ASSA ABLOY
Annual Report 2002

Plain-text annual report

Annual Report 2002 A S S A A B L O Y A n n u a l R e p o r t 2 0 0 2 ASSA ABLOY AB (publ.) Postal Address: P.O. Box 70340, SE-107 23 Stockholm • Visiting Address: Klarabergsviadukten 90 Phone: +46 (0)8 506 485 00 • Fax: +46 (0)8 506 485 85 Registered No.: SE.556059-3575 • Registered Office: Stockholm, Sweden • www.assaabloy.com Contents The year 2002 in brief The President and CEO, Carl-Henric Svanberg Group development The ASSA ABLOY share ASSA ABLOY and the lock industry Strategy and financial objectives Management philosophy Increasing customer focus Customer value drives growth Environmental management Group integration Scandinavia Finland Central Europe South Europe United Kingdom North America South Pacific New Markets Hospitality Identification Door Automatics Report of the Board of Directors Consolidated income statement and cash flow statement Consolidated balance sheet Parent Company income statement and cash flow statement Parent Company balance sheet Accounting and valuation principles Financial risk management Notes Audit report ASSA ABLOY’s Board of Directors ASSA ABLOY’s Group Management Addresses 3 4 8 10 12 13 15 16 19 22 24 26 28 30 32 34 36 40 42 46 48 50 52 58 59 60 61 62 64 65 74 75 76 78 The Annual General Meeting of ASSA ABLOY AB will be held at Norra Latin, Drottninggatan 71 B, Stockholm at 4 p.m. on Wednesday 26 March 2003. Notice of attendance at the Annual General Meeting Shareholders wishing to attend the Meeting must: - be recorded in the register of shareholders kept by Värde- papperscentralen VPC AB (Swedish Central Securities Depository and Clearing Organization), no later than 14 March 2003 and: - give notice of attendance to ASSA ABLOY AB, P.O. Box 70340, SE-107 23 Stockholm, tel. +46 8 506 485 00, fax. +46 8 506 485 85 or on www.assaabloy.com by 4 p.m. on 20 March 2003. Notification must include the shareholder’s name and personal identity number as well as information regarding the number of shares held. Any shareholder whose shares are nominee-registered must also, in order to be entitled to take part in the Meeting, request a temporary entry in the register of shareholders kept by VPC. Shareholders must notify the nominee about this well before 14 March 2003, when this entry must have been effected. Financial information from ASSA ABLOY will be published as follows: Interim Reports: First quarter: 29 April 2003 Second quarter: 7 August 2003 Third quarter: 7 November 2003 Fourth quarter and Year-end Report for 2003: 6 February 2004 Annual Report for 2003: March 2004 Annual Reports and other Reports may be ordered from: ASSA ABLOY AB P.O. Box 70340 SE-107 23 Stockholm Sweden Tel. +46 8 506 485 00 Fax. +46 8 506 485 85 www.assaabloy.com Bo Dankis new President and CEO Bo Dankis, Group Vice President and head of ASSA ABLOY South Europe, will succeed Carl-Henric Svanberg as President and CEO of ASSA ABLOY on 26 March 2003. Carl-Henric Svanberg is to become President and CEO of Ericsson on 8 April 2003. He is expected to remain on the Board of ASSA ABLOY as a Deputy Chairman together with Melker Schörling. The ASSA ABLOY Group’s Strategy is manifested in three steps: • Build a worldwide presence and successively add new areas of expertise • Leverage synergies and develop Group strength • Increase focus on creating value for customers The year 2002 in brief: Continuous improvements and growth despite difficult market conditions (cid:2) Sales increased by 13 percent to SEK 25,397 M (22,510) (cid:2) Organic growth for comparable units was 2 percent (cid:2) Income before tax increased by 23 percent to SEK 2,015 M (1,642*) (cid:2) Earnings per share (EPS) increased by 18 percent to SEK 3.53 (2.98*) (cid:2) Earnings per share before goodwill amortization increased by 14 percent to SEK 6.13 (5.39*) (cid:2) Operating cash flow amounted to SEK 3,525 M (2,338) (cid:2) Acquisition of Besam Besam is the world leader in door automatics with annual sales of SEK 2 billion and a profit margin exceeding 10 percent. Automatic products and systems have hitherto formed only a limited part of ASSA ABLOY’s product portfolio, but they fit extremely well into the Group’s strategy of creating security solutions that prevent unauthorized entry while permitting safe, fast exit in emergency situations and being simple and convenient to use. The market for door automatics has shown sustained growth of 7-10 percent a year. (cid:2) Cash flow generation at an all-time high Operating cash flow after payment of income taxes amounted to SEK 3 billion, an increase of 67 percent compared to 2001. The increase is attributable to ASSA ABLOY’s long-term efforts to reduce working capital and the Group’s efficient capital expenditure. Operating cash flow after tax per share amounts to SEK 8.26 (5.07), an increase of 63 percent. (cid:2) Continuous margin improvements Continuous benchmarking between the various units has continued to produce results in the form of higher productivity and further margin improvements in many units, including the former Yale group of companies. During the year greater focus has been placed on supply management with the objective of reducing the number of suppliers and realizing Group synergies. * excluding provision for the Merrimac dispute, USD 12.5 M plus interest (SEK 166 M). The President and CEO, Carl-Henric Svanberg: “ Building value starts with a satisfied customer.” We have created a worldwide presence. And we have come a long way in building a unified Group with a common mindset. Now it is time to focus even more on our customers and how we can add value by providing increased security, safety and convenience. In this Annual Report you will find several examples of our work to meet – and exceed – the expecta- tions of our customers around the world. Creating customer value is the only true underlying source of growth – and, in the long run, of value for the shareholders – and it all starts with a satisfied customer. Another challenging but successful year The markets in Europe and us softened as a result of the generally weak economy. At the same time, in an increasingly insecure world, we are experiencing a growing focus on security. The interest in more convenient and intelligent locking solutions is growing as well and opens interesting perspectives for the future. We increased sales by 13 percent to sek 25,397 m. In local currencies the increase was even stronger, 17 percent. Income before tax grew by 23 percent to sek 2,015 m. Our efforts to achieve operational excellence are continuing with a wide range of improvement initiatives throughout the Group. Margins are steadily increasing and the potential for further improvements is still significant. Earnings per share increased by 18 percent. Operating cash flow amounted 4 ASSA ABLOY / 2002 to sek 3,525 m, which corresponds to 175 percent of earnings before tax. Increased production cooperation as well as reduced lead times and invento- ries are important contributors to the strong cash flow. Our different regions and their companies continue to strengthen their positions. I will first briefly comment on some of last year’s highlights in the different regions. We grew sales and margins steadily in Scandinavia throughout the year. Successful product launches contribu- ted to good growth, especially in Sweden. Our Norwegian foundry was successfully moved to Romania during the year, a fascinating project that involved 73 trucks fully loaded with production equipment. Finland on the other hand stagnated, mostly as a result of the dramatic telecom slowdown. ASSA ABLOY / 2002 5 The President and CEO, Carl-Henric Svanberg: In Europe the German market was par- ticularly weak. In adjusting to these market conditions we are reducing the number of employees by 280. The pro- ject also includes a transfer of certain production to Romania. In Spain the integration of the market leader tesa has started well. This company has a particular strength and spirit that adds great value to our Group. The French units are continuing to develop success- fully while the development in Italy, where our position is not so strong, is taking longer. The development in the uk is encouraging even though the figures do not yet reflect the initiatives taken. Lead times have been dramatically improved and a large number of product launches during the year are expected to accelerate growth. North America did well in spite of worries about the slowing economy, and margins are steadily increasing. The Yale integration, which primarily involved the architectural hardware companies, was completed very successfully. The ongoing merging of our door opera- tions is proceeding well, with results in line with forecasts. Our Oklahoma door-frame plant with 160 employees was closed during the autumn and the production moved, with no interrup- tion, to Curries in Mason City. Some of the more labor-intensive door produc- tion is being moved to Mexico. Canada and Mexico have become large and important markets for us and we noted good growth and encouraging margin improvements in all units. The South Pacific region, Australia and New Zealand, was our strongest performer last year with strong opera- tional improvements and successful growth projects in collaboration with sister companies. 6 ASSA ABLOY / 2002 New Markets ended the year strongly after a slow start. South Africa and Brazil were our star performers while Israel (Mul-T-Lock) and Asia are back to growth again and showing healthy margin increases. Our Identification Group had a good year with a very successful integration of the newly acquired Indala. Several additional small acqui- sitions were made on top of a good organic growth that was pulled in part by the increasing demand for access- control. The hotel activities suffered from a falling demand related to less traveling, but an aggressive cost-cutting program improved margins and the companies are well positioned for the future. Our strategy to ensure presence and growth We see our growth strategy in three steps. • Create a worldwide presence and add new areas of expertise • Leverage synergies and develop Group strength • Increase focus on creating value for our customers We are building a worldwide presence We have come a long way towards creating a global presence through acquisitions. We are now the undispu- ted leading lock group in the world and we are present in all important regions, both mature and developing markets. Acquisitions will continue as there are still a number of gaps to be filled, but a lot of the needed presence has been established. Through intense benchmarking and spreading of best practice our companies continue to improve their efficiencies. Acquiring Besam was a great example of adding a new area of expertise, and gave us a world-leading position in door automatics. This was an important strategic step since the demand from large customers for intelligent total openings solutions is growing and we will now be able to lead this devel- opment. hid, acquired two years ago, was equally important. The company has developed strongly from the start and brought us leadership in Identi- fication. We leverage Group strengths The successful Volvo Ocean Race inte- gration project brought us all closer together, and the response we received, internally and among our partners, exceeded our own expectations. The project created a pride in belonging to assa abloy and advanced interest in leveraging Group synergies in r&d, production, cross sales and marketing. This work is now being intensified and, by working together, each company will be able to achieve much more than on its own. New intelligent locking solutions require more investments in research and development and are now carried out jointly. The increasing demand for total solutions also requires more co- operative ventures. We are striving for more ‘platform thinking’ in our local r&d so as to develop economies of scale by joint production of compo- nents and products. An increasing pro- portion of production is being carried out in our low-cost manufacturing units, mainly in Romania, Mexico and China. Time to increase customer value In a world of growing security con- cerns, the need for improved and more secure, safe and convenient locking solutions. For larger buildings the development of more intelligent and sophisticated systems that can provide an intelligent total opening has only just begun. This is the basis of our business idea and it gives us great potential for growth. We have created a platform to build on. Acquisitions will continue but are less critical to our growth. Our organi- zation is in better shape than ever and the potential for continued margin improvements is still considerable. We have entered the third level of our stra- tegic development, i.e. increased focus on business development and adding value for our customers. The outlook remains strong and we can look forward to continued good development of volume and profit. Stockholm, February 2003 Carl-Henric Svanberg President & ceo locking solutions sophisticated is obvious. There are great growth opportunities for us in utilizing our global sales network. Around a billion locks of our make and brands are pres- ently installed around the world. Due to the steadily increasing need for secu- rity, locks are being upgraded on average three to four times during the lifetime of a building. Through Group cross-trading we can offer our customers a complete range of products. This cross-trading is supported by a common database and a common intra-Group customer inter- face. By also taking advantage of our world-leading technologies developed jointly and then adapted to local needs, we can offer our customers products and systems with unique values. Distribution is also undergoing a gradual change. There are two trends, more direct ways to market and more specialist distribution. Intermediate non-value-adding steps are disappear- ing, putting us closer to the users. Furthermore, with more sophisticated locking solutions and the need to satis- fy particular customer demands, there are obvious benefits in distributors focusing on different users, e.g. on large or small companies or on private houses. Since distributors and manu- facturers both add value in creating locking solutions, this increases the opportunity for us to jointly develop the total value-added chain. Great opportunities for growth Every day we see examples of how the demand for security and safety is increasing all over the world. The differ- ences in security levels between countries are significant and we can still do a much better job in developing the market and meeting users’ demands for The strategy remains as Bo Dankis takes over As Carl-Henric Svanberg becomes President and ceo at Ericsson from April 2003, he is succeeded by Bo Dankis. Bo Dankis, who was born in 1954 and has a Master of Science degree from Linköping Institute of Technology, has a long track record of successfully managing international companies. From abb Japan, he joined assa abloy France in 1997. Since 2000 he has served as Group Vice President and head of assa abloy South Europe. “Our strategy and our goals remain the same,” Bo Dankis says. “We have created a worldwide presence. And we have come a long way in building a unified Group with common values and working methods. Now it is time to focus even more on our customers, adding value for them through increased security, safety and convenience. That way, we will be able to ensure continued growth and profitability. “Historically we have produced technically outstanding products, but have not always done this in response to the directly expressed needs of our customers. We must develop a much better understanding of the true needs of the end-users of our products,” he says and concludes “I feel great confi- dence and enthusiasm for the role of leading assa abloy further.” ASSA ABLOY / 2002 7 Group development: Income statement Sales by organizational unit 3) 2002 EUR M1) 2,779 2002 SEK M 2001 SEK M 2000 SEK M 25,397 22,510 14,394 -1,699 -15,526 -13,863 1,080 -687 9,871 -6,276 8,647 -5,488 -8,568 5,827 -3,719 393 -105 - 289 -69 1 220 -75 -6 139 3,595 -957 - 2,638 -631 8 2,015 -689 -56 1,270 3,159 -860 -166 2,133 -664 7 1,476 -507 -20 949 2,107 -387 - 1,720 -331 12 1,402 -453 -34 915 Sales Cost of goods sold Gross income Sales and administrative expenses Operating income before goodwill amortization Goodwill amortization Non-recurring items Operating income Financial items Share in earnings of associated companies Income before tax Tax Minority interests Net income Operating cash flow Operating income before goodwill amortization Depreciation Net capital expenditure Change in working capital Paid and received interest Adjustment for non-cash items Operating cash flow 2002 EUR M1) 2002 SEK M 2001 SEK M 2000 SEK M 393 104 -92 44 -64 -1 386 3,595 3,159 2,107 950 -839 405 -581 -5 861 -830 -77 -817 43 598 -497 -94 -357 -2 3,525 2,338 1,756 Capital employed and financing Capital employed - of which goodwill Net debt Minority interests Shareholders‘ equity 2002 EUR M2) 2,915 1,770 1,527 36 2002 SEK M 26,701 16,213 13,989 331 2001 SEK M 27,861 16,371 15,534 481 2000 SEK M 19,779 12,078 8,560 560 1,352 12,381 11,846 10,659 The ASSA ABLOY product portfolio Security doors and fittings, 17% Industrial locks, 3% Electromechanical locks and electronic locks, 23% 8 ASSA ABLOY / 2002 Mechanical locks, lock systems and accessories, 57% 1) EUR/SEK average rate 9.14 2) EUR/SEK rate at 31 December 9.16 3) Including exports from each unit 4) Sales to customers in each country 5) Germany, Netherlands, Switzerland & Austria 6) France, Belgium, Italy & Spain 7) Africa, Asia, Israel, South America & eastern Europe Scandinavia Finland Central Europe 5) South Europe 6) United Kingdom North America South Pacific New Markets 7) Hospitality Identification Door Automatics Total SEK M EUR M EUR M EUR M GBP M USD M AUD M SEK M NOK M USD M SEK M SEK M Sales by country 4) USA France United Kingdom Germany Mexico Sweden Australia Spain Canada Finland Norway The Netherlands Denmark Asia (excl. China) Italy The Middle East Belgium China Czech Republic South Africa South America New Zealand Central America (excl. Mexico) Switzerland Russia Portugal The Baltic countries Poland Romania Other countries Total 2002 1,970 2001 1,914 2000 1,889 126 175 407 86 1,078 216 1,952 816 132 1,015 126 155 314 86 937 158 2,029 920 106 - 125 121 263 48 589 145 981 1,005 - - 25,397 22,510 14,394 2002 EUR M1) 1,135 225 175 118 109 107 94 87 80 73 66 53 46 43 42 33 30 29 25 22 21 21 20 19 13 11 7 7 5 62 2002 SEK M 10,376 2,061 1,602 1,079 993 981 863 797 733 663 600 487 418 396 381 299 273 268 228 198 194 190 180 178 116 96 66 64 46 2001 SEK M 9,935 1,904 1,545 963 445 855 775 341 661 662 538 304 424 450 344 282 248 286 200 150 185 66 141 137 54 49 59 65 50 2000 SEK M 5,418 1,647 763 780 152 839 724 178 373 606 500 167 365 248 214 201 171 125 165 40 94 39 46 57 28 40 43 55 48 571 392 268 2,779 25,397 22,510 14,394 Key data ** 2002 25,397 2 17.9 14.2 10.4 2,015 7.9 3,525 1.75 839 1,907 33,261 12,381 13,989 26,701 10,487 38.2 3.9 1.13 9.9 Sales, SEK M Organic growth, % Gross margin (EBITDA), % Operating margin before goodwill amortization (EBITA), % Operating margin (EBIT), % Income before tax, SEK M Profit margin (EBT), % Operating cash flow, SEK M Operating cash flow / Income before tax Net capital expenditure, SEK M Depreciation and amortization, SEK M Total assets, SEK M Shareholders' equity, SEK M Net debt, SEK M Capital employed, SEK M Capital employed excluding goodwill, SEK M Equity ratio, % Interest coverage ratio, times Net debt / equity ratio, times Return on shareholders' equity, % Return on capital employed before goodwill amortization, % Return on capital employed, % Operational return on capital employed, % Earnings per share after tax and full conversion, SEK Earnings per share after tax and full conversion excluding goodwill, SEK Interest on convertible debenture loan after tax, SEK M Cash earnings per share after tax and full conversion, SEK Shareholders' equity per share after 35.85 full conversion, SEK 365,918 Number of shares, thousands Number of shares after full conversion, thousands 370,935 28,754 Average number of employees 33.3 9.9 13.4 3.53 9.08 27.2 6.13 2000 ** 1999 ** 2001 22,510 3 17.9 14,394 5 18.8 14.0 14.6 10.2* 12.0 1,642* 1,402 7.3 * 9.7 2,338 1,756 1.42* 1.25 497 830 985 1,721 26,029 34,669 10,659 11,846 8,560 15,534 19,779 27,861 7,701 11,490 35.6 43.1 3.5* 5.5 1.31 0.8 8.9* 13.3 10,277 5 18.1 13.5 11.6 981 9.5 1,218 1.24 391 667 11,241 5,269 2,998 8,534 5,288 49.2 5.3 0.57 16.2 1998 8,582 6 18.5 12.8 11.2 748 8.7 1,028 1.37 316 623 9,219 2,715 4,237 6,984 4,460 29.8 4.4 1.56 19.0 32.9* 34.2 9.7* 13.7 13.3* 16.7 2.98* 2.73 26.4 28.7 15.2 15.6 17.9 17.4 2.00 *** 1.76 *** 5.39* 3.88 2.61 2.21 9.0 8.5 8.7 11.7 8.07* 5.81 4.10 *** 3.75 *** 35.80 353,751 361,730 24,211 30.58 352,453 356,712 16,881 *** 16.95 *** 9.93 284,304 295,448 10,545 314,409 324,200 12,654 * Key data for 2001 excludes non-recurring items ** Key data for 1999 and 2000 has been adjusted for changes in accounting principles *** Has been adjusted for new share issues with an adjustment factor 0.987 Definitions (cid:2) Organic growth: Change in sales for comparable units after adjustments for acquisitions and currency rate effects. (cid:2) Gross margin: Operating income before depreciation and amortization as a percentage of sales. (cid:2) Operating margin before goodwill amortization: Operating income before goodwill amortization as a percentage of sales. (cid:2) Operating margin: Operating income as a percentage of sales. (cid:2) Profit margin: Income before tax as a percentage of sales. (cid:2) Operating cash flow: See consolidated cash flow statement. (cid:2) Net capital expenditure: Investments in tangible fixed assets less disposals of tangible fixed assets. (cid:2) Depreciation: Depreciation/amortization of intangible and tangible fixed assets. (cid:2) Net debt: Interest-bearing liabilities less interest-bearing investments. (cid:2) Capital employed: Total assets less interest-bearing assets and non-interest-bearing liabilities including deferred tax liability. (cid:2) Capital employed excluding goodwill: Total assets less interest-bearing assets and non-interest-bearing liabilities including deferred tax liability and goodwill. (cid:2) Equity ratio: Shareholders‘ equity including minority interests as a percentage of total assets. (cid:2) Interest coverage ratio: Income before tax plus net interest divided by net interest. (cid:2) Return on shareholders‘ equity: Net income plus interest expenses after tax for convertible debenture loans as a percentage of average shareholders‘ equity after full conversion. (cid:2) Return on capital employed before goodwill amortization: Income before tax plus net interest and goodwill amortization as a percentage of average capital employed excluding goodwill. (cid:2) Return on capital employed: Income before tax plus net interest as a percentage of average capital employed. (cid:2) Operational return on capital employed: Income before tax plus net interest and goodwill amortization as a percentage of average capital employed. (cid:2) Earnings per share after tax and full conversion: Net income plus interest expenses after tax for convertible debenture loans per weighted average number of shares after full conversion. (cid:2) Earnings per share after tax and full conversion excluding goodwill: Net income excluding goodwill amortization plus interest expenses after tax for convertible debenture loans per weighted average number of shares after full conversion. (cid:2) Cash earnings per share after tax and full conversion: Net income plus interest expenses after tax for convertible deben- ture loans, plus depreciation and amortization, plus profit share from minority interest less profit share from associated compa- nies and adjustments for changes in deferred tax per weighted average number of shares after full conversion. (cid:2) Shareholders‘ equity per share after full conversion: Shareholders‘ equity plus convertible debenture loans per share after full conversion. Group development: SEK M 28,000 24,000 20,000 16,000 12,000 8,000 4,000 0 1995 1996 1997 1998 1999 2000 2001 2002 Sales Income before tax * SEK M 2,100 1,800 1,500 1,200 900 600 300 0 % 40 32 24 16 8 0 1995 1996 1997 1998 1999 2000 2001 2002 Capital employed Return on capital employed* Return on capital employed before goodwill amortization* SEK M 30,000 24,000 18,000 12,000 6,000 0 SEK M 3,500 2,800 2,100 1,400 700 0 1995 1996 1997 1998 1999 2000 2001 2002 Income before tax* Operating cash flow SEK 6 5 4 3 2 1 0 1995 1996 1997 1998 1999 2000 2001 2002 Earnings per share* Earnings per share excl. goodwill* ASSA ABLOY / 2002 9 The ASSA ABLOY share: assa abloy ab has been listed on the Stockholm Stock Exchange since 8 November 1994. In October 1995, the share was moved to the a list. The price of the assa abloy share fell by 34.1 percent in 2002. During the same period, the Stockholm Exchange All- Share (sax) fell by 37.4 percent. The closing price at year-end was sek 99.50, corresponding to a market capitaliza- tion of sek 36,409 m. Including all shares due for conversion, the market capitalization is calculated to be sek 36,908 m. The number of shareholders at year-end was approximately 21,450. Investors outside Sweden, including Wärtsilä Corporation, account for 57 percent of the capital. During the year a total of 355 million shares were traded, which is an average of 1,418,386 shares per trading day and represents about 101 percent of the listed shares. Share capital assa abloy’s share capital at year-end amounted to sek 365,918,034, distri- buted among 19,175,323 Series a shares and 346,742,711 Series b shares. All shares have a par value of sek 1.00 and provide the holders with equal rights to the Company’s assets and earnings. Each Series a share car- ries 10 votes and each Series b share one vote. During 2002 the registered share capital of the company has in- creased by a new share issue of 10,000,000 new Series b shares. Convertible debentures for personnel The assa abloy Group has issued con- vertible debentures to employees in the Group. About 400 employees parti- cipated in the first issue in 1995. The debenture amounted to sek 75,004,375 and ran from 29 June 1995 to 30 June 2000. The second debenture was issued in 1997. A total of 1,400 employees participated in this issue. This deben- ture amounted to sek 250,000,000 and ran from 8 December 1997 to 2 December 2002. Conversion to Series b shares was exercised from 1 December 2000 to 15 November 2002. After conversion at a conversion price of sek 58.70, an additional ASSA ABLOY AB’s share trend Share price, SEK B share General index, AFGX Shares traded 1000s/month (incl. off-floor trading) 200 175 150 125 100 75 50 25 4 94 / 95 10 ASSA ABLOY / 2002 60,000 40,000 20,000 96 97 98 99 00 01 02 © SIX 3,464,799 shares were created. In 2002, applications for conversion of debt instruments with a par value of sek 127.2 m were submitted. In 2001 a new program, incentive 2001, was launched, based on four series of convertible bonds each total- ing eur 25 m. The only difference between the series of bonds is the conversion price. The program was offered to employees in 16 countries, and 4,500 employees decided to parti- cipate. On full conversion, at a con- version price for Bond 1 of eur 15.8, Bond 2 of eur 19, Bond 3 of eur 22.1 and Bond 4 of eur 25.3, an additional 5,017,432 shares would be created. The convertible bonds can only be converted from October 2006. Dividend and dividend policy The Board of Directors and President propose that sek 1.25 per share be paid as a dividend to shareholders for the 2002 financial year, corresponding to a direct return of 1.3 percent on the Series b share price of sek 99.50 on 30 December 2002. The aim is that, in the long term, the dividend should correspond to approximately one- third of assa abloy’s average earnings after standard tax (28 percent), but always taking into account assa abloy’s long-term financial requirements. Data per share 1) 2000 2002 1999 2001 1998 1997 1996 1995 SEK/share Earnings after tax and 2.006) 1.76 2.98 5) 2.73 3.53 full conversion 0.60 0.74 0.90 1.252) 1.00 Dividend 0.8 0.6 0.7 Direct yield, % 3) 0.5 1.3 1.79 2.27 3.285) 2.91 Earnings after 28% standard tax 3.88 33.5 32.6 30.9 30.5 32.2 Dividend, % 7) 75.65 119.50 184.50 151.00 99.50 Share price at end of period 92.73 140.00 206.70 186.00 159.50 Highest share price 48.07 73.21 110.50 94.50 76.50 Lowest share price Shareholders’ equity 30.586) 16.956) 9.93 35.80 35.85 Number of shares (1,000s) 4) 370,935 361,730 356,712 0.56 0.22 1.6 0.60 36.7 13.24 15.16 5.23 4.37 324,200 295,448 295,448 265,396 221,684 0.93 0.30 1.0 0.95 31.6 29.28 28.97 12.38 5.40 1.23 0.43 0.8 1.36 31.6 51.24 52.95 28.69 8.64 1) Adjusted for new issues. 2) Proposed dividend. 3) Dividend as percentage of the share price at the end of the period. 4) After full conversion. 5) Exclusive non-recurring items 6) Key data has been adjusted due to change in accounting principle. 7) Dividend as percentage of earnings per share after 28% standard tax. Share capital ASSA ABLOY’s share capital at 31 December 2002 amounted to SEK 365,918,034 distributed among 19,175,323 Series A shares and 346,742,711 Series B shares. All shares have a par value of SEK 1.00 and provide the holders with equal rights to the Company's assets and earnings. Each Series A share carries ten votes and each Series B share one vote Share capital B shares C shares 20,000 1,428,550 1,714,260 A shares Transaction Year 1989 1994 100:1 split 1994 Bonus issue 1,746,005 1994 Non-cash issue 1996 New share issue 2,095,206 1996 Conversion of C shares into A shares 3,809,466 4,190,412 1997 New share issue 4,190,412 1998 Converted debentures 1999 Converted debentures before split 4,190,412 1999 Bonus issue 1999 4:1 split 1999 New share issue 1999 Converted debentures 16,761,648 18,437,812 after split and new issues 2000 Converted debentures 2000 New share issue 2000 Non-cash issue 2001 Converted debentures 2002 New share issue 2002 Converted debentures 18,437,812 18,437,812 19,175,323 19,175,323 19,175,323 19,175,323 19,175,323 Number of shares after full conversion 19,175,323 *SEK 2,000,000 2,000,000 53,592,110 64,310,532 64,310,532 70,732,118 71,075,983 71,369,974 2,000,000 50,417,555 60,501,066 60,501,066 66,541,706 66,885,571 67,179,562 268,718,248 295,564,487 285,479,896 314,002,299 295,970,830 301,598,383 313,512,880 333,277,912 334,576,089 344,576,089 346,742,711 351,760,143 314,408,642 320,036,195 332,688,203 352,453,235 353,751,412 363,751,412 365,918,034 370,935,466 * SEK 1 per share – balanced number of shares Ownership structure (listed by voting rights) Data is based on the share register at 31 December 2002 A shares 10,546,425 7,118,818 1,510,080 Owner Wärtsilä Corporation SäkI Janus Capital Corp. * Melker Schörling and companies Investment AB Latour Deutsche Bank Fidelity Investments * Robur unit trusts Alecta Nordea unit trusts Other shareholders with more than 50,000 shares Shareholders with 501-50,000 shares Shareholders with up to 500 shares Total number 19,175,323 B shares 17,270,350 954,200 26,389,980 10,496,636 21,793,021 19,637,744 16,095,557 12,726,293 12,596,536 10,110,120 175,934,859 20,240,700 2,496,715 346,742,711 Capital % Voting rights % 22.8% 13.4% 4.9% 4.8% 4.0% 3.6% 3.0% 2.4% 2.3% 1.9% 32.7% 3.8% 0.5% 100.0% 7.6% 2.2% 7.2% 3.3% 6.0% 5.4% 4.4% 3.5% 3.4% 2.8% 48.1% 5.5% 0.7% 100.0% * Based on the owner's details Source: SIS Ägarservice AB and VPC AB ASSA ABLOY / 2002 1 1 ASSA ABLOY and the lock industry: Steady growth of a fragmented market The assa abloy Group originated in the Nordic region in 1994, as the spin- off of Assa ab from the Swedish securi- ty company Securitas and the acquisi- tion shortly thereafter of the Finnish lock company Abloy. Since then the Group has expanded by a combination of acquisitions and organic growth. Growing faster than GDP Viewed over a business cycle, the industry is steadily growing 2-3 percent a year faster than general gdp growth. This continuing expansion is due to increasing wealth in the developing world and to an increasing sense of vulnerability in the world. The global lock market remains fragmented. In western Europe and North America, a number of compa- nies are still family-owned, with strong and well-established relationships with their local distribution networks and leading positions in their own home markets. In other parts of the world established lock standards and strong brands are less common. However, in some markets a regional consolidation can be seen. The major players assa abloy is the global market leader, with annual sales approaching eur 3 billion. The second largest is Ingersoll Rand, followed by Kaba, Black & Decker, Stanley and Dorma, with more of a regional strength. Other players have grown too, some on the inter- national market through export sales or by establishing operations away from home. The size of the global market There is no established method to esti- mate the size of the global lock market accurately. Few countries produce well- 12 ASSA ABLOY / 2002 defined statistics for the industry. The information also depends on exactly what product areas are inclu- ded. At assa abloy estimates are based on the Group’s own product range. Door automatics are therefore included as well as doors for the professional end-user market in the usa. Another uncertainty is at what level in the distribution chain the sales should be measured. Today most lock sales are made through distributors, but most of the quoted figures repre- sent lock manufacturers’ sales. This means the total end-user market for products, i.e. excluding installation costs, will be 50-100 percent higher. Based on manufacturers’ sales, our best estimate for the world lock market today is around eur 25 billion. This gives the assa abloy Group a world market share of 10-12 percent. Advanced technologies grow In the past year, the sales of advanced security technologies and notably elec- tronic lock cylinders have started to take off. assa abloy alone delivered more electronic cylinders in Scandina- via and Germany in 2002 than during the whole fifteen years since the prod- uct category was introduced. Other technologies continue to spur market development. hid’s new iCLASS card, which can incorporate biometrics for additional identification security, has aroused much interest. Market imbalances In the industrialized world there are still major imbalances between markets. The usa spends at least twice as much as Europe on emergency exit devices. Conversely, Scandinavia, Finland, Germany and Switzerland spend 3–4 the usa times as much as either southern Europe or on high-security locks. Similarly automatic doors have 3–4 times the penetration in the Netherlands as elsewhere. Switzerland, Sweden and Today, there are no reasons for these differences to remain. Instead, there is a challenging business opportu- nity to level these imbalances through education of the market. Security initiatives after 11 September 2001 Following 11 September 2001, long- running us initiatives to develop new security Standards and to reconsider security arrangements were significant- ly accelerated, especially at government institutions like the Department of Defense. Interest in high-security locks, biometry and smart cards has increased considerably and has triggered activity in the many assa abloy companies well-established in these fields. In many European countries the new European Standards have now come into force and have started to influence national requirements and thereby also the products. This has had a major influence on the use and sales of exit devices such as panic bars, which traditionally have had a much larger penetration in the usa than in Europe. Strategy and financial objectives: A strategy in three steps assa abloy is today the world-leading company in the area of locking solu- tions. To maintain and further develop this position, the Group is following a three-step strategy implemented by firm management principles. The three steps of the strategy are: • Build a worldwide presence and suc- cessively add new areas of expertise • Leverage synergies and thus develop Group strengths • Expand through the market increased focus on creating value for customers These three steps should not be viewed as discrete levels on top of each other, but as overlapping phases in a continu- ous process of development. Building a presence Acquisitions have been the basic instru- ment for growing the Group since its formation in 1994. Over this period, assa abloy has grown from a regional company with 4,700 employees and sales of sek 3 billion to a global group of companies with 30,000 employees and sales of sek 25 billion. With the acquisition of Yale in 2000, the Group reached its position as the world’s leading lock group. Initially, the acquisitions were mainly aimed at building geographical presence. Today ASSA ABLOY is well established in most major regions of the world, which include both mature and developing markets. This has given the Group access to an unparalleled installed base with massive recurrent business. It is estimated that there are more then one billion locks with the different ASSA ABLOY brand names on them. The continuous need to renew Our step-by-step Group development strategy 3. Value Customer value - upgrading of security - complete offering - partner concepts 2. Leverage Leverage Group synergies - corporate identity - world-leading technology - joint R&D, platforms, components 1. Presence Global platform - geographic / areas of expertise - installed base producing recurring revenue - operational excellence these locks creates the recurring stream of cash flow. Going forward, acquisitions will focus on further strengthening the Group’s presence in certain geographi- cal areas and on adding expertise in new areas of technology. Regarding the areas of expertise, the expansion will be centered round the operational door environment. In other words, the main area will be the locking, opening and closing of doors and the identification and authorization of users. Besam, the world-leading manufac- turer of door automatics, is a good example of such a complementary acquisition. So is HID, which has brought leading-edge know-how about remote identification into the Group and is now showing excellent performance. After acquisition, every new com- pany is integrated into the Group through a well-defined process, and the assa abloy management principles are introduced. These are based on belief in a multi-domestic presence, where the skill and know-how of the local com- panies are matched with the resources of the global Group. Here, best prac- tice is shared between companies, and benchmarking is employed at all levels. Every month the most important key ratios are collected, sorted from best to worst and sent back to all units. This transparency has been a great tool to encourage a dynamic improvement process amongst all units. Operational excellence is created through frequent management meetings, close coopera- tion and a learn-by-doing attitude. Leveraging Group synergies At the next level, continuous develop- ment of the interaction between the Group companies creates leverage for the entire organization. The first requirement is to build a common corporate culture that encom- passes all companies in all countries, that is shared by all employees and managers, and that is recognized and understood by customers and partners. This internal culture building is well underway with the help of ambitious edu- cational and communications programs. Participating in the Volvo Ocean ASSA ABLOY / 2002 1 3 Strategy and financial objectives: Race proved to be a successful tool in this process. It produced an enormous response, both internally and among partners. The Group-wide intranet launched during 2002, the internal magazine issued six times a year in twelve languages and the Internet web- site redesigned in 2002 played central roles in maximizing the results achieved. The yearly management training program is another important facilita- tor in the creation of common values. The unique portfolio of the Group’s 80+ brands also holds great potential. In order to further develop this asset, a common brand strategy has been devel- oped to ensure optimal coordination and is being implemented in all Group companies. Here the assa abloy brand is used as an endorsement to all the other brands. The way to successful leadership in the marketplace starts with under- standing what the customer really needs. By developing the market and attracting valuable partners, the market grows – and the satisfaction of the customers increases. 14 ASSA ABLOY / 2002 through cross-selling of products between companies operating on differ- ent markets. Identifying customer needs through an innovative and simplified market segmentation model will be another approach. This allows value offerings to be customized and packaged for different customer groups. The forma- tion of assa abloy Hospitality is an example, where four different brands have been brought together to make a common offer to the international hos- pitality industry. Financial objectives The strategy described is designed to continue the achievement of a satisfac- tory earnings trend, with the aims of increasing return on capital and cash flow generation. assa abloy’s financial goal is to achieve a return on capital employed of more then 20 percent. The goal has been the same since the inception of the Group in 1994. With increased amounts of goodwill, this goal has become harder to reach and the figure has been diluted by the acquisitions made. The return in 2002 was 9.9 percent. The goal will be realized through increased organic growth and margin improvements while maintaining the same absolute levels of working capital and fixed assets. Excluding the effects of any future acquisitions, the current struc- ture of the business should be able to meet the goal in a five-year perspective. In order to leverage on size, coordina- tion of Research & Development has become even more important. This is especially evident in the areas of electromechanics. electronics and Development of joint product plat- forms employing common components enables shared production and Group- coordinated sourcing of these compo- nents. Increasing customer value then allow At the third level, the ambition is to focus on the customers and create higher customer value. This will make room for sustainable organic growth and improved operational margins, which will the creation of increased shareholder value over time. A basic insight is that today, on developed markets, a lock is changed only every twentieth year or even less often. There are also substantial differ- ences in security levels between coun- tries. With its installed base of locks and the brand names it has acquired, assa abloy has the foundation on which continuing growth can be built. By offering added security, safety and convenience to the customers that constitute the installed base today, the ability to achieve growth should be substantial when the pace at which locks are changed increases and the dis- crepancies between countries can be evened out. But that will call for a change, not only of the customers’ actions but also of their fundamental attitudes. To work towards such a change, the assa abloy Group compa- nies will build a much closer dialog with customers of all sorts over the coming years. Since in many countries the product portfolio is not complete, there is also still a large potential to be achieved Management philosophy: Management for growth Management philosophy The management of all assa abloy Group companies is based on a com- mon view of the lock industry: that the need for higher security will continue to grow everywhere in the world, though on different levels. So will the demand for convenient locking solutions. By providing efficient locking solu- tions, assa abloy can help to make the world safer and more secure, creating more freedom in people’s lives. The development of new products is carried out in close cooperation with insurance companies, police, fire officials, end- user organizations and other important decision-making bodies. Group compa- nies engage actively in information and training initiatives that target retailers, architects and security officers as well as end-users, giving them facts about the latest products and security solu- tions. This creates an important pulling effect for the distributors involved as well as overall market growth. Management structure The assa abloy Group has a truly multi-domestic management. Since there are many differences between locks in different countries, assa abloy’s success is based on the close relationships individual Group compa- nies enjoy with their customers at regional and local level. Their under- standing of local needs, business arrangements and distribution require- ments, and their responsiveness to these, remain paramount to success in the lock industry. For this reason the Group continues to run a decentralized full business organization giving responsibility to Country Managers. Major Country Managers are members of Group Management, which meets regularly. Group Vice Presidents have regional responsibility for a num- ber of countries and ensure that Group methods are applied consistently. assa abloy Hospitality, the Identifi- cation Technology Group, and Besam, supplying automatic doors, are organ- ized separately from the Group’s national lock companies in order to respond more effectively to the oppor- tunities of these specialized international markets. is used. To help develop and maintain a consistent management practicet hrough the entire Group, a set of basic management models In management meetings at all levels, in the annually ongoing management training programs and in many other forums, these models are used to explain and implement the operations of the Group. Andrea Guanci, recently appointed Marketing Manager of Yale Security Group, Italy after working in the Customer Service Department since 1999, attended the ASSA ABLOY South Europe Management Training Program in 2002. “I’m proud to say I learned a lot,” he reports. “We visited other Group companies, learned about their products, processes and distribution channels, and discussed everything with colleagues from throughout the Region. I came away appreciating the benefits of bench- marking – always seeking the best without judging others – and the opportunities open to every single company through cross-selling and cross-buying products. And now I have friends, not just colleagues, all over South Europe.” At ASSA ABLOY, we believe that people make the difference. Our management philosophy is based on trust, positive thinking and respect for local conditions and values. ASSA ABLOY / 2002 1 5 Increasing customer focus: Different needs require different solutions Interest in better locking solutions is gradually increasing, not only in devel- oped markets but also in the new, emerging markets. How this is happen- ing, and what the driving forces are, varies greatly, but the underlying trend towards higher security is evident everywhere. The needs of different application areas also vary greatly. Airports have totally different needs from private apartments; shopping malls from schools; factories from hospitals or hotels. These are just some of the mar- kets that the assa abloy Group com- panies have to satisfy. With their global presence and unparalleled installed base, the Group companies have had unique opportuni- ties over the years to meet these needs, and have come to understand their customers well. Nevertheless, large efforts are currently being directed to focusing even more precisely on the needs of the different customer groups. Customers need more than good security Every type of application has its own balance between the three demands of security, convenience and safety. Increasing the level of security can easily lead to loss of convenience. When one more lock is added to a door, convenience tends to be reduced. The challenge for the lock industry is to meet the demand for higher security without losing focus on the user. Inconvenient security solutions may actually worsen security. Safety requirements also often con- flict with higher security. People inside a building must be able to get out quickly in case of emergency. An unlocked door is clearly not secure, but a securely locked door may well be 16 ASSA ABLOY / 2002 unsafe. Balancing security with safety as well as convenience is a second lock important challenge for the industry. Intelligent electronic solutions are often necessary. Airport security Airports have complex security needs, ranging from fairly simple locking to advanced high-security solutions. This need is in focus more than ever after 11 September 2001. Most airports have shops, restaurants, cafés, offices, se- cured luggage areas, sometimes hotels. The site is divided into multiple securi- ty zones. There are often thousands of staff with different access authority, but also public areas with access for everyone. With so many people in one place, one of the most important considera- tions is safety in the event that a termi- nal building or the whole airport needs to be evacuated. On 19 May 2002 the HDB HUB – the Singapore Housing & Development Board’s 40-storey twin-tower building – was formally opened. On the ground floor is an integrated bus and rail station where 19 bus lines and two rapid-transit rail lines carrying almost 60,000 travelers a day converge. In the terminal, Besam has installed 60 sliding doors with the GGS-I door package, and four swing doors. When a bus parks at one of the 38 bus platforms, a signal is sent to the doors of that platform, which open to let the passengers come and go. When the bus drives off, the doors are automatically closed and locked. The installation will be the pattern for future integrated transport solutions in Sing- apore. In an airport, all the products ever pro- duced by the lock industry – mechani- cal locks, electrical locks, and the most advanced access-control systems – can be found. So can thousands of people carrying different keys, codes, and access cards forming part of contactless Increasing customer focus: identification systems. In these com- plex applications, the solutions often call for joint efforts from different sorts of providers. assa abloy has a unique ability to source the best products from within the Group. Industry, commerce and the public sector Every type of organization has areas that require high standards of protec- tion, and different needs for access con- trol or fast evacuation. Factories: For a manufacturing company, protecting its production processes and customer relationships are central issues. Prevention is much more important than insurance. Locks must meet approved Standards and be secure enough to protect the business. Access control to regulate entrance, and safety precautions to allow escape, are elements of a modern industrial security solution. Offices: An office handles a varie- ty of sensitive information, and flaws in security may cost more than the whole security system many times over. Approved locking and controlled access are essential. Rapid escape in cases of emergency is an equally impor- tant consideration. A growing trend is to handle physical security and infor- mation security from a common per- spective. Government organizations: Many public institutions and organizations hold a lot of restricted information but also have high numbers of visitors. Physical access, and access to informa- tion, must be granted to authorized people while safeguarding the integrity of all the stored information. Colleges and universities: These are complex communities with open as well as closed areas and heavy Israel Electric Corporation has 500,000 Mul-T-Lock cylinders and locks installed at its sites around Israel. “Mul-T-Lock is the first choice for all our security needs as they offer flexibility and fast, tailor-made securi- ty solutions,” says Asher Cohen, VP Purchasing. “The locks meet strict safety stan- dards, which are crucial since most products are installed on electric cabinets and high-voltage equipment, which can be very dangerous unless properly protected.” pedestrian traffic around the site. Who is allowed where? Everyone, and most of all the students, must be properly protected. The conditions – and the solutions – are quite similar to those in hotels. Hospitals are another application area with a challenging blend of high- security areas and areas open to the public. Powerful medicines, personal belongings, sensitive equipment, medi- cal records, and – not least – the safety of patients must all be considered. In homes for the elderly, where many of the residents may have restricted mobi- lity, automatic doors can solve many problems. Shops must seem welcoming, but shoplifting and pilfering by staff are major problems. The balance of security, safety and access control to protect staff and customers while controlling the flow of goods must be carefully considered. Utilities providing water, gas, tele- phone and other services have thousands of sites, with many legitimate visitors from different organizations. There are often too many keys in circulation, making key control almost impossible. But protection is essential to avoid acci- dental injury or damage or intentional sabotage. Modern electronic key solu- tions and access control are the tools needed for control and security. Residential market The residential lock market is a passive market in most countries. Locks are chosen, delivered and installed as part of a building. Where there is a local security Standard, builders usually try to comply with the Standard at mini- mal cost. The lock user – the house- holder – is never asked about security and probably never thinks about it until an intrusion occurs. Traditional distribution channels show little interest in changing this system, but some lock manufacturers are succeeding in raising consumer inter- est by moving closer to the end-user. Householders’ perceived needs for in- ASSA ABLOY / 2002 1 7 Increasing customer focus: creased security, and their greater interest in convenience and design, present the industry with new opportunities. Market research Over the years, little market research has been done in the lock industry. There has been some dialog with distri- butors, but few efforts directed at customers. assa abloy has been increas- ing its activities in this area, starting with the development of the cliq tech- nology a few years ago. Professional end-users in many countries, mainly in Europe, were asked what their main problems were, especially with lock cylinders and masterkey systems. The resulting cliq products have been well received in the market. To further understand the residen- tial market, focus-group studies were carried out during 2001 and 2002 among consumers in a number of coun- tries. A major Problem Detection Study was also carried out to quantify custo- mer preferences for future product and market development. Interest in locks proved greater than expected, showing that a huge potential exists. Global customers Customers with similar businesses throughout the world offer a new chal- lenge to the lock industry. At present the hospitality market is the only true, established global lock market. The main benefit of electronic locks for the hotels is to get full key control, avoiding risks from lost or copied keys. The latest ranges of elec- tronic hotel locks make it possible to give each new guest an individual key code. They can also provide an audit trail of authorized entries into hotel rooms by, for example, cleaning, main- tenance and supervisory staff. 18 ASSA ABLOY / 2002 However, other businesses are moving towards a global market. They include chains of shops with a worldwide organization and telecom companies with thousands of sites. The develop- ment is driven by at least two factors. International companies demand consis- tent security solutions throughout their organizations, and even more compa- nies recognize the growing importance of security in their businesses. The opportunities and advantages are obvious for the assa abloy Group, which can offer similar or equivalent solutions anywhere in the world based on common technical platforms. An important observation in this context is that security needs, and hence the best security solutions, differ far more wide- ly between market segments than they do between countries. This provides the opportunity for transfer of concepts and technologies between countries. The ability to provide a complete package within a security concept is there- fore an increasingly valuable asset for assa abloy. It also provides an im- portant platform for future concepts, technologies and product developments. An armored door with a high-security lock from Fichet secures the home of Claude Steinmetz in Antony, France. “It is important that I can leave my home with no fear of break-in. I prefer physical protection to an electronic solution that would only tell me when a burglar is already in the flat. Physical protection actually prevents break-ins and brings me peace of mind.” Methods of access control generally are becoming increasingly international, but outside the hospitality segment the mar- ket is still very dependent on local mechanical Standards and practice. Customer value drives growth: “Security means peace of mind” Throughout the world, demands for new levels of security and safety are emerging. In residential areas, popula- tion densities go on rising. Cities con- tinue to grow as new housing estates are built. As people acquire more valu- able possessions, they install more and better locks for peace of mind concern- ing both the security of their belong- ings and their own safety. In commerce and industry too, companies find that they have more to protect: both valuable equipment and, increasingly, critical commercial and technical information. The security of these assets is becoming increasingly vital. At the same time, staff and legiti- mate visitors must be able to gain access to commercial and industrial premises with ease and be able to leave fast and safely in case of emergency. These trends are seen alike in devel- oped countries, in eastern Europe and in the emerging markets of Asia, Africa and Latin America. The time can be foreseen when all the world’s six billion inhabitants will be daily users of seve- ral locks – at home, at work and elsew- here. The growing need for increased security gives assa abloy many oppor- tunities to discuss security and different kinds of locking solutions or upgrades with all kinds of customers. Fastest growth in emerging markets The Group is currently seeing the fastest growth in Asia, South Africa, South America and eastern Europe. Historically these areas have been small markets for locks, served mainly by local manufacturers supplying tradi- tional designs. For the occasional higher-security applications, imports have often been preferred. “Security means peace of mind – making my home safe and secure for my young family,” says Joanne Knight of Auckland, New Zealand. Exceed Window Maintenance – a subsidiary of Interlock – specializes in fitting window and door security products. “Exceed gave me expert recommen- dations, a professional installation service and quality products,” Joanne says. “And this without compromising the esthetics or ventilation needs of my home. The front door and low- level windows were particularly vulner- able. Everything was installed in one morning and there was still time to explain its operation and make sure I felt comfortable with the security level my family now has.” Now high-rise buildings are growing in number, often designed by foreign architects from Europe and the usa who specify locks according to western Standards. This presents an opportunity to assa abloy, whose portfolio contains all such lock options. An alternative approach lies in transferring the necessary know-how to local companies who in turn supply the local needs. Both lines are currently followed by assa abloy. Equalizing technology levels The relative use of security and safety equipment still varies greatly between countries. For example, the usa spends at least twice as much as Europe on safety, while for security equipment the opposite is true. On the hypothesis that the use of both could be equally high in Europe and the usa, even a rough esti- mate shows that the value of the total market would at least double. The assa abloy Group thus has a major business opportunity in equali- zing these imbalances in the use of security and safety equipment. Being active on all major markets, the Group has the required technologies available ASSA ABLOY / 2002 1 9 Customer value drives growth: and can always find suitable solutions to develop the markets and meet custo- mers’ needs. is The Group already devotes great efforts to developing cross-selling bet- ween its companies. The value of such sales increasing year by year. Companies round the world are also collaborating on Research & Develop- ment, which reduces their individual costs and enables the next generation of products to be based on global tech- nologies, with local adaptations as necessary. Stimulating residential interest A recent market study in the uk, Germany, France and Sweden showed that 18 percent of householders want to buy a new lock. But, each year, only 3 percent actually do. More than 50 percent of house purchasers would choose an electric front-door lock if given the option. Despite the wide availability of greatly improved locks with better functions, people’s perception is that there are Gothenburg’s Liseberg amusement park is the largest in Scandinavia. When Security Manager Åke Larsson first saw Assa’s Twin IQ lock cylinders he was struck by the functions that the CLIQ technology offered: its flexi- bility in allowing cylinders to be moved between doors without wiring connections, its ability to block lost keys, and its logging of everyone who passes. In a first phase, the locks have been installed in areas concer- ned with cash-handling, perimeter security and IT. “It’s far easier now that we need just one key for all doors instead of carrying a great bunch around,” says Shadia Akef of the cashier’s department. 20 ASSA ABLOY / 2002 Customer value drives growth: Future technologies Means of identification for access control are rapidly becoming more sophisticated. Conventional ‘contact’ cards suitable for cash machines or retail purchases are not reliable when used many times daily for access. Contactless cards using radio-frequency proximity technology are therefore now widely used. They are also being further developed into smart cards, which can carry vastly more data and can receive, record and transmit infor- mation. One example is hid’s new iCLASS cards and readers, which are proving popular and could become a future standard. Biometry can add a further level of security to a smart card by ensuring the authenticity of the cardholder. The card carries digitized details of the holder’s fingerprint, say, and both card and finger must be checked by readers, recognized and matched before access is granted. Such technologies will soon break through since cost is falling and reliability is rising. ASSA ABLOY / 2002 2 1 few new types of residential locks available. Especially when they com- pare them with the locking solutions they meet in modern cars and hotels. assa abloy therefore has great potential on the residential market. And while most needs will continue to be routed through traditional lock companies and distribution channels, some enterprising Group companies have been highly successful with new ventures. In New Zealand, for example, Exceed Window Maintenance, a sub- sidiary of Interlock, focuses specifically on locking solutions for windows and doors through a franchising network. In France and five neighboring countries, Fichet has set up a chain of nearly 400 franchised ‘Point Fort Fichet’ stores selling customized securi- ty doors, with locks, for apartments. In the usa, Emtek has grown its business in just a few years from next- to-nothing to sales of usd 50 m a year by offering an extensive range of indi- vidual, stylish, high-quality door hand- les, escutcheons and locks in a country known for its low-cost door furniture. Even the padlock, traditionally sold purely on price, size and appearance, has been transformed by Lockwood in Australia. The company devised a rating system covering strength, corro- sion resistance and intended applica- tion which has dramatically boosted sales. This is also being adopted in the uk, Poland and Hungary. Electromechanics and electronics Where new technologies are offered they make impressive progress. In Germany, for example, most doors, even for private homes, are either equipped with or prepared for an elec- tric strike. This gives buyers the option of adding remote opening, a door phone or video monitoring. The use of electromechanical locks continues to increase. assa abloy has leading positions in magnetic locks (through Securitron), motor and sole- noid locks (Abloy, Assa, Lockwood) and electric strikes (effeff, hes, Trimec). Electronic cylinders too are here to stay. They are simpler to install and much cheaper to buy and own than full access-control systems; thus more doors can be given an enhanced perfor- mance. They are easy to combine with mechanical cylinders, and by providing additional functionality such as fast programming of new or replacement keys and an audit trail, can create sophisticated security systems. assa abloy’s cliq concept has been well- received and will be progressively launched in several markets. The growth of access control In 2002 assa abloy alone produced around 700,000 access-control readers for use with electric locks. Modern access-control systems provide a cost-effective method of con- trolling the flow of people through perimeter doors and important interior doors. The objectives are to allow auth- orized entry, to prevent unauthorized entry and to safeguard the company’s property. Staff normally identify and admit themselves with id cards read by automatic readers at the doors. At the same time, many doors nor- mally kept securely locked must open readily in case of emergency so that people can escape fast. Electrically con- trolled panic exit devices can be set to operate in different modes at different times of day. Environmental management: Concern for the environment pays off Lock manufacturing and marketing is not the most hazardous business from an environmental point of view. Nonetheless environmental issues are becoming increasingly important, and there remains significant room for improvement. Some years ago the assa abloy Group Management instituted an envi- ronmental strategy based on the iso 14001 Standard. The Group companies devote considerable effort to identifying and realizing environmental improve- ments, and the majority already work in accordance with the strategy. The Nordic companies, led by Abloy and Assa, are some of the most advanced. Both are among the increas- ing number of companies with an iso 14001 certificate. Their efforts to pro- tect the environment include dealing with most of the possible hazards or environmental loads from the work- shop, for example by energy conserva- tion and waste water treatment. Initiatives also cover packaging, deli- very, recycling of used products, and supporting the distributors in their environmental efforts. Driven by ethics – and self-interest Ethics, one of the four cornerstones of assa abloy’s management philosophy, is also one of the most important drivers of the Group’s environmental work. There are several other drivers, including economy and customers’ expectations. Over the years assa abloy has found that environmental work often has a direct positive impact on the bottom line. Avoiding waste and recycling materials often results in lower costs, additional income and/or increased efficiency. In general the companies’ own ambitions are consid- 22 ASSA ABLOY / 2002 erably higher than the legal require- ments. Identifying opportunities The basis for all the Group’s environ- mental work is measurement – of energy used, losses of materials and chemicals, water usage, and waste water disposed of. Tracking these parameters enables major opportunities for improvement to be identified, and annual programs and budgets to be set up to accomplish the improvements. Many assa abloy factories have already done this for some years, but some of the new companies in the Group have just started. Room for improvement What can be done to further improve environmental compliance in an already relatively clean industry like the lock industry? Water is used for cleaning and cooling in many manufacturing pro- cesses. Contaminated water can be purified and recycled, saving both costs and load on the environment. Similarly, the various coolants used in the metalworking machines can be cleaned and recycled with modern technology. Energy is used to heat plants, and also for the machines and processes. Many savings can be found, for example by using heat-exchangers to conserve thermal energy. In metalworking also, a lot of scrap metal is created during stamping or milling. This waste has a scrap value and can be collected and returned for melting into useful material again. Surface treatments for lock products involve various metal coatings as well as colors with water or other base. There is a consistent movement towards more water-based or powder colors, using less-hazardous chemicals. These processes are also more material-efficient and hence more cost-effective. Choice of packaging materials is another way to make an environmental contribution, by choosing recyclable or even already recycled material for the packaging. The limit here is illustrated by Abloy in Finland, who already reclaim and recycle the whole product when used. The lock factory of Group company Guli Security Products in China is considered to be one of the leaders in environmental protection the country’s metal industry, and its policy includes extensive measurement of environmental factors and regular reviews. It also includes taking good care of the health and safety of the employees. in Environmental concern can also be exercised during the development and design of new products, not only by choosing appropriate manufacturing methods and distribution processes, but also in the choice of materials, coatings and finishes. Environmental management: treatment plant Can the waste water from a lock factory be converted back to pure water? Lockwood Security Products in Australia has proved that it can. In August 2002 Lockwood opened its waste water in Oakleigh. Here waste streams from the electroplating rinse tanks are treated, heavy metals recovered and the water purified for recycling to the electroplating process. The plant was the first step in the Facility Optimization Audit, a cooperative venture between Lockwood and Honeywell. ASSA ABLOY / 2002 2 3 Group integration: Worldwide integration through communication – and sailing How to achieve three to four years’ integration work in just nine months The acquisition of Yale in 2000 made assa abloy clearly the World’s Leading Lock Group. But it also brought 30 new companies and 12,000 employees into the Group. There was an urgent need to integrate these quickly and successfully – to build a com-mon cor- porate culture that would help all the Group’s managers, employees, custo- mers and distibutors to understand the assa abloy corporate strategy and values. The task was primarily one of communication, internally and exter- nally. A series of projects was initiated to accomplish it: • A common branding strategy for the Group’s 80+ brands was developed and is being implemented. • The Volvo Ocean Race was used to build team spirit and communicate core values. • An internal attitude survey confirmed initial need and monitored the progress. Common branding strategy The Group branding strategy is based on the belief that each brand is unique. The assa abloy brand is then used as an endorsement brand, supporting the individual brand with a sense of the Group’s global strength and resources. A Brand Platform for the assa abloy brand was developed in 2001, describ- ing the brand’s vision, mission and values and creating a Corporate Tagline ‘The World’s Leading Lock Group’. This was further developed into a market communication concept with the slogan ‘Unlock Your Life’, based on the idea that locking solutions from assa abloy can not only make 24 ASSA ABLOY / 2002 the world more secure and safe, but also create greater freedom in people’s lives. With close to a hundred brands within the Group, the need to organize the brand portfolio is obvious. The second Brand Platform was for Yale, a major international brand marketed by many Group companies. Subsequently, in a Group-wide project, 85 companies have developed their own Brand Platforms according to the common model. This means that virtually all the Group’s brands now have their personality and their market positioning defined in clear documents that will guide all market communication. A powerful integration vehicle The Volvo Ocean Race proved to be a very powerful vehicle for the integra- tion process. It has helped not only to develop a common corporate culture but to strengthen customer relations and implement the new brand strategy. The Race had an almost perfect geo- graphic match with the assa abloy organization, with stopovers in all major markets. These were used to educate the market, for events with employees, customers and retailers, and for Regional management meetings. But, even more, the Race itself was used to enhance internal communica- tion and build pride in the Group. It helped to give all employees informa- tion about the worldwide assa abloy Group, a sense of its size and scope, and answers that they could pass on to customers and members of the public. Initially developed for the Race, the internal Corporate Communication function is now in full operation. Cornerstones are the new intranet called keyPoint, the internal magazine assa abloy news (now to appear more frequently and in regional editions), the redesigned website www.assaabloy.com, and a corporate network of Commu- nication Managers representing all regions and business areas. Success at many levels From a sporting perspective, the Race was very successful. The team had a tough start, but through continuous improvements, good team spirit and hard work assa abloy finished a very honorable second after 32,250 nautical miles. Its success has set a good example to all 30,000 employees to work hard, never give up, be good team players, and continually strive to do better. From a business perspective, the outcome was possibly even better. The Race gave assa abloy cost-effective media coverage valued in a neutral survey to over usd 60 m. This included 15,200 press-clippings and 996 hours of television airtime, not to mention 3 million Internet visitors. But, more importantly, the project achieved its ambitions of building internal awareness and pride. An internal survey covering 63 companies, 4,000 employees, 17 languages and 1,000 managers showed this very clearly. Group integration: Anna Bernsten, Vice President, of ASSA ABLOY, was responsible for the Volvo Ocean Race project. For her way of shaping, leading and driving the project, The Swedish Project Academy named her as its 2002 Project Leader of the Year. She estimates that the project has successfully accomplished the mammoth task of achieving three to four years’ integration work in only nine months. “It is fascinating to see the energy and inspiration that can be created across international and cultural boundaries by a project like this,” she says. Results from the employee survey: • 97 percent of the Group’s employees followed the progress of the Race. • 88 percent believe that the project has strengthened affinity within the Group. • More than 14,000 employees increased their knowledge of assa abloy’s values and ways of working. • More than 18,000 employees now feel more proud of belonging to the assa abloy Group. ASSA ABLOY / 2002 2 5 Scandinavia: Success centered in residential and project specification sectors For assa abloy’s Scandinavian regional organization the majority of companies have achieved excellent development, and the past year has been strong in Norway and Sweden. Product launches, notably of the cliq electronic lock cylinder technology, have turned out well. Earnings in Denmark have been rather weaker than in the other coun- tries even though its core products, headed by locks and lock cylinders, have shown good development on the home market. diy sales all over Scandinavia have increased. “During the 1990s it was commer- cial construction that showed an up- swing. Now we are seeing a change and it is the residential market that is giving “Safety and security are prime con- cerns for our tenants,” says Roland Håkansson, Administration Manager of Växjöhem, which manages the Hästhagen apartment block. Scandinavia: Consolidated sales by companies in the Scandinavian organization in 2002 amounted to SEK 1,970 M (1,914), representing organic growth of 3 percent. Trends SEK M 2002 2001 2000 1999 1998 Sales Average no. of employees 1,970 1,914 1,889 1,777 1,701 1,556 1,731 1,726 1,651 1,657 Sales by product group Security doors and fittings, 14% Industrial locks, 4% Electromechanical locks and electronic locks, 14% Mechanical locks, lock systems and accessories, 68% 26 ASSA ABLOY / 2002 President responsible us some of the most exciting oppor- tunities,” says Hans Johansson, Group Vice for Scandinavia. “Much of the region’s housing stock is in great need of reno- vation, and there is also a significant housing shortage in many areas. We have high hopes in particular of the major conurbations and some of the smaller university cities. “In many ways 2002 has been a year of development. We have identi- fied many future opportunities for improving our offer to customers. One of our main targets for the year was to get closer to both customers and distri- butors. Cooperation with security centers throughout Scandinavia will continue as the basis of our efforts to develop the market.” A source of inspiration “For us the year’s most memorable event was the Volvo Ocean Race,” Hans Johansson goes on. “The Race was a source of inspiration for many people in the Group, and the stopover in Gothenburg was one of the most successful of all. Over 600,000 people came to it, and nearly 2,500 customers visited the assa abloy tent, where the Scandinavian companies took the opportunity to display their products. We also organized a number of projects taking the Race as their theme with the aim of bringing us a step closer to the customer.” The Gothenburg stopover also pro- vided an ideal venue for the process of formulating the ideas and projects that will form the framework of assa abloy’s development plans for Scandinavia over the next few years. Broader solutions “To achieve the goals we have set, we Scandinavia: Residents of the Hästhagen apartment block in Växjö, southern Sweden, now have better security. Doors of the 232 apartments have been fitted with the strong new Assa Evolution lock-case and the Assa C 10 dual-function lock. This lets each tenant decide when service personnel can have access, without having to hand over their own key. Instead, the tenant leaves the lock in a special service position when removing the key, and the janitor uses a different service key to get in. the crucial features,” Hans Johansson says. “cliq has also initiated a new era in the way that we engage with the market and serve and collaborate with our security partners. “Scandinavian design is world- famous, and we pay as much attention to our products’ appearance as their functional performance. Thus we con- sulted the designer Pelle Wester when designing Assa’s new Epok range of door handles and fix’s new Vinga window handles. “Together with our sister compa- nies throughout Europe, we are playing an active part in the development of the new European (cen) lock Standard. Remembering the state of the housing stock we also have ongoing programs of education for end-users as well as distributors. We sponsor Neighbor- hood Watch schemes and arrange edu- cational activities for housing associa- tions in conjunction with local police.” ASSA ABLOY / 2002 2 7 must focus on broader solutions involving greater variety and greater flexibility,” Hans Johansson believes. “We have already come some way towards simplifying and clarifying our structures. We can also gain a lot of benefit from exploiting Group strength to the full and from working with companies outside the Group, utilizing our local customer relationships with Swedish construction companies. One of the first fruits of this approach was the successful turnkey tender for one of Europe’s largest hospital building projects, currently underway in Malta, which was presented as a joint Scandinavian Package for Export. An increasingly important part of assa abloy’s business in Scandinavia is to sell support services, especially project specification, to traditional lock businesses. Other support services include consultancy, the organization and supervision of installation, and quality control. “Scandinavia is a small market, and we constantly need to seek new ways of creating business,” Hans Johansson says. “We see great opportunities in a more advisory role.” In Norway assa abloy’s compa- nies, led by TrioVing, now perform about 75 percent of all project specifi- cation work. The largest project so far, completed in late 2002, is the new headquarters offices of the telecommu- nications company Telenor at Fornebu near Oslo, which has 7,500 individual workplaces and a total floor area of 137,000 square meters. “Project specification is a good way of making sure that architects prefer our products,” Hans Johansson explains. “By becoming involved early in the planning phase we can influence their choice of lock solutions. We start with the building plans and consider what locks and fittings are necessary to meet the required level of security for differ- ent rooms and areas. We take account of the requirements laid down by, for example, insurance companies and fire authorities. We also pay great attention to visual design. Most significantly of all, we can provide a continuous develop- ment towards a higher level of security and safety by always giving customers a high-security option.” Technology and design The Group’s cliq technology, which adds advanced electronic features to high- security mechanical lock cylinders, was launched in Sweden and Norway in 2001. “The market has given cliq an out- standingly positive reception,” says Hans Johansson. “Demand has exceeded our planned capacity throughout the year.” “The ease with which cliq can be added to existing systems, and the ease with which lost keys can be blocked and new users given secure access, are Finland: Growth in exports continues to offset flat sales at home Once again Finland’s leading lock com- pany has managed to grow its business in key markets in North America, west- ern Europe, Russia, the Far East and Australia, which compensated for con- tinued flat sales at home. Substantial investments in more efficient produc- tion techniques over the past three years also began to have a positive impact on income in 2002. It is ironic that one of the world’s leading developers of advanced electro- mechanical locking technology is based in a country which still takes pride in not always having to lock its doors. Abloy’s headquarters are deep in the forests of eastern Finland where securi- ty seems unnecessary. Expanded Business Unit structure The company has a long history. The industrial manufacture of abloy disk cylinders began in 1918, based on a technology which is still one of the company’s major products, while the subsidiary Björkboda Lås, which manufactures abloy lock cases, cele- brated its 270th anniversary in 2002. Today, the abloy trademark and high- security products are well known throughout the world. Matti Virtaala, Group Vice President responsible for Finland, believes that the company’s success is due largely to its aggressive product development and its clear divi- sion into Business Units. Finland: Sales by companies in the Finnish organization in 2002 amounted to SEK 1,150 M (1,165), representing organic growth of 1 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,150 1,165 1,060 898 811 1,152 1,150 1,123 1,020 970 Sales by product group Security doors and fittings, 16% Industrial locks, 8% Electromechanical locks and electronic locks, 16% Mechanical locks, lock systems and accessories, 60% 28 ASSA ABLOY / 2002 “During the year a new Business Unit, Door Automatics, was established, and towards the end of 2002 the Besam operations in Finland were absorbed into it. This means that we now have seven separate organizations, in effect subsidiary companies, for Abloy’s seven product segments. Within each Unit, the ongoing development of new products is an integral part of our cor- porate culture.” This diversified structure has proved successful – and vital – because abloy products are technically advanced. Understanding one’s own products is essential for understanding the busi- ness. The different Business Units, which now comprise Industrial Locks, Construction Locks, Electromechanical Locks, Door Automatics, Door Closers, Lock Cases and Architectural Hardware, also require different commercial focuses. “Typical customers for Industrial Locks are large manufacturers, e.g. in the telecom business, who buy large quantities on a regular basis under long-term agreements,” Matti Virtaala explains. “On the other hand, typical customers for Construction Locks are locksmiths – usually family-owned businesses with few employees where daily personal contact is required.” While sales in Finland continued flat in 2002, there are signs that the domestic market is beginning to gather strength and should return to growth in 2003. In the meantime, Abloy has continued its campaign, started in 2001, to replace out-of-date locks in residential buildings and offices in Finland by offering customers new, more secure mechanical locking solu- tions. This ambitious retrofit initiative has been successful in replacing falling sales volumes resulting from the con- tinued slump in new construction. In 2003 the launch of the Group’s unique cliq electromechanical lock technology is expected to boost sales in Finland. Exports remain important “Export is essential for Finnish compa- nies wanting to be profitable,” Matti Virtaala goes on. “There are only five million people in Finland, and even though abloy was recently voted the most valued trademark in Finland – ahead of Nokia! – nearly 50 percent of Abloy’s sales are generated through exports, making Abloy one of the most profitable companies in the Group.” In 2002 export sales continued to grow in many parts of the world. In the United States and Canada, which form Abloy’s biggest export market, sales of door closers, cylinders, industrial locks and padlocks grew strongly. Abloy also had excellent growth in Russia, the Netherlands, the Far East and, most notably, Australia. Sales in eastern Europe were slow in 2002 and are likely to remain so through 2003. When Hotel Santa Claus in Rovaniemi, Finland opened its doors to the public in December 2001, it was with a high- level security solution from Abloy and VingCard flexible enough to meet the needs of their very varied groups of customers: private, business and governmental. “The customer shouldn’t need to think about security,” says the Hotel Manager, Jari Simola. “A good securi- ty solution frees you from worry. In fact when it’s working well, you shouldn’t even notice it.” The new abloy protec rotating-disk cylinder lock, which was launched in selected export markets from late 2001 onwards, has been particularly success- ful in Australia, with significant orders from universities, museums, power and water utilities, jails, councils and hospi- tals. Intended primarily for the com- mercial and institutional markets, the cylinder has nearly two billion different key combinations per keyway, making it possible to create extensive master- key systems covering thousands of doors and thousands of keyholders. The patented design is virtually pick- proof and meets stringent international standards for high security. Increased production capacity will allow further launches during 2003, and the abloy protec promises to be a big seller both at home and abroad. Group synergies In general, Abloy has benefited greatly from being a part of the assa abloy Group. The company is a net supplier to the Group overall, and new cross- selling initiatives are constantly being developed across the whole product range and especially in the areas of electromechanical advanced mechanical lock technology. and Abloy is the third-largest manufac- turer of door-closer products in Europe, and some 70 percent of its output is now purchased by sister com- panies in the Group. Two significant new products launched during the year are the dc250 cam-action door closer – which is light to open but can apply a high closing force – and the fd450-454 fire-door closing system, a slimline design which is easy to install and to integrate with fire alarm systems and external smoke detectors. ASSA ABLOY / 2002 2 9 Central Europe: Promising opportunities despite weak market One year after Group companies from Germany, the Netherlands, Switzer- land and Austria formed a new Central European organization, prospects for organic growth and expansion by acquisition look promising despite the general slump in economic growth. Eero Leskinen, Group Vice President for Central Europe, responsible explains how he’s streamlining his operations to compete more effectively in this challenging hardware arena. “The current market situation in central Europe, characterized by slower than expected growth in most sectors, particularly new construction, favors those companies who have streamlined their organizations to reduce costs while maintaining an aggressive sales and marketing posture. We have suc- ceeded in doing both. Costs are still in process of being reduced by as much as eur 10 m by relocating our lock manu- facturing to lower-cost countries, by integrating component production for some of our main product lines in the region, and by slimming our work force by some 15 percent. Thanks to these and other measures we are well positioned to meet current market Central Europe: Sales by companies in the Central Europe organization in 2002 amounted to SEK 1,600 M (1,432). Organic growth for comparable units was -1 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,600 1,432 1,027 575 543 1,692 1,398 1,170 751 747 Sales by product group Mechanical locks, lock systems and accessories, 56% Security doors and fittings, 2% Industrial locks, 5% Electromechanical locks and electronic locks, 37% 30 ASSA ABLOY / 2002 conditions. We see 2003 as a transitio- nal year characterized by stable sales leading to stronger growth in 2004.” On the sales and marketing fronts, a number of important initiatives have been taken to ensure stable growth and better profitability in the challenging economic climate. Eero Leskinen says: “Generally speaking we are moving closer to the customer on a variety of levels. We have created integrated product packages that are specifically tailored to meet the security and safety requirements of our main customer categories. We have created dedicated sales teams for the commercial, resi- dential, oem and door industry market segments to ensure better service and support leading to higher customer satisfaction. We have developed a new distribution concept making better and more effective use of our various lock- smith and dealer partnerships. And we have also committed more resources to r&d to bring new products to the market faster.” The more market-oriented organi- zation and a widening product range generated through more aggressive product development initiatives offer good potential for future growth. It is also felt that there are a number of opportunities for expansion through strategic acquisitions on all markets in the region. The industry’s high degree of fragmentation, with many small to medium-sized family-owned lock companies operating in the region, generates many possibilities for future restructuring and harmonization. assa abloy has the size, scope and financial strength to make the most of this market situation. Central Europe: Higher security demands Germany, the Netherlands, Switzer- land and Austria all continue to show an increased interest in greater securi- ty. This is true for both the commercial and residential segments. This demand for higher security is likely to continue and to grow for the foreseeable future. The system product lines, which in- clude exit door and masterkey systems and electromechanical cylinders, are well placed to meet this demand. These greater security concerns will translate into higher sales value per door due to the rise in demand for electromechanical solutions which offer higher security, greater flexibility, and more conven- ience and peace of mind for customers. This applies to the residential market as well as the upper end of the commercial market. All the assa abloy companies in the region continue to work closely with police and fire authorities, insur- ance companies and their various part- ners throughout the area to agree on and improve specifications which meet changing customer requirements for increased safety and security. Size matters Eero Leskinen says the many benefits of being a part of the assa abloy Group are becoming increasingly apparent. “A growing number of cross- selling opportunities will help to increase our sales within the region and on export markets like the uk. Cross- buying has helped to broaden our product range to include multipoint locks and panic doors, to name two. We have also exploited the advantages of synergy more effectively by integrat- ing production of components for ikon and keso and consolidated our brand- ing strategy for the region as a whole.” Harald Briks, responsible for locking at the Technische Universität in Berlin, searched for a system that could pro- vide a high level of mechanical secu- rity while coping flexibly with lost keys and organizational changes. He found the ideal solution in the VERSO CLIQ lock cylinder from IKON, which com- bines electronic coding with mechani- cal security. “The problem of walk-about keys is solved since it’s easy to log the key out of the system instead of changing the lock. This gives the system a far longer life expectancy than traditional systems.” Market developments In Germany, new construction contin- ues to be weak. The retrofit market, however, is stable and the situation is expected to continue through 2003. Overall market volumes have not increased and are expected to stagnate until the second half of 2004. Deliveries of electromechanical cliq cylinders began in the fall of 2002 and very good sales growth in this high- value segment due to the sophistication of the German market and the demand for high-security locking solutions bodes well for future sales. In 2003, the best chance for sales growth is seen in system products – such as exit door and masterkey systems and electromechanical locks – rather than standard products which include electric strikes, cylinders and hardware. Sales in the residential seg- ment were stable in 2002. These sales are expected to show good growth in the coming year. In the Netherlands the recent take- over of vema, which specializes in electromechanical products, provides a strong base by which to lead this market. The major restructuring program for Lips is complete and has seen a rise in sales and significant improvements in both delivery times and service over- all. Ambouw, which sells locks and building hardware in the Netherlands, mostly made by ikon and other sister companies, has begun to see the results of its new business redesign plan adopted in 2000. It has reduced stocks, dramatically speeded up deliveries and generated a rapid increase in sales to customers. In Switzerland the integration of keso, which produces high-security cylinders, has gone according to plan and resulted in stable sales growth. Steps to further rationalize the business continue. The Swiss operation expects to see good profit growth in this mar- ket in 2003 and 2004. In Austria, assa abloy operations have been integrated into one opera- tion which will become one of the leading lock companies in this market. ASSA ABLOY / 2002 3 1 South Europe: Continuous operational improvements After a promising first half year which showed respectable growth in many product sectors, volume sales for the Group’s South European region de- clined somewhat in the latter part of the year. Bo Dankis, Group Vice President for South responsible Europe, which encompasses France, Spain, Portugal, Italy and Belgium, says growth prospects for 2003, while looking rather more hopeful, remain irregular throughout the region. “We don’t foresee any dramatic improvements in the economies in our region over the next 12 months. The downturn in the French economy, the biggest in our region, shows no imme- diate signs of improving. Despite the business climate, however, the French group succeeded in improving volumes at the same rate as last year. The re- organization of our sales approach towards the large French diy sector has started to bear fruit, and 2002 saw double-digit growth in that sector. “Italy and Spain, which rely on exports to the Middle East and Latin America respectively, are struggling to South Europe: Sales by companies in the South Europe organization in 2002 amounted to SEK 3,723 M (2,905). Organic growth for comparable units was 1 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 3,723 2,905 2,232 1,682 1,559 3,874 3,099 2,744 2,189 2,013 Sales by product group Security doors and fittings, 12% Industrial locks, 3% Electromechanical locks and electronic locks, 4% Mechanical locks, lock systems and accessories, 81% 32 ASSA ABLOY / 2002 maintain last year’s export growth levels. The overall hardware market in Italy slowed in 2002, although sales to professional locksmiths and diy pur- chases increased. “Volumes fell, as a consequence of the increased focus on the domestic markets, for all companies except mab, the door-closer company that we acquired in 2001. In Spain domestic demand remained quite strong. Belgium, which has traditionally depended on sales generated from large eu-financed projects, is also experiencing lower demand than a year ago.” New initiatives “In light of these challenging market con- ditions throughout the region we have initiated measures aimed at reducing costs,” Bo Dankis says. “These include cutting inventories, closing duplicate offi- ces, rationalizing delivery depots in Paris and the south of France and making other personnel reductions. “Some major efforts to improve oper- ations have proved very successful. At Bezault in France, for example, appli- cation of Kaizen methods has achieved productivity increases of up to 30 percent. All companies have continued to reduce inventory while improving delivery time and delivery precision. “Operational excellence and efficient delivery routines are crucial to customer satisfaction. We are now about to launch new-product initiatives in all markets that we believe will generate higher sales in some of our main product segments. These include new multipoint locks, some new cylinders, new hardware, handles, panic exit devices and electronic locks.” Developments in all markets In France jpm is launching its new generation of panic exit device techno- South Europe: Spain’s largest company, Telefonica, is the leading supplier of telecommu- nications to Spain, Portugal and Latin America, with a customer base of over 82 million people. TESA, Spain’s leading lock company, is its chosen provider of access control and egress solutions for its offices. “The challenge was to control the access of staff, maintenance per- sonnel and visitors strictly but also conveniently,” says Miguel Garcia Juncos, Manager responsible for Security Installations. “At the same time fast, safe egress had to be poss- sible.” The solution is based on re- mote opening of the perimeter doors from an interior desk where access permissions are granted. its position as market leader in this upper market segment. Dupéray is also concentrating on developing sales of electromechanical products. The launch of the cliq electronic cylinder will be a major event in 2003. Increasing sales of Abloy’s protec cylinders is another growth objective. Management development “In 2002 our region also increased its investments in specification services for end-users and architects,” Bo Dankis says. “New recruitments and new soft- ware tools have been especially appre- ciated at Dupéray in Belgium, Vachette in France and tesa in Spain. “Most of our companies are now organized into Business Units and Profit Centers. jpm in France is the latest company to undertake a major organizational improvement. The management development programs we initiated some years ago – including our regional Management Training Program – have successfully supplied new managerial talents to the various reorganizations carried out during 2002.” ASSA ABLOY / 2002 3 3 logy targeted toward shopping malls, cinemas and other public spaces, which is likely to be well received throughout the region. Stremler enjoyed good growth from recently launched locks and fittings for glass doors and a new product line for aluminum gates. Late in the year Vachette started to export its latest multipoint locks, based on a technology entirely new to France. Bezault’s new lines of handles won the design prize at the Batimat trade fair in Paris and valuable orders were taken. Apart from its steps to cut costs and to increase organic growth, assa abloy France has completed the acqui- sition of Initial, the French distributor for Abloy of Finland. This acquisition will enhance the Group’s presence in the important electromechanical sector and serve as a platform for the abloy products, including masterkey cylin- ders, in France. In the hospitality sector, the cre- ation during the year of assa abloy Hospitality France will strengthen the Group’s ability to make complete offers including products other than hotel locks. In Spain the most notable develop- ment was the full integration of tesa into the Group. tesa is the clear mar- ket leader on the domestic market and a major supplier of residential locks. The company produces a comprehen- sive range of multipoint security locks, cylinders, electromechanical locks and knob sets. A large part of its sales volume goes to export. Domestic sales of mechanical locks by both azbe and tesa remained steady. Increased efforts are in hand to promote sales of higher-end, more intelligent electromechanical products where there is better potential for long-term growth and higher margins. The Group’s market- leading position and dedicated work by the companies have produced a clear trend towards higher security in Spain, manifested by growing sales of high- security multipoint locks and masterkey systems The Spanish companies are also exploring cross-selling opportunities that promise to have an impact through- out the South Europe region in 2003. In Italy the domestic market started the year slowly, accelerated during the summer but fell back later in the year. Export volumes for the Group’s Italian companies fell as a result of depressed markets. The fragmentation of the Italian lock industry and its high dependence on export continue to exert pressure on prices and allow standards to remain low. However, the refocus on the Italian market with the aim to drive the trend towards higher security will achieve results over time. In Belgium Litto is focusing strong- ly on masterkey systems to consolidate United Kingdom: Flat market focuses concentration on internal development “A priority this year was to look over our product range and expand it with complementary products from other Group companies,” says Geoff Norcott, Group Vice President responsible for the UK. “We have also created a clear set of brand identities and continued to educate the market and develop our own management training. The fairly flat British market has enabled us to concentrate on establishing a strong base for the future.” The uk regional organization was formed after the Yale acquisition in 2000 and now comprises six operating companies with seven individual brands. Geoff Norcott explains how the brands coexist and cover the uk lock market. “Our aim is to make each brand unique to its particular custo- mer sector, so there will be little com- petition between them on the domestic market. “It’s pretty clear actually. Assa, Abloy and Grorud, originally subsidia- ries of the Group’s Scandinavian companies, all focus on the high-end market, but Assa concentrates on specifiers, Abloy on locksmiths and Grorud on the oem market for door and window fittings. c e Marshall is a specialist manufacturer of automobile locks and Chubb Locks Custodial Services a specialist manufacturer of United Kingdom: Sales by companies in the UK organization in 2002 amounted to SEK 1,259 M (1,281). Organic growth for comparable units was 1 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,259 1,281 665 270 266 1,212 1,329 704 128 132 Sales by product group Security doors and fittings, 6% Industrial locks, 6% Electromechanical locks and electronic locks, 8% Mechanical locks, lock systems and accessories, 80% 34 ASSA ABLOY / 2002 detention locks. Security Products uk focuses its Yale and Union brands on mass-market sales – Yale on the residential side and Union on the commercial side.” In 2002 the uk market showed slow overall growth, with little activity in new construction. Although the com- mercial and residential markets were both relatively quiet, Security Products uk managed to increase sales value after several years of reduced sales. For most companies, sales by volume remained at similar levels to last year. The excep- tion – the car locks manufacturer c e Marshall – is heavily dependent on Ford, which had a poor year. “We will improve profitability by moving assembly to the Group’s other car locks manufacturer, fab in the Czech Republic,” Geoff Norcott says. “The lower cost of manufacturing in East Europe will free us to concentrate on marketing, sales and design in the uk.” The Professional’s Choice In the commercial sector, Security Products uk is aiming to regain market share by relaunching the Union brand as ‘The Professional’s Choice’ and offe- ring a range of new, redesigned and complementary products. “This involved cooperation with many other Group companies,” says Geoff Norcott. “We have worked with Lockwood in Australia, Guli in China, Yale and Corni in Italy, keso in Switzerland and Assa in Sweden. An excellent example of what Group strength can accomplish. In addition, our new Internet-based network includes specification software to help architects select the best products for their needs.” Union has also designed a new styling package, offered to locksmiths and builders’ merchants to help them create a professional image for their business. It includes everything from product packaging and point-of-sale display material to clothing and stationery, all conforming to a uniform new look. The response from customers has been highly positive. Union also supports its network of locksmiths in upgrading the service they can offer to specifiers by providing direct lines to VingCard, Besam and Abloy. Product ratings “On the residential side the flat market has given us the opportunity to con- solidate and improve our position,” Geoff Norcott continues. “A new product rating system, first introduced for padlocks, is now being extended to Yale’s whole residential range.” The system aims to guide customers to the correct lock selection for their application. Symbols on the package quickly answer questions about what the product is, how it should be used, its design and the level of security. The original padlock system was devised in Australia by the Group company Lockwood, aided by local market research and evaluation of existing international Standards. It became the basis of a new Australian Standard covering strength, corrosion-resistance functional performance and and methods of testing them. The high-security market in Britain is relatively small, but Group companies have a large share of it. “Growing the A massive new building project to provide 600 additional student resi- dences for Britain’s Oxford Brookes University by September 2003 is cur- rently underway. Jason Preece from the project’s specifier, Executive Security, has selected the Yale Pro-key master- key system for the whole site, UNION lock cases for the bedrooms and card- lock systems on the doors. “I chose Security Products UK for their products’ reliability and the quality of supply. All the wholesalers hold Yale, Chubb and UNION brands.” market itself is our prime aim,” Geoff Norcott comments. “We have work to do to make British customers under- stand the importance of high security and the link between security and safety.” Two major groups of high- security products, Abloy’s protec disk cylinders and a keso high-security cylinder marketed under the Union brand, were launched during the fall, and Grorud and Security Products uk are currently developing more secure multipoint locking systems to increase oem sales to door and window manu- facturers. “The uk government’s Private Finance Initiative may also give us some good opportunities in the deten- tion and education sectors,” Geoff Norcott believes. Education and training assa abloy uk works to influence the market through distributors as well as end-users. “We encourage distributors to sell more high-value-added products,” Geoff Norcott says. “That benefits them, us and the customers, because cheap imports carry low margins as well as often being inadequate. The new padlock and residential lock ratings have been a great help in educating the British market. “We have also continued with our mobile exhibition, first launched at the start of the Volvo Ocean Race. It tours the country visiting trade shows and supporting local initiatives. We have assisted several local authorities to utilize funding to improve unsafe areas in an advised way, and the road show has visited these communities to inform them about the principles of secure homes. We visited 32 other locations during the year with the Neighbourhood Watch Association, which now covers some 6 million British homes. We also support the police initiative Secure by Design. “Internal education and training are vital too. Representatives from all our companies attend various international Group councils and are responsible for spreading the information that they get there in the uk organization. Our own management training programs have been extended. Employees who show potential are sent on courses with modules covering Group philosophy, the market, product development, market research, the manufacturing process and financial management.” ASSA ABLOY / 2002 3 5 North America: Growth across the board despite a slow market With more than 30 operating units and 10,000 employees, assa abloy North America is by far the largest of the Group’s regional organizations. In 2002, despite continuing recession in the usa and a sustained decline in new construction, the North American organization achieved a modest rate of growth, and all its operating groups, without exception, showed considerable improvements in profita- bility and operational efficiency. “To achieve growth in a year like this is pretty amazing,” says Clas Thelin, Group Vice President responsi- ble for North America. “We have seen six successive quarters of declining new construction, which is one of the drivers of our business. Commercial construction has fallen, but fortunately institutional construction, which is particularly important for us, was stable. And aftermarket sales provide an important stabilizing factor in the lock industry, buffering the effects of changes in the construction market. “The shock of 11 September resul- ted in a number of short-term measures that had only limited impact on equip- ment or hardware. The longer-term consequences that we foresee as we move forward are systems and hard- North America: Sales by companies in the North American organiza- tion in 2002 amounted to SEK 10,465 M (9,682). Organic growth for comparable units was 2 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 10,465 9,682 5,409 3,721 2,916 9,846 7,133 4,259 3,305 2,715 Sales by product group Security doors and fittings, 31% Industrial locks, 2% Electromechanical locks and electronic locks, 6% Mechanical locks, lock systems and accessories, 61% 36 ASSA ABLOY / 2002 ware upgrades that will have a positive influence on the growth of our business.” Success of US restructuring The restructuring of the US organization in July 2001 has proved a highly success- ful first step in exploiting Group strengths. Five product-related manu- facturing groups were formed, support- ed by two main sales and marketing organizations. Within each manufactur- ing group there are councils devoted to cross-learning of best practices and to joint development of products using common technology. Cross-sourcing of components and complete products to optimize manufacturing investment is increasing within the groups, within North America and across the whole assa abloy Group. In the Door Group, for example, there has been heavy consolidation. One factory making custom frames has closed, with investment concentrated on a fully automated production plant in Mason City, Iowa. The two biggest companies, Ceco and Curries, will continue to compete on the market, but have rationalized their development of niche products. Thus Ceco will carry forward the development and certifica- tion of certain categories of doors such as for hurricane requirements, while Curries will develop a decorative, textured steel door that looks like wood, sourcing it for both companies. The labor-intensive manufacture of steel-stiffened doors has moved to Mexico, where labor is cheaper. The cross-learning and bench- marking process has probably made most progress in the Architectural Hardware Group, the largest of the manufacturing groups. During the year, units with only limited previous expo- sure to lean manufacturing processes North America: “In a casino, security must blend with the surroundings but provide maximum protection so that our customers and employees feel secure,” says Marshal Szalay, Head Locksmith of the Mohegan Sun gambling resort in Uncasville, Connecticut, USA. “At the same time, strength and durability are vital. People come and go round the clock. Some doors cycle thousands of times a day, and this requires door hardware that can absorb tremendous abuse. For our recent expansion we looked for a security solution to fit our world-class image. Sargent and Timelox helped us achieve this with products that com- bine old-fashioned strength with industry-leading technology.” for high-security nationwide program focused on safer workplaces in conjunction with the National Crime Prevention Council (ncpc). assa abloy is also helping to drive the development of a new ansi Standard locks, currently being written by the Builders’ Hardware Manufacturers Association. On the electromechanical side, new products have created opening solu- tions that are secure as well as safe. The Electromechanical Group has shown one of the highest growth rates, especially in non-residential applica- tions. Again, educating the market is vital. “If you change a standard exit device to an electromechanical device, you can for example introduce a 15- second time delay and alarm, which adds significant security without jeop- ardizing fire safety,” says Clas Thelin. assa abloy is also supporting and acting as consultant to another ncpc initiative focusing on school safety. The Safe and Sound program is being piloted at 30 schools in Pennsylvania and Kentucky, with the aim of making children feel safe and secure. Physical security is one major component, with procedures as important as products. If an incident occurs it must be possible to move children quickly around the school or outside while keeping other areas securely locked. Good design raises margins The Residential Group has also shown ASSA ABLOY / 2002 3 7 and a profit center structure have taken major steps to get closer to best practices used in other companies in the group. Product and purchasing councils have also been formed, with a very positive result, to ensure that the group optimizes its efforts and capitalizes on the potential inherent in its size. Promoting higher security Compared with other advanced markets, the usa has always been more focused on safe evacuation of buildings than on security protection. “Although our High Security Group has a strong market position, the mar- ket for mechanical high security is smaller than in Europe,” says Clas Thelin. “The challenge is more to educate the market to appreciate the benefits than to sell specific products. People in the us don’t realize how easily ordinary keys can be copied – or that a high-security key system will cost only usd 20–40 a door more than a standard system.” As a result of initiatives directed at residential and institutional customers, virtually every company, not only in the High Security Group, is now showing faster sales growth in high- security products than total growth. The traditional companies of the Architectural Hardware Group are moving from just supplying products to more of a security consultancy role. In the Building Security Initiative, essex has teamed with outside compa- nies to offer integrated high-security solutions backed by training and con- sultancy. Medeco has launched a North America: high growth, founded on greater atten- tion to esthetics. “If you can differen- tiate yourself through design, margins are far higher than on basic products,” Clas Thelin comments. “People are willing to pay for the right designs.” Emtek has continued to be highly successful in selling a wide range of up- market designer door handles. Now Medeco’s new series of residential high-security locks combines their own cylinder and deadbolt functions, and strong brand name, with Emtek input on the design side. The trend is likely to spread to non-residential applica- tions such as hotels and prestige offices. Innovation vital to growth Ongoing product development is a vital driver of growth, and the North American organization continues to launch innovative products across the whole spectrum of security. Sargent has introduced a silver-based anti- bacterial coating, sarGuard, which can be applied to door handles and keys in hospitals, laboratories, schools and care homes to provide permanent resistance to microbial growth. For use with rim-mounted exit devices, hes has developed a completely new surface- mounted electric strike that requires no cutting of the door frame. In the industrial field Medeco has developed new lock systems for park- ing meters and vending machines, designed to eliminate fraud by money collectors. The first parking applica- tion was developed in close collabora- tion with the City of San Francisco. The locks for all associated meters use the same high-security mechanical key code but have different electronic key codes. A hand-held computer records the result of every visit. In the detention market, Trussbilt 38 ASSA ABLOY / 2002 Securitron, hes and effeff, have made major inroads in Canada. In the same period McKinney’s hinge business in Canada has grown from almost not- hing to seven-digit sales. Canada has traditionally had a well-developed high-security market, proportionally larger than in the usa, and the Group has a solid presence through Medeco, Abloy, Mul-T-Lock and assa. Previously most high-security sales were on the aftermarket, but Yale- Corbin Canada and Sargent both have specifying power in the new-construc- tion market, and as a matter of policy now include a high-security mechanical key system as the preferred option for every job. This policy is significantly increasing penetration into new projects. Integration and outsourcing in Mexico With 100 million people and a strong infrastructure, Mexico is now the world’s twelfth-largest economy. After the change in regime in 2001 the economy showed limited growth that year, with very much a ‘wait and see’ attitude. In 2002, however, growth increased considerably, which must be seen as a sign that the new President, Vincente Fox, a former international business- man, has been well received as the country’s leader. assa abloy’s three Mexican com- panies, Phillips, tesa and Yale, shared one of the best growth rates in the North American organization. Inte- gration progressed well, with cross- learning, cross-sourcing of products and coordination of purchasing. The three companies are jointly involved in promoting higher security and in developing a national security Standard. Mexico also enhanced its position as a low-cost and conveniently located Quinnipiac University in Hamden, Connecticut, USA was seeking a user-friendly security solution that would keep its 3,000 residential under- graduate students safe and its campus buildings secure at an affordable cost. “The combination of VingCard Persona and SARGENT products gave us more,” says Jonathon Terry, Assistant Coordinator of Communications. “We got durable, 100 percent dependable locks, operated conveni- ently by the students’ ID cards rather than keys. This simplifies our student check-in process, allows only author- ized personnel to enter, controls access to student accommodation during holiday breaks, and allows us to audit door activities. And it’s backed by great customer support.” has added security ceiling and wall systems to its steel doors and frames. The space-saving modules – steel partitions which are then filled with concrete – can build complete prison cells. The first unit has been installed and it is estimated that one whole storey could be saved when building an eight- storey prison. The system is being sold by Trussbilt itself and also branded for a large distributor partner. High-security expansion in Canada in assa abloy’s market position Canada remained stronger than in the usa, especially in locks and hardware. Between them, the Group’s four Canadian sales companies represent virtually all the us manufacturing companies. Over the last couple of years electro- mechanical products, primarily from North America: for manufacturing base the us companies. tesa manufactures most of the builders’ range sold by Yale Residential in the usa. The products are trucked straight from the factory to us customers with no warehousing in the usa, giving significant economies. Yale Security Mexico continues to supply a substantial portion of Arrow’s product range. A future based on organic growth “The highest priority for the North American organization now is organic growth,” Clas Thelin concludes. “Each individual company and each group has a 3-year plan. Growth areas for the next year are very clearly defined, and every project has a designated owner. Some projects are product-related, others directed at specific customer seg- ments or promotional activities. Every project is followed up on a monthly basis to make sure it’s on track. two “The sales and marketing organizations, essex and YSG, are heavily involved here too. They compete with each other for sales growth. We strongly believe in giving customers more than one option, and this also ensures that the salesmen retain their ‘brand passion’. “The usa is a unique market in having big regional variations in economic sentiment. Some regions are currently showing 20 percent growth while others are in decline. It is important to have strong regional managers who know the conditions and are close to our distributors. We have therefore expanded our division of the country from four regions to eight and appointed a manager for each region with overall coordinating responsibility for both sales organizations. “The integration of the whole North American organization received a major boost from the visit of the Volvo Ocean Race with two long us stopovers. Externally we got far more media coverage than we expected. We could also offer our customers a once- in-a-lifetime experience. Sailing is a minority sport in the usa, so they found it unusual and exciting to be invited on board a racing yacht. Internally the Race generated Group enthusiasm and solidarity among employees generally, and especially those who manned the marquees at the stopovers. The example of the crew in supporting one another through crises and illness inspired every- one, and stimulated the organization to offer a series of awards, which will now continue.” ASSA ABLOY / 2002 3 9 South Pacific: Good medium-term prospects based on expanded product offering “The residential market started the year strongly but then softened, while the commercial market started fairly flat but ended strongly,” reports Geoff Norcott, Group Vice President respon- sible for the South Pacific Region. “Overall, the electromechanical, con- struction, commercial and residential sectors all performed well, and we foresee strong development over the next two to three years. “We are beginning to see the fruits of the three-year strategy we initiated in 2001. Our aim was to build our product range rapidly through co- operation with other Group companies, concentrating in particular on higher- Steve Burton, Commercial Sales Rep- resentative for Lockwood Security Products, and Peter Hunt, Manager of Building Services at the Melbourne Museum. South Pacific: Sales by companies in the South Pacific organization in 2002 amounted to SEK 1,138 M (841). Organic growth for comparable units was 10 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,138 841 772 590 1,496 1,098 1,004 1,111 – – Sales by product group Security doors and fittings, 33% Industrial locks, 5% Electromechanical locks and electronic locks, 9% Mechanical locks, lock systems and accessories, 53% 40 ASSA ABLOY / 2002 value products. We have successfully exploited Group strengths in these higher-security technologies. Two good examples are the 9000 series panic exit devices based on products from jpm in France and the Twin keying range of locks based on designs from Assa in Sweden. Both are selling well. As another facet of the strategy we are pushing for higher security Standards in the Region and taking a very active part in their formulation. “For lower-end products such as window stays, we are exploiting the low manufacturing costs of Guli in China to keep us competitive on price.” Improving residential security The Group’s acquisitions of Lockwood and Interlock in recent years have raised the importance of the residential market. “Security in the South Pacific Region has traditionally been at a low level, more concerned with casual protection than serious deterrence,” Geoff Norcott says. “We are now making moves to change that.” In Australia, for example, Lock- wood is working with the Housing Industry Association to increase security in newly built homes. The company has developed a dual-purpose high- security locking system for houses in course of construction. This will success- fully reduce the problem of thefts from sites and result in lower insurance premiums for builders. On completion of building a single registered key is handed on to the purchaser of the property. In New Zealand, Interlock has initiated a Window Service Initiative aimed directly at householders. A fleet of service vehicles covers the country, crewed by expert technicians who can advise on security needs in different environments and install additional or better window fittings as appropriate. Demand has exceeded expectation and sales are growing rapidly. The assa abloy companies also work closely with police forces and Neighbourhood Watch associations in initiatives to educate the public and the retailers who sell to them. Complete solutions “In the commercial sector, Abloy Security and Lockwood – with quite different solutions – together hold a major share of the high-security keying market,” Geoff Norcott says. “They can bring their influence to bear in raising security levels. With its augmented expertise in proximity and card- operated locks from hid, Indala and Timelox, and now (with Besam) in door automatics, the assa abloy Group is in a strong position to offer public building specifiers complete solutions to their security and access- control problems.” Both Lockwood and Interlock have significant oem contracts in Australia and New Zealand, through which they influence the first-fit market, while Interlock has a series of large, long- term oem contracts with window manufacturers in the usa. Interlock’s us sales remained strong in 2002, although sales to Japan softened. Specification activity in South East Asia is expected to improve next year, which will benefit several companies. “We are trying to import the philo- The Melbourne Museum in Australia needed a patented high-security keying system to secure the historical assets of the State of Victoria. “We chose Lockwood Twin because it meets our stringent requirements,” explains Peter Hunt, the Museum’s Manager of Building Services. “We have found the Twin Key robust and easy to use, and the colored-button identification very useful. Dealing with a large, reliable, professional company based locally in Victoria was a bonus.” sophy of Emtek in the usa into the South Pacific Region,” Geoff Norcott says. “They have been highly successful in marketing top-end residential door hardware to specifiers by offering their customers individual designs and a very personal level of service.” Cooperation across the world Because Geoff Norcott heads both the UK and South Pacific regional organi- zations there has been particularly close collaboration between them. Lockwood’s padlock rating system, which formed the basis of the new Australian Standard and resulted in substantially increased sales, is now being used by Yale in the uk and is being extended to residential door locks in the uk diy market. Lockwood and Trimec in Australia, and Lockwood Arrow in New Zealand with its door-closers to the us ansi and ce European Standards, are all contri- buting to the re-launched Union range of Security Products uk, which is targeted at commercial markets in the uk, the Middle East and elsewhere. Education and pride In all the South Pacific manufacturing companies, there is ongoing work to reduce costs and improve response to customer orders. Significant inventory reductions are expected to continue with the application of the assa abloy ‘Replenishment Model’ software. At Lockwood, a Facility Optimization Audit being carried out by Honeywell has resulted in the building of a treat- ment plant which purifies and recycles waste water from the electroplating process, thus eliminating problems of disposal, meeting new environmental requirements and reducing the usage of expensive materials. “We already felt part of the Group before the Volvo Ocean Race,” Geoff Norcott maintains. “In our case we used it more as a vehicle to educate the workforce than for integration as such. But the impact it created globally and on our customers here was so large that it generated great feelings of pride among all of us. During the vor we sponsored the Australian Paralympic Team. To perpetuate the profile develo- ped during the vor, assa abloy South Pacific now sponsors the annual dry-river-bed regatta (the Henley On Todd) in Alice Springs, central Australia, supporting Rotary International and the Australian Breast Cancer Institute.” ASSA ABLOY / 2002 4 1 New Markets: Significant improvements in markets across the world Asia: Strong improvement despite market conditions Despite the persistent economic slump, assa abloy Asia has managed to boost its net profits due to a significant shift in product offering to the higher-end range. C.K. Jeang, President and ceo of assa abloy Asia, explains: “By gradu- ally eliminating low-end items from our product range and replacing them with higher-value ones, we achieved a 35 percent rise in net profits in 2002, and continue to enjoy a strong opera- ting cash flow. “These higher-grade products con- sist of stainless-steel knob-sets and handle-sets, door closers, high-security rim locks and a growing range of diy safety and security products. They are designed to meet the security Standards that now apply both in China and in our leading export markets in North America, the Far East and Russia. “To educate our customers, employees and architects about the benefits of the latest high-security technologies, we have established the assa abloy Training Institute in Singapore, and Security Centers in Bangkok and Hong Kong.” in In addition, significant progress has been made intra-Group trade. Product synergies include the French Touch security package for the Asian markets, abloy lock, with guli stainless- steel furniture, and assa cylinders with Yale ansi-graded locks. Cross-selling and buying opportunities range from the Million Program door-closer project spearheaded by Guli to the 6000-Series knob-sets produced for the North American DIY and builders’ markets, and stainless-steel trims for northern Europe. “On the cost side, we have institu- ted staff reductions to bring the size of our organization in line with current economic realities,” says C.K. Jeang. “The Profit Center structure and cell manufacturing at Guli were implemen- ted to streamline production and raise operating efficiency.” Rising standards in China the company The Asian lock market is highly fragmented, particularly in China where Guli’s 25 percent share makes it the market leader. The Guli factory was iso 9001 certified in 2002, and the Chinese Government recently for recognized its product quality and innovative designs. As the nation’s standard of living steadily rises, Guli is working to educate the market on the importance of higher security standards. China is also making a concerted effort to raise its hardware standards to meet the World Trade Organization compliance target set for 2004, as well as spending huge sums on infrastructure for the 2008 Olympic Games. Zheng Jie is one of first traders to bring the western DIY concept to China. He transformed his traditional hard- ware distribution center in Shanghai to a HomeMart DIY store two years ago. “Locks act like security guards at your home,” he says. “And we continue to select Guli as our long-term partner because our customers have confi- dence in the quality of GULI locks.” 42 ASSA ABLOY / 2002 New Markets: very latest high-security products. It also provides us with an excellent training ground for our staff. We have sent people to New Zealand, Australia and the usa for factory visits. These cross-learning experiences have proved invaluable for the whole company in terms of new ideas and company morale.” Israel: Market leader with a global reach Faced with a deepening recession at home that impacts virtually all customer segments, Mul-T-Lock, the market-leading lock company in Israel, has managed a remarkable increase in domestic sales and is continuing to grow its business in 70 countries throughout the world. The only significant exception is Japan, which saw a marked decrease in demand for high-security locks. Mul-T-Lock President and ceo, Tzachi Wiesenfeld, says that despite the rather gloomy picture at home, Mul-T-Lock’s overall performance for the year has exceeded expectations. Tailored solutions “We are a global company operating from a small domestic market in a prolonged recession. New construction in Israel has fallen by more than 50 percent since 1995. Nonetheless we increased our domestic sales by ten percent in 2002 through aggressive selling primarily in the commercial sector. Fortunately for us, a majority of our sales go to export markets in western and eastern Europe, North America, Asia and Japan. We have succeeded well in these areas thanks to ASSA ABLOY / 2002 4 3 Southern Africa: Sales growth aided by building recovery assa abloy South Africa, the country’s leading lock company, has chalked up another successful year marked by 25 percent growth in sales and a strong to 2001. John profit compared Middleton, President of the company, says the positive turnaround in the residential building sector and timely anti-dumping legislation to discourage cheap Asian imports have been a big boost to business. “The South African lock industry is closely linked to the building sector which has shown a solid comeback after two years of recession. This is particularly true of government refur- bishment of buildings. Our remaining sales are split between commercial construction, the retrofit market and diy products. diy continues to grow the rapidly well, responding growing number of middle-class house- holds in South Africa and their demand for higher levels of security. For all these reasons 2003 looks like being an even better year.” to Market leader To capitalize on its leading position in the fragmented South African market, the company targets specific market segments via two Group brands, Yale and Union, and two national brands, Esco and Solid. John Middleton: “We have now finalized the relaunch of the Yale brand platform for our complete range of retail and DIY products, which account for more than 20 percent of our sales. Union and Solid will repre- sent products in the architectural and commercial segments and Union and “With more than 400 people employed, we have extremely heavy daily foot traffic in and out of the buildings,” says Daniel Lengosane, Director of Internal Security for the Union Build- ings in Pretoria, the administrative seat of the South African government. “We therefore needed a highly advanced locking system to secure the building, its people and the infor- mation it holds. Security is the nerve center of any organization. The use of Mul-T-Lock cylinder locks made it possible to assign master keys to those in senior positions while using servant keys for non-sensitive areas.” Esco the wholesale segment. Other Group companies’ products sold in South Africa are effeff and hid in access control and Mul-T-Lock to locksmiths. Altogether this creates a very strong platform for promoting the trend toward higher security.” The company is working on several fronts to promote higher standards of security. In cooperation with leading insurance companies and standardiza- tion bodies it is introducing a new lock grading system based on European Standards. It also offers a range of specification services to architects. “Being part of the worldwide assa abloy Group has many strategic advantages. It enables us to source the the year. We are also continuing to strengthen and diversify our product portfolio in Israel by importing an increasing number of complementary products from our sister companies within the Group. These include exit devices, electric strikes and door closers.” “All companies except assa abloy Poland show organic growth, and total sales increased by 11 percent to eur 43.5 m in 2002. Hungary and Turkey show particularly good growth, but these are countries where we still have limited presence. Our sales in Russia continue to develop well.” New Markets: our total commitment to satisfying a wide range of specific customer demands. This calls for tailor-made lock solutions, ever-shorter lead times and a highly dedicated sales network.” Product diversity Looking ahead, the President sees promising growth abroad on a number of fronts. “We are very excited about our company’s increased focus on electromechanical locking. We have developed an electromechanical cylin- der, Intelleqt, which is based on the Group’s cliq technology. In western Europe alone we see the demand for these locks growing 4-5 times faster than for mechanical security products. In eastern Europe we anticipate a rise in sales by as much as 50 percent. On our largest markets in North America, France and the uk we anticipate a 15 percent growth in sales in 2003. And we expect to see a turnaround in Japan in the second and third quarters of Eastern Europe: Cooperation on a global level While the new eastern Europe is grow- ing up, assa abloy’s organization in this region is characterized by an entre- preneurial spirit and an eagerness to do business. “The market has been pretty good during the year,” says Lars Lilja, Market Development Director in assa abloy’s East European organization. “The exception is Poland where the political and economical climate remains bad and there is little new construction. Emergency exits show the best growth on all markets. In general, insurance companies and investors have safety demands and require an upgrade of security solutions, whilst more people now have more to protect. security and raised A trend in these countries is that they are tending to become more sophisticated since many are candi- dates for membership of the European Union. “Through our local companies and organizations in the Czech Repub- lic, Latvia, Lithuania and Russia we are involved in developing and influencing security standards by cooperating with insurance companies, police depart- ments and other authorities,” says Lars Lilja. “And most of our companies are now iso 9001 certified.” assa abloy’s Romanian compa- nies, Urbis International and Urbis Security, have successfully taken over the manufacturing of products previ- ously made in countries with higher labor costs. “The loss-making manu- facturing by Grorud in Norway was moved to Urbis International during last year,” says Lars Lilja. “Parts of the manufacturing of products for the German companies Melchert and Dörrenhaus are also now being taken over by Urbis International and Urbis Security. And Assa in Sweden has manu- factured its door hardware accessories in Romania for a couple of years now.” The East European organization is also utilizing the Group’s strengths in cross-buying. “The Czech company fab has expanded its product portfolio with door closers from Abloy in Finland, panic exit devices from jpm in France and door hardware from Bezault in France,” Lars Lilja explains. In many east European markets, Yale is a sleeping brand – a brand that New Markets: Consolidated sales in New Markets in 2002 amounted to SEK 1,952 M (2,029). Organic growth for comparable units was 4 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,952 2,029 981 354 186 6,173 6,243 3,296 1,774 1,936 Sales by product group Security doors and fittings, 5% Industrial locks, 14% Electromechanical locks and electronic locks, 3% Mechanical locks, lock systems and accessories, 78% 44 ASSA ABLOY / 2002 New Markets: is recognized by many people but has no particular presence. Now the Group is planning to relaunch the Yale brand on the retail market, initially in Poland and Hungary. “We are introducing the Yale padlock series, which has a rating system for grading security perform- ance and aims to help customers choose the correct padlock for any applica- tion,” says Lars Lilja. The rating system was created by Lockwood Security Products in Australia, then adopted and further developed by assa abloy uk. the Group acquired both uba Almadis, for many years Assa’s distributor in Lithuania, and Radikovic in Slovenia, a distributor for effeff focusing primarily on high- security solutions. In October 2002 South America: High security means big business the highly In fragmented, price- competitive Brazilian lock market, from where assa abloy runs its South American operations, taking the high road in security has made all the difference. Group company La Fonte made a strategic decision to focus on the manufacture and sale of high- security products targeted at the top end of the market. Francisco Bastos, President of La Fonte, says it has proved a resounding success. “We have just completed the best year in our company’s history, breaking all previous sales records. In 2002 we achieved a 40 percent rise in overall sales compared with 2001, and 2003 looks like being better still. Our domestic sales have increased by 25 percent and exports to North America and other South American countries are up by more than 50 percent.” lock sets, auxiliary locks, exit devices, hinges and lever handles in attractive contemporary designs, sought-after in this style-conscious market. Concerns over rising crime rates also favor companies that can offer a wide range of reliable high-security products. “Even though only 20 percent of the Brazilian population can afford our products we have a high market potential because of the sheer size of the country,” says Francisco Bastos. With 170 million people, the Brazilian economy is the biggest in South America, representing some 50 percent of the continent’s gdp. La Fonte also has a strong foothold in many neighboring countries. La Fonte has gained much by being part of the assa abloy Group. Cross- learning has helped the company to adopt a number of best practices in production and administration, and it actively pursues cross-buying and sell- ling opportunities. It currently imports bored locks from China, door closers from the usa, panic exit devices from Italy, electromechanical locks and pad- locks from Finland and technology for high-security cylinders from Israel. When the contractors Hochtief were building the new main offices of BankBoston in São Paulo, Brazil, they came to La Fonte for the more than 2000 locks required for the project, plus exit devices, door closers and door hardware. “Security and safety were equally important considerations,” says Contract Manager Teodoro Andrade. “We chose La Fonte’s products because of their interna- tionally recognized quality as part of the ASSA ABLOY Group, and for the guarantee of good assistance during the project and technical support afterwards.” Poli has a strong presence in most important diy stores and home centers in Chile. During 2003 the company will implement a program to increase its sales through the locksmith channel by means of training programs and specially designed in-store displays. On the export side, high-quality products designed to meet international require- ments, especially the new electric rim lock, are expected to sell well to other assa abloy companies. Respected brand New strength in Chile in Brazil and La Fonte enjoys the highest brand recognition is the undisputed leader in setting new and higher standards in lock technology. The company manufactures mortise assa abloy’s recent acquisition of the Chilean market leader, Poli Cerraduras, gives it a second manufacturing base in South America and strengthens its position in the region. ASSA ABLOY / 2002 4 5 Hospitality: Strong unified organization will optimize offers to customers A new worldwide organization, assa abloy Hospitality, brings together the Group’s four brands serving the hospitality industry, Elsafe, Timelox, VingCard and Inhova. The aim is to better respond to the growing security concerns of major hotel owners, operators, and their guests. The new in organization was November 2002 in the usa and will be extended to other regions during the first half of 2003. launched “assa abloy Hospitality can offer the best solutions for any security chal- lenge”, says Dag Schjerven, President and ceo of assa abloy Hospitality. “We recognize that each hotel requires different security solutions. By bringing together a better and broader product offering, we can meet our customers’ individual needs in the most efficient and convenient manner.” The positioning of the brands has been carefully considered. VingCard, the largest hotel-lock company, will aim for the middle and high-end segments. Timelox will be a customized integrator, concentrating on the top end. Inhova will use its leading-edge technologies to offer innovative locking solutions. Elsafe is the undisputed leader in hotel-room safes with a product portfolio that addresses all market segments. Hospitality: Sales by companies in the Hospitality organization in 2002 amounted to SEK 992 M (1,056). Organic growth for comparable units was -10 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 992 1,056 1,052 965 952 637 634 710 669 605 Sales by product group Hotel safes, 10% Hotel locks, 90% 46 ASSA ABLOY / 2002 VingCard/Elsafe – Profitable outcome despite stubborn recession The VingCard-Elsafe Group continues to suffer from the deep recession that hit the global hospitality industry after 11 September. But thanks to efficiency in personnel reductions and ambitious sales efforts, company profits have recovered. Dag Schjerven explains the impact on the hospitality security industry which his company helped pioneer: “In the year and a half since these tragic events VingCard and Elsafe have seen a 20 percent decline in global sales. Our hotel-safe business was impacted immediately, with even sharper decreases to incoming orders. The drop in the hotel lock business took longer to manifest itself. Prior to 11 September 2001 the hotel industry had been growing steadily for nearly ten years. Fortunately the cruise and ferry segments of the business have continued to show good growth throughout the year.” VingCard is the leading supplier of electronic locking solutions for the hotel and cruise ship industry and has the largest installed base with some three million locks sold worldwide. The prolonged sales recession led the company to widen its tough restructuring program, which has included staff reductions and other cost-cutting measures to safeguard profitability. These measures have had the desired effect. Continued focus on improved processes within the produc- tion units has led to additional profit opportunities. Profits have now been restored to pre-September-11 levels. Dag Schjerven reports rising yields on new-product initiatives in both the hotel lock and The spectacular new Rica Seilet hotel stands on the Romsdal Fjord in Molde on Norway’s beautiful west coast. With its location practically in the water and its striking design in the shape of a sail, the hotel has already become an architectural landmark. Guests in the 164 rooms on 15 floors have breathtaking views of the moun- tains of Romsdal. For the security and safety of its guests and the protection of their belongings, the Rica Seilet has chosen VingCard Classic electronic guest- door locks with VISION software. restaurant, gift shop or casino. The smart card issued to hotel staff gives the hotel administration unpreceden- ted flexibility. It can be re-coded each day to allow cleaning staff access to individual rooms, certain floors or other specified areas. Since its introduction, the Dual Card system has been substantially enhanced to encompass the latest tech- nological advances. Today’s systems are specially designed for easy integra- tion into a hotel property management system offering the highest level of security. Features can include integra- ted cameras monitoring all entrances to the establishment, room-by-room climate control via infrared links, and even door-ajar warning. For larger hotels with thousands of rooms, Timelox places decentralized keycard encoder stations at strategic locations throughout the hotel property. Timelox also designs a range of off- line systems for hospitals, educational premises and industrial and commercial companies. These systems are cost- effective, easy to install and offer a completely new security philosophy for organizations accustomed to dealing separately with exterior protection and interior protection. Timelox can pro- tect and control whole buildings by securing more interior doors than before. For exterior protection the systems can be integrated with an on- line system in cooperation with the Group company Solid. These commercial systems are marketed worldwide mainly through local assa abloy companies, except for the Persona range for the educatio- nal market which is marketed in the usa through a dedicated organization. ASSA ABLOY / 2002 4 7 safe sectors. Looking ahead to 2003 he expresses cautious optimism. “We see early signs of a return to stability in the market with the possibility of modest growth ahead. We already see pockets of growth in certain European countries as well as the Middle East. Now parts of Asia are starting to bounce back and China is becoming an increasingly active market.” Continued consolidation in the hotel sector, with some ten international hotel chains dominating the industry, favors companies that can offer a total security solution and service package backed by the diverse resources of the world’s leading lock Group. VingCard has developed new security solutions that meet or exceed 2002 ul Standards in North America. These include a unique automatic deadbolt for guest-room doors which is activated when the door is closed. Elsafe is the first company to achieve the ul listing for hotel in-room safes. The new safes employ a unique hook-shaped locking mechanism that substantially increases the security of the product. A new line of safes based on biometric identification technology has been introduced to meet new demands in this age of heightened security concern. Timelox – Higher sales in top-end hospitality market Despite a slow start to 2002, Timelox finished the year with a 20 percent increase in worldwide sales. President Jan Wabréus says the gradual pickup in the high-end hotel sector in the United States has helped his company rebound from an otherwise sluggish market. The usa accounts for some 50 percent of sales. “Our main hotel products are designed for hotels in the four to five star category. Our Dual Card technolo- gy, which comprises a multi-function magnetic card for guests and a smart card for hotel staff, is a unique world- leading standard for the hotel industry, first introduced in 1998.” Timelox’s guest card can not only be programmed to allow guests access to their rooms; it can also be used to pay for transactions in the hotel Identification: Good prospects for contactless access control assa abloy’s Identification Technology Group (itg) was created during 2002 to coordinate the Group’s interests in this increasingly important area, includes electronic access- which control technology. itg comprises three us manufactu- ring companies – hid, Indala and Card Technologies & Services (cts) – plus a us-based Research & Development Center and four sales and distribution companies – Access ID in the usa and three others in Europe, Asia and Latin America. hid and Indala both manufacture contactless card and reader systems based on Radio Frequency Identifi- cation (rfid) technology. More than 95 percent are used for physical access control. hid is moving towards soph- isticated high-frequency smart-card products, exemplified by its newly launched iCLASS system, while Indala mainly produces simpler proximity systems. cts manufactures Wiegand- technology access-control products and specializes in value-added security printing options. These options include custom artwork and anti-counterfeit- ing technology such as holograms and uv inks. An evolutionary market “The market rose slightly in 2002,” reports itg President Joe Grillo. “Private-sector investment was lower than in the technology boom years, but this was partly offset by increased public-sector spending due to security concerns in the aftermath of 11 September 2001. “Our industry is evolutionary rather than revolutionary. Movement to next-generation contactless smart cards is slow but ongoing. Looking ahead, experts predict that electronic Identification Technology Group: Sales by companies in the Identification Technology Group in 2002 amounted to SEK 1,283 M (1,100). Organic growth for comparable units was 10 percent. Trends SEK M Sales Average no. of employees 2002 2001 2000 1999 1998 1,283 1,100 370 345 - - - - - - Sales by product group Electromechanical locks and electronic locks, 100% 48 ASSA ABLOY / 2002 security and especially access control will eventually return to double-digit growth.” in Recent consolidation the industry will drive itg’s growth by creating large, sophisticated corpora- tions seeking suppliers capable of worldwide response and support. Another driver is the trend for large companies to combine their it security and physical security. Thirdly, penetra- tion of the technology is currently lower outside the usa. “This gives us good potential in the whole of Europe, in Asia (notably China) and in Latin America,” Joe Grillo says. Bright future for smart cards hid’s iCLASS technology represents a major investment in a true multi-appli- cation smart card. With its higher data storage capacity, faster data transfer rate and greater security based on encryption of data, the card can be used, for exam- ple, to control access by opening (or not opening) doors, to pay for meals in cafeterias and to log on and off a computer network. Early orders have come from the Chicago Board of Trade and Anixter’s international headquaters. For added security, iCLASS cards can carry the holder’s biometric tem- plate. Three major biometrics compa- nies are incorporating iCLASS into their biometrics terminal devices, and hid will launch its own branded biometrics readers in 2003. Leader in advanced technology itg has helped to improve the manu- facturing costs of the cliq technology. The Interconnectivity project is another important collaborative enterprise. “The object is to offer a simple installation solution for everything associated with a door,” Joe Grillo says. “A single two-wire bus will connect the lock, card reader, sensing device, request-to-exit device and other security- related items. This standardized inter- face will help installers to complete their work faster without errors and service engineers to detect any pro- blems when carrying out maintenance.” “Indala had proved itself over 14 years with a reliable product and good service,” says Anthony Artrip, Director of Security for the University of Miami’s School of Medicine. “So when we needed to upgrade our access-control system, we chose Indala’s ASP technology. We spread the conversion over two years, and ran parallel systems while it was in progress.” The new system, which uses electromagnetic proximity cards and readers instead of the earlier electrostatic technology, is faster, more efficient and more secure. There are 6,000 cardholders, 300 readers and 1,200 alarm points. ASSA ABLOY / 2002 4 9 Door Automatics: Acquiring a leading position in door automatics Besam, the world’s leading supplier of automatic door solutions, was acquired by the assa abloy Group in July 2002. Besam is headquartered in southern Sweden and operates subsidi- aries in 22 countries along with three assembly plants. The company sells and services a comprehensive range of automatic door systems which include swing doors, sliding doors, and revolv- ing doors primarily for the retail, healthcare and transport sectors. In four short years since heading up the global company, Besam President Peter Aru has altered the fundamental focus of the 40-year-old firm. From being a supplier of automatic door components to intermediaries, Besam has become a highly proactive compa- ny offering solutions direct to end-users to meet a vast array of different appli- cations. The art of going unnoticed “The whole focus of our company, its technology and its products is based on making life easier for lots of people on an everyday basis,” says Peter Aru. “This philosophy guides our r&d, design and all our marketing and sales activities around the world. Our ulti- mate objective is to supply the custo- Door Automatics: Sales by companies in the Door Automatics organization from 1 July to 31 December 2002 amounted to SEK 1,015 M. Trends SEK M Sales Average no. of employees 2002 * 2001 2000 1999 1998 1,015 693 - - - - - - - - Sales by product group Service, 35% Door Automatics, 65% * The companies within Door Automatics are consolidated from 1 july 2002. Average number of employees is comparable with consolidated sales. Average number of employees for the full year was 1,402. 50 ASSA ABLOY / 2002 mer with a safe, convenient, reliable product that goes virtually unnoticed. An automatic door solution that peo- ple can take for granted, 24 hours a day, seven days a week.” A vital ingredient in the Besam product offering is technical service, which accounts for some 35 percent of total revenues. It is at the installation and service level that the real value- added interaction with the customer takes place. Besam’s door systems are therefore sold together with a com- prehensive maintenance and service package designed to ensure long, reliable operation and to prevent unexpected downtime. Peter Aru: “In the past year our service people carried out no less than 320,000 preventive maintenance visits to customers. This is an invaluable contact with our customers and one we work very hard to make the most of. We expect the service and maintenance portion of the business to continue to grow healthily.” The general downturn in the global economy in 2002 has led to relatively flat sales on Besam’s largest markets in North America and central and northern Europe. One exception is the uk where new legislation to facilitate access to public buildings by disabled people has generated a demand for automatic door solutions. In China Besam is benefiting from a dynamic expansion in airport, hotel and general construction in the run-up to the 2008 Olympic Games. Size matters Besam is the only global player in the door automatics market and holds a unique position by virtue of its strong brand, its large installed base and its worldwide organization and after- market service. Besam sells complete door systems and service packages on a local, regional and national basis to many of the world’s top retail establishments. The retail sector accounts for 50 percent of total sales. Other leading sectors are healthcare and transportation. Peter Aru says Besam has already benefited from being a part of the assa abloy Group. “Thanks to the Group’s global presence and strength around the world we are in a much better Worsening traffic jams have made it increasingly difficult for Besam Holland to meet its promise of ‘Service in two hours’. To avoid break- ing its word, the company has found a creative new solution. Besam has obtained permission from the authori- ties to drive a scooter with a light trailer. The service van has become a service scooter. “We get through more visits in a day because our service engineers sweep elegantly past lines of traffic – and our competitors,” says Service Manager Gerrit Westhof. position when promoting product specification initiatives with architects and builders. This makes our efforts to influence Standards and to improve safety a good deal easier. More impor- tantly from a sales point of view, it strengthens our position when negotiating regional and global contracts with new and existing customers.” ASSA ABLOY / 2002 5 1 Report of the Board of Directors The Annual Report of assa abloy ab (publ.) [Corporate Organization number 556059-3575] contains the Group’s accounts for the financial year 1 January – 31 December 2002. Ownership assa abloy’s principal shareholders are Wärtsilä Corporation (7.6 percent of the capital and 22.8 percent of the votes), Investment ab Latour/SäkI (8.2 percent of the capital and 17.4 percent of the votes) and Melker Schörling (3.3 percent of the capital and 4.8 percent of the votes). They are repre- sented on the Board of Directors by, respectively, Georg Ehrnrooth and Göran Ehrnrooth; Gustaf Douglas; and Melker Schörling. Duties of the Board and Group Management The Board determines the Group’s overall strategy and the acquisition of companies and real estate. In other respects, the Board is responsible for the organization and administration of the Group in accordance with the Swedish Companies Act. Working procedures in compliance with the Act were established in 1998 and are reviewed annually. The Board consists of seven mem- bers, two employee representatives and two deputy employee representa- tives. The Board meets on not less than four occasions a year, of which one is a meeting combined with a visit and an in-depth review of a country in which the company has operations. During 2002, seven Board meetings were held. assa abloy’s auditor participates in the Board’s annual year-end meeting. Group Management consists of 17 people. Geographical responsibilities are allocated within Group Manage- ment to ensure rapid and short decision- making paths. The Group endeavors 52 ASSA ABLOY / 2002 to achieve a non-hierarchical and simple organizational structure. In the annual budget process, the Board and Group Management establish business frameworks based on improvements on previous years, which also lay the basis for a high degree of decentralization of the Group’s operations. The common financial and accounting policy establishes the financial control and monitoring framework. assa abloy’s Board of Directors decided during the year to form an Audit Committee consisting of assa abloy Board members Melker Schörling (Chairman), Gustaf Douglas and Per- Olof Eriksson, and a Remuneration Committee consisting of assa abloy Board members Georg Ehrnrooth (Chairman), Melker Schörling and Sven-Christer Nilsson. The aim of these committees is to assist the Board in giving deeper and more efficient consideration to these matters. In addition, starting with the 2003 Annual General Meeting, the major share- holders will recommend a Nomination Committee with the task of preparing for the selection of Directors, the set- ting of Directors’ remuneration and matters pertaining thereto before forthcoming General meetings. Up to the 2003 Annual General Meeting the tasks have been fulfilled by Georg Ehrnrooth, Gustaf Douglas and Melker Schörling. Important events Continued establishment of global platform and expanded product port- folio. The first stage in assa abloy’s growth strategy is to establish local leading positions throughout the world, to create a global platform and to expand the product portfolio. Acquisitions made during 2002. The acquisitions made during the year represent significant additions to the Group and add both geographical and product strengths. The companies acquired during 2002 have total sales, pro forma, of sek 2.3 billion, of which sek 1.1 billion has been consolidated. The total acquisition price was sek 3.3 billion. Goodwill amounts to sek 2.6 billion, most of which is tax-deductible. Acquisition of a new segment in the product portfolio through Besam. assa abloy’s strategy is based on creating security solutions that prevent unauthorized ingress while permitting fast, efficient evacuation and being easy and convenient to use. Door auto- matics form a natural component of such solutions. These products and systems are steadily growing in importance in society but up to now have formed only a limited part of the Group’s product portfolio. Besam is the world leader in the field of door automation. The product range consists of automatic door operators for swing doors, sliding doors and revolving doors. The com- pany’s market share in West Europe and the usa for the different product groups varies between 15 percent and 30 percent. The company is represented in more than 60 countries and has its own subsidiaries in 20 of them. Service and maintenance form an important and highly profitable part of the busi- ness and account for more than 30 percent of sales. It is only in recent years that the company has started to focus on this side of the business. Growth is currently running at more than 10 percent and there is substan- tial potential for development. Besam holds a unique position by virtue of its strong brand, its large installed base and its worldwide organization and aftermarket service. The head office and much of the production are located in Landskrona in Sweden. There are also manufacturing plants in Germany and the usa. There are about 1,400 employees, of which 310 are in Sweden. The market for door automatics has grown historically at 7-10 percent a year. In the second half of 2002 Besam’s sales totaled around sek 1,000 m, after the effect of the weak dollar, with a profit margin of over 10 percent. The acquisition price was sek 3,050 m for a debt-free company. The acquisition generated goodwill of sek 2,484 m, which it is planned to amortize over 20 years. The acquisition is expected to contribute to earnings per share from 2003 and to generate positive cash flow from the outset. The company is consolidated from 1 July 2002. To finance the acquisition of Besam, the Board of Directors of assa abloy ab decided at the Board meeting on 30 May 2002 to increase the compa- ny’s share capital by an issue of 10,000,000 new shares of Series b, in line with authority given at the Annual General Meeting. The issue price was sek 126 per share. The issue was made by private placement to a number of Swedish and foreign institutional investors. The issue provided the com- pany with sek 1.26 billion of capital before costs. Acquisitions in New Markets. Poli Cerraduras, the market leader in Chile, was acquired on 1 September 2002. The company has sales of sek 75 m and 300 employees. The acquisition of Poli strengthens assa abloy’s position in South America and will contribute to earnings per share from the outset. codas Electronica, hid’s distri- butor in Argentina, was acquired on 1 August 2002. uba Almadis, for many years Assa’s distributor in Lithuania, was acquired on 1 October. Radikovic in Slovenia, acquired on 1 October, is focused pri- marily on high-security solutions and is a distributor for effeff. Union Locks Ltd in Kenya was acquired on 1 July 2002. On 1 December 2002 the out- standing minority share in Mul-T- Lock in Israel was acquired. Acquisitions of distributors in mature markets. vema, which was acquired on 1 April 2002, is market leader in the electromechanical field in the Netherlands. vema is a distributor for effeff’s product range. The company has annual sales of eur 9 m and shows high profitability. The acquisition will contribute to earnings per share from the outset. initial, since renamed Abloy France, was acquired on 1 April and special- izes in electromechanical locking solu- tions, based on its position as Abloy’s distributor in France for many years. The company has annual sales of eur 3.3 m with stable profitability and growth. Assets of the German company Melchert were acquired at book value. The company has annual sales of about eur 8 m and for the last ten years has been Assa Ruko GmbH’s partner in marketing security packages for lock- smiths. Acquisitions made in 2003. Inter- lock Holding ag in Switzerland, which was acquired on 1 January 2003, manufactures access-control cards with a wide range of technical appli- cations, including contactless cards for access-control, time-and-attendance control and the identification industry. The company employs 70 people and has annual sales of chf 12.6 m. The acquisition strengthens assa abloy’s position in electronic identification. For customers in Europe the acquisi- tion will provide a wider choice of card-based access-control solutions and stronger support. SEK M 25,000 20,000 15,000 10,000 5,000 0 SEK M 3,500 2,800 2,100 1,400 700 0 SEK M 30,000 24,000 18,000 12,000 6,000 0 % 40 32 24 16 8 0 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Sales *Key data for 2001 excludes non-recurring items. Income before tax* Operating cash flow Capital employed Return on capital employed, % * Return on capital employed before goodwill amortization * ASSA ABLOY / 2002 5 3 Leverage Group strength. The second stage in assa abloy’s development strategy is to develop Group strength and to leverage synergy effects that arise in various areas. Fast, successful integration of acquired companies is an important factor in developing Group strength. Integration of acquired companies. assa abloy took part in the Volvo Ocean Race to support the process of integrating the more than 100 compa- nies that it had acquired around the world, and to develop and strengthen assa abloy’s identity internationally. The objective was to unite all the companies under a single vision and generate common values and work ethics. assa abloy’s internal Attitude Survey showed that the integration project has greatly increased awareness about assa abloy within the Group. The increase is especially great among production workers. 57 percent of assa abloy’s employees believe that their knowledge of assa abloy’s values, working methods and management philosophy has increased during the past year. The results also show that employees have great pride in their local company and that their positive attitude to assa abloy has increased. 75 percent say that they have great pride in their local company and 69 percent have a ‘positive’ or ‘very positive’ attitude to assa abloy. The Volvo Ocean Race project has also launched assa abloy as ‘The world’s leading lock company’ all round the world. assa abloy’s total exposure in the media is estimated to have been worth more than usd 60 m. The Volvo Ocean Race project has clearly speeded up and strengthened the Group’s will to work together to develop Group strength. A number of new joint Group projects to leverage possible synergy effects in Research & Development, purchasing, production 54 ASSA ABLOY / 2002 and sales have been initiated during the year. Developing the market towards ‘more intelligent locks’ and ‘total solutions’ requires coordinated investment in r&d, which is achieved through the Group’s Product Council. Last year assa abloy’s cliq concept was launched as a successful example of such a joint project. In order to utilize assa abloy’s economic advantages of joint production of components and products, more and more production is being moved to the Group’s low- cost countries, for example in eastern Europe, Mexico and China. The Group’s purchasing of raw materials, components and finished products is continually coordinated by the Group’s Purchasing Council, which has generated good results during the year. assa abloy has also worked for some while to introduce a Group-wide model for stock control, which has succeeded in freeing sek 340 m of inventory in the past 24 months. Benchmarking. Continuous bench- marking between the various units has continued to produce results in the form of higher productivity and further margin improvements in many companies. The Group’s operating margin before goodwill amortization increased to 14.2 percent, even though the acquisitions of Besam and tesa produced lower margins than other Group companies initially. organic increased focus on Accelerating growth through the customer. The Group is now ready to embark on the third stage of its development strategy, to accelerate organic growth by increasing focus on the customer. Security requirements are increasing throughout the world. The level of security varies greatly from country to country, and assa abloy has an excellent business opportunity to drive the development of high- security technology through increased understanding of individual customers’ needs and better education of the market about security. The Group’s worldwide sales network is a source of great strength. Through increased cross-selling of the Group’s broad and comprehensive product portfolio, the Group can strengthen its competitiveness and meet customers’ requirements better. The distribution process is currently undergoing change. Two trends can be detected: towards more direct selling to the market, and towards more specialist distribution. Furthermore, with more sophisticated locking solutions and the need to satisfy particular customer demands, there are obvious benefits in distributors focusing on different users, e.g. on large or small companies or on private houses. assa abloy’s organic growth for 2002 amounted to 2 percent, which should be compared with the 2-3 percent above gnp growth judged to be the normal rate of growth for the industry over a full business cycle. The weak growth seen in 2002 is explained in part by a weak economy in several major markets and in part by the generally low rate of inflation. Comments on the income statement Group sales totaled sek 25,396.9 m (22,510.0). This is an increase of 13 percent compared with 2001. In local currencies the increase amounted to 17 percent, comprising organic growth of 2 percent (3) for comparable units, while acquired units accounted for 15 percent of the increase in volume. interest, Earnings before tax, depreciation and amortization (ebitda) amounted to sek 4,545.0 m (4,019.9). This was an increase of 13 percent compared with 2001. The increase is primarily due to improvements in operational units and to acquisitions. The gross margin, defined as ebitda in relation to sales, was 17.9 percent (17.9). The unchanged margin is due to the lower margins of the newly acquired units. The Group’s operating income before goodwill amortization amounted to sek 3,595.0 m (3,159.2), an increase of 14 percent. The operating margin before goodwill amortization (EBITA) was 14.2 percent (14.0). Goodwill amortization amounted to sek 957.1 m (860.4). The increase is attributable to acquisitions during 2002 and 2001. Consolidated income before tax and non-recurring items amounted to sek 2,015.0 m (1,641.6). This represents an increase of 23 percent compared with the preceding year. In translating the income statements of subsidiaries, foreign exchange effects had a negative impact of sek 88 m (42) on income before tax. Profit margin, defined as income before tax and non-recurring items in relation to sales, was 7.9 percent (7.3). The Group’s tax charge totaled sek 689.1 m (507.4), corresponding to an effective tax rate of 34.2 percent (34.4) in relation to income before tax. Net income for the year amounted to sek 1,269.9 m (948.6). The Parent Company’s income before tax amounted to sek –24.8 m (430.6). Comments on the cash flow analysis The consolidated operating cash flow amounted to sek 3,524.7 m (2,338.4), equivalent to 175 percent (142) of income before tax. Cash flow from operating activities before interest and tax totaled sek 4,539.3 m (4,062.8), an increase of 12 percent over the previous year. Projects to simplify flows and reduce working capital are contributing to the strong cash flow, and there is significant potential for further improvements. Capital expenditure on tangible fixed assets, less sales of tangible fixed assets, amounted to sek 838.9 m (829.9), which corresponded to 88 percent (96) of depreciation of tangible fixed assets applicable to the financial year. Total purchase price for invest- ments in subsidiaries amounted to sek 3,335.4 m (6,979.6). Acquired net debt totaled sek 92.3 m (82.2). The acquisitions carried out in 2002 were financed by a new issue, existing borrowings and internally generated cash flow. The dividend to shareholders for the 2001 financial year was sek 353.8 m (317.8), which represents sek 1.00 per share. The Parent Company’s cash flow amounted to sek 141.0 m (-357.9). Comments on the balance sheet Accounts receivable amounted to sek 4,241.5 m (4,338.5), corresponding to 16.7 percent (19.3) of sales. Inventories amounted to sek 3,595.0 m (3,812.0), which corresponds to 14.2 percent (16.9) of sales. Intangible fixed assets amounted to sek 16,385.8 m (16,557.8). Goodwill on acquisitions of sek 2,629.3 m were added during the year. A valuation model based on discounted future cash flow is used for regular reassessment of the possible need to write down goodwill. This has not resulted in any write-down during the year. Number of employees 2,0 30,000 SEK M 12,000 10,000 8,000 6,000 4,000 2,000 0 1998 1999 2000 2001 2002 % 60 50 40 30 20 10 0 SEK M 16,000 12,000 8,000 4,000 0 1,5 1,0 0,5 0,0 24,000 18,000 12,000 6,000 0 1998 1999 2000 2001 2002 Shareholders' equity Equity ratio Net debt Net debt / equity ratio SEK M 1.0 0.8 0.6 0.4 0.2 0.0 1998 1999 2000 2001 2002 Average numbers of employees Sales per average no. of employees ASSA ABLOY / 2002 5 5 Tangible fixed assets amounted to sek 6,175.0 m (6,941.5). Direct net investments in tangible fixed assets totaled sek 838.9 m (829.9). Shareholders’ equity totaled sek 12,381.2 m (11,845.6). The equity ratio was 38.2 percent (35.6). The net debt / equity ratio was 1.13 (1.31). Capital employed in the Group – defined as total assets less interest- bearing assets and non-interest-bearing short-term and long-term liabilities, including deferred tax liabilities – amounted to sek 26,701 m (27,861). The return on capital employed was 9.9 percent (9.7). invested Financing Cash and cash equivalents amounted to sek 1,408.0 m (1,418.4). Cash and in cash equivalents are banks with high credit ratings. Net debt amounted to sek 13,988.9 m (15,534.2), of which sek 1,023.3 m (1,093.0) consisted of pension liabili- ties. In spite of the year’s acquisitions, net debt fell. The reduction was due primarily to the strong operating cash flow, the new issue, and positive exchange rate effects. The Group’s long-term financing consists mainly of a Multi-Currency Revolving Credit (mrcf) agreement for a maximum of eur 825 m (1,200), an emtn program for a maximum of eur 1,500 m (1,500), a Nordic mtn program for sek 3,000 m (2,000) and a Swedish commercial paper program for sek 5,000 m (3,000). At year-end the emtn program had been utilized for sek 5,494 m, the commercial paper program for sek 3,735 m, the Nordic mtn program for sek 1,831 m and the mrcf agreement for sek 1,313 m. The interest-coverage ratio, defined as income before taxes, plus net interest and non-recurring items, divided by net interest, was 3.9 (3.5). Periods for fixed-interest-rate bor- rowings are generally short, averaging less than one year. This is partly because Group revenues largely follow the trends in each country, and partly due to the strong cash flow. 56 ASSA ABLOY / 2002 Ratings Standard & Poor’s has assigned an ‘a-minus’ long-term and an ‘a-2’ short-term corporate credit rating to assa abloy. The Swedish commercial paper program has been rated ‘k1’. The ratings reflect the Group's strong position on the stable lock market, its geographically diverse earnings base, its strong cash flow and the company’s financial profile. Personnel The average number of employees was 28,754 (24,211). The increase was mainly due to the acquisitions. The Group’s total wage, salary and other remuneration payments, includ- ing holiday pay but excluding social welfare costs, amounted to sek 6,701.2 m (5,740.9). The average number of employees in the Parent Company was 37 (34). Environmental impact Four of the assa abloy Group’s sub- sidiaries in Sweden carry out permitted business activities in accordance with environmental regulations. The Group’s permitted and registered activities affect the external environment chiefly through the subsidiaries Assa ab, Assa Industri ab, ab fas Låsfabrik and fix ab. The companies operate machine shops and foundries and associated surface-coating plants which have an impact on the external envi- ronment through the discharge of water and air. The subsidiaries Assa ab, Assa Industri ab, ab fas Låsfabrik and fix ab are actively addressing environ- mental questions, and are certified in accordance with iso 14001. dispute Legal disputes assa abloy’s regarding VingCard’s liability to pay damages to a development company in Texas, for which sek 166 m was reserved in the 2001 accounts, has been finally decided in line with the earlier judgment. another However, company, Ibertech, has since sued VingCard on the grounds of the same contractual obligations. Settlement negotiations are in hand and it is still too early to judge the final outcome of this dispute. No reservation has therefore been made in the consolidated balance sheet. In the 2001 Annual Report assa abloy reported a dispute in which the former owner of Mul-T- Lock was claiming a sum of about usd 45 m. After assa abloy won an important interim court judgment in Tel Aviv, the parties have come to a settlement without significant net cost for assa abloy. Accounting principles The new recommendations of the Swedish Financial Accounting Stand- ards Council, which came into force on 1 January 2002, have been adopted in this Report. This has not resulted in adjustment of figures for previously reported periods. In all other respects accounting principles are unchanged from previous years. Outlook for 2003 assa abloy’s development prospects are substantial. The Group’s strong position, security-driven growth and potential for continued rationalization as well as the ongoing consolidation of the lock industry create opportunities for continued good growth and profit development. Proposed disposition of earnings As shown in the consolidated balance sheet, the Group’s unrestricted equity amounts to sek 1,672.4 m (2,200.6). No transfer to the Group’s restricted equity is required. The following unappropriated earnings are available for disposition by the shareholders at the Annual General Meeting: Net income for the year: sek -26.4 m Unappropriated earnings brought forward: sek 3,394.6 m Total: sek 3,368.2 m The Board of Directors and the President propose that a dividend of sek 1.25 per share, a maximum total of sek 457.4 m, be distributed to shareholders and that the remainder be carried forward to the new financial year. Stockholm, 6 February 2003 Georg Ehrnrooth Chairman Melker Schörling Vice Chairman Gustaf Douglas Per-Olof Eriksson Göran Ehrnrooth Sven-Christer Nilsson Carl-Henric Svanberg President Mats Persson Employee representative Gösta Johnsson Employee representative Our audit report was issued on 7 February 2003 PricewaterhouseCoopers ab Anders Lundin Authorized Public Accountant ASSA ABLOY / 2002 5 7 Consolidated income statement and cash flow statement Consolidated income statement Consolidated cash flow statement Sales (Note 1) Cost of goods sold Gross income 2002 EUR M1) 2002 SEK M 2001 SEK M 2000 SEK M 2002 EUR M1) 2002 SEK M 2001 SEK M 2000 SEK M 2,778.7 25,396.9 22,510.0 14,394.1 OPERATING ACTIVITIES -1,698.7 -15,525.9 -13,863.1 -8,567.6 Operating income 288.6 2,637.9 2,132.8 1,720.2 1,080.0 9,871.0 8,646.9 5,826.5 Depreciation and amortization (Note 4) 208.7 1,907.1 1,721.1 985.2 Selling expenses -441.9 -4,038.6 -3,716.1 -2,496.1 Administrative expenses (Note 3) -190.6 -1,742.0 -1,420.1 Research and development costs Other operating income Other operating expenses -46.9 13.0 -20.3 -946.1 -233.3 105.4 -428.9 -367.0 118.9 146.7 -185.4 -131.2 -149.2 Operating income before goodwill amortization (Notes 2, 5) 393.3 3,595.0 3,159.2 2,107.2 Goodwill amortization (Note 4) -104.7 -957.1 Non-recurring items (Note 7) - - -860.4 -166.0 -387.0 - Operating income 288.6 2,637.9 2,132.8 1,720.2 Adjustment for non-recurring items - - 166.0 - Adjustment for non-cash items (Note 25) -0.6 -5.7 43.0 -1.6 Cash flow before interest and tax 496.7 4,539.3 4,062.8 2,703.8 Paid and received interest (Note 25) Income tax paid Cash flow before changes in working capital -63.5 -56.6 -580.6 -516.9 -817.4 -537.1 -356.9 -453.2 376.6 3,441.8 2,708.3 1,893.7 Change in working capital (Note 25) 44.3 404.9 -77.1 -94.3 Cash flow from operating activities 420.9 3,846.7 2,631.2 1,799.4 INVESTING ACTIVITIES Acquisitions/disposals of tangible fixed assets (Note 25) -91.8 -838.9 -829.9 -496.9 Financial items (Note 8) -69.0 -631.1 -664.4 -330.6 Investments in subsidiaries (Note 25) -374.8 -3,425.3 -6,286.9 -4,672.4 Share in earnings of associated companies 0.9 8.2 7.2 12.4 Income before tax 220.5 2,015.0 1,475.6 1,402.0 Income tax (Note 9) Other taxes Minority interests Net income -70.1 -5.4 -639.9 -465.5 -443.8 -49.2 -41.9 -9.3 -6.1 -56.0 138.9 1,269.9 -19.6 948.6 -33.8 915.1 Investments in associated companies (Note 25) Other investments (Note 25) Cash flow from investing activities FINANCING ACTIVITIES New share issues Dividends paid Net cash effect of changes in borrowings -1.0 0.6 -9.3 5.5 - 4.6 - -19.9 -467.0 -4,268.0 -7,112.2 -5,189.2 136.1 1,243.7 - 1,509.9 -38.7 -353.8 -317.8 -237.5 -35.3 -322.3 4,577.2 3,336.3 Cash flow from financing activities 62.1 567.6 4,259.4 4,608.7 Earnings per share after tax and before conversion, SEK* Earnings per share after tax and full conversion, SEK** Earnings per share after tax and 3.53 2.99*** 2.76 CASH FLOW (Note 25) 16.0 146.3 -221.6 1,218.9 3.53 2.98*** 2.73 CHANGE IN NET DEBT Net debt at 1 January 2) 1,695.9 15,534.2 8,559.9 2,997.7 Operating cash flow -385.6 -3,524.7 -2,338.4 -1,755.7 full conversion excluding goodwill, SEK** 6.13 5.39*** 3.88 * Numbers of shares, in thousands, used in the calculations are 359,952 for 2002, 353,236 for 2001 and 331,813 for 2000. ** Numbers of shares, in thousands, used in the calculations are 366,716 for 2002, 357,276 for 2001 and 338,051 for 2000. *** Excluding non-recurring items 1) EUR/SEK average rate 9.14 2) EUR/SEK rate at 31 Dec 9.16 58 ASSA ABLOY / 2002 Tax paid Acquisitions New share issues Dividends 56.6 516.9 537.1 453.2 390.4 3,568.7 7,254.9 8,164.0 -136.1 -1,243.7 - -1,509.9 38.7 353.8 317.8 237.5 -26.9 Translation differences -132.7 -1,216.3 1,202.9 Net debt at 31 December 2) 1,527.2 13,988.9 15,534.2 8,559.9 OPERATING CASH FLOW Cash flow from operating activities 420.9 3,846.7 2,631.2 1,799.4 Acquisitions/disposals of tangible fixed assets (Note 25) Adjustment for income tax paid -91.8 56.6 -838.9 -829.9 -496.9 516.9 537.1 453.2 Operating cash flow 385.6 3,524.7 2,338.4 1,755.7 Consolidated balance sheet Assets Equity and liabilities 31 Dec. 2002 EUR M2) 31 Dec. 2002 SEK M 31 Dec. 2001 SEK M 31 Dec. 2000 SEK M 31 Dec. 2002 EUR M2) 31 Dec. 2002 SEK M 31 Dec. 2001 SEK M 31 Dec. 2000 SEK M Fixed assets Intangible fixed assets Goodwill (Note 10) 1,770.0 16,213.5 16,371.0 12,077.9 Intangible rights (Note 11) 18.8 172.3 186.8 181.1 Shareholders' equity (Note 16) Restricted equity Share capital Restricted reserves 39.9 365.9 353.8 352.5 1,129.1 10,342.9 9,291.2 8,578.1 Total intangible fixed assets 1,788.8 16,385.8 16,557.8 12,259.0 Total restricted equity 1,169.0 10,708.8 9,645.0 8,930.6 Tangible fixed assets (Note 12) Buildings Land and land improvements Construction in progress Machinery Equipment 234.8 2,150.8 2,228.2 1,618.3 73.4 27.7 672.7 254.1 698.8 360.6 525.9 237.2 263.9 2,417.2 2,909.7 1,914.3 74.3 680.2 744.2 515.3 Unrestricted equity Unrestricted reserves Net income Total unrestricted equity 43.8 138.9 182.7 402.5 1,252.0 1,269.9 948.6 813.3 915.1 1,672.4 2,200.6 1,728.4 Total shareholders‘ equity 1,351.7 12,381.2 11,845.6 10,659.0 Total tangible fixed assets 674.1 6,175.0 6,941.5 4,811.0 Minority interests 36.1 330.9 481.7 559.8 Financial fixed assets Shares in associated companies (Note 14) Other shares and participations Long-term receivables Deferred tax receivables Total financial fixed assets 4.5 5.2 10.2 53.0 72.9 41.4 47.3 93.6 485.7 668.0 22.8 47.5 118.2 378.3 566.8 59.8 7.3 44.2 351.7 463.0 Provisions Provisions for PRI pensions Provisions for other pensions Deferred tax liability Total provisions Long-term liabilities (Note 17) 11.3 100.4 33.9 103.1 920.2 310.2 62.6 1,030.4 358.3 58.9 910.1 281.3 145.6 1,333.5 1,451.3 1,250.3 Total fixed assets 2,535.8 23,228.8 24,066.1 17,533.0 Current assets Inventories and work in progress (Note 15) Accounts receivable Prepaid expenses and accrued income Other receivables Short-term investments (Note 24) 392.5 463.0 28.1 48.8 44.8 3,595.0 3,812.0 2,808.4 4,241.5 4,338.5 3,276.3 257.2 446.2 410.0 256.9 502.8 191.4 467.7 800.0 1,020.0 Cash and bank balances (Note 24) 118.1 1,081.9 892.7 732.1 Total current assets 1,095.3 10,031.8 10,602.9 8,495.9 Long-term loans (Note 18) 920.7 8,433.5 11,006.1 7,712.2 Convertible debenture loans (Note 19) 100.0 915.7 1,104.9 250.0 Other long-term non- interest-bearing liabilities 8.7 79.9 16.3 3.0 Total long-term liabilities 1,029.4 9,429.1 12,127.3 7,965.2 Current liabilities Short-term loans Income tax liability Accounts payable Accrued expenses and prepaid income (Note 20) 564.6 5,172.0 4,074.5 1,398.4 50.6 463.1 390.2 214.7 168.8 1,546.0 1,574.1 1,407.3 218.4 2,000.7 1,861.3 1,779.0 TOTAL ASSETS 3,631.1 33,260.6 34,669.0 26,028.9 Other current liabilities 65.9 604.1 863.0 795.2 Total current liabilities 1,068.3 9,785.9 8,763.1 5,594.6 ASSETS PLEDGED (Note 21) Real estate mortgages Chattel mortgages 5.3 0.0 48.4 0.3 48.3 0.3 2.0 1.8 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 3,631.1 33,260.6 34,669.0 26,028.9 CONTINGENT LIABILITIES (Note 22) Guarantees Other 48.5 0.2 444.2 347.7 462.9 2.0 2.2 - 2) EUR/SEK rate at 31 Dec 9.16 ASSA ABLOY / 2002 5 9 Parent Company income statement and cash flow statement Parent Company income statement Parent Company cash flow statement Administrative expenses (Notes 3, 5) -17.6 -160.9 -162.7 Net income 2002 EUR M1) 2002 SEK M 2001 SEK M OPERATING ACTIVITIES Depreciation (Note 4) Income from the disposal of shares in subsidiaries (Note 6) Liquidation loss (Note 6) Reversal of appropriations Cash flow before changes in working capital -4.4 2002 EUR M1) -2.9 0.3 -10.4 8.6 - 2002 SEK M -26.4 2.8 -94.9 78.9 - -39.6 2001 SEK M 448.9 4.1 -192.1 322.6 -18.3 565.2 Current receivables increase/decrease (-/+) 21.5 196.6 -245.6 Current operating liabilities increase/decrease (+/-) Changes in working capital -33.1 -11.6 -302.9 -106.3 370.7 125.1 Cash flow from operating activities -16.1 -145.9 690.3 INVESTING ACTIVITIES Disposal/Acquisitions equipment 0.4 3.7 -4.5 Investments in subsidiaries -214.6 -1,961.7 -3,690.4 Sales of shares in subsidiaries Changes in other financial fixed assets 34.1 - 311.6 2,759.9 - 1.4 Cash flow from investing activities -180.1 -1,646.4 -933.6 FINANCING ACTIVITIES New share issues Dividends paid Net cash effect from changes in borrowings Cash flow from financing activities 137.9 -38.7 112.3 211.5 1,260.0 -353.8 1,027.1 1,933.3 - -317.8 203.2 -114.6 CASH FLOW 15.3 141.0 -357.9 CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January 2) Cash flow Cash and cash equivalents at 31 December (Note 24) 6.5 15.4 59.0 141.0 416.9 -357.9 21.9 200.0 59.0 Other operating income Operating income (Note 2) 58.3 40.7 532.8 371.9 667.1 504.4 Income from financial investments: Income from shares and participation in subsidiaries (Note 6) Financial items (Note 8) Income before tax Appropriations Income tax (Note 9) Net income 32.4 -75.8 -2.7 - -0.2 -2.9 295.8 -692.5 -24.8 - -1.6 -26.4 348.8 -422.6 430.6 18.3 0.0 448.9 1) EUR/SEK average rate 9.14 2) EUR/SEK rate at 31 Dec 9.16 60 ASSA ABLOY / 2002 Parent Company balance sheet Assets Equity and liabilities 31 Dec. 2002 EUR M2) 31 Dec. 2002 SEK M 31 Dec. 2001 SEK M 31 Dec. 2002 EUR M2) 31 Dec. 2002 SEK M 31 Dec. 2001 SEK M Shareholders’ equity (Note 16) Fixed assets Intangible fixed assets Intangible rights (Note 11) Total intangible fixed assets Tangible fixed assets (Note 12) Equipment Total tangible fixed assets Financial fixed assets 0.1 0.1 0.6 0.6 0.9 0.9 5.2 5.2 - - Restricted equity Share capital 13.0 13.0 Share premium reserve Statutory reserve Total restricted equity Unrestricted equity Retained earnings 39.9 901.7 70.5 365.9 353.8 8,259.6 6,884.5 645.4 645.4 1,012.1 9,270.9 7,883.7 370.6 -2.9 367.7 3,394.6 3,407.8 -26.4 448.9 3,368.2 3,856.7 Shares in subsidiaries (Note 13) 2,431.8 22,275.5 20,625.4 Net income Receivables due from subsidiaries 301.6 2,762.7 2,762.7 Total unrestricted equity Other long-term receivables Other financial assets - 4.5 - 40.8 3.1 40.8 Total shareholders’ equity 1,379.8 12,639.1 11,740.4 Total financial fixed assets 2,737.9 25,079.0 23,432.0 Long-term liabilities Total fixed assets 2,738.5 25,085.2 23,445.0 Long-term loans Current assets Long-term loans due to subsidiaries Convertible debenture loan (Note 19) Receivables due from subsidiaries 875.7 8,021.2 8,113.8 Corporate credit line (Note 18) 657.2 301.6 100.0 31.0 6,019.8 2,762.7 915.7 283.7 6,218.2 2,762.7 1,104.9 212.9 Total long-term liabilities 1,089.7 9,981.9 10,298.7 Other receivables Prepaid expenses and accrued income Other short-term investments (Note 24) Cash and bank balances (Note 24) Total current assets 1.2 4.0 0.2 21.6 902.7 10.6 36.8 1.8 198.2 57.1 162.7 160.6 51.1 Current liabilities Short-term loans 8,268.6 8,545.3 Accounts payable TOTAL ASSETS 3,641.1 33,353.8 31,990.3 ASSETS PLEDGED None None None Liabilities to subsidiaries Accrued expenses and prepaid income (Note 20) Other current liabilities Total current liabilities TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 79.0 1.4 723.4 12.8 406.4 18.3 1,082.5 9,916.8 9,381.9 6.0 2.7 54.9 24.9 122.8 21.8 1,171.6 10,732.8 9,951.2 3,641.1 33,353.8 31,990.3 CONTINGENT LIABILITIES (Note 22) Guarantees 787.5 7,213.1 5,217.2 2) EUR/SEK at 31 Dec 9.16 ASSA ABLOY / 2002 6 1 Accounting and valuation principles The Group’s accounting and valuation principles comply with Sweden’s Annual Accounts Act and the stan- dards of the Swedish Financial Accounting Standards Council, in accordance with the listing contract of the Stockholm Stock Exchange. The new recommendations of the Swedish Financial Accounting Standards Council, which came into force on 1 January 2002, have been adopted in this Report. This has not resulted in adjustment of figures for previously reported periods. In all other respects accounting principles are unchanged from previous years. Consolidated accounts The consolidated financial statements include the Parent Company and com- panies in which the Parent Company held more than 50 percent of the votes at year-end, as well as companies in which the Parent Company exercises control by some other means. The consolidated income statement includes companies acquired during the year, with values as from the date of acqui- sition. The consolidated financial statements are prepared in accordance with the purchase method, which means that the acquisition value of shares in subsidiaries is eliminated against their shareholders’ equity at the time of acquisition. In this context, shareholders’ equity in subsidiaries is determined on the basis of the fair value of assets, liabilities and provi- sions at the date of acquisition. If required in accordance with the pur- chase method, an allocation is made to a restructuring provision. In the case of untaxed reserves in acquired sub- sidiaries, the estimated tax liability is reported as a provision in accordance with the tax rate in each country. If the acquisition value of shares in a subsidiary exceeds the acquired share- holders’ equity as computed above, the difference is reported as goodwill, which is amortized according to plan. If the acquisition value of shares in subsidiaries is less than the acquired shareholders’ equity, a provision for negative goodwill is made, which is 62 ASSA ABLOY / 2002 dissolved in accordance with a defined plan. Minority interests Minority interests in the year’s income statement and shareholders’ equity are based on subsidiaries’ accounts prepared in accordance with the Group’s accounting principles. Associated companies Associated companies are defined as companies which are not subsidiaries but companies in which the Parent Company has shareholdings which, directly or indirectly, represent at least 20 percent of all participations. Partici- pations in associated companies are reported in accordance with the equity method. The consolidated income statement includes shares in the income before tax of associated companies. In cases in which the acquisition value of shares in associated companies was higher than the shareholders’ equity in the acquired company at the acquisi- tion date, the difference is amortized on the same basis as consolidated goodwill, following an analysis of the character of the surplus value, and is charged against share in earnings of associated companies. Participation in the income tax of subsidiaries is included in the Group’s tax expense. In the consolidated balance sheet, share- holdings in associated companies are reported at the acquisition value, adjusted for dividends and participation in income after the date of acquisition. In determining the equity share, untaxed reserves are attributed to shareholders’ equity after deduction for estimated tax. Translation of foreign subsidiaries The Group applies the so-called current method for translating the accounts of all foreign subsidiaries that are consid- ered to operate with a high degree of independence. The current method has been applied so that all balance sheet items except net income are translated at the closing-day rate. Net income is translated at the average rate and the difference arising thereby is taken directly to unrestricted reserves. Subsidiaries’ income statements are translated at the average rate for the financial year. Subsidiaries operating in high-inflation countries, e.g. Romania, are translated using the so-called monetary method. The Group hedges to a limited extent its investments in foreign net assets. Hedging is implemented through loans and forward exchange contracts. These are valued at the exchange rate prevailing at year-end. Exchange rate differences on hedging operations, as well as differences that arise when foreign net assets are translated, are carried directly to shareholders’ equity in the balance sheet. Interest differentials on forward contracts are annualized and reported in the income statement. Exchange rates The rates for currencies used in the Group were as follows (average for the year and rate at year-end): Argentina Australia Bermuda Brazil Canada Switzerland Chile China Czech Republic Denmark Estonia Euroland Great Britain Hong Kong Hungary Indonesia Israel India Japan Kenya Lithuania Mauritius Mexico Malaysia Nigeria Norway New Zealand Poland Romania Russia Singapore Slovenia Average Year-end rate 2.60 4.95 8.84 2.47 5.55 6.30 0.012 1.06 0.29 1.23 0.59 9.16 14.04 1.12 0.039 0.0010 1.85 0.18 0.074 0.11 2.65 0.30 0.84 2.30 0.069 1.26 4.61 2.28 0.00026 0.27 5.04 0.044 rate 2.76 5.26 9.82 3.46 6.18 6.23 0.014 1.17 0.30 1.23 0.58 9.14 14.57 1.24 0.038 0.0010 2.06 0.20 0.079 0.12 2.64 0.32 1.01 2.56 0.080 1.22 4.48 2.39 0.00029 0.31 5.42 0.041 ARS AUD BMD BRL CAD CHF CLP CNY CZK DKK EEK EUR GBP HKD HUF IDR ILS INR JPY KES LTL MUR MXN MYR NGN NOK NZD PLN ROL RUR SGD SIT Slovakia Thailand USA Uruguay South Africa Zimbabwe Average Year-end rate 0.22 0.20 8.76 0.32 1.01 0.16 rate 0.21 0.23 9.71 0.51 0.93 0.18 SKK THB USD UYU ZAR ZWD Revenue recognition Revenue recognition of sales of goods is reported at the time of delivery to the customer. All sales are reported less vat, discounts, returns and freight. Intra-Group sales Pricing of deliveries between Group companies is in accordance with busi- ness principles and at market prices. Internal profits arising from intra- Group sales have been eliminated. Leasing Only operational leasing occurs in the Group. Research and development Research costs are expensed as they are incurred. The costs of development work are included in the balance sheet only if future economic benefits can be reliably demonstrated and estimated. Depreciation according to plan Depreciation according to plan is based on the historical cost of assets, with due consideration of the estimated economic life of the asset. A deprecia- tion period of five years has been applied for intangible rights. Group goodwill is amortized over 10-20 years, depending on the type of company concerned. Goodwill in well-estab- lished companies with independent and well-known trademarks is amortized over 10 years. Goodwill in companies that, in addition, constitute a strategic acquisition in terms of products or markets is amortized over 20 years. The depreciation period for office buildings is 50 years, and for industrial buildings 25 years. A depreciation period of 7-10 years is applied to machinery and other technical facilities. Equipment and tools are depreciated over 3-6 years. Taxation All taxes that are expected to apply to the income reported are accounted for in the income statement. These taxes have been calculated in accordance with the tax regulations in each country and are reported as current-year tax. Costs and revenue that affect both the financial statements and income taxa- tion but in different financial years are reported as deferred tax. Deferred income taxes are account- ed for under the balance sheet liability method. Accordingly deferred tax is accounted for on all temporary differ- ences between the carrying amount of an asset or liability and its tax base. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Cash flow statement The cash flow statement has been prepared according to the indirect method. The reported cash flow includes only transactions involving cash payments. As well as cash and bank balances, cash and cash equivalents are taken to include short-term investments that are exposed to only small risks of change in value and have a maturity date less than three months from the date of acquisition. Intangible and tangible assets Intangible and tangible assets are reported at acquisition value after deduction for accumulated deprecia- tion according to plan and possible writing-down. A valuation model based on discounted future cash flow is used for regular reassessment of the possible need to write down goodwill. Inventories Inventories are valued at the lower of cost and net realizable value in accor- dance with the fifo method. Provisions have been made for obsolescence. Deductions are made for internal profits arising from deliveries between Group companies. Work in progress and finished goods include both direct costs incurred and an allocation of indirect manufacturing costs. Receivables Receivables have been valued in the amounts expected to be received. Receivables, liabilities and provisions in foreign currency Receivables, liabilities and provisions in foreign currency in individual com- panies’ accounts have been translated at the year-end rate. The forward rate has been used when exchange rates have been hedged by means of for- ward contracts. Provisions Provisions have been made for all obligations attributable to the fiscal year or prior fiscal years which, on the closing date, were likely to be incurred, but which were uncertain as to amount or date of payment. In making provisions for pensions, companies follow their country’s local rules. ASSA ABLOY / 2002 6 3 employed. The internal bank manages a Group-wide netting system to mini- mize the number of payment transac- tions and related costs. In countries with several operating companies, surpluses and deficits are matched in the local subsidiaries at country level through cash pool solutions. The internal bank manages the investment or financing of these cash pools. Financial derivative instruments Financial derivative instruments such as currency and interest-rate forwards are used to the extent necessary. The object of using derivative instruments is solely to reduce exposure to financial risks. Financial derivative instruments are not used with speculative intent. Financial risk management assa abloy is exposed to a variety of financial risks through its international business operations. Organization and activities assa abloy’s financial policy, which is reviewed annually by the Board of Directors, constitutes a framework of guidelines and regulations for the management of financial risks and financial activities in general. assa abloy’s financial activities are coordinated centrally within the subsidiary assa abloy Treasury s.a. in Switzerland, which functions as the Group’s internal bank. External financial transactions are conducted by the internal bank, which also handles transactions involving foreign curren- cies and interest rates. The internal bank achieves many economies of scale, for example concerning pricing of various interest rates. Financing and liquidity risks Financing and liquidity risks are defined as the risks of being unable to meet payment obligations as a result of inadequate liquidity or difficulties in obtaining credit from external sources. The internal bank is responsible for external borrowing and external investments. assa abloy strives to have access, on every occasion, to both short-term and long-term loan facilities appropriate to its anticipated needs for the year ahead, apart from major acquisitions. Counterparty risks Financial risk management exposes assa abloy to certain counterparty risks. This exposure arises, for instance, from the placement of surplus cash and through the use of derivative instruments. Group financial policy prescribes detailed rules for handling counterparty risks. expense, but there is also an indirect effect on the Group’s operating income as a result of the impact of interest rates on the economy as a whole. The internal bank is responsible for identifying and managing the Group’s interest-rate exposure. Interest dura- tion in the Group is generally short, with an average duration of less than a year. At year-end, the average interest duration was around 9 months. Currency risks Currency risks affect assa abloy mainly through translation of capital employed and net debt, through trans- lation of income in foreign subsidiaries, and through flow of goods between countries (‘transaction exposure’). Translation exposure. The effect arising on translation of capital employed is limited by the fact that financing is largely in local currency. The currency exposure and gearing per currency in the Group should generally reflect the overall exposure and gearing for the whole Group. This limits the effect from movements in individual currencies on the gearing for the Group. Exposure of Group earnings. A general strengthening of the Swedish krona by one percent has a negative impact of about sek 250 m on Group sales and sek 7-8 m on Group earnings. Transaction exposure. Currency risks in the form of transaction expo- sure, or the relative values of exports and imports of goods, are limited in the Group. The exposure that does exist relates in particular to VingCard’s exports from Norway, chiefly to the usa, Abloy’s exports from Finland to the usa and Besam’s exports from Sweden to eu countries and the usa. assa abloy’s policy is to keep transaction exposure within a specified framework. Interest-rate risks Interest-rate fluctuations have a direct impact on assa abloy’s net interest Cash management Cash management in subsidiaries focuses on minimizing operating capital 64 ASSA ABLOY / 2002 Notes: Note 1 Sales by organizational unit 1) Scandinavia Finland Central Europe 2) South Europe 3) United Kingdom North America South Pacific New Markets 4) Hospitality Identification Door Automatics Elimination for internal sales Total 2002 SEK M 1,970 1,150 1,600 3,723 1,259 10,465 1,138 1,952 992 1,283 1,015 -1,150 25,397 2001 SEK M 1,914 1,165 1,432 2,905 1,281 9,682 841 2,029 1,056 1,100 - -894 2000 SEK M 1,889 1,060 1,027 2,232 665 5,409 772 981 1,052 - - -693 22,510 14,394 1) Including exports from each market 2) Germany, The Netherlands, Switzerland and Austria 3) France, Belgium, Italy and Spain 4) Africa, Asia, Israel, South America and eastern Europe Note 2 Salaries and wages, other remunerations and social costs Salaries and wages other remuneration (of which bonus to managing directors) 2002 SEK M 338.0 (4.6) ( - ) 272.5 270.1 (1.2) 114.7 (1.0) 426.5 (1.2) 484.3 (0.6) 46.5 (0.3) 564.4 (2.3) 103.1 (0.5) 43.3 ( - ) 97.7 (0.3) 216.5 (0.7) ( - ) 98.2 2,574.6 (18.8) 75.4 (0.2) 13.6 ( - ) 69.0 (0.8) 100.1 (0.1) 54.4 (0.7) 267.8 (0.9) ( - ) 257.4 32.4 ( - ) 180.7 (0.5) 6,701.2 (34.7) 2001 SEK M 262.9 (2.7) ( - ) 266.5 236.7 (0.8) 112.1 (0.7) 371.3 ( - ) 481.9 (0.7) 37.4 (0.5) 525.9 (2.5) 72.8 (0.3) 37.4 (0.1) 80.7 (0.5) 204.7 (0.4) ( - ) 20.7 2,426.8 (14.1) 77.0 (1.1) ( - ) 11.7 74.8 ( - ) 86.6 (0.1) ( - ) 40.2 109.8 (0.2) 57.4 (0.2) 33.6 (0.2) 112.0 (0.5) 5,740.9 (25.6) 2000 SEK M 233.5 (2.2) 249.8 (0.8) 225.2 (0.4) 89.3 (0.3) 319.4 (0.4) (1.7) 192.6 30.7 (0.2) (2.0) 460.5 30.8 (0.3) 29.9 (0.1) 32.6 (0.5) 190.0 (0.1) ( - ) 7.3 1,197.1 (8.8) 40.6 (0.1) ( - ) 8.7 44.5 ( - ) 35.5 (0.2) ( - ) 7.8 25.8 (0.3) ( - ) ( - ) 88.0 (2.1) 3,539.6 (20.5) - - 44.7 (4.3) 38.0 (5.5) 29.7 (1.2) Group Sweden Finland Norway Denmark Germany United Kingdom Belgium France The Netherlands Czech Republic Canada Australia New Zealand USA China Romania Israel Italy South Africa Mexico Spain South America Other Total Parent company Sweden Social costs (of which pensions) Senior executive remuneration The Chairman of the Board and the Board members receive remunerations that are set by the Board within the framework set by the Annual General Meeting. This in total is SEK 1,875,000 (1,875,000). The employee representatives do not receive Board member remuneration. Group Total 2002 SEK M 2001 SEK M 2000 SEK M 2,048.6 (400.5) 1,720.7 (325.9) 1,077.8 (209.9) The remuneration paid to the President and other senior executives consists of a basic salary, a bonus, other benefits and a pension. The bonus is based on income for the responsibility area concerned compared with the previous year. Group Management comprises 16 senior executives and the President (see Page 76). The Chairman of the Board and the other Board members have no pension benefits. Pensions are arranged for the President and others in Group Management through participation in the ITP plan or equivalent. In addition, the President and specific other senior executives have the right to retire at the earliest on reaching the age of 60. The pension is based on the retiree‘s salary on retiring and is 70 percent of this salary between the ages of 60 and 65 and 50 percent of this salary after the age of 65 and for the remainder of his/her life. The Chairman of the Board and the other Board members have no severance pay agreements. The President has a severance payment agreement providing up to 100 percent of his salary for 24 months. The payment is only made where the company terminates the contract. Others in Group Management receive a severance payment of 100 percent of their salary for a maximum of 12 months. Parent company Sweden 30.5 (17.0) 19.1 (6.4) 12.2 (2.4) Remunerations and other benefits to senior executives. SEK M Salary/ Remuneration Bonus costs Pension benefits Other security Social costs The Chairman of the Board Other Board members President Other senior executives Total 0.5 1.4 6.6 38.7 47.2 - - 4.3 23.8 28.1 - - 4.1 11.1 15.2 - - 0.1 5.7 5.8 Total 0.5 1.9 19.7 - 0.5 4.6 7.0 86.3 12.1 108.4 See Page 76 for senior executives' share and convertible security holdings. ASSA ABLOY / 2002 6 5 Note 3 Auditor’s fees Note 5 Operational leasing agreements Group Parent Company Group 2002 SEK M Parent Company 2001 SEK M 2000 SEK M 2002 SEK M 2001 SEK M Audit PricewaterhouseCoopers 24.9 Others 5.6 Other assignments PricewaterhouseCoopers 11.4 Others Total 6.2 48.1 20.1 5.0 4.8 4.0 33.9 13.7 2.6 10.6 3.7 30.6 2.2 - 4.0 1.1 7.3 2.3 - 2.6 - 4.9 Note 4 Depreciation and amortization Leasing fees paid in the year Nominal value of agreed future leasing fees Due in 2003 Due in 2004 Due in 2005 Due in 2006 Due in 2007 Due in 2008 or later Total 2002 SEK M 182.8 172.3 136.1 99.8 72.4 47.5 80.8 608.9 Group 2002 SEK M 957.1 30.4 530.5 254.5 133.6 2001 SEK M 860.4 31.8 491.4 216.6 119.8 2000 SEK M 387.0 28.5 359.1 146.4 64.2 1.0 1.1 - Parent Company 2002 SEK M 2001 SEK M - 0.1 - 2.7 - - - - - 4.1 - - Note 6 Income from participations in Group companies Parent company Dividends Liquidation loss Income from disposal of shares in subsidiaries Total 2002 SEK M 279.8 -78.9 94.9 295.8 Goodwill Intangible rights Machinery Equipment Buildings Land and land improvements Total 1,907.1 1,721.1 985.2 2.8 4.1 2002 SEK M 6.5 7.0 7.0 6.7 6.7 6.5 6.5 40.4 2001 SEK M 479.3 -322.6 192.1 348.8 Note 7 Non-recurring items Group Estimated damages, Merrimac Total 2002 SEK M - - 2001 SEK M 166.0 166.0 2000 SEK M - - 66 ASSA ABLOY / 2002 Note 8 Financial items Group 2002 SEK M 0.1 2001 SEK M 0.1 Parent Company 2000 SEK M 2002 SEK M 2001 SEK M Note 10 Goodwill Group Opening acquisition value - - - Purchases/acquisitions 210.9 78.8 29.9 11.7 49.1 Reclassifications Translation differences 2002 SEK M 2001 SEK M 18,513.2 13,252.8 2,629.3 4,263.6 166.8 -2,365.9 10.9 985.9 2000 SEK M 3,943.9 8,948.0 - 360.9 Dividends Interest income and similar income items Interest income from Group companies Exchange rate differences 18.5 31.1 -14.3 - - - 535.0 -12.1 617.8 55.3 Interest expenses and similar expense items Interest expenses from Group companies -860.6 -774.4 -346.2 -583.8 -507.0 - - - -643.3 -637.8 Total -631.1 -664.4 -330.6 -692.5 -422.6 Closing accumulated acquisition value 18,943.4 18,513.2 13,252.8 Opening amortization -2,142.2 -1,174.9 -698.1 Reclassifications Write-downs Amortization for the year Translation differences 0.5 -2.2 -957.1 371.1 - - - - -860.4 -106.9 -387.0 -89.8 Closing accumulated amortization -2,729.9 -2,142.2 -1,174.9 Note 9 Tax Group 2002 SEK M Parent Company Closing net book value 16,213.5 16,371.0 12,077.9 2001 SEK M 2000 SEK M 2002 SEK M 2001 SEK M Tax paid Tax attributable to prior years Deferred tax Total -546.8 -401.3 -426.4 -6.8 -86.3 19.4 -83.6 15.7 -33.1 - -1.6 - -639.9 -465.5 -443.8 -1.6 - 0.0 - 0.0 Explanation for the difference between nominal Swedish tax rates and effective tax rates according to the income statement: Percent Swedish income tax rate Effect of foreign tax rate Non-deductible goodwill amortization Other non-income-related taxes Other Group 2002 28.0 -6.6 11.7 2.4 -1.3 2001 28.0 -10.7 18.2 2.9 -4.0 Tax rate according to the income statement 34.2 34.4 Deferred tax liabilities and deferred tax receivables are distributed according to the table below: Deferred tax liabilities SEK M Fixed assets Inventory Short-term receivables and liabilities Deferred tax receivables SEK M Fixed assets Inventory Short-term receivables and liabilities Provisions Tax-deductible losses 2002 227.7 75.1 2001 314.2 36.2 7.4 7.9 310.2 358.3 2002 85.4 82.2 77.2 111.6 129.3 485.7 2001 4.4 6.0 164.7 142.4 60.8 378.3 Note 11 Intangible rights Opening acquisition value Purchases/acquisitions Sales/disposals Reclassifications Translation differences Group 2002 SEK M 408.7 45.9 -2.4 0.3 -45.7 2001 SEK M 360.8 29.2 -4.5 -8.2 31.4 Closing accumulated acquisition value 406.8 408.7 2000 SEK M 294.2 57.5 -10.6 - 19.7 360.8 Opening amortization -221.9 -179.7 -151.9 Sales/disposals Reclassifications Write-downs Amortization for the year Translation differences 2.3 -0.1 -2.7 -30.4 18.3 3.1 4.1 - -31.8 -17.6 9.5 - - -28.5 -8.8 Closing accumulated amortization -234.5 -221.9 -179.7 Parent Company 2002 SEK M - 1.0 - - - 1.0 - - - - -0.1 - -0.1 Closing net book value 172.3 186.8 181.1 0.9 ASSA ABLOY / 2002 6 7 Note 12 Tangible fixed assets – buildings Group 2002 SEK M 2001 SEK M 2000 SEK M Group – land and land improvements Opening acquisition value 3,041.3 2,269.8 1,629.3 Opening acquisition value Purchases/acquisitions Sales/disposals Reclassifications Translation differences 179.1 -18.0 88.0 -278.9 633.8 -15.5 -19.2 172.4 582.8 -17.3 - 75.0 Closing accumulated acquisition value 3,011.5 3,041.3 2,269.8 Opening depreciation -813.1 -651.5 -551.6 Sales/disposals Reclassifications Write-downs Depreciation for the year Translation differences Closing accumulated depreciation 4.5 -20.2 -16.1 -133.6 117.8 -860.7 1.7 7.5 - -119.8 -51.0 -813.1 7.9 - - -64.2 -43.6 -651.5 Purchases/acquisitions Sales/disposals Reclassifications Translation differences Closing accumulated acquisition value Opening depreciation Sales/disposals Reclassifications Depreciation for the year Translation differences Closing accumulated depreciation 2002 SEK M 707.3 10.0 -1.3 28.3 -63.3 2001 SEK M 532.9 147.6 -3.4 -1.4 31.6 2000 SEK M 357.9 163.3 - - 11.7 681.0 707.3 532.9 -8.5 - 0.3 -1.0 0.9 -8.3 -7.0 - - -1.1 -0.4 -8.5 -1.9 -4.7 - -0.3 -0.1 -7.0 Closing net book value 2,150.8 2,228.2 1,618.3 Closing net book value 672.7 698.8 525.9 The taxable value of the group‘s Swedish buildings was SEK 53.0 M. The taxable value of the group‘s Swedish land was SEK 11.9 M. – machinery Group Opening acquisition value Purchases/acquisitions Sales/disposals Reclassifications Translation differences – equipment 2002 SEK M 5,967.2 528.5 -68.8 -185.4 -920.7 2001 SEK M 4,521.0 1,373.8 -338.3 27.8 382.9 Group 2002 SEK M 2001 SEK M Opening acquisition value 1,527.0 1,109.6 Purchases/acquisitions 266.9 416.8 2000 SEK M 883.5 393.3 Sales/disposals -121.7 -114.8 -209.1 2000 SEK M 3,316.3 1,065.0 -68.3 - Reclassifications -6.7 5.8 - 208.0 Translation differences -198.4 109.6 41.9 Parent Company 2002 SEK M 25.7 3.3 -15.3 - - 2001 SEK M 24.0 5.8 -4.1 - - Closing accumulated acquisition value 5,320.8 5,967.2 4,521.0 Opening depreciation -3,057.5 -2,606.7 -2,228.0 Sales/disposals Reclassifications Write-downs Depreciation for the year Translation differences 58.3 60.1 -1.5 -530.5 567.5 280.9 -4.5 - -491.4 -235.8 59.6 - - -359.1 -79.2 Closing accumulated depreciation -2,903.6 -3,057.5 -2,606.7 Closing net book value 2,417.2 2,909.7 1,914.3 Closing accumulated acquisition value 1,467.1 1,527.0 1,109.6 13.7 25.7 Opening depreciation -782.8 -594.3 -586.6 -12.7 -10.6 Sales/disposals Reclassifications Write-downs 99.4 14.5 -2.1 97.3 -3.7 - 163.9 6.9 2.0 - - - - - Depreciation for the year -254.5 -216.6 -146.4 -2.7 -4.1 Translation differences 138.6 -65.5 -25.2 - Closing accumulated depreciation -786.9 -782.8 -594.3 -8.5 -12.7 Closing net book value 680.2 744.2 515.3 5.2 13.0 68 ASSA ABLOY / 2002 Enterprise number, Registered Office Number of shares Share capital, % Book value, SEK M Note 13 Shares in subsidiaries Parent company ASSA ABLOY Sverige AB Timelox AB AA Besam AB ASSA ABLOY OY ASSA ABLOY Norge a.s. ASSA ABLOY Danmark A/S ASSA ABLOY Deutschland GmbH ASSA ABLOY France SAS ASSA ABLOY Ltd Yale Security Products SpA Mul-T-Lock Ltd 556061-8455 Eskilstuna 556214-7735 Landskrona 556204-8511 Landskrona 1094741-7 Joensuu 979207476 Moss CVR 10050316 Herlev HR B 66227 Berlin 412140907 R.C.S. Versailles 2096505 Willenhall 79370 Aprilia, Latina 520036583 Yavne ASSA ABLOY Holdings (SA) Ltd 1948/030356/06 Johannesburg ASSA ABLOY Inc Abloy Holdings Ltd 39347-83 Salem, Oregon 1148165260 St Laurent ASSA ABLOY Australia Pacific Pty Ltd ACN 095354582 Oakleigh, Victoria ASSA ABLOY South Asia Pte Ltd 199804395K Singapore Effeff International Security Systems Co. 3172 Tianjin Yale Security Mexico, S.A de C.V. YSM9612049Y4 Mexico D.F. Grupo Industrial Phillips, S.A de C.V. Lips Technology BV ASSA ABLOY Innovation AB ASSA ABLOY Hospitality AB ASSA ABLOY Treasury S.A. ASSA ABLOY Reinsurance S.A. Whaig Ltd Codas Electrónica S.A. ASSA ABLOY Asia Pacific Ltd Total GIP980312169 Mexico 33274584 Amsterdam 556192-3201 Eskilstuna 556180-7156 Stockholm CH-660-2045998-0 Geneva CH-660-1690000-9 Geneva EC21330 Bermuda 8805 Buenos Aires 53451 Hong Kong Note 14 Shares in associated companies Group Talleres Agui S.A. Låsgruppen Wilhelm Nielsen AS MAB Glass Europe NV A20065744 Astigarraga 934372816 Bergen HR M71690 Mechelen Cerraduras de Colombia Cerracol S.A 00008028 Bogota Renato Fattorini SRL 8727 Pavia Others Total Note 15 Inventory Group Materials and inventory items Work in progress Finished goods Paid in advance Total 31 Dec. 2002 SEK M 1,030.8 1,151.7 1,390.5 22.0 3,595.0 31 Dec. 2001 SEK M 1,027.2 1,209.2 1,554.8 20.8 3,812.0 31 Dec. 2000 SEK M 650.2 1,125.9 1,012.3 20.0 2,808.4 70 15,000 1,000 800,000 150,000 60,500 2 12,499,999 1,330,000 240,000 15,393,225 100,220 100 1 48,190,000 100,000 1 231,299,904 27,036,635 400 2,500 1,000 205,500,000 300,000 100,100 120 1,000,000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 100 14.0 40.0 0.2 631.1 538.5 376.4 700.8 1,582.4 975.8 597.5 1,078.5 184.4 2,318.8 12.6 241.9 28.4 0.0 224.6 861.8 0.2 1.0 0.4 11,353.5 17.3 423.1 0.1 72.2 22,275.5 4,802 305 145 182,682 - 40 50 50 29 25 16.9 15.8 2.6 2.3 1.2 2.6 41.4 ASSA ABLOY / 2002 6 9 Enterprise number, Registered Office Number of shares Share capital,% Book value, SEK M Note 16 Shareholders’ equity Group 31 Dec. 2002, SEK M Opening balance, 1 January 2002 Converted shares Re-purchase of own convertible securities New share issues* Dividend Share capital 353.8 2.1 - 10.0 - - - - Transfers between unrestricted and restricted reserves Exchange difference for the year Net income Closing balance, 31 December 2002 365.9 * New share issue liquidity is reduced by SEK 16.3 M for new issue costs after tax. Parent Company 31 Dec. 2002, SEK M Opening balance, 1 January 2002 Converted shares Re-purchase of own convertible securities New share issues Dividends Net income Closing balance, 31 December 2002 Share capital 353.8 2.1 - 10.0 - - 365.9 Restricted reserves 9,291.2 125.1 - 1,233.7 - -307.1 - - 10,342.9 Restricted reserves 645.4 - - - - - Premium reserve 6,884.5 125.1 - 1,250.0 - - 8,259.6 645.4 Unrestricted reserves 2,200.6 - -108.3 - -353.8 307.1 -1,643.1 1,269.9 1,672.4 Unrestricted reserves 3,856.7 - -108.3 - -353.8 -26.4 3,368.2 Total 11,845.6 127.2 -108.3 1,243.7 -353.8 0.0 -1,643.1 1,269.9 12,381.2 Total 11,740.4 127.2 -108.3 1,260.0 -353.8 -26.4 12,639.1 Total number of shares at 31 December 2002 Series A shares Series B shares Total Voting rights Number of shares 191,753,230 346,742,711 538,495,941 19,175,323 346,742,711 365,918,034 Note 17 Long-term liabilities falling due for payment later than five years after the financial year Group SEK M 31 Dec. 2002 31 Dec. 2001 31 Dec. 2000 Liabilities to credit institutions Other liabilities Total 49.9 1.0 50.9 59.2 0.9 60.1 18.8 0.9 19.7 70 ASSA ABLOY / 2002 Note 18 Corporate credit line Check credits for the group were SEK 928.0 M (621.2) of which SEK 116.6 M (215.3) were utilized. Note 19 Convertible debenture loans SEK M 31 Dec. 2002 31 Dec. 2001 31 Dec. 2000 915.7 1,104.9 250.0 Convertible debenture loan 97/02 had a variable interest rate equivalent to the 12-month STIBOR less 0.25 percent. The loan period was from 8 December 1997 to 2 December 2002. The convertible debenture loan 97/02 could be converted to Series B shares between 1 December 2000 and 15 November 2002. After conversion at a conversion rate of SEK 58.70 there were 3,464,799 new shares added. INCENTIVE 2001 has a variable interest rate equivalent to 0.9* EURIBOR + 54 basis points. Convertible debenture loans within INCENTIVE 2001 can be converted from October 2006. Full conversion at a conversion rate of EUR 15.80 for Bond 1, of EUR 19.00 for Bond 2, of EUR 22.10 for Bond 3 and of EUR 25.30 for Bond 4 will add 5,017,432 shares. The program has a total value of EUR 100 M. Note 20 Accrued expenses and prepaid income Group Parent Company SEK M 31 Dec. 2002 31 Dec. 2001 31 Dec. 2000 31 Dec. 2002 31 Dec. 2001 Accured expenses, personnel Interest expenses Other Total 801.2 66.2 1,133.3 2,000.7 581.3 83.3 1,196.7 1,861.3 493.6 167.0 1,118.4 1,779.0 21.2 28.5 5.2 54.9 18.1 49.0 55.7 122.8 Note 21 Assets pledged Group SEK M 31 Dec. 2002 31 Dec. 2001 31 Dec. 2000 Relating to long-term liabilities to credit institutions: Real estate mortgages Chattel mortgages Total 48.4 0.3 48.7 48.3 0.3 48.6 2.0 1.8 3.8 Note 22 Contingent liabilities SEK M Guarantees Guarantees on the behalf of subsidiaries Other Total Group Parent Company 31 Dec. 2002 31 Dec. 2001 31 Dec. 2000 31 Dec. 2002 31 Dec. 2001 122.9 321.3 2.0 446.2 89.8 257.9 2.2 349.9 88.6 374.3 - 462.9 103.0 7,110.1 - 64.0 5 ,153.2 - 7,213.1 5,217.2 ASSA ABLOY / 2002 7 1 Note 23 Average number of employees per country, by gender Group Women 2002 2,040 2,215 953 1,132 854 470 435 444 419 290 391 450 230 304 266 138 144 73 83 60 140 61 254 2001 1,955 739 912 1,469 908 443 439 457 420 83 229 430 263 364 238 96 41 80 75 51 132 50 143 2000 1,331 121 893 557 404 424 435 409 392 66 47 442 298 404 86 25 10 78 35 32 132 56 118 Men 2002 4,505 1,398 1,467 1,029 935 747 706 669 574 654 470 347 491 379 303 392 369 278 236 255 167 97 440 2001 4,078 604 1,409 1,203 975 632 695 630 575 145 290 345 536 360 260 219 62 270 179 175 158 80 314 2000 2,784 143 1,415 416 452 604 673 570 567 99 63 354 602 362 103 71 35 185 83 62 159 77 207 Total 2002 6,545 3,613 2,420 2,161 1,789 1,217 1,141 1,113 993 944 861 797 721 683 569 530 513 351 319 315 307 158 694 2001 6,033 1,343 2,321 2,672 1,883 1,075 1,134 1,087 995 228 519 775 799 724 498 315 103 350 254 226 290 130 457 2000 4,115 264 2,308 973 856 1,028 1,108 979 959 165 110 796 900 766 189 96 45 263 118 94 291 133 325 11,846 10,017 6,795 16,908 14,194 10,086 28,754 24,211 16,881 USA Mexico France China United Kingdom Germany Finland Sweden Australia Spain South Africa Czech Republic Norway Romania Italy South America New Zealand Israel The Netherlands Canada Denmark Belgium Other Total Parent Company Sweden 19 17 14 18 17 17 37 34 31 Note 24 Cash and cash equivalents SEK M Cash and bank balances Short-term investments Cash and cash equivalents Group 2002 1,081.9 326.1 1,408.0 Parent Company 2001 892.7 525.7 1,418.4 2000 732.1 747.4 1,479.5 2002 198.2 1.8 200.0 2001 51.1 7.9 59.0 Short-term investments in the consolidated balance sheet at year end were SEK 410.0 M (800.0), of which SEK 83.9 M (274.3) were non-realizable receivables with a term to maturity of more than three months and investments in securities.These items are not classified as cash and cash equivalents and are not included in the above table. Short-term investments in the Parent Company were SEK 1.8 M (160.6 ). 72 ASSA ABLOY / 2002 Note 25 Cash flow Group Adjustments for non-cash items Sale of fixed assets Change in provisions for pension Adjustment for non-cash items Paid and received interest Paid interest Received interest Paid and received interest Change in working capital Inventory increase/decrease (-/+) Accounts receivable increase/decrease (-/+) Other receivables increase/decrease (-/+) Trade and other payables increase/decrease (+/-) Change in working capital Purchases of tangible fixed assets Purchases of tangible fixed assets Sale of tangible fixed assets Purchases of tangible fixed assets Investments in subsidiaries Acquired capital employed - whereof goodwill Acquired minority share holdings Less acquired net debt Less minority interests acquired Total purchase price Less acquired cash Less purchase price not yet paid Less paid with own shares Less reclassification from shares in associated companies Less reclassification from other shares Less purchase price received for sold companies Less/Additional paid parts of purchase price relating to previous years Investments in subsidiaries Investments in associated companies Investments in associated companies Investments in associated companies Other investments Investment and sale of other financial assets Other investments Cash and cash equivalents Cash and cash equivalents at 1 January Cash flow Effect of exchange rate differences Cash and cash equivalents at 31 December (Note 24) 2002 SEK M - -5.7 -5.7 2002 SEK M -796.6 216.0 -580.6 2002 SEK M 169.0 197.0 121.9 -83.0 404.9 2002 SEK M -1,069.8 230.9 -838.9 2002 SEK M 3,427.7 2,629.3 - -92.3 - 3,335.4 -139.7 - - - - - 229.6 3,425.3 2002 SEK M 9.3 9.3 2002 SEK M 5.5 5.5 2002 SEK M 1,418.4 146.3 -156.7 1,408.0 2001 SEK M - 43.0 43.0 2001 SEK M -883.2 65.8 -817.4 2001 SEK M 170.2 310.4 -30.9 -526.8 -77.1 2001 SEK M -986.1 156.2 -829.9 2001 SEK M 6,874.7 4,263.6 446.5 -82.2 -259.4 6,979.6 -50.7 -163.0 - -53.5 - - -425.5 6,286.9 2001 SEK M - - 2001 SEK M 4.6 4.6 2001 SEK M 1,479.5 -221.6 160.5 1,418.4 2000 SEK M -2.0 0.4 -1.6 2000 SEK M -387.3 30.4 -356.9 2000 SEK M -41.0 14.1 -56.3 -11.1 -94.3 2000 SEK M -604.3 107.4 -496.9 2000 SEK M 12,172.6 8,414.1 - -1,142.7 -249.3 10,780.6 -2 328.9 -107.8 -2,865.9 -114.0 -330.4 -396.0 34.8 4,672.4 2000 SEK M - - 2000 SEK M -19.9 -19.9 2000 SEK M 196.2 1,218.9 64.4 1,479.5 ASSA ABLOY / 2002 7 3 Audit report: 74 ASSA ABLOY / 2002 To the General Meeting of the shareholders of assa abloy ab (publ.) Corporate identity number 556059-3575 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of assa abloy ab (publ.) for the financial year 2002. These accounts and the administration of the Company are the responsibility of the Board of Directors and the President. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the Company of any Board Member or the President. We also examined whether any Board Member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and, thereby, give a true and fair view of the Company’s and the Group’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. We recommend to the General Meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit for the Parent Company be dealt with in accordance with the proposal in the administration report and that the members of the Board of Directors and the President be discharged from liability for the financial year. Stockholm 7 February 2003 PricewaterhouseCoopers ab Anders Lundin Authorized Public Accountant ASSA ABLOY’s Board of Directors Georg Ehrnrooth Chairman Born 1940. Master of Science (Engineering). Board Chairman: Varma-Sampo Mutual Pension Insurance Co and Vice Chairman of Rautaruukki Oyj. Board Member: Wärtsilä Oyj Abp, Nokia Oyj Abp, Sampo Oyj Abp, Sandvik AB and Oyj Karl Fazer Abp. Member of the ASSA ABLOY Board since 1994. Holdings through company: 251,680 Series B shares. Gustaf Douglas Born 1938. MBA, Harvard Business School. Principal owner of Latour and SäkI. Board Chairman: Latour AB, Fagerhult, Boxholms Skogar AB, Stockholm Chamber of Commerce, SäkI AB and IFS AB. Vice Chairman: Attendo Senior Care and Securitas AB. Board Member: The Svenska Dagbladet Foundation and Moderata Samlingspartiet. Member of the ASSA ABLOY Board since 1994. Holdings through Investment AB Latour: 20,400,000 Series B shares. Through SäkI AB: 7,118,818 Series A shares and 986,000 Series B shares. Göran J. Ehrnrooth Born 1934. Master of Science, Economics. Board Chairman: Fiskars Oyj Abp. Board Member: Wärtsilä Oyj Abp. Member of the ASSA ABLOY Board since 1999. Holdings: nil. Carl-Henric Svanberg President & CEO Born 1952. Master of Science, Bachelor of Economics. President & CEO of the ASSA ABLOY Group since the Group was formed. Board Member: Hexagon AB. Member of the ASSA ABLOY Board since 1994. Holdings: 3,906,471 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Melker Schörling Vice Chairman Born 1947. Master of Business Administration. Board Chairman: Securitas AB, Hexagon AB, Karlshamns AB and Attendo Senior Care. Board Member: Hennes & Mauritz AB, Skandia AB. Member of the ASSA ABLOY Board since 1994. Holdings privately and through company: 1,510,080 Series A shares and 10,497,734 Series B shares. Per-Olof Eriksson Born 1938. Master of Engineering, Doctor of Technology, Hon. Bachelor. Board Chairman: Svenska Kraftnät, Thermia AB, Odlander, Fredriksson & Co and Sapa AB. Board Member: Sandvik AB, AB Custos, Svenska Handelsbanken, SSAB Svenskt Stål AB, Preem Petroleum AB, Skanska AB, and AB Volvo. Member of the Royal Swedish Academy of Engineering Sciences. Member of the ASSA ABLOY Board since 1995. Holdings directly and through company: 10,000 Series B shares. Sven-Christer Nilsson Born 1944. Bachelor of Science. Partner in Startupfactory, a venture capital company. Board Member: Traction AB, Parthus Ceva Inc (USA), Northstream AB, Establish AB and Utfors AB. Member of the ASSA ABLOY Board since 2001. Holdings: nil. Mats Persson Born 1955. Union trustee at Assa AB, employee representative, Swedish Metal Workers Union. Member of the ASSA ABLOY Board since 1994. Holdings: nil. Gösta Johnsson Born 1942. Union trustee at Assa AB, employee representative, Federation of Salaried Employees in Industry and Ser- vices. Chairman of EWC within ASSA ABLOY since 1996. Member of the ASSA ABLOY Board since 1997. Holdings: 6,520 Series B shares. Deputy members Auditor: PricewaterhouseCoopers AB Authorized Public Accountant, Anders Lundin, born 1956. Main responsible since 1999. Lisbeth Staaf Born 1955. Union trustee at FIX AB. Board Member: Medichus AB. Member of the ASSA ABLOY Board since 1999. Holdings: nil. Per-Edvin Nyström Born 1955. Union trustee at Assa Industri AB, employee representative, Swedish Metal Workers Union. Member of the ASSA ABLOY Board since 1994. Holdings: 1,207 Series B shares and Incentive 2001 convertibles corre- sponding to 6,426 Series B shares. ASSA ABLOY / 2002 7 5 ASSA ABLOY’s Group Management Executive Management and Group Vice Presidents Carl-Henric Svanberg Born 1952. Master of Science, Bachelor of Economics. President & CEO of the ASSA ABLOY Group since the Group was formed. Board Member: Hexagon AB. Member of the ASSA ABLOY Board since the Group was formed. Holdings: 3,906,471 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Peter Aru Born 1957. Master of Science. President and CEO of Besam. Employed since July 2002*. Holdings: nil Anna Bernsten Born 1961. Master of Science. Vice President of ASSA ABLOY, Residential Employed since 2000. Holdings: 665 Series B shares and Incentive 2001 convertibles corresponding to 15,000 Series B Shares. Bo Dankis Born 1954. Master of Science. Responsible for ASSA ABLOY South Europe. Group Vice President of ASSA ABLOY. Employed since 1997. Holdings: 86,000 Series B shares and Incentive 2001 convertibles corresponding to 10,750 Series B shares. Göran Jansson Born 1958. Graduate Diploma in Business Administration. Chief Financial Officer. Employed since 1997. Holdings: 351,784 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. 76 ASSA ABLOY / 2002 Hans Johansson Born 1955. Master of Science. Responsible for ASSA ABLOY Scandinavia. Group Vice President of ASSA ABLOY. Employed since the Group was formed. Holdings: 646,821 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Eero Leskinen Born 1956. Master of Science. Responsible for ASSA ABLOY Central Europe. Group Vice President of ASSA ABLOY. Employed since the Group was formed. Holdings through company: 736,265 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Thanasis Molokotos Born 1958. Master of Science. President and CEO of ASSA ABLOY North America Architectural Hardware Group. Employed since 1996. Holdings: 25,000 Series B shares and Incentive 2001 convertibles corresponding to 55,000 Series B shares. Geoff Norcott Born 1947. Hon. Bachelor of Engineering (Industrial), 1st Class. Responsible for ASSA ABLOY UK and ASSA ABLOY South Pacific. Group Vice President of ASSA ABLOY. Employed since1999*. Holdings: Options corresponding to 81,065 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. From left: Ulf Södergren, Clas Thelin, Hans Johansson, Åke Sund, Peter Aru, Carl-Henric Svanberg, Anna Bernsten, Bo Dankis, Göran Jansson, Eero Leskinen, Matti Virtaala, Thanasis Molokotos and Geoff Norcott. Other members of Group Management Dag Schjerven Born 1954. Master of Business Administration President and CEO of ASSA ABLOY Hospitality. Employed since October 1999. Holdings: Options corresponding to 81,065 Series B shares and Incentive 2001 convertibles corresponding to 32,000 Series B shares. Tzachi Wiesenfeld Born 1958. Master of Business Administration in Industrial Engineering. President and CEO of Mul-T-Lock in Israel. Employed since 1999*. Holdings: nil C.K. Jeang Born 1955. Master of Business Administration and Science in Engineering. President and CEO for ASSA ABLOY Asia Limited. Employed since 2000*. Holdings: Incentive 2001 convertibles corresponding to 32,500 Series B shares. Joseph J. Grillo Born 1957. Bachelor of Finance and Economics. President and CEO of ASSA ABLOY Identification Technology Group. Employed since 2001*. Holdings: Incentive 2001 convert- ibles corresponding to 32,500 Series B Shares. ASSA ABLOY / 2002 7 7 Åke Sund Born 1957. Graduate Diploma in Marketing. Group Vice President of ASSA ABLOY, Market Development and New Markets. Employed since the Group was formed. Holdings: 190,751 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Ulf Södergren Born 1953. Master of Science, Bachelor of Economics. Group Vice President of ASSA ABLOY, Operations. Employed since 2000. Holdings: Options corresponding to 81,065 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Clas Thelin Born 1954. Master of Science. Responsible for ASSA ABLOY North America. Group Vice President of ASSA ABLOY. Employed since the Group was formed. Holdings: 222,696 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. Matti Virtaala Born 1951. Bachelor of Science (Engineering). President of Abloy Oy and responsible for Finland. Group Vice President of ASSA ABLOY. Employed since the Group was formed. Board Member: Tulikivi Oyj and Etteplan Oyj. Holdings: 40,578 Series B shares and Incentive 2001 convertibles corresponding to 60,000 Series B shares. * Indicates the year when the company became part of the ASSA ABLOY Group. Australia ABLOY SECURITY PTY LTD Markets and sells the full range of abloy products. Managing Director: Joe Lahoud Unit 5, 372 Eastern Valley Way P.O. Box 287 Chatswood, NSW 2068 Tel: +61 2 9882 6066 Fax: +61 2 9882 6050 LOCKWOOD SECURITY PRODUCTS PTY LTD Manufactures and markets lock products such as door and window hardware, mortise locks, rim locks and door closers for the Australian residential and commercial markets. President: Geoff Norcott General Manager Commercial Products: Joe Perera General Manager Residential Products: Edgar Chin Edward Street P.O. Box 42 Oakleigh Victoria 3166 Tel: +61 3 8574 3888 Fax: +61 3 8574 3400 TRIMEC TECHNOLOGY PTY LTD Manufactures electric strikes and related products for Australian and international markets. Managing Director: Roy Bowyer 5/23 Resolution Drive Caringbah, NSW 2229 Tel: +61 2 9524 0911 Fax: +61 2 9525 7390 Belgium DUPÉRAY S.A Specifies locking solutions aimed at large building projects with products mainly from IKON, effeff, Abloy and other Group companies. Managing Director: Dominique Osstyn Rue Ysendyck 48-50 1030 Brussels Tel: +32 2 247 79 11 Fax: +32 2 216 17 49 LITTO N.V. Manufactures and sells locks and cylinders with an emphasis on high security. Managing Director: Fernand Clapdorp Canadalaan 73 8620 Nieuwpoort Tel: +32 58 23 41 01 Fax: +32 58 23 89 64 Brazil LA FONTE SISTEMAS DE SEGURANCA LTDA Manufactures and sells security products such as locks, exit devices, and hinges for commercial, residential and industrial applications. President: Francisco Bastos Rua Augusto Ferreira de Moraes, 618 – Socorro CEP 04763-001 São Paulo Tel: +55 11 5693 4700 Fax: +55 11 5693 4747 Canada ASSA ABLOY OF CANADA Markets and sells Sargent, McKinney, Arrow, Securitron and HES products in Canada. President: Greg M Erwin 3475 14th Avenue Markham, Ontario L3R 0H4 Tel: +1 905 940 2040 Fax: +1 905 940 3242 ASSA ABLOY HOSPITAITY LDT/LTEE Electronic locking systems ans in-room electronic safes. President: Larry Cechet 2 Holland Drive, Unit 8 Bolton, Ontario L7E 1E1 Tel: +1 905 857 7511 Fax: +1 905 857 7068 ABLOY CANADA Markets and sells ABLOY products in Canada. President: Stephen Timmons 9630 Trans Canada Hwy. Montreal, QC H4S 1V9 Tel: +1 514 335 9500 Fax: +1 514 335 0430 FLEMING DOOR PRODUCTS LTD Canada’s largest manufacturer of steel doors and frames for the non-residential building market. President: Bill Strong 20 Barr Road Ajax, Ontario L1S 3X9 Tel: +1 905 683 3667 Fax: +1 905 427 1668 MEDECO OF CANADA Market leader in high-security locks and lock systems for doors and industrial applications. President: Al Heaney Markets and sells Medeco products in Canada. 545 Parkside Drive Waterloo, Ontario N2L 5E7 Tel: +1 519 888 7000 Fax: +1 519 888 6134 YALE-CORBIN CANADA LIMITED Sales, marketing and distribution sompany for Corbin Russwin, Folger Adam, Norton, Rixon and Yale Commericial Locks and Hardware. President: Bill McLean 6940 Edwards Blvd. Mississauga, Ontario L5T 2W2 Tel: +1 905 564 5854 Fax: +1 905 564 8182 Chile POLI CERRADUAS LTDA Manufactures and sells security products such as mortise locks, rim locks, electric rim locks, bored locks for the commercial and residental markets in Chile. President: Mario Oportus Av. Manuel Rodriguez Sur 220 Casilla 195-D Santiago Tel: +562 560 9200 Fax: +562 639 5426 Addresses: HEAD OFFICE: ASSA ABLOY AB Box 70340 (Klarabergsviadukten 90) 107 23 Stockholm, Sweden Tel: +46 8 506 485 00 Fax: +46 8 506 485 85 Argentina ITG, LATIN AMERICA Ferrari 372 C1414EGD Bueno Aires Tel: +54 11 4772 5851 Fax: +54 11 4777 6491 Asia ASSA ABLOY ASIA LTD Acts as holding company for the Asia region, marketing and selling Group products. President and CEO: C.K. Jeang 1314 Park-In Commercial Centre 56 Dundas Street, Mongkok Kowloon, Hong Kong Tel: +852 2260 7220 Fax: +852 2834 7943 ASSA ABLOY HONG KONG LTD Responsible for all sales and marketing activities in North Asia (excluding China) covering Hong Kong, Taiwan, the Philippines, Japan, Korea, Vietnam, Myanmar, Cambodia and Laos. General Manager: Keith Chan 1314 Park-In Commercial Centre 56 Dundas Street, Mongkok Kowloon, Hong Kong Tel: +852 2260 7220 Fax: +852 2834 7943 ASSA ABLOY MALAYSIA SDN BHD Responsible for sales and marketing activities in Malaysia. Managing Director: Michael Pan No. 1 & 3, Ground & Second Floor Jalan 2/27F Kuala Lumpur Satellite Centre (KLSC) Section 5, Wangsa Maju 53300 Kuala Lumpur Tel +60-3-4142 8622 Fax +60-3-4142 9622 ASSA ABLOY SINGAPORE PTE LTD Responsible for all sales and marketing activities in South Asia (excluding Malaysia and Thailand) covering Singapore, India, Pakistan, Bangladesh and Indonesia. Managing Director: Jim Heng Lee No. 1, Kallang Way 2A, #02-00 347 495 Singapore Singapore Tel: +65 880 0000 Fax: +65 880 0500 ASSA ABLOY THAILAND LTD Responsible for sales and marketing activities in Thailand. Managing Director: Tab Teh 4 Soi Pattanakarn 41, Pattanakarn Rd. Kwang Suanluang 10250 City Khet Suanluang Bangkok Tel: +662-722 737 /ext. 1-4 Fax +662-722-737 /ext. 5-6 78 ASSA ABLOY / 2002 China GULI SECURITY PRODUCTS LIMITED The largest lock factory in China, manufacturing and supplying primarily residential locks and door closers for China and international markets. President: C.K. Jeang 33-35 Chrysanthemum Road East Xiaolan, Zhongshan Guangdong 528415 Tel: +86 760 210 2326 Fax: +86 760 210 0316 Czech Republic FAB A.S Manufactures and markets construction locks, industrial locks, padlocks, cable locks and car locks. President: Vladimir Bayer Strojnická 633, 516 21 Rychnov nad Kneznov Tel: +420 494 511 121 Fax: +420 494 534 641 ABLOY CZECH S.R.O Markets and sells Abloy, VingCard, effeff and Securitron products in Czech Republic. President: Tomas Richter Kounicka 70 100 00 Praha 10 Tel: +420 274 822 585 Fax: +420 274 822 540 Denmark FIX A/S Sells ASSA ABLOY products to the Danish door and window industry. President: Keld Madsen Baunehøjvej 9 8600 Silkeborg Tel: +45 86 81 61 22 Fax: +45 86 81 00 26 RUKO A/S Total supplier of locks and security products for the Danish market. President: Mogens Ahrens Jensen Marielundvej 20 Postboks 505 2730 Herlev Tel: +45 44 54 44 54 Fax: +45 44 54 44 44 Estonia ABLOY OY EESTI FILIAAL Markets and sells ABLOY products in the Baltic countries. Manager: Pasi Saarinen Pärnu mnt. 139 F 113 17 Tallinn Tel: +372 6 50 45 90 Fax: +372 6 50 45 91 ASSABALT AS Markets and sells ASSA products in the Baltic countries. President: Tarmo Talvet Valdeku 132, 112 16 Tallinn Tel: +372 6 559 101 Fax: +372 6 559 100 Finland ABLOY OY Manufactures and markets lock cylinders, mechani- cal and electromechanical locks, door closers, door automatics and architectural hardware. President: Matti Virtaala Wahlforssinkatu 20 P.O. Box 108 80101 Joensuu Tel: +358 13 2501 Fax: +358 13 250 2209 BJÖRKBODA LÅS OY AB Manufactures and markets lock cases. President: Henry Engblom 25860 Björkboda Tel: +358 2 424 402 Fax: +358 2 424 249 France ASSA ABLOY SOUTH EUROPE 6 rue des Frères Caudron 78457 Velizy-Villacoublay Cedex Tel: +33 1 39 45 66 60 Fax: +33 1 39 45 66 69 ASSA ABLOY HOSPITALITY S.A.S. President: Christian Henon BP 46 37 92404 Courbevoie Cedex Tel: +33 1 41 88 03 03 Fax: +33 1 41 88 02 88 ABLOY FRANCE S.A.S Markets and sells the full range of ABLOY products. Managing Director: Olivier Schuester 6, rue des Frères Caudron 78457 Velizy-Villacoublay Tel : +33 1 39 45 66 20 Fax : +33 1 39 45 66 29 BEZAULT S.A.S. Manufactures door and window fittings. Managing Director: Michel Brassié 25, rue Michel Couet 49160 Longué-Jumelles Tel: +33 2 41 53 21 00 Fax: +33 2 41 38 81 45 FICHET SERRURERIE BATIMENT S.A.S. Manufactures high-security cylinders, high-security locks and security doors. Managing Director: Robert Fidanza B.P. 1080 76260 Eu Tel: +33 3 22 61 27 00 Fax: +33 3 22 61 27 27 JPM S.A.S. Manufactures locks, cylinders, panic bars and escape fittings. Managing Director: Eric Beaudru 40 Route de Paris Avermes 03021 Moulins Cedex Tel: +33 4 70 48 40 00 Fax: +33 4 70 48 40 96 LAPERCHE S.A.S. Manufactures multipoint locks, cylinders and electromechanical locks. Managing Director: Robert Fidanza B.P 5 80531 Friville Cedex Tel: +33 3 22 60 31 00 Fax: +33 3 22 30 17 18 STREMLER S.A.S. Manufactures locks and fittings for glass and aluminum-frame doors. Managing Director: Robert Fidanza Route Nationale 80860 Nouvion-en-Ponthieu Tel: +33 3 22 23 76 00 Fax: +33 3 22 23 76 09 VACHETTE S.A Manufactures locks, multipoint locks, high-security cylinders, panic bars and escape fittings. Managing Director: Frédéric Chanel BP 524 10081 Troyes Cedex Tel: +33 3 25 42 30 30 Fax: +33 3 25 42 40 04 Germany ASSA-RUKO SICHERHEITSSYSTEME GmbH Markets and sells the ASSA and Ruko lock ranges on the German market. President: Svend Mølgaard Petersen and Erich Klosterkamp Vogelsanger Strasse 187 50825 Köln Tel: +49 221 54 30 76 Fax: +49 221 54 18 95 IKON GmbH PRÄZISIONSTECHNIK WERK POTSDAM Manufactures and sells small lock systems and standard lock products. President: Bernd-D. Wempen Postfach 600419 Behlerstrasse 29 14469 Potsdam Tel: +49 331 288 80 Fax: +49 331 288 8106 IKON GmbH PRÄZISIONSTECHNIK Mainly manufactures and sells high-security cylinders and advanced masterkey systems. CEO: Eero Leskinen Presidents: Bernd-D. Wempen and Gerhart Ernst P.O.Box 370220 14132 Berlin Tel: +49 30 810 60 Fax: +49 30 810 626 00 effeff FRITZ FUSS GmbH & CO. KGaA Manufactures and sells electronic and electrome- chanical security systems. Presidents: Martin Brandt, Bernhard Zimmermann and Manfred Kötzle Postfach 100490 72458 Albstadt Tel: +49 7431 123 0 Fax: +49 7431 123 240 WILHELM DÖRRENHAUS GMBH Manufactures and sells standard and special lock cases, mainly for wooden doors. President: Holger Ritz Postfach 100180 42501 Krone bei Velbert Tel: +49 2056 98 270 Fax: +49 2056 98 2798 ASSA ABLOY / 2002 7 9 Mexico ASSA ABLOY MEXICO Country Manager: Jorge Arnau Av. 16 de Septiembre No. 105 Fracc. Industrial Alce Blanco C.P. 53370 Naucalpan de Juarez Estado de Mexico Tel: +52 55 21 22 05 83 Fax: +52 55 21 22 05 87 GRUPO INDUSTRIAL PHILLIPS S.A. DE C.V. Manufacturer of a complete line of rim and mortise locks, hinges, padlocks and door hardware under the brands PHILLIPS and PARKER. General Director: Enrique Heitler Levy 16 de Septiembre 105 553 70 Naucalpan Tel: +52 55 21 22 0512 Fax: +52 55 21 76 5402 TESA MEXICO Residential locksets manufactured and assembled for new construction, retail aftermarket applications and export under the brands TESA and THOR. President: Lars-Inge Aronsson Avenida 8 de Julio No. 2722 Zona Industrial (Z.I.) Gualadajara, Jalisco C.P. 44940 Tel: +52 33 35 40 54 00 YALE SECURITY MEXICO S.A. DE C.V. Market leader in Mexico in cylindrical and tubular locks under the brands YALE and SEGUREX. Responsible for distribution of TOVER locks. General Director: Enrique Heitler Levy Viaducto Rio de La Piedad, 525-A Colonia Granjas Mexico 8400 D.F. Mexico Tel: +52 55 58 030800 Fax: +52 55 58 030872 Netherlands AMBOUW B.V Markets and sells mechanical and electromechanical locks and building hardware on the Netherlands market, mainly supplied by IKON and other ASSA ABLOY companies. President: Gert Lubbersen Postbox 199 3870 CD Hoevelaken Tel: +31 33 25 35 014 Fax: +31 33 25 35 064 LIPS NETHERLANDS B.V. Manufactures an extensive range of electromechani- cal and mechanical products, backed by after-sales service and maintenance. President: Jaap Wind P.O. Box 59 3300 AB Dordrecht Tel: +31 78 639 4041 Fax: +31 78 639 4605 VEMA SALES BV President: Gert W. Lubbersen Postbus 116 4940 AC Raamsdonksveer Tel: +31 162 58 23 33 Fax: +31 162 58 23 36 New Zealand INTERLOCK GROUP LIMITED Manufactures and distributes door and window security hardware in the New Zealand market and exports to OEMs in USA, Japan, UK and Canada. Managing Director: Anthony Gledhill P.O. Box 15 103, Miramar, Wellington Tel: +64 4 388 8355 Fax: +64 4 388 8353 LOCKWOOD ARROW N.Z Manufactures door closers and markets Lockwood products on the New Zealand market. Manager: Bruce Pollard P.O. Box 59219 Mangere Bridge, Auckland, Tel: +64 9 634 5590 Fax: +64 9 634 5589 Norway ASSA ABLOY HOSPITALITY A.S President and CEO: Dag Schjerven Group Headquarters P.O. Box 533 N-1522 Moss ELSAFE INTERNATIONAL A.S. World leader in safes for hotel rooms. President: Alvin Berg 7120 Leksvik Tel: +47 74 85 35 00 Fax: +47 74 85 80 30 LÅSGRUPPEN A.S Markets and sells locks and fittings. President: Bjørn Haugsvaer PB 454 Brakerøya 3002 Drammen Tel: +47 32 80 98 00 Fax: +47 32 80 98 52 TRIOVING A.S Total supplier of locks and security products for the Norwegian market. President: Tor-Arne Jensen Postboks 510 Høyden 1522 Moss Tel: +47 69 24 52 00 Fax: +47 69 24 52 50 VINGCARD A.S World-leading solution provider of card locks and safes to the hospitality industry. President and CEO of VingCard-Elsafe: Dag Schjerven P.O. Box 511 1411 Kolbotn Tel: +47 66 81 40 00 Fax: +47 66 81 40 50 Philippines ASSA ABLOY PHILIPPINES Suite 501-K State Bldg. 333 Juna Luna St., Binondo Manila Philippines Tel: +63 2 244 2890 Fax: +63 2 244 2889 Hungary ASSA ABLOY HUNGARY KFT. Markets and sells ASSA ABLOY products in Hungary. Managing Director: Géza Póka 1222 Budapest Nagyétényi ut. 112 Tel: +36 1 226 16 16 Fax: +36 1 226 13 03 Israel MUL-T-LOCK LTD Produces high-security cylinders and locks for institutional, commercial, industrial and residential applications. President and CEO: Tzachi Wiesenfeld Mul-T-Lock Park P.O. Box 637 Yavne 81104 Tel: +972 8 942 46 00 Fax: +972 8 942 46 09 Italy MAB S.P.A. Manufactures door closers, floor springs and panic exit devices. Managing Director: Gilberto Allievi Via Del Tuscolano 6 401 28 Bologna Tel: +39 051 354 0711 Fax: +39 051 325 108 NUOVA F.E.B. S.R.L. Specializes in the production of locks, electric stri- kes, panic exit devices and electrical supplies. Managing Director: Gilberto Allievi Via Seragnoli, 7 401 38 Bologna Tel: +39 051 60300 11 Fax: +39 051 60137 81 YALE CORNI SISTEMI DI SICUREZZA S.P.A. Panic devices, aluminum/fire locks and electrome- chanical/electronic closing systems. Managing Director: Marco Carlini Viale delle Nazioni 66 411 00 Modena Tel: +39 059 413 111 Fax: +39 06 928 945 80 YALE SECURITY PRODUCTS S.P.A. Sells cylinders, mechanical and electric rim/mortise locks, cabinet locks, safes and padlocks, in Italy and internationally. Managing Director: Marco Carlini Via dei Rutuli 74/76 040 11 Aprilia (LT) Tel: +39 06 928 941 Fax: +39 06 928 945 80 Lithuania ASSA Lithuania General Manager: Orshevski Tadeush Verkiu 44 2012 Vilnius Tel: +370 52 300 671 Fax: + 370 52 300 673 80 ASSA ABLOY / 2002 Poland ASSA ABLOY POLAND SP. ZO.O. Markets and sells ASSA ABLOY products in Poland. President: Jakub Gawecki ul Warszawska 76 05-092 Lomianki Tel: +48 22 751 40 25 Fax: +48 22 751 53 56 Portugal ASSA PORTUGUESA, LDA VD: Christian Nielbo Avenida da Quinta Grande, 89D Alfragide (Norte) 2720-483 Amadora Tel: +351 21 471 96 23 Fax: +351 21 471 96 25 Romania ASSA ABLOY ROMANIA S.R.L. Markets and sells ASSA ABLOY products in Romania. President: Dragos Savulescu B-Dul, Sector 6 Preciziei Street, No. 5, 77562 Bucharest Tel: +40 21 221 27 49 Fax: +40 21 221 25 49 URBIS INTERNATIONAL S.R.L. Manufactures window and door hardware and sells to other Group companies. President: Victor Dobroiu B-Dul, Sector 6 Precizei Street, No. 5 77562 Bucharest Tel: +40 21 221 1384 Fax: +40 21 221 1290 URBIS SECURITY S.R.L. Manufactures and markets locks and fittings. President: Gabriel Nicolaescu B-Dul, Sector 6 Preciziei Street, No. 5, 77562 Bucharest Tel: +40 21 221 11 55 Fax: +40 21 221 12 90 Russia ABLOY OY REPR. OFFICE Country Manager: Mikko Nissinen 119034, Moscow Vsevolozhsky pereulok, 2/2 Tel: +7 095 937 5090 Fax: +7 095 937 5091 www.abloy.com.ru ASSA AB REPR.OFFICE Director Marketing and sales: Kirill Treshchev 2 Vsevolozskiy pereulok Building 2, entrance 3 119034 Moscow Tel: +7 95 937 50 90 Fax: +7 95 937 50 91 Slovenia ASSA ABLOY SLOVENIJA Manging Director: Franjo Radikovic Kebetova 8 4000, Kranj, Slovenia Tel: +386 4 280 77 44 Fax: +386 4 280 77 45 Slovak Republic FAB SLOVAKIA S.R.O. Manufactures lock cases; markets and sells other FAB products. President: Jaroslav Holzer Zeleznichyrad 30 96801 Nová Bana Tel: +421 45 685 0434 Fax: +421 45 685 0436 ABLOY SLOVAKIA S.R.O. Markets and sells Abloy, VingCard, effeff and Securitron products in Slovakia. President: Tomas Richter Saratouska 26 A 841 02 Bratislava Tel: +421 2 434 139 93 Fax: +421 2 434 139 93 South Africa ASSA ABLOY (SA) (PTY) LTD Offers the most comprehensive range of architectural, DIY and OEM ranges of physical security hardware. Manging Director: John Middleton P.O. Box 146 1724, Roodepoort Tel: +27 11 761 50 00 Fax: +27 11 766 34 11 Spain AZBE B. ZUBIA S.A. Manufactures and markets a complete portfolio, through four Business Units. President: Bo Dankis Basabe 3, P.O. Box 13 20550 Aretxabaleta (Gipuzkoa) Tel: +34 943 71 29 29 Fax: +34 943 79 86 43 TESA Talleres de Escoriaza S.A. Manufactures a comprehensive range of products including locks, multipoint locks, cylinders and knobsets for buildings. Managing Director: Jose Agustin Telleria Bario de Ventas no. 35 IRUN 20305 Tel: +34 943 66 91 00 Fax: +34 943 63 32 21 AB FAS LÅSFABRIK Market leader in mortise deadlocks. President: Ulf Petersson Box 60 Hejargatan 20 631 02 Eskilstuna Tel: +46 16 17 02 33 Fax: +46 16 17 02 17 AKI LÅSGROSSISTEN AB One of Sweden's leading locksmith's wholesalers. President: Harry Grabinsky Västbergavägen 24 Box 42115 126 12 Stockholm Tel: +46 8 449 24 00 Fax: +46 8 18 74 30 BESAM INTERNATIONAL World leader in the field of door automatics. The product range consists of automatic door operations for swing doors, sliding doors and revolving doors. President: Peter Aru Box 131 SE-261 22 Landskrona Tel: +46 418 511 00 Fax:+46 418 238 00 FIX AB Manufactures and markets espagnolettes and fixtures. President: Jerry Pull Bruksgatan 17 414 51 Gothenburg Tel: +46 31 704 40 00 Fax: +46 31 14 23 55 SOLID AB Develops and markets access control products. President: John Hedesand Sjöviksbacken 24 pl. 8 117 43 Stockholm Tel: +46 8 685 10 00 Fax: +46 8 685 10 20 TIMELOX AB Manufactures and markets card-operated electro- mechanical locks for the hospitality market as well as access controls for hospitals, administrative and business areas.Timelox has distribution and support channels worldwide. President: Jan Wabréus Sweden ASSA AB Manufactures and markets mechanical and electro- mechanical lock products. President: Hans Johansson Lodjursgatan 2 261 44 Landskrona Tel: +46 418 513 00 Fax: +46 418 286 96 Kungsgatan 71 Box 371 631 05 Eskilstuna Tel: +46 16 17 70 00 Fax: +46 16 17 70 49 ASSA INDUSTRI AB Manufactures and markets lock cases, hinges and cabinet locks for industrial customers. President: Tomas Perman Box 371 631 05 Eskilstuna Tel: +46 16 17 70 00 Fax: +46 16 17 70 86 Switzerland IKON SA Markets and sells IKON, BAB-IKON and ABLOY products on the Swiss market. President: Ugo Zanolari B.P. 275 En Budron A6 1052 Le Mont-sur-Lausanne Tel: +41 21 654 26 66 Fax: +41 21 654 26 60 KESO AG Manufactures and sells high-security mechanical and electromechanical cylinders and lock systems. Presidents: Ernst Keller and Eugen Vigini Untere Schwandenstrasse 22 8805 Richterswil Tel: +41 1 787 34 34 Fax: +41 1 787 35 35 ASSA ABLOY / 2002 8 1 ROFU AG Manufacturer of electric strikes and door magnets. President: Ugo Zanolari Rautistrasse 71 88043 Zürich Tel: +41 1 404 10 60 Fax: +41 1 404 10 67 Ukraine ABLOY OY REPR. OFFICE President: Volodymyr Livinsky Maryny Raskovol street 23 Room 1011 02002 Kyiv, Ukraine Tel: +380 44 418 97 73 Fax: +380 44 430 32 18 United Kingdom ABLOY SECURITY LTD. Primarily markets ABLOY electromechanical locks, padlocks and industrial locks. Managing Director: Robin Rice 2-3 Hatters Lane Croxley Business Park Watford, Hertfordshire WD1 8YY Tel: +44 1923 255066 Fax: +44 1923 230281 ASSA LTD. Markets a complete range of ASSA, Ruko and SOLID lock products. Managing Director: Paul Green 75 Sumner Road, Croydon, Surrey CRO 3LN Tel: +44 2086 885191 Fax: +44 2086 880285 ASSA ABLOY HOSPITALITY LTD. President: Howard Witt 21 Stadium Way, Portman Rd Reading, Berkshire RG30 6BX Tel: +44 (1189) 452 200 Fax: +44 (1189) 451 375 C E MARSHALL LTD. Manufactures and supplies high-security locks and door handles as original equipment items to the automotive industry. Managing Director: Raymond Dovey Church Street, Willenhall West Midlands WV13 1QW Tel: +44 1902 364 500 Fax: +44 1902 634 908 CHUBB LOCKS CUSTODIAL SERVICES LTD. Provides custodial locking products and systems to correctional facilities worldwide. Managing Director: Steve Wood P.O. Box 61 Wednesfield Road, Wolverhampton West Midlands WV10 0EW Tel: +44 1902 867 730 Fax: +44 1902 867 788 GRORUD INDUSTRIES LTD. Manufactures and markets door and window fittings. Managing Director: Andrew Mee Castleside Industrial Estate, Consett, Co. Durham DH8 8HG Tel: +44 1207 581 485 Fax: +44 1207 580 036 82 ASSA ABLOY / 2002 SECURITY PRODUCTS UK LTD. Manufactures and markets a complete range of door locks, padlocks and architectural hardware under the Yale, Chubb and Union brands. President: Geoff Norcott CECO DOOR PRODUCTS Manufactures a broad range of steel doors and frames for commercial, industrial and institutional construction markets. President: Larry Denbrock 9159 Telecom Drive Milan, TN 38358 Tel: +1 731 686 8345 Fax: +1 731 686 4211 CURRIES CO. Manufactures a full range of hollow metal doors and frames with primary focus on the institutional and commercial market. President: Jerry N Currie P.O Box 1648 Mason City, IA 50402-1648 Tel: +1 641 423 1334 Fax: +1 641 423 9104 DOMINION BUILDING PRODUCTS Manufactures a full range of steel frames and doors, aluminum windows and preassembled door units for industrial pre-engineered buildings. President: Tom Granitz Corporate Headquarters 6949 Fairbanks North Houston Houston, TX 77040 Tel: +1 713 466 6790 Fax: +1 832 467 0290 ELECTRONIC DOOR SECURITY SALES GROUP Persona branded software and stand-alone intelligent locking solutions for the college/university market President: Tor Baekkelund 110 Sargent Drive New Haven, CT 06511 Tel: +1 800 481 8464 X3185 Fax: +1 203 787 9367 EMTEK PRODUCTS INC. Decorative locks and hardware for the residential market. President: Thomas Millar 15250 E. Stafford Street City of Industry, CA 91744 Tel: +1 626 961 0413 Fax: +1 626 336 2812 ESSEX INDUSTRIES, INC. Joint sales operation for Curries, Graham, HES, McKinney, Sargent and Securitron, with focus on the institutional construction market. Vice President, Sales and Marketing: Joseph J Hynds, Jr. P.O. Box 9804 New Haven, CT 06536-0804 Tel: +1 203 624 5225 Fax: +1 203 499 68 40 FOLGER ADAM ELECTRIC DOOR CONTROLS Electric strikes, magnetic locks, power supplies and door control accessories. National Sales/Product Manager: Randy Whitkopf 9100 W. Belmont Ave. Franklin Park, IL 60131 Tel: +1 847 671 4823 Fax: +1 847 671 0574 Wood Street, Willenhall West Midlands WV13 1LA Tel: +44 1902 366911 Fax: +44 1902 368535 United States ASSA ABLOY NORTH AMERICA Inc. Parent company for ASSA ABLOY’s operations in North America. President and CEO:Clas Thelin P.O Box 9827 New Haven, CT 06536-0827 Tel: +1 203 624 52 25 Fax: +1 203 785 81 08 ASSA ABLOY HOSPITALITY INC. VingCard, Timelox, Inhova, Elsafe President: Mats Gustafsson 9333 Forest Lane Dallas, TX 75243 Tel: +1 972 907 2273 Fax: +1 972 907 2771 ASSA ABLOY ITG, HEADQUARTERS 110 Sargent Drive 06511 New Haven Tel: +1 203 499 6893 ABLOY SECURITY INC. Active in the market for industrial locks. President: Rick Bodenschatz 6005 Commerce Drive, Suite 330 Irving, TX 75063 Tel: +1 972 753 1127 Fax: +1 972 750 0792 ACCESSID 16625 Redmond Way Redmond, WA 9805 Tel: +1 888 776 9329 Fax: +1 530 224 7304 ARROW LOCK MANUFACTURING Mechanical locks and lock cylinders, with an empha- sis on the aftermarket and the north-eastern USA. President: Charles E. Armstrong 10300 Foster Avenue Brooklyn, NY 11236 Tel: +1 718 257 4700 Fax: +1 718 257 32 99 ASSA INC. Occupies a leading position in the high-security segment of the market. National Sales Manager: Thomas Demont P.O. Box 9453 New Haven, CT 06534-0453 Tel: +1 203 603 5959 Fax: +1 203 603 5953 CORBIN RUSSWIN ARCHITECTURAL HARDWARE Manufactures a full range of architectural door hard- ware and locks, including mechanical and electro- mechanical mortise and cylindrical locks, panic exit devices, door closers and cylinders. General Manager: Dan Daino 225 Episcopal Road 06037 Berlin, CT USA Tel: +1 860 225 7411 Fax: +1 860 828 7266 FOLGER ADAM SECURITY INC. Supplier of locks and hardware to the highest-security markets, such as detention and correctional facilities. President: Donald C Stading 16300 West 103rd Street Lemont, IL 60439 Tel: +1 630 739 3900 Fax: +1 630 739 6400 GRAHAM MANUFACTURING CORP. Manufactures architectural flush wood doors. President: Jerry N Currie P.O. Box 1647 504 01 Mason City, IA 50402-1647 Tel: +1 641 423 2444 Fax: +1 641 423 1660 HES, INC. Elechtromechanical locking devices and accessories. President: Michel Web 2040 West Quail Phoenix, AZ 85027 Tel: +1 623 582 4626 Fax: +1 623 582 4641 HID CORPORATION World-leading producer of cards, readers and identi- fication technology for the access control industry. President and CEO: Denis Hebert 9292 Jeronimo Road Irvine, CA 92618 1905 Tel: +1 949 598 1600 Fax: +1 949 598 1690 INDALA World leader in production of RFIDcards and readers. President: Steven J. Wagner 6850 B Santa Teresa Blvd San Jose, CA 95119 Tel: +1 408 361 4700 Fax: +1 408 361 4701 MCKINNEY PRODUCTS CO Manufactures a broad, complete line of hinges. General Manager. John Cordes 820 Davis Street Scranton, PA 18505-5999 Tel: +1 570 346 7551 Fax: +1 570 342 4845 MEDECO HIGH SECURITY LOCKS, INC. Market leader in high-security locks and lock systems for doors and industrial applications. President: Robert Cook P.O. Box 3075 Salem, VA 24153 Tel: +1 540 380 5000 Fax: +1 540 380 5010 NEL CORPORATION INC. Primarily focuses on marketing and sales of exterior security rim locks under the SEGAL brand. President: Robert Cook P.O. Box 3075 Salem, VA 24153 Tel: +1 540 380 5000 Fax: +1 540 380 5010 NORTON DOOR CONTROLS Manufactures a comprehensive range of mechanical and electromechanical surface door closers, door holders and ADA automatic door operators. General Manager: Doug Millikan TRUSSBILT Manufactures high-quality security hollow metal products primarily for the detention market, with a market leading position in this segment. President: Tim Browne 3000 Highway 74 East Monroe, NC 28112 Tel: +1 704 233 4011 Fax: +1 704 233 5053 RIXSON SPECIALITY DOOR CONTROLS Manufactures concealed closers, pivots, and mecha- nical/electromechanical door holders, particularly suitable for special applications involving heavier doors, stringent esthetic requirements or other uni- que openings. General Manager: Eric Tannhauser 9100 W. Belmont Avenue Franklin Park, IL 60131 Tel: +1 847 671 5670 Fax: +1 847 671 0574 SARGENT MANUFACTURING CO. Manufactures a complete line of locks and door har- dware with a wide range of cylindrical locks, mortise locks, exit devices, door closers, electromechanical products and cylinder systems. Director of Operations: Thanasis Molokotos P.O. Box 9725 New Haven, CT 06536-0915 Tel: +1 203 562 2151 Fax: +1 203 776 5992 SECURITRON MAGNALOCK CORPORATION Market leader in magnetic locks and other electromechanical lock products. President: Scott Baker 550 Vista Boulevard Sparks, NV 89434 Tel: +1 775 355 5625 Fax: +1 775 355 5633 FINANCIAL ANALYSTS FOLLOWING ASSA ABLOY 2002 2112 Old Highway 8 NW New Brighton, MN 55112 Tel: +1 651 633 6100 Fax: +1 651 628 9482 YALE COMERCIAL LOCKS AND HARDWARE Manufactures a wide range of commercial door har- dware and locks,including mechanical and electro- mechanical mortise and cylindrical locks, panic exit devices, dorr closers and cylinders. General Manager: Dick Krajewski 100 Yale Ave. Lenoir City, TN 37771 Tel: +1 865 984 7511 Fax: +1865 986 8630 YALE RESIDENTIAL SECURITY PRODUCTS, INC. Residential locksets, deadbolts, handsets and accessories. General Manager: Michael Tracey 2725 B Northwoods Parkway Norcross, GA 30071 Tel: +1 678 728 7400 Fax: +1 770 448 1102 YSG DOOR SECURITY CONSULTANTS Sales, marketing, service, and support for Ceco Door Products, Corbin Russwin, Folger Adam, Norton, Rixson and Yale Commercial. Vice President, Sales and Marketing: Larry Bonhaus 1902 Airport Road Monroe, NC 28110 Tel: +1 704 283 2101 Fax: +1 704 283 9446 Zimbabwe CHUBB UNION ZIMBABWE (PVT) LTD. Markets a complete range of security products. President: Rory Vahey P.O. Box 2555 Harare Tel: +26 34 759 196 Fax: +26 34 759 194 ABG Sundal Collier Alfred Berg BNP Paribas CAI Cheuvreux Carnegie Cazenove Global Equities CSFB Deutsche Bank Dresdner Kleinwrt Enskilda Securities Goldman Sachs Handelsbanken HSBC Investment Bank JP Nordiska Lehman Brothers Merrill Lynch Morgan Stanley Nordea Securities Societe Generale UBS Warburg Öhman J:or Fondkommission AB JOHAN GAHM, E +44 (0)207 9055 631 ANDERS JEGERS LARS NORRBY +46 (0)8 723 59 65 CHRISTIAN DIEBITSCH +44 207 595 3467 +44 207 6215 177, JEFF SAUL +46 (0)8 676 86 88 ANDERS IDBORG +44 207 214 7626 ILAN CHAITOWITZ +44 207 888 0289 PATRICK MARSHALL +46 (0)8 463 55 00 MATTIAS KARLKJELL +44 20 7475 2476 FREDRIK KARLSSON ANDERS TRAPP +46 (0)8 5222 97 57 NICK PATON CHRISTER BECKARD CLAES RASMUSON PEDER FRÖLÉN PETER LAWRENCE JOHN PEARSON DANIEL CUNLIFFE PATRIK SJÖBLOM JONATHAN CUMMINS ANDERS FAGERLUND +46 (0)8 701 31 21 +46 (0)8 454 55 10 +46 (0)8 791 47 86 +44 207 256 4706 +44 20 7996 4192 +46 (0)8 453 73 30 +46 (0)8 402 52 68 anders.jegers@abgsc.com lars.norrby@alfredberg.se christian.diebitsch@bnpparibas.com jsaul@caicheuvreux.com andidb@carnegie.se Ilan.chaitowitz@cazenove.com patrick.marshall@csfb.com mattias.karlkjell@db.com fredrik.Karlsson@drkw.com anders.trapp@enskilda.se nick.paton@gs.com chbe31@handelsbanken.se, claes.rasmuson@hsbcib.com peder.frolen@nordiska.com pnlawren@lehman.com john_pearson@ml.com daniel.cunliffe@morganstanley.com Patrik.Sjoblom@nordeasecurities.com jonathan.cummins@socgen.co.uk anders.fagerlund@ubsw.com johan.gahm@ohman.se ASSA ABLOY / 2002 8 3 Photo: Elisabeth Ohlson, Ulf Huett Nilsson and Lennart Ström Illustrations: Ehrenstråhle & Co. Production: Ehrenstråhle & Co AB. Prepress: DOG. Print: ATT Grafiska, Stockholm 2003. Annual Report 2002 A S S A A B L O Y A n n u a l R e p o r t 2 0 0 2 ASSA ABLOY AB (publ.) Postal Address: P.O. Box 70340, SE-107 23 Stockholm • Visiting Address: Klarabergsviadukten 90 Phone: +46 (0)8 506 485 00 • Fax: +46 (0)8 506 485 85 Registered No.: SE.556059-3575 • Registered Office: Stockholm, Sweden • www.assaabloy.com 

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