IFRS-adjusted 2004 figures for ASSA ABLOY

20 Apr 2005

From 2005 onwards ASSA ABLOY will report its Group accounting in accordance with International Financial Reporting Standards (IFRS). The Interim Report for the first quarter of 2005 will be published on 27 April 2005 and will be the first financial report from ASSA ABLOY prepared in accordance with IFRS.
 
In recent years Swedish accounting practice ("SW GAAP"), through the standards of the Swedish Financial Accounting Standards Council, has moved steadily towards IFRS. However, there remain a number of significant differences that affect ASSA ABLOY's Group accounting at and after the transition to IFRS. The information given here provides a description of the most important changes in and their effects on ASSA ABLOY's Group accounts for 2004. The transitional effects described below are preliminary and may be changed by additions or changes to IFRS during 2005, since the transitional information and adjustments must be based on the IFRS in force on 31 December 2005. In summary, the transition has the following main effects on ASSA ABLOY's 2004 Annual Report:
 
 
  • Amortization of goodwill ceases, and amortization of goodwill charged as a cost during 2004 is reversed. Amortization of goodwill in 2004 amounted to SEK 978 M.
  • Deferred tax receivables are considered in relation to tax-deductible goodwill. Tax is then expensed as the available tax deduction is utilized.
  • Intangible rights pertaining to 2004 acquisitions are distinguished from goodwill and amortized over their estimated useful life.
  • Some provisions for acquisition-related restructuring that do not meet the requirements of IFRS are charged as costs.
  • Financial instruments are reported in the balance sheet at their fair value. IAS 39 "Financial Instruments" is adopted from 1 January 2005.
 
Expected IFRS effects on the 2004 income statement (SEK M)  2004


Reported net income for 2004 (SW GAAP)
                             1,495
Reversal of goodwill amortization
+978
Acquisition-related adjustments
-73
Tax effects
-51
Reversal of minority shares of income
+7
Reported net income for 2004 (IFRS)
2,356
 
Expected IFRS effects on shareholders' equity (SEK M)                           2004


Reported shareholders' equity on 31 Dec 2004 (SW GAAP)
10,448
IFRS adjustments to net income (see table above)
861
Exchange-rate effects on IFRS adjustments
-48
Acquisition-related IFRS adjustments applied directly to shareholders' equity
-35
Minority interests
27
Reported shareholders' equity on 31 Dec 2004 (IFRS)
11,253

 
IFRS 1 "First time adoption of International Financial Reporting Standards" discusses how the transition from local accounting rules to IFRS should be carried through and presented. It states that only one comparison-year need be adjusted to accord with IFRS. The transition from Swedish GAAP thus takes effect from 1 January 2004. Comparatives for 2004 are adjusted in accordance with IFRS.
 
IFRS 1 also contains special rules that can be adopted only at adoption of IFRS. IFRS 3 "Business Combinations" should be adopted from the time of the transition to IFRS. In accordance with this, ASSA ABLOY has opted not to make adjustments for acquisitions made before the transition on 1 January 2004. With regard to IAS 19 "Employee Benefits", ASSA ABLOY is using the option to report all actuarial gains and losses in the balance sheet on 1 January 2004. Thereafter, all actuarial gains and losses arising will be reported in accordance with IAS 19 and recognized as income or expense over the expected average remaining service period. IAS 21 "Effects of Changes in Foreign Exchange Rates" states that accumulated translation differences should be attributed to the individual Group companies. IFRS 1 permits translation differences to be zeroed when changing to IFRS, and ASSA ABLOY has opted to adopt this transition rule. ASSA ABLOY is also adopting the option of not producing comparative figures relating to financial instruments. Transition rules regarding the fair values of tangible fixed assets as opening values, different IFRS transition dates for Group companies, reclassification of financial instruments previously reported, share-based remuneration, and insurance contracts, do not apply to ASSA ABLOY.
 
Effects of changed accounting principles
The accounting principles employed by ASSA ABLOY are changed by the transition to IFRS. The updated accounting principles will be appended to the Interim Report for the first quarter of 2005.
The most important changes are described here.
 
Acquisitions and mergers
IFRS 3 "Business Combinations" deals with company acquisitions and mergers. In full accordance with the transition rules, ASSA ABLOY does not intend to adjust any acquisitions made before the date of transition (1 January 2004). Adjustments relating to allocation of the purchase price are being made for acquisitions made after this date. Adjustments are also made for any restructuring reserves that do not meet the requirements of IFRS. Under IFRS 3, all amortization of goodwill has ceased, and the amortization of goodwill set against income in 2004 is reversed in line with IFRS when 2004 comparatives are restated. To the extent that amortization of goodwill is tax-deductible, deferred tax receivables are accounted for and expensed when the tax deduction is utilized. Amortization of goodwill is replaced by an impairment test that is carried out systematically for all Cash-Generating Units (CGUs). Goodwill and other acquisition-related intangible assets are tested for impairment at the same Unit level as that is used to review performance in the Group. Accounting for acquisitions has changed under IFRS 3, mainly as regards allocation of the purchase price. To a greater extent than before, the purchase price will be allocated to identifiable intangible assets, which will be amortized over their estimated useful life. The adoption of IFRS 3 has thus affected the accounting for acquisitions of companies but not the Group's acquisition strategy.
 
Financial instruments
IAS 39 "Financial Instruments" is adopted from 1 January 2005. In accordance with IFRS 1 there is
no adjustment of comparatives. The accumulated effects of revaluation of financial instruments in accordance with IAS 39 will be reported as an adjustment of shareholders' equity in the opening balance on 1 January 2005. Net adjustment against equity is SEK -76 M. Reporting of financial instruments under IAS 39 will give rise to increased volatility in both the income statement and the balance sheet. ASSA ABLOY believes that these fluctuations will be limited. ASSA ABLOY has used financial instruments chiefly to hedge transaction exposure and in Treasury operations. From 2005 this type of hedging operation will use different methods, which are expected to limit the effects on income resulting from the adoption of IAS 39.
 

 
Minority interests
Under IFRS, minority interests form part of shareholders' equity. Having previously been classed as liabilities, minority interests will now be reported on a separate line in shareholders' equity. Net income will be reported including minority shares of income after tax. Having previously been reported as a deduction in the consolidated income statement placed immediately before net income, under IFRS, net income for the period will be specified on the income statement split on ASSA ABLOY shareholders' share and the minority share of net income.
 
Other
IFRS allows certain choices in the adoption of accounting principles. Where such choices exist, ASSA ABLOY has chosen the alternative that lies closest to the rules previously employed. The relevant sections are: IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets", where ASSA ABLOY uses valuation at historic acquisition values with deductions for accumulated write-offs and write-downs; IAS 2 "Inventories", where ASSA ABLOY uses the first-in/first-out principle; IAS 7 "Cash Flow Statements", where ASSA ABLOY reports cash flow using the indirect method; and IAS 23 "Borrowing Costs", where ASSA ABLOY follows the rule of not reporting on the balance sheet borrowing costs in assets' acquisition values.
 
Effects on key ratios
The adoption of IFRS has a positive effect on ASSA ABLOY's key ratios. For example, Return on capital employed, Return on shareholders' equity, Earnings per share and Net debt / Equity ratio will all be improved, mainly because goodwill will no longer be amortized. Earnings per share adjusted in accordance with IFRS is presented in the income statement accompanying this release. Other key ratios will be presented in the Interim Report for the first quarter of 2005.
 
Parent Company
The Group's Parent Company, ASSA ABLOY AB, continues to comply with Sweden's Annual Accounts Act and standard RR 32 "Reporting of Legal Entities" of the Swedish Financial Accounting Standards Council.
 
Adjusted financial information for 2004
The presentations of income statements and balance sheets for 2004 that follow are based on the published Quarterly Reports and Annual Report for 2004. The format may be changed to some extent by the adoption of IFRS. The tables on the following pages present: the income statement for 2004; the closing balance on 31 December 2004; the quarterly income statements and balance sheets for 2004; and some information by segment (division). Further information about the transition to IFRS will be given in the Interim Report for the first quarter of 2005, to be published on 27 April 2005.
 
Further information can be obtained from:
Göran Jansson, Deputy CEO and CFO, Tel: +46 8 506 485 72
Martin Hamner, Director of Investor Relations and Group Controller, Tel: + 46 8 506 485 79
 
ASSA ABLOY AB (publ)
Box 70340, SE 107 23 Stockholm, Sweden
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
Visiting address: Klarabergsviadukten 90
www.assaabloy.com
 
The full pressrelease including tables can be downloaded from the following link:

The ASSA ABLOY Group is the world's leading manufacturer and supplier of locking solutions, dedicated to satisfying end-user needs for security, safety and convenience. The Group has about 30,000 employees and annual sales of around EUR 3 billion.