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Annual Report 2016 Report by the Board of Directors Notes Proposed distribution of earnings Auditors' report Eleven-year review Review by business area

Note 1 Accounting principles

All amounts in SEKm unless otherwise stated

This section describes the comprehensive basis of preparation which has been applied in preparing the financial statements. Accounting principles for specific accounting areas and individual line items are described in the related notes. For additional information on accounting principles, please contact Electrolux Investor Relations.

Basis of preparation

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). The consolidated financial statements have been prepared under the historical cost convention, as modified by revaluation of available-for-sale financial assets and financial assets and liabilities (including derivative financial instruments) at fair value through profit or loss. Some additional information is disclosed based on the standard RFR 1 from the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. As required by IAS 1, Electrolux companies apply uniform accounting rules, irrespective of national legislation, as defined in the Electrolux Accounting Manual, which is fully compliant with IFRS. The policies set out below have been consistently applied to all years presented with the exception for new accounting standards where the application follows the rules in each particular standard. For information on new standards, see the section on new or amended accounting standards below.

Enumerated amounts presented in tables and statements may not always agree with the calculated sum of the related line items due to rounding differences. The aim is for each line item to agree with its source and therefore there may be rounding differences affecting the total when adding up the presented line items.

The Parent Company applies the same accounting principles as the Group, except in the cases specified in the section entitled Parent Company accounting principles.

The financial statements were authorized for issue by the Board of Directors on February 15, 2017. The balance sheets and income statements are subject to approval by the Annual General Meeting of shareholders on March 23, 2017.

Principles applied for consolidation

The consolidated financial statements have been prepared by use of the acquisition method of accounting, whereby the assets and liabilities and contingent liabilities assumed in a subsidiary on the date of acquisition are recognized and measured to determine the acquisition value to the Group.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Costs directly attributable to the acquisition effort are expensed as incurred. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the fair value of the acquired net assets exceeds the cost of the business combination, the identification and measurement of the acquired assets must be reassessed. Any excess remaining after that reassessment must be recognized immediately in profit or loss.

The consolidated financial statements for the Group include the financial statements for the Parent Company and its directly and indirectly owned subsidiaries after:

  • elimination of intra-group transactions, balances and unrealized intra-group profits, and
  • carrying values, depreciation and amortization of acquired surplus values.

Definition of Group companies

The consolidated financial statements include AB Electrolux and all companies over which the Parent Company has control, i.e., the power to direct the activities; exposure to variable return and the ability to use its power. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss.

At year-end 2016, the Group consisted of 148 (146) companies with 209 (216) operating units.

The following apply to acquisitions and divestments:

  • Companies acquired are included in the consolidated income statement as of the date when Electrolux gains control.
  • Companies divested are included in the consolidated income statement up to and including the date when Electrolux loses control.

Associated companies

Associates are all companies over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 and 50% of the voting rights. Investments in associated companies are accounted for in accordance with the equity method.

Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of each transaction.

Monetary assets and liabilities denominated in foreign currencies are valued at year-end exchange rates and any exchange-rate differences are included in income for the period, except when deferred in other comprehensive income for the effective part of qualifying net investment hedges.

The consolidated financial statements are presented in Swedish krona (SEK), which is the Parent Company’s functional and presentation currency.

The balance sheets of foreign subsidiaries are translated into SEK at year-end closing rates. The income statements have been translated at the average rates for the year. Translation differences thus arising have been included in other comprehensive income.

Exchange rates

SEK 2016 2015
Exchange rate Average End of
Average End of
ARS 0.5813 0.5717 0.9059 0.6481
AUD 6.36 6.54 6.31 6.13
BRL 2.48 2.78 2.57 2.15
CAD 6.46 6.73 6.57 6.06
CHF 8.67 8.9 8.71 8.50
CLP 0.0127 0.0135 0.0129 0.0119
CNY 1.29 1.31 1.34 1.30
EUR 9.45 9.55 9.35 9.19
GBP 11.6 11.16 12.84 12.45
HUF 0.0303 0.0308 0.0302 0.0293
MXN 0.4605 0.4388 0.5298 0.4865
RUB 0.1288 0.1486 0.1375 0.1152
THB 0.2431 0.2532 0.2454 0.2336
USD 8.58 9.06 8.4 8.41

New or amended accounting standards applied in 2016

The following new, amended or improved standards were applicable from January 1, 2016: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 14 Regulatory Deferral Accounts, IAS 1 Presentation of Financial Statements, IAS 16 Property, Plant and Equipment, IAS 27 Separate Financial Statements, IAS 28 Investments in Associates and Joint Ventures, IAS 38 Intangible Assets, IAS 41 Agriculture, and Annual Improvements 2012-2014. These new, amended or improved standards did not have any material impact on Electrolux financial statements. All of these standards were endorsed by the EU before January 1, 2016, except amendments to IFRS 10, IFRS 12 and IAS 28, which were endorsed in September 2016, and IFRS 14 Regulatory Deferral Accounts, an interim standard which EU has decided not to endorse but to wait for the final standard.

New or amended accounting standards to be applied after 2016

The following new standards and amendments to standards have been issued and are applicable after 2016.

IFRS 9 Financial Instruments. This standard addresses the classification, measurement, recognition, impairment and de-recognition of financial instruments as well as hedge accounting. The new measurements will mainly lead to administrative changes. The changes in the hedge accounting rules will allow for hedge accounting to be applied to the risk components of non-financial items. Under current rules, this is only applicable to foreign currency risk. This means that Electrolux will be able to apply hedge accounting when hedging commodities with financial derivatives, as a complement to today’s bilateral contracts with suppliers. One specific accounting issue relates to the change in how to calculate provisions for bad debts, moving from an “incurred loss model” to an “expected loss model”. This will result in an expected loss being provided for on all accounts receivable, including those not overdue. The current assessment is that no material impact is expected from this change. The Group is to finalize the assessment of the full impact of IFRS 9. The mandatory effective date is January 1, 2018, with early application allowed.

IFRS 15 Revenue from Contracts with Customers. The standard ­establishes a new framework for revenue recognition and introduces a five-step model to be applied to all contracts with customers in order to establish when and how to recognize revenue. The standard is not expected to have any material impact on revenue recognition for Electrolux type of business which mainly consists of sales of products. Revenue will in practice be recognized at the same moment in time as with current rules but based on a new principal model. Findings so far indicate changes in the timing of revenue recognition for a limited number of service contracts like extended warranty and licensing of brand names as well as reclassification effects between net sales and operating cost lines in the income statement. The Group is finalizing the assessment of the full impact of IFRS 15. The mandatory effective date is January 1, 2018, with early application allowed.

IFRS 16 Leases. The standard is a major revision of how to account for leases and requires all leases to be reported on the balance sheet. Thus, the application of IFRS 16 will lead to operational leases being recognized in the balance sheet. Electrolux has operational leases regarding, e.g., warehouses, office premises, and certain office equipment. The Group is assessing the full impact of IFRS 16. The mandatory effective date is January 1, 2019, with early application allowed if IFRS 15 Revenue from Contracts with Customers is also applied. IFRS 16 has not yet been endorsed by the EU.

Amendments to the following standards are not expected to have any material impact on the financial statements of Electrolux: IFRS 2 Share-based Payment; IFRS 4 Insurance Contracts; IAS 7 Statement of Cash Flows; IAS 12 Income Taxes; IAS 40 Investment Property; and Annual Improvements 2014-2016.

New interpretations of accounting standards

The International Financial Reporting Interpretation Committee (IFRIC) has issued Interpretation 22 Foreign Currency Transactions and Advance Consideration. Mandatory effective date is January 1, 2018. The interpretation has not yet been endorsed by the EU. No material impact is expected on the financial statements of Electrolux.

Critical accounting policies and key sources of estimation uncertainty

Use of estimates

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the financial statements in conformity with IFRS. Actual results may differ from these estimates under different assumptions or conditions. Below, Electrolux has summarized the accounting policies that require more subjective judgment of the management in making assumptions or estimates regarding the effects of matters that are inherently uncertain.

Asset impairment

Non-current assets, including goodwill, are evaluated for impairment yearly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its recoverable amount based on the best information available. Different methods have been used for this evaluation, depending on the availability of information. When available, market value has been used and impairment charges have been recorded when the information indicated that the carrying amount of an asset was not recoverable. In the majority of cases, however, market value has not been available, and the fair value has been estimated by using the discounted cash-flow method based on expected future results. Differences in the estimation of expected future results and the discount rates used could have resulted in different asset valuations. The yearly impairment testing of goodwill and other intangible assets with indefinite useful lives, including sensitivity analyses performed, has not indicated any impairment. See Note 13 on page 113 for more information.

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Useful lives for property, plant and equipment are estimated between 10 and 40 years for buildings and land improvements and between 3 and 15 years for machinery, technical installations and other equipment. Management regularly reassesses the useful lives of all significant assets. The carrying amount for property, plant and equipment at year-end 2016 amounted to SEK 18,725m. The carrying amount for goodwill at year-end 2016 ­amounted to SEK 4,742m.

Deferred taxes

In the preparation of the financial statements, Electrolux estimates the income taxes in each of the tax jurisdictions in which the Group operates as well as any deferred taxes based on temporary differences. Deferred tax assets relating mainly to tax loss carry-forwards, energy-tax credits and temporary differences are recognized in those cases when future taxable income is expected to permit the recovery of those tax assets. Changes in assumptions in the projection of future taxable income as well as changes in tax rates could result in significant differences in the valuation of deferred taxes. As of December 31, 2016, Electrolux had a net amount of SEK 5,588m recognized as deferred tax assets in excess of deferred tax liabilities. As of December 31, 2016, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 9,653m, which have not been included in the computation of deferred tax assets.

Current taxes

Electrolux provisions for uncertain outcome of tax audits and tax litigations are based on management’s best estimates and recorded in the balance sheet. These estimates might differ from the actual outcome and the timing of the potential effect on Electrolux cash flow is normally not possible to predict.

In recent years, tax authorities have been focusing on transfer pricing. Transfer-pricing matters are normally very complex, include high amounts and it might take several years to reach a conclusion.

Trade receivables

Receivables are reported net of allowances for doubtful receivables. The net value reflects the amounts that are expected to be collected, based on circumstances known at the balance-sheet date. Changes in circumstances such as higher than expected defaults or changes in the financial situation of a significant customer could lead to significantly different valuations. At year-end 2016, trade receivables, net of provisions for doubtful accounts, amounted to SEK 19,408m. The total provision for doubtful accounts at year-end 2016 was SEK 757m.

Post-employment benefits

Electrolux sponsors defined benefit pension plans for some of its employees in certain countries. The pension calculations are based on actuarial assumptions about, e.g., mortality rates, future salary and pension increases. The calculation of the pension obligation also depends on the discount rate. Changes in assumptions directly affect the defined benefit obligation, service cost, interest income and expense. The discount rate used for the calculation of expenses during 2016 was 3.13% in average, which was the same rate used to estimate liabilities at the end of 2015. Sensitivities for the main assumptions are presented in Note 22 on page 121.


Restructuring charges include required write-downs of assets and other non-cash items, as well as estimated costs for personnel reductions and other direct costs related to the termination of the activity. The charges are calculated based on detailed plans for activities that are expected to improve the Group’s cost structure and productivity. In general, the outcome of similar historical events in previous plans are used as a guideline to minimize these uncertainties. The total provision for restructuring at year-end 2016 was SEK 1,667m.


As is customary in the industry in which Electrolux operates, many of the products sold are covered by an original warranty, which is included in the price and which extends for a predetermined period of time. Provisions for this original warranty are estimated based on historical data regarding service rates, cost of repairs, etc. Additional provisions are created to cover goodwill warranty and extended warranty. While changes in these assumptions would result in different valuations, such changes are unlikely to have a material impact on the Group’s results or financial situation. As of December 31, 2016, Electrolux had a provision for warranty commitments amounting to SEK 1,812m. Revenues from extended warranty are recognized on a linear basis over the contract period unless there is evidence that some other method better represents the stage of completion.


Electrolux is involved in disputes in the ordinary course of business. The disputes concern, among other things, product liability, alleged defects in delivery of goods and services, patent rights and other rights and other issues on rights and obligations in connection with Electrolux operations. Such disputes may prove costly and time consuming and may disrupt normal operations. In addition, the outcome of complicated disputes is difficult to foresee. It cannot be ruled out that a disadvantageous outcome of a dispute may prove to have a material adverse effect on the Group’s earnings and financial position.

Parent Company accounting principles

The Parent Company has prepared its Annual Report in compliance with Swedish Annual Accounts Act (1995:1554) and recommendation RFR 2, Accounting for Legal Entities of the Swedish Financial ­Reporting Board. RFR 2 prescribes that the Parent Company in the Annual Report of a legal entity shall apply all International Financial Reporting Standards and interpretations approved by the EU as far as this is possible within the framework of the Annual Accounts Act, taking into account the connection between reporting and taxation. The recommendation states which exceptions from IFRS and additions shall be made. A development reserve is reported for the first time 2016 in accordance with new rules in the Swedish Annual Accounts Act. In accordance with the new rules an amount equal to the capitalized own developed intangible assets during 2016 has been transferred from unrestricted equity to the development reserve within restricted equity.

The Parent Company applies IAS 39 Financial Instruments.


Holdings in subsidiaries are recognized in the Parent Company financial statements according to the cost method of accounting. The value of subsidiaries are tested for impairment when there is an indication of a decline in the value.

Foreign currency translations

The Annual Report is presented in Swedish krona (SEK), which is the Parent Company’s accounting currency. One of the companies operating on a commission basis for AB Electrolux changed its functional currency to euro as from January 1, 2015. Translating differences thus arise as from 2015. The balance sheet of the commissioner company has been translated into SEK at year-end rates. The income statement has been translated at the average rate for the year. Translation differences thus arising have been included in Other comprehensive income.

Anticipated dividends

Dividends from subsidiaries are recognized in the income statement after decision by the annual general meeting in the respective subsidiary. Anticipated dividends from subsidiaries are recognized in cases where the Parent Company has exclusive rights to decide on the size of the dividend and the Parent Company has made a decision on the size of the dividend before the Parent Company has published its financial reports.


The Parent Company’s financial statements recognize untaxed reserves including deferred tax. The consolidated financial statements, however, reclassify untaxed reserves to deferred tax liability and equity. Tax on group contribution is reported in the income statement.

Group contributions

Group contributions provided or received by the Parent Company are recognized as appropriations in the income statement. Shareholder contributions provided by the Parent Company are recognized in shares and participations which are subject to impairment tests as indicated above.


The Parent Company reports pensions in the financial statements in accordance with RFR 2. According to RFR 2, IAS 19 shall be adopted regarding supplementary disclosures when applicable.

Intangible assets

The Parent Company amortizes trademarks in accordance with RFR 2. The Electrolux trademark in North America is amortized over 40 years using the straight-line method. All other trademarks are amortized over their useful lives, estimated to 10 years, using the straight-line method.

The central development costs of the Group’s common business system are recorded in the Parent Company. The amortization is based on the usage and go-live dates of the entities and ­continues over the system’s useful life, estimated to 5 years per unit using the straight-line method. The applied principle gives an estimated amortization period of 10 years for the system.

Property, plant and equipment and intangible assets

The Parent Company reports additional fiscal depreciation, required by Swedish tax law, as appropriations in the income statement. In the balance sheet, these are included in untaxed reserves.

Financial statements presentation

The Parent Company presents the income statement and the balance sheet in compliance with the Swedish Annual Accounts Act (1995:1554) and recommendation RFR 2.