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ANNUAL REPORT 2016DIAMORPH 03
Contents
423,6The year in brief
139,8 1,49
NET SALES/MILLION SEK
OPERATING PROFIT/MILLION SEK
EARNINGS PER SHARE/SEK
The formal annual report and accounts comprises pages 14 to 50.
1 ABOUT DIAMORPH
CEO's message 04
Key figures 05
2 OPERATIONS
Organisation 06
Description of operations 08
Business areas 10
Corporate governance report 12
The Share 13
3 ADMINISTRATION REPORT
Operations 14
Group income statement 19
Group balance sheet 20
Group changes in equity 21
Group cash flow 22
Parent Company income statement 23
Parent Company balance sheet 24
Parent Company changes in equity 25
Parent Company cash flow 26
Accounting principles and notes 27
Auditor's report 51
4 BOARD OF DIRECTORS AND
MANAGEMENT
Board of directors 54
Management 55
ANNUAL REPORT 2016 DIAMORPH04
Last year I talked about how 2015 was a period of consolidation and
transition for Diamorph, including changes in the management team. During
2016 we have been focusing on continuing to strengthen the business to
accelerate the rate of growth. This has required some investments which have
impacted to an extent on our profits in 2016 but I believe that good progress
has been made during the past year. There are a number of initiatives to drive
future growth but I will touch on the key elements.
Toward the end of 2015 we increased the rate at which we were adding
sales and marketing resources to enable us to capture opportunities we see
to penetrate our existing markets more deeply and extend our geographic
reach. We have been careful to expand the skillset within the organisation,
including foreign language capabilities. In parallel we have actively extended
our network of sales agents and distributors and invested in a number of
other functional areas to exceed our customers’ expectations of us. Some
investments already started to deliver results in 2016, for example in our rail
and marine businesses, but others will take a little more time before we see
the full benefits.
In parallel we are seeking to commercialise new products with a key focus
being on Ferobide, a new wear part product, which we launched in late
2015. We have initially focused on the agricultural sector which is naturally
conservative when it comes to adopting new technologies. We continue
to respond to customer feedback and develop the technical performance
of Ferobide. We are now also looking to other applications outside of the
agricultural sector and remain cautiously optimistic about the prospects for
this product.
To boost our new product development capabilities, one of our longer term
growth initiatives has been the modernisation of our Innovation Centre
in Manchester, UK. This represented SEK 4 million of capital investment
during 2016 and we now have an excellent facility that will enable us to drive
forward our research and development activities in the years ahead, work
more collaboratively with customers as well as making our business more
attractive to the brightest talents within the industrial research community.
Our ceramic conveyor roller business has delivered another year of strong
growth. During 2016, we have evaluated and now committed to make
a SEK 27 million investment to meet demand from the market for even
longer rollers. This investment will keep us right at the forefront of the
market and significantly expand capacity from current levels.
Despite the growth we delivered in the areas noted above some of our
business areas have experienced much more challenging conditions
in 2016, particularly those more exposed to the oil and gas sector.
Consequently, overall during 2016 we have reported flat sales at fixed
exchange rates. This performance has however again demonstrated the
diversity and quality of our business and our strategy is unchanged. We
continue to focus on using our specialist materials knowledge to help
solve demanding challenges for our broad customer base in over 60
countries, working in a wide variety of different markets with many product
applications. Our largest customer accounted for 3% of our sales in 2016
and our largest 10 customers comprised just 19% of sales.
Looking ahead we have a good platform to grow the business by making
selective acquisitions that complement and support the organic growth
strategy. Our strong cash flow has enabled significant deleveraging in
the last couple of years and the ratio of net debt to EBITDA at the end
of 2016 was 2.0 times. This means we have good financial capacity to
support acquisitions as well as a proven model following the successful
acquisitions of Certec and Tenmat. We have started a process to identify
potential acquisition targets and this work will accelerate in 2017.
With a substantial part of our business located in the UK, we are obviously
alert to the potential impact from the outcome of the UK’s referendum on
EU membership. In 2016 we have already experienced quite significant
exchange rate movements and reductions in long term UK interest rates
which have given rise to quite large movements in group equity. It is
too early to know the longer term impact on the business. However, as
negotiations between the relevant parties develop, we will proactively plan
for any changes that may impact on our business.
In January 2017, we gave notice to our bondholders that we were exercising
our option for voluntary partial repayment of SEK 50 million out of the total
SEK 500 million outstanding bonds. The repayment was made on 6 March
2017 from surplus cash at a premium of 102% of the nominal amount (SEK
1 million).
In February 2017, we completed the acquisition of the final 10% of Diamorph
Bearings AB and so the Group now controls 100% of each of its subsidiaries.
The purchase price has been calculated consistent with arrangements agreed
at the time of the acquisition of our Hob Certec business in 2011.
CEO's message
“Plotting the path to an accelerated rate of growth”
ANNUAL REPORT 2016DIAMORPH 05
Key figuresKey figures 2015 2016 Δ%
Net sales 431,5 423,6 01
Operating profit1 151,2 139,8 -8
Operating profit margin, %1 35,0 33,0
Profit before tax1 113,5 102,4 -10
Operating cash flow 160,9 115,8 -28
Operating cash conversion, % 106 83
Net debt 329,2 305,9 -7
Earnings per share1 (SEK) 1,67 1,49 -11
Average number of shares (’000) 52 594 52 741
Operating profit - reported 151,2 139,6 -8
Profit before tax - reported 108,2 141,1 30
Earnings per share - reported (SEK) 1,65 2,08 26
¹ Adjusted to fixed exchange rates or excluding non-recurring items - see definition on page 49.
Since 2012 a significant part of the cash flow generated by the Group has
been applied to deferred and other payments linked to the Tenmat and
Certec acquisitions. The completion of this transaction in February means
that all of these payments are now concluded.
Despite these payments since the year end the Group today still holds
significant surplus cash. Alongside our pursuit of growth, we will review our
borrowing structure during 2017 to ensure that it appropriately balances the
certainty of availability of finance, our borrowing costs, and the flexibility we
desire to support our growth ambitions.
At the end of March 2017, Heinz Pöhlmann stepped down as joint Managing
Director of Hob Certec. Following the carefully planned management
transition, Jan Roubal will continue to act as Managing Director of the Hob
Certec business.
I would like to again thank all employees, customers, partners, shareholders
and bondholders for their support during 2016.
Gordon MacLeman
CEO
"During 2016, we have invested SEK 4 million in our Innovation Centre in Manchester to support our medium to long term growth ambitions"
ANNUAL REPORT 2016 DIAMORPH06
Organisation
Founded in 2003, Diamorph has its creative roots in materials research at Stockholm University. Since its inception, the Company has been focused on advanced materials solutions for niche applications in highly demanding industrial environments. Today, the Diamorph
Group has production, development and sales across two manufacturing units in the United Kingdom and the Czech Republic, as well as sales teams based in Sweden, USA, Germany, France and Italy. The Group operates globally and had sales to customers in 60 countries in 2016.
OPERATIONS
customers in
countries60
Customers
Sales team
R&D and production
ANNUAL REPORT 2016DIAMORPH 07
Environment
In order to satisfy customer requirements in a diverse range of markets,
Diamorph works with a range of innovative materials and processes.
The raw materials used can be broadly categorised into metals, ceramic
powders, fibres and polymers. The Group’s categorised operations are
regulated by a variety of environmental legislation and the Group holds all
the necessary permits for its operations legislation at production facilities
in Manchester, United Kingdom and Horni Briza, Czech Republic.
Diamorph works continuously to minimise the environmental impact of
its products and processes, and has a number of programs underway
targeting reduced environmental impact of operations. In 2016, all waste
and emissions were within permissible limits.
Strategy
Diamorph’s strategy to be a leading supplier of advanced materials
solutions comprises four parts:
• To actively seek market niches in particularly demanding applications
• To focus on materials excellence in every product area the Company
chooses to operate in
• To be agile in responding to market needs and seizing opportunities
which arise
• To ensure we remain as differentiated as possible from competitors
Diamorph typically identifies opportunities for individual components in
complex industrial systems, where the Company’s particular combination
of advanced materials expertise and precision engineering capabilities
allow it to create value in the customer’s process. This is achieved by
focusing on leading edge performance in the materials we work with,
and focusing close, long term customer relationships which allow us to
stay at the forefront of developments in our chosen markets.
Management, from left to right: Dr Kapil Chopra, Heinz Pöhlmann, Gordon MacLeman, Jan Roubal, Mark Hutchison
ANNUAL REPORT 2016 DIAMORPH08
Description of operations
Market
Diamorph is an advanced materials company, producing highly
differentiated, high performance materials and components for very
demanding industrial applications. Our products are designed to
extend the lifespan, performance and reliability of components in the
customer’s application.
Diamorph focuses on “deep niches” which are typified by high regulation,
lengthy approvals processes and long testing cycles. Diamorph
components are found for example in trains, ships, automotive applications,
building fire protection systems, high temperature process plants for
metals, glass and ceramics production, industrial pumps and high
voltage switchgear systems. In order to meet the diverse requirements of
our customers we work with a variety of advanced materials platforms,
including ceramics, fibre-reinforced polymers and metals.
Revenues by business areas
Diamorph has two business areas: high temperature materials, and
wear parts and bearings. The business areas have diversified product
portfolios targeting different industries with varying dynamics. High
temperature materials accounts for 64% (62%) of total sales and wear
parts and bearings accounts for 36% (38%) of total sales.
Wear parts
and bearings36%64%High
temperature
materials
Total group sales amounted to SEK 423.6 (431.5) million representing
a decrease of 2% as reported. At fixed exchange rates sales were
flat compared to the same period last year. This again highlights the
diversity of the business as growth in many of our business areas has
offset the impact of declining sales in certain others.
High temperature materials
Sales of high temperature materials amounted to SEK 270.3 (267.1)
million representing an increase of 1% as reported. At fixed exchange
rates sales increased by 3% compared to last year.
Throughout 2016 demand for our ceramic conveyor roller products has
remained very healthy. Within our fire protection business sales have
continued to grow in the USA and sales of our ventilated fire barrier
products have grown strongly within Europe. However demand for some
fire protection products has been influenced by the knock-on effect of
reduced building insulation incentives offered by the UK government.
Within other high temperature product applications there has been good
demand for hot gas filter products which are influenced by environmental
regulations, however sales of a number of other product lines have not
kept pace with the level of sales in 2015.
Wear parts and bearings
Sales of wear parts and bearings amounted to SEK 153.3 (164.4) million
representing a decrease of 7% as reported. At fixed exchange rates
sales decreased by 4% compared to the same period last year.
The Group achieved very good growth in the rail and marine businesses
in 2016, supplemented by the first significant sales of the Ferobide
product line. However this has been more than offset by reduced
sales of high performance engineered component product lines and
in particular rotor vane product sales where the pace of customer
expenditure in the oil and gas industry has had a marked impact.
DIAMORPH 09ANNUAL REPORT 2016
Diamorph serves a diverse range of global industriesDuring 2016 our fire protection products found their way onto cruise vessels, now protecting lives on land and at sea
ANNUAL REPORT 2016 DIAMORPH010
High temperature materials
Revenues
270.3 (267,1) MILLION SEK
3% INCREASE AT FIXED EXCHANGE RATES
Passive fire protection
In the event of a fire in a building fire spreads from one room to another via penetrations for
ventilation and electricity. Diamorph has developed products based on material that expands
when heated. Products are installed in connection with penetrations and they expand in the
event of fire and can thereby seal the cavities. This keeps the room/fire cell intact and delays the
fire from spreading through the building giving time for evacuations and fire-stopping activities.
Through the ability to control the direction in which the material will expand products are tailored
for cable penetrations, vent ducts, air gaps, recessed ceiling lights and doorsills.
Ceramic conveyor rollers
Diamorph offers a series of ceramic conveyor rollers used in kilns for the production of ceramic
tiles. During production the tiles are transported through a kiln at temperatures up to 1300-1400"C
by long rollers. To prevent the tiles from being destroyed at the firing the rollers need to have a
nice surface and remain rigid at high temperatures. Diamorph manufactures the world's longest
rollers, up to six metres long, of ceramic materials that are tailored to the needs of this demanding
application.
Refractories and other high temperature materials
Refractories are insulating materials that retain their physical and chemical integrity at high
temperatures. The Group supplies refractories and other high temperature components which are
used for example in the aluminium processing industry, as coverings for rollers in the float glass
manufacturing process, in hot gas filtration systems.
Filtration of hot gas has become increasingly important with increased focus on stricter
legislation around industrial pollution. Hot gas filtering requires materials that can withstand
high temperatures and in order to continuously minimise emissions the industry needs to use
advanced materials. Diamorph manufactures hot gas filters adapted for a variety of industries.
Business Areas
ANNUAL REPORT 2016DIAMORPH 011
Wear parts
Components that solve problems with wear have many applications in several industries. The
purpose of the wear components is to extend the service life by protecting equipment and
accessories against wear. These components are highly abrasion resistant and are mounted
on surfaces that are particularly vulnerable to wear and tear. Applications are found in rail,
marine and agricultural industries.
Bearings
A bearing is a type of wear component that is used to give as low a friction as possible
between two components that move. Diamorph manufactures bearings and bushings for
applications such as marine, hydraulics, pumps and rail. Depending on the application, the
bearings are designed with special properties such as water lubrication for the marine industry
or low noise for the railway industry.
Rotor vanes
Vanes that are used in vacuum pumps are sliding wear components. These pumps are used
in agriculture for spreading of sludge and milking as well as in various industrial applications
including within the oil and gas, public health, laboratory and medical industries. Diamorph
vanes are designed for a specific type of pump for use with lubrication and are currently
used by the majority of customers in the niche market.
Wear parts and bearings
Revenues
153.3 (164.4) MILLION SEK
4% DECREASE AT FIXED EXCHANGE RATES
ANNUAL REPORT 2016 DIAMORPH012
Corporate governance reportGeneral MeetingThe General Meeting is the highest decision-making body in which share-
holders exercise their right to decide on matters. Shareholders are informed
through notice of their right to have a matter considered at the meeting.
Notice of the AGM where the annual report will be presented, and an EGM
at which an amendment of the Articles of Association is proposed, shall
be published no earlier than six and no later than four weeks before the
meeting. Notice of other EGMs shall be published no earlier than six and no
later than two weeks before the meeting. Notice of a General Meeting shall
be published in Post-och lnrikes Tidningar and on the website. The fact that
notice has been given shall be simultaneously published in Dagens lndustri.
Shareholders who are registered in the share register on the record date
(five days prior to the date of the meeting) and have registered for the
meeting as set out in the notice convening the meeting, are entitled to
attend either in person or by proxy.
The AGM must be held within six months of the fiscal year. AGM
mandatory tasks include deciding on adoption of the income statement
and balance sheet for the Company and the Group, approval of dividends,
discharge from liability for directors and officers and the election and
remuneration of the directors and auditors.
The Board of DirectorsThe Board is responsible for the organisation and management of the
Company. The Board shall continuously monitor the Company's and
the Group's financial situation. The Board's responsibilities also include
deciding on acquisitions and divestitures of businesses, decisions on
major investments, appointment of the CEO, compensation and other
terms of employment for the CEO and ongoing monitoring of the business
during the year. The Board also evaluates the work of the CEO.
In 2016 the Board held 4 meetings including the statutory meeting. The
Board members all attended every meeting except that Ashkan Pouya,
Saied Esmaeilzadeh, Anthony Moore and Ola Ringdahl were each unable
to attend one of the meetings.
The Board receives information about the Company's economic and
financial situation through monthly reports and other reports issued prior
to board meetings. Prior to each Board meeting the Chairman and CEO
review the issues to be discussed at the Board meeting and relevant
material is sent to members a week prior to each meeting.
CEO and Group managementThe CEO is responsible for the ongoing management of the Company's
affairs according to the Board's guidelines and instructions. The CEO shall
provide information for decision-making in order to make well-founded
decisions as well as data in order to continuously monitor activities during
the year.
The CEO has appointed a management team consisting of the CFO and
the respective Managing Directors and Operations Director of the Hob
Certec and Tenmat businesses.
AuditorThe Company's auditor reviews the financial statements and accounting
records. The auditor reports the results of its work to the General Meeting
through its audit report.
Internal controlThe Board has overall responsibility for internal control. To fulfil this
responsibility the Board has established a policy document.
Based on the policy document the CEO is responsible for designing internal
processes and establishing policies and instructions that ensure a sound
framework of internal control. This is supplemented by an annual self-
assessment process over the operation of financial controls. Specific risk
assessment is carried out where each item is evaluated on the basis of
inherent risk, materiality and existing controls.
Auditor's report on the Corporate Governance StatementTo the general meeting of the shareholders of Diamorph AB (publ),
corporate identity number 556647-5371
Engagement and responsibility
It is the Board of Directors who is responsible for the corporate governance
statement for the year 2016 (the financial year 2016-01-01–2016-12-31)
on page 54 and that it has been prepared in accordance with the Annual
Accounts Act.
The scope of the audit
Our examination has been conducted in accordance with FAR’s auditing
standard RevU 16 The auditor’s examination of the corporate governance
statement. This means that our examination of the corporate governance
statement is different and substantially less in scope than an audit
conducted in accordance with International Standards on Auditing and
generally accepted auditing standards in Sweden. We believe that the
examination has provided us with sufficient basis for our opinions.
Opinions
A corporate governance statement has been prepared. Disclosures in
accordance with chapter 6 section 6 the second paragraph points 2–6 the
Annual Accounts Act and chapter 7 section 31 the second paragraph the
same law are consistent with the annual accounts and the consolidated
accounts and are in accordance with the Annual Accounts Act.
Stockholm 28 April 2017
Ernst & Young AB
Stefan Andersson Berglund
Authorised Public Accountant
ANNUAL REPORT 2016DIAMORPH 013
The Share
Share capitalAccording to the Articles of Association the share capital shall be not
less than SEK 530 000 and not more than SEK 2 120 000 divided into
a minimum of 25 million and a maximum of 100 million shares. The
Company has only one class of share. Diamorph's registered share
capital after the direct share issue during the second quarter of 2016
amounted to SEK 1 105 608 divided into 52 846 841 shares. The changes
in shares in issue in the past five years are shown in the table below.
The Company holds none of its own shares.
At the Annual General Meeting each share entitles one vote.
Shareholders are entitled to vote for the full number of shares he or
she owns without any restrictions. Each share gives the shareholder
the same preferential rights to shares, warrants and convertible debt in
relation to the number of shares they own.
Year Transaction
Change of
number of
shares
Total number
of shares
Total share
capital
(SEK)
2012 Share issue 17 781 468 44 453 671 930 015
2012 Share issue in kind 5 143 564 49 597 235 1 037 623
2012 Share issue in kind 1 612 734 51 209 969 1 071 363
2013 Share issue 1 190 929 52 400 898 1 096 278
2013 Share issue in kind 192 853 52 593 751 1 100 313
2014 - - 52 593 751 1 100 313
2015 - - 52 593 751 1 100 313
2016 Share issue in kind 253 090 52 846 841 1 105 608
Information on the share issue in kind during 2016 can be found in the
section on Significant events during the financial year on page 14.
WarrantsAt the 2016 AGM, an issue of a maximum of 980 000 warrants was
approved. These warrants have subsequently been issued to a number
of senior executives and employees of the Group for no consideration
as a form of long-term incentive programme. Each warrant entitles the
holder to subscribe for one new share in the Company at a subscription
price of SEK 15. Warrants can only be exercised during the period from
1 September 2020 up to and including 31 December 2022, or up to
and including an earlier date that follows from the complete terms and
conditions of the warrants.
DividendDeclaration of dividends may be made at the AGM or EGM. Diamorph has
not paid any dividends to shareholders. The Board of Directors proposes
that the Annual General Meeting 2017 proposes that no dividend be paid
in respect of 2016 results.
OwnershipAs of 31 December 2016, the number of shareholders amounted to 234 (249),
of which the largest are shown in the table below:
Owner
Total number
of shares
Share
capital,%
Serendipity Ixora/Group AB* 15 273 716 28,9%
Latour-Gruppen AB 13 923 571 26,3%
First Kraft AB 4 672 558 8,8%
J P Morgan Bank Luxembourg SA 2 960 438 5,6%
Zhou Jun 1 612 734 3,1%
Tindaf AB 1 611 162 3,0%
Mikael Lönn 1 277 000 2,4%
AB Måttex 1 242 800 2,4%
SIX SIS AG 994 856 1,9%
Fredrik Palmstierna 803 742 1,5%
Anthony Moore 654 558 1,2%
Others 7 819 706 14,9%
Total 52 846 841 100,0%
*Serendipity Ixora AB owns 23.4%. Serendipity Group AB owns 5.5%.
ANNUAL REPORT 2016 DIAMORPH014
Operations
Diamorph AB (publ) and its subsidiaries (“the Group” or “Diamorph”),
conducts research, development and commercialisation of advanced
materials solutions for especially demanding industrial applications.
The Group focuses on narrow niches with differentiated products to
solve industrial materials challenges. This requires close cooperation
with customers and long approval testing, resulting in high barriers to
entry for competitors.
Diamorph has two product categories: wear parts and bearings, and
high temperature materials. The largest customer accounts for 3% of
Diamorph’s total sales and the ten largest customers represent a total of
19% of sales. Diamorph’s sales are made to a wide customer base with
a wide geographical spread.
The Group
Diamorph AB (publ) is the Parent of the Group and principally acts as a
holding company. There have been no significant changes in the Group
structure in 2016 except for the acquisition of a further 10% of Diamorph
Bearings AB from 2 minority shareholders. Since the end of 2016, Diamorph
has acquired the final remaining minority interest in Diamorph Bearings AB
and therefore now controls 100% of each of its subsidiaries. These
acquisitions are described further in the sections below.
The Diamorph Group includes, besides the Parent Company, two main
companies that in turn control the main operating subsidiaries.
Diamorph AB (publ) controls the UK holding company Diamorph UK Ltd
(100%) which in turn controls Modular Stock Ltd (100%), the holding
company for the Tenmat business acquired in 2012, which in turn controls
Tenmat Ltd (100%) (“Tenmat”). Diamorph UK Ltd and Modular Stock Ltd
have no significant activities other than the funding and management of
their subsidiaries.
At 31 December 2016 Diamorph AB (publ) controlled the Swedish
company Diamorph Bearings AB (90%) which in turn controlled Diamorph
hob certec s.r.o. (100%) (“Hob Certec”) thereby giving Diamorph an effective
90% interest in the Hob Certec business acquired in 2011. At 31 December
2016 the remaining 10% of Diamorph Bearings AB was owned by 1 minority
shareholder. Since the year end Diamorph has acquired this final remaining
minority interest. This acquisition is described further in the section below.
For a detailed description of the Group’ shareholdings refer also to note 24.
Significant events during the financial year
Acquisition of 10% of Diamorph Bearings AB during 2016
After acquiring the Hob Certec business in 2011 and the Tenmat business
in 2012 there were no acquisitions in the three years between 2013 and
2015. In April 2016, Diamorph AB (publ) acquired a further 10% of Diamorph
Bearings AB from 2 of the minority shareholders for consideration of SEK
22.8 million in a combination of cash (SEK 19.0 million) and a promissory
loan note (SEK 3.8 million). After completing this acquisition, Diamorph AB
(publ) controlled 90% of Diamorph Bearings AB.
One of these former shareholders in Diamorph Bearings AB later used
the promissory loan note as consideration to purchase 253 090 shares
in Diamorph AB (publ) from Serendipity Ixora AB. Subsequently the
promissory loan note was cancelled when it was used as consideration
by Serendipity Ixora AB for the directed share issue of 253 090 shares
approved at the AGM in May 2016. Through the combination of these
transactions, Serendipity Ixora AB was put back to the same position as
it was in beforehand.
Investment in Innovation Centre
During 2016 we have invested SEK 4.2 million, and a considerable amount
of time and energy, in modernising our Innovation Centre in Manchester,
United Kingdom. We now have an excellent facility that will better enable
us to drive forward our research and development activities in the months
and years ahead.
We have a number of exciting product developments in our pipeline and
the newly refurbished Innovation Centre will better enable us to work
collaboratively with customers and other business partners as well as
making our business more attractive to the brightest talents within the
industrial research community.
Significant events after year end
Acquisition of 10% of Diamorph Bearings AB after year end
At 31 December 2016 the remaining 10% (159 shares) minority interest in
Diamorph Bearings AB was owned by 1 other minority shareholder. This
shareholder subscribed for these shares in Diamorph Bearings AB as part
consideration for the acquisition of Hob Certec in 2011. In February 2017
Diamorph acquired this final 10% minority interest for cash consideration
of SEK 32.0 million. The purchase price was calculated consistent with the
arrangements agreed at the time of acquisition of Hob Certec in 2011.
The put option relating to these arrangements (see note 4) was valued
at SEK 8.9 million in the balance sheet at 31 December 2016 and this
liability will be derecognised through equity in 2017. Diamorph AB (publ)
therefore today controls 100% of each of its subsidiaries.
Management transition
Subsequent to the year end, Heinz Pöhlmann has stepped down as
joint Managing Director of Hob Certec. Following the carefully planned
management transition, Jan Roubal will continue to act as Managing
Director of the Hob Certec business. Jan Roubal joined the Group in 2012
and is a member of the Diamorph senior management team. The other
current members of the senior management team are shown on page 55.
Liquidation of KHP Marketing Gmbh
KHP Marketing Gmbh is a subsidiary company in Switzerland that
became part of the Group at the time of the Hob Certec acquisition. The
Group has started a process to liquidate this company to simplify the
group structure and eliminate unnecessary administrative costs.
ADMINISTRATION REPORT
ANNUAL REPORT 2016DIAMORPH 015
The liquidation process will ultimately involve the distribution of the
company’s net assets (principally cash and intercompany balances) to its
parent company Diamorph Bearings AB. This process is deemed to be
an effective distribution of profits and requires the settlement of SEK 5.9
million of withholding taxes to the Swiss tax administration. This payment
was made in January 2017.
No liability for this withholding tax payment was recognised in the balance
sheet at 31 December 2016 because the payment was not committed at
that date.
Voluntary repayment of SEK 50 million of bonds
In January 2017, Diamorph AB (publ) gave notice to its bondholders that it
was exercising its option for voluntary partial repayment of SEK 50 million
out of the total SEK 500 million outstanding bonds. The repayment was
made on 6 March 2017 from surplus cash resources at a premium of 102%
of the nominal amount (SEK 1 million).
Adjusted performance measures
The Group's financial performance can be impacted by non-recurring
items including foreign exchange gains and losses.
In order to better show the underlying performance of the business
management provides adjusted figures for key performance measures in
addition to those reported under IFRS. The operating profit performance
before non-recurring items and finance income and expense before
non-recurring items, are presented in the Group income statement on
page 19. Reconciliations of adjusted profits before tax and adjusted
earnings per share are shown in note 28.
The definitions of the adjusted measures are unchanged compared
to the last Annual Report except that the way sales growth at fixed
exchange rates is calculated has been expanded to additionally include
adjustments for the effect of changes in US Dollar and Euro exchange
rates on the consolidated GBP results of the Tenmat business. The way
changes in operating expenses at fixed exchange rates is calculated
has been similarly expanded and also adjusted to remove the effect of
unrealised gains and losses on forward exchange rates used for hedging
purposes. Both of these changes have been made in order to more fairly
demonstrate the underlying position given that GBP exchange rates
were impacted quite markedly in 2016 by uncertainty following the UK
referendum on EU membership.
Financial performanceRevenue and operating profit performance
Sales were SEK 423.6 (431.5) million, representing a decrease of 2% as
reported, but at fixed exchange rates sales were flat compared to the
previous year.
Gross profit amounted to SEK 237.6 (241.0) million in the full year giving a
gross profit margin of 56.1% (55.9%). The gross margin percentage can
be impacted by exchange rate effects as well as changes in the product
mix but overall is quite consistent with the previous year.
Operating expenses amounted to SEK 97.8 (89.8) million representing
an increase of 9% as reported and 12% at fixed exchange rates. The
increase continues to reflect investments that are being made to support
the launch of the Ferobide product and the strengthening of the sales
and marketing teams to support growth of other existing product lines.
Operating profit before non-recurring items therefore decreased to SEK
139.8 (151.2) million and the operating profit margin decreased to 33%
(35%). Overall the sales performance has not been at a level sufficient to
offset the investments in operating expenses referred to above.
Non-recurring expenses of SEK 0.2 (-) million were incurred relating
to legal expenses on the acquisition of 10% of Diamorph Bearings AB
referred to above.
Financing items and profits before tax
Net financial items amounted to income of SEK 1.5 (expenses of 43.0)
million. The changes in net financial items arise from a combination of
reductions in underlying financing charges and changes in non-recurring
financing items.
Underlying net financing expenses were SEK 37.4 (37.7) million, with the
small reduction over the full year relating to the continued amortisation of
the bank loan in the Hob Certec business.
Non-recurring financial income of SEK 38.9 (expenses of 5.3) million
was reported. They mainly comprise exchange gains and losses on
third party and intercompany financing balances and changes in the fair
value of derivative financial instruments. Significant gains arose in 2016 on
intercompany balances as GBP weakened against SEK in early 2016 both
in the run up to and subsequent to the UK referendum on EU membership.
In 2015, a smaller opposite exchange rate movement was experienced.
Adjusted profits before tax (adjusted to remove the effect of non-recurring
financing items) therefore decreased by 10% to SEK 102.4 (113.5) million.
Taxes
Income taxes amounted to a charge of SEK 29.0 (18.6) million. As for the
net financial expenses the tax charge comprises tax on the underlying
business performance as well as non-recurring tax items.
The underlying tax charge was SEK 21.4 (22.2) million, the decrease largely
due to a decrease in underlying profits before tax. The underlying tax
charge for the full year represents an effective tax rate of 21% (20%) of
adjusted profits before tax. The small increase in the tax rate reflects partly
a change in the mix of profits reported in different countries and also the
fact that the 2015 tax charge included credits relating to previous years.
Non-recurring tax charges of SEK 7.6 (credits of 3.6) million were reported.
These relate to tax effects on non-recurring financing items and other non-
recurring tax items. In 2016 non-recurring tax items include credits on
deferred tax liabilities arising as a result of a reduction to the corporation
tax rate from 19% to 17% expected in 2020 following announcements
by the government in the UK. They also include withholding tax charges
arising from the process of liquidating a dormant subsidiary company
(Tenmat Gmbh i.L) in Germany.
ANNUAL REPORT 2016 DIAMORPH016
Earnings per share
After allowing for the profits after tax attributable to minority interests
adjusted earnings per share (adjusted for non-recurring financing and
tax items) decreased by 11% to SEK 1,49 (1,67). Earnings per share (as
reported under IFRS) increased by 26% to SEK 2,08 (1,65).
Cash flow and financial position
Net cash flow from operating activities before changes in working capital
amounted to SEK 93.1 (113.6) million in the full year. The decrease is
mainly explained by a combination of the decrease in operating profit
referred to above and an increase in tax payments. Cash tax payments
in 2015 were reduced by a number of factors including deductions for
foreign exchange losses whilst cash tax payments in 2016 have been
increased by tax charges on foreign exchange gains.
Changes in working capital reduced cash flow by SEK 16.4 (increase
of 8.5) million. Changes in working capital are mostly influenced by the
phasing of sales.
Cash outflows from investing activities were SEK 48.6 (24.2) million. Cash
outflows included investments in tangible and intangible fixed assets of
SEK 18.8 (10.0) million in the full year. This expenditure included investments
in our Innovation Centre in Manchester to support our medium to longer
term growth ambitions, as well as expenditure on new plant and equipment.
The cash flow also reflected the set aside of SEK 8.1 (5.9) million of cash
under a pledge agreement with a minority shareholder of Diamorph
Bearings AB and SEK 19.0 million relating to the acquisition of 10% of
Diamorph Bearings AB. In both years, cash outflows include payments
of GBP 230,000 into the Tenmat defined benefit pension scheme. In the
previous year the cash flow from investing activities included the final pay-
ment of SEK 14.4 million relating to the acquisition of the Tenmat business,
however these expenditures were partially offset by the disposal of SEK
9.0 million of marketable securities.
Cash flows from financial activities amounted to an outflow of SEK 7.5
(7.4) million in the full year. This relates to the continued amortisation of
the bank loan in the Hob Certec business.
Cash flow for the period therefore amounted to a cash inflow of SEK 20.6
(90.5) million. After adjusting for exchange rate differences, cash and cash
equivalents at the end of the year amounted to SEK 213.2 (194.3) million.
Net debt
Net debt at the end of the year amounted to SEK 305.9 (329.2) million, a
reduction of SEK 23.3 (87.9) million during the year.
Equity and number of shares
The parent company’s share capital at 31 December 2016 consisted of
SEK 1 105 608 (1 100 313) divided into 52 846 841 (52 593 751) shares
with a quota value of SEK 0.0209 (0.0209). The increase in share capital
since the start of the year relates to the directed share issue approved at
the 2016 AGM in May (as described further on page 14).
Group equity at 31 December 2016 amounted to SEK 461.6 (515.6) million,
a decrease of SEK 54.0 (increase of 130.4) million during the full year. In
addition to the net profit of SEK 112.1 (89.6) million reported for the year,
foreign exchange losses of SEK 109.8 (gains of 25.8) million arose primarily
on GBP denominated net assets within the business. As a result mainly of
significant changes to long term UK interest rates after the UK’s referendum
on EU membership, actuarial losses (net of tax) of SEK 35.4 (gain of 17.3)
million arose on the Tenmat defined benefit scheme (see defined benefit
pension scheme section below).
Further movements in group equity in the full year of 2016 related to the
directed share issue noted previously (SEK 3.8 million) and the transaction
with two shareholders to acquire 10% of Diamorph Bearings AB for total
consideration of SEK 22.8 million.
Defined benefit pension scheme
There is a defined benefit pension plan with the Group related to Modular
Stock Limited and its subsidiaries. At 31 December 2016, the net pension
deficit valued under IAS 19 was SEK 35.7 (surplus of 6.3) million. The
change in the IAS 19 pension valuation is driven mainly by a reduction in
long term UK interest rates and increases in inflation expectations. Most
of the change in the IAS 19 pension valuation during 2016 occurred soon
after the UK’s referendum result on EU membership was announced in
June 2016. Changes in the scheme’s funding position have the potential to
impact on the next triennial valuation of the scheme (required by the UK
Pension Regulator), however it remains too early to know the impact of this
on the ongoing cash contributions required by the group which are currently
committed at the level of GBP 230,000 in each of 2017 and 2018.
More detailed disclosures in respect of the defined benefit scheme are
set out in note 20.
Accounting principles
The detailed accounting policies are set out in note 2 on page 27. The
accounting policies are largely unchanged since the last annual report,
except that a new accounting policy is now required in respect of the
warrants issued and granted to employees as approved at the 2016 AGM
in May.
Following the requirements of IFRS2, the warrants are being accounted
for as equity-settled share-based payment arrangements. Although
there are specific circumstances in which the company may become
obligated to repurchase the warrants for cash consideration, this is not
assessed to be a probable outcome and hence no liability has been
recognised on the balance sheet. Following the requirements of IAS33,
there is currently no difference between the calculation of diluted and
undiluted earnings per share.
Risks
The Group operates and sells in various geographic markets and therefore
undertakes transactions in foreign currencies. The Group mainly transacts
sales and purchases in the following currencies: Euro (EUR), US Dollars
(USD), British Pounds (GBP) and Czech Koruna (CZK). The Group has
interest-bearing liabilities in SEK (the bond) and EUR (bank loan in Czech
Republic). Exposures to exchange rate fluctuations therefore arise.
ANNUAL REPORT 2016DIAMORPH 017
The Group is only able to match the foreign currency cash inflows and
outflows to a limited extent. Strategies to manage the remaining net expo-
sures are continually reviewed but presently forward exchange contracts are
selectively used to mitigate the potential short term impact from changes in
exchange rates. Typically, a proportion of the expected foreign currency cash
flows are hedged looking at a period up to 12 months' forward.
Operationally the Group maintains a good degree of diversification in
terms of the customers and markets it serves. Also in the eyes of the
customer Diamorph's sales can comprise both capital as well as operating
expenditure so the Group's performance is partially protected from swings
in demand influenced by traditional capex cycles. Despite this the Group
would be and is exposed, like other industrial companies, to changes in
the macro-economic climate although there is some flexibility to adjust
costs in response to changes in demand due to the natural mix of variable
cost within the business.
The Group’s financial performance is at least partly dependent on its
ability to exploit and protect its intellectual property rights including
its trademarks. Only a proportion of the Group’s intellectual property
is protected by patent rights partly because the process of obtaining
a patent carries an inherent risk of putting information into the public
domain that can be exploited by third parties. The legal costs necessary
to incur to defend intellectual property rights can also be very expensive
especially given the fact that the Group is operating in several countries.
However the Group does take legal action to defend its rights where it
considers such action to be appropriate and therefore the Group can be
involved in ongoing legal actions from time to time.
The main financial risks faced by the Group are set out further in note
3, and additional information specific to the Group's defined benefit
pension scheme is set out in note 20.
R&D
The goal of Diamorph’s research and development is to develop new
materials and products that extend life, reliability and performance of our
customers’ products and applications. Research and development is
undertaken in Manchester, United Kingdom and Horni Briza, Czech Republic.
The Group invested 2% (2%) of sales in research and development in
2016. R&D costs were all expensed and no costs were capitalised in
either 2015 or 2016.
Share holders
As of 31 December 2016 the number of shareholders amounted to 234
(249). For more information, see page 13.
Related party transactions
Arrangements involving related parties are disclosed in note 26.
Number of employees
In 2016, an average of 272 (260) persons were employed in the Group.
At 31 December 2016 the Group had 279 (271) employees. For further
information, see note 8.
Environmental information
The Company holds the necessary permits for the operations and production
in Manchester, United Kingdom and Horni Briza, Czech Republic. The
operations manage waste according to applicable regulations.
The Parent Company
The Parent Company’s net revenue amounted to SEK 2.0 (3.8) million,
giving an operating loss of SEK 3.7 (3.1) million.
Cash and cash equivalents at the end of the period amounted to SEK 21.0
(5.0) million.
Proposed distribution of profits
The Board of Directors do not propose any distribution to shareholders
and propose that the loss for the year is transferred to retained earnings.
2016
Share premium account 287,5
Accumulated loss -63,3
Loss for year -4,7
Total available for distribution 219,5
Distributed -
Carried forward 219,5
Other information is available in the following financial statements and
accompanying notes. All amounts are stated in SEK million unless
otherwise stated.
ANNUAL REPORT 2016 DIAMORPH018
The key performance measures for the past 5 years are shown in the table below
Key figures 2012 2013 2014 2015 2016
Results
Net Sales 162,3 333,8 383,7 431,5 423,6
Operating profit before non-recurring items 33,9 98,8 127,8 151,2 139,8
Operating profit margin, % 20,9 29,6 33,3 35,0 33,0
Adjusted profit before tax 5,0 42,5 76,4 113,5 102,4
Operating cash flow 20,1 112,1 135,3 160,9 115,8
Operating cash conversion, % 91 115 109 106 83
Financial position
Balance sheet total assets 918,2 983,1 1037,1 1139,9 1107,7
Equity attributable to non-controlling interests 16,0 16,4 19,3 22,3 14,0
Equity attributable to Parent Company shareholders 217,5 295,4 365,9 493,3 447,6
Interest-bearing debt 460,1 458,6 530,3 523,5 519,1
Total debt 556,5 537,1 530,3 523,5 519,1
Net debt 461,0 395,7 417,1 329,2 305,9
Capital employed 790,0 848,9 915,5 1039,1 980,7
Net debt ratio, % 197 127 108 64 66
Per share
Adjusted earnings per share -0,05 0,63 1,07 1,67 1,49
Equity per share attributable to Parent Company shareholders 4,25 5,62 6,96 9,38 8,47
Average number of shares (‘000) 39 527 51 840 52 594 52 594 52 741
Number of shares at year end (‘000) 51 210 52 594 52 594 52 594 52 847
For definitions of key figures that are not sourced directly from the financial statements, please see note 29.
0
100
200
300
400
500
2012 2013 2014 2015 2016
333,8383,7
431,5 423,6
163,3
Net Sales
423,6(431,5) MILLION SEK
0
50
100
150
200
33,9
98,8
127,8139,8
2012 2013 2014 2015 2016
151,2
Operating profit
139,8(151,2) MILLION SEK
2012 2013 2014 2016
33,0
2015
Profit margin
33% (35%) PERCENT
5 Year record
ANNUAL REPORT 2016DIAMORPH 019
Group income statement(MSEK) Note 2015 2016
Net sales 5 431,5 423,6
Cost of goods sold -190,5 -186,0
Gross profit 241,0 237,6
Operating expenses
Sales -52,5 -58,8
Admin -28,6 -29,0
R&D -9,3 -10,0
Other operating income 0,6 -
Operating expenses -89,8 -97,8
Operating profit before non-recurring items 6,7,8 151,2 139,8
Non-recurring items 6 - -0,2
Operating profit 151,2 139,6
Financial items
Financial income 9 0,2 0,1
Financial expenses 9 -37,9 -37,5
Non-recurring financial charges 9 -5,3 38,9
Net financial -43,0 1,5
Profit before income tax 108,2 141,1
Income taxes 10 -18,6 -29,0
Profit for the year 89,6 112,1
Consolidated statement of comprehensive income
Profit for the year 89,6 112,1
Other comprehensive profit/loss for the year
Items that may be returned to the profit and loss statement in future periods
Exchange rate differences 25,8 -109,8
Items that will not be returned to the profit and loss statement in future periods
Actuarial profit/loss, net after tax 17,3 -35,4
Other comprehensive profit/loss for the year 43,1 -145,2
Total comprehensive profit/loss for the year 132,7 -33,1
Profit for the year attributable to:
Parent Company shareholders 86,7 109,6
Non-controlling interests 2,9 2,5
Total 89,6 112,1
Total comprehensive profit/loss attributable to:
Parent Company shareholders 129,5 -36,2
Non-controlling interests 3,2 3,1
Total 132,7 -33,1
Earnings per share before and after dilution, SEK 28 1,65 2,08
Average number of shares, basic and diluted 21 52 593 751 52 741 387
ANNUAL REPORT 2016 DIAMORPH020
Group balance sheet(MSEK) Note 2015 2016
ASSETS
Fixed assets
Computer software 11 0,7 0,7
Capitalised development expenditures 11 18,9 12,9
Trademarks 11 157,6 142,0
Goodwill 11 579,1 528,7
Land and buildings 12 43,5 45,6
Machinery 12 24,4 30,7
Office equipment 12 1,4 1,1
Pension assets 20 6,3 -
Total fixed assets 831,9 761,7
Current assets
Inventories 13 30,5 31,1
Accounts receivable 14 64,2 75,1
Current tax assets 1,8 -
Derivative financial instruments 22 - 0,2
Other receivables 15 2,6 2,2
Prepaid expenses and accrued income 0,9 1,6
Restricted cash 17 13,7 22,6
Cash and cash equivalents 17 194,3 213,2
Total current assets 308,0 346,0
TOTAL ASSETS 1 139,9 1 107,7
EQUITY 18
Equity attributable to owners of the Parent
Share 1,1 1,1
Other capital contributions 320,7 324,5
Reserves 133,4 23,0
Earned income 38,1 99,0
Total equity attributable to owners of the Parent 493,3 447,6
Non-controlling interests 22,3 14,0
Total equity 515,6 461,6
LIABILITIES
Long-term liabilities
Interest-bearing liabilities 19 516,3 495,3
Pension liability 20 - 35,7
Deferred tax liability 10 31,4 20,1
Other non-current financial liabilities 4 6,6 8,9
Total long-term liabilities 554,3 560,0
Current liabilities
Interest-bearing liabilities 19 7,2 23,8
Accrued interest 11,3 11,2
Accounts payable 26,2 26,9
Current tax liabilities 8,2 10,7
Derivative financial instruments 22 1,0 0,1
Other liabilities 23 2,7 2,4
Accrued expenses and deferred income 13,4 11,0
Total current liabilities 70,0 86,1
TOTAL LIABILITIES AND EQUITY 1 139,9 1 107,7
ANNUAL REPORT 2016DIAMORPH 021
Group changes in equity
(MSEK)
Share
capital
Other capital
contributions Reserves
Earned
Income Total
Non
controlling
interests
Total
equity
Opening balance as per 2016-01-01 1,1 320,7 133,4 38,1 493,3 22,3 515,6
Comprehensive profit
Profit/loss for the year - - - 109,6 109,6 2,5 112,1
Other comprehensive profit
Actuarial loss on defined benefit pension scheme - - - -44,2 -44,2 - -44,2
Tax effect on actuarial loss - - - 8,8 8,8 - 8,8
Exchange rate differences - - -110,4 - -110,4 0,6 -109,8
Total comprehensive profit - - -110,4 74,2 -36,2 3,1 -33,1
Transactions with shareholders
Share issue - 3,8 - - 3,8 - 3,8
Share-based payments - - - 0,4 0,4 - 0,4
Purchase of non-controlling interest - - - -11,4 -11,4 -11,4 -22,8
Revaluation of put option over non-controlling
Interests - - - -2,3 -2,3 - -2,3
Total transactions with shareholders - 3,8 - -13,3 -9,5 -11,4 -20,9
Balance on 2016-12-31 1,1 324,5 23,0 99,0 447,6 14,0 461,6
Opening balance as per 2015-01-01 1,1 320,7 107,9 -63,8 365,9 19,3 385,2
Comprehensive profit
Profit/loss for the year - - - 86,7 86,7 2,9 89,6
Other comprehensive profit
Actuarial profit on defined benefit pension schemes - - - 22,8 22,8 - 22,8
Tax effect on actuarial profit - - - -5,5 -5,5 - -5,5
Exchange rate differences - - 25,5 - 25,5 0,3 25,8
Total comprehensive profit - - 25,5 104,0 129,5 3,2 132,7
Transactions with shareholders
Revaluation of put option over non-controlling
Interests - - - -2,1 -2,1 -0,2 -2,3
Total transactions with shareholders - - - -2,1 -2,1 -0,2 -2,3
Balance on 2015-12-31 1,1 320,7 133,4 38,1 493,3 22,3 515,6
ANNUAL REPORT 2016 DIAMORPH022
Group cash flow(MSEK) Note 2015 2016
Cash flow from operations
Operating profit 151,2 139,6
Adjustments for items not included in cash flow:
Depreciation & amortisation 11,12 11,2 11,0
Share based payment expense - 0,4
Interest received 0,2 0,1
Interest paid -36,1 -35,7
Tax paid -12,9 -22,3
Cash flow from operations before change in working capital 113,6 93,1
Changes in working capital
Increase / decrease in inventories and work in progress -0,9 -1,3
Increase / decrease in accounts receivable 7,2 -14,0
Increase / decrease in other receivables 0,2 -0,5
Increase / decrease in other current liabilities -1,6 -3,3
Increase / decrease in accounts payable 3,6 2,7
Total changes in working capital 8,5 -16,4
Cash flow from operations 122,1 76,7
Cash flow from investment activities
Deferred payments relating to acquisition of subsidiaries 22 -14,4 -
Acquisition of non-controlling interest - -19,0
Transfer of restricted cash relating to acquisition of subsidiaries -5,9 -8,1
Payment to defined benefit pension scheme -2,9 -2,7
Investments in tangible and intangible fixed assets 11,12 -10,0 -18,8
Disposal of marketable securities 16 9,0 -
Total cash flow from investment activities -24,2 -48,6
Free cash flow for the year 97,9 28,1
Cash flow from financial activities
Amortisation of loans -7,4 -7,5
Total cash flow from financial activities -7,4 -7,5
Cash flow for the year 90,5 20,6
Cash and cash equivalents at beginning of year 104,2 194,3
Exchange rate differences -0,4 -1,7
Cash and cash equivalents at end of year 18 194,3 213,2
ANNUAL REPORT 2016DIAMORPH 023
Parent Company income statement(MSEK) Note 2015 2016
Net sales 27 3,8 2,0
Cost of goods sold - -
Gross profit 3,8 2,0
Operating expenses
Sales -1,8 -1,9
Admin -5,1 -3,6
Operating expenses -6,9 -5,5
Operating loss before non-recurring items 6,7,8 -3,1 -3,5
Non-recurring items 6 - -0,2
Operating loss -3,1 -3,7
Financial Items
Financial income 9 37,7 36,8
Financial expenses 9 -37,4 -37,8
Net financial 0,3 -1,0
Loss before income tax -2,8 -4,7
Income taxes 10 - -
Loss for the year -2,8 -4,7
Parent Company statement of comprehensive income
Loss for the year -2,8 -4,7
Other comprehensive profit - -
Other comprehensive profit for the year, net after income tax - -
Total comprehensive loss for the year -2,8 -4,7
ANNUAL REPORT 2016 DIAMORPH024
Parent Company balance sheet(MSEK) Note 2015 2016
ASSETS
Fixed assets
Tangible fixed assets
Machinery and equipment 12 - -
Total tangible assets - -
Financial assets
Shares in subsidiaries 24 135,8 158,6
Receivables from Group Companies 549,1 550,9
Total financial assets 684,9 709,5
Total fixed assets 684,9 709,5
Current assets
Short-term receivables
Receivables from Group Companies 51,8 12,0
Other receivables 15 0,4 0,2
Total current receivables 52,2 12,2
Cash and cash equivalents 5,0 21,0
Total current assets 57,2 33,2
TOTAL ASSETS 742,1 742,7
EQUITY 18
Restricted equity
Share capital 1,1 1,1
Total restricted equity 1,1 1,1
Unrestricted equity
Share premium account 283,7 287,5
Retained earnings -60,5 -63,3
Loss for the year -2,8 -4,7
Total unrestricted equity 220,4 219,5
Total equity 221,5 220,6
LIABILITIES
Long-term liabilities
Interest-bearing liabilities 493,6 495,3
Total long-term liabilities 493,6 495,3
Current liabilities
Accrued interest 11,2 11,2
Accounts payable 0,2 0,2
Liabilities to subsidiaries 12,9 13,5
Accrued expenses and deferred income 2,7 1,9
Total current liabilities 27,0 26,8
TOTAL LIABILITIES AND EQUITY 742,1 742,7
There are no pledged assets or contingent liabilities in the Parent Company. See note 25.
ANNUAL REPORT 2016DIAMORPH 025
Parent Company changes in equity
(MSEK)
Share
capital
Share
premium
Retained
earnings
Profit
for year Total
Opening balance as per 2016-01-01 1,1 283,7 -60,5 -2,8 221,5
Comprehensive profit
Loss for the year - - - -4,7 -4,7
Transactions with shareholders
Share issue - 3,8 - - 3,8
Profit allocation as decided at the AGM:
Loss for previous year transferred to retained earnings - - -2,8 2,8 -
Total comprehensive loss - 3,8 -2,8 -1,9 -0,9
Balance on 2016-12-31 1,1 287,5 -63,3 -4,7 220,6
Opening balance as per 2015-01-01 1,1 283,7 -46,6 -13,9 224,3
Comprehensive profit
Loss for the year - - - -2,8 -2,8
Profit allocation as decided at the AGM:
Loss for previous year transferred to retained earnings - - -13,9 13,9 -
Total comprehensive loss - - -13,9 11,1 -2,8
Balance on 2015-12-31 1,1 283,7 -60,5 -2,8 221,5
ANNUAL REPORT 2016 DIAMORPH026
Parent Company cash flow
(MSEK) Note 2015 2016
Cash flow from operations
Operating loss -3,1 -3,7
Adjustments for items not included in cash flow :
Interest received 35,0 46,0
Interest paid -35,0 -35,0
Cash flow from operations before change in working capital -3,1 7,3
Changes in working capital
Increase / decrease in other receivables 0,1 -
Increase / decrease in receivables from Group Companies -3,0 9,7
Increase / decrease in accounts payable - -0,7
Increase / decrease in other current liabilities -0,9 -
Total changes in working capital -3,8 9,0
Cash flow from operations -6,9 16,3
Cash flow from investment activities
Transfer of restricted cash relating to acquisition of subsidiaries - -19,0
Disposal of marketable securities 16 9,0 -
Total cash flow from investment activities 9,0 -19,0
Free cash flow for the year 2,1 -2,7
Cash flow from financial activities
Cash received from subsidiary company - 18,7
Total cash flow from financial activities - 18,7
Cash flow for the year 2,1 16,0
Cash and cash equivalents at beginning of year 2,9 5,0
Cash and cash equivalents at the end of the year 5,0 21,0
ANNUAL REPORT 2016DIAMORPH 027
Accounting principles and notesNote 1 - General information
Diamorph AB (publ) and its Subsidiaries (“the Group” or “Diamorph”),
conducts research, development and commercialisation of advanced
materials solutions for especially demanding industrial applications.
The Parent Company is a limited liability Company registered in Sweden and
has its headquarters in Stockholm. The street address of its registered office
is c/o Sdiptech AB (publ), Stureplan 15, SE-111 45 Stockholm, Sweden.
On 28 April 2017 the Board of directors approved these consolidated
financial statements and the annual report for publication. The financial
statements are subject to approval by the Annual General Meeting of the
shareholders on 22 May 2017.
All amounts are in millions of Swedish krona, SEK million, unless otherwise
stated. Figures in brackets relate to the previous year.
Note 2 - Significant accounting policies
2.1 Basis of preparation
The consolidated financial statements for Diamorph have been prepared
in accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU, RFR1 Supplementary Accounting and the Annual
Accounts Act.
The principal accounting policies applied in these financial statements are
set out below. These policies have been consistently applied to all years
presented, unless otherwise stated.
The Parent Company’s financial statements are prepared in accordance
with RFR 2, Accounting for Legal Entities and the Companies Act. In
cases where the Parent Company applies accounting principles other
than those for the Group they are listed separately at the end of this note.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
make certain judgments in applying the Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated financial
statements are reported in note 4.
Existing accounting standards that have become relevant to
Diamorph for the first time during 2016
Following the issue of warrants granted to employees as approved at the
2016 AGM in May, Diamorph is required to apply the requirements of IFRS2
Share-based Payment and those requirements within IAS33 Earnings
per Share that relate to the calculation of diluted earnings per share. The
accounting policies adopted are set out further below and the required
disclosures in respect of the new warrant arrangements are set out in note 21.
New and revised standards applied by the Group in 2016
The Group applied for the first time certain standards and amendments
which are effective for annual periods beginning on or after 1 January
2016. These mainly related to amendments to IFRS 10 Consolidated
Financial Statements, IAS 16 Property, Plant and Equipment and those
changes resulting from the International Accounting Standards Board’s
Annual Improvements 2012-2014 Cycle. Although all newly effective
standards and amendments have been applied for the first time, they did
not have any significant impact on the Group and therefore they have not
been explained in further detail in this note.
Standards, amendments and interpretations to existing
standards that are not yet effective and that have not been early
adopted by Diamorph
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective. An analysis
of the effect of such changes on Diamorph’s future reports is not yet
completed and analysed so only a preliminary indication of the possible
changes is presented below, focused only on those standards and
amendments that are considered most likely to have some potential impact.
IFRS 9 Financial Instruments
The standard is intended to replace IAS 39 Financial Instruments: Recognition
and Measurements, and addresses the classification and measurement
of financial instruments and hedge accounting. The effective date is not
effective until January 1, 2018 and the Group is yet to assess the full impact
of IFRS 9.
IFRS 15 Revenue from Contracts with Customers
This new standard replaces existing revenue recognition standards and
specifies how and when the Group will recognise revenue as well as
requiring the Group to provide users of financial statements with more
informative and relevant disclosures. The effective date is January 1, 2018.
The Group is yet to assess the full impact of IFRS 15.
IFRS 16 Leases
This new standard replaces existing standards that address the accounting
for leases of property and equipment. Existing standards distinguish
between operating type leases and financing type leases. For lessees
operating type leases do not result in any asset being recognised on the
balance sheet whilst financing type leases do together with a financial
obligation. With some exceptions the new standard will require lessees to
recognise more financing type leasing arrangements. The effective date is
January 1, 2019. The Group is yet to assess the full impact of IFRS 16.
2.2 Group reporting
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern
the financial and operating policies in a way that generally accompanies
a shareholding of more than 50% of the shares (or the voting rights) or in
which the Group contractually exercises a controlling influence. Subsidiaries
are fully consolidated from the date on which control is transferred to the
Group. They are de-consolidated from the date on which control ceases.
The purchase method is used to report the acquisition of subsidiaries.
The cost of an acquisition is measured as the fair value of the assets
transferred, equity instruments issued and liabilities incurred or assumed
at the date of transfer. Costs that are directly attributable to the acquisition
are expensed as incurred. Identifiable assets acquired and liabilities and
ANNUAL REPORT 2016 DIAMORPH028
contingent liabilities in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of any
minority interest. The excess of the cost of acquisition over the fair value of
the Group’s share of identifiable net assets acquired is recorded as goodwill.
If the cost is less than the fair value of the acquired subsidiary’s assets and
liabilities, any difference is recognised directly in the income statement.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also
eliminated, but any losses are viewed as an indication that an impairment
may exist.
Transactions with minority shareholders (non-controlling interests)
The Group accounts for transactions with non-controlling interests as
transactions with the Group’s shareholders. For purchases from non-
controlling interests, the difference between any consideration paid and
assets is recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker. The
chief operating decision maker is the function responsible for allocating
resources and assessing performance of the operating segments. In
the Group, this function has been identified as the Board together with
the CEO. Any division into different segments has not occurred and the
Company is assessed to be a one segment Company.
2.4 Translation of foreign currencies
Functional currency and reporting 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 Swedish kronor (SEK), which is the
Company’s functional and reporting currency.
Transactions and balance sheet items
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing on the transaction date. Exchange gains
and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies
at the closing exchange rate are reported in the income statement. Exchange
rate differences on loans and borrowings (including intercompany loans) and
foreign currency cash balances are reported in financial items, while other
exchange differences are included in operating profit.
Subsidiaries
The results and financial position of all the Group entities (none of which
has a hyperinflationary economy as its functional currency) that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
• Assets and liabilities for each balance sheet presented are translated
at the closing rate;
• Income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction date, otherwise the revenue and expenses are
translated at the rate in force on the transaction date), and
• All resulting exchange differences are recognised in other
comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
2.5 Intangible assets
Patents
Patents have a finite useful life and are reported at cost less accumulated
amortisation. Amortisation is applied to allocate the cost of patents over
their estimated useful life.
Capitalised expenditure for development of products
Expenditure on research activities is expensed as incurred. Development
costs are also expensed unless it can be shown that they are directly
attributable to the development and testing of identifiable and unique
products controlled by the Group and meet all of the criteria for
capitalisation according to IAS 38.
Technology acquired as part of business combinations is recognised
as capitalised development expenditure at the fair value at the date of
acquisition.
Capitalised development costs are amortised on a straight-line basis over
a period of up to ten years. The capitalised development costs acquired
as part of the acquisition of the Tenmat Group of companies are being
amortised over 7.5 years.
Trademarks
Trademarks acquired through business combinations are recognised
at fair value at the acquisition date. The brands’ longevity has not been
determined why depreciation is not charged, but rather, they are evaluated
for impairment annually together with the associated goodwill and other
assets included in each cash-generating unit.
Goodwill
Goodwill represents the excess of cost over the fair value of the Group’s
share of the acquiree’s identifiable net assets at the acquisition date.
Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is reported as an indefinite useful life intangible asset but is tested
annually for impairment and carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units or groups of
cash-generating units expected to benefit from the business combination
in which the goodwill arose.
Gains or losses on disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
2.6 Tangible fixed assets
All tangible fixed assets are stated at cost less depreciation. Cost includes
expenditure that is directly attributable to the acquisition of the asset,
including costs attributable to bringing the assets to their location and
putting them in the necessary condition for their intended use.
ANNUAL REPORT 2016DIAMORPH 029
Subsequent costs are added to the asset’s carrying amount or reported
as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and
the cost of the asset can be measured reliably. The carrying amount of
the replaced part is derecognised. All other repairs and maintenance are
expensed in the income statement in the period in which they arise.
There is no depreciation on land. Depreciation of other assets, in order
to allocate the difference between their cost and their estimated residual
value over their estimated useful lives, is performed on a straight line
basis as follows:
Plant, machinery, tooling 5-15 years
Computers 3-5 years
Office equipment 4-5 years
Buildings 15-40 years
The assets’ residual values and useful lives are reviewed each reporting
date and adjusted if necessary. An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount
exceeds its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds
with the carrying amount at the time of disposal.
2.7 Impairment of non-financial assets
Assets that have an indefinite useful life, such as goodwill and trademarks,
are not amortised but tested annually for impairment. Tangible fixed
assets and intangible assets are assessed for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable.
An impairment loss is recognised for the amount by which the assets
carrying amount exceeds its recoverable amount. Recoverable amount is
the higher of an asset’s fair value less costs to sell and its value in use. For
the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). For tangible and intangible assets previously written down, an
assessment is made at each reporting date of whether reversal is required.
2.8 Financial instruments
The Group classifies its financial instruments in the following categories:
financial assets and liabilities at fair value through profit or loss, loans
and receivables, financial assets available-for-sale and other financial
liabilities. The classification depends on the purpose for which the financial
instruments were acquired. Management determines the classification
of its financial instruments at initial recognition and re-evaluates this
designation at every reporting date.
Classification and measurement
Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are
financial instruments held for trading. A financial asset or a financial liability
is classified in this category if acquired principally for the purpose of being
divested shortly. Derivatives are classified as held for trading unless they
are designated as hedges. Financial instruments in this category are
measured at fair value and changes are recognised in profit or loss, except
for changes in the fair value of the put option over non-controlling interests
explained in note 4 (where changes in value are recognised in equity).
Loans and receivables
Loans and receivables are financial assets that are not derivatives with
fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for items with maturities
greater than twelve months after the balance sheet date which are
classified as fixed assets. Loans and receivables are measured at
amortised cost using the effective interest method, less any impairment
losses. An impairment of trade receivables is recognised in the income
statement within selling expenses.
Financial assets available for sale
Financial assets available for sale are assets that are not derivatives which
have been identified as available for sale or are not classified in any other
category. They are included in non-current assets unless management
intends to dispose of the asset within twelve months after the reporting
period. These assets are measured at fair value with changes in value
being recognised in other comprehensive income except for impairment
losses which are recognised in profit and loss. When an investment is
derecognised, the cumulative gain or loss in other comprehensive income
is transferred to profit or loss.
Other financial liabilities
Other financial liabilities are measured at amortised cost using the
effective interest method.
Where financial instruments are carried at fair value, the fair values are
assessed using the methods described in section 3.3 below.
The categories allocated to the Group’s assets and liabilities are explained
further in section 3.4 below.
Recognition and de-recognition
Purchases and sales of financial assets are recognised on the trade date - the
date on which the Group commits to purchase or sell the asset or liability.
Financial assets are de-recognised 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 associated with
ownership. Financial liabilities are de-recognised when the contractual
obligations have been completed or otherwise terminated.
Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective
evidence of impairment for a financial asset or group of financial assets, such
as the disappearance of an active market, or if it is unlikely that a debtor can
fulfil its commitment. Impairment losses are recognised in profit or loss.
2.9 Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is determined using the first-in, first-out method (FIFO). The cost of
inventories consists of all costs of purchasing the goods and bringing
them to their location and condition. Borrowing costs are not included.
Inventories consist mainly of raw materials used in own production, work
in progress or finished goods. Work in progress and finished goods
include an appropriate share of manufacturing production overheads
based on normal production capacity.
ANNUAL REPORT 2016 DIAMORPH030
Net realisable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses. Necessary provision
for obsolescence has been made after individual assessment.
2.10 Receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less
provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms. Provisions for
impairment are measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. Both impairment losses related to trade
receivables are recognised in selling expenses in the income statement.
The carrying value of trade receivables, less any impairment losses, are
assumed to correspond to their fair value, since they are short-term in nature.
2.11 Cash and cash equivalents
Cash and cash equivalents include cash, bank deposits and short-term
investments with maturities of three months or less.
2.12 Share capital
Ordinary shares are classified as equity. Transaction costs directly
attributable to the issue of new shares are recognised, net of tax, in equity
as a deduction from the proceeds.
2.13 Payables
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method. The
carrying amount of trade payables are assumed to correspond to their fair
value because they are short-term in nature.
2.14 Borrowings
Borrowings are recognised initially at fair value net of transaction costs.
Borrowings are subsequently stated at amortised cost and any difference
between the proceeds (net of transaction costs) and the redemption value
is recognised in the income statement over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
Borrowing costs
General and specific borrowing costs that are directly attributable to the
acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for
their intended use or sale, are reported as part of such assets.
Capitalisation ceases when all the activities necessary to prepare the
assets for their intended use or sale are substantially completed. All other
borrowing costs are expensed as incurred.
2.15 Current and deferred tax
The current tax expense is calculated on the basis of the tax rates as
at the balance sheet date that are enacted or substantively enacted in
countries where the Company’s subsidiaries operate and generate taxable
income. Management periodically evaluates the positions taken in tax
returns with respect to situations in which applicable tax regulations are
subject to interpretation and when deemed appropriate, makes provisions
for amounts expected to be paid to the tax authorities.
Deferred tax is recognised in full using the liability method on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
not recognised on temporary differences arising from the initial recognition
of goodwill and differences relating to investments in subsidiaries to the
extent they will not reverse in the foreseeable future.
Deferred tax is determined using tax rates (and laws) that have been
enacted or substantively enacted at the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
Deferred tax assets are only recognised to the extent that it is probable
that future taxable profit will be available against which the temporary
differences can be utilised.
2.16 Compensation to employees
Pension obligations
The Group operates both defined contribution and defined benefit
pension plans.
Defined contribution pensions
For defined contribution plans, the Group pays contributions to publicly or
privately administered pension insurance plans on a mandatory, contractual
or voluntary basis. The Group has no further payment obligations once
the contributions have been paid. The contributions are recognised as an
employee benefit expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in
future payments is available to the Group.
Defined benefit pensions
Defined benefit plans are characterised by defining an amount of pension
benefit that an employee will receive on retirement, usually dependent on
one or more factors such as age, years of service and salary.
The liability recognised in the balance sheet for defined benefit pension
plans is the present value of the defined benefit obligation at the balance
sheet date less the fair value of plan assets. The defined benefit obligation is
calculated annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is determined
by discounting the estimated future cash outflows using interest rates of
high quality corporate bonds that are denominated in the same currency
in which the benefits will be paid and with maturities comparable to the
pension liability. The calculation also takes account of assumptions such as
mortality rates and expected future inflationary increases in salaries.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are recognised in the statement of other
comprehensive income in the period they occur.
Service costs are recognised immediately in income unless they are
conditional on the employees remaining in service for a specified period of
time (the vesting period). In such cases the cost for service is recognised
on a straight line basis over the vesting period.
ANNUAL REPORT 2016DIAMORPH 031
Profit-sharing and bonus plans
The Group reports a liability and an expense for bonuses. The Group
recognises a liability when there is a legal obligation or a constructive
obligation as a result of past practices.
2.17 Provisions
Provisions are recognised when the Group has a present 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 estimated
reliably. Provisions are not recognised for future operating losses.
Provisions are measured at the fair value of the amount expected to be
required to settle the obligation. A discount rate before tax is used that
reflects current market assessments of the time value of money and the
risks specific to the obligation. Increases in provisions due to the passage
of time are recognised as interest expenses (referred to as ‘unwinding of
discount charges’).
2.18 Revenue reporting
Sale of goods
The Group’s income is predominantly generated from the sale of products
developed and manufactured within the Group.
Revenue comprises the fair value of the consideration received or
receivable for goods sold in the Group’s operating activities. Revenues are
reported net after deduction of value added tax, returns and discounts.
The Group recognises revenue when the significant risks and rewards of
ownership have been transferred to the buyer which takes into account,
inter alia, whether the amount receivable can be measured reliably and it
is probable that future economic benefits will flow to the Group. In most
circumstances, this date coincides with the delivery of the goods to the
customer.
Interest income
Interest income is recognised on a time proportioned basis using the
effective interest method.
Government grants
Grants from the government are recognised at fair value when there is
reasonable assurance that the grant will be received and the Group will
comply with the conditions attached to the grant. Government grants
relating to costs are deferred and recognised as income over the periods
the costs are intended to cover.
2.19 Leasing
Leases in which a significant portion of the risks and rewards of ownership
are retained by the lessor are classified as operating leases. Payments
made under operating leases (net of any incentives received from the
lessor) are charged to the income statement over the lease period.
Leases of fixed assets where the Group has substantially all the risks and
rewards of ownership are classified as finance leases. At lease inception,
the finance leases are capitalised at the lower of the leased asset’s fair value
and the present value of the minimum lease payments. Each lease payment
is allocated between the liability and finance charges to achieve a constant
rate of interest on the liability. Corresponding payment obligations, net
of finance charges, are included in the balance sheet item. The interest
element of the finance cost is recognised in the income statement over the
lease period. Fixed assets held under finance leases are depreciated over
the shorter of the asset useful life and the lease term.
2.20 Dividends
Dividends paid to Parent Company shareholders are recognised as
liabilities in the consolidated financial statements in the period in which the
dividends are approved by the Company’s shareholders.
2.21 Share-based payments
Following approval of a long-term incentive programme at the AGM in
2016, certain employees of the Group have been issued with warrants.
These are accounted for as a form of share-based payment transaction,
whereby employees render services in exchange for shares or rights
over shares. Although there are specific circumstances in which the
company may become obligated to repurchase the warrants for cash
consideration, this is not assessed to be a probable outcome and hence
the share-based payment transactions are accounted for as “equity-
settled transactions”.
The cost of equity-settled transactions with employees is measured at
fair value at the date at which they are granted and then expensed on a
straight-line basis over the vesting period based on the Group’s estimate
of shares that will eventually vest. The estimate of the number of awards
likely to vest is reviewed at each balance sheet date up to the vesting date,
at which point the estimate is adjusted to reflect the actual outcome of
awards which have vested. No adjustment is made to the fair value after
the vesting date even if the awards are forfeited or not exercised.
2.22 Earnings per share
Basic earnings per share are calculated based on the profit for the year
attributable to the owners of the Parent Company and the basic weighted
average number of shares in issue and outstanding.
Diluted earnings per share are calculated based on the profit for the year
attributable to the owners of the Parent Company and the basic weighted
average number of shares in issue and outstanding but adjusted for the
effects of dilutive warrants.
2.23 Parent Company accounting policies
Aside from presentational differences in the format of the income
statement and balance sheet, the Parent Company applies accounting
principles other than the Group in the cases listed below.
Shares in subsidiaries
Shares in subsidiaries are carried at cost less any impairment losses.
Transaction costs incurred in connection with a business combination are
accounted for as part of the acquisition costs and are not expensed.
Dividends received are recognised as income when the right to receive
payment is established. Thereafter, an impairment test of the investment
to which the dividend relates is performed.
When there is an indication that the investments in subsidiaries might be
impaired, an estimate of recoverable amount is made. If this is lower than the
carrying amount, an impairment loss is recognised in the income statement.
Shareholders' contributions
Shareholder contributions are recognised as an increase in the value of
investment in Group companies. An assessment is then made of whether
there is a need for impairment of the value of the investment in question.
ANNUAL REPORT 2016 DIAMORPH032
Note 3 - Financial risk management3.1 Financial risk factors
The Group’s activities expose it to various financial risks: market risk
(currency risk and interest rate risk), credit risk and liquidity risk. The Group’s
overall risk management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group’s
financial results.
Risk management is handled by the CEO and CFO in accordance with
policies established by the Board.
a) Market risk
(i) Currency risks
The Group operates and sells in various geographic markets and, therefore,
undertakes transactions in foreign currencies. The Group’s main exposures
arise on the following currencies: Euro (EUR), US Dollars (USD), British Pounds
(GBP) and Czech Koruna (CZK). The proportion of the Group’s sales and
operating expenses arising in these currencies is disclosed in notes 5 and 6.
As can be seen from this data, very little of the Group's sales and operating
expenses arise in SEK and therefore a 1% change in the SEK exchange rate
has the potential to increase or decrease operating profit by close to 1%.
The exposures to changes in foreign exchange rates can be separated
between translation exposures and transaction exposures. These are
explained further below.
Translation exposure
Diamorph prepares its financial statements in Swedish kronor (SEK) so
there is an exposure arising when consolidating the results of foreign
subsidiaries and reporting the financial statements in SEK. Translation
exposures arise both on the consolidation of the balance sheet of the
foreign subsidiaries and their income statements. The Group does not
seek to hedge these exposures.
Transaction exposure
The foreign subsidiaries themselves are exposed to changes in exchange
rates on their sales and purchases transactions. For the Tenmat operations
in the UK, sales are made predominantly in GBP, EUR and USD whilst most
costs are incurred in GBP with some costs incurred in USD and EUR. For
the Hob Certec operations in the Czech Republic, sales are predominantly
in EUR whilst costs are incurred mostly in EUR and CZK. A further
transactional exposure arises in the UK subsidiaries on SEK denominated
intercompany loans (and interest charges) with the Parent Company.
The Group’s general policy for managing transactional exposures is to
match the foreign currency cash inflows and outflows where possible.
Strategies to manage the remaining net exposures are continually
reviewed but presently forward exchange contracts are selectively used to
mitigate the potential short term impact from changes in exchange rates.
Typically a proportion of the expected foreign cash flows are hedged using
forward exchange contracts looking at a period up to 12 months’ forward.
The value of the Group’s forward exchange contracts is set out in note 22.
Parent Company
The Parent Company is mainly exposed to the risk of changes in value of
its investments in foreign subsidiaries since its funding is denominated in
SEK. These exposures are not hedged.
(ii) Interest rate risk
The Group’s revenues and cash flows from operating activities are
substantially independent of changes in market interest rates.
The Group’s borrowings mainly comprise a bond issued by Diamorph AB
and a bank loan taken out by the Hob Certec subsidiary company in the
Czech Republic. To manage exposures to changes in interest rates, the
bond carries a fixed interest coupon and a proportion of the interest rate
exposure on the bank loan in the Czech Republic has been eliminated by
a swap that fixes the interest rate incurred.
The Group operates a defined benefit pension scheme and the valuation
of the Group’s pension obligations is influenced, inter alia, by changes in
market interest rates. Detailed information relating to the pension scheme,
including the sensitivity of the valuation of the pension obligation to
changes in interest rates, is set out in note 20.
Further information on the Group’s borrowings is set out in note 19. The
value of the Group’s interest rate swap is set out in note 22.
b) Credit risk
Credit risk arises on deposits with banks and financial institutions as well
as credit exposures to the Group’s customers, including outstanding
receivables and committed transactions.
In assessing which banks and financial institutions to deposit funds
with and in assessing which customers to extend credit to, the Group
has regard to ratings from independent rating agencies. For customers
where no credit assessment exists, a risk assessment of the customers’
creditworthiness is made by considering their financial position taking
into account previous experience in dealings with that customer. Credit
insurance is taken where it is deemed to be cost effective. Credit exposures
and the credit limits afforded to customers are regularly monitored.
The maximum credit exposure is the book value of the exposed assets
recognised in the balance sheet. Further information on the Group’s credit
exposures on trade receivables is set out in note 14.
c) Liquidity risk
The Group’s liquidity risk is the risk that the Group could lack cash for
payment of its obligations due to poor market liquidity.
The Group prepares financial forecasts and on the basis of these an
assessment is made as to the necessary minimum level of liquidity, that it
is prudent to hold either through existing cash resources or via committed
credit facilities. Cash deposits in excess of the minimum requirements may
be invested in marketable securities that provide a higher rate of return on
investment.
At 31 December 2016 the Group had cash and cash equivalents of SEK
213.2 (194.3) million.
The maturity profile of the undiscounted value of the Group and Parent
Company’s financial liabilities (all liabilities excluding pension liabilities and
deferred tax liabilities adjusted to include all interest commitments) is set
out in the table on page 33.
ANNUAL REPORT 2016DIAMORPH 033
3.2 Management of capital risk
Prior to 2011, the Group was entirely funded through equity. In 2011 a
bank loan was taken out to partially fund the acquisition of the Hob Certec
business in the Czech Republic. In 2012, a bond was issued to partially
fund the acquisition of the Tenmat Group in the United Kingdom and this
bond was subsequently refinanced in 2014.
There are no external capital requirements placed on the Group. The
Group’s policy is to adopt a capital structure that safeguards the Group’s
ability to continue its operations, so that it can continue to provide returns
for shareholders and benefits for other stakeholders. In doing so, the
intention is to support future development of the business and maintain a
capital structure that has an appropriate cost of capital.
The net debt ratio (see definitions in note 29) at 31 December 2016 is shown
in the table below and shows a small increase during the year to 66% (64%).
Net debt ratio 2015 2016
Total interest-bearing liabilities (Note 19) 523,5 519,1
Less: cash and cash equivalents (Note 17) -194,3 -213,2
Net debt 329,2 305,9
Total equity 515,6 461,6
Net debt ratio (%) 64% 66%
3.3 Fair value
In the balance sheet financial instruments are carried either at fair value or at
amortised cost depending on the classification of the financial instrument.
Companies classify fair value measurement methods using a hierarchy
that reflects the reliability of the inputs used in making the valuations. The
fair value hierarchy has the following levels:
Level 1: This method uses quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: This method uses inputs, other than quoted prices that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices). Examples of observable data
include market interest rates or exchange rates.
Level 3: This method uses inputs for the asset or liability that are not based
on observable information. Fair values are determined using
valuation models where significant elements of the valuation are
not observable in the market.
At 31 December 2016, the Level 2 method was used to value the Group’s
forward exchange contracts and interest rate swap and the Level 3 method
was used to value the put option held by non-controlling interests.
3.4 Financial instruments per category
In 2016, the Group has classified its financial instruments in the following
categories.
Derivative financial instruments are classified as financial assets and
liabilities at fair value through profit or loss.
Cash balances, trade and other receivables are classified as loans and
receivables.
The Group classifies its financial liabilities, including trade payables and
interest-bearing liabilities, as other financial liabilities.
Hedge accounting has not been applied in preparing these financial
statements.
The Group Total
Less than
1 year
Between 1
and 2 years
Between 2
and 5 years
More than
5 years
As of 31 December 2016
Interest-bearing liabilities (including interest) 629,0 59,0 35,0 535,0 -
Derivative financial instruments 0,1 0,1 - - -
Other liabilities and provisions 22,0 22,0 - - -
Accounts payable and accruals 37,9 37,9 - - -
Total 689,0 119,0 35,0 535,0 -
As of 31 December 2015
Interest-bearing liabilities (including interest) 670,7 42,6 58,1 570,0 -
Derivative financial instruments 1,0 1,0 - - -
Other liabilities and provisions 17,5 10,9 6,6 - -
Accounts payable and accruals 39,6 39,6 - - -
Total 728,8 94,1 64,7 570,0 -
Parent Company
As of 31 December 2016
Interest-bearing liabilities (including interest) 605,0 35,0 35,0 535,0 -
Other liabilities including trade payables and accruals 15,5 15,5 - - -
Total 620,5 50,5 35,0 535,0 -
As of 31 December 2015
Interest-bearing liabilities (including interest) 640,0 35,0 35,0 570,0 -
Other liabilities including trade payables and accruals 15,8 15,8 - - -
Total 655,8 50,8 35,0 570,0 -
ANNUAL REPORT 2016 DIAMORPH034
Note 4 - Significant estimates and judgments
The preparation of financial statements requires management to make
estimates and judgments that affect the amounts reported in the financial
statements. Estimates and judgments are continually evaluated and are
based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Significant estimates and assumptions for accounting purposes
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates that result from these will, by definition,
seldom equal the related actual results. The estimates and assumptions
that have a significant risk of material adjustments to the carrying values of
assets and liabilities within the next financial year are outlined below.
Impairment tests for goodwill
Diamorph assesses if there is any impairment of goodwill in accordance with
the accounting policy described in Note 2.7 Impairment of non-financial
assets. Recoverable amounts of cash generating units have been determined
by calculating the value in use. These calculations require the use of
estimates (see note 11).
It has been assessed that there is no impairment of goodwill and the
carrying values at the balance sheet date for goodwill allocated to cash-
generating units are shown in note 11.
Valuation of loss carry-forwards
The Group tests annually whether any impairment exists for deferred tax
assets for tax loss carry-forwards. In addition, the Group assesses the
ability to recognise new deferred tax assets for the year’s tax losses, if it is
applicable. Deferred tax assets are only recognised when it is probable that
future taxable profit will be available against which the temporary differences
can be utilised. Due to the history of losses in the entities that have tax
loss carry-forwards, no deferred tax assets have been recognised for the
calculated loss carry-forwards. The value of potential deferred tax assets
not recognised are set out in note 10.
Put option held by non-controlling interests (minority interests)
A minority shareholder who subscribed for 10% of the equity in the
subsidiary Diamorph Bearings AB at the time of the acquisition of the Hob
Certec business in the Czech Republic in 2011 has since held an option
to redeem for cash their shares in Diamorph Bearings AB. The exercise
of the put option was subject to certain conditions and the exercise price
was linked to the earnings of Hob Certec during the 5 year period. At 31
December 2016, the fair value of the put option has been assessed as
being SEK 8.9 (6.6) million and this has been recognised in the Group
balance sheet as a non-current financial liability. The change in the fair value
of the option has been recognised within equity.
In February 2017 Diamorph acquired this final 10% minority interest for cash
consideration of SEK 32.0 million. The purchase price has been calculated
consistent with the arrangements agreed at the time of acquisition of Hob
Certec in 2011. The purchase will be accounted for as a transaction with
non-controlling interests within equity and the value of the put option liability
will be derecognised through equity in 2017.
Significant judgments
Accounting for defined benefit pension scheme
Pensions and other post-employment obligations are dependent on
the assumptions established by management and used by actuaries in
calculating such amounts. The key assumptions include discount rates,
inflation, future salary increases and mortality rates.
The actuarial assumptions are reviewed on an annual basis and are
changed when it is deemed appropriate. However, the valuation of the
Groups defined benefit pension scheme can be volatile in its nature and
small changes in assumptions can trigger the net pension obligation to
change significantly from period to period.
At 31 December 2016, the Group had a net pension liability of SEK 35.7
(asset of SEK 6.3) million before recognising tax effects. This is reported in
the Group balance sheet and the change in the value is recognised within
equity. The key assumptions used in the valuation are set out in note 20.
Functional currency of subsidiary company
In connection with acquisition of the Tenmat Group of companies in 2012, a
new wholly owned holding Company in the UK was created for administrative
purposes (Diamorph UK Ltd). From an accounting perspective, this has been
treated as an extension of the Parent Company and so the functional
currency in Diamorph UK Ltd has been assessed to be SEK.
Note 5 - Geographic sales
All sales relate to sales of products. Net sales are distributed in the following
geographical markets:
Group 2015 2016
Sweden 3,3 5,5
Rest of Europe 246,8 240,0
USA 117,9 105,9
Rest of World 63,5 72,2
Total 431,5 423,6
The Group has no single customer representing more than 10% of
annual turnover in either 2015 or 2016.
The Group’s net sales principally arise in the following currencies: GBP 31%
(36%) of total, EUR 38% (34%) , USD 30% (29%) and 1% CZK (1%).
Since the group’s main operations are in the United Kingdom and the
Czech Republic, all significant assets are located in Europe.
Note 6 - Operating profit
Operating profit is stated after charging or crediting the following items:
Group 2015 2016
Grants received 0,6 -
Profit on sale of tangible fixed assets 0,2 -
Net foreign exchange gains/losses 2,9 -1,2
Operating lease expenses -0,9 -0,9
ANNUAL REPORT 2016DIAMORPH 035
Total operating expenses and cost of goods sold are analysed by cost
type as follows:
Group 2015 2016
Raw materials and consumables 87,2 77,9
Employee benefits (note 8) 108,1 104,3
Depreciation and amortisation (notes 11, 12) 11,2 11,0
Other expenses 73,8 90,6
Total 280,3 283,8
The Group’s total operating expenses arise principally in the following
currencies: GBP 64% (68%) of total, EUR 16% (15%), CZK 11% (8%),
USD 7% (7%) and SEK 2% (2%).
Non-recurring items have been presented separately in the Group income
statement to better show the underlying operating profit performance.
Non-recurring expenses of SEK 0.2 (-) million were incurred in 2016 relating
to legal expenses on the acquisition of 10% of Diamorph Bearings AB from
two minority shareholders. No non-recurring operating costs arose in 2015.
Note 7 - Remuneration to auditors
Audit assignments refer to reviewing the annual report and accounts, the
Board and the CEO’s management as well as other tasks incumbent on
the Company’s auditors and advice or other assistance resulting from
observations made during the audit or performance of such tasks. All
other assignments are referred to as other assignments.
Group 2015 2016
Ernst & Young
Audit assignments 0,9 1,1
Tax advice 0,3 0,2
Total 1,2 1,3
Parent Company
Ernst & Young
Audit assignments 0,3 0,5
Total Parent Company 0,3 0,5
Note 8 - Remuneration to employeesGroup 2015 2016
Salaries and benefits 92,6 89,2
Social costs 12,1 11,1
Pension costs - defined contribution plans 3,4 3,6
Equity-settled share-based payment expense - 0,4
Total Group 108,1 104,3
Group
2015 2016
Wages and
Salaries Pension costs
Wages and
Salaries Pension costs
Board members, CEO and other senior executives 10,9 0,5 7,9 0,3
Other employees 81,7 2,9 81,3 3,3
Total Group 92,6 3,4 89,2 3,6
Parent Company
Board and CEO 1,5 0,2 0,6 -
Other employees 0,7 0,1 0,9 0,1
Total Parent Company 2,2 0,3 1,5 0,1
Information on the average number of employees: 2015 2016
Parent Company
Total
employees Men Women
Total
employees Men Women
Sweden 2 2 - 2 2 -
Total Parent Company 2 2 - 2 2 -
Subsidiaries
United Kingdom 203 181 22 211 188 23
Czech Republic 45 40 5 47 43 4
Others 10 6 4 12 8 4
Total subsidiaries 258 227 31 270 239 31
Total Group 260 229 31 272 241 31
ANNUAL REPORT 2016 DIAMORPH036
Gender breakdown for directors and other senior executives:2015 2016
Group
Total
number on
closing date Men Women
Total
number on
closing date Men Women
Members of the Board 5 5 - 5 5 -
Chief Executive Officer 1 1 - 1 1 -
Other senior executives 4 4 - 4 4 -
Total Group 10 10 - 10 10 -
Parent Company
Members of the Board 5 5 - 5 5 -
Chief Executive Officer - - - - - -
Total Parent Company 5 5 - 5 5 -
Remuneration to senior executives:
Group (SEK)
Salary/
board fee Bonus
Other
benefits
Pension
costs Total
2016
Chairman Ashkan Pouya 200 000 - - - 200 000
Board member Saeid Esmaeilzadeh 100 000 - - - 100 000
Board member Anthony Moore* 172 394 - 16 100 - 188 494
Board member Anders Mörck 100 000 - - - 100 000
Board member Ola Ringdahl 100 000 - - - 100 000
CEO Gordon MacLeman 1 665 057 - 13 035 166 505 1 844 597
Other senior executives 5 103 060 212 582 260 378 122 831 5 698 851
Total 7 440 511 212 582 289 513 289 336 8 231 942
Group (SEK)
Salary/
board fee Bonus
Other
benefits
Pension
costs Total
2015
Chairman Ashkan Pouya 200 000 - - - 200 000
Board member Saeid Esmaeilzadeh 100 000 - - - 100 000
Board member Anthony Moore* 1 449 968 - 12 889 - 1 462 857
Board member Anders Mörck 100 000 - - - 100 000
Board member Ola Ringdahl (from June 2015) 58 333 - - - 58 333
CEO Gordon MacLeman (since September 2015) 558 506 96 665 44 680 55 851 755 702
CEO Fredrik Svedberg (9 months) 1 046 960 - - 212 477 1 259 437
Other senior executives 6 122 481 786 756 362 458 275 762 7 547 457
Total 9 636 248 883 421 420 027 544 090 11 483 786*Includes remuneration from subsidiary company
ANNUAL REPORT 2016DIAMORPH 037
Note 9 - Financial items
Non-recurring financial items have been presented separately in the Group income statement to better show the underlying financial income and expenses.
Group 2015 2016
Financial income
Interest income 0,2 0,1
Total financial income 0,2 0,1
Financial expenses
Interest expense
- bond -35,0 -35,0
- bank borrowings -1,0 -0,7
- other -0,1 -
Amortisation of arrangement fees -1,8 -1,8
Total financial expenses -37,9 -37,5
Non-recurring financial items
Foreign exchange losses/gains -5,9 37,8
Changes in fair value of derivative financial instruments 1,2 0,8
Interest expense/income on defined benefit pension scheme -0,6 0,3
Total non-recurring financial items -5,3 38,9
Net financial -43,0 1,5
Non-recurring financial income of SEK 38.9 (expenses of 5.3) million was reported, mainly comprise exchange gains and losses on third party and
intercompany financing balances. Significant gains arose in 2016 on intercompany balances as GBP weakened against SEK in early 2016 both in the
run up to and subsequent to the UK referendum on EU membership. In 2015, a smaller opposite exchange rate movement was experienced.
Parent Company 2015 2016
Financial income
Interest income on loans to subsidiaries 35,8 35,0
Foreign exchange gains 0,1 -
Other financial income - subsidiary companies 1,8 1,8
Total financial income 37,7 36,8
Financial expenses
Interest expense
- bond -35,0 -35,0
- loans from subsidiaries -0,6 -0,6
Amortisation of arrangement fees -1,8 -1,8
Foreign exchange losses - -0,4
Total financial expenses -37,4 -37,8
Net financial 0,3 -1,0
No borrowing costs have been capitalised in 2015 or 2016.
ANNUAL REPORT 2016 DIAMORPH038
Note 10 - Income TaxGroup 2015 2016
Current tax -21,4 -29,6
Deferred tax 2,8 0,6
Income taxes -18,6 -29,0
The differences between the reported tax expense and an estimated tax based on current tax rate is as follows:
Group 2015 2016
Profit/loss before tax 108,2 141,1
Income tax calculated in accordance with the current weighted average tax rate -24,0 -29,8
Non-deductible expenses -0,3 -0,8
Revaluation of deferred taxes due to change in tax rate 3,3 1,7
Tax losses for which no deferred tax assets were recognised -0,9 -1,0
Adjustment for current tax of previous periods -4,0 -0,3
Adjustment for deferred tax of previous periods 4,9 -0,1
Other 2,4 1,3
Income tax -18,6 -29,0
Parent Company 2015 2016
Loss before tax -2,8 -4,7
Income tax calculated in accordance with the current tax rate 0,6 1,0
Tax losses for which no deferred tax assets were recognised -0,6 -1,0
Income tax - -
At the end of 2016 the Group had unrecognised potential deferred tax assets of SEK 20.3 (19.7) million relating to brought forward tax losses which
are mainly attributable to the Group’s Swedish companies. No deferred tax asset has been recognised due to the history of losses but the tax losses
are not limited in time when they can be utilised.
Deferred tax liabilities at 31 December 2016, amounted to SEK 20.1 (31.4) million and principally relate to the deferred tax liabilities arising on
intangible assets acquired through the Tenmat and Hob Certec business of SEK 26.6 (32.0) million.
ANNUAL REPORT 2016DIAMORPH 039
Note 11 - Intangible assets
Group 2016-12-31
Computer
Software
Capitalised
development
expenditures Patents
Trade
marks Goodwill Total
Opening acquisition value 0,8 34,8 0,2 157,6 579,1 772,5
Additions 0,2 - - - - 0,2
Exchange rate differences - -3,5 - -15,6 -50,4 -69,5
Closing acquisition value 1,0 31,3 0,2 142,0 528,7 703,2
Opening depreciation -0,1 -15,9 -0,2 - - -16,2
Depreciation for the year -0,2 -4,3 - - - -4,5
Exchange rate differences - 1,8 - - - 1,8
Closing depreciation -0,3 -18,4 -0,2 - - -18,9
Opening net carrying value 0,7 18,9 - 157,6 579,1 756,3
Closing net carrying value 0,7 12,9 - 142,0 528,7 684,3
Group 2015-12-31
Computer
Software
Capitalised
development
expenditures Patents
Trade
marks Goodwill Total
Opening acquisition value 0,4 33,8 0,2 153,3 565,3 753,0
Additions 0,4 - - - - 0,4
Exchange rate differences - 1,0 - 4,3 13,8 19,1
Closing acquisition value 0,8 34,8 0,2 157,6 579,1 772,5
Opening depreciation - -10,9 -0,2 - - -11,1
Depreciation for the year -0,1 -4,8 - - - -4,9
Exchange rate differences - -0,2 - - - -0,2
Closing depreciation -0,1 -15,9 -0,2 - - -16,2
Opening net carrying value 0,4 22,9 - 153,3 565,3 741,9
Closing net carrying value 0,7 18,9 - 157,6 579,1 756,3
Impairment testing of goodwill and trademarks
Impairment tests have been performed during the year in respect of goodwill, SEK 528,7 (579,1) million and trademarks, SEK 142,0 (157,6) million and
capitalised development expenditures, SEK 12,9 (18,9) million. In the Impairment test, a pre-tax discount rate of 14.0% (14.0%) was used. The average
sales growth rate during the budget period (1-5 years) is 4.0% (4.0%) and the average growth rate used to extrapolate cash flows beyond the budget
period is estimated at 2.0% (2.0%). The projected cash flows (years 1-5) include capital expenditures of approximately 3% (3%) of sales, except in year
1 where they are budgeted to be higher as a result of a decision to expand capacity in our Hob Certec business, and assume that working capital
levels will be maintained as a percentage of sales. Assets have been allocated to two cash generating units which are the business units in the United
Kingdom and the Czech Republic, with goodwill allocated of SEK 479,5 (532,0) million and SEK 49,2 (47,1) million respectively.
Parent Company 2015-12-31 and 2016-12-31 Patents
Opening acquisition value 0,2
Closing acquisition value 0,2
Opening depreciation -0,2
Closing depreciation -0,2
Opening net carrying value -
Closing net carrying value -
ANNUAL REPORT 2016 DIAMORPH040
Note 12 - Tangible fixed assets
Group 2016-12-31 Land Buildings Machinery
Office
equipment Total
Opening acquisition value 16,6 46,2 133,5 15,5 211,8
Additions - 5,6 13,0 - 18,6
Disposals - - -0,4 - -0,4
Exchange rate differences - -3,1 -6,0 -0,9 -10,0
Closing acquisition value 16,6 48,7 140,1 14,6 220,0
Opening depreciation - -19,3 -109,1 -14,1 -142,5
Depreciation for the year - -1,3 -5,0 -0,2 -6,5
Depreciation on disposals - - 0,4 - 0,4
Exchange rate differences - 0,9 4,3 0,8 6,0
Closing depreciation - -19,7 -109,4 -13,5 -142,6
Opening net carrying value 16,6 26,9 24,4 1,4 69,3
Closing net carrying value 16,6 29,0 30,7 1,1 77,4
Group 2015-12-31 Land Buildings Machinery
Office
equipment Total
Opening acquisition value 16,6 45,0 123,6 14,6 199,8
Additions - 0,5 9,1 0,5 10,1
Exchange rate differences - 0,7 0,8 0,4 1,9
Closing acquisition value 16,6 46,2 133,5 15,5 211,8
Opening depreciation - -17,9 -103,5 -13,3 -134,7
Depreciation for the year - -1,2 -4,6 -0,5 -6,3
Exchange rate differences - -0,2 -1,0 -0,3 -1,5
Closing depreciation - -19,3 -109,1 -14,1 -142,5
Opening net carrying value 16,6 27,1 20,1 1,3 65,1
Closing net carrying value 16,6 26,9 24,4 1,4 69,3
There is no financial leasing within the Group.
Parent Company 2016-12-31 Machinery
Office
equipment Total
Opening acquisition value - 2,5 2,5
Closing acquisition value - 2,5 2,5
Opening depreciation - -2,5 -2,5
Closing depreciation - -2,5 -2,5
Opening net carrying value - - -
Closing net carrying value - - -
Parent Company 2015-12-31 Machinery
Office
equipment Total
Opening acquisition value 5,3 2,5 7,8
Disposals -5,3 - -5,3
Closing acquisition value - 2,5 2,5
Opening depreciation -5,3 -2,5 -7,8
Disposals 5,3 - 5,3
Closing depreciation - -2,5 -2,5
Opening net carrying value - - -
Closing net carrying value - - -
ANNUAL REPORT 2016DIAMORPH 041
Note 13 - InventoriesGroup 2015 2016
Raw materials 10,5 11,5
Work in progress 6,5 6,4
Finished goods (at lower of cost and net realisable value) 13,5 13,2
Total inventories 30,5 31,1
During 2016, SEK 1.9 (2015: nil) was recognised as an expense for inventories carried at net realisable value. This is recognised in cost of sales.
Note 14 - Accounts receivableGroup 2015 2016
Trade receivables 66,8 77,7
Provision for doubtful debts -2,6 -2,6
Trade receivables-net 64,2 75,1
Trade receivables by currency:Group 2015 2016
GBP 19,7 32,5
CZK 0,4 2,0
EUR 19,1 28,1
USD 24,9 12,0
Other currencies 0,1 0,5
Total 64,2 75,1
The fair value of the Group’s trade receivables is consistent with the reported value. As at the balance sheet date, trade receivables amounting to
SEK 8,0 (15,5) million were overdue without any impairment being considered necessary. These relate to a number of independent customers that
have not had payment difficulties. The aging analysis of these trade receivables is as follows:
Analysis of credit risk exposure in trade receivables 2015 2016
Trade receivables that are neither overdue nor impaired 48,7 67,1
Overdue:
- Less than 2 months 15,1 7,2
- 3-6 months 0,4 0,1
- 7-12 months - 0,7
Total overdue 15,5 8,0
Book value of trade receivables 64,2 75,1
Amounts reported in the allowance account are usually written off when the Group does not expect to recover additional cash. The maximum
exposure to credit risk on trade receivables comprise the book value at the balance sheet date. The Group has no collateral as security.
Note 15 - Other receivablesGroup 2015 2016
Value added tax 1,7 1,7
Other receivables 0,9 0,5
Total 2,6 2,2
Parent Company 2015 2016
Value added tax 0,3 0,1
Other receivables 0,1 0,1
Total 0,4 0,2
Note 16 - Investments in marketable securities
During 2015, the Group disposed of SEK 9,0 million in securities held in a money market fund managed by Nordea Investment Management but held
no such securities at 31 December 2015 or 31 December 2016.
ANNUAL REPORT 2016 DIAMORPH042
Note 17 - CashGroup 2015 2016
Cash at bank and on hand 194,3 213,2
Restricted cash 13,7 22,6
Total 208,0 235,8
For the purposes of the Group cash flow statement, cash and cash equivalents comprise only the cash at banks and on hand of SEK 213,2 (194,3) million.
Restricted cash relates to cash that the Group has pledged under an agreement with a minority shareholder of Diamorph Bearings AB, see note 4 for
further details. Since the end of the year, this pledge has been released, see note 27 for further details.
Note 18 - Share capital, other paid-in capital and reserves
Specification of changes in equity is included in the statement of changes in equity which follows immediately after the balance sheet.Number of shares Share capital Other capital contributions Total
Opening balance at 2016-01-01 52 593 751 1,1 320,7 321,8
Share issue (15 SEK/share) 253 090 – 3,8 3,8
Closing balance at 2016-12-31 52 846 841 1,1 324,5 325,6
Number of shares Share capital Other capital contributions Total
Opening balance at 2015-01-01 52 593 751 1,1 320,7 321,8
Closing balance at 2015-12-31 52 593 751 1,1 320,7 321,8
The shares have a quota value of SEK 0.0209 per share. Each share corresponds to one vote. All balance sheet date registered shares are fully paid.
The number of shares reflect the current quota value. Information on the share issue in 2016 is included on page 14.
Analysis of reserves Exchange rate differences Total
Opening balance at 2016-01-01 133,4 133,4
Exchange rate differences -110,4 -110,4
Closing balance at 2016-12-31 23,0 23,0
Analysis of reserves Exchange rate differences Total
Opening balance at 2015-01-01 107,9 107,9
Exchange rate differences 25,5 25,5
Closing balance at 2015-12-31 133,4 133,4
Note 19 - Interest-bearing liabilitiesGroup 2015 2016
Long-term
Bank loans 22,8 -
Bond 500,0 500,0
Capitalised borrowing costs -6,5 -4,7
Total long-term interest-bearing liabilities 516,3 495,3
Short term
Bank loans 7,2 23,8
Total short-term interest-bearing liabilities 7,2 23,8
Total interest-bearing liabilities 523,5 519,1
ANNUAL REPORT 2016DIAMORPH 043
The currency denomination of the Group’s borrowings are as follows:
Group 2015 2016
Borrowing in SEK 493,6 495,3
Borrowing in EUR 29,9 23,8
Total 523,5 519,1
The bond carries a fixed interest coupon of 7% (7%) and is repayable on September 5, 2019. Interest payments are due every 6 months falling on
5th March and 5th September each year. The bond is not subject to any maintenance covenants but is secured on the shares in certain Group
companies and a SEK 500 million intercompany loan. The bond is listed on NASDAQ OMX Nordic with ISIN SE0006028221. The bond’s fair value is
SEK 472 (476) million and is categorised with Level 1.
The bank loan has been taken by Diamorph Hob Certec s.r.o. in the Czech Republic and is secured on the assets in that Company. It is denominated
in Euro, repayable in quarterly instalments of € 196,000 with a final balloon payment of € 2,094,000 in August 2017. The bank loan carries floating
rate interest based on 3 month Euribor plus a margin of 1.75% giving a total effective rate of 1.437% (1.682%) at 31 December 2016. The 3 month
Euribor interest on a proportion of the loan has been swapped onto a fixed rate of 1.31% giving a total effective rate of 3.06% (3.06%). The average
proportion of the loan swapped onto a fixed rate basis is 38% (38%) in 2017. The bank loan includes maintenance covenants in respect of debt cover,
interest cover and liquidity ratio. The covenants are continuously monitored and were complied with as at 31 December 2016.
The maturity profile of the interest-bearing liabilities is set out in the table at the bottom of page 33.
Parent Company 2015 2016
Long–term
Bond 500,0 500,0
Capitalised borrowing costs -6,4 -4,7
Total long-term interest-bearing liabilities 493,6 495,3
Note 20 - Pension obligations
Within the Group there is one defined benefit pension plan related to Modular Stock Ltd and its subsidiary, Tenmat Ltd. Pension obligations are volatile in
nature and this is an accounting area that is the subject of critical judgments and estimates. See note 4 Significant estimates and judgments.
All liabilities and assets in the scheme are denominated in GBP and so the figures below in SEK have been translated at appropriate exchange rates.
With effect from January 2010, the pension scheme was closed to future pension accruals, so there are no current or expected ongoing service costs.
Group 2015 2016
Present value of funded obligations -340,5 -397,8
Fair value of plan assets 346,8 362,1
Net asset/liability in balance sheet 6,3 -35,7
The changes in the defined benefit obligation are as follows:
Group 2015 2016
At beginning of year 350,2 340,5
Items reported in profit and loss statement
- interest 13,5 12,2
Items reported in other comprehensive income:
- revaluations -22,3 87,0
- exchange rate differences 10,6 -36,3
Benefit payments -11,5 -5,6
At end of year 340,5 397,8
ANNUAL REPORT 2016 DIAMORPH044
The change in the fair value of the plan assets are as follows:
Group 2015 2016
At beginning of year 332,7 346,8
Items reported in profit and loss statement
- expected return on plan assets (interest) 12,9 12,5
Items reported in other comprehensive income:
- revaluations 0,5 41,4
- exchange rate differences 9,3 -35,7
Cash contribution from Group company 2,9 2,7
Benefit payments -11,5 -5,6
At end of year 346,8 362,1
Revenues and expenses reported in the income statement are as follows:
Group 2015 2016
Net interest income -0,6 0,3
Total -0,6 0,3
Effects recognised in other comprehensive income relate to the revaluation of investment assets and the obligations for post-employment benefits
and amount to:
Group 2015 2016
Return on plan assets (excluding interest) 0,5 41,4
Gain/loss arising from changes in financial assumptions 14,6 -95,0
Experience gains 7,7 8,0
Total profit/loss included in other comprehensive income 22,8 -45,6
The expected return on plan assets is set in line with the discount rate used to estimate the value of the liability for post-employment benefits. The discount
rate is set based on high quality corporate bonds in the geographic market (the United Kingdom) where the employees covered by the plan are active.
In total there are 206 (209) employees covered by the plan being 183 men and 23 women (187 men and 22 women). Of these people, 140 (141)
individuals have not retired. The mean age of the persons who have not reached retirement age is 56 (56) years.
The assumptions used in the valuation can affect the net asset/liability substantially. In the calculation of the obligation and the value of the plan
assets, a best estimate has been made. The following shows the main assumptions and how a reasonably possible change would affect the
Group’s obligations for post-employment benefits (pensions).
Main assumptions:
Group 2015 2016
Discount rate, % 3,90% 2,75%
Inflation, % 2,35% 2,65%
Assumptions regarding longevity are based on statistics for employees in the United Kingdom. The table below shows the expected number of
remaining years of life after age 65. The life expectancy after age 65 for members who are currently aged 45 is approximately 1,9 (1,9) years longer
than the amounts shown in the table below:
Group 2015 2016
Men 22,3 22,1
Women 24,7 24,5
Sensitivity analysis
The discount rate is the assumption that has the greatest impact on pension obligations. A 1 percentage point change in the discount rate changes
commitments by about 19% (20%).
Mortality rates also affects the calculation. If the life expectancy is extended by one year, the commitment would increase by about 3% (3%).
ANNUAL REPORT 2016DIAMORPH 045
Plan assets
Plan assets consist of equity instruments, interest-bearing debt instruments and cash deposits. All asset values are based on quoted market prices.
The allocation of assets is as follows:
Group 2015 2016
Equities 261,2 256,3
Interest bearing securities 46,8 103,4
Cash and cash equivalents 38,8 2,4
Total plan assets 346,8 362,1
Triennial valuation
The information set out above relates to the accounting valuation of the defined benefit pension scheme and disclosures required under IAS 19.
Separate actuarial valuations are required by the UK Pension Regulatory every 3 years and the method used is different to that used under IAS 19.
The most recent such triennial valuation of the pension plan was finalised during 2014 and determined a deficit (as at 3 August 2013 the valuation
date) of GBP 794,000. The Pension Trustees of the scheme accepted that this deficit would be eliminated by annual cash payments of GBP 230,000
over 4 years, with the first payment made in March 2015. A new actuarial valuation as at 3 August 2016 is currently in the process of being prepared
by the scheme actuary but has not yet been finalised.
Note 21 – Share optionsWarrants
At the 2016 AGM, an issue of a maximum of 980 000 warrants was approved. These warrants have subsequently been issued to a number of
senior executives and employees of the Group for no consideration as a form of long-term incentive programme. Each warrant entitles the holder to
subscribe for one new share in the Company at a subscription price of SEK 15. Warrants can only be exercised during the period from 1 September
2020 up to and including 31 December 2022, or up to and including an earlier date that follows from the complete terms and conditions of the warrants.
The warrants are accounted for as a form of share-based payment transaction, whereby employees render services in exchange for shares or
rights over shares. Although there are specific circumstances in which the company may become obligated to repurchase the warrants for cash
consideration, this is not assessed to be a probable outcome and hence the share-based payment transactions are accounted for as “equity-settled
transactions”. The total charge to the income statement in 2016 of MSEK 0.4 was therefore credited to equity.
The warrants have been valued using an option pricing model. The average share price at the date of grant was deemed to be equivalent to the
exercise price of SEK 15 and the option pricing model assumes no dividends, a risk free rate of 0% and expected volatility of 30%. The warrants
were issued in three tranches with 720 000 warrants issued in June 2016, 130 000 in September 2016 and 130 000 in January 2017 giving an
expected life of 4.33, 4.00 and 3.67 years respectively, and a fair value per warrant of 3.68 SEK, 3.54 SEK and 3.39 respectively. The cost of each
warrant has been expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares that will eventually vest. At 31
December 2016, it has been assumed that all warrants will eventually vest. The estimate of the number of awards likely to vest will be reviewed at
each future balance sheet date up to the vesting date (to take account, for example, of leavers) at which point the estimate will be adjusted to reflect
the actual number of warrants which have vested.
At 31 December 2016, the warrants do not have any dilutive effect on earnings per share on the basis that it is assessed that there is currently no
material difference between the number of shares that would be issued at market value from the proceeds of dilutive options and the number of
shares that will be issued if all warrants are exercised.
Note 22 - Derivative financial instrumentsGroup 2015 2016
Forward exchange contracts -0,6 0,2
Interest rate swap -0,4 -0,1
Total -1,0 0,1
No hedge accounting has been applied to the derivative financial instruments and so the change in value has been recognised in the income statement.
The forward exchange contracts partially hedge the exposure to sales denominated in USD and EUR and also partially hedge the Group’s liabilities
to interest payments denominated in SEK. The interest rate swap relates to a hedge of the exposure to changes in 3 month Euribor interest rates for
the bank loan taken out by the Hob Certec business in the Czech Republic, see note 19.
Note 23 - Other liabilitiesGroup 2015 2016
Liabilities to customers 2,7 2,4
Total other liabilities 2,7 2,4
ANNUAL REPORT 2016 DIAMORPH046
Note 24 - Shares in Group companiesParent Company 2015 2016
Opening acquisition value 135,8 135,8
Acquistion of shares in Diamorph Bearings AB - 22,8
Closing book value 135,8 158,6
The Parent Company holds interests in the following subsidiaries:
Corp reg number
Book value
Name Place Stake 2015 2016
Diamorph Bearings AB 556667-0989 Sweden 90% 43,9 66,7
Diamorph Ceramics AB 556848-2433 Sweden 100% 0,1 0,1
Diamorph Services AB 556899-3082 Sweden 100% 0,1 0,1
Diamorph UK Ltd 8071521 United Kingdom 100% 91,7 91,7
Closing book value 135,8 158,6
The Group holds indirectly through its subsidiary Diamorph Bearings AB shares in the following companies:
Name Corp reg number Place Stake
KHP Marketing GmbH Switzerland 90%
Diamorph hob Certec s.r.o 278 644 64 Czech Republic 90%
The Group holds indirectly through its subsidiary Diamorph UK Ltd the following wholly owned subsidiaries:
Name Corp reg number Place Stake
Modular Stock Ltd 3342312 United Kingdom 100%
Tenmat Ltd 3342498 United Kingdom 100%
Tenmat Overseas Ltd 3342311 United Kingdom 100%
Golden Heights Ltd 3385590 United Kingdom 100%
Railko Ltd 5773671 United Kingdom 100%
Tenmat Holdings Inc USA 100%
Tenmat Inc USA 100%
Note 25 - Pledged assets, contingent liabilities and commitments
As described in note 19, the SEK 500 million bond is secured on the shares in certain Group companies, specifically Diamorph UK Ltd, Modular
Stock Ltd and Diamorph Bearings AB. In addition, the Group has pledged the assets set out in the table below.
Group 2015 2016
For own liabilities and provisions
Cash and cash equivalents 33,0 38,9
Tangible fixed assets 21,1 24,9
Accounts receivable 13,9 18,8
Stocks 6,7 7,0
Total 74,7 89,6
Pledged assets relate to assets in Diamorph Hob Certec s.r.o. that are secured on the bank loan in this subsidiary, see note 19. In addition, SEK 22,6
(13.7) million of cash is pledged in Diamorph Bearings AB, see note 17.
As described in note 19, a SEK 500 million intercompany loan in the Parent Company is secured on the SEK 500 million bond.
Contingent liabilities
There are no contingent liabilities in the Group or Parent Company.
Commitments for operating leases
Future lease payments under non-cancellable leases are payable as follows:
Group 2015 2016
Within one year 0,4 1,2
After one year but within five years 0,9 1,2
Total 1,3 2,4
There are no operating lease commitments in the Parent Company.
ANNUAL REPORT 2016DIAMORPH 047
Note 26 - Transactions with related parties
Income from related parties:Parent Company 2015 2016
Diamorph UK Ltd - Financing income 37,6 36,8
Diamorph UK Ltd - Management services 2,6 -
Tenmat Ltd - Other services 1,2 1,9
Tenmat Ltd - Royalty income - 0,1
Total 41,4 38,8
Charges from related parties:Group 2015 2016
Senior executives - Financing charges 0,7 -
Substantial shareholder - Financing charges - 10,0
Total 0,7 10,0
Parent Company 2015 2016
Modular Stock Ltd - Management services 1,8 1,2
Diamorph Bearings AB - Financing charges 0,6 0,6
Total 2,4 1,8
Receivables from related parties:Parent Company 2015 2016
Diamorph UK Ltd 600,9 562,0
Tenmat Ltd - 0,9
Total 600,9 562,9
Liabilities to related parties:Group 2015 2016
Substantial shareholder - 144,0
Senior executives 10,0 -
Total 10,0 144,0
Parent Company 2015 2016
Diamorph Bearings AB 12,9 13,5
Total 12,9 13,5
In addition to the transactions noted above, the share issue in kind described on page 14 was with Serendipity Ixora AB which is a significant
shareholder of Diamorph AB (publ).
Transactions with related parties primarily relate to financing activities. The Parent Company has made an intercompany loan of SEK 500 (500) million
to Diamorph UK Ltd which mirrors the arrangements in place with the bond issued by Diamorph AB. The loan carries a fixed interest coupon of 7%
(7%) and is repayable in September 2019. Arrangement fees relating to the bond have been charged to Diamorph UK Ltd and are recognised as
income over the period of the bond term. Other costs relating to the refinancing of the bond during 2014 were also been charged to Diamorph UK
Ltd. The Parent Company has other smaller intercompany balances with Diamorph UK Ltd which do not bear interest.
During 2016, Latour-Gruppen AB, a significant shareholder of Diamorph AB (publ), acquired SEK 144 million of bonds issued by Diamorph AB
(publ) by making purchases of bonds in the open market. At 31 December 2016, Diamorph AB (publ) therefore had liabilities of SEK 144 million to
Latour-Gruppen AB. Consequently, Diamorph AB (publ) also paid interest of SEK 10.1 million to Latour-Gruppen AB during the course of 2016.
The liabilities to senior executives reported at 31 December 2015 arose as part of the financing arrangements for the acquisition of the Tenmat Group
of companies in 2012 when senior executives acquired interests in the bond issued by Diamorph AB (publ). These interests were entirely disposed of
by those executives during 2016 and therefore there were no outstanding liabilities to senior executives at 31 December 2016.
Information relating to the remuneration of senior executives is set out in note 8, Remuneration to employees.
ANNUAL REPORT 2016 DIAMORPH048
Note 27 - Events after the year end
In January 2017, KHP Marketing Gmbh, a subsidiary company paid SEK 5.9 million of withholding tax to the Swiss tax administration under a
process to liquidate this subsidiary company. This payment was not recognised as a liability in the balance sheet at 31 December 2016 as the
payment was not committed at that date.
In January 2017, Diamorph AB (publ) gave notice to its bondholders that it was exercising its option for voluntary partial repayment of SEK 50 million out
of the total SEK 500 million outstanding bonds. The repayment was made on 6 March 2017 from surplus cash resources at a premium of 102% of the
nominal amount (SEK 1 million).
In February 2017, Diamorph AB (publ) acquired the remaining 10% of Diamorph Bearings AB from the remaining minority shareholder for cash consideration
of SEK 32.0 million. The consideration was calculated consistent with the arrangements agreed with the minority shareholder at the time of the acquisition
of the Hob Certec business in 2011. The put option relating to these arrangements (as described in note 4 of the Annual Report for 2015) was valued at
SEK 8.9 million in the balance sheet at 31 December 2016 and this liability will be derecognised through equity in 2017. Diamorph AB (publ) therefore now
controls 100% of Diamorph Bearings AB.
As described in the Risks section on page 17 the Group can from time to time be involved in legal actions to defend its intellectual property rights.
In April 2017 Railko Ltd, a subsidiary company, has reached a settlement with a third party relating to alleged infringements of the company’s
trademarks by that third party. Diamorph will therefore recognise MSEK 5.0 of non-recurring operating income in its second quarter results of 2017
relating to the settlement and recovery of legal expenses.
Note 28 - Adjusted key performance measures
In order to better show the underlying performance of the business, management use adjusted figures for key performance measures in addition to those
reported under IFRS. The Group operating profit performance and finance income and expense before non-recurring items are presented in the income
statement on page 19. Reconciliations of adjusted profits before tax and adjusted earnings per share are shown below.
Non-recurring items are items which management do not consider reflect the underlying performance of the business. Non-recurring items within
operating profit are explained in note 6. Non-recurring financing items are explained in note 9. Non-recurring tax items are analysed below and
include both the tax effect of non-recurring operating and financing items, as well as non-recurring tax items such as the impact on the Group's
deferred tax balances from expected future changes in the UK tax rate.
Group 2015 2016
Profit before tax as reported under IFRS 108,2 141,1
Adjusted for:
Non-recurring expense within operating profit (see note 6) - 0,2
Non-recurring items within net financing items (see note 9) 5,3 -38,9
Profit before tax on adjusted basis 113,5 102,4
Group 2015 2016
Tax charge as reported under IFRS -18,6 -29,0
Tax (credit)/charge on non-recurring items within net financing items -0,3 9,3
Other non-recurring tax items -3,3 -1,7
Tax charge on adjusted basis -22,2 -21,4
Group 2015 2016
Profit after tax attributable to Parent Company shareholders as reported under IFRS 86,7 109,6
Adjusted for (excluding amounts attributable to non-controlling interests where applicable*):
Non-recurring expense within operating profit - 0,2
Non-recurring items within net financing items* 4,7 -39,0
Tax effect of the above and other non-recurring tax items -3,6 7,6
Profit after tax attributable to Parent Company shareholders on adjusted basis 87,8 78,4
Average number of shares 52 593 751 52 741 387
Basic earnings per share as reported under IFRS 1,65 2,08
Adjusted earnings per share 1,67 1,49
ANNUAL REPORT 2016DIAMORPH 049
Note 29 - Definitions
Sales growth adjusted to fixed exchange rates Weighted average sales growth of the Tenmat and Hob Certec businesses using a
fixed exchange rate conversion into SEK for both periods being compared
Total debt Total interest-bearing liabilities and non-interest bearing deferred payment liabilities
relating to acquisitions. Total debt excludes defined benefit pension scheme liabilities.
Net debt Total debt less investments in marketable securities and cash and cash equivalents
(excluding restricted cash)
Capital employed Total equity (as reported in the consolidated balance sheet) plus total debt
Net debt ratio, % Net debt divided by total equity (as reported in the consolidated balance sheet)
Gross profit margin, % Gross profit divided by net sales
Operating profit margin, % Operating profit before non-recurring items divided by net sales
Operating cash flow Cash flow from operating activities less investments in tangible fixed assets,
excluding interest and tax paid/received
Operating cash conversion, % Operating cash flow divided by operating profit
Underlying net finance charges Finance income and expense excluding non-recurring financial items
Underlying tax charges Tax charges excluding non-recurring tax items
Non-recurring items See explanation in note 28
Note 30 - Proposed distribution of profits
The Board of Directors do not propose any distribution to shareholders and propose that the loss for the year is transferred to retained earnings.
2016
Share premium account 287,5
Accumulated loss -63,3
Loss for year -4,7
Total available for distribution 219,5
Distributed -
Carried forward 219,5
ANNUAL REPORT 2016 DIAMORPH050
The undersigned certify that the consolidated accounts and the annual report have been prepared in accordance with International Financing Reporting
Standards ("IFRS"), as adopted by the European Union, and generally accepted accounting principles, respectively, and give a true and fair view of the
financial position and earnings of the Group and the Company, and that the Administration Report gives a fair review of the development of the operations,
financial position and earnings of the Group and the Company and describes substantial risks and uncertainties that the Group companies face.
Stockholm 28 April 2017
Diamorph AB (publ)
Ashkan Pouya
Chairman
Gordon MacLeman
CEO
Saeid Esmaeilzadeh
Board Member
Anthony Moore
Board Member
Anders Mörck
Board Member
Ola Ringdahl
Board Member
Stefan Andersson Berglund
Ernst & Young AB
ANNUAL REPORT 2016DIAMORPH 051
Auditor's reportTo the annual meeting of the shareholders of Diamorph AB (publ), corporate identity number 556647-5371
Report on the annual accounts and consolidated accounts
Opinions
We have audited the annual accounts and consolidated accounts of
Diamorph AB (publ) for the year 2016 (the financial year 2016-01-01–
2016-12-31). The annual accounts and consolidated accounts of the
company are included on pages 14 to 50 in this document.
In our opinion, the annual accounts have been prepared in accordance
with the Annual Accounts Act and present fairly, in all material respects,
the financial position of the parent company as of 31 December 2016
and its financial performance and cash flow for the year then ended in
accordance with the Annual Accounts Act. The consolidated accounts
have been prepared in accordance with the Annual Accounts Act and
present fairly, in all material respects, the financial position of the group
as of 31 December 2016 and their financial performance and cash
flow for the year then ended in accordance with International Financial
Reporting Standards (IFRS), as adopted by the EU, and the Annual
Accounts Act. The statutory administration report is consistent with the
other parts of the annual accounts and consolidated accounts.
We therefore recommend that the general meeting of shareholders
adopts the income statement and balance sheet for the parent company
and the group.
Basis for Opinions
We conducted our audit in accordance with International Standards on
Auditing (ISA) and generally accepted auditing standards in Sweden.
Our responsibilities under those standards are further described in the
Auditor’s Responsibilities section. We are independent of the parent
company and the group in accordance with professional ethics for
accountants in Sweden and have otherwise fulfilled our ethical responsi-
bilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinions.
Key Audit Matters
Key audit matters of the audit are those matters that, in our professional
judgment, were of most significance in our audit of the annual accounts
and consolidated accounts of the current period. These matters were
addressed in the context of our audit of, and in forming our opinion
thereon, the annual accounts and consolidated accounts as a whole,
but we do not provide a separate opinion on these matters.
Sales of goods
Sales revenue for 2016 amounts to MSEK 423.6. Sales are generated mainly
by sales of products and are recognised as income when the customer
receives the goods. Revenue recognition connected to compensation from
customers requires the company to assess the need to reserve for bad
debts, why we assess this as a key audit matter.
Accounting principles for revenue recognition are shown in note 2.18 and
how sales revenues are distributed between geographical markets is shown
in note 5.
We have reviewed the revenue accounting. We have for instance
performed an analytical review, review of agreements and spot checks of
accruals in connection with the review of the year-end financial statement
to assess the relevance in the accounting of revenues. We have focused
our review on more complex agreements and on new agreements.
We have reviewed procedures for collection of account receivables and the
assessment of bad debts. We have assessed judgments and calculations
made by the company regarding revenue estimations connected to quality
parameters and risks of different kinds of revenue reductions. We have
assessed whether the information disclosed in the annual report is
appropriate.
Goodwill
Goodwill amounts to MSEK 528.7 as of 31 December 2016. The company
revaluates Goodwill yearly and if there is an indication of impairment that the
amounted value exceeds recovery values of these assets. Recovery values
are set by present value estimates on future cash flow in cash generating
units and is based on expected outcome of different factors that are based
on the company’s business plans and forecasts.
The company’s impairment test of 2016 did not result in any impairment.
Changed assumptions by the company related to recovery value
of future cash flows, growth and discount rates could lead to an
impairment situation. A description of the impairment test is shown in
note 11 and in the chapter “Important judgements and assessments”
in note 4. We have deemed this to be a key audit matter due to these
assumptions, which forms the basis for the impairment test, are based
on the company’s assessment of the future.
In our audit, we have assessed and tested the company's process
of performing the impairment test, for instance by evaluating prior
year’s outcome of forecasts and assumptions. We have also made
comparisons against other companies and industries in order to
evaluate the reasonability in assessments of future cash flow and
growth assumptions. Further, we have evaluated the company's
valuation methods and calculation models. The reasonableness of the
assumptions and sensitivity analysis of changes in the assumptions
have been reviewed with the support from our valuation specialists
and comparisons to historical results, and the precision of previous
forecasts. Furthermore, we have evaluated the reasonability in used
discount rates and long-term growth for each unit by comparison to
other companies within the same industry sector. We have assessed
whether the information disclosed in the annual report are appropriate.
Other Information than the annual accounts and consolidated accounts
This document also contains other information than the annual accounts
and consolidated accounts and is found on pages 6 to 13. The Board
of Directors and the Managing Director are responsible for this other
information.
ANNUAL REPORT 2016 DIAMORPH052
Our opinion on the annual accounts and consolidated accounts does
not cover this other information and we do not express any form of
assurance conclusion regarding this other information.
In connection with our audit of the annual accounts and consolidated
accounts, our responsibility is to read the information identified above and
consider whether the information is materially inconsistent with the annual
accounts and consolidated accounts. In this procedure we also take
into account our knowledge otherwise obtained in the audit and assess
whether the information otherwise appears to be materially misstated.
If we, based on the work performed concerning this information, conclude
that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors and the Managing Director
The Board of Directors and the Managing Director are responsible for
the preparation of the annual accounts and consolidated accounts and that
they give a fair presentation in accordance with the Annual Accounts Act
and, concerning the consolidated accounts, in accordance with IFRS as
adopted by the EU. The Board of Directors and the Managing Director are
also responsible for such internal control as they determine is necessary
to enable the preparation of annual accounts and consolidated accounts
that are free from material misstatement, whether due to fraud or error.
In preparing the annual accounts and consolidated accounts, The Board
of Directors and the Managing Director are responsible for the assessment
of the company’s and the group’s ability to continue as a going concern.
They disclose, as applicable, matters related to going concern and using the
going concern basis of accounting. The going concern basis of accounting
is however not applied if the Board of Directors and the Managing Director
intends to liquidate the company, to cease operations, or has no realistic
alternative but to do so.
Auditor’s responsibility
Our objectives are to obtain reasonable assurance about whether the
annual accounts and consolidated accounts as a whole are free from
material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinions. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs and generally accepted auditing standards
in Sweden will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these
annual accounts and consolidated accounts.
As part of an audit in accordance with ISAs, we exercise professional
judgment and maintain professional scepticism throughout the audit.
We also:
• Identify and assess the risks of material misstatement of the annual
accounts and consolidated accounts, whether due to fraud or
error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinions. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of the company’s internal control relevant
to our audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors and the Managing Director.
• Conclude on the appropriateness of the Board of Directors’ and the
Managing Director’s use of the going concern basis of accounting
in preparing the annual accounts and consolidated accounts. We
also draw a conclusion, based on the audit evidence obtained,
as to whether any material uncertainty exists related to events or
conditions that may cast significant doubt on the company’s and
the group’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the annual
accounts and consolidated accounts or, if such disclosures are
inadequate, to modify our opinion about the annual accounts and
consolidated accounts. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause a company and a group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the
annual accounts and consolidated accounts, including the
disclosures, and whether the annual accounts and consolidated
accounts represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient and appropriate audit evidence regarding the
financial information of the entities or business activities within the
group to express an opinion on the consolidated accounts. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our opinions.
We must inform the Board of Directors of, among other matters, the
planned scope and timing of the audit. We must also inform of significant
audit findings during our audit, including any significant deficiencies in
internal control that we identified.
We must also provide the Board of Directors with a statement that
we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit of
the annual accounts and consolidated accounts, including the most
important assessed risks for material misstatement, and are therefore
the key audit matters. We describe these matters in the auditor’s report
unless law or regulation precludes disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should
not be communicated in the auditor’s report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
ANNUAL REPORT 2016DIAMORPH 053
Report on other legal and regulatory requirements
Opinions
In addition to our audit of the annual accounts and consolidated accounts,
we have also audited the administration of the Board of Directors and the
Managing Director of Diamorph AB (publ) for the year 2016 (the financial
year 2016-01-01–2016-12-31) and the proposed appropriations of the
company’s profit or loss.
We recommend to the general meeting of shareholders that the profit be
appropriated in accordance with the proposal in the statutory administration
report and that the members of the Board of Directors and the Managing
Director be discharged from liability for the financial year.
Basis for Opinions
We conducted the audit in accordance with generally accepted auditing
standards in Sweden. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities section. We are
independent of the parent company and the group in accordance with
professional ethics for accountants in Sweden and have otherwise fulfilled
our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors and the Managing Director
The Board of Directors is responsible for the proposal for appropriations
of the company’s profit or loss. At the proposal of a dividend, this includes
an assessment of whether the dividend is justifiable considering the
requirements which the company's and the group’s type of operations, size
and risks place on the size of the parent company's and the group’s equity,
consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company’s organisation and
the administration of the company’s affairs. This includes among other
things continuous assessment of the company’s and the group’s financial
situation and ensuring that the company's organisation is designed so that
the accounting, management of assets and the company’s financial affairs
otherwise are controlled in a reassuring manner. The Managing Director shall
manage the ongoing administration according to the Board of Directors’
guidelines and instructions and among other matters take measures that are
necessary to fulfill the company’s accounting in accordance with law and
handle the management of assets in a reassuring manner.
Auditor’s responsibility
Our objective concerning the audit of the administration, and thereby
our opinion about discharge from liability, is to obtain audit evidence to
assess with a reasonable degree of assurance whether any member of
the Board of Directors or the Managing Director in any material respect:
• has undertaken any action or been guilty of any omission which can
give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act,
the Annual Accounts Act or the Articles of Association.
Our objective concerning the audit of the proposed appropriations of
the company’s profit or loss, and thereby our opinion about this, is to
assess with reasonable degree of assurance whether the proposal is in
accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with generally accepted auditing
standards in Sweden will always detect actions or omissions that can give
rise to liability to the company, or that the proposed appropriations of the
company’s profit or loss are not in accordance with the Companies Act.
As part of an audit in accordance with generally accepted auditing
standards in Sweden, we exercise professional judgment and maintain
professional scepticism throughout the audit. The examination of the
administration and the proposed appropriations of the company’s
profit or loss is based primarily on the audit of the accounts. Additional
audit procedures performed are based on our professional judgment
with starting point in risk and materiality. This means that we focus the
examination on such actions, areas and relationships that are material for
the operations and where deviations and violations would have particular
importance for the company’s situation. We examine and test decisions
undertaken, support for decisions, actions taken and other circumstances
that are relevant to our opinion concerning discharge from liability. As a
basis for our opinion on the Board of Directors’ proposed appropriations
of the company’s profit or loss we examined whether the proposal is in
accordance with the Companies Act.
Stockholm 28 April 2017
Ernst & Young AB
Stefan Andersson Berglund
Authorised Public Accountant
ANNUAL REPORT 2016 DIAMORPH054
Board of Directors and management
Board of Directors
Ashkan Pouya I Ashkan Pouya is Chairman of the Board since 2014.
Ashkan Pouya has a business degree from Uppsala University. He was previously Director of Innovation at Lund University
and has been involved in the construction of several companies in both executive and non-executive positions.
Holdings in Diamorph at 31 December 2016: 15 273 716 (12 632 940) shares (representing Serendipity Ixora/Group AB)
Saeid Esmaeilzadeh I Saeid Esmaeilzadeh is a Board Member since 2012.
Saeid Esmaeilzadeh is Adjunct Professor of Materials Chemistry at Stockholm University where he received his doctorate
in 2000. He has received numerous awards for his research and his work as an entrepreneur. Saeid has participated in the
development of several research-based companies.
Holdings in Diamorph at 31 December 2016: 15 273 716 (12 632 940) shares (representing Serendipity Ixora/Group AB)
Anthony Moore I Anthony Moore is a Board Member since 2012.
Anthony Moore has a chemistry degree from the University of Manchester. He created Tenmat by merging the operations of
another Company. Anthony led Tenmat since 1986, before stepping down as its Managing Director in 2015.
Holdings in Diamorph at 31 December 2016: 654 558 (2 088 757) shares
Anders Mörck I Anders Mörck is a Board Member since 2014.
Anders Mörck has a master's degree in Economics and Business Administration from Växjö University. He has extensive
experience in leadership positions in different industries. He is currently CFO of Investment AB Latour, and board member
in Swegon AB, Hultafors Group AB, Nord-Lock International AB, Latour Industries AB and HMS Networks AB.
Holdings in Diamorph at 31 December 2016: 13 923 571 (11 098 270 shares) (representing Latour-Gruppen AB)
Ola Ringdahl I Ola Ringdahl is a Board Member since 2015.
Ola Ringdahl has a Master’s degree in Finance and Business Administration from the Stockholm School of Economics. He
is currently CEO of Nord-Lock Group, specialists in secure bolting solutions, with subsidiaries in 20 countries. He is a board
member in Hultafors Group AB.
Holdings in Diamorph at 31 December 2016: 13 923 571 (11 098 270 shares) (representing Latour-Gruppen AB)
ANNUAL REPORT 2016DIAMORPH 055
Management
Gordon MacLeman I Diamorph AB Group CEO since September 2015 (joined the Group in November 2014)
Gordon has a degree in Finance from Glasgow University and has spent 31 years in the coatings and chemicals industry,
working for Courtaulds plc and Akzo Nobel. He held various senior leadership positions in Akzo Nobel, most recently as
Managing Director of one of its European performance coatings businesses.
Holdings in Diamorph at 31 December 2016: 0 (0) shares, 250 000 (0) warrants
Mark Hutchison I Diamorph AB Group CFO since April 2014
Mark has a degree in Natural Sciences from Cambridge University. He trained with KPMG and is a qualified chartered
accountant in the UK. He has held senior finance leadership positions within Spectris plc, a UK listed engineering
Company, most recently as divisional CFO for its business in Switzerland.
Holdings in Diamorph at 31 December 2016: 0 (0) shares, 100 000 (0) warrants
Heinz Pöhlmann I Diamorph Hob Certec Joint Managing Director since 1995 (joined the Group in December 2011)
Heinz has a commercial and technical engineering background and has worked for more than 15 years as manager at
Hoechst CeramTec Germany, one of the largest ceramic companies in the world. He spent 5 years at Hoechst in Japan,
where he built up a new ceramic department. Heinz Pöhlmann has successfully led the Diamorph Hob Certec team to a
world market leader in quality and innovation.
Holdings in Diamorph at 31 December 2016: 0 (0) shares in Diamorph AB, 159 (159) shares in Diamorph Bearings AB
Jan Roubal I Diamorph Hob Certec Joint Managing Director since 2012.
Jan has a lean manufacturing and technical engineering academic background. For 7 years prior to joining the Group
he worked for Automotive Lighting, part of Fiat Group, one of the biggest and the most innovative lighting technology
producers for the car industry. He held managerial positions in production and maintenance and also fulfilled a role as
technical director. He joined Diamorph Hob Certec in October 2012.
Holdings in Diamorph at 31 December 2016: 0 (0) shares, 80 000 (0) warrants
Dr Kapil Chopra I Tenmat Operations Director since April 2015 (joined the Group in 2008)
Kapil joined the business early on in his career within our research and development team and is now responsible for
leading the operations within Tenmat. He has a PhD in Bone Implants and a Master’s degree in Biomedical Material
Sciences from Manchester University. His educational background and varied experience within Tenmat means he is
adept with the business innovation and production strategies.
Holdings in Diamorph at 31 December 2016: 0 (0) shares, 80 000 (0) warrants
ANNUAL REPORT 2016 DIAMORPH056
Calendar
Annual General Meeting 2017 22 May 2017
Q1 Report 2017 23 May 2017
The AGM of Diamorph 2017 will be held at 18.00 on May 22
in IVA Konferenscenter, Grev Turegatan 16, in Stockholm.
DISCLOSURE UNDER SWEDISH LAW
Diamorph AB (publ) discloses this information pursuant to the
Swedish Securities Market Act and/or the Swedish Act on
Trading in Financial Instruments. The information was submitted
for publication on 28 April 2017, at 08:00.
Diamorph AB (publ)
Telephone: 08- 612 68 50
e-mail: [email protected] Internet: www.diamorph.com
Visiting address: c/o Sdiptech AB (publ), Stureplan 15, 111 45 Stockholm, Sweden
Registered office: Stockholm Registration number: 556647-5371