To the general meeting of the shareholders of AB Electrolux (publ), corporate identity number 556009-4178
We have audited the annual accounts and consolidated accounts of AB Electrolux (publ) for the year 2016. The annual accounts and consolidated accounts of the company are included on pages 75-133 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 its 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.
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 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.
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we considered areas where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the appliances industry in which the Group operates.
The financial statements of the Electrolux Group consists of some 200 reporting units operating in 55 countries all over the world. The operations are managed and monitored through the Business Areas – Major Appliances EMEA, Major Appliances North America, Major Appliances Asia Pacific, Major Appliances Latin America, Small Appliances and Professional Products. We have therefore scoped our audit procedures for the reporting units within each Business Area, taking into account control environment and business processes at the individual reporting unit level but also by assessing business performance reviews and Group management oversight and follow-up activities on Business Area level.
In establishing the overall group audit strategy and plan, we determined the type of work that needed to be performed at the reporting units in scope by component auditors. For the most significant entities we required a full audit on their complete financial reporting, for others we required specified audit procedures for the most significant profit and loss and/or balance sheet accounts depending on the nature of operations conducted at the reporting unit.
The group consolidation, financial statement disclosures and a number of complex transactions were audited by the Group engagement team. These include pensions, tax provisions and impairment of goodwill.
In addition, we have applied a centralized Group audit approach with respect to the Electrolux Control System (ECS), where key processes and controls are documented and tested by management and quality assured by internal audit (MA&SA), all of which is evidenced in a global internal control tool. The Group engagement team regularly performs own internal control testing at Electrolux’s shared service center in Krakow, Poland. We in the Group engagement team share comfort with respect to ECS and centralized IT systems with local auditors and instruct local teams to carry out their audit procedures based on this comfort.
The reporting units in scope for the Group audit procedures represent approximately 75% of Group net sales. In addition, we have carried out analytical procedures on Business Area level to capture also smaller reporting units, and local statutory audit procedures are conducted for all companies in the Group subject to statutory audit requirements by law.
Our audit is carried out continuously during the year. In connection with the issuance of the interim reports for the third quarter and year-end, we report our observations to Group management, Business Area management and the Audit Committee. At year-end, we also report our main observations to the entire Board of Directors. For the third quarter, we issue a public interim review report.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
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.
Revenue is an important measure in terms of business follow-up and execution on the Electrolux Group strategies. Revenue also represents a significant line item in the Group consolidated income statement and amounted to SEK 121 billion in 2016. In our audit of revenue recognition correct cut-off is considered a matter of high importance.
The vast majority of the Group’s revenue consist of straight-forward product sales where revenue is recognized when the significant risks and rewards connected with ownership of goods have been transferred to the buyer. Within the Business Area Major Appliances EMEA, the business set-up is slightly complex with one Swedish entity acting as a buying/selling hub for the European business where most of the European products flow through.
Refer to the Annual Report Note 4 – Net sales and operating income.
Our audit included a combination of testing of internal controls over financial reporting with respect to revenue recognition including procedures relating to business reviews performed by the different Business Areas, analytical procedures and detailed tests of significant new customer contracts. Different contracts may contain different delivery terms that need to be considered in terms of revenue recognition. Our audit also included detailed tests of proof of delivery to confirm that risk had been transferred to the customer. We have in our audit had special focus on revenue recognition within the Business Area Major Appliances EMEA considering the inter-company transactions implied by the business set-up.
Based on our work, we had no material observations for the overall audit on Electrolux’s accounting for revenue recognition.
Electrolux has a concentration of credit exposure on a number of major customers, mainly in the US, Latin America and Europe. Some of these major customers are facing difficult business conditions. In order to avoid significant credit losses, proper monitoring and management of credit risk is key. Accounts receivable is a significant item in the Group financial statements amounting to SEK 19.4 billion as of December 31, 2016 and provisions for impairment of receivables is an area which is influenced by management’s estimates and judgment. The provision for impairment of receivables amounted to SEK 757 million (whereof new provisions amounted to SEK 345 million) as at December 31, 2016 and actual credit losses for 2016 amounted to SEK 110 million.
Refer to the Annual Report Note 2 Financial risk management and Note 17 – Trade receivables.
Our audit incorporated the following activities;
We had a particular focus in our audit on how Electrolux manage credit risk for key customers with respect to credit insurance and procedures for credit management. We also assessed and challenged management’s assumptions and adherence to Group accounting policies with respect to provisions for impairment of receivables.
Based on our work, we had no material observations for the overall audit on Electrolux’s level of provision for impairment of accounts receivable as at December 31, 2016.
The carrying value of goodwill as of December 31, 2016 amounted to SEK 4.7 billion. The annual impairment test was performed as of September 30, 2016. Management has performed the test based on value-in-use calculated with a discounted cash-flow model with a three year projection period and a terminal value based on Gordon’s formula. Business Area is considered the lowest level of cash-generating units on which goodwill can be tested.
During the year operations in Business Area Major Appliances Latin America have been negatively impacted by a weak market environment. There has i.e. been especially important for 2016 to test the carrying value of goodwill for this cash-generating unit. The carrying value of goodwill for Business Area Major Appliances Latin America amounted to SEK 1.2 billion as at December 31, 2016.
No impairment charge has been recorded against goodwill in 2016.
Refer to the Annual Report Note 13 – Goodwill and other intangible assets.
In our audit we have performed a number of procedures in order to verify that the goodwill impairment tests are performed based on generally accepted methods, mathematically correct and based on reasonable assumptions. Our audit approach incorporated involving PwC valuation specialists and to:
Our audit procedures also covered a sensitivity analysis around long-term growth rate and discount rate to test the extent of change in those assumptions that would be required for the goodwill in Latin America to be impaired.
Based on our work, we had no material observations for the overall audit on Electrolux’s impairment test of goodwill for Latin America.
This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–75 and pages 138–141. The Board of Directors and the Managing Director are responsible for this other information.
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.
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.
The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process.
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.
A further description of our responsibility for the audit of the annual accounts and consolidated accounts is available on Revisorsnämndens website: www.revisorsinspektionen.se/rn/showdocument/documents/rev_dok/revisors_ansvar.pdf. This description is part of the auditor’s report.
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 AB Electrolux (publ) for the year 2016 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.
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.
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 organization 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 organization 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 fulfil the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.
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:
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.
A further description of our responsibility for the audit of the administration is available on Revisorsnämndens website: www.revisorsinspektionen.se/rn/showdocument/documents/rev_dok/revisors_ansvar.pdf. This description is part of the auditor’s report.
Stockholm, February 17, 2017
PricewaterhouseCoopers AB
Anna Rosendal
Authorized Public Accountant