinovic born 1958 Education: Vocational training in vehicle technology. Work experience: Employed by Bilia since Current posts: President of Bilia s local branch in Stockholm. Shareholding in Bilia AB: 7 shares. Elected to the Board of Bilia AB: Appointed deputy member by the LO branches in the Bilia Group since Drives: Volvo V70 Lennart Welin born 1951 Education: Vocational school and IHM Senior training. Work experience: Employed by Bilia since Current posts: Quality and environmental coordinator at Bilia Personbilar, Region Väst and Syd. Shareholding in Bilia AB: 2 shares. Elected to the Board of Bilia AB: Appointed deputy member by the PTK branches in the Bilia Group since Drives: Renault Laguna Auditors KPMG AB re-elected as public accounting firm by the 2008 AGM for the period up until the 2012 AGM. Johan Dyrefors, born 1969, Authorised Public Accountant, KPMG and member of FAR SRS. Auditor in charge in Bilia since Lars Bertén, born 1948, Authorised Public Accountant, KPMG and member of FAR SRS. Chief of audit since Bilia Annual Report 2008

81 CORPORATE GOVERNANCE REPORT General Meeting of Shareholders The Annual General Meeting of Bilia AB is the highest decision-making body in the Bilia Group. At the AGM the shareholders exercise their right to vote in order to make decisions regarding the composition of the Board and in other important matters. The instructions issued by the AGM in 2006 are followed for the nomination of Board members. The AGM is regulated by the Swedish Companies Act, the Articles of Association and the Swedish Code of Corporate Governance. General Meetings of Shareholders in 2008 Bilia s Annual General Meeting of 17 April 2008 approved the proposed cash dividend of SEK 8.00 per share (8.00) with a record date of 22 April The AGM decided to re-elect the Board members Heinrich Blauert, Ingrid Jonasson Blank, Eva Cederbalk, Jack Forsgren, Sven Hagströmer, Mats Holgerson, Jan Pettersson, Jon Risfelt and Mats Qviberg and to elect Gerard Versteegh for the first time. The AGM re-elected Mats Qviberg as Chairman. The AGM decided unanimously to authorise the Board to buy back the company s own shares and to approve the transfer of such acquired shares as payment in conjunction with a possible company acquisition or by direct sale on the stock exchange. The Board s fee was set at the same level as last year and principles for compensation to the Group Management were approved. KPMG AB was re-elected as the public accounting firm, with Johan Dyrefors as auditor in charge. On 1 December 2008 an extraordinary shareholders meeting was held and the shareholders approved the decision of the Board to issue subordinated debentures and warrants in the form of units. One unit consisted of one subordinated debenture with a nominal value of SEK 20 with a maturity of 7 years and 7 per cent annual interest plus a warrant with an exercise price of SEK 20 and a maturity of 7 years. The new issue brought in SEK 100 M to Bilia before issue expenses, and if the warrants are fully exercised the company s share capital will increase by SEK 50 M to SEK 265 M over the coming seven years. Nominating Committee The Nominating Committee submits proposals to the AGM for Board members and auditors (if an election is forthcoming) and for fees to be paid to the Board members and the auditors. The committee is also supposed to propose fees for the work of Board members in special committees. The Nominating Committee has five members, including the Chairman of the Board, Mats Qviberg. Six months before the AGM, the four largest shareholders each appoint one person to the Nominating Committee. The members of the Nominating Committee appoint a chairman. Stefan Dahlbo, Investment AB Öresund (chairman of the committee), Mats Gustafsson, Lannebo Funds, Hans Hedström, HQ Funds, Eva Qviberg, the Qviberg family, and Mats Qviberg were appointed to the Nominating Committee in October The Nominating Committee welcomes proposals and viewpoints from shareholders and can most easily be contacted via Bilia s website or by nominering@bilia.se. In the course of its work, the Nominating Committee has gathered information regarding the experience of Bilia s Board members and their possible dependency on Bilia and has also examined the evaluation of the Board s work that is compiled every year. Board of Directors Bilia s Board of Directors consists of ten members elected by the AGM, including the Managing Director of Bilia AB, and two members who represent the employees, plus two deputy employee representatives. The AGM-elected members are elected for one year. There is no limit to how long a member can sit on the Board. The duties of the Board are regulated by the Swedish Companies Act and the Articles of Association. Bilia also complies with the Swedish Code of Corporate Governance, but this year departures have been made regarding: the lowest number of members at the company s extraordinary shareholders meeting in December 2008, see paragraph 1.3 of the Code, since having a quorum of the board was deemed to be superfluous. Normally the Code is complied with in this respect. the lowest number of members of the Audit Committee, paragraph 10.1 of the Code. The Board of Directors believes that the tasks of the committee can be performed by two members without compromising the quality of the committee s work; and announcement of time and place for the coming Annual General Meeting no later than in conjunction with the thirdquarter report, see paragraph 1.1 of the Code, since time and place were not established until a later point in time. Normally the Code is complied with in this respect. The work of the Board of Directors conforms to annually adopted rules of procedure governing the items of business to be dealt with at each ordinary meeting and the division of labour within the Board, with special duties for the Chairman and the committees appointed within the Board. The rules of procedure also include rules for financial reporting to the Board and more detailed rules regarding the Managing Director s powers and responsibilities. The ultimate aim of the deliberations and decisions of the Board is to promote the interests of the shareholders in terms of value growth and return on investment. The Board of Directors is also responsible for judging risks and has rules governing decision-making procedures, financial reporting and financing. In addition, the Board has rules governing quality, environment, ethics, information, human resources, IT activities, security and special guidelines to ensure compliance with competition legislation. Measures to progressively strengthen the Bilia brand are also considered by the Board. The work of the Board during 2008 One post-election meeting and five ordinary Board meetings were held during All Board members were present at all meetings, with the exception of Mats Årjes, who was unable to attend one of the meetings. In addition to the above meetings, Bilia Annual Report

82 Corporate Governance Report cont d. the Board also met once by telephone and once by correspondence. An agenda, along with in-depth information on important matters, is sent to each Board member in good time before each Board meeting. The Board dealt with such items of business as strategy, financial goals, follow-up of results, investments, properties, acquisitions and follow-up of disputes. During the year the Board decided to sell most of the Group s properties in Mälardalen, Sweden, and in the Copenhagen area, Denmark. In conjunction with the property sales, certain of the Swedish properties and all of the Danish properties were acquired by the exercise of options. The Board also adopted several action plans to reduce the Group s costs and tied-up capital, a new credit facility agreement was entered into with the company s two main banks, and a decision was made on a new issue consisting of debenture loans and warrants. On one occasion the Board met with the auditors, who shared their observations with the Board. The Chief Financial Officer of Bilia AB, Gunnar Blomkvist, has been secretary of the Board since the end of Board committees The Compensation Committee s task is to submit proposals to the Board regarding terms of compensation, including bonus, for the Managing Director and other senior officers. The committee presents its conclusions to the AGM, which makes decisions regarding fees. The committee also submits proposals to the Board for variable compensation to senior officers in subsidiaries and a bonus system for other employees. The terms for bonuses are always related to that part of the company s performance that lies within the individual s control. All variable compensation has a maximum limit in relation to the fixed compensation. The Compensation Committee consists of Mats Qviberg, Heinrich Blauert and Jack Forsgren. The chairman of the committee is Jack Forsgren. During the year the Compensation Committee held three telephone meetings in which all members participated. The Audit Committee consists of two members: Heinrich Blauert and Jack Forsgren. The principal duties of the Audit Committee are review of business environment and legal risks, review of the control environment with regard to internal and external audit, monitoring of the financial reporting, and review of the internal and external audit process. The Audit Committee held three meetings during the year. Bilia s auditors participated at the meetings. The work of the committee has been based on material and information from the Group Management and the auditors as well as from the company s legal counsel. The meetings were held in the presence of the Group s Managing Director and Chief Financial Officer. The work was characterised by knowledge, transparency and insight. The Board s statement regarding internal control This statement has been prepared in accordance with the Swedish Code of Corporate Governance. The statement is limited to internal control regarding financial reporting and does not constitute a part of the formal annual accounts. The Board of Directors bears ultimate responsibility for ensuring that Bilia s internal control works satisfactorily and that adequate financial reports are presented. Under the Swedish Companies Act, the Board is responsible for Bilia s organisation and management. It is the responsibility of the Board that Bilia s accounting, management of funds and financial situation in general includes satisfactory controls. This responsibility cannot be delegated but always rests with the Board of Directors. Bilia s control environment is based on the communication of clear guidelines to all subsidiaries to ensure that the same rules and principles are applied in the Group s different companies and within each business area and that the necessary tools are in place out in the subsidiaries to enable them to report back to Bilia AB in a correct and uniform manner. A balanced risk analysis is performed by the Board, and significant risks within the Group are identified. Guidelines are issued within the Group to inform and instruct concerned persons how to manage and minimise or, if possible, eliminate these risks. Some control is exercised manually, while other control procedures are built into the system solutions that are used within the organisation. The information flow within the Group is channelled to the right persons at the right time to ensure that mistakes are avoided. All concerned personnel shall have access to correct information in order to make well-balanced decisions and ensure that the financial reporting is always up-todate and in keeping with the latest directives. Issued handbooks and guidelines etc. are subject to continuous review and updating to take into account changes in the business or external circumstances. The Bilia Group does not have a specially designated function for internal audit. The audit function has instead been delegated to different personnel within the organisation, who make sure that audit is performed regularly. An evaluation of the need for a special function for internal audit is in progress and a project group has been appointed to examine the need and arrive at a framework for the establishment of an internal audit function. A draft audit plan will be presented during the first quarter of Then the Board of Directors will re-assess the need for a new function for internal audit after having taken a stand on the project group s evaluation. An extensive review project was initiated a couple of years ago where all of the Group s essential processes will be documented, analysed, risk-assessed and, if necessary, improved. Since last year s annual report was prepared, three processes have been thoroughly reviewed and a large number of processes have been identified and will be overseen in the course of the next few years. The processes that have been examined during the past year are IFRS adjustments, new car bonus and credit policies. The results for the processes that have been examined have shown that the processes for handling of new car bonus deviate due to the different requirements of the suppliers but that they are functional and are more or less equivalent for the Group companies. No significant problems have been identified in the examined processes, and minor corrections have been made to optimise the processes. The credit 80 Bilia Annual Report 2008

83 policies now have tougher requirements than before, and credit granting is followed up more frequently. In preparation for 2009, three more processes have been identified and will be reviewed during the coming year, and new processes are constantly being identified. The working groups have been composed of operational managers for the various processes and financial managers and controllers from the subsidiaries and the Parent Company. The working groups have held a number of meetings on each process, finishing up with a final report meeting. This is followed by follow-up work. The work of assuring internal control is a continuous process that should be subject to constant review, follow-up and improvement. Evaluation of the work of the Board The work of the Board is evaluated annually according to a model that includes the following main areas: Board of Directors (roles, planning, functions) Board meetings Board material, information and reports Members of the Board Chairman of the Board Managing Director This year s evaluation once again gave a very positive picture of the work of the Board. The Board also carries out an annual evaluation of the work of the committees, resulting in high ratings being given to the work of the committees. Group Management Bilia s Group Management consists of the MD, the CFO and the head of business development of Bilia AB, as well as the MDs of Bilia Personbilar AB, Sweden, Bilia Personbil as, Norway, and Bilia Personvogne A/S, Denmark. The Group Management is responsible for formulating the Group s overall strategy, business control, allocation of financial resources among the operations, and for the Group s financing, capital structure and risk management. It also deals with issues pertaining to preparation and execution of acquisitions that affect the whole Group and other major projects. Furthermore, the Group Management is responsible for compiling the Group s financial reports, for communication with the stock market, and for a variety of other matters concerning the Group as a whole. The Group Management holds regular meetings under the leadership of the MD, and due to the great challenges facing the Group by reason of the economic downturn the frequency of meetings has increased and the Group Management is keeping careful track of developments in the Group. Group operations are largely decentralised, and the different companies enjoy a large measure of autonomy. Relations between the companies and the Group Management mainly have to do with Group-wide projects and work on the boards of the various companies. Bilia s Managing Director and CEO, Jan Pettersson, is chairman of the boards of most of the subsidiaries. Auditors The auditors of Bilia AB are elected by the AGM for a period of four years. In 2008 KPMG AB was re-elected as the public accounting firm, and Johan Dyrefors was appointed the new auditor in charge while Lars Bertén continued as chief of audit. Audit mainly involves continuous auditing and examination of the annual accounts. KPMG also assists Bilia with advice on auditing matters. During the past three years this has mainly involved questions pertaining to the adaptation of accounting practices in accordance with IFRS. No circumstance relating to this advisory role has been judged to influence the impartiality and independence of the auditors. This Corporate Governance Report has not been subject to special examination by Bilia s auditors, nor has the Board s statement on internal audit, which is integrated in the above report, been subject to examination by the auditors. Bilia Annual Report

84 MANAGEMENT Frode Hebnes Per Avander Sven-Åke Karlsson Conny Bergström Gunnar Blomkvist Jan Pettersson 82 Bilia Annual Report 2008