The Board of Director’s report on internal control

Under the Swedish Companies Act and the Code, the Board of Directors is responsible for the internal control. This report has been prepared in accordance with item 10.5 of the Code.

Control environment

The Group has produced a framework for corporate governance. The most important components in the control environment include clear terms of reference for the Board, a clear organizational structure with documented delegated decision-making from the Board to the Group Management, and a number of established Group policies, routines and frameworks. Overall, the Group operates in an organization where managers are given clear goals and authority. Delegation of decision-making is documented in an authorization instruction which provides clear instructions and authority to managers at all levels. The Group’s more important policies, routines and frameworks include, “Financial Policies and Guidelines”, an accounting and reporting manual, a Group Treasury policy and a Risk Management policy, which states financial and business risk management mandates, Corporate HR Policy and Guidelines as well as a manual for IT security. The documents are periodically reviewed and updated when necessary. The Group’s established internal control processes embrace all of the Group’s subsidiaries and include methods and activities for securing all Group’ assets, controlling accuracy and reliability in internal and external financial reporting and to ensure adherence to adopted guidelines and policies.

Risk management and analysis

At each meeting, The Board evaluates the future strategic opportunities, the Group’s risk exposure and analyzes the Company’s strategy ahead as well as prevailing market conditions. The overall responsibility for management of financial and business risks has been clearly delegated to the CEO who has delegated the day-to-day responsibility in accordance with the established mandate, for identifying, evaluating and handling financial and business risks as well as responsibility for implementation and maintenance of the control system pursuant to the policies established by the Board. Each Country Management has responsibility for ensuring that there is a process within each country aimed at increasing risk awareness and adherence to guidelines and policies. The Group’s established policies and processes aim to ensure that risk management shall constitute a part of the Group’s business culture and strategic work. The process for management of business risks is integrated in the Group’s business planning and review of results. There are clear escalation procedures for ensuring that the Group Management and the Board are continually notified of potential control deficiencies and significant risk exposures.

Information and communication

The Group’s communication policy is continuously developed in order to give the staff a clear definition of the Group’s goals, liability and the framework for permissible activities Information processes are established which aim to furnish the Group Management and other management functions in the Group with adequate reports of the business results in relation to established objectives in order to ensure reliable analysis for controlling the operations.

Self-assessment

An annual self-assessment is performed regarding observance of Financial Policies and Guidelines and established Corporate Governance documents in order to facilitate evaluation and follow-up of each Country Organization. Evaluation and follow-up is performed in relation to what extent the defined responsibilities and requirements have been fulfiled based on established guidelines and policies. The self-assessment is signed by the respective country’s President and controller.

Financial reporting

The local country organization is responsible for ensuring observance of approved policies and guidelines as well as routines for internal control with regard to the establishment of financial reporting. The responsibility also includes ensuring that all financial information is correct, complete and in accordance with internal and external requirements. All reporting units report monthly financial outcomes, accounted for in accordance with the Group’s accounting principles, International Financial Report Standards (IFRS). The reporting is consolidated and forms the basis for quarterly reports and monthly operational follow-up of the business and financial operations. The operational follow-up takes place according to an established structure where sales, results, cash flow and other important key ratios and trends for the Group are compiled and form the basis for analysis and actions. The financial follow-up aims to secure the Group’s liquidity requirements. Other important and Company-wide elements of the internal control are the annual business planning and budgetary processes as well as quarterly forecasts of the financial outcome for the current calendar year.

Letter of Representation

The Country Management confirms the financial statements annually by signing a Letter of Representation aimed at securing the control environment, which reports the Management’s opinion on whether the internal control relating to financial reporting and other Company-wide reporting provides a true and fair view of the unit’s financial position.

Routines for acquisitions

The Group has adopted policies and routines in order to ensure that all acquisitions of operations are duly approved and carefully analyzed with regard to the financial and operational consequences of the acquisition. The Group conducts regular follow-ups and evaluations of completed acquisitions.