National Electric Vehicle Sweden AB Tel +46 (0)520 850 00 Registered Office: Trollhättan Saabvägen 5 info@nevs.com Reg number: 556889-7556 SE-461 38 Trollhättan www.nevs.com VAT: SE55688975 5601 Sweden
ANNUAL REPORT 2019
For the period January 1 to December 31, 2019 National Electric Vehicle Sweden Group and National Electric Vehicle Sweden AB
Unaudited translation from the Swedish original In the event of differences the Swedish version shall prevail
Group structure ...... 4 Significant events during the year ...... 5 Comments to the consolidated income statement and balance sheet ...... 10 Multi-year overview of the group ...... 10 Risks and uncertainties ...... 11 The Boards proposed appropriation of profits (SEK)...... 13 Consolidated statement of comprehensive income, group period 1 January till 31 December 2019 ...... 14 Consolidated statement of financial position, group as per 31 December 2019 ...... 15 Consolidated statement of changes in equity, group period 1 January till 31 December 2019 ...... 17 Consolidated cash flow statement, group period 1 January till 31 December 2019 (indirect method) ...... 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...... 19 1. CORPORATE INFORMATION ...... 19 2.1 BASIS OF PREPARATION ...... 19 2.2 BASIS OF CONSOLIDATION ...... 20 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE GROUP ...... 20 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE PARENT COMPANY ...... 30 2.5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS ...... 30 2.6 NEWLY INTRODUCED ACCOUNTING POLICIES ...... 31 2.7 NEW ACCOUNTING POLICIES FOR THE GROUP THAT WILL BE APPLIED ON OR AFTER JANUARY 1, 2020 ...... 33 3. NET SALES ...... 34 4. REMUNERATION TO AUDITORS ...... 34 5. OTHER OPERATING INCOME ...... 35 6. DEPRECIATION OF TANGIBLE AND INTANGIBLE ASSETS ...... 35 7. EMPLOYEE BENEFITS EXPENSE ...... 36 8. RESEARCH AND DEVELOPMENT EXPENSES ...... 39 9. OTHER OPERATING EXPENSES ...... 39 10. FINANCIAL INCOME AND EXPENSES ...... 40 11. INCOME TAX ...... 40 12. TANGIBLE ASSETS ...... 42 13. INTANGIBLE ASSETS ...... 43 14. PARTICIPATIONS IN ASSOCIATED COMPANIES, JOINT VENTURES AND OTHER COMPANIES ...... 45 15. INVENTORY ...... 46 16. FINANCIAL ASSETS ...... 47 17. EQUITY ...... 49 18. GOVERNMENT SUBSIDIES ...... 50 19. FINANCIAL LIABILITIES ...... 51
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20. FINANCIAL INSTRUMENTS ...... 53 21. RELATED PARTY DISCLOSURE ...... 55 22. PLEDGES ...... 57 23. CONTINGENT LIABILITIES ...... 58 24. LEASES ...... 59 25. RISK MANAGEMENT ...... 60 26. RECENT EVENTS ...... 62 PARENT COMPANY’S FINANCIAL STATEMENTS AND NOTES ...... 63 Statement of comprehensive income, parent company period 1 January till 31 December 2019 ...... 65 Statement of financial position, parent company as per 31 December 2019 ...... 66 Statement of changes in equity, parent company period 1 January till 31 December 2019 ...... 68 Cash flow statement, parent company, period 1 January till 31 December 2019 (indirect method) ...... 69 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE PARENT COMPANY ...... 70 3. NET SALES ...... 70 4. REMUNERATION TO AUDITORS, EY ...... 71 5. OTHER OPERATING INCOME ...... 71 6. DEPRECIATION OF TANGIBLE AND INTANGIBLE ASSETS ...... 72 7. EMPLOYEE BENEFITS EXPENSE ...... 73 8. RESEARCH AND DEVELOPMENT COSTS ...... 74 9. OTHER OPERATING EXPENSES ...... 75 10. FINANCIAL INCOME AND EXPENSES ...... 75 11. INCOME TAX ...... 76 12. TANGIBLE ASSETS ...... 77 13. INTANGIBLE ASSETS ...... 78 14. SHARES IN GROUP COMPANIES AND PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT VENTURES ...... 79 15. INVENTORY ...... 81 16. FINANCIAL ASSETS ...... 82 17. EQUITY ...... 85 18. OTHER LONGTERM LIABILITIES ...... 85 19. FINANCIAL LIABILITIES ...... 86 20. FINANCIAL INSTRUMENTS ...... 88 21. RELATED PARTY DISCLOSURE ...... 90 22. PLEDGES ...... 91 23. CONTINGENT LIABILITIES ...... 91 24. LEASES ...... 92 SIGNATURES ...... 93 AUDITORS’ REPORT ...... 93
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DIRECTORS REPORT The Board and the Managing Director of National Electric Vehicle Sweden AB (NEVS), 556889-7556, domiciled in Trollhättan, hereby presents its annual accounts and consolidated accounts for the financial year January 1 to December 31, 2019.
Group structure As of December 31, 2019, the Group is owned by Evergrande Group, a company listed on the Hong Kong stock exchange, through its majority holding in Evergrande Health, which is also listed in Hong Kong and holds an 82.4% ownership of the Parent Company through its wholly owned subsidiary Mini Minor Ltd. During the year, National Modern Energy Holdings Ltd reduced its holding from 49% to 17.6%.
An additional subsidiary was established in Hong Kong, Evergrande New Energy Automotive Holdings Ltd, to develop and own the models included in the Group’s extensive product program, and to act as a holding company for the new Group created to pursue development, production and sales of electric vehicles as well as develop real estate adjacent to its operations in China.
The Group has acquired Protean Electric Ltd and its subsidiaries, which develop and manufacture motors intended for use in some of the Group’s products. see below "Significant events during the year” and Note 13 Intangible fixed assets. The Group acquired a 65% share in Meneko AB as a joint venture, which engages in development work together with Koenigsegg Automotive AB (KAAB), and 5% of shares in Alpraaz AB, which is KAAB’s Parent Company. A summary of the Group structure is shown below and in Note 14 Participations in Group companies and other companies.
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Description of the business
NEVS vision is to create mobility for a more sustainable future.
“NEVS was founded in 2012 with the determination to create change for those around us and for coming generations. Our vision of shaping mobility for a more sustainable future is our north star, guiding everything we do. We don’t believe that you need to compromise quality, safety, performance or comfort to do good. By challenging conventions, we design premium electric vehicles and mobility experiences that are simple, engaging and distinctive, but that also shape a brighter, cleaner future for all. We aim to give people who are curious and passionate about the world a way to express themselves – and invite them to take part in shaping the future of mobility”
We provide sustainable mobility solutions based on electric vehicles for individuals, business and society.
After acquiring the main assets from SAAB Automobile AB in 2012, we have created a vision with a clear focus on sustainable mobility solutions. NEVS has been formed by a unique combination of Swedish engineering heritage and Chinese entrepreneurship from the green energy sector. That means we can have a head start and focus only on what we think is the future: electric vehicles and sustainable mobility solutions.
The Parent Company and the Group’s main business consists of designing, developing, manufacturing, marketing and distributing vehicles and mobility services under its own brands.
The Parent Company also sells technical services to other companies, mainly in the automotive industry, through our business NEVS Industrial Services (NIS).
Significant events during the year
Evergrande Health invests in NEVS AB Evergrande Health Industry Group Ltd announced its investment in NEVS AB on January 15, 2019. This signaled the end of very intensive work to buy out the former owners and meant NEVS AB has two owners: Evergrande Health Industry Group Ltd, which at the time held 51% ownership, and National Modern Energy Holding Ltd with a holding of 49% at that time. A new Board of Directors was appointed and resources were made available to accelerate the production start at the Tianjin factory, and to develop additional car models and increase capacity, particularly in China.
Koenigsegg collaboration On January 14, 2019, the Board of NEVS AB decided to enter into a collaboration with Koenigsegg aimed at strengthening the technology base for electric vehicles and to jointly develop and produce vehicles. Christian von Koenigsegg was appointed CEO of the company, in which NEVS AB owns 65% and Koenigsegg owns 35%. At the same time, NEVS AB acquired 5% of the shares in Alpraaz AB, which is the Koenigsegg Group’s holding company, as part of an agreement that allows NEVS AB to acquire up to 20% of the company.
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Acquisition of Protean Electric and joint development of electric vehicles with in-wheel motors On June 3, NEVS acquired the UK automotive technology firm Protean Electric in order to accelerate the rollout of innovative drivetrain technology for the next generation of electric and autonomous vehicles. Protean Electric supports NEVS by developing drivetrains of the future, to meet the needs of the market. Starting last autumn, engineers at Protean and NEVS began work on integrating in-wheel motors into NEVS’ future vehicles. Winter testing demonstrated positive results in terms of vehicle dynamics and movement. Prototypes of the models that will use the technology will be completed in 2020.
Global R&D center established in Shanghai NEVS and its owner Evergrande decided in 2019 to set up a global R&D center in Shanghai for electric vehicles. The objective of the R&D center is to create a value chain that covers the entire process of vehicle development, from product planning to technical development and production verification. The first of three stages of the R&D center will include 3,000 workplaces for engineers.
Production start for 9-3EV in Tianjin In 2019, the Tianjin plant worked hard to start production and on June 29 the first series-production 9-3 EV left the Tianjin plant. The first production batch of around 300 cars shows that the factory now has a manufacturing system and process that is highly prepared for series production.
Acquisition of chassis architecture from Benteler and FEV On September 2, 2019, NEVS acquired, through its subsidiary Evergrande New Energy Automotive Holdings Ltd, chassis architecture from the German supplier Benteler Group and the engineering firm FEV Group. The architecture was developed jointly by Benteler and FEV over three and a half years, using a modular design and advanced drivetrain, suspension, steering and braking technology specifically developed for electric vehicles. The acquisition of the architecture and related intellectual property will lead to a substantial acceleration in Evergrande’s development of EV products.
NEVS creates global supply chain with leading partners In 2019, NEVS further expanded the supply chain of leading international players in the automotive industry. EDAG, AVL and Magna joined in September to support technology and product planning: 15 designers confirmed that they would contribute styling and design for “Hengchi” – Evergrande’s 14 electric vehicle models to be built on the acquired chassis architecture. In the field of components, NEVS and Evergrande initiated a strategic partnership with the world’s 60 leading automotive parts companies, including Bosch, Magna, Continental and ZF. On November 12, 2019, the Evergrande New Energy Auto Global Strategic Partners summit was held in Guangzhou with more than 1,100 senior executives attending from 206 of the world’s leading companies in the automotive industry.
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Management and Board of Directors
Management team
The management team follows directives from the management of Evergrande Automotive Division. The Group’s CEO is Harry Peng, who is based in Shenzhen, China. The management team of NEVS AB comprises
President, Stefan Tilk CFO, Patrik Bjorklund COO, Morgan Fransson VP Engineering & Product Development, Frank Smit VP Mobility Solutions, Anna Haupt VP Purchasing & NIS, Ola Einarsson
Board of directors Members of the Board (NEVS AB) on December 31, 2019:
Name Title Kai Johan Jiang Chairman Min Chen Board member Jun Liu Board member Kar Chun Jimmy Fong Board member Jianjun Peng Board member Mikael Kubu Board member Ronnie Hermansson Employee representative Stefan Larsson Deputy Employee Representative
Out of the company’s Board of Directors, the following people work full time for the company: Ronnie Hermansson, Employee Representative Ronnie Hermansson, Employee Representative
Work of the Board of Directors Thirteen Board meetings were held during 2019. Minutes were taken at all meetings.
The Board has one separate committee: Audit Committee – Chairman Mikael Kubu
The Board of Directors worked with the integration of NEVS’ operations with Evergrande Automotive Division’s operations.
The Audit Committee met five times during 2019 attended by the Company’s auditors, EY and later PwC.
Focus in 2019 was primarily on addressing additional companies in an international business and with a changed ownership structure. Internal control in the company has been further developed and is updated on an ongoing basis by drawing up action plans for each quarter, which are followed up in work by the Audit Committee. The risk analysis is mainly based on a top-down analysis focusing on material topics. A summary of
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the financial risk factors considered to be most important for NEVS can be found further down in the Directors Report.
Members of the Audit Committee on December 31, 2019:
Name Role Mikael Kubu Chairman Stefan Tilk Presenting Patrik Björklund Presenting
Environmental information
NEVS AB conducts business that requires permission under the Swedish Environmental Code (SFS 1998:808) and Chapter 9: Maincode: Mechanical metalworking with a production surface bigger than 100,000 m2, license A and business code 34.60 Subcode: Metalworking, license B and business code 34.30 Subcode: Metal and plastic finishing, degreasing and paint removal, license B and business code 28.20 Subcode: Consumption of organic solvents, license B and business code 39.10
NEVS AB is permitted to produce 150,000 cars per year and our conditions relate to emissions to air and water, waste management, noise, chemical handling, reduced raw material consumption and risk mitigation measures. Through our business, NEVS has a producer responsibility for cars and batteries in accordance with the Regulation on Producer responsibility for ELV (SFS 2007:185) and the Regulation on Producer responsibility for batteries (SFS 2008:834). NEVS AB is authorized to transport hazardous waste. NEVS AB reports to the Swedish Chemicals Agency’s Products Register. NEVS AB is also covered by the Emissions Trading Act (SFS 2004:1199) and the Act on Energy Surveys of Large Companies (SFS 2014:266). NEVS AB is not subject to injunction, prohibition or environmental sanction fee. NEVS AB works according to ISO 14001:2015.
A sustainability report for 2019 was prepared in line with the EU directive aimed at the company’s work on sustainability issues. The report includes human rights, anti-corruption and environmental aspects. The report is available on our website www.nevs.com.
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Significant events after the end of the financial year
In March, NEVS launched its car sharing service in Stockholm. Registered car owners can rent out their cars to anyone who needs a car for a shorter or longer period. Paying car users can access the car by using a key box that is controlled by the NEVS SHARE app. In April, NEVS SHARE began a partnership with a developer of retirement homes in Stockholm (Silver Life) to offer NEVS’ car sharing services to their residents. To date, NEVS SHARE has been launched in selected areas and is being run by a compact and dedicated team. Evaluating our services in the market provides us with highly valuable feedback from real customers.
In January, the company received further liquidity as part of a financing agreement between the owners.
The Group was impacted by the effects of COVID-19 during the period. Initially, through a total suspension for several weeks of all operations in China and then in the form of disruption, both at suppliers and in our own operations across Europe. As a result, operations in Europe have taken part in a number of the measures launched by states. It is still too early to assess the financial impact on the Group of the COVID-19 pandemic.
In June, Evergrande Groups’ wholly owned subsidiary Mini Minor Ltd aquired remaining 17,6% of the shares in NEVS from National Modern Energy Holding Ltd. Hereby, NEVS is a wholly owned subsidiary in Evergrande Group.
Financing During the period, the company had good liquidity and has been financed for the most part by contributions from the owners. The company has good financing through agreements between the owners in order to continue to implement the extensive investment plans in the coming period as well. In addition, the owners have issued a Letter of support to NEVS AB whereby the owners have declared their intention to provide financial resources in order for the NEVS Group to meet its financial commitments during the next 12-month period after the balance sheetdate.
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Comments to the consolidated income statement and balance sheet
Multi-year overview of the group
SEK ('000) 2019 2018 2017 2016 2015
Net sales 101 874 73 827 72 330 200 335 78 528 Result for the period -3 427 101 -1 214 595 -996 262 -992 908 -335 050 Total assets 40 971 853 8 537 878 4 967 231 3 461 678 3 180 531 Total equity 18 165 611 451 366 1 336 834 2 111 860 3 054 471 Average number of employees 3 925 1 579 962 679 394
Gross margin Net sales for the Group have increased and consists mainly of services that the company sells pending the start of production and sales of its own products. Costs for goods sold in relation to turnover are higher than in 2018, resulting in lower gross profit for 2019 than in the previous year. Since the Group's production facilities for the production of cars were mainly under construction and conversion during the year and production has only been to a very limited extent, their cost for preparation have been accounted for under other operating expenses.
Research and development costs Research and development costs amount to SEK 857 million in the income statement and relate to a cost component of total research and development costs of SEK 2,341 million during the year.
Administrative expenses The Group's administrative costs for 2019 are 2.5 times higher than in the previous year. Administrative costs include costs for IT structure and and general overhead and marketing. The higher costs are a result of the construction of operations in China.
Other Operating expenses Other operating expenses includes write-down and losses of retired and disposed assets as a result of the conversion of the manufacturing in the Group and expenses relating to the production facilities as they only were used for production in a very limited extent during the year.
Financial income and expenses The financial income and expenses are mainly interest and exchange rate differences and to some extent write- down of shares and receivables in other companies.
Assets The increase in fixed assets is mainly attributable to investments in buildings and land rights in the Operations in China and capitalized development costs. In addition, NEVS has in 2019 entered into a partnership with Koenigsegg and acquired 65% of the shares in Meneko AB and 5% of the shares in Alpraaz AB, which is a holding company in the Koenigsegg Group.
Liabilities/financing The increase in liabilities is mainly attributable to an increase in interest-bearing liabilities and an increase in liabilities to related parties as part of the financing of the construction of operations in China.
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Risks and uncertainties
Risks have been analyzed by management and board during 2019. Analyzis are made on the basis of likelihood and scope, an owner is appointed and action plans drawn up. Progress and challenges are then reported to the Audit Committee.
Financing risk In addition to the funds available in Group at the end of the year, the business plan of the Group requires additional financing to enable its implementation. The new owners are committed to making the necessary investments. The business plan will be revised as new goals are set for expansion and new operations join the company. The financing risk has shifted from high to low as a result of the financial resources made available to the company by the new owners.
The Group is part of an economic plan for Evergrande Automotive Group. The Group periodically conducts liquidity forecasts of up to two years in order to monitor short-term developments compared with the long-term plan.
Internal control Internal control applies to all activities within the NEVS Group. It concerns the efficiency and performance of the business, the reliability of reporting and processes as well as compliance with laws and regulations. It also concerns values and fraudulent behavior. Questions and actions are reported to the Audit Committee, external auditors and the Board if required. Internal control reduces the risk of misunderstanding and creates greater confidence, which is important for staff, investors and other stakeholders.
Liquidity risk In 2019, the company received a large amount of liquid funds through new share issues and shareholders’ contributions. Nonetheless, the company will need additional funds in order to realize the existing comprehensive investment plans. In addition, the owners have issued a Letter of support to NEVS AB whereby the owners have declared their intention to provide financial resources in order for the NEVS Group to meet its financial commitments during the next 12-month period after the balance sheetdate.
Currencies The Group has its main business operations in Sweden and China. In the future, a very significant part of the Group’s activities and assets will be found in China. The Group will endeavor to balance cash flows and assets/liabilities in a manner that limits the net exposure in the respective currencies.
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Net impact on equity if the exchange rate is changed by 5%
of which through Equity profit or loss SEK ('000 000) SEK ('000 000)
USD 45 45 CNY 714 -1
Interest All of the Group’s interest-bearing assets and liabilities as of December 31, 2019, are covered by contract- based interest rates, and accordingly there is no risk in the existing interest rate. If it becomes more difficult for the Group to finance its activities, there is a risk that the cost of future financing will increase.
Delays The company is conducting extensive investments in new products, factories and markets. The main risk of delays is in developing new products, which is a highly comprehensive and complex task. In order to ensure a rapid and secure development process, the company has contracts with several of the world’s leading companies in the field that work together with the internal resources in China and Sweden.
Access to key components The Group expects that the manufacturing capacity in the market regarding certain key components, primarily batteries, will not be sufficient to meet global demand. The Group has access to certain key components through Evergrande Automotive Division, which is also continuously endeavoring to ensure access to strategically important components, materials and technologies.
Product liability, down time The Group has comprehensive insurance cover against liability, down time, delays in manufacturing start-up, property damage, environmental liability, travel, etc.
In terms of undertakings toward customers for product liability and guarantees, the company’s policy is to have corresponding undertakings in place with its suppliers.
Demand It is difficult to make reliable forecasts, as the EV market is still in an early stage. This means that there is a risk that forecasts are not accurate. However, by selecting China as its first focus, the Group has concentrated its investment in the market with the lowest risk for electric vehicles.
Competitive situation The automotive industry is dominated by players with substantially greater financial and industrial resources than NEVS. For this reason, the company closely monitors the development of new technologies, models and trends, and is organizationally prepared and flexible to react promptly in collaboration with its industrial partners.
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Political risks There is always a risk that laws and policies will be amended and that this could affect grants, authorizations and other factors affecting the Group. Via its organization and owners, the company is aware of these issues and maintains a close dialog with the authorities, primarily in China.
Going Concern The annual report has been prepared using the going concern basis of accounting. The implementation of the company’s business plan will increase operating costs, the need for working capital and investments in product development and inventory. Operating costs are encompassed in existing funds and existing agreements between the owners for additional funding.
The Boards proposed appropriation of profits (SEK)
The following is at the disposal of the Annual General Meeting:
Retained earnings 22 147 285 735 SEK Net result for the year - 1 461 504 749 SEK Total 20 685 780 986 SEK
Are allocated so that the following amount is carried forward: 20 685 780 986 SEK
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Consolidated statement of comprehensive income, group period 1 January till 31 December 2019
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Consolidated statement of financial position, group as per 31 December 2019
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2019-12-31 2018-12-31 Equity and liabilities SEK ('000) SEK ('000)
Issued capital 1 279 871 366 300 Other contributed capital 25 544 323 4 828 354 Unappropriated net result including result for the period -9 202 797 -5 311 772 Equity attributable to the owners of the parent 17 621 397 -117 118 Non-controlling interest 544 214 568 484 Total equity 17 18 165 611 451 366
Convertible loans 19 5 183 552 1 095 979 Lease liabilities 24 99 884 - Other non-current liabilities 18 1 823 852 442 346 Accrued tax liabilities 17 25 304 - Non-current liabilities 7 132 592 1 538 325
Provisions 11 30
Interest-bearing liabilities 19 4 676 311 1 434 594 Lease liabilities 24 19 951 - Trade payables 19 3 001 809 589 166 Payables to parent company 19, 21 - 457 521 Payables to related companies 19, 21 6 226 370 3 478 492 Other payables 19 1 749 197 588 385 Current liabilities 15 673 638 6 548 158
Total equity and liabilities 40 971 853 8 537 878
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Consolidated statement of changes in equity, group period 1 January till 31 December 2019
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Consolidated cash flow statement, group period 1 January till 31 December 2019 (indirect method)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
National Electric Vehicle Sweden AB (NEVS) was founded in April 2012. NEVS is a privately held limited company incorporated under Swedish law with Corporate Registration Number 556889-7556. The registered office is located at Saabvagen 5, Trollhättan, Sweden.
The consolidated financial statements include Group companies in accordance with the presentation in Note 14 Participations in Group companies and other companies which together are referred to as the Group.
The Parent Company’s and the Group’s main activities consist of designing, engineering, manufacturing, marketing and distributing vehicles under own brands. During the year, an additional subsidiary was established in Hong Kong, Evergrande New Energy Automotive Holdings Ltd, to develop and own the models included in the Group’s extensive product program, and to act as a holding company for the new Group created to pursue development, production and sales of electric vehicles as well as developing real estate adjacent to its operations in China. The Parent Company also provides technical services to other companies in the same area of business.
The owners of the Parent Company were as follows on December 31, 2019: Mini Minor Ltd 82.4% National Modern Energy Holdings Ltd 17.6%
In June, Evergrande Groups’ wholly owned subsidiary Mini Minor Ltd aquired remaining 17,6% of the shares in NEVS from National Modern Energy Holding Ltd. Hereby, NEVS is a wholly owned subsidiary in Evergrande Group.
The Board and the Managing director approved the Consolidated Financial Statements on September 4, 2020.
2.1 BASIS OF PREPARATION
Accounting policies for the Group The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) as approved by the EU. As of January 1, 2019, IFRS 16 Leases will apply, see 2.6 below for further information.
The consolidated financial statements have been prepared on a historical cost basis, except for available-for- sale financial assets measured at fair value which include land and buildings classified as property, plant and equipment. The consolidated financial statements are presented in SEK, including comparative figures, and all values are rounded to the nearest thousand, except when otherwise indicated.
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2.2 BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as per December 31, 2019. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control of an investment object arises when the Group is exposed to, or has rights to, variable returns from its involvement with the investment object and has the ability to affect those returns through its power to direct the activities of the investment object. The investment objects are deconsolidated from the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-Group balances, transactions, unrealized gains and losses resulting from intra-Group transactions and dividends are eliminated in full.
Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is recognized as an equity transaction, meaning transactions with the owners in their role as owners. If the Group loses control over a subsidiary, it:
Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interest Derecognizes the cumulative translation differences recorded in equity Recognizes the fair value of the consideration received Recognizes the fair value of any investment retained Recognizes any surplus or deficit in profit or loss Reclassifies the Parent Company’s share of entities previously recognized in other comprehensive income to profit or loss or retained earnings
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE GROUP a) Business combinations Business combinations are recognized using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed in accordance with the contractual terms, economic circumstances and pertinent conditions as per the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognized in the statement of comprehensive income. Each contingent consideration transferred by the Group is recognized at fair value on the acquisition date. Subsequent amendments to the fair value of a contingent consideration classified as an asset or liability is recognized in profit or loss. A contingent consideration that is classified as equity is not remeasured and subsequent settlement is recognized in equity.
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Associated comanpies & joint ventures Associated companies are those companies in which the Group has significant but not controlling influence. Investments in associates and joint venture holdings are reported in accordance with the equity method. According to the equity method, investments in associated companies and joint ventures are initially recognised in the Group's balance sheet at acquisition cost. The carrying amount is increased or decreased thereafter to take into account the Group's share of profit and loss and other comprehensive income from its associated companies and joint ventures after the acquisition date. The Group's share of earnings is included in the Group's earnings and the Group's share of other comprehensive income is included in other comprehensive income in the Group. Dividends from associated companies and joint ventures are reported as a decrease in the carrying amount of the holdings. Where the Group's share of losses in an associated company or joint venture is equal to or greater than the holding in that associate or joint venture (including all long-term receivables that effectively form part of the group's net investment in that associate or joint venture), the Group does not recognise any additional losses unless the Group has assumed obligations or has made payments on behalf of the associated company or joint venture.
Participations in other companies The Group reports the value of participations in other companies at accrued acquisition cost. The value is tested for impairment annually or when needed. b) Foreign currencies The Group’s consolidated financial statements are presented in SEK, which is also the Parent Company’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions and balances Transactions in foreign currencies are recognized initially by the Group’s entities at their respective functional currency spot rates on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates at the end of the reporting period.
Changes in fair value for securities in foreign currency, which have been classified in the measurement category fair value through other comprehensive income, are split between translation differences due to changes in the amortized cost of the securities and other changes of the carrying amount of the securities. Translation differences related to changes in amortized cost are recognized in profit or loss and other changes in the carrying amount are recognized in other comprehensive income. Translation differences for non-monetary financial assets and liabilities, like shares measured at fair value via profit or loss, are recognized in the income statement as part of fair value (gains/losses). Translation differences for non-monetary financial assets, like shares classified as available-for-sale financial assets, are included in the reserve for assets held for sale in other comprehensive income. c) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue flows against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue flows. In cases where contracts contain multiple performance obligations, the transaction price is allocated to each performance obligation based on their stand-alone selling prices. Estimates of revenues, costs or the extent of
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progress toward completion of sales are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are recognized in profit or loss in the period in which the circumstances that give rise to the revision become known by management. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. The specific recognition criteria described below must also be met before revenue is recognized.
Sale of goods Revenue from the sale of goods is recognized when the significant control and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.
Sale of services Revenue from providing services is recognized in the accounting period in which the services are rendered. All agreements are on current account basis and are based on price per hour, and the revenue is recognized to the extent that the Group has the right to invoice the customer.
Interest income For all financial instruments measured at amortized cost and interest-bearing financial assets classified as available for sale, interest income is recognized using the effective interest rate (EIR). The EIR is the rate that discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial item. Interest income is included in financial income in the income statement.
Dividend income Revenue is recognized when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend.
Rental income Rental income arising from operating leases on operating properties is accounted for on a straight-line basis over the lease term. d) Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Parent Company and its subsidiaries operate and generate taxable income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the income statement. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
In 2018, a decision was taken to reduce the tax rate in Sweden in two stages. In 2019–2020, the applicable tax rate is 21.4% and from 2021 and onwards the tax rate will be 20.6%.
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Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:
when the deferred tax liability arises as an effect of the impairment of goodwill, or when an asset or liability is recognized as part of a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, except in cases when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, including tax losses to the extent that it is probable that a taxable profit will be available against which the deductible temporary differences can be utilized, except:
when the deferred tax relating to a deductible temporary difference, which did not arise from a business combination at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries and associates, in which case deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and that taxable profits will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and adjusted to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set-off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority, or different taxable entities where there is an intention to settle the amounts by net payments.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information and facts arise and result in changed prerequisites for accounting. The adjustment is either treated as an adjustment of goodwill (as long as it does not exceed goodwill) if it was incurred within one year of the acquisition date or, alternatively, recognized in profit or loss.
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e) Property, plant and equipment
Property, plant and equipment are recognized at cost less accumulated depreciation and accumulated impairment. Such costs for property, plant and equipment includes the purchase price, duty and costs directly attributable to bringing the asset to the location and condition necessary for its use. The Group capitalizes the cost on initial recognition and when the cost arise if replacing significant components of property, plant and equipment, if it is likely that the future economic benefits associated with the asset will flow to the group and the cost of the asset can be measured reliably. All other costs are recognized in profit or loss as incurred.
Land is not depreciated. Depreciation on other assets is calculated, using the straight-line method to allocate their cost or revalued amounts down to their residual values, over their estimated useful lives as follows:
Buildings 25 to 40 years Plant and equipment 3 to 15 years
The Group applies component depreciation for property, plant and equipment. As a result property, plant and equipment containing several components, whose useful lives differ from each other and for which the acquisition value is substantial in relation to the total cost, is depreciated separately.
An asset’s carrying amount is immediately depreciated to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
An item of property, plant and equipment and any significant component is derecognized from the balance sheet upon disposal or when no future economic benefits are expected from its use or sale. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized as a cost or other income in profit or loss in the year when the asset is disposed of. The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.
The Group has both properties that are used in the business and properties that are processed for sale. Properties used in the business are reported under property, plant and equipment, properties held for sale are recognised as inventories. f) Leases
As explained in Note 2.6 below, the Group has changed its accounting policies for leases when the Group is the lessee. The new policy and the impact of the change is described in Note 2.6. Until December 31, 2018, leases of property, plant and equipment where the Group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalized at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included under the balance-sheet items other long-term and short-term borrowings. Each lease payment was allocated between interest payments and repayment of the liability. The interest expense was charged to profit or loss over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases was depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there was no reasonable certainty that the lessee would obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the lessee are classified as operating leases (Note 24). Payments made under
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operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the lease term. Lease income from operating leases where the Group is a lessor is recognized as income on a straight-line basis over the lease term (Note 24). Initial direct costs incurred when the lease was signed are added to the asset’s carrying amount and expensed over the lease term on the same grounds as lease income. The respective leased assets are included in the balance sheet based on their nature. The Group was not required to make any adjustments for leases where the Group is a lessor on transition to the new lease standard. g) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset are capitalized as part of the cost of the asset. All other borrowing costs are recognized as an expense in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. h) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expensed in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected future economic benefits embodied in the asset are considered in the assessment of the useful life or amortization method and are treated as changes in accounting estimates and judgements. The amortization expense on intangible assets with finite lives is recognized in the income statement as the expense category that is consistent with the function of the intangible assets.
Assets that have an indefinite useful life are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is derecognized.
Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate:
it is technically feasible to complete the intangible asset so that it will be available for use or sale; the intention of completing the intangible asset so that the asset will be available for use in operations or for sale; there is an ability to use or sell the asset; the intangible asset can generate future economic benefits;
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adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the expenditure attributable to the intangible asset during its development can be reliably measured.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization is recorded in cost of goods sold. During the development period, the asset is tested for impairment annually.
Technology The Group has acquired technology significant for the manufacturing and the future development of specific products. Amortization of the assets will begin when the manufacturing of the product starts. The assets are amortized over the period of the expected future benefit. The assets are tested for impairment annually.
Patents and licenses The Group has acquired a large number of patents. The main values in these patents are related to present or future products and will be amortized over the period of expected future benefits.
Land leaseholds Land cannot be bought and owned in China, and can only be obtained through land leaseholds for less than 50 years, and as such expenses for the acquisition of land leaseholds are reported as intangible assets.
A summary of the policies applied to the Group’s intangible assets is as follows:
Land Licenses Technology Patents Capitalized leaseholds development costs Useful life Finite Finite Finite Finite Finite Amortization method Straight Straight line over Straight line Straight line Straight line over the line over the period of the over the period over the period period of expected the term of license of expected of the patent future sales the future sales acquired leasehold Internally generated or Acquired Acquired Acquired Acquired Internally generated acquired
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i) Financial instruments – initial recognition and measurement The Group classifies its financial assets in the following categories:
- Financial assets to be measured subsequently at fair value (either through other comprehensive income or through profit or loss) - Financial assets carried at amortized cost.
The classification of investments in debt instruments depends on the Group’s business model for managing financial assets and the contractual terms for the assets’ cash flows.
Purchases and sales of financial assets are recognized on the trade date, which is the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
For valuation, the Group classifies its financial assets into three measurement categories:
- Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in financial income using the effective interest rate method.
- Fair value through other comprehensive income: Assets that are held for the collection of contractual cash flows or for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive income. Changes in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss and recognized in other gains/losses.
- Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss.
Impairment of financial assets The Group measures the future expected credit losses (ECLs) related to financial instruments measured at amortized cost based on forward-looking information. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which means that the provision for ECLs is calculated based on the lifetime ECL
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of the receivable. The ECL rates are based on the payment profiles of sales and the corresponding historical credit losses experienced. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
Financial liabilities According to IFRS 9, financial liabilities are measured at either fair value or at amortized cost. The Group has no financial liabilities that are measured at fair value. Financial liabilities and loans are measured after initial recognition at amortized cost via the effective interest method if the liability is interest-bearing.
A financial liability is derecognized from the balance sheet when the commitment is discharged.
Hedge accounting The Group does not apply hedge accounting.
Derecognition A financial liability is derecognized from the balance sheet when the commitment is discharged. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement.
Loan and trade receivables Loan and trade receivables are financial assets that are not derivatives with fixed or determinable payments not listed on an active market. They are initially measured at fair value and subsequently at amortized cost using the effective interest method and after deduction of any impairment. The amortized cost is calculated with consideration of discounts, fees and advances that are part of the effective interest.
Loan and trade receivables are tested continuously for any objective proof that the carrying amount will not be paid. If a loan receivable/trade receivable is assessed to be uncertain, a provision is made for the difference between the carrying amount and the expected cash inflow. Losses attributable to uncertain receivables are recognized in the income statement in other operating expenses or otherwise as a financial expense.
Interest income relating to loan receivables is included in the financial income.
Liquid funds and short-term investments Liquid funds include, in the balance sheet as well in the cash flow statement, cash equivalents, bank balances and other short-term investments with a maturity of three months or less from the date of acquisition.
For the Group’s cash flow statement, liquid funds and short-term investments are included as above. j) Inventories Inventories are stated at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials: Purchase cost on a first in, first out (FIFO) basis. Finished goods and work in progress: Cost of direct materials and labor and a proportion of manufacturing overheads based on the normal operating capacity. Borrowing costs are excluded.
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Properties for sale: The properties are under construction and are reported at value corresponding to costs incurred. When the properties are completed and there are thus prerequisites to measure them at fair value, the properties will be measured at fair value
The initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognized in other comprehensive income, in respect of the purchases of raw materials. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. k) Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and value in use. The recoverable amount is determined for an individual asset, unless the asset can generate cash inflows that are largely independent of advantages derived from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs to sell, recent market transactions are taken into account If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets and projections, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and projections generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognized in the income statement in expense categories consistent with the function of the impaired asset, except for a property previously revalued when the revaluation was recognized in other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation.
Previously impaired assets, other than financial assets and goodwill, are reviewed for possible reversal of the impairment at the end of each reporting period. If such an indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. An impairment must only be reversed if a change has taken place in the assumptions used in making the impairment decision after the impairment was completed. The reversal is limited so that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation/amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement. See note 13, Intangible fixed assets. l) Employee benefits Employee benefits relate to all categories of remuneration the Group provides to employees. The Group’s remuneration includes salaries, paid leave, paid absence, bonus and post-employment benefits (pensions). Recognition takes place as vested. Post-employment benefits refers to defined-contribution pension plans. Plans classified as defined-contribution plans are plans where the company pays determined fees and where
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there are either no legal or informal obligations to pay anything further in excess of these fees. Only defined- contribution pension plans exist in the Group. Expenditure on defined-contribution plans is reported as an expense during the period the employees perform the services underlying the obligation. Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group reports severance pay when there is an obligation to dismiss employees according to a formal plan without the possibility of revocation. m) Provisions Provisions are recognized when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. n) Government grants In cases when government grants are related to items reported as costs in the income statement, the received government grants are reported as a reduction of those costs in the period where the original costs are recognized. When government grants are related to assets reported as fixed assets, the government grants are recorded as deferred income and recognized proportionately as a reduction in the cost of recognized depreciation/amortization in the income statement over the useful life of the asset.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE PARENT COMPANY
The accounting policies for the Parent Company are consistent with the accounting policies for the Group with the following addition.
Participations in Group companies The Parent Company reports the value of participations in Group companies at acquisition value. The value is tested for impairment annually or when needed. Any impairment is recognized in the income statement.
2.5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
Judgements
Measurement of capitalized costs for product development and property, plant and equipment Expenditure for product development and property, plant and equipment has been capitalized on a continuous basis ahead of start-up of the Group’s plants. The income statement and balance sheet are prepared on the assumption that production will start and that the values will be amortized/depreciated during the product’s lifecycle and the equipment’s service life. Impairment testing is carried out on these values.
Deferred tax assets The company has chosen not to recognize current loss carryforwards as deferred tax assets as the Parent Company has reported several consecutive years of tax losses and the present business plan does not exhibit taxable profit for units in the Group over the coming years and from which the historical losses can be deducted.
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2.6 NEWLY INTRODUCED ACCOUNTING POLICIES
For the first time, the Group and the Parent Company have applied the new and amended standards and interpretations for financial years beginning January 1, 2019 or later in this Annual Report. None of the new and amended standards and interpretations that will be applied as of January 1, 2019 have any material impact on the Group’s or the Parent Company’s financial statements.
No new or amended IFRS has been applied in advance.
IFRS 16 Leases This text explains the impact on the Group’s financial statements of the transition to IFRS 16 Leases. As stated in Note 2.3 (f) above, the Group has applied IFRS 16 Leases as of January 1, 2019. As permitted under the specific transition provisions in the standard, comparatives for 2018 were not restated. Reclassifications and adjustments arising from the new lease rules are therefore recognized in the opening balance at January 1, 2019. On adoption of IFRS 16, the Group recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments. The measurement used the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 8,7%.
Practical expedients used In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard in the application of IFRS 16: • The use of a single discount rate to a portfolio of leases with reasonably similar characteristics. • A lessee can rely on its assessment of whether a lease is loss-making as an alternative to conducting an impairment review. There were no loss-making leases as of January 1, 2019. • The accounting for operating leases with a remaining lease term of less than 12 months as of January 1, 2019 as short-term leases. • The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and • The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also chosen not to reassess whether a contract is, or contains, a lease at the date of initial recognition. Instead, the Group has relied on the assessment conducted under IAS 17 and IFRIC 4 Determining Whether an Arrangement Contains a Lease for contracts signed before the date of initial recognition.
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Measurement of lease liability
Adjustments recognized in the balance sheet, January 1, 2019 Changes in accounting policies impacted the following items in the balance sheet as of January 1, 2019: • Land & buildings – increased 38 303 KSEK • Plant & machinery – increased 36 026 KSEK • Longterm lease liabilities – increased 64 432 KSEK • Shortterm Lease liabilities – increased 9 977 KSEK
The net impact on retained earnings on January 1, 2019 was an increase of KSEK 0.
Lessor’s recognition No adjustments were required by the Group regarding the recognition of assets subject to an operating lease on transition to IFRS 16.
IFRS 9 Financial Instruments (amendment) The amendment to IFRS 9 clarifies that the existence of early redemption does not mean that a financial asset does not meet the criteria for being measured at amortized cost. Due to the changes, applied principles have been retroactively adapted from January 1, 2019. This will not result in any significant effects for the Group.
IAS 28 Investments in associates and joint ventures (amendment) Amendments to IAS 28 clarify that IFRS 9 should be applied to investments in associates and joint ventures for which the equity method is not applied but has the substance of a net investment in an associate or joint venture. Due to the change, the applied principles have been retroactively adapted from January 1, 2019. The Group reports investments in associates and joint ventures in accordance with the equity method and this will thus not have any impact on the Group. IFRIC 23 Uncertainty over income tax treatments The interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. The interpretation clarifies that when assessing the reported amount, the company must assume that the item will be subject to a review by the tax authority, which in turn is assumed to have access to all relevant information. If there is uncertainty, the method that best estimates the outcome should be used, either the most likely amount or the expected value. The Group applies the interpretation statement from January 1, 2019 and this will not result in any significant effects for the Group.
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Annual improvements 2015–2017 Annual improvements 2015–2017 has been applied for financial years starting on or after January 1, 2019, early application is permitted. IFRS 3 Business combinations Amendment to IFRS 3 which clarifies that a company should remeasure a previous holding in a business when it obtains control over the business. The change will not result in any significant effects for the Group. IFRS 11 Joint arrangements Amendment to IFRS 11 which clarifies that a company should not remeasure a previous holding in a business when it obtains joint control over the business. The change will not result in any significant effects for the Group. IAS 12 Income taxes The amendment to IAS 12 clarifies that a company must recognize tax on dividends in profit or loss, other comprehensive income or equity, according to where the entity originally recognized the transactions. As the Group’s current accounting policies are consistent with these changes, this will have no effect on the consolidated financial statements. IAS 23 Borrowing costs Amendment to IAS 23 which clarifies that a company treats as part of general borrowings any borrowing originally made to develop a qualifying asset when that asset is finalized. The change will not result in any significant effects for the Group.
2.7 NEW ACCOUNTING POLICIES FOR THE GROUP THAT WILL BE APPLIED ON OR AFTER JANUARY 1, 2020
Certain new accounting standards and interpretations come into force for financial years beginning after January 1, 2020 and have not been applied when preparing these financial statements. These new standards and interpretations are not expected to have a material impact on the Group’s financial statements for the current or future periods, nor on future transactions.
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3. NET SALES
Net sales services mainly relate to services in technical development on current account. The delivery of technical results takes place on an ongoing basis. Turnover also includes income from the rental of premises. Sales are made to companies and through the Group's own sales channels. The Group has no sales to related companies in 2018 and only very limited sales to related companies in 2019.
4. REMUNERATION TO AUDITORS
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5. OTHER OPERATING INCOME
6. DEPRECIATION OF TANGIBLE AND INTANGIBLE ASSETS
Since the production of cars has been in transition/construction during the year and only very limited production has occurred, the costs thereof have not been recognised as cost of goods sold but have instead been accounted for under other operating expenses.
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7. EMPLOYEE BENEFITS EXPENSE
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Average number of employees
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Management and board
Remuneration
The board chairman has not received any remuneration. Other disbursed board fees amount to SEK 0 (300,000).
Managing director for NEVS AB is entitled to twelve months’ remuneration at the termination of the contract.
The members of NEVS AB management team is entiteled to twelve months´ remuneration if contract is terminated by the company. There are no other separate agreements concerning severance pay between the company and anyone in the company any member of the board. All agreements can be terminated without any extraordinary disbursement pursuant to collective agreement in effect for the enterprise.
Warrant program 34 managerial employees and other key staff among the employees were given the option of subscribing to warrants in NEVS during 2016. The price of these warrants was specified as a calculated market value and the warrants were paid for in cash. The increase or decrease in the value of the warrants is determined by the development of the company’s value. The warrants were redeemed in May 2019. See also Note 17.
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8. RESEARCH AND DEVELOPMENT EXPENSES
9. OTHER OPERATING EXPENSES
As the manufacturing facilities are partly under construction or conversion and partly unused pending manufacturing start-up, costs relating to these are accounted for under other expenses for the period. The impairment of assets is also related to the conversion of production.
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10. FINANCIAL INCOME AND EXPENSES
11. INCOME TAX
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The group’s tax deficits not recognized in the balance sheet
SEK ('000) 2019 2018
Sweden 3 269 697 2 401 334 China 2 328 353 604 244 Great Britain 1 384 008 -
Taxable deficit 6 982 058 3 005 578
As the parent company has historically had several consecutive years with tax deficits and because the current business plan does not show taxable gains for entities within the group against which the historic deficits can be offset in the years ahead, the company has decided not to recognize the existing deficit as a deferred tax asset. In the future, when a taxable profit occurs, it will be possible to reduce the income tax by ulitizing the unrecognized tax losses by the amount presented above. According to Swedish law, tax losses are not limited in time. According to Chinese law, tax losses can be deducted from profits over the ensuing five years.There is some uncertainty about deficits in the Swedish companies that have arisen during the period before Evergrande´s acquisition of the majority share in the parent company (deficits up to 2018-12-31). The Group makes an open claim to the tax authorities that these must remain.
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12. TANGIBLE ASSETS
Net book value of property, plant and equipment includes CIP amounting to 6,004,760 (2,618,774).
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13. INTANGIBLE ASSETS
. The Group is investing in the development of a range of new models to be put into production in the coming years. The first model has been completed and put in production and amortization has started. The amortization period is set to the estimated manufacturing period of this specific model.
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Goodwill On June 3, NEVS acquired the UK automotive technology firm Protean Electric in order to accelerate the rollout of innovative drivetrain technology for the next generation of electric and autonomous vehicles. Protean Electric supports NEVS by developing powertrains of the future, to meet the needs of the market. The acquisition has generated goodwill of SEK 421 million, The difference between the goodwill amount at year-end in the balance sheet and in the chart below refers to exchange difference.
The following table sets out the purchase price, net assets acquired and Goodwill:
Cash consideration 550 942
Cash and cash equivalents 6 193 Acconts receivable 25 172 Other receivables 1 235 Stock 17 003 Property, plant and equipment 30 378 Intangible fixed assets 135 427 Current liabilities -66 198 Deferred tax liabilites -26 131 Total identifiable net assets acquired 123 079 Goodwill 427 863 Total net assets acquired 550 942
Each year, the Group examines whether there is a need for impairment of goodwill. For 2019, the recoverable amount of cash-generating unit (CGE) was determined by calculating value in use, which requires certain assumptions to be made. The calculations are based on cash flow forecasts based on budgets determined by management for the next five years. The impairment test did not indicate any impairment.
Cash generating unit (KGE) Protean Electric
Goodwill 421 004 Fair value less cost of Basis for calculating value in use disposal CGE
Fair value calculation method Discounted cashflow
Independent valuers Avistra Group
Years of forecast period 14 Weighted average growth rate 2 %
Revenue growth rate during the 1,6-271% forecast period
Discount rate 16,6%
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14. PARTICIPATIONS IN ASSOCIATED COMPANIES, JOINT VENTURES AND OTHER COMPANIES
Participations in associated companies and joint ventures
On January 14, 2019, the Board of Directors of NEVS AB decided to enter into a joint venture with Koenigsegg in order to strengthen the technology base around electric car technology and to develop and produce cars jointly. Christian von Koenigsegg is ceo of Meneko AB, which is 65% owned by NEVS AB and 35% by Koenigsegg. According to the 2019 Annual Report, Meneko had net sales of SEK 0.6 million and a balance sheet total of SEK 940 million.
Participations in other companies
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During 2017 NEVS has agreed with the other shareholders not to complete the acquisition of the shares in Fujian New LongMa Motor Co. Ltd. The deal means that shares corresponding to the remaining payment for the acquisition are transferred to the previous owners and NEVS remaining shares after this constitutes 15% of the capital. As the agreement of acquisition of remaining shares not is fulfilled during 2019, decision is made to write down net book value of remaining shares to zero.
15. INVENTORY
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The Group's accounting policies for inventories are described in section 2.3 above. Semi-finished products above refer to the costs of processing of properties for sale. These properties are located in connection with the operations in China.
Impairment of inventories at net realisable value has been recognised in the income statement for 2019 as administrative expenses and for 2018 as expenses for goods sold.
16. FINANCIAL ASSETS
Financial assets
Comments on risks for financial assets in note 25.
Loans
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Trade receivables
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Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days. The group has a receivable on a company in bankruptcy which has been written down in its entirety, pending notification of dividend. With the exception of the written-down claim, all trade receivables are, in all material respects, settled at the time of the signing of the annual report. The write-down of trade receivables has not been changed during the financial year.
Other current receivables Most of the other receivables do not accrue interest and normally fall due within up to 90 days.
Reserved cash Reserved cash comprises bank deposits kept in separate bank accounts to serve as security for various types of undertakings.
Cash and cash equivalents The amount comprises bank deposits which accrue variable interest. Holdings of foreign currency have been reassessed to fair value based on the exchange rate on the balance sheet date, and the difference is accounted for in the statement of comprehensive income. The change to bank deposits shown as cash and cash equivalents is accounted for in the cash flow statement.
17. EQUITY
Group equity is classified as follows.
Number of shares
All shares have the same voting right and the same right to dividend. The nominal value of each share is SEK 100. No dividend was paid during the year.
Warrants equivalent to 34,000 shares from previous year were redeemed in May 2019. See also Note 7.
Other paid-up capital The rest of the paid-up capital includes a premium fund and shareholders’ contribution.
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Profit/loss carried forward The profit/loss carried forward shows the net profit/loss of previous years, the net profit/loss for the year and any shift of equity between the group and minority shareholders.
Translation reserve, foreign companies The translation reserve shows the differences arising from translation of a company using another reporting currency than SEK due to exchange rate fluctuations over the year.
18. GOVERNMENT SUBSIDIES
Subsidies received is linked to the Groups investments in the new manufacturing facilities in Tianjin, Shanghai and Guangzhou. The amounts received will be released in proportion to future depreciation of each subsidized building. The recipient company can be liable to repay if the project is not completed in accordance with the terms of the subsidy. The terms of the subsidy of the Tianjin facility is considered to have been met already. There is no indication that the Group would not comply the terms of any other of the received subsidies
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19. FINANCIAL LIABILITIES
Comments on risks for financial liabilities in note 25.
Loans
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Trade payables
Terms of payment are normally between 30 and 90 days.
Other financial liabilities
SEK ('000) 2019 2018
Accrued expenses Tianjin plant - 274 710 Liability to Meneko AB for shareholder contribution 701 003 - Advances from customers 1 318 790 - Other accrued expenses 47 936 23 407 Short-term liability for shares in group company - 147 668 Other 145 139 15 189 2 212 868 543 323
Advances from customers above refer to advances from customers for the purchase of properties processed for sale and reported in inventories.
20. FINANCIAL INSTRUMENTS
Fair value
Financial assets are recognized in the categories loans and trade receivables, as well as cash and cash equivalents. All financial liabilities are in the category financial liabilities at accrued acquisition value.
The table below shows non-discounted values. For receivables due within one year the estimated fair value is equal to the book value. For receivables due in more than one year the fair valute is calculated based on the market conditions on December 31, 2019.
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Expected payments including interest
Financial assets
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Financial liabilities 2019 Nominal payments Within 3 3 to 12 More than 1 to 5 years SEK ('000) months months 5 years Total
Other non-current loans - - 5 809 792 - 5 809 792
Trade payables 1 496 661 1 505 148 - - 3 001 809
Current loans from related companies 45 355 5 508 878 - - 5 554 233
Other liabilities to related companies - 701 003 - - - 701 003 - Current part of non-current loans - 1 149 499 - - 1 149 499
Other current loans 166 642 - 3 690 160 - - - 1 149 499 - Other current liabilities 193 075 - - - 3 856 802
1 901 733 12 554 688 5 809 792 - 20 266 212 21. RELATED PARTY DISCLOSURE
The consolidated financial statements includes companies owned directly by NEVS according to parent comapny note 14 with subsidiaries.
The following describes the ownership as per 191231. In June 2020, Evergrande Group acquired the remaining 17.6% of the shares in NEVS from National Modern Energy Holding Ltd through its wholly owned subsidiary Mini Minor Ltd, and is thereby a wholly owned subsidiary of Evergrande Group.
Group shareholders National Modern Energy Holdings Ltd 17,6 % Mini Minor Ltd 82,4 %
Companies with controlling influence on the group Mini Minor Ltd., registered in the British Virgin Islands, owns 82,4% of outstanding shares.
Companies with significant influence on the group National Modern Energy Holdings Ltd., registered in the British Virgin Islands, owns 17,6% of outstanding shares.
Terms and conditions for transactions with related parties Sales and purchases with related parties are done on terms equivalent to those that apply to arm’s-length transactions. Liabilities and receivables to related parties are specified in Note 16. No guarantees have been left or obtained for receivables or liabilities to related parties in addition to that specified in the note.
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Remuneration to managerial employees within the group Key persons within the group comprise members of the board and management. Transactions with these individuals constitute transactions with related parties. No remuneration of material significance to any member of this group has been paid besides normal remuneration for work performed. See also Note 7.
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22. PLEDGES
The parent company has pledged the shares held in Automobile Property AB in favour of Saab Automobile Bankruptcy Estates. The purpose of the pledge is to provide security for the Estates in relation to an indemnification clause in the purchase agreement between the Company and the Estates indemnifying the Estates should the Group´s activities cause a third party to take legal action against the Estates. No such claims are known of.
The parent company has a blocked bank account in the amount of SEK 11 million as collateral for a bank guarantee with Enterprise Services Sverige AB as beneficiary, to serve as security for the payment of deliveries and services. The collateral provided exceeds the receivables that Enterprise Services Sverige AB has with the company.
Pledged assets for long-term loans relate to: Land and buildings under construction in Tianjin, as security for a loan and production equipment in the Tianjin factory, acquired through financial leasing, MSEK 1 176.
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23. CONTINGENT LIABILITIES
There is a dispute between a supplier and one of the Group companies in China. The total risk for the Group is estimated to be 15 MEURO. The matter is currently being prepared to be settled in arbitration court. Management has assessed that it is likely that the arbitration will be in favor of the Group and therefore no provisions has been made in relation to this claim.
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24. LEASES
Leases – the Group as lessee
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Operational leases – the Group as lessor
The Group leases business premises and office premises on the NEVS area that is not used in its own operations. In most cases, the contract is automatically renewed if they are not actively terminated.
Future leasing fees to obtain for non-cancelable operating leases as of December 31, 2019:
25. RISK MANAGEMENT
Financing risk The owners have undertaken to finance the investments required in accordance with the requirements of the business plan and have issued a Letter of Support to NEVS AB whereby the owners declare their intention to provide financial resources in order for the NEVS Group to meet its financial commitments during the next 12- month period from the balance sheet date.
Internal control Internal control applies to all activities within the NEVS Group. It concerns the efficiency and performance of the business, the reliability of reporting and processes as well as compliance with laws and regulations. It also concerns values and fraudulent behavior. Questions and actions are reported to the Audit Committee, external auditors and the Board if required. Internal control reduces the risk of misunderstanding and creates greater confidence, which is important for staff, investors and other stakeholders.
Liquidity risk In 2019, the company received a large amount of liquid funds through new share issues and shareholders’ contributions. Nonetheless, the company will need additional funds in order to realize the existing comprehensive investment plans. According to an agreement between the owners, the company will receive additional funds that are expected to cover this need.
Currencies The Group has its main business operations in Sweden and China. In the future, a very significant part of the Group’s activities and assets will be found in China. The Group will endeavor to balance cash flows and assets/liabilities in a manner that limits the net exposure in the respective currencies.
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Net impact on equity if the exchange rate is changed by 5%
of which through Equity profit or loss SEK ('000 000) SEK ('000 000)
USD 45 45 CNY 714 -1
Interest All of the Group’s interest-bearing assets and liabilities as of December 31, 2019 are covered by contract-based interest rates, and accordingly there is no risk in the existing interest rate. If it becomes more difficult for the Group to finance its activities, there is a risk that the cost of future financing will increase.
Delays The company is conducting extensive investments in new products, factories and markets. The main risk of delays is in developing new products, which is a highly comprehensive and complex task. In order to ensure a rapid and secure development process, the company has contracts with several of the world’s leading companies in the field that work together with the internal resources in China and Sweden.
Access to key components The Group expects that the manufacturing capacity in the market regarding certain key components, primarily batteries, will not be sufficient to meet global demand. The Group has access to certain key components through Evergrande Automotive Division, which is also continuously endeavoring to ensure access to strategically important components, materials and technologies.
Product liability, down time The Group has comprehensive insurance cover against liability, down time, delays in manufacturing start-up, property damage, environmental liability, travel, etc.
In terms of undertakings toward customers for product liability and guarantees, the company’s policy is to have corresponding undertakings in place with its suppliers.
Demand It is difficult to make reliable forecasts, as the EV market is still in an early stage. This means that there is a risk that forecasts are not accurate. However, by selecting China as its first focus, the Group has concentrated its investment in the market with the lowest risk for electric vehicles.
Competitive situation The automotive industry is dominated by players with substantially greater financial and industrial resources than NEVS. For this reason, the company closely monitors the development of new technologies, models and trends, and is organizationally prepared and flexible to react promptly in collaboration with its industrial partners.
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Political risks There is always a risk that laws and policies will be amended and that this could affect grants, authorizations and other factors affecting the Group. Via its organization and owners, the company is aware of these issues and maintains a close dialog with the authorities, primarily in China.
Going Concern The annual report has been prepared using the going concern basis of accounting. The implementation of the company’s business plan will increase operating costs, the need for working capital and investments in product development and inventory. Operating costs are encompassed in existing funds and existing agreements between the owners for additional funding.
26. RECENT EVENTS
In March, NEVS launched its car sharing service in Stockholm. Registered car owners can rent out their cars to anyone who needs a car for a shorter or longer period. Paying car users can access the car by using a key box that is controlled by the NEVS SHARE app. In April, NEVS SHARE began a partnership with a developer of retirement homes in Stockholm (Silver Life) to offer NEVS’ car sharing services to their residents. To date, NEVS SHARE has been launched in selected areas and is being run by a compact and dedicated team. Evaluating our services in the market provides us with highly valuable feedback from real customers.
In January, the company received further liquidity as part of a financing agreement between the owners.
The Group was impacted by the effects of COVID-19 during the period. Initially, through a total suspension for several weeks of all operations in China and then in the form of disruption, both at suppliers and in our own operations across Europe. As a result, operations in Europe have taken part in a number of the measures launched by states. It is still too early to assess the financial impact on the Group of the COVID-19 pandemic.
In June, Evergrande Groups’ wholly owned subsidiary Mini Minor Ltd aquired remaining 17,6% of the shares in NEVS from National Modern Energy Holding Ltd. Hereby, NEVS is a wholly owned subsidiary in Evergrande Group.
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PARENT COMPANY’S FINANCIAL STATEMENTS AND NOTES In the notes to the Parent Company’s financial statements, only information which differs from the corresponding Group notes is shown. Therefore the Parent Company’s Directors Report, financial statements, accounting policies and notes must be combined with the corresponding Group documents to obtain all of the relevant information about the Parent Company.
Comments on the Parent Company’s income statement and balance sheet The company’s activities accelerated during the year as a result of the new owners and the capital contribution, particularly with regard to research and development projects. This impacts the financial statements in several respects.
Gross margin Net sales declined 49% year-on-year as development work invoiced to China was only delivered for part of the year. This was due to the completion of development work on the 9-3 EV car and to the accumulation of product development expertise in the subsidiary in Tianjin. The cost for sales of goods and services has been reduced. The 43% decrease in costs for sales of goods is lower than the decrease in sales as certain costs have remained after invoicing ended for the development work referred to above, which means the gross margin relative to sales is lower year-on-year.
Other operating income Other operating income during the year relates mainly to gains on operational exchange rates.
Research and development costs During the year, research and development costs increased MSEK 38 year-on-year due to additional R&D activities, and amounted to MSEK 197 (159).
Administrative expenses Total administrative expenses rose to MSEK 449 (409) as operating activity accelerated during the year in many parts of the company.
Other operating expenses Other operating expenses for the year largely pertain to costs related to production facilities of MSEK 118 (81), which are recognized under other operating expenses as the production facilities did not generate income during the year, and to losses from disposals and impairment of non-current assets of MSEK 241 (25).
Financial income and expenses Financial income mainly comprises interest income of MSEK 107 (14) and financial expenses mainly comprise unrealized exchange-rate differences of MSEK -344 (-79) and accrued interest on loans from related companies and Group companies of MSEK -22 (-120). Shares in Automotive Interior Parts Sweden AB and Automotive Laboratory AB were written down by MSEK 65 (82) at year-end to the companies net asset value.
Assets The change in property, plant and equipment consists of depreciation according to plan and disposal of some equipment to prepare for manufacturing of future products. The decrease in the carrying amount for technology mainly pertains to the impairment of a platform. Capitalised development costs primarily consist of time spent on ongoing development projects and this figure rose during the year to MSEK 105 due to ongoing development projects.
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The change in participations in Group companies is attributable to an increase in operations and the establishment of new operations in Hong Kong and China, as well as the acquisition of subsidiaries in the UK. Participations in associated companies concern the acquisition of participations in the JV company Meneko AB. Long-term receivables against Group companies were settled during the year. The increase in other participations refers to the acquisition of a 5% holding in Alpraaz AB during the year.
The increase in current assets for Group companies and related parties mainly concerns the provision of product development services to the subsidiary in Tianjin, China, and loans to holding companies. Cash and cash equivalents totalled MSEK 1,754 (32) at year end.
Liabilities/financing The increase in equity is attributable to share issues and capital contributions from owners during the year, less earnings for the year. Non-current borrowings were repaid during the year. The change in current liabilities relates primarily to a decrease in interest-bearing liabilities and a decrease in debt to the Parent Company and related parties in the form of owner loans from National Modern Energy Holding and Mini Minor Ltd.
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Statement of comprehensive income, parent company period 1 January till 31 December 2019
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Statement of financial position, parent company as per 31 December 2019
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Statement of changes in equity, parent company period 1 January till 31 December 2019
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Cash flow statement, parent company, period 1 January till 31 December 2019 (indirect method)
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NOTES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE PARENT COMPANY
Accounting policies for the Parent Company The Parent Company prepares its annual accounts in accordance with the Annual Accounts Act and the Swedish Financial Reporting Board’s recommendation RFR 2 Accounting for legal entities. According to this recommendation, the Parent Company is to prepare its reports in accordance with IFRS issued by IASB and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Union (EU) if these do not conflict with the Swedish Annual Accounts Act. The accounting policies were consistently applied to all periods, unless otherwise stated. The accounting policies for the Parent Company do not differ from the Group’s policies in a manner that impacts carrying amount, apart from the application of IFRS16 Leasing where the relief rule allowed in the Standard to handle all the parent company's leasing contracts as operating contracts have been applied.
Participations in Group companies The Parent Company reports the value of participations in Group companies at amortized cost. The value is tested for impairment annually or when needed. Any impairment is recognized in the income statement.
3. NET SALES
Net Sales services mainly consists of services regarding technical development on current account. Delivery of technical results is made continuously. The sale is B2B and by using the groups own sales channel.
63% (86%) of the parent company’s sales go to consolidated companies.
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4. REMUNERATION TO AUDITORS, EY
5. OTHER OPERATING INCOME
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6. DEPRECIATION OF TANGIBLE AND INTANGIBLE ASSETS
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7. EMPLOYEE BENEFITS EXPENSE
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Average number of employees
Management and board
8. RESEARCH AND DEVELOPMENT COSTS
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9. OTHER OPERATING EXPENSES
As the manufacturing facilities are partly under construction or conversion with only very limited manufacturing activity during 2019, costs relating to these are accounted for under other expenses for the period. The impairment of assets is also related to the conversion of production.
10. FINANCIAL INCOME AND EXPENSES
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11. INCOME TAX
SEK ('000) 2019 2018
Accounting profit/loss before income tax -1 461 505 -793 139 At Swedens statutory income tax of 22% 312 762 174 491 Adjusted for non deductible items -129 136 -55 959 Utilized unrecognized tax losses - - Unrecognized tax losses -183 626 -118 531 Effective income tax - -
Income reported in the income statement -1 461 505 -793 139
SEK ('000) 2019 2018
Taxable deficit At the beginning of the year 2 244 971 1 707 896 Taxable profit for the year 858 067 537 075 Adjustment of tax previous year - - At the end of the year 3 103 038 2 244 971
As the parent company has historically had several consecutive years with tax deficits and because the current business plan does not show taxable gains for entities within the group against which the historic deficits can be offset in the years ahead, the company has decided not to recognize the existing deficit -183 626 (-118 531) as a deferred tax asset. In the future, when a taxable profit occurs, it will be possible to reduce the income tax by ulitizing the unrecognized tax losses by the amount presented above. According to Swedish law, tax losses are not limited in time. There is some uncertainty about deficits in the parent company that have arisen during the period before Evergrande´s acquisition of the majority share (deficits up to 2018-12-31). The parent company makes an open claim to the tax authorities that these must remain.
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12. TANGIBLE ASSETS
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13. INTANGIBLE ASSETS
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14. SHARES IN GROUP COMPANIES AND PARTICIPATIONS IN ASSOCIATED COMPANIES AND JOINT VENTURES
Shares in group companies
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Participations in associated companies and joint ventures
On January 14, 2019, the Board of Directors of NEVS AB decided to enter into a joint venture with Koenigsegg in order to strengthen the technology base around electric car technology and to develop and produce cars jointly. Christian von Koenigsegg is ceo of Meneko AB, which is 65% owned by NEVS AB and 35% by Koenigsegg. According to the 2019 Annual Report, Meneko had net sales of SEK 0.6 million and a balance sheet total of SEK 940 million.
Participations in other companies
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During 2017 NEVS has agreed with the other shareholders not to complete the acquisition of the shares in Fujian New LongMa Motor Co. Ltd. The deal means that shares corresponding to the remaining payment for the acquisition are transferred to the previous owners and NEVS remaining shares after this constitutes 15% of the capital. As the agreement of acquisition of remaining shares not is fulfilled during 2019, decision is made to write down net book value of remaining shares to zero.
15. INVENTORY
The Group's accounting policies for inventories are described in section 2.3 above.
Impairment of inventories at net realisable value has been recognised in the income statement for the parent company as expenses for goods sold.
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16. FINANCIAL ASSETS
Loans
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Except these loan receivables the parent company has receivables from operating activities 1 438 690 KSEK (1 211 357).
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Trade receivables
Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days. Essentially all receivables have been settled at the signing of the financial statements.
Other current receivables
Most of the other receivables do not accrue interest and normally fall due within up to 90 days.
Reserved cash
Reserved cash comprises bank deposits kept in separate bank accounts to serve as security for various types of undertakings.
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Cash and cash equivalents The amount comprises bank deposits which accrue variable interest. Holdings of foreign currency have been reassessed to fair value based on the exchange rate on the balance sheet date, and the difference is accounted for in the statement of comprehensive income. The change to bank deposits shown as cash and cash equivalents is accounted for in the cash flow statement.
17. EQUITY
Proposed disposition of earnings in the parent company to disposable funds (SEK)
The following is at the disposal of the Annual General Meeting:
18. OTHER LONGTERM LIABILITIES The parent company have no other longterm liabilities and has not received any government subsidies.
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19. FINANCIAL LIABILITIES
Loans
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Trade payables Terms of payment are normally between 30 and 90 days
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Other financial liabilities
20. FINANCIAL INSTRUMENTS
Financial assets are recognized in the categories loans and trade receivables, as well as cash and cash equivalents. All financial liabilities are in the category financial liabilities at accrued acquisition value.
The table below shows non-discounted values. For receivables due within one year the estimated fair value is equal to the book value. For receivables due in more than one year the fair valute is calculated based on the market conditions on December 31, 2019.
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Expected payments
Financial assets
Financial liabilities
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21. RELATED PARTY DISCLOSURE For definitions and other information see note 20 for the group.
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22. PLEDGES
The parent company has pledged the shares held in Automobile Property AB in favour of Saab Automobile Bankruptcy Estates. The purpose of the pledge is to provide security for the Estates in relation to an indemnification clause in the purchase agreement between the Company and the Estates indemnifying the Estates should the Group´s activities cause a third party to take legal action against the Estates. No such claims are known of. The net value of the collateral provided is SEK 600 million.
Perferent Ltd holds corporate mortgage certificates in the amount of SEK 140 million as security for loans. The loan has been fully amortized during 2019 and the corporate mortgage certificates has been returned to NEVS.
The parent company has a blocked bank account in the amount of SEK 11 (21) million as collateral for a bank guarantee with Enterprise Services Sverige AB as beneficiary, to serve as security for the payment of deliveries and services. The collateral provided exceeds the receivables that Enterprise Services Sverige AB has with the company.
23. CONTINGENT LIABILITIES
The parent company does not have any ongoing disputes or other contingent liabilities.
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24. LEASES
Operational leases – the parent company as lessee The parent company has entered into leases for certain factory facilities, IT systems, etc. Depending on the type of asset, the contract is automatically renewed if it is not actively terminated.
Future leasing fees concerning non-cancellable operational leases per December 31th, 2019:
Operational leases – the parent company as lessor The parent company has entered into leases concerning production facilities, office facilities and equipment which are currently not being used by the parent company. These non-cancellable leases have remaining terms ranging from a few months to one year. Depending on the terms and conditions of the individual lease, the lease is automatically renewed if it is not actively terminated.
Future leasing fees to receive concerning non-cancellable operational leases per December 31th, 2019:
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SIGNATURES
Trollhättan September 4 2020
Yongzhuo Liu Stefan Tilk Min Chen Chairman of the Board Manging director Board member
Kar Chun Jimmy Fong Jun Liu Fukui Li Board member Board member Board member
Liyong Qin Ronnie Hermansson Board member Employee Representative
AUDITORS’ REPORT
Our auditor´s report was issued on 2020
PricewaterhouseCoopers AB
Fredrik Göransson Authorised Public Accountant
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