CONSOLIDATED BALANCE SHEET

At the end of 2020/2021, the lease liability amounted to SEK 676 million (627), of which S E K 186 million (169) was a current liability and SEK 490 million (458) was a non-current liability. The average remaining lease term at the end of March 2021 was 25 months, with extension options accounting for one month of that. The Group’s right-of-use assets are primarily leased premises, vehicles and other leases (of, for example, production equipment, office equipment and other assets not considered individually significant). Depreciation of right-of-use assets is specified in Note 8 Depreciation. Interest expenses on the lease liability for the 2020/2021 financial year amounted to SEK 9 million (8) and, in cash flow for the year, the amortisation component of the lease fees amounted to SEK 192 million (162) in addition to the interest expense. The cash flow effect from leases of lesser value amounted to an outflow of SEK -2 million, the cash flow effect from current leases to an outflow of SEK -10 million and cash flow from leases with variable fees to an outflow of SEK -1 million. Rent concessions paid as a result of Covid-19 during 2020/2021 are not considered significant.

Inventories

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

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

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

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

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

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

Of consolidated net sales, currency clauses cover about 9 percent (10) and sales in the purchasing currency make up about 39 percent (38). In certain transactions, there is a direct link between the customer’s order and the associated purchase order, which is a good basis for effective currency risk management. However, in many cases the dates of the orders do not coincide, which may reduce the effectiveness of these measures. The subsidiaries have reduced their currency exposure by using forward foreign exchange contracts. At the end of the financial year, there were outstanding forward foreign exchange contracts in a gross amount of SEK 273 million (183), of which EUR equalled SEK 201 million (115), USD equalled SEK 24 million (34), PLN equalled SEK 22 million (22), DKK equalled SEK 23 million (2), GBP equalled SEK 3 million (9) and NOK equalled SEK 1 million (1). Of the total contracts, SEK 123 million (148) matures within six months, SEK 114 million (51) within 12 months and SEK 36 million (0) within 18 months. Hedge accounting does not apply to forward foreign exchange contracts and they are classified as a financial asset measured at fair value through profit or loss. Hedge accounting applies to embedded derivatives consisting of currency clauses, and they are classified as derivatives used in hedge accounting. The cash flow effect from embedded derivatives normally occurs within six months.

The Group has a net exposure in several currencies. If each separate currency pair changes by 5 percent, the aggregate effect on profit would total about SEK 60 million (68), all else being equal. Inflows and outflows in the same currency mean that the Group’s exposure is relatively limited. Currency flows in the Parent Company are mainly in Swedish kronor (SEK). To the extent that internal and external loans and investments in the Parent Company are in foreign currency, 100 percent of the capital amount is hedged.

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

When translating the income statement of units with a functional currency other than SEK, a translation effect arises when exchange rates vary. With the present distribution of Group companies’ different functional currencies, a change of 1 percentage point in the exchange rates would have an effect of SEK +/- 68 million (72) on net sales and SEK +/- 6 million (8) on operating profit.

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

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

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

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

In order to limit the refinancing risk, the procurement of long-term credit facilities is commenced no later than nine months before the credit facility matures. On 31 March 2021, the Group’s credit facilities amounted to SEK 3,800 million (3,800), represented by bank overdraft facilities of SEK 1,300 million (1,300) and other agreed credit facilities of SEK 2,500 million (2,500). During the year, overdraft facilities increased by SEK 0 million (0) while other agreed credit facilities increased by SEK 0 million (1,800). At 31 March 2021, the Group had utilised SEK 800 million (156) of the bank overdraft facilities and SEK 1,300 million (1,600) of the other credit facilities. Unutilised bank overdraft facilities and credit facilities amounted to SEK 1,700 million (2,028). The Parent Company’s credit facilities are contingent upon loan covenants, the conditions of which are fulfilled with a wide margin. For covenants, Addtech uses two ratios: EBITDA/net financial items and equity/assets.

Interest rate risk
The interest rate risk is regulated by ensuring that the average fixed interest term of the debt portfolio varies between 0-3 years. The debt portfolio consists of bank overdraft facilities and outstanding external loans. The interest rate at 31 March 2021 was variable, that is, 0-3 months. Addtech’s main exposure to interest rate risk is in its debt portfolio. Aside from the pension liability, interest-bearing external debt totals SEK 3,218 million (2,616).

With the current net financial debt, the impact on the Group’s net financial items would be SEK +/- 25 million if interest rates were to fluctuate by 1 percentage point.

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

Addtech’s financial function at the Parent Company is responsible for assessing and managing issuer/borrower risk. The financial policy prescribes that surplus liquidity only be invested with counterparties that have a very high credit rating. As in prior years, in 2020/2021 no surplus funds were invested with any counterparties other than Swedish banks, aside from the Group’s normal bank contacts.

To utilise its subsidiaries’ detailed knowledge of Addtech’s customers and suppliers, Addtech has each company assess the credit risk in its commercial transactions. New customers are assessed before credit is granted, and credit limits set are strictly enforced. Short credit periods are the goal, and avoiding excessive concentration of business with individual customers and with specific sectors helps minimise risks. No individual customer accounts for more than 5 percent (4) of total credit exposure during a one-year period. The equivalent figure for the ten largest customers is about 13 percent (17). Exposure per customer segment and geographic market is presented in Note 5.

Bad debt losses totalled SEK 6 million (7) during the year, equal to 0 percent (0) of net sales.

Prepaid expenses and accrued income

Note 20

Equity

GROUP
Other contributed capital

Refers to equity contributed by shareholders.

Translation reserve

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

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

Retained earnings, including profit for the year
Retained earnings including profit for the year include earnings in the Parent Company and its subsidiaries. Prior provisions to the legal reserve are included in this equity item.

Repurchased shares
Repurchased shares includes the cost of treasury shares held by the Parent Company. At the end of the reporting period, the Group’s holding of treasury shares was 3,519,272 (4,199,672).

Dividend
After the reporting period, the Board of Directors proposed a dividend of SEK 1.20 per share. The dividend is subject to approval by the Annual General Meeting on 26 August 2021.

Moderbolaget

PARENT COMPANY

Restricted reserves
Restricted reserves are funds that cannot be paid out as dividends.

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

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

Number of shares
The Annual General Meeting in August 2020 resolved to implement a 4:1 share split. The number of shares at 31 March 2021 consisted of 12,885,744 Class A shares, entitling the holders to 10 votes per share, and 259,908,240 Class B shares, entitling the holders to one vote per share. The quotient value of the share is SEK 0.19. The Company has repurchased 3,519,272 Class B shares within the framework of the Com-pany’s ongoing repurchasing programme. After subtracting repurchased shares, the number of Class B shares is 256,388,968

Non-current interest-bearing liabilities

Provisions for pensions and similar obligation

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

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

Obligations for retirement pensions and family pensions for salaried employees in Sweden are secured by insurance in Alecta. According to statement UFR 3 of the Swedish Financial Reporting Board, this is a defined-benefit plan covering multiple employers. For the 2020/2021 financial year, the Company did not have access to information enabling it to report this plan as a defined-benefit plan. Thus the pension plan according to ITP2 and secured by insurance in Alecta is recognised as a defined-contribution plan. The year’s fees for pension insurance with Alecta totalled SEK 30 million (31). Fees for the next financial year are considered to be in line with those for the year reported. The collective consolidation level for Alecta was 160 percent (133) in March 2021. The pension plan according to ITP1 is recognised as a defined-contribution plan.

Defined-benefit plans
These pension plans primarily comprise retirement pensions. Each employer generally has an obligation to pay a lifelong pension and vesting is based on the number of years of employment. The employee must subscribe to the plan for a certain number of years to be fully entitled to retirement benefits. Each year increases the employee’s entitlement to reti-rement benefits, which is recognised as pension earned during the period and as an increase in pension obligations. Both funded and unfunded pension plans apply in Sweden, Switzerland, the UK and Italy. The funded pension obligations are secured by plan assets that are managed by insurance companies. The Group estimates that SEK 6 million (4) will be paid in 2021/2022 to the funded defined-benefit plans. The total number of commitments of 996 (963) included in the obligation consists of 160 active (132), 473 paid-up policy holders (488) and 363 pensioners (343).

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

For Swedish pension liabilities, the interest rate for Swedish housing bonds is used as a basis and for pension liabilities in Switzerland, the UK and Italy, the interest rate for corporate bonds is used. The weighted average maturity for the commitment is around 18 years (18), which is used as a basis on which to determine the discount rate. Future increases in pensions are based on inflation assumptions. In Sweden, the remaining period of employment (life expectancy) is based on DUS 14, statistical tables prepared by Insurance Sweden and Försäkringssällskapet (the Insurance Society), in Switzerland on BVG 2015 and 2020 GT, in the UK on S3PA, and in Italy on Tavole IPS55.

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

Current interest-bearing liabilities

Accrued expenses and prepaid income

Provisions

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

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

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

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