20% - Assa Abloy

Corporate governance report
48
Financial reporting
All units report their financial results monthly in accordance
with the Group’s accounting principles. This reporting
is consolidated and forms the basis for quarterly
reports and a monthly operating review. Operating
reviews conform to a long-established structure – Lock-
Pack – in which sales, income, cash flow, capital employed
and other important key figures and trends for the Group
are compiled and form the basis for analysis and actions
by management and controllers at different levels. Financial
reviews take place quarterly at divisional board meetings
and monthly in the form of performance reviews and
through more informal analysis. Particular attention is
paid to the sales trend, and monitoring takes the form of
daily sales reporting by all the units in the Group. This
monitoring is analyzed weekly by the Executive Team. An
updated sales forecast is made weekly for the current
month. Other important Group-wide components of
internal control are the annual business planning and
budgeting process and quarterly detailed forecasts of all
the financial parameters for the current calendar year.
Group-wide tools for increasing efficiency
In addition to the guidelines and policies discussed above,
some 20 systems and applications for increasing business
efficiency have been developed centrally. These aids are
used by subsidiaries for inventory optimization and cost
control, for example. The tools are mainly intended for
operational use, but in many cases also result in the general
and specific control activities linked to financial
reporting being implemented in the business, as well as
creating increased awareness of the importance of internal
control.
The acquisition process
A large part of the ASSA ABLOY Group’s historical growth
and present size is based on acquisitions. Acquisitions will
continue to be an important growth factor for expansion
onto new markets, in new technologies and on markets
where the market share is low. Complementary acquisitions
on existing markets may also arise.
In these circumstances, ASSA ABLOY has had reason to
establish and follow a special Group-wide acquisition
process, which states how acquisitions should be implemented.
The process consists of four phases – strategy,
evaluation, implementation and integration – and each
phase includes various predefined activities, decisions and
documentation requirements.
Goodwill and other intangible assets with an indefinite
useful life resulting from acquisitions are subject to a simplified
valuation test quarterly and a detailed, in-depth
impairment test annually.
Group internal control and internal audit function
During the year, the Group internal audit function monitored
and coordinated the external audit, as well as evaluating
the Group’s internal control. A particular focus area
during the year was the new fast-growing markets, where
the internal audit function carried out audits and also
assisted the subsidiaries with advice regarding the development
of control procedures. Internal audit is carried
out using central resources and within the divisions,
where experienced financial staff carry out internal audits
in units other than those in which they are employed. The
internal audit function also reports to the Board’s Audit
Committee.
Risks and risk management
As an international group with a wide geographical
spread, ASSA ABLOY is exposed to business and financial
risks. The business risks can be divided into strategic,
operational and legal risks. The financial risks relate to
such factors as exchange rates, interest rates, liquidity,
credit provision, raw materials and financial instruments.
The financial risks and their management by the Group
are described in the section ‘Financial risk management’
on page 63.
Risk management in ASSA ABLOY aims to identify,
control and reduce risks. This work is based on an assessment
of the probability of the risks and their potential
effect on the Group. In the decentralized spirit that marks
ASSA ABLOY, and to keep risk analysis and risk management
as close as possible to the actual risks, a large proportion
of risk management takes place at division and
business-unit level.
Strategic and operational risks
The main risks of this nature encountered by ASSA ABLOY
relate to customers, suppliers, employees, competitors
and acquisition situations. In addition, there are countryspecific
risks. Customers and suppliers, including the
relationships with them, are subject to continuous local
review. These players, together with employees, are covered
by the Group’s Code of Conduct. As regards competitors,
a risk analysis is carried out both centrally and locally.
As regards risks relating to acquisitions, the Group follows
a uniform, predefined process, as described above.
Legal risks
ASSA ABLOY continuously monitors anticipated and
implemented changes in the legislation of the countries
in which it operates. From time to time, ASSA ABLOY is
involved in legal disputes, mainly in areas such as product
liability, protection of intellectual property rights, the
environment, and the interpretation of supplier, distribution
and employment contracts as well as anti-trust matters.
Where it is considered necessary, local legal expertise
is engaged to deal with these matters. In order to
identify and control legal risks, there is regular Groupwide
reporting of outstanding legal matters. This is
managed and coordinated by the Group’s central legal
function.
Many of the legal risks, such as those related to property
and liability issues, are covered by insurance policies.
ASSA ABLOY carries out regular reviews of risks and risk
assessment jointly with insurance company representatives.
At present, there are no legal disputes that are
expected to lead to significant costs.