Contents. President s overview 3 About us and our key strengths 4 Board of Directors Report 6. Notes to the Group. Notes to the Parent Company

Transcription

1 Scandinavian Standard Annual Report 2013

2 Contents President s overview 3 About us and our key strengths 4 Board of Directors Report 6 Operations by region 7 Group s financial statements - Income statement 16 - Statement of financial position 17 - Statement of changes in equity 17 - Statement of cash flows 18 Parent Company s financial statements - Income statement 19 - Statement of financial position 19 - Statement of changes in equity 20 - Statement of cash flows 20 Notes 21 Audit Report 45 Legal structure 46 Organizational structure 47 Board, auditor and Group management 48 Notes to the Group Note 1 Accounting policies 21 Note 2 Significant judgments, accounting estimates and assumptions 27 Note 3 Segment reporting 28 Note 4 Breakdown of revenue 29 Note 5 Employees and employee benefits expenses 29 Note 6 Depreciation, amortization and impairment of intangible assets and property, plant and equipment 30 Note 7 Fees and reimbursement of expenses to auditors 30 Note 8 Finance income and expense 31 Note 9 Exchange differences affecting income 31 Note 10 Taxes 31 Note 11 Property, plant and equipment 32 Note 12 Intangible assets 33 Note 13 Investments in associates 33 Note 14 Non-current financial assets 34 Note 15 Inventories 34 Note 16 Trade and other receivables 34 Note 17 Current interest-bearing assets and cash and cash equivalents 34 Note 18 Equity 34 Note 19 Interest-bearing liabilities 35 Note 20 Financial instruments and financial risk management 36 Note 21 Pensions 38 Note 22 Other provisions 39 Note 23 Trade and other payables 39 Note 24 Leases 40 Note 25 Related party transactions 40 Note 26 Government grants 40 Note 27 Acquired operations 41 Note 28 Pledged assets and contingent liabilities 42 Note 29 Notes to the statement of cash flows 42 Notes to the Parent Company Note 30 Fees and reimbursement of expenses to auditors 43 Note 31 Taxes 43 Note 32 Investments in Group companies 43 Note 33 Accruals and deferred income 44 Note 34 Financial instruments 44 The Annual Report has been prepared in Swedish and English language versions. In the event of discrepancies between the versions, the Swedish version shall prevail.

3 Scandinavian Standard is a market leading Scandinavian food company specializing in chicken based food products. The company s mission is to deliver locally produced chicken based food products of the highest standard, with a strong focus on quality, animal welfare, food safety and sustainability. Scandinavian Standard produces and sells fresh and frozen chicken and value added chicken products through its brands Kronfågel, Danpo and Den Stolte Hane and through private label. In Norway, turkey, duck and eggs are also part of the product assortment. Scandinavian Standard had during the period June-December 2013 net sales of SEK 3.1 billion, corresponding to annual net sales of SEK 5.3 billion. The CEO is Leif Bergvall Hansen and the Group has just under 1,700 employees. SCANDINAVIAN STANDARD ANNUAL REPORT

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5 President s overview We are proud to have established Scandinavia s market-leading chicken-based food group during 2013 and we are fully focused on strengthening our customer offering. On June 3, we created Scandinavia s market-leading chickenbased product group when Scandinavian Standard was established. The Company was created by gathering the largest chicken operations in Scandinavia Kronfågel of Sweden, Den Stolte Hane of Norway and Danpo of Denmark into one collective group. At present, the Group had during the period June-December 2013 net sales of SEK 3.1 billion, corresponding to annual net sales of SEK 5.3 billion, and just under 1,700 employees. We have increased our focus on innovation to improve our product assortment and keep it relevant and interesting to our consumers. Our brands are well recognised and trusted in each country where we operate. Scandinavian Standard work closely with its key retail customers to develop their respective private label offering. Kronfågel achieved great success with new products and flavors during the year, and this is an area we shall definitely develop further. We have also worked on integrating the operations and realizing economies of scale and synergies in order to become more cost effective. The different countries have much experience and knowledge to share. This sharing will help us achieve best practice across our business. Danpo, for example has an established export organisation which is a valuable asset in ensuring we can optimise our sales effort by exporting our products to existing and new markets. We see stable long term underlying structural growth in the chicken market as a result of a number of factors. Chicken is one of the most affordable sources of protein available today, with clear health benefits in comparison with pork and beef. We see an increased health conciousness, with consumers demanding more white meat, but they are also showing an increased preference for locally produced fresh chicken. Chicken also has environmental benefits in terms of energy consumption in production and emissions of greenhouse gases in line with consumers demand. Scandinavian Standard is well positioned to capitalize on this structural growth with its leading position in Scandinavia. Positive underlying results As the Company was established in summer 2013, there are no full-year figures available for the Group. Operating income for the period June to December 2013 adjusted for items affecting comparability was MSEK 191. With these items, the final operating income figure was MSEK 37. Operating income before depreciation (EBITDA) adjusted for items affecting comparability was MSEK 287. In 2014, we shall continue the process of integrating the operations, both central level and out there in the businesses. And we shall utilize the knowledge and experience that exists throughout the Group. Consumers are already focusing on sustainability and traceability along the value chain. This trend will increase even more and we shall do our utmost to ensure that our brands are at the forefront of developments. A market where white meat is expected to show stronger growth than other meat categories and where there is solid underlying long term growth, combined with our leading market position, means we have a good base for our continuing work. In conclusion, I would like to thank the Board of Directors and our employees for their hard and intensive work and I look forward to the new opportunities presented as we all pool our efforts in the Group. Stockholm, April 2014 Leif Bergvall Hansen CEO Market position and market shares, food retail 2013 Sweden Norway Denmark 45 % 22 % 42 % Earnings, June-December 2013 MSEK Operating income (EBIT) 37 Items affecting comparability - One-off transaction valuation of stock 60 - Transaction costs 73 - Other one-off s 21 Operating income, adj. for items affecting comparability 191 EBITDA, adj. for items affecting comparability 287 EBITDA-margin 9.2 % SCANDINAVIAN STANDARD ANNUAL REPORT

6 About us and our key strengths 4. Solid financial performance 1. Leading Scandinavian food company in a growing sector 3. Efficient operational set-up 2. Established market position Scandinavian Standard is a market leading Scandinavian chicken-based food company. The Company has established a growing and profitable business in Sweden, Norway and Denmark and is the only supplier with a presence in all three countries. The Company owns strong brands, offers an extensive product portfolio and has an efficient local production. The scale and reach of the business allow it to be a preferred private label supplier to retailers and a natural partner with which to develop and grow the category. Scandinavian Standard considers itself to be well-positioned to take advantage of the expected future growth in the Scandinavian market for chicken-based food products. 1. Leading Scandinavian food company in a growing sector Leading local producer in a consolidated market With a history dating back to 1950, Scandinavian Standard has, through its subsidiaries with subgroups Kronfågel AB, Danpo A/S and Scandinavian Standard Norway AS (formerly Cardinal Foods AS), established a strong position as the leading supplier of chickenbased food products in the Scandinavian market. The market, excluding imports, is characterised by a high degree of consolidation, with two to three major producers in each country, accounting for essentially all domestically produced products that are sold in the retail channel. Scandinavian Standard is the only producer with a significant market position across all Scandinavian countries. Comprehensive portfolio of branded products complimented by private label offerings The product range includes both fresh and frozen products in several categories including whole chickens and value-added products such as cuts, flavoured and pre-cooked products, as well as further processed products and meal solutions. In the retail segment, Scandinavian Standard primarily operates through a strong brand in each of its three markets, but also through some secondary brands and a comprehensive private label offering. The Company s key brands each enjoy high brand awareness and the Company constantly strives, through active product development and continuous marketing and promotion, to develop its brands further and to reinforce its position as the market leader. The combination of a broad product range, strong brands and the ability to offer an extensive range of private label products enables the company to be the preferred supplier and category leader with several major retail customers. Strong position in a growing foodservice market Scandinavian Standard is the largest Scandinavian supplier of chicken-based food products to the foodservice segment. The segment is to a large extent constituted by fast food chains, but also hotels, restaurants and public services. The Company has been experiencing a growing demand for chicken-based products from the foodservice segment in recent years. This is, according to the Company, driven by consumer preferences as well as the fact that chicken is more affordable and considered convenient to prepare than other types of meat. Solid customer relationships Scandinavian Standard has close and long-standing relationships with its major customers in all categories throughout Scandinavia. For example, the Company is one of the main suppliers of chicken to several major retailers in all markets, such as ICA, COOP, Rema 1000, Axfood and Dansk Supermarked. Established position to take advantage of export opportunities Scandinavian Standard is experiencing an increasing demand for Scandinavian chicken products from foreign countries. The Company has a separate sales force entirely focusing on export markets, which, in combination with its broad product range, efficient production infrastructure, high quality and high animal welfare standards, has helped the Company in building a solid platform to take advantage of export opportunities. The Company currently sells products to approximately 40 countries, including e.g. Germany, the United Kingdom and several Asian markets. Non-Scandinavian exports currently account for approximately 14% of the Company s net sales and is expected to grow going forward driven by focused export efforts. 4 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

7 2. Established market position Increasing demand for fresh, locally produced products Scandinavian consumers are increasingly focusing on health and convenience aspects in relation to food and nutrition. This trend drives the demand for fresh rather than frozen food products, as fresh products generally are perceived as of higher quality and are a more convenient format. Limited shelf life of fresh food products limits possibilities for imports and favours local Scandinavian producers in general. Strict regulations in the Scandinavian markets The Scandinavian chicken markets are governed by extensive regulations and controls regarding hygiene, food safety and animal welfare. It is a well-established practice to have very limited usage of feed supplements, such as adding of antibiotics and growth hormones. Large investments required for new establishments Scale supports profitability within chicken production. To build production facilities of sufficient scale to compete with Scandinavian Standard would require a large capital investment. This is further complicated by the fact that its facilities benefit from being located near the farmers who are contracted to supply live chickens. Transport restrictions imposed by legislation mean that a facility needs to be in the vicinity of the farmers. Scandinavian Standard has in recent years consolidated several of its production units into one or two major factories per country. This has resulted in significant scale in its production units and substantial efficiency improvements. 3. Efficient operational set-up Centralised co-ordination and management of production and procurement In 2012, the Company established a centralised group operations function with responsibility for the management of group processing capabilities, plant optimisation, efficiency and yield maximisation and investments. Internal benchmarking identified significant improvement opportunities from implementing established and proven operating practices from Denmark into Sweden and Norway. The Company has developed a well-defined plan to further improve production efficiency with only limited additional capital expenditures. Decentralised and local commercial decision making close to customers and consumers While coordination of production and non-chicken procurement is centralised at a group level, responsibility for commercial sales, marketing, new product development and procurement of live chickens remain decentralised on a country level. Each country manager has full profit and loss responsibility for his or her country performance. This includes full accountability for designing new product development to cater for local tastes and also managing the local supply/demand balance. Well-invested and efficient production infrastructure, yet with additional upside and spare capacity Scandinavian Standard has a well-invested and efficient production infrastructure. The Company has since 2008 made significant investments in order to consolidate the Swedish, Danish and Norwegian production facilities and to increase automation and reduce labour intensity. As a consequence of the recent productivity improvements, several of the Company s production facilities have spare capacity for increasing production volumes This will place the Company at a structural advantage to win market share and benefit from the underlying market growth with minimal further investments required. 4. Solid financial performance Historic financial track record Between 2011 and 2013, Scandinavian Standard subsidiaries realised net sales growth above the growth in the underlying markets. Efficiency programs have contributed to improved profitability Since 2011 margin improvements have been realised through the successful implementation of several focused efficiency improvement initiatives, predominantly in the Danish facilities. Scandinavian Standard s management expects the efficiency program to continue to produce good effects as this experience is rolled out throughout the group. Stable cash flow generation As mentioned previously, Scandinavian Standard has made significant historic investments in its production infrastructure, at the same time as it has invested in efficiency improvements in its respective facilities. Going forward, the Company does not anticipate any major investments other than regular maintenance and continued efficiency improvements. Solid financial profile provides for flexibility Scandinavian Standard s solid financial position in combination with its stable cash flow generation should ensure that the Company has a high level of flexibility to pursue organic growth opportunities, potential acquisitions, and make it possible to withstand potential price fluctuations as well as competitive pressure from the market. SCANDINAVIAN STANDARD ANNUAL REPORT

8 Board of Directors Report The Board of Directors and President & CEO of Scandinavian Standard AB, Corporate Identity No , hereby present the annual report for the 2013 financial year. The earnings and financial position of the Parent Company and Group, based on the period June December 2013, are presented in the following income statements and statements of financial position, with accompanying comments and notes. The Group s key figures June-December 2013 Consolidated net sales were MSEK 3,120. Operating income amounted to MSEK 37. The operating margin was 1.2 percent. Income after financial items was MSEK -53. Net income after tax amounted to MSEK -80. Investments amounted to MSEK 92. Cash flow from operating activities was MSEK -12. Earnings per share for 2013 was SEK Cash flow per share for 2013 was SEK The equity ratio was 13.3 percent. The average number of employees was 1,677, 43 percent of whom were female. Scandinavian Standard Group Sweden Norway Denmark Scandinavian Standard AB is a Swedish limited company incorporated under Swedish law. Scandinavian Standard s main task is to own and manage movable and immovable property and securities, directly or through subsidiaries. The Company shall also coordinate the activities in which it engages and conduct other related activities. Scandinavian Standard owns the different companies in the Group through the wholly-owned subsidiary Scandi Standard AB. Background to the Company The Group was established on June 3, 2013 when CapVest (funds managed and advised by CapVest Associates LLP) and Lantmännen formed Scandinavian Standard AB as a new jointly owned company. Through its wholly-owned subsidiary Scandi Standard AB, Scandinavian Standard AB acquired Kronfågel AB in Sweden (including SweHatch AB and AB Skånefågel), Cardinal Foods AS in Norway and Danpo A/S in Denmark. Cardinal Foods AS in Norway was renamed Scandinavian Standard AS in Following the acquisitions, Scandinavian Standard Group became the leading player in the Scandinavian chicken market with a turnover of SEK 5.3 billion. In addition to chicken production, the Norwegian operations also include egg sales and turkey and duck products. Ownership and share structure Scandinavian Standard s main owners are CapVest and Lantmännen. CapVest is the controlling owner, with 50 percent of the ownership, while Lantmännen owns 46 percent. The remaining shares are owned by the management of Scandinavian Standard. The capital structure of Scandinavian Standard consists of shareholder loans, preference shares and ordinary shares. In simplified terms, owners of shareholder loans are entitled to a full refund, with priority over preference shareholders entitlement to receive dividends, while preference shareholders are entitled to receive a full dividend, with priority over ordinary shareholders entitlement to receive a dividend. Lantmännen and CapVest have the same ownership distribution between the different instruments and only own shares with a high voting power. This means that the distribution of Scandinavian Standard s voting rights is as follows: CapVest 52 percent and Lantmännen 48 percent. Financial position The Group s cash and cash equivalents at December 31, 2013 were MSEK 72 The equity ratio was 13.3 percent. Consolidated earnings Consolidated operating income was MSEK 37 for the the period June December Operating income adjusted for items affecting comparability was MSEK 191. Comparative figures are not available as the Company was formed in Income before financial items was MSEK 53. Net income for the year was MSEK 80. Transaction costs Costs of MSEK 73 associated with implementing the different corporate transactions have been charged to the consolidated income statement for the 2013 financial year. The acquisition balance sheet showed an increase of MSEK 60 in the value of inventories, which was reported as an expense in the year-end financial statements as these products were sold during the year. In addition MSEK 21 in other one-off costs occurred in SCANDINAVIAN STANDARD ANNUAL REPORT 2013

9 Operations by region Scandinavian Standard operates in the three Scandinavian countries through its subsidiaries. Segment reporting is submitted for each region (country). Norway Net sales MSEK 904 EBIT MSEK 54 Margin 6.0 % Average no. of employees 328 External net sales by region 2013 Sweden 36 % Norway 29 % Denmark 35 % Sweden Net sales MSEK 1,164 EBIT MSEK 32 Margin 2.7 % Average no. of employees 532 The Swedish operations are conducted through the companies Kronfågel AB, SweHatch AB and AB Skånefågel. Kronfågel AB is the Swedish market s largest chicken producer, with approx. 45 percent of the total market for all chicken products. Kronfågel s customers include retail stores, restaurants and food service/catering, as well as the food industry. The company s largest customers are ICA, Axfood and Coop. Kronfågel s goal is to deliver high quality fresh and frozen products by taking responsibility for the entire value chain, in the areas of animal welfare, transport, energy, food safety and quality. Kronfågel s chicken operations are certified under the BRC standard for food safety. SweHatch is an egg hatchery which delivers day-old chickens to broiler breeders in Sweden and to some extent for export. The company is the largest in Sweden in its area. Skånefågel supplies locally produced chicken products to Swedish retail stores, food service/catering and restaurants. Scandinavian Standard evaluates strategic options regarding this part of the business. Growth in the market is good, with an overall increase of 5 percent for the full year For fresh chicken, the growth is higher, at 11 percent. An increased health consciousness trend among consumers is driving demand for chicken products, particularly fresh products. Total Swedish chicken production in 2013 was approx. 81 million chickens, an increase of 6.5 percent compared with Kronfågel was responsible for about half of the total production. The Norwegian operations are conducted through the company Scandinavian Standard AS. Scandinavian Standard AS is a leading player in the white meat and egg market in Norway. Norwegian consumers are provided with eggs and white meat under the brand Den Stolte Hane and indirectly through private labels. Vestfold Fugl supplies chicken, turkey, broiler and duck products to the food service/catering sector and the industrial market. The Norwegian operations focus on healthy, high-quality fresh products with rigorous quality and safety requirements in combination with rapid innovation and efficient production facilities for chicken and eggs. Quality assurance in the entire value chain, from farmer to consumer, is maintained as a continuous process. Customers in Norway are retail chains such as Coop Norge, Rema 1000 and Norgesgruppen, although the company profiles itself as a chain-neutral supplier. Growth in the market has historically been 5-10 percent, and was 5 percent in The company s message to consumers is communicated in the motto healthy, quick and simple. Denmark Net sales MSEK 1,201 EBIT MSEK 31 Margin 2.6 % Average no. of employees 817 The Danish operations are conducted by the company Danpo A/S, Denmark s largest producer of chicken products. Danpo sells its products under the Danpo brand and through other private label brands. Danpo focuses on three aspects food safety, quality assurance and taste. Danpo complies with the internationally recognized and comprehensive BRC standard, see page 8. Danpo has a strong position in the Danish market with a share of about 50 percent for fresh products and 25 percent share for frozen products. A large proportion of production goes to exports (about two-thirds), while about one-third goes to domestic consumption. Growth rate is approx. 3 percent per annum. Danpo will continue its strong focus on establishing itself in new markets in Europe and Asia, where demand is expected to increase. Danpo A/S also owns one-third of Farmfood A/S, a company that processes by-products from chicken slaughterhouses. SCANDINAVIAN STANDARD ANNUAL REPORT

10 Retail brands and products Scandi Standard has a broad product portfolio including fresh and frozen chicken products in several categories in all Scandinavian markets. Additionally, the company sells eggs in the Norwegian market. Products are sold under Scandinavian Standard s proprietary brands as well as through retailers private labels. Long-term financial targets and achievement of objectives The Group is focusing on targets for growth, profitability and cash flow generation. Significant events for the Group in 2013 The company Scandinavian Standard was established on June 3, This was the Group s largest single event during the year. An Operational Management group was established in 2013 to coordinate the activities of the different companies in the Group. Scandinavian Standard changed from a split financial year, ending on June 30, to a calendar year, ending on December 31. The Group companies Kronfågel AB, Kronfågel Holding AB, SweHatch AB and AB Skånefågel also changed from a split financial year to a calendar financial year. Danpo received The Confederation of Danish Industry s (DI) Productivity Award for the company s work on quality, hygiene and energy consumption. Synergies Following consolidation of all the companies, Scandinavian Standard is the market leader in the Scandinavian market for chicken and chicken-based products. The business combination provides opportunities for synergies in the form of access to expertise, packaging technology, market experience and research & development across Scandinavia s borders. Danpo A/S in Denmark also acts as export agent for Kron fågel Sweden s exports to Europe and Asia. Scandinavian Standard intends to increase exports of production surpluses in order to keep stocks low and optimize pricing. The purchasing and production organizations are currently coordinated in such a way as to leverage these synergies. However, sales and marketing are conducted locally in each country. Central functions for finance etc. are under development. A common IT function is planned for Sustainable development Sustainable development is one of the Company s cornerstones and a basis for its strategic direction. Scandinavian Standards will offer chicken products that are responsibly produced. Scandinavian Standard focus on: creating a safe working environment promoting diversity and utilizing employees skills ensuring good animal welfare using the services of responsible suppliers optimizing energy consumption and handling of raw materials. Scandinavian Standard also focuses on a proactive development of sustainable business. It is Scandinavian Standard s view that the sustainability perspective should be well integrated into the organization s governing processes and closely linked to the business operations. Implementation of Scandinavian Standard s Code of Conduct throughout the organization plays a crucial role in the sustainability program. The Code contains general guidelines to ensure a good work environment and social conditions, good business ethics and environmental responsibility. All employees undergo training in the Code of Conduct. The Swedish and Danish chicken operations are certified under the extensive BRC standard. The certification, which is carried out by Sai Global, covers everything from HACCP systems, quality management and factory requirements to production control processes and human resources. HACCP (Hazard Analysis Critical Control Point) systems are used to monitor the entire value chain. From a European perspective, the Scandinavian countries exhibit high levels of regulation and strict controls. Increased focus on resource efficiency Scandinavian Standard endeavors to achieve resource conservation and optimum efficiency throughout the supply chain, from purchasing to the end customer. This is a critical success factor which is more important today than ever based on the challenge to conserve the planet s limited resources. Scandinavian Standard continues to work towards reducing costs and minimizing environmental and climate impacts by means of optimization and efficient recycling. 8 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

11 Scandinavian Standard is committed to reducing its carbon footprint in all stages of production, and is doing so in cooperation with relevant partners. The slaughtering and processing of chicken is an energy and water-intensive activity. Continuing measures for more efficient water use are being implemented at all the facilities. Danpo has developed a special project aimed at more efficient water use. Danpo has focused on LEAN (method of systematic and long-term change work throughout the production chain) and achieved many production improvements, for which the company won the Confederation of Danish Industry s productivity prize. With an energy-controlling program, Danpo has further reduced its CO 2 and water consumption. Both Danpo and Kronfågel have updated their internal transport systems for live animals, which has contributed to fuel savings and improvements in the area of sustainability. Kronfågel s production facility at Valla in Södermanland continues to streamline its production processes. A number of projects aimed at increasing efficiency levels have been initiated. In Sweden and Denmark, there are also continuing initiatives to purchase RTRS soy as part of the process of taking more responsibility in the value chain regarding sustainability issues. In Norway, efficiency improvement projects are currently being launched. Operations subject to permit and notification requirements under the Swedish Environmental Code In Sweden, Scandinavian Standard engages in operations subject to permit and notification requirements at several plants, all of them in accordance with the Environmental Code. The operations are conducted at food production facilities. The main direct environmental impacts are noise, emissions into the air and water, and temporary storage of hazardous waste. Operations subject to permit and notification requirements are also conducted in Norway and Denmark. Disease-control Salmonella infection is a constant challenge for the entire poultry industry. Sweden has a long track record in fightingsalmonella, and there are well-developed processes throughout the value chain. This has given Sweden a special status within the EU and it has restrictions in place for imports of fresh products to prevent any outbreaks. Thanks to the hard work in Scandinavia over the last 10 years, chicken products from the region are now known to be relatively disease-free, which strengthens the value of exports to new markets. Human resources The average number of employees during 2013 was The average number of employees is distributed as follows: 532 in Sweden, 328 in Norway and 817 in Denmark. Scandinavian Standard s goal is to be perceived as an attractive employer providing a healthy working climate where skills are nurtured and developed throughout the Group. Scandinavian Standard s equal opportunity and diversity policy states that the Group shall safeguard and value the skills, qualities and experience of all employees regardless of gender, age, ethnicity, beliefs, sexual orientation, disability or other individual differences. In addition, it states that the Group will not tolerate any bullying, harassment or discrimination. Remuneration of senior executives The guidelines for remuneration of senior executives in 2013 are described in more detail in note 5. Senior executives Senior executives 2014 are defined as Scandinavian Standard Group Management Senior executives 2013 are defined as Operational management and includes President and CEO, COO, Country managers in Norway and Denmark, CFO in Sweden and Norway, Animal Welfare Officer in Sweden and Sales and Marketing Director Sweden. For further information see page 49. Guidelines The Annual General Meeting has resolved on remuneration guidelines for senior executives and the Board has approved a remuneration policy accordingly. Remuneration policy The objective of Scandinavian Standard s remuneration policy that follow the guidelines of the Annual General Meeting is to offer compensation that reflects the Company s commitment to attract and retain qualified expertise. The fundamental guidelines are to: ensure that employees at Scandinavian Standard receive market-based compensation that makes it possible to recruit and retain capable employees in line with Scandinavian Standard s common values of open dialogue, challenge and acting now. offer a salary structure that is based on individual performance, duties, qualifications, experience and position, and is therefore neutral with regard to gender, ethnicity, disability, sexual orientation, etc. Research and development All of the Group s companies are engaged in efforts to develop more eco-friendly packaging which also extends the products shelf life. As part of its product development, Kronfågel Sweden has launched a number of new products as concepts, with new flavors and spiced chicken ready for the grill. Even in Norway and Denmark new products for each market have been launched. Innovation and product development Product development covers everything from developing new cuts and seasonings to new chicken breeds and SCANDINAVIAN STANDARD ANNUAL REPORT

12 packaging. Scandinavian Standard has a well-defined and efficient process for new product development and plans product development for a 36 month horizon. New products materialise through a well-defined and efficient development process, preceded by diligent feasibility studies and consumer research to ensure new products meet consumer demand. These are developed with short delivery time, high quality and acceptable profitability. The development process is generally conducted by local development teams, comprising of employees with backgrounds as chefs, food technologists or marketing professionals, in close cooperation with production specialists, country heads and senior management. Innovation is based on extensive consumer segmentation modelling in order to identify growing and profitable consumer segments. This requires a substantial amount of data, and Group continuously conducts consumer interviews and surveys on current market trends and consumer preferences. Scandinavian Standard evaluates if the various consumer segments are covered by the existing assortment, or if development of existing products or new product development is required to target the demand. Product innovation can also come from innovation in production, as new processes and equipment enable the Group to produce products that were previously not possible. When a potential new product, or development of an existing product, is identified the Group conducts feasibility and profitability studies to determine whether the project is economically viable in terms of production resources, lead times and costs. Innovative cooperation The Group s companies are currently focusing on deepening their cooperation with emphasis on operational synergies in the production process and packaging technology. Product development experiences are also being exchanged in the Group, particularly Kronfågel s successful investment in new consumer products. In Denmark, Danpo regularly engages in cooperation with organizations such as The Danish Agriculture and Food Council, and participates in projects with the Danish Technological Institute in Copenhagen. On the international front, Danpo cooperates with the research organization AVEC, whose main objective is to promote the interests of the European chicken meat sector. The Danish company Farmfood A/S, in which Danpo has a one-third stake, is another example of cooperation that addresses all parts of the value chain. Farmfood produces animal feed from chicken production by-products. Significant risks and uncertainties Risks are a natural part of all business activity Scandinavian Standard works continuously to assess, identify, handle and evaluate the risks to which the business is exposed. Risks are events that have a negative impact on Scandinavian Standard s operations and financial results and position if they materialize. Risks can arise from mismanagement or from events or decisions outside Scandinavian Standard s control. Risk management aims to identify, evaluate and assess risks and limit or prevent them from materializing and adversely affecting the business. Effective risk management is fundamental to Scandinavian Standard s ability to conduct business. Strategic risks Strategic risks associated with business development and long-term planning are largely dealt with by the Group Board and as part of the annual strategy work. Strategic risks are linked to business development and long-term planning, as well as brand value and care. This means that the most significant strategic risks concern the ability to adapt in the event of economic changes, price competition and to conduct effective business development that reflects the brand promise we have made. Other important strategic risks are the risk of new laws and regulations changing the operating situation and the risk of damage to Scandinavian Standard s different brands. Strategic risks are assessed as part of the annual strategic planning process and in connection with critical business decisions. A high degree of cost flexibility provides improved maneuverability to handle, for example, changes in demand. Fast dissemination of appropriate information is ensured through the Company s management structures and processes. Scandinavian Standard s most important tools for successful management of price competition are efficient, flexible production and ongoing brand strengthening through innovation and other initiatives. Operational risks Operational risks arise in the course of the companies dayto-day business and include production disruption, disease outbreaks, price risks, political and market regulation risks, environmental risks and other risks. A large number of operational risks are also insurable. Risks regarding compliance with laws and regulations, financial reporting and internal control are also operational risks. As a provider of chicken-based food products and meal solutions to retailer, food service, industrial customers for the consumer market, Scandinavian Standard relies on continued consumer demand for its products. Scandinavian Standard s sales are affected by a number of factors, including changes in consumer preferences. It s ability to anticipate and respond to shifts in consumer trends is essential to maintain and increase the attractiveness of Scandinavian Standard s products and maintain its market share. In general, consumer preferences may shift due to a variety of factors, many of which are outside the control of the Group. The objective is for operational risk management to be based on a proactive risk management process, a number of central risk policies and a code of conduct. Handling of financial risks is based on the Group s financial policy and the respective risk policy of the companies. Production disruption Scandinavian Standard has a consolidated factory infrastructure, with production focussed in a limited number 10 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

13 of large processing sites and is dependent on reliable and efficient processing facilities. Disturbances, even minor, in or damage to the factory buildings or to the production equipment from, for example, a natural disaster or a fire may have an adverse impact on Scandinavian Standard s business, both in respect of direct damage to the property and also, disruption from production stoppages. Such occurrences may make it difficult, or impossible, for Scandinavian Standard to fulfil its obligations to its customers, translating to lost sales and profits, but also an increased risk of the customers changing supplier, including increased supplier costs which cannot be passed on to customers. The customers may sometimes also be entitled to penalties should Scandinavian Standard not always be able to deliver pursuant to its undertaking. Disease outbreaks Scandinavian Standard is a food business and also deals with livestock. Careful handling of food safety and animal welfare aspects are therefore of critical importance. Outbreaks of livestock diseases, whether in other geographical markets or at competitors facilities, and other similar events, could significantly and negatively affect demand for the Group s food products, consumer perceptions of chicken based food products, and the Group s ability to conduct its operations (e.g. through increased regulations). Scandinavian Standard has in place appropriate policies and procedures to manage and control food safety risks. These include systems and controls to ensure adherence to applicable regulation, good production practices and extensive precautionary measures both in the factories, but also at farmer suppliers, designed to ensure the health of livestock, especially to avoid salmonella. However, there can be no assurances that Scandinavian Standard will be successful in its work with livestock handling and food safety. In addition, it cannot be ruled out that diseases at supplier farms or within the business, including global epidemics, such as avian flu, or local outbreaks in the Company s home markets or in other countries, will negatively affect the demand for the Company s products. Price risks Although price is an important factor for consumers, added value such as health, quality and environmental and sustainability issues are increasingly a competitive parameter. The market price of products sold has a substantial impact on Scandinavian Standard s financial performance. Underlying drivers of market price include the local balance of consumer demand and industry supply, domestic and international competitor activity and pricing, price development of feed commodities and consequent broiler costs, and inflation. World market price movements may affect the Group s export trade and consequently its earning power. Risk also exist for increased supplier costs which cannot be passed on to customers. Political risk and market regulation The Scandinavian chicken markets are governed by extensive regulations and controls regarding hygiene, food safety and animal welfare. The company deems that these regulations to some extent act as barriers to imports and entry barriers on the company s markets. In addition, changes in the legislative and fiscal framework governing the activities of the Company can entail requirements for the company, or its suppliers, to make new and significant investments in their operations. Moreover, new laws and regulations may also make operations in the sector more onerous and less efficient or change the existing balance between food suppliers and their customers. Environmental risks Scandinavian Standard s operations are subject to permit and registration obligations in Sweden, Denmark and Norway. Scandinavian Standard believes that all units have the required permits and agreements and comply with specific safety, reporting and inspection requirements. Changes in legislation or other statutory regulations involving more stringent requirements or changed conditions concerning health, safety and the environment or moves toward a stricter application by authorities of laws and regulations may require additional investments and result in increased costs to monitor compliance within the Company. Should Scandinavian Standard fail to handle such changes in a cost-efficient way, this may have an adverse impact on Scandinavian Standard s business, financial results and position. Moreover, there is no guarantee that the Company s current or previous activities have not caused or will not cause contamination to land where the Company operates or has at some time operated. For example, the Company has been subject to environmental reviews and has been instructed to implement certain changes. Possible contamination resulting from the Company s operations may oblige the Company to perform restoration work at high costs which may have an adverse impact on Scandinavian Standard s business, financial results and position. Other risks Business ethics risks, supply chain risks and commodity risks are mainly managed through partnerships in international organizations. The risks are also managed through systematic efforts to follow the code of conduct and ethical guidelines, and by applying the supplier code of conduct to all agreements and regularly monitoring its compliance. In addition to the above mentioned risks Scandinavian Standard is also exposed to possible disruptions in the supply chain of fresh products, changes in consumer behavior, lack of continued and successful concept innovation and new product development. Also changes in food trends, changes in the environment, macro economic factors and changes in demography, consumer concern, negative publicity and any regulatory actions may affect demand for Scandinavian Standard products. SCANDINAVIAN STANDARD ANNUAL REPORT

14 With 3-4 large players in the market the company is also exposed to contracts with large customers. Other risks include reliance on key persons, strategy implementation, changes in brand value are the risks from imported products competition. Scandinavian Standard may engage in mergers, acquisitions and co-operation or joint venture schemes in the future. Such activities are associated with several risks such as strategic risks, risks related to financing and valuation and risks related to profit and cash flow generation. Cost of production of products are exposed to changes in soya and wheat commodities that may not be possible to offset to consumer. Changes in regulations of import may also result in increased import competition. Insurable risks In the case of insurable risks, Scandinavian Standard s aim is to minimize the total cost of damages in the Group. This is achieved partly by continuous development of risk prevention and risk-limiting initiatives in the operations and partly by Group-wide insurance solutions. Insurable risks are placed with large Swedish and international direct insurance companies that purchase reinsurance in the international reinsurance market. Even though certain costs in connection with production stoppages are covered by the company s insurance, the long-term effects of such production stoppages, for example loss of confidence with the customers, are generally not possible to insure. Financial risks The business is exposed to financial risks that can lead to fluctuations in financial results and position resulting from changes in exchange rates and interest rates. The Company is also exposed to funding and liquidity risks and to credit and counterparty risks, but also risks related to the cash flow from subsidiaries and tax-related risks. Management of financial risks is based on the Group s finance policy and the risk policies specific to each company. The finance policy is evaluated and approved by the Board of Directors. For more information see note 20 Financial Instruments and Financial Risk Management. Currency risks Scandinavian Standard is exposed to currency risk since exchange rates affect Scandinavian Standard s income statement, balance sheet and/or cash flow. Currency exposure are the result of purchases and sales of goods and services in other currencies besides the respective subsidiary s local currency (transaction exposure) and of the conversion of the balance sheets and income statements in foreign currencies into SEK (translation exposure). Changes in exchange rates can also affect suppliers and customers competitiveness and thus indirectly affect Scandinavian Standard s sales and profits. Scandinavian Standard is principally exposed to changes in the Euro, Danish kroner and Norwegian kroner compared to SEK. Exchange rate changes may negatively affect the company s business, financial results and position. Fluctuations in interest rates Scandinavian Standard faces interest rate risk from borrowings with a floating rate. The company may enter into and maintain certain hedging arrangements designed to fix or limit a portion of these rates, but it cannot be assured that such arrangements will continue to be available on commercially reasonable terms. Hedgingarrangements may involve certain risks in itself, including that Scandinavian Standard may need to pay a significant amount (including costs) to terminate them. If interest rates were to rise significantly the company s interest expenses would correspondingly increase, thus reducing free cash flow. Accordingly, fluctuations in interest rates could have a negative effect on the company s business, financial results and position. Financing Risks Scandinavian Standard is financed by equity and debt, and is therefore exposed to the risks associated with debt financing, as an example, covenants which upon breach may result in the loan being considered due and payable. Payments associated with servicing debt could adversely affect Scandinavian Standard, e.g. by reducing or postponing investments or by requiring the Company to sell assets, issue equity or restructure debt at unattractive terms. Scandinavian Standard may require additional capital in the future due to unforeseen liabilities or in order to take advantage of business opportunities. There can be no assurance that the Company will be able to obtain necessary financing in a timely manner on acceptable terms, or at all. Credit risks The company has significant economic exposure to its customers, mainly relating to outstanding trade receivables, and may be negatively affected if a customer becomes insolvent or goes bankrupt. Further, changes in payment terms imposed by the company s suppliers or customers may negatively affect the business, financial results and position. Risk related to cash flow from subsidiaries The company s principal assets consist of the company s direct and indirect shareholdings in subsidiaries. The company s ability to make required payments of interest and principal on the company s indebtedness and funding of the Group s operations, as well as to pay dividends, is affected by the ability of the subsidiaries to transfer available cash resources to parent company. Transfer of funds to the parent company from its subsidiaries (by way of dividends, intercompany loans or otherwise) may be restricted or prohibited by legal and contractual requirements applicable to the respective subsidiaries and its directors. There can be no assurance that limitations or restrictions of the transfer of funds between companies within the Group will not become more restrictive in the event that the Group experiences difficulties with respect to liquidity and financial position. 12 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

15 Scandinavian Standard is exposed to tax-related risks Scandinavian Standard manages its operations through companies in several countries. It is the company s understanding that all tax returns and other filings have been prepared in accordance with applicable tax laws. There can be no guarantee that the company s understanding for and interpretation of the applicable tax laws are correct in every aspect. Hence, it cannot be guaranteed that the tax authorities will not make assessments which deviate from the tax returns/other filings. Such decision may have a material adverse impact on the company s business, financial results and position. The Board of Directors The Board of Directors is the highest decision-making body after the General Meeting. The Board of Directors responsibility and tasks are regulated in the Swedish Companies Act, the Swedish Annual Accounts Act, the Company s articles of association, directions given by the general meeting and procedure for the Board of Directors of the Company adopted by the Board of Directors and other relevant rules and regulations. Pursuant to the Swedish Companies Act the Board of Directors is responsible for the Company s organisation and the administration of the Company s affairs. Furthermore, the board of directors shall continuously assess the Company s and the Group s financial situation, as well as to see to that the Company s organisation is formed in a way that the accounting, management of funds and the Company s financial conditions otherwise are controlled in a secure manner. The assignments of the Board of Directors include, inter alia, to set objectives and strategies, see to that there are effective systems for follow-up and control of the Company s operations, and see to that there exists a satisfactory control of the Company s compliance with laws and other regulations applicable to the Company s operations. The assignments of the Board of Directors also include to see to that required ethical guidelines are set for the Company s behaviour and to see to that the Company s disclosure of information is characterized by transparency and is correct, relevant and reliable. In addition, the assignments of the Board of Directors include appointing, evaluating and if necessary removing the managing director. The Board of Directors has internally appointed a remuneration committee and an audit committee. Members of the Board of Directors (except for employee representatives) are appointed annually by the Annual General Meeting for the period until the end of the next annual general meeting. According to Scandinavian Standard s Articles of Association, the Directors of the Board to be elected by the General Meeting shall consist of a minimum of three and a maximum of eight members without deputies. SCANDINAVIAN STANDARD ANNUAL REPORT

16 At present, the Company s Board of Directors consists of seven ordinary members with no deputies and no employee representatives. The board members are described in greater detail on page 48. When the Group was formed in June 2013, the elected Board consisted of Kate Briant and Alexander Walsh from CapVest, and Per Olof Nyman, President & CEO of Lantmännen, and Ulf Gundemark who is also a member of the company Lantmännen s Group Board. At an extra Shareholder s Meeting on March 17, 2014, Kate Briant, Alexander Walsh, Ulf Gundemark were re-elected to the Board and Heléne Vibbleus, Karsten Slotte, Michael Parker and Per Harkjær were newly elected. Per Harkjær was elected Chairman of the Board. Events after the end of the reporting period The process of incorporating the new companies into the Group continues. A new Group CFO, Jonathan Mason, has been appointed and officially starts on April 1, 2014, although he has been working in the business since February On February 1, 2014, Magnus Lagergren became Country manager Sweden. On January 10, Lantmännen sold its holding in Scandinavian Standard to Lantmännen Kycklinginvest AB, a subsidiary of the Lantmännen Group. The market development The global animal protein market is growing, and the chicken market is expected to show higher growth than other meat products. Average annual chicken consumption per capita in Europe is approx. 23,6 kg. Chicken is the type of meat that is accepted in most regions, and global consumption of chicken is increasing as living standards rise. The region with the highest growth is expected to be Asia. The current assessment for EU is for continuing good growth in consumption. There is an additional potential for Swedish and Norwegian consumption to increase, as Sweden and Norway are still below the average consumption in Europe. Global consumption is rising at a faster rate than European production and the imbalance in the market is increasing. The industry is being squeezed by higher and more volatile soy and wheat prices for feed, increased import competition and retail price pressure. To sharpen competitiveness, it is necessary to optimize production and focus on exports and increased internationalization. The feed price trend has also meant price increases in the Swedish market. Danish products and the Danish home market have also found it more difficult to obtain compensation for commodity price increases. Although price is an important factor for consumers, added value such as health, quality and environmental and sustainability issues are increasingly a competitive parameter. Scandinavian Standard s strategic sustainability program, which includes the environment, quality and animal welfare, is an effective response to the demands of the more aware consumers of today. Consumption The Scandinavian chicken food market has experienced a consistently strong and steady development over the past decade with an average growth rate of 3.2 percent from 2000 to Main driver has been an increasing per capita consumption underpinned by chicken being a more cost-effective and affordable source of protein, structural long-term consumer trends towards healthier diets and an increasingly broad range of chicken-based food products becoming available to consumers. Growth has also been facilitated by the steady increase in immigration to Scandinavian countries of people with religious restrictions towards consumption of various other types of meat. In 2013, annual consumption in Scandinavia reached approximately 400,000 tonnes, which corresponds to a compound annual increase of 3.2 percent since Sweden contributed to the largest share of Scandinavian consumption with 41 percent, while Norway and Denmark accounted for 24 percent and 35 percent, respectively. Global consumption of poultry Million tonnes % Per capita poultry consumption Kg Poultry Poultry as % of total meat % 1 % 1 % 3 % 5 % 7 % Growth Source: OECD FAO, total meat defined as poultry, beef and pork EU average Source: GIRA 2013, NILF, Australian Chicken Meat Federation, National Chicken Council 14 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

17 Sweden As Sweden is part of the EU, the market is not subject to tariff or customs barriers when trading with chicken-based food products with other EU member states. According to Gira, Swedish domestic production volumes have been subject to an average decline of -0.9 percent per annum since 2000 reaching 88,000 tonnes in 2013, while domestic consumption has increased by approximately 3.0 percent per annum over the same period, and amounted to 162,000 tonnes in Growth in demand over the period has been serviced largely by imports, principally from Denmark. One of the main suppliers of Danish chicken to the Swedish retailers is Danpo A/S, which is part of the Scandinavian Standard Group. In 2012, approximately 56 percent of chicken consumption in Sweden was supplied through imports, with Denmark supplying 59 percent of the imported volumes. Even though imports constitute a relatively large share of the Swedish chicken market, domestically produced chicken has a significantly stronger position in the retail channel. According to marketing survey conducted by IPSOS, approximately 75 percent of consumers in Sweden are willing to pay a higher price for Swedish produced chicken based food. Sweden s annual chicken consumption is at 20 kg of chicken meat per capita and of this import accounts for approx 56%. Frozen chicken imports are increasing, but the trend is reversed for fresh chicken, with consumers showing a strong preference for the Swedish fresh product. Growth for total chicken products in Sweden was 5 percent in 2013, and similar growth is expected in Norway Norway applies high tariffs on imports, has limited import quotas and regulates local production through strict concession limits. Therefore, the Norwegian market is highly effectively a closed, self-contained market. Should local demand exceed domestic production and the defined import quotas, the tariffs may be lowered for a specified period at the discretion of the Norwegian government. From September 2012 to October 2012, tariffs on fresh whole chickens where lowered from the current rate of 48.4 NOK/kg to 10.5 NOK/kg. Consequently, chicken-based food products consumed in Norway are to a very large extent sourced from domestic producers. Since 2000, Norwegian production of chicken has increased by a CAGR of 6.4 percent to meet the growth in demand, reaching 96,000 tonnes in The Norwegian market for white meat has grown stronger than its Swedish and Danish counterparts in recent years. Consumption has doubled in 15 years and is now at approx 19 kg per capita. Despite the growth, consumption is still lower than in Denmark and Sweden. Growth in Norway has varied between 5 and 10 percent in recent years and is expected to be around 5 percent in the period ahead. The egg market has achieved growth of between 5 and 10 percent and this is expected to be around 5 percent in the period ahead. Annual egg consumption in Norway is approx. 180 eggs per capita. Denmark As Denmark is part of the EU, the market is not subject to tariff or customs barriers when trading with chicken-based food products with other EU member states. A feature of this market is that the volume of domestic production exceeds local consumption, with exports and imports both of significant volumes. It has been evident that while Danish consumption has increased over the past decade, local production has declined. From 2000 to 2013, Danish production decreased approximately 1.2 percent each year from 205,000 tonnes to 176,000 tonnes The Danish market has a growth rate of less than 3 percent, but the market is more mature, with consumption of approx. 25 kg of chicken per capita. Price pressure is expected to continue but is partly offset by increased production efficiency. High feed prices have presented a major challenge to the entire chicken industry. Danpo strengthened its position in the retail and food service sectors in However, the Danpo brand came under pressure from private labels and also faced competition from imported products. In 2014, there will be an increased focus on marketing and profiling the Danpo brand in order to strengthen competitiveness, and also on production efficiency. Proposed appropriation of earnings Scandinavian Standard AB (Parent ) The following earnings are at the disposal of the Annual General Meeting SEK Retained earnings 500,666,654 Net income for the year -637,919 Total 500,028,735 The Board of Directors and President & CEO propose that the total earnings be carried forward. SCANDINAVIAN STANDARD ANNUAL REPORT

18 Group financial statements Consolidated Income statement MSEK Note 2013* Net sales 4 3,120 Other operating income 4 9 Change in inventories of finished goods and work in progress 72 Raw materials and consumables -2,035 Employee benefits expense Depreciation, amortization and impairment 6-96 Other operating expenses Share of income of associates 13 2 Operating income 37 Finance income 8 0 Finance costs 8-90 Income after financial items Tax Net income for the year 80 Net income for the year attributable to: shareholders of Parent * Earnings per share, SEK For earnings attributable to shareholders of the Parent Average number of shares, million Average number of shares corresponds to the number of shares outstanding. There are no potential shares with a dilution effect. * Relates to the period June - December 2013 Consolidated Statement of comprehensive income MSEK Note 2013* Net income for the year 80 Other comprehensive income Items that will not be reclassified to the income statement Actuarial gains and losses on defined benefit pension plans 21 9 Tax on actuarial gains and losses -2 Total 7 Items that will be reclassified to the income statement Cash flow hedges 3 Exchange differences on translation of foreign operations 10 Net gain on hedge of net investment in foreign operations -10 Tax attributable to items that will be reclassified 1 Total 4 Other comprehensive income, net of tax 11 Total comprehensive income 69 Total comprehensive income attributable to: shareholders of Parent -69 There are no non-controlling interests in the Group. * Relates to the period June - December SCANDINAVIAN STANDARD ANNUAL REPORT 2013

19 Consolidated Statement of financial position MSEK Note 2013 Dec 31 ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Investments in associates Non-current financial assets 14 6 Surplus in funded pension plans 21 5 Deferred tax assets Other non-current assets 0 Total non-current assets 2,056 Current assets Inventories Trade and other receivables Current interest-bearing assets 17 1 Cash and cash equivalents Total current assets 1,193 TOTAL ASSETS 3,249 MSEK Note 2013 Dec 31 EQUITY AND LIABILITIES Equity Share capital 0 Other contributed capital 501 Reserves 4 Retained earnings -73 Total equity Non-current liabilities Non-current interest-bearing liabilities 19, 20 1,772 Provisions for pensions 21 3 Deferred tax liabilities Other non-current provisions 22 2 Other non-current liabilities 23 Total non-current liabilities 1,939 Current liabilities Current interest-bearing liabilities 19, Trade and other payables Current tax liabilities Total current liabilities 878 TOTAL EQUITY AND LIABILITIES 3,249 Pledged assets and contingent liabilities, see note 28 on page 42. Consolidated Statement of changes in equity Other contributed capital Reserves ings ers of the Parent Retained earn- Total sharehold- MSEK Note Share capital * Opening balance, June 3, Net income for the year Other comprehensive income, net of tax Total comprehensive income Owner transactions 0 Closing balance, December 31, * The share capital in Scandinavian Standard AB amounted to SEK 50,072. Comments on Consolidated equity The Group was established June 3, 2013 when the owners contributed total capital of MSEK 501 to the Parent Company. This capital is reported above as part of the Group s equity. There are no non-controlling interests in the Group. More information about equity can be found in note 18 on page 34. SCANDINAVIAN STANDARD ANNUAL REPORT

20 Consolidated Statement of cash flows MSEK Note 2013* OPERATING ACTIVITIES Operating income 37 Adjustment for non-cash items 1) Financial item paid, net 29:1-73 Taxes paid -25 Cash flow from operating activities before change in working capital 92 Cash flow from changes in working capital Change in inventories -115 Change in operating receivables -117 Change in operating liabilities Cash flow from operating activities -12 INVESTING ACTIVITIES Acquisition of operations 29:2-1,948 Investment in property, plant & equipment -91 Investment in intangible assets -1 Sale of property, plant & equipment and intangible assets 2 Cash flow from investing activities 2,038 Cash flow before financing activities 2,050 FINANCING ACTIVITIES New issue 501 Loans from related parties, Vendor Loan Notes and PIK Notes 483 Borrowing 1,490 Depreciation -352 Cash flow from financing activities 2,122 Cash flow for the year 72 Cash and cash equivalents at beginning of year - Exchange gains/losses 0 Cash and cash equivalents at end of year 29:3 72 1) MSEK 2013* Adjustment for non-cash items Depreciation, amortization and impairment of non-current assets 96 Share of income of associates -2 Capital gains on sale of non-current assets 0 Inventory cost, from acquisition balance sheet 59 Total 153 * Relates to the period June - December SCANDINAVIAN STANDARD ANNUAL REPORT 2013

21 Parent Company financial statements The Parent Company Scandinavian Standard AB owns shares in the subsidiaries in which operations are conducted. These operations are shown in the section that describes the Group. No operations are conducted in the Parent Company and there are no employees. Parent Company Income statement MSEK Note 2013* Operating expenses Other external costs 30-2 Operating expenses 2 Interest income from subsidiaries 26 Interest expenses -23 Total financial items 3 Income after financial items 1 Tax on net income for the year 31-2 NET INCOME FOR THE YEAR 1 * Relates to the period February - December 2013 As there is no difference between net income and comprehensive income, a statement of comprehensive income has not been prepared. Parent Company Statement of financial position MSEK ASSETS Non-current assets Note 2013 Dec 31 Non-current financial assets Investments in Group companies Internal Group holdings 477 1,010 Total non-current assets 1,010 Current assets Cash and bank balances 0 Total current assets 0 TOTAL ASSETS 1,010 MSEK Note 2013 Dec 31 EQUITY AND LIABILITIES Equity Restricted equity Share capital 0 Non-restricted equity Share premium account 501 Net income for the year Total equity 500 Non-current liabilities Non-current interest-bearing liabilities Total non-current liabilities 483 Current liabilities Tax liabilities 2 Accruals and deferred income Total current liabilities 27 TOTAL EQUITY AND LIABILITIES 1,010 Pledged assets - Contingent liabilities - SCANDINAVIAN STANDARD ANNUAL REPORT

22 Parent Company Statement of changes in equity Share premium Restricted Non-restricted MSEK Share capital* account reserves equity Total equity Equity, June 3, Net income for the year -1-1 Equity, December 31, * The share capital in Scandinavian Standard AB amounted to SEK 50,072. Parent Company Statement of cash flows MSEK 2013* OPERATING ACTIVITIES Operating income 2 Interest paid 0 Taxes paid 0 Cash flow from operating activities before change in working capital 2 Cash flow from changes in working capital Change in operating liabilities 2 2 Cash flow from operating activities 0 INVESTING ACTIVITIES Acquisition of operations and shareholder contributions -533 Lending to subsidiaries -451 Cash flow from investing activities 984 FINANCING ACTIVITIES New issue 501 Loans from related parties, Vendor Loan Notes and PIK Notes 483 Cash flow from financing activities 984 Cash flow for the year 0 Cash and cash equivalents at beginning of year 0 Cash and cash equivalents at end of year 0 * Relates to the period February - December SCANDINAVIAN STANDARD ANNUAL REPORT 2013

23 Notes to the annual financial statements Amounts in MSEK unless otherwise stated Scandinavian Standard AB is headquartered in Stockholm, Sweden. The address of the main office is Franzéngatan 5. The corporate identity number is The Group s operations are described in the Board of Directors report and in note 3, Segment reporting. The Group s and Parent Company s financial statements for 2013 will be presented for adoption by the AGM, on 28 April Note 1 Accounting policies The principal accounting policies applied in preparing this annual report are summarized in this note. The same policies are normally applied for both the Parent Company and the Group. Parent Company policies that differ from those of the Group are described under separate headings. BASIS OF PREPARATION Scandinavian Standard s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. IFRS includes International Accounting Standards (IAS) and interpretations of standards (IFRIC and SIC). In addition to the Annual Accounts Act and IFRS, the Swedish Financial Reporting Board s recommendation RFR 1, Supplementary Accounting Rules for Groups, has also been applied. The Parent Company s annual financial statements have been prepared in accordance with the Annual Accounts Act and the Swedish Financial Reporting Board s recommendation RFR 2, Accounting for Legal Entities. Scandinavian Standard applies the cost method for measuring assets and liabilities, except for derivative instruments and the categories available-for-sale financial assets and financial assets and liabilities measured at fair value through profit or loss. These financial assets and liabilities are not measured at fair value in the Parent Company. Non-current assets and non-current liabilities essentially consist only of amounts expected to be recovered or paid after more than twelve months reckoned from the closing date. Current assets and current liabilities essentially consist only of amounts that are expected to be recovered or paid within twelve months reckoned from the closing date. Standards, amendments and interpretations that entered into force in 2013, have been adopted by the EU and are applied by the Group The Group was formed during the year, and 2013 is therefore the first year of consolidated reporting. Consequently, there are no comments on how amended standards and interpretation effective from 2013 affect accounting and reporting. Standards, amendments and interpretations that have been adopted by the EU but have not entered into force, and have not been early adopted by the Group IFRS 10 Consolidated Financial Statements IAS 27 Separate Financial Statements amendment IFRS 10 and the amendment to IAS 27 are effective from IFRS 10 supersedes the section of IAS 27 concerning the preparation of consolidated financial statements. IAS 27 will then be used only for the Parent Company s reporting of Investments in Group companies. The rules concerning the preparation of consolidated financial statements have not changed. However, IFRS 10 clarifies the procedure for determining whether control exists or not. Shareholdings, i.e. voting rights, are not necessarily required for control to exist. The amendment is not expected to have any impact on the Group s financial reporting in the current situation. IFRS 11 Joint Arrangements and the amended IAS 28 Investments in Associates and Joint Ventures IFRS 11 and the amendment to IAS 28 are effective from IFRS 11 addresses accounting for joint arrangements, defined as an arrangement of which two or more parties have joint control. IFRS 11 supersedes IAS 31 and SIC 13. Joint arrangements are divided into two categories - joint operations and joint ventures. In joint operations, each joint operator accounts for the assets, liabilities, revenues and expenses relating to its interest in the joint arrangement. Joint ventures, where each joint venturer owns an interest in the company s net assets, are accounted for using the equity method. Use of proportional consolidation is prohibited. The amendment is not expected to have any impact on the Group s financial reporting in the current situation. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 is effective from IFRS 12 establishes what information is required to be disclosed about interests in subsidiaries, associates and joint arrangements. An entity is required to make significant qualitative and quantitative disclosures about the nature of any risks associated with its interests in other entities and the effects of these interests on its financial statements. The amendment is not expected to have any significant impact on the Group s financial reporting in the current situation. IAS 32 Financial Instruments: Classification amendment The amended IAS 32 is effective from The amendment clarifies the definition of certain terms regarding offsetting of financial assets and financial liabilities. The amendment is not expected to have any impact on the Group s reporting in the current situation. IAS 36 Impairment amendment The amended IAS 36 is effective from The amendment requires additional disclosures about fair value when the recoverable amount of an impaired asset is based on fair value less costs to sell, and harmonization of disclosure requirements with what applies when the recoverable amount is calculated based on value in use. The amendment is not expected to have any significant impact on the Group s reporting in the current situation. SCANDINAVIAN STANDARD ANNUAL REPORT

24 Note 1 continued IAS 39 Financial Instruments: Recognition and Measurement amendment The amended IAS 39 is effective from The amendment provides relief from discontinuing hedge accounting when when an entity is forced to change the immediate counterparty of a hedging instrument to achieve clearing with a central counterparty. The amendment is not expected to have any impact on the Group s reporting in the current situation. Standards, amendments and interpretations that have not yet been adopted by the EU IFRS 9, Financial Instruments: Recognition and Measurement This standard is part of a project to replace the existing standard IAS 39. There is no timetable for EU adoption, but IFRS 9 will probably be effective from 2018 at the earliest. The Group is awaiting completion of all the parts of the standard, and has not yet assessed the impact of the new standard. IFRIC 21 Levies Provides guidance on when to recognize a liability for a levy imposed by a government. The interpretation is not expected to have any significant impact on the Group s reporting in the current situation. Changes to the Parent Company s accounting policies The Swedish Financial Reporting Board s recommendation RFR 2 Accounting for Legal Entities has been amended by the introduction of new guidelines for reporting group contributions. The guidelines are effective from Scandinavian Standard has chosen to apply the alternative rule in the guidelines, which means that both group contributions received and group contributions made are reported as an appropriation. ASSUMPTIONS AND ACCOUNTING ESTIMATES To ensure preparation of the financial statements in accordance with IFRS, assumptions and estimates must be made which affect reported assets and liabilities and income and expenses, as well as other information disclosed. The actual outcome may differ from these estimates. The areas in which assumptions and accounting estimates have the greatest impact on carrying amounts are described in more detail in note 2. CONSOLIDATED FINANCIAL STATEMENTS The Group s financial statements comprise the financial statements for the Parent Company and all Group entities in accordance with the definitions below. A Group entity is consolidated from the date on which the Group obtains control, or for associates significant influence, over the enterprise, while divested Group entities are included in the consolidated financial statements up to and including the date on which the Group still has control, or for associates significant influence, over the enterprise. Subsidiaries Subsidiaries are companies in which Scandinavian Standard, directly or indirectly, holds or controls more than 50 percent of the votes or otherwise exercises control. The consolidated financial statements are prepared according to the purchase method. The cost of an investment in a subsidiary is the cash amount and the fair value of any non-cash consideration paid for the investment. The value of the acquired net asset, the equity in the company, is determined by measuring acquired assets and liabilities and contingent liabilities at their fair value on the date of acquisition. Those fair values constitute the Group s cost. If the cost of an investment in a subsidiary exceeds the fair value of the acquired company s identifiable net assets, the difference is recognized as consolidated goodwill. Whether a minority s share of goodwill should be measured and included as an asset is determined for each acquisition. If the cost is less than the final fair value of the net assets the difference is recognized directly in the income statement. Acquisitionrelated costs are recognized in profit and loss as they arise. All intra-group transactions, including receivables and liabilities, income and expenses as well as unrealized earnings, are eliminated in their entirety. Associates Associates are companies over which Scandinavian Standard has a significant, but not controlling, influence. This is normally the case when the Group holds between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. Acquired assets and liabilities are measured in the same way as for subsidiaries and the carrying amount includes any goodwill and other Group adjustments. The Group s share of the associate s income after tax arising after the acquisition, adjusted for any depreciation/reversals of the consolidated value, is reported on a line in the income statement and is included in operating income. The share of income is calculated on the basis of Scandinavian Standard s share of equity in the associate. The equity method means that the consolidated carrying amount of investments in associates corresponds to the Group s share of the equity of associates plus the residual value of fair value adjustments. Unrealized gains and losses that do not involve an impairment loss are eliminated in proportion to the Group s investment in the associate. Translation of foreign Group entities Statements of financial position and income statements for all Group entities whose functional currency is not the presentation currency are translated into the Group s presentation currency using the following procedures: Assets and liabilities are translated at the closing rate on each reporting date reported in the statement of financial position. Revenues and expenses are translated at the average rate for each year reported in the income statement and statement of comprehensive income. All translation differences that arise are recognized as a separate item under other comprehensive income in the statement of comprehensive income. In cases where net investments in foreign operations are hedged with financial instruments the foreign exchange differences arising on translation of these instruments are also recognized in the statement of comprehensive income. When a foreign operation is disposed of, the cumulative translation differences and exchange differences for any financial instruments held for hedging the net investment in the company are recognized as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated according to the same principles as the entity. Parent The Parent Company recognizes all investments in Group entities at cost, adjusted where applicable by accumulated impairment losses. FOREIGN CURRENCY TRANSACTIONS AND BALANCE SHEET ITEMS The various entities within the Group present their reports in the currency of the primary economic environment in which they operate (the functional currency). The consolidated financial statements are prepared in Swedish kronor (SEK), which is the Parent Company s functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign currency receivables and liabilities are remeasured at closingdate rates at the end of each reporting period. Exchange differences arising on such remeasurement, and upon payment of the transaction, are recognized in the income statement. However, exchange differences arising on remeasurement of items that are hedging transactions, and that qualify for hedge accounting, are recognized in other comprehensive 22 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

25 Note 1 continued income. Gains and losses on operating receivables and liabilities are netted and reported within operating income. Gains and losses on borrowings and financial investments are reported as financial items. Exchange differences on receivables which represent an extended investment in subsidiaries are recognized in other comprehensive income in the same way as translation differences relating to investments in foreign subsidiaries. SEGMENT REPORTING Reported operating segments are consistent with the internal reporting submitted to the chief operating decision maker, who is the person that allocates resources and evaluates the results of the operating segments. At Scandinavian Standard, this role is assumed by the President & CEO, who, on behalf of the Board, takes charge of day-to-day management and governance. The business segments are consistent with the Group s operational structure in which activities are divided into Regions. The Regions, which are based on geographical areas, are Denmark, Norway and Sweden. Activities not included in a Region and corporate functions are reported as Other operations. A further description of the operating segments is provided in note 3 on page 28. The Regions are responsible for their operating income and the assets and liabilities used in their own operations, namely the operating capital. Financial items and taxes do not fall within the Regions responsibility; these are reported centrally for the Group. The same accounting policies are used for the Regions as for the Group, apart from pensions (IAS 19 only at Group level), financial instruments (IAS 39 only at Group level) and biological assets (IAS 41 only at Group level). Transactions between Regions, segments and other operations are carried out on commercial terms. PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are recognized at cost less accumulated depreciation and any accumulated impairment. Cost includes expenditure that can be directly attributed to the acquisition of the asset, including the effect of cash flow hedges relating to investment purchases in foreign currencies. Start-up and pre-production costs that are necessary for bringing the asset to its predetermined condition are included in the cost. For major investments, where the total investment value is at least MSEK 100 and the investment period lasts at least 12 months, interest during construction is included in the cost of the asset. Subsequent expenditure on property, plant and equipment increases the cost only if it is probable that the Group will have future economic benefit from the subsequent expenditure. All other subsequent expenditure is recognized as an expense in the period in which it is incurred. Depreciation policies for property, plant and equipment Land is assumed to have an indefinite useful life and is therefore not depreciated. Depreciation of other property, plant and equipment is based on cost less estimated residual value. Depreciation is straight-line over the asset s estimated useful life. Each component of a larger item of property, plant and equipment with a cost that is significant in relation to the asset s total cost and with a useful life significantly different from the rest of the asset, is depreciated separately. The assets residual values and useful lives are tested at least annually and adjusted as necessary. The following depreciation schedules are applied: Buildings Property fixtures Plant and machinery Equipment, tools Vehicles Office equipment years years 5-20 years 5-15 years 5-10 years 5-10 years INTANGIBLE ASSETS An intangible asset is recognized when the asset is identifiable, the Group controls the asset, and it is expected to yield future economic benefits. Intangible assets such as goodwill, trademarks and customer and supplier relationships are identified and measured normally in connection with business combinations. Expenditures on internally generated trademarks, customer relationships and internally generated goodwill are recognized in the income statement as an expense when they are incurred. Goodwill Goodwill is the amount by which the cost of acquisition exceeds the fair value of the net assets acquired by the Group in a business combination. The value of the goodwill is allocated to the operating segment s cashgenerating units which are expected to benefit from the acquisition that gave rise to the goodwill item. Goodwill is carried at cost less accumulated impairment losses and is tested annually for impairment. Goodwill impairment is not reversed. Goodwill arising on acquisition of associates is included in the carrying amount of the associate and is tested for impairment as part of the value of the total investment in the associate. Net gains or losses on the disposal of Group entities include the remaining carrying amount of the goodwill attributable to the divested entity. Trademarks The value of trademarks is carried at cost less any accumulated amortization and impairment losses. Trademarks with an indefinite useful life are not amortized but are tested annually for impairment in the same way as goodwill. Trademarks that Scandinavian Standard intends to continue using for the foreseeable future and that have a cost of at least MSEK 10 are classified as trademarks with an indefinite useful life. The relief from royalty method is used to measure trademarks identified in a business combination. As all of the Group s trademarks have indefinite useful lives, no estimated useful lives have been defined. Customer and supplier relationships Intangible assets in the form of customer and supplier relationships are identified in connection with business combinations. The value of customer relationships is calculated using the multi-period excess earning method, together with any other relevant information, and is carried at cost less accumulated amortization and impairment losses. At present, existing customer relationships are considered to have a useful life of 10 or 20 years and existing supplier relationships a useful life of 10 years. Research and development No research is conducted within the Group. Expenditure on development is recognized as an intangible asset only if it is technically and financially feasible to complete the asset, it is expected to provide future economic benefits, the cost of the asset can be measured reliably and the development is substantial. Currently, this means that all expenditure on the development of commercial products and similar products is expensed as incurred. Expenditure on development of business-related IC/IT systems is capitalized if the general preconditions according to the above are met and the total expenditure is estimated to exceed MSEK 3. Capitalized expenditure is amortized on a straight-line basis over the estimated useful life of 5 to 10 years. IMPAIRMENT LOSSES Intangible assets with an indefinite useful life are not amortized but are tested for impairment annually or more frequently if there is an indication of impairment. The carrying amounts of assets that are amortized are regularly tested. At the end of each reporting period, an assessment is made as to whether there is any indication that the assets are impaired and need to be written down. The recoverable amount is estimated for these assets SCANDINAVIAN STANDARD ANNUAL REPORT

26 Note 1 continued and for assets with indefinite useful lives. The recoverable amount is the higher of an asset s fair value less costs to sell and its value in use. An impairment loss is recognized if the recoverable amount is less than the carrying amount. A previously recognized impairment loss is reversed if the reasons for the earlier impairment no longer exist. However, an impairment loss is reversed only to the extent that it does not increase the carrying amount of an asset above the amount that would have been determined had no impairment loss been recognized in prior years. Impairment of goodwill is never reversed. For an asset that depends on other assets generating cash flows, the value in use of the smallest cash-generating unit to which the asset belongs is estimated. Goodwill is always allocated to the cash-generating units that benefit from the acquisition that generated the goodwill. An asset s value in use is the present value of the estimated future cash flows that are expected from using the asset and its estimated residual value at the end of its useful life. When calculating the value in use, future cash flows are discounted at an interest rate before tax that takes into account a market assessment of risk-free interest rates and risk involved with the specific asset. INVENTORIES Inventories are measured at the lower of cost and net realizable value at the reporting date. The cost is estimated by applying the FIFO (first in/first out) method or weighted average prices. The cost of self-produced goods includes raw materials, direct wages, other direct costs and productionrelated overhead costs, based on normal production capacity. Borrowing costs are not included in the measurement of inventories. Net realizable value is the estimated selling price in operating activities less the estimated costs to complete and sell the product. FINANCIAL ASSETS AND LIABILITIES FINANCIAL INSTRUMENTS All financial instruments are recognized in the statement of financial position. Financial assets include cash and cash equivalents, trade receivables, shares, loan receivables, other interest-bearing instruments and derivatives. Financial liabilities include trade payables, loans and derivatives. Derivative instruments consist of forward contracts and swaps, which are used to cover risks of exchange rate fluctuations and exposure to interest-rate risks. Derivative instruments are recognized in the statement of financial position when the agreements are made. Trade receivables are recognized in the statement of financial position when the invoice is issued. Trade payables are recognized when an invoice is received. Other financial assets and financial liabilities are recognized in the statement of financial position on the settlement date. A financial asset or part of the asset is derecognized on the settlement date or when it expires. A financial liability or part of a financial liability is derecognized on the settlement date or when it is extinguished in another manner Classification of financial assets and liabilities Measurement of financial assets and liabilities is based on how a particular financial instrument is classified. Classification takes place at the time the transaction is conducted. Scandinavian Standard classifies its financial instruments in the following categories: Financial assets measured at fair value through profit or loss A financial asset is assigned to this category if it is held for trading. Derivative instruments with a positive market value are assigned to this category if they have not been identified as hedging instruments. Changes in value in this category are recognized in profit or loss. Loans and receivables This category comprises non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets in this category are carried at amortized cost and are subject to impairment testing. Impairment of a financial asset takes place if events occur that provide evidence that the future cash flows from the asset will be adversely affected. Available-for-sale financial assets Financial assets that have not been classified in any of the above categories and are not a derivative instruments, e.g. unlisted shares, are included in this category. Financial assets are carried at fair value, and the change in value is recognized in OCI and accumulated in equity until the asset is sold, unless an impairment loss requires a change in value to be reclassified to profit or loss before then. Financial liabilities measured at fair value through profit or loss Derivative instruments with a negative fair value are assigned to this category, unless the instrument has been identified as a hedging transaction. Changes in the values of these instruments are recognized in profit or loss. Other liabilities This category includes all liabilities except for derivative instruments. Other liabilities are carried at amortized cost. Derivatives used in hedge accounting This category includes derivatives used in hedge accounting in accordance with the description in the section on Derivative instruments and hedge accounting. Non-current financial assets Equities and interest-bearing securities acquired for permanent use in operations are reported under non-current financial assets. Listed equities are categorized as available-for-sale financial assets. Short-term investments Short-term investments are mainly short-term bank deposits with an original maturity of between 3 and 12 months or instruments that are immediately marketable. Short-term investments are included in the loans and receivables category. Cash and cash equivalents Cash and cash equivalents comprise cash, immediately available bank deposits as well as other money market instruments with an original maturity less than three months and are included in the loans and receivables category. Interest-bearing liabilities Interest-bearing liabilities are mainly loans from credit institutions. Interest-bearing loans are initially recognized at cost corresponding to the fair value of the performance received. Transaction costs are allocated by adding to the value of the loans and recognized as an interest expense over these loan terms in line with the effective interest method. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING Holdings of financial derivative instruments comprise interest rate swaps, interest rate caps and currency forward contracts. Derivative instruments are carried at fair value and the result of the remeasurement affects the income statement when the derivative does not qualify for hedge accounting. Hedge accounting may be applied if certain criteria are met with regard to documentation of the hedge relationship and the hedge effectiveness. Financial instruments that are hedging instruments hedge either an asset or a liability, a net investment in foreign operations or are a hedge of an actual or forecast transaction. IAS 39 defines three different hedging relationships: cash flow hedges, hedging of net investments and fair value hedges. Scandinavian Standard currently only applies cash flow hedging and hedging of net investments. Cash flow hedges A cash flow hedge is a hedge held to reduce the risk of an impact on profit or loss from changes in cash flow relating to a highly probable forecast future transaction or in transactions associated with an asset or liability. In cash flow hedge accounting, the change in the derivative instrument s 24 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

27 Note 1 continued fair value is recognized in other comprehensive income and accumulated in equity equity, while any ineffective portion is recognized in profit or loss. When the hedged position is recognized in profit or loss, the result of the revaluation of the derivative instrument is also transferred to profit or loss. Cash flow hedging is applied for currency risks in commercial flows and for interest rate risks in the debt portfolio. Hedging of net investments Hedging of net investments refers to hedges held to reduce the effect of changes in the value of a net investment in a foreign operation owing to a change in foreign exchange rates. Foreign currency gains or losses arising from remeasurement of the fair value of the instruments used for these hedges are recognized in other comprehensive income and accumulated in equity. The result is reclassified from equity to profit or loss upon disposal of the foreign operation. Net investments are currently hedged by borrowing. Currency risk Currency derivatives are entered into with the aim of limiting the impact of short-term currency movements on Scandinavian Standard s earnings and financial position. Interest rate risk Interest rate derivatives are used for the purpose of changing the fixedrate interest period of underlying financial assets and liabilities. Interest rate swaps and interest rate caps are used to hedge against interest rate risks. Parent In the Parent Company, financial instruments are accounted for using the cost method. As the interest-bearing assets and liabilities of the Parent Company are consistent in all material respects with those of the Group, no special disclosures are provided for the Parent Company. DETERMINATION OF FAIR VALUE For unlisted financial instruments, or if the market for a certain financial asset is inactive, the value is determined through the application of generally accepted valuation techniques, whereby the Group makes assumptions based on market conditions prevailing at the reporting date. The fair value of forward exchange contracts is estimated based on current forward rates at the reporting date, while interest rate swaps are valued using estimates of future discounted cash flows. Market rates and current credit margins form the basis for determining the fair value of long-term borrowings. For financial assets and liabilities with short maturities, the fair value is estimated at cost adjusted for any impairment. If the fair value of equity instruments cannot be determined, they are reported at cost adjusted for any impairment. PROVISIONS Provisions are recognized when Scandinavian Standard has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. The amount of the provision is recognized the best estimate of the expenditure required to settle the obligation at the reporting date. For long-term material amounts, provisions are measured at the present value of the expenditure required to settle the obligation, taking into account the time value of money. Provisions for restructuring measures are made when a detailed, formal plan for measures is in place and wellfounded expectations have been created for those who will be affected by the measures. No provisions are made for future operating losses. EMPLOYEE BENEFITS Pensions Scandinavian Standard has both defined contribution and defined benefit pension plans, most of which are funded. With defined contribution plans, the company pays fixed contributions to a separate legal entity and has no obligation to pay further contributions thereafter. The costs for these plans are charged to consolidated profit as the benefits are earned. Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, based on factors such as salary, years of service and age. The Group s companies bear the risk associated with paying out promised benefits. Plan assets in funded plans can only be used to pay benefits under the pension agreement. The liability recognized in the statement of financial position consists of the net of the estimated present value of the defined benefit obligation and the fair value of the plan assets associated with the obligation at the reporting date, either in a pension fund or in some other arrangement. Pension costs and pension obligations for defined benefit plans are calculated according to the projected unit credit method. This method allocates the costs for pensions as the employees carry out services for the company that increase their entitlement to future benefits. The company s obligation is calculated annually by independent actuaries. The obligation comprises the present value of the expected future payments. The discount rate that is used corresponds to the interest rate for high-quality corporate bonds or treasury bonds with a maturity that corresponds to the average term for the obligations and the currency. An interest rate equivalent to the interest rates of high-quality mortgage bonds is used for Swedish plans, which represent the vast majority of the defined benefit plans. These bonds are considered equivalent to corporate bonds as they have a sufficiently deep market to be used as the basis for the discount rate. Actuarial gains and losses may arise in determining the present value of the defined benefit obligation and fair value of plan assets. These arise either when the actual outcome diverges from the previously calculated assumption or the actuarial assumption changes. These actuarial gains and losses are recognized in Other comprehensive income. A special payroll tax is calculated on the difference between the pension obligation determined according to IAS 19 and the pension obligation determined according to the rules applied in the legal entity. The calculated future payroll tax is included in the recognized pension liability. The present value of the provision is not calculated. The change in the provision is recognized to the extent that it relates to actuarial gains or losses in OCI. Termination benefits A provision for costs in connection with termination of personnel is recognized only if the company is obligated to end employment before the normal retirement date or when benefits are provided as an incentive to encourage voluntary termination. Estimated termination benefits are recognized as a provision when a detailed plan for the measure is presented. Variable salary Provisions for variable salary are expensed on an ongoing basis in accordance with the economic substance of current agreements. TAXES The Group s tax expense consists of current tax and deferred tax. Taxes are recognized in the income statement, except when the underlying transaction is recognized in OCI, in which case the related tax effect is also recognized in OCI. Current tax is the tax payable or receivable for the current year. Current tax also includes adjustments to current tax attributable to prior periods. Deferred tax is recognized using the balance sheet liability method on all temporary differences arising between the tax base of assets and liabilities and their carrying amount. Deferred tax is measured at the nominal amount and is calculated by applying the tax rates and regulations that have been enacted or substantively enacted by the reporting date. Deferred taxes relating to temporary differences attributable to investments in subsidiaries and associates are not recognized, as, in each SCANDINAVIAN STANDARD ANNUAL REPORT

28 Note 1 continued case, Scandinavian Standard is able to control the date for their reversal and it is not considered probable that any such reversal will occur in the near future. Deferred tax assets relating to deductible temporary differences and loss carryforwards are recognized only to the extent that it is considered probable that these will result in lower tax payments in the future. Deferred tax assets and deferred tax liabilities are offset when they are attributable to the same tax authority and the companies in question have a legally enforceable right to offset current tax assets against current taxation liabilities. REVENUE Revenue is recognized net of value added taxes and, where relevant, the value of discounts provided. Revenue from the sale of goods and services is recognized on delivery to the customer and in accordance with the terms of the sale, i.e., when the significant risks and rewards of ownership have been transferred to the customer. Interest income is recognized on a time-proportion basis using the effective interest method. Royalties and similar revenues are recognized on an accruals basis in accordance with the substance of the relevant agreement. Dividends are recognized when the right to receive a dividend has been established. Other revenue includes compensation for sales outside the Group s ordinary activities, such as insurance payments, external rental income and income from the sale of non-current assets. LEASING he Group acts only as a lessee. Leases are classified in the consolidated financial statements as finance leases or operating leases. A finance lease is a lease that transfers substantially all the financial risks and rewards incident to ownership. An operating lease is a lease other than a finance lease. The lessee recognizes a finance lease as a non-current asset and a corresponding interest-bearing liability in the statement of financial position at an amount equal to the value of the leased asset. The depreciation policy for leased assets is consistent with that for depreciable assets that are owned. The lease payments are apportioned between interest and amortization of the initially recognized liability. The lessee does not recognize an operating lease as asset in the statement of financial position. The total lease payments are recognized as an expense on a straight-line basis over the lease term. GOVERNMENT GRANTS Government grants are recognized in the statement of financial position and the income statement when there is reasonable assurance that the Group will comply with any conditions attached to the grant and the grant will be received. Grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes expenses for the related costs for which the grants are intended to compensate If the government grant or assistance is neither related to the acquisition of assets nor to compensation of costs, it is recognized as other income. BIOLOGICAL ASSETS Biological assets are measured and carried at fair value in accordance with IAS 41. Scandinavian Standard has biological assets in the form of broiler parent stock within the operations of rearing day-old chicks. The lifespan of the parent stock is approx. one year. As these operations from the Group s point of view are of limited scope and the life span of the broilers is relatively short, Scandinavian Standard has decided to view the reported cost of acquisition as a calculated fair value. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Scandinavian Standard only reclassifies assets as held for sale if their value is substantial. The current threshold is MSEK 5. GROUP CONTRIBUTIONS AND SHAREHOLDER CONTRIBUTIONS Parent Company The Swedish Financial Reporting Board has introduced rules for reporting group contributions in its recommendation RFR 2 Accounting for Legal Entities. Scandinavian Standard is applying the alternative rule, which means that both group contributions received and group contributions made are reported as an appropriation. The issuer capitalizes the shareholder contribution in shares and interests to the extent that impairment is not required. The recipient recognizes the shareholder contribution directly in equity. RELATED PARTIES By virtue of its control, the Parent Company has a related party relationship with its subsidiaries and sub-subsidiaries. By virtue of their significant influence, the Group and Parent Company have a related party relationship with their associates, which include directly and indirectly owned companies. Lantmännens Gemensamma Pensionsstiftelse Grodden is a post-employment benefit plan for employees of certain companies in the Group As such, the fund is considered to be a related party. Intra-Group purchases and sales of goods and services are conducted at market prices. By virtue of their right to participate in the decisions concerning the Group s strategies, members of the Group s Operational Board have significant influence over the Parent Company and Group are therefore considered to be related parties. These individuals are also co-owners of the Parent Company through holdings of shares and PIK notes. The Group s main currencies apart from SEK, 2013: MSEK Average rate Closing rate DKK NOK BORROWING COSTS Borrowing costs attributable to investments in assets that take more than 12 months to complete, and for which the investment amount is at least MSEK 100, are capitalized as part of the investment amount. Other borrowing costs are expensed in the period in which they are incurred. 26 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

29 Note 2 Significant judgments, accounting estimates and assumptions Preparation of annual financial statements in accordance with IFRS in many cases requires management to make judgments and use of accounting estimates and assumptions in determining the carrying amounts of assets and liabilities. These estimates are based on historical experience and assumptions that are considered reasonable and realistic in the current circumstances. The actual outcome may differ from the accounting estimates and assumptions. The estimates and underlying assumptions are regularly reviewed. The effect of a change in an accounting estimate is recognized in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. A general description of the accounting policies where management s accounting estimates and assumptions are expected to have a material effect on Scandinavian Standard Group s financial position and financial statements is provided below. The carrying amounts at the reporting date can be found in the statement of financial position and associated notes. Impairment of goodwill and other assets Goodwill and other intangible assets with indefinite useful lives are tested for impairment annually or whenever there are indications of possible impairment - in situations such as a changed business environment, a divestment decision or closure of operations. The Group s goodwill and other intangible assets amounted to MSEK 1,118 at the end of the year, which corresponds to 34 percent of the Group s total assets. Other assets are tested for impairment as soon as there is an indication that an asset s recoverable amount is lower than its carrying amount. In most cases, an asset s value in use is estimated by reference to the present value of the future cash flows the Group expects to derive from the asset. The cash flow projection is based on assumptions that represent management s best estimate of the economic conditions that will exist over the remaining useful life of the asset, and are based on the latest financial plan. An impairment loss is recognized if the estimated value in use is lower than the carrying amount. The discount rates used to calculate the present value of the expected future cash flows are estimated from the current weighted average cost of capital established within the Group for the markets in which the cashgenerating units are active. In preparing the 2013 annual financial statements, the value in use has been established using the calculations that formed the basis of the valuation of the operations acquired during the year. Other estimates regarding expected future results and the discount rates used can give different values of assets from those applied. Impairment is described in more detail in note 6. Deferred tax assets and tax liabilities Assessments are made to determine deferred tax assets and tax liabilities. Deferred tax assets are recognized as an asset when it is considered likely that they can be utilized and offset against future taxable profits. Other assumptions regarding the outcome of these future taxable profits, as well as changes in tax rates and rules can result in significant differences in the measurement of deferred taxes. More detailed information about amounts can be found in note 10. Pensions The value of pension obligations for defined benefit pension plans is determined by using actuarial calculations based on assumptions about discount rates, future salary increases, inflation and demographics. The discount rate, which is the most critical assumption, is based on the market return on high-quality corporate bonds, namely mortgage bonds with long maturities. The rate is extrapolated to correspond to the pension plan s obligations. A lower discount rate increases the present value of the pension obligation and pension cost, while a higher discount rate has the reverse effect. A 0.25 percent change in the discount rate would change the pension obligation by approx. MSEK 5. More detailed information about amounts can be found in note 21. SCANDINAVIAN STANDARD ANNUAL REPORT

30 Note 3 Segment reporting INFORMATION ABOUT OPERATING SEGMENTS Financial year 2013, Jun 3 Dec 31 MSEK Region Sweden Region Norway Region Denmark Groupwide 1) Eliminations Total Group Net sales External sales 1, , ,120 Internal sales Total net sales 1, , ,120 Operating result Of which share of income of associates Finance income Finance costs Tax Net income for the year 80 Other disclosures Assets 1, , ,035 Holdings in associates Unallocated assets Total assets 1, , ,249 Liabilities Unallocated liabilities ,219 Equity Total liabilities and equity ,249 Investments Depreciation, amortization and impairment ) EBIT reported under Group-wide includes transaction costs of MSEK -73 from the year s company acquisitions and central corporate costs of MSEK -7. Group-wide assets includes assets and liabilities relating to central functions. INFORMATION ABOUT GEOGRAPHIC AREAS, BASED ON CUSTOMER LOCATION MSEK External sales 2013 Sweden 1,172 Norway 911 Denmark 642 Germany 117 United Kingdom 111 Russia 50 Rest of Europe 63 Rest of world 54 Total 3,120 One of Scandinavian Standard s clients accounts for more than 10 percent of the Group s total sales. The sales amount on a full-year basis is MSEK 814 and the location is Region Sweden. Scandinavian Standard s business is operationally divided into the countries of Sweden, Norway and Denmark Internal reporting to Group Management and the Board corresponds with the Group s operational structure. The division is based on the Group s operations from a geographic perspective. Those countries where business is operated equals the Group segments. The segments are managed on the basis of the operating result (EBIT) and operating capital. The responsibility for the Group s financial assets and liabilities, provisions for taxes and pensions, gains and losses on the remeasurement of financial instruments (IAS 39) and pension obligations (IAS 19R) are dealt with by the corporate functions and are not allocated to each segment. All capital expenditure on property, plant and equipment and intangible assets, apart from expendable equipment, is included in the segments investments. Segment Sweden comprises the companies Kronfågel AB, SweHatch AB and AB Skånefågel. SweHatch engages in the rearing, production and hatching of day-old chicks for Kronfågel AB s breeders and other small players in the Swedish market. Kronfågel AB is the segment s largest business engaged in slaughtering, production and development of fresh and frozen chicken products, mainly for the Swedish market. Group-AB Skånefågel slaughters and sells chicken for the Swedish market and export. Segment Norway comprises Den Stolte Hane Jæren AS, Den Stolte Hane Egg AS, Scandi Standard Norway AS and the associate Nærbo Kyllingslakt AS. The segment consists of two parts - the production, processing and sale of chicken products and the packing of eggs in the segment s own egg packing facility. Both types of product are sold in the Norwegian market. The segment also handles and sells small quantities of turkey and duck. Segment Denmark comprises Danpo A/S and the associate Farmfood A/S. Danpo slaughters, produces, develops and processes chicken products with heat treatment for both the Danish market and exports within Europe and to Asia. Farmfood processes slaughterhouse byproducts from the Group s different segments, mainly for use in pet food sold in the international markets. 28 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

31 Note 4 Breakdown of revenue MSEK 2013* Net sales Sales of goods 3,120 Total 3,120 Other operating income Government grants 1 Insurance compensation 3 Other 5 Total 9 * Relates to the period June - December 2013 Note 5 Employees and employee benefits expenses Average number of employees 2013 of which female Group Sweden % Norway % Denmark % Total, Group 1, % The Parent Company has no employees. Employee benefits expense MSEK Group 2013 Salaries and benefits, boards and MDs 5 - of which variable component Salaries and benefits, other employees 409 Social security costs 57 Pension costs 1) 17 Other staff costs 16 Total 504 1) MSEK 0.4 of the Group s pension costs relate to boards and Managing Directors. There are no outstanding pension obligations for these individuals. Gender representation in executive management 2013 Female representation, % Group Parent Company Boards Other senior executives 0 0 REMUNERATION OF SENIOR EXECUTIVES Senior executives Senior executives as referred to in this note are Scandinavian Standard Group s operational management in 2013, which consists of the President & CEO, Group Operational Manager, country managers in Norway and Denmark, CFO in Sweden and Norway, Animal Welfare Officer in Sweden and Sales & Marketing Director, Sweden. Members of operational management are employees of the different Group companies, although none of them are employees of the Parent Company. In 2013, the Group s first year of operation, senior executives comprised eight individuals at the start-up date, June 3, and at year-end. As from 2014 Senior Executives are defined as Scandinavian Standard Group Management. See page 49. Guidelines The Annual General Meeting has resolved on guidelines for remuneration for senior executives and the remuneration policy has been approved by the Board of Directors in accordance with the AGM. Remuneration policy The objective of Scandinavian Standard s remuneration policy is to offer compensation that reflects the Company s commitment to attract and retain qualified expertise. The fundamental guidelines are to: - ensure that employees at Scandinavian Standard receive market-based compensation that makes it possible to recruit and retain capable employees in line with Scandinavian Standard s common values of open dialogue, challenge and acting now. - offer a salary structure that is based on individual performance, duties, qualifications, experience and position, and is therefore neutral with regard to gender, ethnicity, disability, sexual orientation, etc. Remuneration structure, 2013 Scandinavian Standard s remuneration structure has the following components: - Fixed salary - Variable salary - Pension - Termination and other benefits Fixed salary Members of Scandinavian Standard s operational management undergo an annual salary review on January 1. The review considers individual performance, market salary growth, changed areas of responsibility, company performance and local agreements and regulations. Variable salary Scandinavian Standard has an overall variable salary program for a defined target group. The target group 2013 consisted of the operational management group and the management groups in the countries. Decisions about target groups and guidelines for variable salary or bonus schemes are made annually by Scandinavian Standard s Board. For 2013, the program consists of quantitative and qualitative targets. The quantitative targets represent 75 percent of the maximum variable salary and are linked to the EVA (economic value added) that operating units generate for Scandinavian Standard. During the change of ownership in 2013, the economic targets were adapted to relate to Scandinavian Standard s net income. Pension Scandinavian Standard offers its employees occupational pensions unless otherwise regulated in local agreements or other regulations. In Sweden, the majority of employees are covered by defined benefit pension plans (ITP) through PRI Pensionstjanst AB. There are currently two different pension guidelines for Scandinavian Standard s operational management: occupational pension accrual in accordance with the ITP agreement, with a pensionable salary ceiling of 30 income base amounts and payment of sickness benefits as laid down in the ITP agreement, and a premium-based pension, with a premium equal to percent of the pensionable salary. Within the premium framework, the individual employee decides on the sub-division between old-age, survivor and sickness benefits. The President & CEO receives a defined contribution pension, with a premium of 15 percent of the pensionable salary, and has a retirement age of 65 years. In Denmark, the pension contribution corresponds to 15 or 10 percent of the pensionable salary. In Norway the pension contribution is 5 percent up to 6 base amounts and thereafter 12 percent up to 12 base amounts. Conditions for pensions after the age of 65 Swedish senior executives are, in principle, accruing an occupational pension in accordance with ITP, with a pensionable salary ceiling of 30 income base amounts. Sickness benefits are payable in accordance with ITP. Danish and norwegian executives earn pension in accordance with the above description. Termination and other benefits Other benefits In addition to fixed and variable salaries and pensions, Scandinavian Standard offers occupational injury insurance and occupational group life insurance in accordance with local agreements and regulations. In addition, senior executives are entitled to private health insurance, telephone and car benefits. SCANDINAVIAN STANDARD ANNUAL REPORT

32 Note 5 continued Termination benefits/notice The President & CEO has a notice period of six months for termination of employment at the Company s request and six months for termination at his own request. If employment is terminated at the Company s request, the President & CEO will receive termination benefits corresponding to the fixed salary and other benefits (including occupational pension and insurance during the notice period), in addition to pay during the notice period corresponding to twelve months fixed salary, but with a full deduction of any salary from a new employer. Members of the operational management group have a notice period of six months for termination of employment at their own request and at the Company s request. Termination benefits corresponding to twelve months fixed salary are paid, with a full deduction of any salary from a new employer. One member has a mutual notice period of six months with six months termination benefits. Another member has a notice period extended by four months for termination at his request and a notice period of six months for termination at the Company s request. Other senior executives have a notice period of six months for termination at their own request and twelve months for termination at the Company s request. One employee has a non-compete clause which involves financial compensation amounting to 50 percent of the salary for 12 months after termination of employment. Salaries and remuneration of senior executives TSEK Directors fees Fixed salary 4) Variable salary 5) Pension 4) Other benefits 6) Total 2013 Board members 1) 0 0 President & CEO Leif Bergvall Hansen 2) 1, ,192 Operational Management, other 3) 8, , , , , ,728 1) No fees were paid to Board members during the year. 2) President & CEO s shareholding in Scandinavian Standard AB: 3,946,015 D preference shares, 424,800 B ordinary shares and 2,829,185 E preference shares. 3) Operational Management, other, consisted of 7 individuals at the end of the year. The average for the year was also 7. Disclosures for Operational Management only concern members of Scandinavian Standard s Operational Management. Other Operational Management s shareholding in Scandinavian Standard AB: 5,250,257 B preference shares, 389,452 D ordinary shares and 3,764,291 PIK notes. 4) Certain members of Operational Management are entitled to switch between fixed pay and pension within the framework of current tax legislation. 5) No variable salary was paid during the year. 6) Mainly company car; other benefits include telephone and health insurance. Note 6 Depreciation, amortization and impairment of intangible assets and property, plant and equipment MSEK 2013* Depreciation and amortization Land and buildings 8 Plant and machinery 67 Equipment, tools, fixtures and fittings 10 Intangible assets 11 Total 96 Impairment Scandinavian Standard measures the recoverable amount of assets in predefined cash-generating units when there are indications that there may have been a material decline in value and this is not expected to be temporary. Scandinavian Standard always conducts annual impairment testing of cashgenerating units that contain goodwill and other intangible assets with an indefinite useful life, irrespective of whether there is any indication that the assets may be impaired. During 2013, no additional valuations were carried out over and above the valuations connected with the acquisitions. Given the short duration that has elapsed since the acquisition and that no indications of impairments has been noted, no impairment testing has been carried out. The defined cash-generating units are largely consistent with the Group s segments. * Relates to the period June - December 2013 Note 7 Fees and reimbursement of expenses to auditors MSEK 2013* PricewaterhouseCoopers AB Annual audit 2 Other services 2 Tax advisor fees 0 Total 4 The annual audit comprises the auditing of the annual financial statements for the Parent Company and Group, the accounting records and the administration of the Board of Directors and President & CEO. It also include other duties incumbent on the company s auditors, as well as advice and other assistance arising from observations made while performing the audit or carrying out such other duties. * Relates to the period June - December SCANDINAVIAN STANDARD ANNUAL REPORT 2013

33 Note 8 Finance income and expense Note 9 Exchange differences affecting income MSEK 2013* Income Expense Total Financial assets at fair value through profit or loss Other income Loans and receivables Other interest income Other financial liabilities Interest expense, pension plans Interest expense, borrowing Other borrowing expenses Other interest expenses Currency effects MSEK 2013* Exchange differences affecting operating income -1 Exchange differences, financial items -2 Total 3 Exchange differences in operating income are included in: Other operating income/expense -1 Total 1 * Relates to the period June - December Total * Relates to the period June - December Note 10 Taxes Tax on net income for the year MSEK 2013* Current tax expense ( )/tax income (+) Tax expense/income for the period -15 Adjustment of tax attributable to prior years 0 Total current tax 15 Deferred tax expense ( )/tax income (+) Deferred tax from changes in temporary differences -30 Deferred tax income in capitalized loss carryforwards 18 Total deferred tax 12 Tax items recognized in equity through other comprehensive income MSEK 2013* Deferred tax recognized in OCI Actuarial gains and losses on defined benefit pension plans -2 Cash flow hedges -1 Total 3 Current tax recognized in net income for the year Current tax in hedges of net investments 2 Total tax effects in other comprehensive income 1 Total recognized tax expense 27 Reconciliation of effective tax 2013* Percent MSEK Income before tax -53 Anticipated tax according to enacted Swedish tax rate 22,0 % 12 Effect of changed tax rates -17 % -9 Effect of other tax rates for foreign subsidiaries -9 % -5 Non-deductible expenses -34 % -18 Reversal of income of associates 0 % 0 Other -13 % -7 Recognized effective tax 52 % 27 Deferred tax assets/tax liabilities 2013 MSEK Deferred tax assets Deferred tax liabilities Land and buildings Machinery and equipment Intangible assets Other assets Pension provisions Other liabilities 1-1 Loss carryforwards Total, net deferred tax liabilities Net * Relates to the period June - December SCANDINAVIAN STANDARD ANNUAL REPORT

34 Note 10 continued Change in deferred tax in temporary differences and loss carryforwards 2013 Group, MSEK Amount at beginning of year Recognized in income statement Recognized in OCI Changes in acquisition/divestment of companies Translation differences Amount at end of year Land and buildings Machinery and equipment Intangible assets Other assets Pension provisions Other liabilities Loss carryforwards Total Loss carryforwards At the end of the year the Group had loss carryforwards of MSEK 80, all of which were taken into account in the computation of deferred tax. All tax losses have an indefinite life. Note 11 Property, plant and equipment MSEK Land and land improvements Buildings Plant and machinery 2013* Equipment, tools, fixtures and fittings Construction in progress Total property, plant and equipment Accumulated cost of acquisition , ,113 Accumulated depreciation ,132 Accumulated impairment Carrying amount Balance at beginning of year Investments 1) Company acquisitions Sales and disposals Regular depreciation for the year Reclassifications Translation differences Carrying amount Leases, MSEK Carrying amount of assets held under finance leases ) Investments for the year do not include any capitalized interest. The accumulated values are reported as reported by each company. There is no adjustment to cost of acquisition equal to net value on acquisition. No government grants affecting investment values were received in There were no contractual obligations relating to investments in property, plant and equipment at the end of the year. For further information about depreciation and impairment, see note 6 on page 30. For further information about leases, see note 24 Leases on page 40. * Relates to the period June - December SCANDINAVIAN STANDARD ANNUAL REPORT 2013

35 Note 12 Intangible assets Other intangible assets Group 2013 MSEK Goodwill Brands Customer and supplier relationships Capitalized expenditure on development work, internally generated Total other intangible assets Accumulated cost of acquisition Accumulated amortization Accumulated impairment Carrying amount Balance at beginning of year Investments Company acquisitions Regular amortization for the year Translation differences Carrying amount Allocation of goodwill, brands and customer/supplier relationships per segment Denmark ) 18 Norway ) 150 Sweden ) 16 Total ) Brands with indefinite useful life (Danpo, BornholmerHanen) 2) Brands with indefinite useful life (Den Stolte Hane) 3) Brands with indefinite useful life (Kronfågel, Ivars, Vitafågeln) There were no contractual obligations relating to intangible assets at the end of the year. Further information about amortization, impairment and annual impairment testing of goodwill and trademarks with indefinite useful lives can be found in note 6 on page 30. Note 13 Investments in associates Group, MSEK 2013 Accumulated cost of acquisition 39 Accumulated impairment - Carrying amount 39 Balance at beginning of year 0 Company acquisitions 37 Share of income of associates 2 Dividend for the year - Translation differences 0 Carrying amount 39 MSEK, 2013 Share of income of associates Dividend from associates Farmfood A/S 2 - Nærbø Kyllingslakt AS 0 - Carrying amount 2 - Information on associates in 2013 (100 percent of the companies) Net income for MSEK Assets Liabilities Net sales the year Farmfood A/S Nærbø Kyllingslakt AS Any impairment and reversal of impairment is recognized in the income statement under Share of income of associates. Group holdings in associates, December 31, 2013 Company name Company name Corporate identity no. Domicile Number of shares Share of capital. % Carrying amount in Group, MSEK Associates in the Group: Region Denmark Farmfood A/S Loegstoer 10, Region Norway Nærbø Kyllingslakt AS Nærbø, Hå 3, Total 39 SCANDINAVIAN STANDARD ANNUAL REPORT

36 Note 14 Non-current financial assets Group, MSEK 2013 Receivables from associates 1 Other shares and interests 1 Other financial receivables 2 Derivative instruments 2 Carrying amount 6 Note 15 Inventories MSEK 2013 Raw materials and consumables 51 Products in progress 46 Finished goods and merchandise 512 Advances to suppliers 15 Total 624 MSEK 0.3 of inventories for the year were measured at net realizable value. Impairment losses of MSEK 7.1 were recognized during the year, while previous impairment of MSEK 7.5 was reversed. Note 16 Trade and other receivables MSEK 2013 Trade receivables 371 Other current receivables 28 Prepayments and accrued income 97 Total 496 Age analysis of trade receivables Note 16 continued MSEK 2013 Receivables, not yet due 326 Receivables, past due < 30 days days days 0 > 91 days 1 Total 371 Provision for doubtful debts 0 Total 371 For information about trade receivables credit quality, see note 20 on page 36. Prepayments and accrued income MSEK 2013 Prepaid rent 6 Prepaid insurance 8 Capitalized costs, granted loans 57 Other prepayments 24 Other accrued income 2 Total 97 Note 17 Current interest-bearing assets and cash and cash equivalents MSEK 2013 Interest-bearing receivables 1 Total 1 Cash and cash equivalents MSEK 2013 Cash and bank balances 72 Short-term investments < 3 months - Total 72 Receivables with a maturity of up to one year and investments with maturities between three months and one year are recognized as current interestbearing assets. As short-term investments normally have a fixed rate period of less than three months, they carry very little interest rate risk. Note 18 Equity MSEK Share capital* Other contributed capital Hedge reserve Translation reserve Retained earnings Equity attributable to owners of the parent Total equity, opening balance June 3, Net income for the period after tax Actuarial gains and losses on pension plans Cash flow hedges - remeasurement for the year Exchange differences on translation of foreign operations Net gain on hedge of net investment in foreign operations Tax relating to components of other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income Total equity, closing balance December 31, * The share capital in Scandinavian Standard AB amounted to SEK 50,072. Equity accounted for as opening balance June 3, 2013 is attributable to the capital injection by the parent company owners on the day of the establishment of the parent company and the Group. In addition no further transactions have been made with the owners during the year. 34 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

37 Note 18 continued Other contributed capital includes premiums paid by owners of the Parent Company in relation to issues. For cash flow hedges where the hedged transaction has not yet occurred, the hedge reserve comprises the cumulative effective portion of gains or losses arising from remeasuring the hedging instruments at fair value. The cumulative gain or loss recognized in the hedge reserve will be recycled to profit or loss when the hedged transaction affects profit or loss. The translation reserve comprises all exchange differences arising on translation of financial statements of foreign operations to the Group s presentation currency (SEK). Gains and losses on hedging instruments that qualify as hedges of a net investment in a foreign operation are also included in the translation reserve and recognized there after deduction of tax. Share capital Scandinavian Standard AB s share capital consists of A, B, C, D and E shares - both preference and ordinary shares. Dec 31, 2013 Share capital, total Number of shares Par value, SEK Opening balance, Jun 3, ,716,726 50,072 Change during year - - Closing balance 500,716,726 50,072 According to the Articles of Association for Scandinavian Standard AB, the share capital shall amount to a minimum of SEK 50,000 and a maximum of SEK 200,000 The par value of the share for all share classes is SEK Retained earnings includes both profits from prior years and net income for the year for the Parent Company and subsidiaries. Number of shares at December 31, 2013 Owned by Kansas Holding B.V (Controlled by CapVest Associates LLP) Owned by Lantmännen ek för 1) Owned by Management of Scandinavian group Ordinary A, 10 votes per share 3,738,051 3,422,742-7,160,793 Ordinary B, 1 vote per share , ,506 Preference C, 10 votes per share 248,436, ,480, ,916,217 Preference D, 1 vote per share ,831,025 13,831,025 Preference E, 1 vote per share - - 2,829,185 2,829,185 Total number of shares 252,174, ,902,906 17,639, ,716,726 Total 1) Lantmännen ek för sold its holding in Scandinavian Standard AB, including PIK Notes, to Lantmännen Kycklinginvest AB (publ), a subsidiary in the Lantmännen Group. Earnings per share 2013 Net income for the year, MSEK -80 Earnings per share, SEK 0.16 Average number of shares, million 500,7 Equity per share, SEK 0.86 Note 19 Interest-bearing liabilities Non-current interest-bearing liabilities MSEK Note 2013 Non-current liabilities to credit institutions 20 1,281 Vendor Loan Notes 135 PIK Notes 348 Derivative instruments 3 Financial liabilities, leases 5 Total 1,995 Current interest-bearing liabilities MSEK 2013 Short term debt credit institutions 223 Other current interest-bearing liabilities 18 Financial liabilities, leases 2 Total 243 SCANDINAVIAN STANDARD ANNUAL REPORT

38 Note 20 Financial instruments and financial risk management RISK MANAGEMENT Scandinavian Standard is exposed to different types of financial risk in the course of its international operations. Financial risk is the risk of fluctuations in the Group s financial results and position as a result of changes in exchange rates, interest rates and refinancing, and also includes credit and counterparty risks. CURRENCY RISK In the course of its operations, Scandinavian Standard is exposed to currency risk, in the form of exchange rate fluctuations affecting the Group s financial results and position. The Group s currency exposure includes both transaction exposure and translation exposure. The Group s currency risk management is aimed at minimizing the short-term effect of exchange rate fluctuations and their adverse impact on the Group s financial results and position. Transaction exposure Scandinavian Standard s goal is to avoid exposure to exchange rate fluctuations within Europe and worldwide in export trading. Distribution of trade receivables by currency, December 31, ) MSEK Group SEK 88 DKK 112 NOK 92 EUR 58 Other currencies 21 Total 371 Distribution of trade payables by currency, December 31, ) MSEK Group SEK 146 DKK 100 NOK 96 EUR 13 Other currencies 0 Total 355 1) No trade receivables or trade liabilities in the parent company. Translation exposure Translation exposure is the effect of changes in exchange rates when foreign subsidiaries income statements and statements of financial position are translated into the Group s presentation currency (SEK). Currency hedging of investments in foreign subsidiaries (net assets including goodwill on consolidation) is managed by means of loans in the subsidiaries currencies, and is referred to as the equity hedge. These loans are recognized at the closing rate on the reporting date. In the Parent Company, exchange differences attributable to these loans (net of tax) and translation differences from the net assets of subsidiaries are recognized in other comprehensive income and accumulated in consolidated equity. At present, net investments in DKK and NOK are hedged. If the Swedish krona strengthened against other currencies by 10 percent, equity would decrease by MSEK 118, not taking into account the equity hedge. If the equity hedge is taken into account, equity would decrease by MSEK 18, all other things being equal. Exchange rate fluctuations also affect the translation of foreign subsidiaries income statements to SEK. As this translation is not hedged, the translation difference is exposed to currency risk and as such is included in the sensitivity analysis below. Foreign-exchange sensitivity in transaction and translation exposure Scandinavian Standard is primarily exposed to the DKK, NOK and EUR. The different currencies represent both inflows and outflows against the Swedish krona. If, on translation of operating income, the Swedish krona were to weaken against subsidiaries currencies by 10 percent, this would have an adverse impact of MSEK -33 on operating income, all other things being equal. The impact is broken down as follows: DKK/SEK -16 MSEK and NOK/SEK -17 MSEK. The calculation does not take into account any changes in prices and customer behavior caused by the exchange rate movements. INTEREST RATE RISK Interest-bearing borrowing means that the Group is exposed to interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse effect on the Group s earnings and cash flows. How quickly a lasting change in interest rates is reflected in the Group s net financial items depends on the borrowing s fixed-rate period. At December 31, 2013, the Group s outstanding liabilities to credit institutions, including outstanding interest rate swaps, had a weighted average fixed-rate period of just over 4 months. A +/-1 percentage point change in interest rates would affect the valuation of interest rate swaps outstanding on the closing date, which in turn would affect operating income by MSEK +/-0.1 and equity by MSEK +/-0.7. The various loans in SEK, DKK and NOK have interest rate caps in accordance with the following distribution and size: 100 % of SEK loans of MSEK 380 hedged at 1.74 % vs STIBOR 3 months 75 % of NOK loans of MSEK 544 hedged at 2.15 % vs NIBOR 3 months 86 % of DKK loans of MSEK 475 hedged at 0.84 % vs CIBOR 3 months. REFINANCING RISK, LIQUIDITY RISK AND PAYMENT CAPACITY Refinancing risk is the risk that costs will be higher and opportunities for financing limited when loans and other credit arrangements are renewed. Liquidity risk is the risk that the Group will encounter difficulty in discharging payment obligations. Scandinavian Standard limits its refinancing risk by having a well-diversified group of counterparties and maturities for its loans. The weighted average maturity of loans with credit institutions at the end of the year was 4.5 years. By constantly maintaining cash assets or unused credit facilities, the Group ensures it has sound payment capacity, thereby reducing the liquidity risk. Payment capacity, i.e. cash and cash equivalents and unused credit facilities, at December 31, 2013 was MSEK 123. Maturity structure of liabilities to credit institutions by currency MSEK >2018 Total EUR DKK NOK SEK Total ,839 Of which interest Total, excl. interest ,504 Other interest-bearing liabilities Scandinavian Standard has interest-bearing debt to shareholders in the form of a vendor loan note with Lantmännen ek för and PIK notes with all shareholders apart from one. The VLN also exist with Lantmännen s Grodden pension fund. PIK notes are subordinated to other interest-bearing liabilities. The interest rate on both the VLN and PIK notes is 8 percent. 36 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

39 Note 20 continued The VLN runs until further notice but must be repaid in the event of an ownership change. Scandinavian Standard can repay all or parts of the loan as it sees fit. The PIK notes will be due for full repayment in the event of a change in ownership or by Scandinavian Standard can also make an early repayment of the PIK notes with outstanding interest. Maturity structure of derivative instruments, nominal amounts December 31, 2013 MSEK Fair value Currency derivatives Interest rate derivatives Total CREDIT AND COUNTERPARTY RISK Credit and counterparty risk is the risk that the counterparty in a transaction will be unable to discharge its obligations, thereby causing a loss for Scandinavian Standard. Counterparty risk is limited by only accepting counterparties with high credit-worthiness. Customer credit risk The credit risk associated with trade receivables is managed through special credit rating reviews. Scandinavian Standard has credit control procedures in place and obtains information about the financial position of customers from various credit-rating agencies. Some of the trade receivables are sold to Nordea Finans AB and Nordea Finans Danmark A/S without recourse. At the end of the year, receivables sold amounted to MSEK 117. Financial assets and liabilities measured at fair value in the statement of financial position at December 31, 2013 Level 1 Level 2 Level 3 Total Derivatives with positive fair value Other financial assets measured at fair value Total assets Liabilities, MSEK Derivatives with negative fair value Other financial liabilities measured at fair value Total liabilities Fair value hierarchy with information on inputs used to measure fair value Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: Inputs other than the quoted prices included in level 1 that are observable for the asset or liability, i.e. quoted prices or data derived therefrom. Derivative instruments in this level are interest rate swaps, interest rate caps, forward exchange rates and restricted placements. Level 3: Unobservable inputs for measurement of the asset or liability. Financial assets and liabilities by measurement category 2013 December 31, 2013, MSEK Financial assets at fair value through profit or loss Loans and receivables Derivatives used in hedge accounting Other financial liabilities Total carrying amount Fair value ASSETS Non-current financial assets Other shares and interests Other financial assets Current assets Current receivables Trade and other receivables Interest-bearing receivables Cash and cash equivalents Cash and bank balances Total financial assets LIABILITIES Non-current liabilities Interest-bearing liabilities ,769 1,772 1,754 1) Current liabilities Interest-bearing liabilities Trade and other payables Total financial liabilities ,367 2,371 2,353 1) Fair value measurement has been carried out for vendor loan notes and PIK notes. Other borrowings pertain to relatively recently agreed loans with credit institutions and, accordingly, fair values essentially agree with the carrying amounts. The measurement of vendor loan notes and PIK notes was based on a level 3 valuation, which means the utilization of market data for comparable companies and the yields on bonds issued by companies supported by venture capital companies in the Nordic region. The fair value of vendor loan notes was according to the valuation MSEK 140 compared with the carrying amount of MSEK 135 and the fair value of PIK notes was MSEK 325 compared with the carrying amount of MSEK 348. SCANDINAVIAN STANDARD ANNUAL REPORT

40 Note 21 Pensions Scandinavian Standard has both defined contribution and defined benefit pension plans. The defined benefit plans, as reported in the consolidated statement of financial position, are mainly funded and relate to PRI pensions in Sweden. These plans are funded in Lantmännen s Gemensamma Pensionsstiftelse Grodden pension fund, which enables a number of companies that are part of, or have been part of, Lantmännen Group to safeguard their pension obligations. Each company has its own part of the fund s assets. There is no obligation for the companies in the fund to make additional contributions to the fund. The obligations are also credit insured via PRI Pensionsgaranti. PRI Pensionsgaranti is a mutual insurance company that guarantees employees future pensions. Now that the assets are in a separate fund, the obligations can be reduced by the market value of the fund s assets when reported in the statement of financial position. Kronfågel AB and SweHatch are connected to the fund with regard to obligations accrued up to the end of May After this date, all new pension earnings within the Group are financed by direct charges. Pension plans with surpluses are recognized as an asset in the statement of financial position under Surplus in funded pension plans. Other pension plans that are unfunded or partially funded are recognized under Provisions for pensions. Defined benefit obligations and value of plan assets in the Group: Defined benefit plans MSEK 2013 Plan with surplus Funded plans Defined benefit obligations under Swedish PRI Pensionsgaranti plans 146 Fair value of plan assets -150 Total net value of funded plans 4 Surplus in pension plan reported as asset 5 Partially funded plan reported as liability 1 Unfunded plans Other unfunded obligations 2 Total unfunded plans 2 Provisions for pensions, net value 2 Pension cost in the income statement * MSEK 2013 Defined benefit plans Cost of pensions accrued during the year 2 Interest expense 0 Curtailments and settlements 14 Cost of defined benefit plans 16 Cost of defined contribution plans -33 Total cost relating to pensions 17 The cost is recognized on the following lines in the income statement Employee benefits expense -17 Finance costs 0 Total cost relating to pensions 17 Pension-related remeasurements in OCI * MSEK 2013 Defined benefit plans Return on plan assets in excess of what is recognized as interest income in the income statement 3 Experience-based adjustment of obligation 1 Effects of changes in financial assumptions 5 Total actuarial gains (+) and losses ( ) 9 Tax on above items -2 Total recognized in OCI 7 * Relates to the period June - December 2013 All defined benefit pension plans are in Sweden. The following summary explains how obligations, assets and the net amount changed during the year: MSEK Defined benefit obligations Plan assets Net Opening balance From acquired operations Service cost during the year Interest recognized in income statement Payment of pension benefits Compensation paid to employer 1) Curtailments and settlements Return on plan assets in excess of recognized interest Remeasurement of pension obligations recognized in OCI Closing balance, pension liability Of which funded plans -4 Of which unfunded plans ) Both Kronfågel AB and SweHatch have received compensation from the pension fund with regard to pensions paid in SCANDINAVIAN STANDARD ANNUAL REPORT 2013

41 Note 21 continued Fair value of plan asset categories and percentage of total plan assets 2013 MSEK Percent Property % Fixed-interest investments 12 8 % Structural products 5 3 % Equity investments % Hedge funds % Cash and cash equivalents % Total % Note 22 Other provisions The entire provision recognized in December 2013 is for the additional long term contingent consideration related to the acquisition of companies in Norway during the year. In corporate groups the size of Scandinavian Standard, there are normally a number of ongoing disputes. Scandinavian Standard assesses the most likely outcome of the disputes currently at issue, and where an outflow of financial resources is probable, a corresponding amount is recognized as a provision. Actuarial assumptions 2013 Discount rate 4.0 % Future pension increases 2.0 % Inflation 2.0 % Expected return on plan assets 4.0 % A 0.25 percent decrease in the discount rate would increase the pension obligation by approx. MSEK 5, while a 0.25 percent increase in the interest rate would reduce the obligation by approx. MSEK 5. A change of one year in mortality assumptions would increase the obligation by approx. MSEK 5 in the case of a longer life expectancy and would reduce it by the same amount in the case of a shorter life expectancy. A change of 0.25 percent in pension level assumptions would reduce the obligation by approx. MSEK 5 in the case of a lower assumption and would increase it by approx. MSEK 5 in the case of a higher assumption. The pension fund s return was approx. 8 percent in A change of 1 percentage point in the return would increase or decrease the value of the plan assets by approx. MSEK 1. The funded plans cover 66 percent of paid-up policyholders and 34 percent of retired persons. Expected payments of pensions under defined benefit pension plans in 2014 are MSEK 7. For certain employees in Sweden insurance premiums are paid to Alecta with regard to commitments under the traditional ITP (individual supplementary pension) plan. The plan is a multi-employer defined benefit plan. At present, Alecta is unable to disclose the information that is required to recognize this plan as a defined benefit plan. Consequently, pensions insured through Alecta, are recognized as a defined contribution plan. MSEK 2 of the above cost of MSEK 33 for defined contribution plans relates to Alecta premiums for traditional ITP plans. Alecta s surplus may be distributed to the policyholders and/or the insured. At the end of the year, Alecta s surplus in the form of its collective funding ratio amounted to 148 percent. The collective funding ratio reflects the market value of Alecta s assets as a percentage of its insurance obligations, calculated in accordance with Alecta s actuarial assumptions, which do not follow IAS 19. Note 23 Trade and other payables MSEK 2013 Trade payables 355 Operating liabilities to associates - Other current liabilities 94 Derivative instruments 1 Accruals and deferred income 145 Total 595 Accruals and deferred income MSEK 2013 Accrued personnel-related costs 89 Bonuses and discounts 11 Other accruals 33 Deferred income 12 Total 145 SCANDINAVIAN STANDARD ANNUAL REPORT

42 Note 24 Leases Note 25 Related party transactions The Group s leases are mainly operating leases. It has finance lease obligations only to a limited extent. The operating leases relate mainly to property leases, which represent more than 90 percent of the reported minimum lease payments. Operating leases Recognized cost of operating leases, MSEK MSEK 2013 * Minimum lease payments 32 Contingent rents 0 Total 32 * Relates to the period June - December 2013 Future obligations under non-cancelable operating leases are reported below. Minimum lease payments due MSEK 2013 Within one year 47 Between one and five years 154 After five years 216 Total 417 Companies in the Group are tenants in properties owned by Lantmännen ek för. The annual rent for these amounted to MSEK 12 in 2013, and is expected to be the same amount in The majority of the leases run until of the leases run until 2026, and the calculated rents for these contracts are included in the amounts reported in the table above. Finance leases Liabilities under finance leases are recognized as interest-bearing liabilities in the consolidated statement of financial position. Payments due within one year are recognized as current financial liabilities, while payments due after one year are a non-current financial liabilities. Recognized costs and payment of finance leases MSEK 2013 Minimum lease payments - reported as interest 0 - reported as payment (reduction of liability) 2 Contingent rents 0 Total payments under finance leases 2 The carrying amount of the leased assets at the reporting date is reported in note 11, Property, plant and equipment. Salaries and similar benefits received by senior executives are reported in note 5. No dividends from subsidiaries or associates have been received during the year. Receivables from associates and liabilities to associates are shown in notes 14 and 23. Further information on associated companies in note 13. Owner transactions MSEK 2013 Loan from Lantmännen ek för, Vendor Loan Note 95 PIK Notes Kansas Holding B.V (CapVest) 178 Lantmännen ek för 163 Management 7 Accrued interest Kansas Holding B.V (CapVest) 8 Lantmännen ek för 14 Management 0 Paid rentals to Lantmännen (7 months) 7 Monitoring fees* MSEK 2013 Kansas Holding B.V (CapVest) 1.2 Lantmännen ek för 0.5 The amount is estimated at 1.5% of the established EBITDA for the Group, with the division 70% to Kansas Holding (CapVest) and 30% to Lantmännen. Related party transactions 2013 Intra-group purchases, share of total purchases, % 8 Intra-group sales, share of total sales, % 5 Purchases of goods and services from associates, MSEK 0 Sales of goods and services to associates, MSEK 54 Loans from Lantmännen s Grodden pension fund, Vendor Loan Note, MSEK 40 Accrued interest pension fund, MSEK 0 Transfer of capital from pension fund, credited, MSEK 7 Interest on loans from owners and the pension fund is recognized in the income statement as incurred and is reported under other non-current liabilities in the statement of financial position. For conditions, see note 20, Other interest-bearing liabilities on page 36. Future minimum lease payments (payment and interest) by period: 2013 Payment Interest Total charge Within one year Between one and five years Total Note 26 Government grants MSEK 2013 Grants recognized as revenue 1 Grants that reduced expenses 0 Total 1 Grants during the year that reduced the value of non-current assets - Grants recognized as deferred income at the reporting date - 40 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

43 Note 27 Acquired operations The Group was formed on June 3, 2013 when Scandinavian Standard AB acquired, via Scandi Standard AB, the Norwegian chicken and egg group Cardinal Foods Group from the Finnish venture capital company CapMan and Lantmännen s chicken operations in Sweden and Denmark from Lantmännen ek för. The transaction cost for the acquisition was MSEK 73, reported as other operating expenses in the Statement of income. All the acquisitions were for 100 percent of capital and voting rights in the acquired companies. The acquisition created a leading Scandinavian food company specialized in chicken-based products with a strong market position in all three Scandinavian countries; Sweden, Norway and Denmark, which is expected to provide a competitive advantage for reasons including economies of scale. The acquired chicken businesses in Sweden and Denmark includes Kronfågel Holding with Danpo in Denmark and Kronfågel in Sweden as well as the swedish companies SweHatch and Skånefågel. Goodwill amounting to MSEK 613, includes personnel-related values of 158 MSEK. The remaining goodwill relates to expected future synergies in the form of market coverage, product and production development etc. In conjunction with the acquisition intangible assets were identified and valued at MSEK 325. These refer mainly to brand value in the companies and significant to future development. Estimates of acquisition values are based on approved budgets for 2013 and business plans for 2014 and The growth beyond 2015 is assumed at 2 percent p.a. The discount rates used were 15 percent for Norway and 11 percent in Denmark and Sweden. Other long term trade assets and suppliers relations were identified as intangible assets at MSEK 204 and accounted for as fair value when having a future value for the Group. There is no intention to dispose of any part of the acquired operations. No impairment test has not been made as of the accounting date on assets with an indefinite use of life. The background to this is that the acquisition analysis has been prepared in connection with the accounts and the short period of time since the acquisition. No indications of impairment has been noted. With regard to the acquisition of Cardinal Foods there is a contingent purchase price amounting to MNOK 2. The acquisition balance sheets are preliminary. There were no divestments of operations in MSEK Cardinal Foods Group Kronfågel Holding Group Other acquisitions Total Acquisition price Cash payment ,038 Contingent consideration, recognized liability Total ,040 Acquired assets and liabilities at fair value Property, plant and equipment Other intangible assets Inventories Trade receivables Other current and non-current assets Trade payables Other liabilities Net assets acquired, total 379 1, ,717 Cash and bank balances Borrowing Net debt, acquired Goodwill Total 763 1, ,040 In the above values are included adjustments of borrowed assets in the companies transferred to fair value of identifiable assets and liabilities in connection with acquisition balance. These adjustments are provided below. MSEK Cardinal Foods Group Kronfågel Holding Group Other acquisitions Total Other intangible assets Inventories Other debts 1) Acquired companies impact on the the consolidated income statement Net sales 904 2, Operating income from companies Operating income from acquisition price adjustments, excluding acquisition costs Operating income total Acquired assets impact on liquid assets Cash payments the year s acquisitions 761 1, ,038 Liquid assets acquired operations Total 673 1, ,948 1) Minor items pertaining to pension liabilities and derivative instruments. The majority pertains to deferred tax on Other intangible assets and Inventory. SCANDINAVIAN STANDARD ANNUAL REPORT

44 Note 28 Pledged assets and contingent liabilities Note 29 Notes to the statement of cash flows Pledged assets MSEK For own liabilities Real estate mortgages 113 Chattel mortgages 494 Shares in subsidiaries 3,835 Total 4,442 Securities exist in the form of real estate and chattel mortgages. In addition, the shares of all subsidiaries and subgroups are pledged as securities for loans from credit institutions. Contingent liabilities MSEK 2013 Guarantees for - breeders 43 Other contingent liabilities 28 Total 71 1) Interest paid, MSEK 2013 Interest paid 65 Other paid financial items 8 Total 73 2) Acquisition and divestment of operations The Group was formed in Information on acquisitions can be found in note 27 on page 41. There were no divestments of operations in ) Cash and cash equivalents, MSEK 2013 Cash and bank balances 72 Short-term investments, maturity less than 3 months 0 Total 72 The Group s total liquidity, defined as cash, bank deposits and credit available under the provisions of applicable loan agreements, amounted to MSEK 123 at the end of the year. Other contingent liabilities include MSEK 35 in operational leasing as well as obligations to transporters of chickens and the value of their holdings of commercial vehicles by MSEK SCANDINAVIAN STANDARD ANNUAL REPORT 2013

45 Notes to the Parent Company financial statements Note 30 Fees and reimbursement of expenses to auditors MSEK 2013 PricewaterhouseCoopers AB Annual audit 0 Total 0 Note 31 Taxes Tax on net income for the year MSEK 2013 Current tax expense ( )/tax income (+) Tax expense/income for the period -2 Total current tax -2 Total recognized tax expense Reconciliation of effective tax Percent MSEK Income before tax -1 Anticipated tax according to enacted Swedish tax rate 22.0 % 0 Non-deductible expenses 190 % -2 Recognized effective tax 212 % -2 Note 32 Investments in Group companies MSEK 2013 Accumulated cost of acquisition 533 Accumulated impairment - Carrying amount 533 Impairment is recognized in the income statement under Income from investments in Group companies. Balance at beginning of period 0 Acquisitions and shareholder contributions 533 Carrying amount 533 Parent Company and Group holdings of interests in Group companies, December 31, 2013 The table includes directly-owned subsidiaries and indirectly-owned companies. Company name Corporate identity no. Domicile Share, % Carrying amount, MSEK Scandi Standard AB Stockholm Scandi Standard ApS Farre, Denmark AB Skånefågel Örkelljunga, Sweden SweHatch AB Flyinge, Sweden Kronfågel Holding AB Stockholm Kronfågel AB Stockholm Danpo A/S Farre, Denmark Scandinavian Standard Norway AS (former Cardinal Foods Norway AS) Oslo Scandi Standard Norway AS Oslo Den Stolte Hane Egg AS Ski, Norway Den Stolte Hane Jæren AS Jæren, Norway Total, Parent Company 533 SCANDINAVIAN STANDARD ANNUAL REPORT

46 Notes to the Parent Company financial statements cont d Note 33 Accruals and deferred income Note 34 Financial instruments MSEK 2013 Accrued interest 23 Other accruals 2 Total 25 MSEK 2013 Loans and receivables Non-current interest-bearing receivables from subsidiaries 451 Total 451 Financial liabilities measured at amortized cost Non-current interest-bearing liabilities PIK Notes 348 Vendor Loan Notes (VLN) 135 Total 483 There are no derivative instruments in the Parent Company. See note 20 for information on interest-bearing liabilities. The Board of Directors and the President & CEO hereby certify that the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and give a true and fair view of the Group s financial position and performance. The Parent Company s financial statements have been prepared in accordance with generally accepted accounting principles, and give a true and fair view of the Parent Company s financial position and performance. The Board of Directors Report for the Group and Parent Company provides a true and fair overview of the development, financial position and performance of the Group and Parent Company, and describes significant risks and uncertainties faced by the Parent Company and Group companies. Stockholm, April 28, 2014 Per Harkjær Chairman of the Board Alexander Noel Walsh Heléne Vibbleus Penelope Kate Briant Ulf Anders Gundemark Karsten Slotte Michael Parker Leif Bergvall Hansen CEO The Group s and Parent Company s annual financial statements will be presented for adoption by the annual general meeting on April 28, Our audit report was submitted on April Öhrlings PricewaterhouseCoopers AB Bo Lagerström Authorized Public Accountant 44 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

47 Auditor s report To the annual meeting of the shareholders of Scandinavian Standard AB corporate identity number Report on the annual accounts and consolidated accounts We have audited the annual accounts of Scandinavian Standard AB which consist of the financial year 1 February 31 December 2013 for the parent company and the financial year 3 June 31 December 2013 for the Group. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Managing Director of Scandinavian Standard AB for the financial year 3 June 31 December Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined the Board of Directors reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year Stockholm April 28, 2014 PricewaterhouseCoopers AB Bo Lagerström Authorized Public Accountant SCANDINAVIAN STANDARD ANNUAL REPORT

48 Legal structure As of April 2014 Scandinavian Standard AB 100 % Scandi Standard AB 100 % 100 % 100 % 100 % Scandinavian Standard Norway AS Kronfågel Holding AB SweHatch AB AB Skånefågel 100 % 100 % Scandi Standard Norway AS Scandinavian Standard ApS 100 % 100 % 100 % 100 % Danpo A/S Kronfågel AB Den Stolte Hane Jæren AS Den Stolte Hane Egg AS 33,3 % 50 % Farmfood A/S Den Stolte Hane Jæren AS Comments on the legal structure The legal structure above is the result of transactions carried out during spring 2013 when Lantmännen ek för transferred Kronfågel Group in Sweden and Denmark to Scandi Standard AB and acquired ownership of Scandi Standard AB s parent company Scandinavian Standard AB. Scandi Standard AB also acquired Cardinal Foods Norway AS, which has now had its name changed to Scandinavian Standard Norway AS. Ownership of Scandinavian Standard Scandinavian Standard ABs capital structure comprises different types of shares, with different voting rights, and simple promissory notes. The majority owner of Scandinavian Standard AB, CapVest, owns 50 percent of the shares in the company. Lantmännen ek för owns 46 percent of the shares in Scandinavian Standard AB. Both CapVest and Lantmännen ek för own shares with a high voting power (10 votes per share). The shares owned by Management have only one vote per share. Consequently, Scandinavian Standard AB s voting rights are distributed as follows: CapVest 52 percent and Lantmännen ek för 48 percent. 46 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

49 Organizational structure As of April 2014 Group CEO L B Hansen Group Communications J Fridh Primary production Tommi Saksala Group Communications J Fridh Group CFO J Mason Group COO P A Jensen Group Procurement Manager K Lange Country Manager Denmark (Danpo) J Bjerregaard Country Manager Sweden (Kronfågel) J M Bjerregaard Lagergren Country Manager Norway (CF) J Bjerregaard T Higdem Group Finance Factory managers Sales, marketing & innovation Sales, marketing & innovation Sales, marketing & innovation Investor Relations Technical Finance managers Finance managers Finance managers IT Quality Live animals procurement Live animals procurement Live animals procurement Projects SCANDINAVIAN STANDARD ANNUAL REPORT

50 Board of Directors SCANDINAVIAN STANDARD AB, (April 2014) Corporate identity number Per Harkjær Chairman Born: 1957 Member since: 2014 Education: Per Harkjaer holds a bachelor degree in International Marketing from Copenhagen Business School. Main occupation: Member of the Board of Directors of Partner in Pet Foods. Previous assignments: Managing Director and Board member of United Coffee and Findus Group. Per Harkjaer does not own any shares or warrants in Scandinavian Standard. Penelope Kate Briant Board Member Born: 1971 Member since: 2013 Education: Bachelor of Commerce and Accounting Honours from University of Cape town, South Africa. Chartered Accountant (CA(SA)) from South African Institute of Chartered Accountants and registered with the Financial Conduct Authority UK. Main occupation: Chairman RenoNorden. Board Member Master Private. Director Valeo Foods. Co-founder of CapVest. Previous assignments: Auditor, Director Vaasan & Vaasan. Kate Briant does not own any shares or warrants in Scandinavian Standard. Alexander Noel Walsh Board Member Born: 1981 Member since: 2013 Education: Alexander holds a Masters Degree from University of St. Andrews. Main occupation: Board Member RenoNorden and Scandza Holding. Investment Professional CapVest. Previous assignments: Board member United Coffee. Alexander Walsh does not own any shares or warrants in Scandinavian Standard. Michael Parker Board Member Born: 1953 Member since: 2014 Education: Michael Parker holds a Bsc (hons) Business Administration from University of Bath and a Booker Senior Management Certificate from Insead (European Institute of Business Administration). Main occupation: Director Marine Harvest, Brookes Parker and Prospect Publishing. Previous assignments: Deputy CEO Findus Group. Various positions at Blue Crest Foods and Ross Foods. Michael Parker does not own any shares or warrants in Scandinavian Standard. Ulf Anders Gundemark Board Member Born: 1951 Member since: 2013 Education: Master of Science in electrical engineering from Chalmers University Gothenburg. Main occupation: Chairman Bridge to China AB. Board Member Papyrus, Constructor Group, Aros Quality Group and Ripasso Energy AB. Previous assignments: Chairman Lindab International ( ). Ulf Gundemark does not own any shares or warrants in Scandinavian Standard. Karsten Slotte Board Member Born: 1953 Member since: 2014 Education: B.Sc.(econ) from Handelshögskolan in Helsinki. Main occupation: CEO Karl Fazer AB until October Board member in Fiskars AB, publ, (audit- and remunerationcommittee), Varma, (audit committee), Royal Unibrew A/S, Onvest Oy, OnninenOy, Northforce Oy. Previous assignments: Oriola KD Oy, publ, HK Scan Oy, publ, Swedish Match Ab, publ. Karsten Slotte does not own any shares or warrants in Scandinavian Standard. Heléne Vibbleus Board Member Born: 1958 Member since: 2014 Education: Bachelor of Science in Business Administration, National economics and Statistics from University of Linköping, Sweden. Main occupation: Management consultant and board member of Nordic Growth Market NGM AB, Orio AB, Swedbank Sjuhärad AB, Trelleborg AB, Tyrens AB and board member and vice chairman of SIDA. Previous assignments: Board member of Renewable Energy Corporation ASA and Tradedoubler. Heléne Vibbleus does not own any shares or warrants in Scandinavian Standard. Former Board of Directors, (Until December 2013) Name Penelope Kate Briant Ulf Anders Gundemark Per Olof Nyman Alexander Noel Walsh Position Chairman Director Director Director Auditor PricewaterhouseCoopers AB is Scandinavian Standard AB s auditor, with Bo Curt Elof Lagerström (b. 1966) as chief auditor. 48 SCANDINAVIAN STANDARD ANNUAL REPORT 2013

51 Group Management SCANDINAVIAN STANDARD AB, (April 2014) Corporate identity number Leif Bergvall Hansen CEO Born: 1966 Education: Leif B Hansen holds a master of science from Copenhagen Business School, including a period at Stanford Business School MBA. Leif B Hansen is member of the board of Svensk Fågel Service Aktiebolag. Leif B Hansen owns a total of 7,200,000* ordinary and preference shares in Scandinavian Standard. Leif B Hansen does not own any warrants in Scandinavian Standard. Magnus Lagergren Country manager Sweden Born: 1960 Education: Magnus Lagergren holds a Master of Science degree in Economics and Technology from the Swedish University of Agriculture. Magnus Lagergren is a member of the boards of Svenska Retursystem Aktiebolag, Dagligvaruleverantörernas Förbund (DLF), Dalsjöfors Kött AB, Svenskt Kött i Sverige AB, Hudaryd Svinsemin Aktiebolag, Berga Egendom Konsult AB and Svenska Avelspoolen Aktiebolag, as well as chief executive officer of Kronfågel AB. Magnus Lagergren does not own any shares or warrants in Scandinavian Standard. Jonathan Mason CFO Born: 1964 Education: Jonathan Mason holds a bachelor of science (Hons) degree in engineering from the University of Manchester, an ACCA Chartered Accountants from Chartered Association of Certified Accountants and a master of business administration degree from INSEAD. Jonathan Mason is a member of the boards of Dimensions (UK) Limited and Outreach 3 Way Limited. Jonathan Mason does not own any shares or warrants in Scandinavian Standard. Jes Bjerregaard Country manager Denmark Born: 1958 Education: Jes Bjerregaard holds a Diploma in Marketing Management from Copenhagen Business School. Jes Bjerregaard is a member of the board of Danish Art Weave A/S, board manager of DKI A/S, Farmfood A/S, as well as board manager and owner of Bjerregaard Invest ApS. Jes Bjerregard is also chief executive officer of Danpo A/S. Jes Bjerregaard owns a total of 753,080* ordinary and preference shares in Scandinavian Standard indirectly through Bjerregaard Invest ApS. Jes Bjerregaard does not own any warrants in Scandinavian Standard. Per Alan Jensen COO Born: 1962 Education: Per Alan Jensen is a Technician and has graduated from the University of Odense. Per Alan Jensen has also done studies in Management of Technology. Per Alan Jensen is a member of the board of Farm Food A/S. Per Alan Jensen owns a total of 1,760,467* ordinary and preference shares in Scandinavian Standard. Per Alan Jensen does not own any warrants in Scandinavian Standard. Torfinn Higdem Country manager Norway Born: 1963 Education: Torfinn Higdem holds a Bachelor of Business Administration degree from BI Norwegian Business School. Torfinn Higdem is a member of the board and owner of Higdem Invest AS. Torfinn Higdem owns a total of 1,598,163* ordinary and preference shares in Scandinavian Standard indirectly through Higdem Invest AS. Torfinn Higdem does not own any warrants in Scandinavian Standard. Patrik Linzenbold Head of Investor Relations Born: 1971 Education: Patrik Linzenbold holds a master of science degree from the Stockholm School of Economics. Patrik Linzenbold also holds a University Certificate (U.C.) from Uppsala University (courses in business administration, economics, statistics and commercial law). Patrik Linzenbold is a member of the board and owner of Linzutveckling AB Patrik Linzenbold does not own any shares or warrants in Scandinavian Standard. Operational Group Management Name Position Leif Bergvall Hansen CEO Jes Bjerregaard Country Manager Denmark Torfinn Higem Country Manager Norway Niclas God Sales & Marketing Director Sweden Dag Littorin CFO Sweden Reinhold Svensson Animal Welfare Officer Sweden Helge Røstad CFO Norway Per Alan Jensen COO * Holdings as of December 31, SCANDINAVIAN STANDARD ANNUAL REPORT