Luxonen S.A.
Consolidated Annual Report
1 January - 31 December 2007 ______________________________
The Net Asset Value was USD 21.60 (SEK 139.69) per share as at
31 December 2007.
7A, rue Robert Stümper L-2018 Luxembourg
Reg. N°: R.C.S. Luxembourg B 30.541
Luxonen S.A.
Index to the Consolidated Annual Report
______________________________________________________________
Consolidated Annual Financial Statements
Page
Management report 3
Independent auditor’s report 12
Consolidated balance sheet 14
Consolidated income statement 15
Consolidated statement of changes in shareholders’ equity 16
Consolidated cash flow statement 16
Notes to the consolidated annual financial statements:
1. General information 17
2. Summary of significant accounting policies:
2.1 Basis of preparation 17
2.2 Consolidation 20
2.3 Segment reporting 22
2.4 Foreign currency translation 22 2.5 Financial assets at fair value through profit or loss 23 2.6 Derivative financial instruments 24
2.7 Cash and cash equivalents 24
2.8 Share capital 24
2.9 Income tax and deferred tax 24
2.10 Employee benefits 24
2.11 Revenue recognition 24
3. Financial risk management 25
3.1 Financial risk factors 25
3.2 Capital risk management 28
3.3 Fair value estimation 28
3.4 Investments in Funds 28
4. Critical accounting estimates and judgments 29 4.1 Fair value of derivative financial instruments 29
4.2 Functional currency 29
5. Financial assets at fair value through profit or loss 29
6. Investments in associates 30
7. Description of the investments 31
8. Derivative financial instruments 32
8.1 Total return swaps 32
8.2 Foreign exchange contracts 36
9. Dividends income 36
10. Share capital and Legal Reserve 37
11. Related party transactions 38
12. Taxation 41
13. Earnings per share 42
14. Dividend per share 42
15. Commitment 42
Facts about Luxonen S.A.
43Luxonen S.A.
Management Report
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• The net asset value per share in SEK increased by 10.2% during 2007.
• The net asset value per share increased from SEK 126.79 to SEK 139.69 during 2007.
• The profit for 2007 was 32.7 MUSD.
• The profit per share for 2007 was USD 3.08.
• In the fourth quarter 2007 the net asset value per share in SEK decreased by 1.2%.
• The loss for the fourth quarter 2007 was 3.9 MUSD or USD 0.36 per share.
Tables 3B show the total exposure by 31 December 2007.
The total assets are 285.9 MUSD (see table 3B) and the net asset value is 229.6 MUSD.
The equity ratio is 229.6 MUSD / 285.9 MUSD = 80.3%.
The largest holdings were: Total return swap Banks 85.3 MUSD
Nordic Absolute Return Fund 69.4 MUSD
Nordic Fund for Emerging Market Debts 54.0 MUSD
Table 2 shows the return and movements during 2007. The total return of all assets was 35.9 MUSD and the net return was 32.8 MUSD.
Luxonen has since beginning of 2003 hedged all its USD assets to SEK. This means that the
fluctuations in USD do not influence the net asset value in SEK. The result from hedging in 2007 was a
profit of USD 2.7 MUSD.
Luxonen S.A.
Management Report
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Table 1 Analysis of portfolio over one year.
Investments are expressed according to Market/Director’s valuation
(In MUSD)
31.12.2006 31.03.2007 30.06.2007 30.09.2007 31.12.2007
Carlson Fund Equity Asian Small Cap 0.2 0.3 0.3 0.9 0.0
Mass Mutual CVP 3.9 2.8 2.8 4.3 2.9
Nordic Absolute Return Fund 62.7 61.7 66.1 68.7 69.4
Nordic Fund for Emerging Market Debt 51.3 52.7 53.7 53.2 54.0
Total return swap Banks 36.8 40.1 35.7 34.5 29.1
Total return swaps Carlson Fund Asian
Small Cap (see note A below) 13.7 21.2 30.8 37.9 39.1 Total return swaps DJ Stoxx 50 index (see note A below) 5.4 5.3 7.7 6.2 6.6
Forward exchange contracts 3.2 2.0 0.0 2.6 0.0
Nordic Fund Management Limited 1.6 1.6 0.7 0.8 1.0
Other assets 0.0 0.0 0.0 0.4 0.0
Cash 18.4 16.2 25.2 26.9 30.9
Total assets 197.2 203.9 223.0 236.4 233.0
Total return swaps Carlson Fund Asian Small Cap 0.0 0.0 (0.9) (2.8) (3.3)
Forward exchange contracts 0.0 0.0 (1.1) 0.0 0.0
Other liabilities (0.4) (0.1) 0 (0.2) (0.1)
Net asset value 196.8 203.8 221.0 233.4 229.6
====== ====== ====== ====== =====
Note A In May and in November 2007, Luxonen has covered all the positions in the “Total return swaps Carlson Fund Asian Small Cap” and in the “Total return swaps DJ Stoxx 50 Index”
with transactions having termination date May 2008.
Luxonen S.A.
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Table 2 Net worth of Luxonen analyzed between different investments.
Investments are expressed according to Market/Directors’ valuation
(In MUSD)
Holding at Holding at
31.12.2006 Return Movement 31.12.2007
(See 1 below)
Carlson Fund Equity Asian Small Cap 0.2 0.8 (1.0) 0.0
Mass Mutual CVP 3.9 1.4 (2.4) 2.9
Nordic Absolute Return Fund 62.7 6.7 0.0 69.4 Nordic Fund for Emerging Market Debt 51.3 2.7 0.0 54.0 Total return swap Banks 36.8 (6.7) (1.0) 29.1 Total return swaps Carlson Fund Asian
Small Cap (see note A in page 4) 13.7 24.5 0.9 39.1 Total return swaps DJ
Stoxx 50 index (see note A in page 4) 5.4 0.7 0.5 6.6 Forward exchange contracts 3.2 2.7 (5.9) 0.0 Nordic Fund Management Limited 1.6 0.9 (1.5) 1.0
Other Assets 0.0 2.1 (2.1) 0.0
Cash 18.4 0.1 12.4 30.9
Total assets 197.2 35.9 (0.1) 233.0
Total return swaps Carlson Fund Asian
Small Cap (see note A in page 4) 0.0 (3.3) 0.0 (3.3) Other liabilities (0.4) 0.2 0.1 (0.1)
Net asset value (“N.A.V.”) 196.8 32.8 0.0 229.6
Number of shares 10,629,760 10,629,760 N.A.V. per share USD 18.51 (SEK 126.79) USD 21.60 (SEK 139.69)
1. Movements include cash variations relating to purchases of investments, expenses (positive), sales of investments and dividends (negative).
Luxonen S.A.
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Table 3/A Assets by category as at 31
stof December 2007.
Investments are expressed according to Market/Directors’ valuation (net amount for the Total return swap Banks, the Total return swap Carlson Fund Asian S.C.
and the Total return swaps DJ Stoxx 50 index)
(In MUSD)
Assets by Asset/
Category nav
USD million %
Shares 29.1 13
Hedge Fund 69.4 30
Interest bearing securities * 99.3 43
Other assets 1.0 0
Cash 30.9 14
Total assets 229.7 100
Other liabilities (0.1) (0)
Net asset value 229.6 100
===== ====
Table 3/B Assets by category as at 31
stof December 2007.
Investments are expressed according to Market/Directors’ valuation (gross amount for the Total return swap Banks, the Total return swap Carlson Fund Asian S.C.
and the Total return swaps DJ Stoxx 50 index)
(In MUSD)
Assets by Asset/
Category nav
USD million %
Shares 85.3 38
Hedge Fund 69.4 30
Interest bearing securities * 99.3 43
Other assets 1.0 0
Cash 30.9 14
Total assets 285.9 125
Other liabilities (56.3) (25)
Net asset value 229.6 100
====== ====
* This includes investments in Total Return Swaps instruments which are hedged as at 31 December
2007. Therefore the Group is only exposed to interest rate risk.
Luxonen S.A.
Management Report
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Table 4 Net worth of Luxonen analyzed between different investments from 27 January 1995 to 31 December 2007.
Investments are expressed according to Market/Directors’ valuation
(In MUSD)
Holding at Holding at
27.01.95 Return Movement 31.12.2007
Carlson Fund Equity Asian Small Cap 0.0 11.8 (11.8) 0.0
Mass Mutual CVP 0.0 5.3 (2.4) 2.9
Nordic Absolute Return Fund 0.0 34.0 35.4 69.4
Nordic Fund for Emerging Market Debt 0.0 14.4 39.6 54.0
Total return swap Banks 0.0 33.1 (4.0) 29.1
Total return swap Carlson Fund Asian
Small Cap (See note A in page 4) 0.0 37.3 1.8 39.1
Total return swap DJ Stoxx
50 index (See note A in page 4) 0.0 6.1 0.5 6.6
Forward exchange contracts 0.0 8.4 (8.4) 0.0
Nordic Fund Management Limited 0.0 5.5 (4.5) 1.0
Other Assets 0.0 2.1 (2.1) 0.0
Other Investments (see 1 below) 212.9 66.2 (279.1) 0.0
Cash and other costs 0.0 0.1 30.8 30.9
Total assets 212.9 224.3 (204.2) 233.0
Total return swap Carlson Fund Asian
Small Cap (See note A in page 4) 0.0 (3.3) 0.0 (3.3)
Debts (192.6) 3.9 188.7 0.0
Other liabilities 0.0 (15.6) 15.5 (0.1)
Net asset value 20.3 209.3 0.0 229.6
1) Other investments include all the investments sold or liquidated before 31 December 2006.
Luxonen S.A.
Management Report
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Table 5 Quarterly assets and net asset value
Total assets Net asset value Net asset value per MUSD MUSD share in SEK
27 January 1995 212.9 20.3 12.6
30 June 1995 223.1 27.6 16.8
30 September 1995 232.1 34.6 20.0
31 December 1995 228.3 32.0 17.8
31 March 1996 234.6 38.4 21.4
30 June 1996 247.7 51.2 28.3
30 September 1996 249.8 51.7 28.6
31 December 1996 247.9 52.6 30.2
31 March 1997 232.5 40.5 25.6
30 June 1997 247.7 53.6 34.6
30 September 1997 244.3 52.1 33.0
31 December 1997 176.4 39.0 25.8
31 March 1998 189.9 51.3 34.1
30 June 1998 178.1 40.1 26.7
30 September 1998 164.6 26.3 17.2
31 December 1998 152.3 43.5 29.4
31 March 1999 147.7 39.1 27.2
30 June 1999 159.9 52.4 36.0
30 September 1999 158.1 50.7 33.5
31 December 1999 164.4 67.0 46.2
31 March 2000 76.9 66.9 50.7
30 June 2000 65.8 65.8 51.2
30 September 2000 62.7 62.6 53.9
31 December 2000 57.4 57.0 50.0
31 March 2001 54.0 53.9 52.3
30 June 2001 54.0 53.9 55.2
30 September 2001 53.5 53.4 53.7
31 December 2001 54.5 54.4 53.7
31 March 2002 58.8 58.6 57.2
30 June 2002 62.9 62.8 54.3
30 September 2002 63.6 62.9 54.9
31 December 2002 62.7 62.6 51.3
31 March 2003 65.3 65.2 51.9
30 June 2003 71.1 71.0 53.4
30 September 2003 84.6 84.5 61.7
31 December 2003 97.8 97.7 66.1
31 March 2004 142.5 95.1 67.4
30 June 2004 145.2 97.7 69.1
30 September 2004 153.7 104.3 71.3
31 December 2004 123.2 123.1 77.1
31 March 2005 119.9 118.2 78.6
30 June 2005 115.3 110.9 81.5
30 September 2005 122.9 121.9 88.7
31 December 2005 139.1 136.1 101.87
31 March 2006 156.7 156.2 114.54
30 June 2006 158.5 157.9 106.97
30 September 2006 166.7 166.5 114.84
31 December 2006 197.2 196.8 126.79
31 March 2007 203.9 203.8 133.90
30 June 2007 223.0 221.0 142.09
30 September 2007 236.4 233.4 141.36
31 December 2007 233.0 229.6 139.69
Until 31 December 2004 the above figures were the result of the application of the Luxembourg GAAP.
From 1 January 2005 the IFRS accounting policies were applied to calculate the above figures.
Luxonen S.A.
Management Report
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Table 6 Earnings trend
(Amounts in USD/000)
3 months 3 months 12 months 12 months
Sept-Dec Sept-Dec Jan-Dec Jan-Dec
2007 2006 2007 2006
Income
Dividend income 1,369 0 3,905 3,373
Net gain / (loss) on financial assets at fair
value through profit or loss 607 7,134 9,701 21,749 Net gain / (loss) on derivative financial instruments (5,985) 20,624 18,011 34,218
Interest income 249 121 697 216
Share of profit / (loss) of associates 110 1,572 (663) 1,365
Other income 121 91 544 404
Net gain on foreign exchange 0 1,124 1,365 1,432 Total income (3,529) 30,666 33,560 62,757 Expenses
Administrative expenses (209) (599) (840) (2,285) Net loss on foreign exchange (118) 0 0 0
Total expenses (327) (599) (840) (2,285)
Minority interest (0) (1) (1) (4) Total expenses and minority interest (327) (600) (841) (2,289) Net Profit (3,856) 30,066 32,719 60,468
Earnings per share (0.36) 2.83 3.08 5.69 Number of shares 10,629,760 10,629,760 10,629,760 10,629,760
The amount showed as Earnings per share is calculated dividing the Profit by the number of shares.
Luxonen S.A.
Management Report
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Total return swaps Banks
In the first quarter of 2004, Luxonen took a position in four Nordic Banks through total return swaps.
Luxonen will get the return from shares in Svenska Handelsbanken, Föreningssparbanken AB, Nordea Bank AB and Den Danske Bank. The total value of the banks’ shares was 352 MSEK in equal weight.
To get this Luxonen will pay a fixed interest of 4.6% for five years. The Company is entitled to receive the dividends paid by the Banks. For 2007 the total return on the swaps was minus 6.7 MUSD.
Nordic Fund for Emerging Market Debts
The Nordic Fund for Emerging Market Debt (the “Fund”) generated 5.3% net total return in 2007, continuing its steady track record of positive annual returns. Credit markets during the second half of 2007 were quite volatile, and the Fund reduced its leverage every quarter, from 135% net long as at 31 December 2006, to 83% net long as at 30 June 2007, to only 43% net long (and only 80% gross long) as at 31 December 2007. The Fund is currently gradually building its portfolio of attractive short tenor instruments whose spread reflects general market bearishness, but whose credit fundamentals remain strong despite the economic slowdown that has originated in the USA.
Nordic Absolute Return Fund
The Nordic Absolute Return Fund is a long/short equity fund with emphasis on Nordic shares and it had a return of 4.5% during 2007. At the end of 2007 the Fund has a net short position of 11% on the Net Asset Value.
Total return swaps Carlson Fund Equity Asian Small Cap
In 2005, Luxonen bought 20.0 MUSD in Carlson Fund Equity Asian Small Cap through total return swaps. In 2007, Luxonen has covered all the positions in the “Total return swaps Carlson Fund Asian Small Cap” with two transactions having termination date May 2008. The valuation of the Total return swaps Carlson Fund Equity Asian Small Cap amounts to 39.1 MUSD at 31
stof December 2007 and follows the benchmark index MSCI AC Asia Pacific Free ex Japan.
Total return swaps DJ Stoxx 50 Index
In 2005, Luxonen took a position in 50 largest companies in Europe through total return swaps.
Luxonen pays a fixed interest rate yearly and it will get the return from the DJ Stoxx index in 2010. In
2007, Luxonen has covered all the positions in the “Total return swaps DJ Stoxx 50 Index” with one
transaction having termination date May 2008. The valuation of the Total return swaps DJ Stoxx 50
Index amounts to 6.6 MUSD at 31
stof December 2007.
Luxonen S.A.
Management Report
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Exotica
Exotica S.A. has been put into voluntary liquidation on the 29
thof June 2007 and it was definitively liquidated on the 18
thof January 2008.
Board meetings during 2007
There were three ordinary board meetings during 2007. The first meeting was held in February when the financial statements for the year ending 2006 were approved. The other two meetings were in May and September. Telephone board meetings were held between the main board meetings as necessary.
All major changes in the assets of the Company are decided by the Board of Directors. All investments made by Exotica Management Limited are also approved by the Board of Luxonen S.A.
Subsequent events
There are no subsequent events after 31 December 2007.
20 February 2008
Björn Carlson Rickard Björklund Eric Hermann Michael Horsburgh
Chairman Director Director Director
Märtha Josefsson Johan Kuylenstierna Bo Lehander
Director Managing Director Director
Luxonen S.A.
Consolidated balance sheet as at 31 December 2007
(Expressed in USD)
Note 31.12.2007 31.12.2006
Assets
Current assets
Financial assets at fair value through profit or loss 5 0 226,402 Derivative financial instruments 8 74,878,153 59,082,707
Other assets 20,478 7,817
Cash and cash equivalents 30,872,699 18,448,821
105,771,330 77,765,747
Non-Current assets
Investments in associates 6 960,226 1,552,202 Financial assets at fair value through profit or loss 5 126,237,783 117,876,170
127,198,009 119,428,372
Total assets 232,969,339 197,194,119
========= ==========
Shareholders’ equity and liabilities Shareholders’ equity
Share capital 10 20,807,082 20,807,082
Legal reserve 10 2,080,708 2,051,528
Share Premium 516,142 516,142
Currency translation adjustment 6 149,890 78,952 Retained earnings 206,012,495 173,322,478 229,566,317 196,776,182 Minority interest 0 19,137 Total shareholders’ equity 229,566,317 196,795,319
Current liabilities
Derivative financial instruments 8 3,278,762 0 Other liabilities 124,260 398,800 Total liabilities 3,403,022 398,800
Total equity and liabilities 232,969,339 197,194,119
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The accompanying notes on pages 17 to 42 form an integral part of these financial statements
Luxonen S.A.
Consolidated income statement for the year ended 31 December 2007
(Expressed in USD)
Note 31.12.2007 31.12.2006 Income
Dividend income 9 3,905,370 3,373,054
Net gain / (loss) on financial assets at
fair value through profit or loss 5 9,701,211 21,748,988 Net gain / (loss) on derivative financial instruments 18,010,895 34,218,241
Interest income 697,646 215,637
Share of profit / (loss) of associates 6 (662,914) 1,365,420
Other income 543,721 403,559
Net gain on foreign exchange 1,364,757 1,432,246
Total income 33,560,686 62,757,145
Expenses
Administrative expenses 11 840,124 2,285,310 Net loss on foreign exchange 0 0
Total expenses 840,124 2,285,310
Profit for the year before minority interest 32,720,562 60,471,835 Attributable to minority interest (1,365) (4,035)
Profit for the year 32,719,197 60,467,800
========= =========
Earnings per share before and after dilution 13 3.08 5.69
Number of shares 10,629,760 10,629,760
The accompanying notes on pages 17 to 42 form an integral part of these financial statements
Luxonen S.A.
Consolidated statement of changes in shareholders’ equity
Note Share Legal Share Retained Other Minority Total Capital Reserve Premium Earnings Reserves interest Equity
USD USD USD USD USD USD USD
Balance at 31 December 2005 20,807,082 2,051,528 516,142 112,854,678 (117,820) 14,959 136,126,569
Profit of the year 0 0 0 60,467,800 0 0 60,467,800
Increase in minority interest 0 0 0 0 0 4,178 4,178
Currency translation adjustment 6 0 0 0 0 196,772 0 196,772 Balance at 31 December 2006 20,807,082 2,051,528 516,142 173,322,478 78,952 19,137 196,795,319
Balance at 31 December 2006 20,807,082 2,051,528 516,142 173,322,478 78,952 19,137 196,795,319 Allocation to the Legal Reserve 0 29,180 0 (29,180) 0 0 0
Profit of the year 0 0 0 32,719,197 0 0 32,719,197
Decrease in minority 0 0 0 0 0 (19,137) (19,137)
Currency translation adjustment 6 0 0 0 0 70,938 0 70,938 Balance at 31 December 2007 20,807,082 2,080,708 516,142 206,012,495 149,890 0 229,566,317
Consolidated cash-flow statement for the year ended 31 December 2007
(Expressed in USD)
31.12.2007 31.12.2006
Cash flows from operating activities Purchases of financial assets at fair
value though profit or loss (10,123,706) 0 Proceeds from financial assets at fair
value through profit or loss 11,688,052 8,717,830 Cash flows generated from financial assets
at fair value through profit or loss 4,438,535 4,752,671
Bank interest received 690,736 237,891
Other income 5,289 0
Administrative expenses (1,134,660) (2,181,122) Net cash flows from derivative financial instruments 5,509,894 (297,684) Net cash inflow from operating activities 11,074,140 11,229,586 Increase in cash and cash equivalents 11,074,140 11,229,586 Cash and cash equivalents:
Beginning of the year 18,448,821 5,844,796
Effect of foreign exchange rate changes 1,349,738 1,374,439
End of the year 30,872,699 18,448,821
========= ==========
The accompanying notes on pages 17 to 42 form an integral part of these financial statements
Luxonen S.A.
Notes to the consolidated annual financial statements
1. General information
1.1 Luxonen S.A. (the “Company”) and its subsidiaries and associate together the “Group”
takes participations in other Luxembourg or foreign enterprises and acquires any securities and rights through participations. As at 31 December 2007, the main investments are in USA, in Sweden and in the Euro zone.
1.2 The Company is a Luxembourg holding company incorporated on 23 May 1989 as a
“Société Anonyme” and subject to the law of 31 July 1929. The company is listed at the Stockholm’s Stock Exchange.
1.3 These consolidated annual financial statements have been approved for issue by the Board of Directors on 20 February 2008.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
2.1 Basis of preparation
These 31 December 2007 consolidated annual financial statements of Luxonen S.A. and its consolidated subsidiaries and associate are for the year ended 31 December 2007. They have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
These consolidated annual financial statements have been prepared under the historical cost convention, as modified by the revaluation of the financial assets and liabilities (including derivative financial instruments) at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS as adopted by the European
Union requires the use of certain critical accounting estimates. It also requires the Board of
Directors to exercise its judgment in the process of applying the Company’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial statements are disclosed in Note 4.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued)
A) Standards, amendment and interpretations effective in 2007
IFRS 7, “Financial Instruments: Disclosures”, and the complementary amendment to IAS 1,
“Presentation of financial statements – Capital disclosures”, introduces new disclosures relating to financial instruments and does not have any impact on the classification and the valuation of the Group’s financial instruments.
B) Standards, amendments and interpretations effective in 2007 but not relevant
The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1
stJanuary 2007 but they are not relevant to the Group’s operations:
- IFRS 4, “Insurance contracts”;
- IFRIC 7, “Applying the restatement approach under IAS 29, Financial reporting in hyperinflationary economies”, and
- IFRIC 9, “Re-assessment of embedded derivatives”;
- IFRIC 10, “Interim financial reporting and impairment”, prohibits the impairment losses recognized in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. This standard does not have any impact on Group’s financial statements.
C) Standards amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group’s accounting periods beginning on or after 1 January 2008 or later periods, but the Group has not early adopted them:
- IAS 23 (Amendment), “Borrowing costs” (effective from 1 January 2009). It requires an
entity to capitalize borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset (one that takes a substantial period of time to get ready for
use or sale) as part of the cost of that asset. The option of immediately expensing those
borrowing costs will be removed. The group will apply IAS 23 (Amended) from 1 January
2009 but is currently not applicable to the group as there are no qualifying assets.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued)
C) Standards amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group
- IFRS 8, “Operating segments” (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131,
“Disclosures about segments of an enterprise and related information”. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management, but it appears likely that impact will be limited, as the Group doesn’t identify internal segment provided to the chief operating decision maker as the Group is only involved in the investment management of financial assets.
D) Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations
The following interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 March 2008 or later period but are not relevant for the Group’s operations:
- IFRIC 12, “Service Concession Agreements” (effective from 1 January 2008). IFRC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRC 12 is not relevant to the Group’s operations because none of the Group’s companies provide for public sector services.
- IFRIC 13, “Customer loyalty programmes” (effective from 1 July 2008). IFRC 13 clarifies
that where goods or services are sold together with a customer loyalty incentive (for
example, loyalty points or free products), the arrangement is a multiple element
arrangement and the consideration receivable from the customer is allocated between the
components of the arrangement in using fair values. IFRC 13 is not relevant to the
Group’s operations because none of the Group’s companies operate any loyalty
programmes.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.2 Consolidation
(a) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which the control is transferred to the Group. They are de-consolidated from the date on which control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.
Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
As at 31 December 2007 the following companies formed part of the Group and have been included in the consolidated financial statements:
Name Country of Ownership at Holding by incorporation 31 December 2007
Luxonen S.A. Luxembourg -
Exotica Management Limited British Virgin Islands 100.00 % Luxonen S.A.
Exotica S.A. which was a subsidiary owned by Luxonen S.A. at 99.99%, has been put into
voluntary liquidation at 29
thof June 2007 and it have been finally liquidated at 18
thof January
2008. All assets and liabilities for a net amount of USD 133,753,752 have been transferred to
the Company.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.2 Consolidation (continued)
(b) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting right.
Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost.
The Group’s investment in associates includes goodwill, if any, (net of any accumulated impairment loss) identified on acquisition.
The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement and its share of post-acquisition movements in recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
As at 31 December 2007 the following company was associated to the Group and has been included in the consolidated financial statements following the equity method:
Name Country of Ownership at
incorporation 31 December 2007 Holding by Nordic Fund Management Company Ltd Ireland 33.60% Luxonen S.A
As at 31 August 2007, Nordic Fund Management Company Ltd has bought the totality of the share capital of Alsback Förvaltning AB, Stockholm. The purchase price was SEK 2,348,831 which corresponds to the net equity of Alsback Förvaltning AB calculated at the same date. As at 31 December 2007 the account of Alsback Förvaltning AB from the 1
stof September 2007 until 31 December 2007 has been consolidated in the financial situation of the Nordic Fund Management Company Ltd. This last consolidated financial situation has been considered in the present consolidated financial statements.
As at 31 December 2007 the following Mutual Funds have not been included in the consolidated financial statements using the equity method:
Name Country of Ownership at
incorporation 31 December 2007 Holding by Nordic Absolute Return Fund (see Note 3.4) Ireland 26.39% Luxonen S.A
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.3 Segment reporting
The Management of the Group did not identify a segment as defined under IAS 14 as the Group is only involved in the investment management of financial assets. However the investments are disclosed in Note 7 by activity and by currency.
2.4 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in USD, which is the Company’s functional and presentation currency.
The functional currency of the subsidiaries and of the associates is as follow:
Name Functional
currency
Exotica Management Limited USD
Nordic Fund Management Company Ltd SEK
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
Translation differences on non-monetary items such as equities held at fair value through profit or loss are reported in the income statement under the caption “Net gain / (loss) on financial assets at fair value through profit or loss”.
The following closing exchange rates have been used as at 31 December 2007:
EUR 1 = USD 1.4590 GBP 1 = USD 1.9906
SEK 1 = USD 0.1546 NOK 1 = USD 0.1842
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.5 Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception.
A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated as hedging instruments.
Financial assets and financial liabilities are designated at fair value through profit or loss when:
- Doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortized cost for such as loans and advances to customers or banks and debt securities in issue;
- Certain investments, such as equity investments, that are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis are designated at fair value through profit or loss; and
- Financial instruments, such as debt securities held, containing one or more embedded derivatives significantly modify the cash flows, are designated at fair value through profit or loss.
In 2006, the Group considered all investments as designated at fair value through profit or loss by application of the fair value option. The Group policy is for the Investment Manager and the Board of Directors to evaluate the information about these financial assets on a fair value basis together with other related financial information.
Purchases and sales of investments are recognized on trade date, the date on which the Group commits to purchase or sell the assets. Investments are initially recognized at the fair value and transaction costs are recognized in the income statement in “Administrative expenses”.
Investments are derecognized when the rights to receive cash flows from the investments have
expired or have been transferred and the Group has transferred substantially all risks and
rewards of ownership. Realized and unrealized gains and losses arising from changes in the fair
value are included in the income statement in the year in which they arise as “Net gain/loss on
financial asset at fair value through profit or loss”.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
2. Summary of significant accounting policies (continued) 2.6 Derivative financial instruments
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
The Group does not apply hedge accounting according to IAS 39. Changes in the fair value of any derivative financial instruments that do not qualify for hedge accounting are recognized immediately in the income statement as “Net gain / (loss) on derivative financial instruments”.
2.7 Cash and cash equivalents
Cash and cash equivalent includes cash in hand, deposits held at call with banks. If any, bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
2.8 Share capital
The share capital is represented by ordinary shares; no other kinds of shares (i.e. treasury, privileged, etc.) have been issued by the Company. Ordinary shares are classified as equity.
2.9 Income tax and deferred tax
The Group is not liable to any income tax. Therefore no deferred income tax has been recorded.
2.10 Employee benefits
The Group does not operate any employee benefit scheme as defined under IAS 19.
2.11 Revenue recognition
Revenues are recognized as follows:
(a) Interests income
Interests income are recognized on time-proportion basis using the effective interest method.
(b) Dividends
Dividend income is recognized when the right to receive payment is established.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
3. Financial risk management 3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses financial instruments to hedge certain risk exposures.
Risk management is carried out directly by the Management under policies approved by the Board of Directors.
(a) Market risk
The Company market risk is affected by three main components:
- changes in actual foreign currency movements;
- changes in actual market prices movements;
- changes in interest rate risk.
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the SEK. Foreign exchange risk arises from investments and liquidities denominated in a currency that is not the functional currency of the entity.
The Management is responsible for managing the net position in each foreign currency by using external forward currency contracts.
As at 31 December 2007, if the currencies had strengthened/weakened by 5% against the USD with all other variables held constant, the Profit for the year had been decreased/increased by USD 7,726,381 (2006: USD 8,922,112). There are no impacts on other components of Equity.
(ii) Price risk
The Group is exposed to equity securities price risk because of investments held by the Group
and classified in the consolidated balance sheet as at fair value through profit and loss. The
Group is not exposed to commodity price risk.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
3. Financial risk management (continued) 3.1 Financial risk factors (continued)
(a) Market risk (continued) (ii) Price risk (continued)
On the assumption that the price of the shares and funds units in financial assets at fair value through profit and loss, the Bank’s shares in the Total Return swap Banks, the net asset value of Carlson Fund Asian Small Cap in the Total Return Swaps Carlson Fund Asian Small Cap and the DJ Stoxx 50 index in the Total Return Swap DJ Stoxx 50 index decreased/increased of 3%, the Profit had been increased/decreased of USD 6,346,256 (2006: USD 5,702,644). There are no impacts on other components of Equity
(iii) Interest rate risk
At 31 December 2007, if interest rate on bank account for currency denominated in SEK and on Total Return Swaps Carlson Fund Asian Small Cap and on the Total Return Swap DJ Stoxx 50 index had been decreased/increased of 3% during 2007, the Profit had been decreased/increased of USD 4,163,759 (2006: USD 29,527,702). There are no impacts on other components of Equity.
(b) Credit risk
The Group has no significant concentrations of credit risk.
All the cash is deposited in two primary European bank institutions, one in Luxembourg and the other in Stockholm. The Derivative financial instruments agreements have been all set up with only one bank counterpart in Norway. The Nordic Funds are open-ended unit trusts authorized in Ireland by the Irish Financial Services Regulatory Authority (the “Authority”) pursuant to the provisions of the Unit Trust Act, 1990 and any regulations made thereunder. These Funds are supervised by the Authority.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash.
The table below analyses the Group’s financial liabilities and gross settled derivative financial
liabilities into relevant maturity groupings based on the remaining period at the balance sheet to
the contractual maturity date.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
3. Financial risk management (continued) 3.1 Financial risk factors (continued)
(c) Liquidity risk (continued)
The amounts disclosed in the table below are the contractual undiscounted cash flows.
Less than one month From one to five months
USD USD
At 31
stDecember 2007
Other liabilities 95,273 0
Total return swaps Carlson Fund
Equity Asian Small Cap 0 2,295,878
Forward Exchange
contracts (see note a below) 60,000,000
At 31
stDecember 2006
Other liabilities 398,800 0
Forward Exchange
contracts (see note a below) 60,000,000
Note a) the amount showed above represents the negative leg of the Forward Exchange
Contracts; on the same value date, Luxonen will receive from the bank SEK
388,380,000 corresponding to USD 60,043,548 at the exchange rate as at 31 December
2007 (2006: SEK 433,110,000 corresponding to USD 63,234,060 at the exchange rate
as at 31 December 2006)
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
3. Financial risk management (continued) 3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders.
As at 31 December 2007, the subscribed capital was set at USD 20,807,082 (the same in 2006) and is represented by 10,629,760 category “A” shares fully paid-up and without nominal value.
3.3 Fair value estimation
The fair value of derivative financial instruments is based on quoted market prices if available, otherwise management uses valuation techniques described in Note 8. Techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of forward exchange contracts is determined using quoted forward exchange rates at the balance sheet date.
The fair value of financial assets at fair value through profit or loss, traded on an active market, is based on current bid prices.
For financial assets, not traded in an active market, the Group uses the Net Asset Value received from the fund administrator of the asset, identifying this Net Asset Value as the fair value of the asset.
As at 31 December 2007, all investments of the Group are not traded in an active market.
3.4 Investments in Funds
One issue for the industry as a whole concerns the reporting of certain holdings in investment funds. According to IAS 27 and IAS 28, controlled entities on which a company has significant influence, shall normally be consolidated in the company’s annual accounts.
The Company owns 74.21% the Nordic Fund for Emerging Market Debts (see Note 2.2 b).
Because of the structure, the organization, rules and regulation applicable to Nordic Fund for Emerging Market Debts, the Company has no control, as defined by IAS 27, over this investment. Accordingly, this investment has been designated at fair value through profit or loss in accordance with IAS 39.
The Company also owns 26.39% of Nordic Absolute Return Fund (see Note 2.2 b). In
accordance with the exemption provided by IAS 28.1 applicable to Venture Capital
organizations, this investment as well as the investment in Nordic Fund for Emerging Market
Debts, have been designated at fair value through profit or loss in accordance with IAS 39.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
4. Critical accounting estimates and judgments
Management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
4.1 Fair value of derivative financial instruments
The Company holds financial instruments that are not quoted in active market. Fair values of such instruments are determined by using valuation techniques. Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by the Management.
4.2 Functional currency
The Board of Directors considers the USD the currency that most faithfully represents the economic effect of the underlying transactions, events and conditions. The USD is the currency in which the Company measures its performance and reports its results.
5. Financial assets at fair value through profit or loss Movements in the period (expressed in USD)
Net Unrealized
Fair value Movements gain / (loss) Fair value 1st January 2007 in the year of the year 31 December 2007
(see Note 1 below) Financial Assets at fair value
through profit or loss
Current assets
Carlson Fund Equity Asian Small Cap (*) 226,402 (226,402) 0 0 226,402 (226,402) 0 0
Non current assets
First Britannia Mezzanine NV 1,000 0 0 1,000
Mass Mutual CVP (*) 3, 867,650 0 (977,903) 2,889,747
Nordic Absolute Return Fund (*) 62,734,641 0 6,634,092 69,368,733 Nordic Fund for Emerging Market Debts (*) 51,272,879 0 2,705,424 53,978,303 117,876,170 0 8,361,613 126,237,783 Total financial assets at fair value
through profit or loss 118,102,572 (226,402) 8,361,613 126,237,783
1) The net amount of USD 8,361,613 representing the unrealized gain/(loss) has been recorded in
addition with the amount of USD 1,339,598 representing the realized gain/(loss) as “Net gain/(loss)
on financial assets at fair value through profit or loss” in the income statement.
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
6. Investments in associates
The movements in relation with Nordic Fund Management Company Limited are as follows:
USD
At 1
stJanuary 2006 1,366,897
Dividend received on the 31
stDecember 2005 result (1,376,887) Advance dividend on the 31
stDecember 2006 result (977,025)
Share of profit (gross of advance dividend) 2,342,445
Share of profit 1,365,420
Foreign exchange difference 196,772
At 31
stDecember 2006 1,552,202
At 1
stJanuary 2007 1,552,202
Dividend received on the 31
stDecember 2006 result (1,509,340)
Share of profit 846,426
Foreign exchange difference 70,938
At 31
stDecember 2007 960,226
The summarized consolidated financial information of the Nordic Fund Management (Ireland) Limited, that is the only associate of the Company and that is unlisted, is as follows:
Country of incorporation: Ireland
31 December 2007 31 December 2006
Assets SEK 23,347,003 31,644,343
Liabilities SEK 4,865,496 0
Income SEK 42,675,351 82,115,578
Expenses SEK (25,677,198) (29,854,078)
Profit / (loss) for the year SEK 16,998,153 52,261,500
Ownership:
31 December 2007 31 December 2006
- Luxonen S.A. 33.60% 33.60%
- EMD Corporate S.A. 25.40% 50.40%
- Other 41.00% 16.00%
--- ---
100.00% 100.00%
Luxonen S.A.
Notes to the consolidated annual financial statements (continued)
7. Description of the investments (a) Balance sheet by currency
The balance sheet of the Group by currency is as follows:
31.12.2007 31.12.2006 In USD % In USD % Assets
SEK 126,967,868 54.50 119,508,745 60.61
USD 77,304,964 33.18 63,102,245 32.00
EUR 28,695,160 12.32 14,582,127 7.39
GBP 1,000 0.00 1,000 0.00
DKK 347 0.00 2 0.00 232,969,339 100.00 197,194,119 100.00 Liabilities
SEK 28,988 0.85 164,117 41.15
EUR 3,374,034 99.15 234,683 58.85 3,403,022 100.00 398,800 100.00
(b) Balance sheet by activity
The balance sheet of the Group by activity is as follows:
31.12.2007 31.12.2006 In USD % In USD % Assets
Associated companies 960,226 0.41 1,552,202 0.79 Mutual Funds 126,236,783 54.19 118,101,572 59.89
Other investments 1,000 0.00 1,000 0.00
Derivatives financial instruments 74,878,153 32.14 59,082,707 29.96
Other assets 20,478 0.01 7,817 0.00
Cash at bank 30,872,699 13.25 18,448,821 9.36 232,969,339 100.00 197,194,119 100.00 Liabilities
Derivatives financial instruments 3,278,762 96.35 0 0 Other liabilities 124,260 3.65 398,800 100.00 3,403,022 100.00 398,800 100.00
