ASSA ABLOY Annual Report 2003

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FY2003 Annual Report · ASSA ABLOY

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Annual Report 2003

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2003 in brief

In March 2003 Bo Dankis became the new President and CEO

(cid:2) The Executive Team has been reduced from 17 people to seven

(cid:2) The ASSA ABLOY Group has been organized into four major divisions:

EMEA, Americas, Asia Pacific and Global Technologies

(cid:2) A two-year action program ‘Leverage and Growth’ has been launched
to leverage the Group’s strength and build a foundation for long-term

growth. Restructuring costs related to the action program amount

to SEK 1,320 M

Sales amounted to SEK 24,080 M (25,397) and were affected by

negative exchange-rate effects of SEK 2,660 M

Income before tax but excluding restructuring costs amounted to

SEK 1,903 M (2,015)

(cid:2) Earnings per share excluding restructuring costs amounted to

SEK 3.31 (3.53)

(cid:2) Operating cash flow amounted to SEK 3,265 M (3,525)

Contents

Financials in brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

CEO’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Vision and business concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cash flow analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Leverage and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Changes in shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Description of the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ASSA ABLOY products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Sustainable development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Proposed disposition of earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Division EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Audit report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Division Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Comments on ‘Five years in summary’ . . . . . . . . . . . . . . . . . . . . 70

Division Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Five years in summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Division Global Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Quarterly information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Report of the Board of Directors for 2003 . . . . . . . . . . . . . . . . . . 40

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

The ASSA ABLOY share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Sales and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Information for shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Income statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Results by division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

(cid:2)
(cid:2)
(cid:2)
ASSA ABLOY in brief

The ASSA ABLOY Group is the world's leading manufac-
turer and supplier of locking solutions, dedicated to satis-
fying end-user needs for security, safety and convenience.
With more than 100 companies operating in 40 countries,
and a world market share of over 10 percent, ASSA ABLOY
is the strongest global player in the industry.

The Group operates in all major regions – both mature

and developing markets – and enjoys market-leading
positions in large parts of Europe and North America and
in Australia. In the fast growing area of electromechanical

locking solutions, ASSA ABLOY holds leading positions in
Identification, Door Automatics and Hotel Security, for
example.

Since its formation in 1994, the Group has developed
from a regional company with 4,700 employees to a global
Group of companies with 29,000 employees in 2003 and
sales of SEK 24 billion.

As the world’s leading lock Group, ASSA ABLOY offers

a product diversity, service offering and technological
advantages that no other company can match.

SALES
share of
Group total, %

EBITA
share of
Group total, %

SALES
share of
Group total, %

EBITA
share of
Group total, %

Americas

EMEA

ASSA ABLOY’s division Americas consists of the companies on the North,
Central and South American markets. The division is the Group’s second-
largest, accounting for 35 percent of total sales. It operates 24 production units
and 12 sales companies and has 10,100 employees. The main markets are the
USA, Canada and Mexico. Some of the region’s leading Group companies are
Sargent, Corbin Russwin and Curries.

ASSA ABLOY’s division EMEA embraces all Group companies in Europe, the
Middle East and Africa. The division is the largest in the Group, accounting for
41 percent of sales. EMEA has 35 production units, 30 sales companies and
12,500 employees. The main markets are France, Germany and the UK. The
leading companies within the division are Assa, Abloy, Vachette and IKON.

SALES
share of
Group total, %

EBITA
share of
Group total, %

Global
Technologies

ASSA ABLOY’s division Global Technologies is the Group’s
worldwide organization dedicated to high-technology prod-
ucts and services that transcend national frontiers. Global
Technologies accounts for 17 percent of sales and has 2,600
employees. The division comprises three sectors:
– Identification Technology Group (ITG), consisting of
highly recognized brands within the electronic access control
industry, such as HID and Indala
– Door Automatics, consisting of Besam, the world-leading
supplier of automatic door solutions
– ASSA ABLOY Hospitality, which includes two leading-brand

companies serving the hotel and cruise ship sector:

VingCard and Elsafe

GROUP SALES AND EBITA

SEK M

28,000

SEK M

4,000

21,000

14,000

7,000

3,000

2,000

1,000

Sales, SEK M

EBITA, SEK M

SALES
share of
Group total, %

EBITA
share of
Group total, %

Asia Pacific

ASSA ABLOY’s division Asia Pacific brings together the Group’s established compa-
nies in Australia and New Zealand with manufacturing units in China and a chain of
sales companies in South East Asia. Asia Pacific accounts for 7 percent of total sales
and has 4 production units, 5 sales companies and some 3,500 employees. Among
the largest companies in the region are Guli in China, Lockwood in Australia and
Interlock in New Zealand.

Financials in brief

Sales, SEK M

of which: Organic growth

Acquired growth

Foreign exchange differences, SEK M

Operating income before goodwill amortization (EBITA), SEK M

Operating margin before goodwill amortization (EBITA), %

Income before tax, SEK M

of which, foreign exchange differences, SEK M

Operating cash flow, SEK M

Return on capital employed, %

Return on capital employed before goodwill, %

Data per share (SEK/share)

Earnings after tax and full conversion (EPS)

Earnings after tax and full conversion excluding goodwill

Cash earnings per share after tax and full conversion (CEPS)

Shareholders’ equity per share after full conversion

Dividend

2003

24,080

–2,660

3,3521

13.91

1,9031

–186

3,265

9.61

34.41

2003

3.311

5.891

8.611

31.231

1.252

2002

25,397

3,595

14.2

2,015

3,525

9.9

33.3

2002

3.53

6.13

9.08

35.85

1.25

Change, %

–5

–10

–7

–6

–9

–7

–6

–4

–5

–13

Number of shares after full conversion (1,000s)

370,935

1 Excluding non-recurring items
2 Proposed dividend

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 3

INCOME BEFORE TAX /
OPERATING CASH FLOW 3

35,000

30,000

25,000

20,000

15,000

10,000

5,000

SEK M

Capital employed, SEK M

Return on capital employed, %

Return on capital employed before
goodwill, %

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

3 Data for 2001 and 2003 excludes non-recurring items

SEK M

Income before tax, SEK M

Operating cash flow, SEK M

EARNINGS PER SHARE 3

SEK

Earnings per share, SEK

Earnings per share excluding
goodwill, SEK

CEO’s statement

Creating growth via
leverage and innovation

On the whole, 2003 has
been another good year
for ASSA ABLOY,
although a challenging
one at a time when we are
entering a new phase in
our business development.
Consider that in less than
a decade we have built a
unique Group of compa-
nies in our industry.
More than one hundred
organizations have been
acquired. Our next objec-
tive is to make the most of
our position by exploiting
leverage and growth
opportunities.

Despite the headwind in the market – which has faced us
from the end of 2002 through most of 2003 – we managed
to end the year with stable sales volumes and slightly
improved margins for comparable units and exchange
rates, excluding restructuring costs. Our cash flow was
again very strong, especially considering that it is harder to
reduce inventory in a contracting business climate.

We have a large installed base of locks and cylinders,

which gives us stability through repeat business.

The few operations that are underperforming are well
identified and we are taking appropriate actions. Several
companies did very well and found new and innovative
ways to satisfy our customers. And in between these two
extremes there were many companies that managed to keep
volumes, margins and market shares at high levels.

New focus and structure

The change of CEO does not mean a change of strategy nor
a deviation from our financial and operational targets. It
just starts a new chapter of the same book.

However, our new stage of development, which focuses
on the second and third phases of the ASSA ABLOY Group
development strategy, has motivated a changed manage-
ment structure. The previous large management team was
efficient in the acquisition phase, but is less appropriate for
building a strong foundation for sustainable growth.
Eleven regions have therefore been condensed into four
divisions, each led by an Executive Vice President. The new
structure implies clear responsibilities and dedicated
resources.

Two-year action program

Our three-step Group development strategy is well estab-
lished and has been widely communicated. Although it pro-
vides a useful crystallization of our plans, the separate steps
are too sequential. That is why we have translated the strat-
egy into a two-year action program that we call ‘Leverage
and Growth’. The aim is to create a firm foundation for
sustainable and profitable growth through a better utiliza-
tion of our Group strengths.

ASSA ABLOY delivers good margins. Nevertheless, we
are taking strong measures to further improve our perform-
ance and competitiveness. Because we see continuing
strong potential.

To allow rapid progress, restructuring costs of SEK 1.3

billion were incurred in the 2003 accounts. During 2004
our low-performing units will be turned around, divested
or closed down. Throughout the organization we will work
on adjustments of capacity and exploiting cost synergies.
The main thrust will be in the EMEA region (Europe,
Middle East and Africa). We expect the two-year action
program to pay for itself in less than three years.

Untapped potential for leverage

The ‘Leverage’ part of the action program comprises three
main themes. The first is to utilize our resources more effi-
ciently. All units, with very few exceptions, are doing better
– some, much better – than they did before joining ASSA
ABLOY. Now we are raising our ambitions and turning our
attention to how these units can operate even better together.

Secondly, we want to improve even further the well
functioning Group Supply Management programs. Our
companies are locally strong with many local suppliers.
By working together more effectively we will be able to
make substantial cost savings in purchases of materials,
services and goods. By reducing variations between compo-
nents we can steadily improve the economics of joint com-
ponent manufacturing.

Our third aim is to exploit our considerable untapped

potential in the area of productivity improvement.

We have too many units that manufacture the same or
similar products. Going forward we will both streamline
and specialize our production.

Actions for growth

It is the ‘Growth’ part of the action program that will pro-
vide the greatest test of our ability to change ourselves.
Most of our companies sell their products through distribu-
tors. This can result in a lack of information feedback
about customers’ preferences. Through increased focus on
the customer, we plan to build up our bank of knowledge
and thereby become better at developing our products and
services to meet the customer’s needs. And through more
effective collaboration with our distributors we will be able
to strengthen customer benefit even further.

Today we have more than 90 brands. To achieve better
market coverage and deeper penetration we plan to make
some necessary changes in our brand portfolio. Some
brands will be turned into driver brands or full-concept

brands, others will become brands for specific product
lines, while some brands will disappear.

Profitable growth is our highest long-term priority. Our

main financial objective – a return on capital employed
(ROCE) of 20 percent in 2008 – calls for good growth. But
we also need to create growth for the dynamics of our
Group, for creation of job opportunities and careers, for
motivation and employee involvement, and for our own
pride.

We are the world’s largest lock Group and the only truly

global player in our industry. We will draw benefit from
our size to become true leaders in both innovation and cost-
efficiency.

We need to inform the market better and develop better
products faster in order to benefit from the ever-increasing
global trend towards higher security. We are fortunate to be
in an industry where demand is increasing and where our
products can make a real difference for people at home, at
the office or traveling.

We anticipate no substantial improvements in demand

in any of our major markets during 2004. Through our
own efforts in leverage, and through innovative new con-
cepts, we will return to growth before the end of 2005. In
everything we do we will have two things in mind – lever-
age and growth.

Stockholm, February 2004

Bo Dankis
President and CEO

Hospitals Like many public institutions, hospitals hold a large quantity of confidential information, and
also have many visitors. Authorized staff must be granted physical entry and access to information at the same time

as the information is kept protected from unauthorized viewing.

An electromechanical masterkey system allows central key control (regulating which keys can give access

through which doors at different times of day), and can also block lost keys.

An access control system with smart cards and doors that open and close automatically makes movement easier

for staff and visitors at buildings ranging from large teaching hospitals to health centers and doctors’ surgeries.

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Vision and business concept

Security, safety,
convenience and design

The ASSA ABLOY Group was formed in 1994 when Secu-
ritas and Wärtsilä merged their lock businesses. Since then,
the Group has grown through a combination of acquisi-
tions and organic growth to become the world’s largest
lock Group. ASSA ABLOY currently has operations in
more than 40 countries.

Vision

ASSA ABLOY is the world’s leading manufacturer and sup-
plier of locking and security solutions. The Group strives to
transform and develop the industry by continually increas-
ing end-user satisfaction in the areas of safety, security, con-
venience and design. ASSA ABLOY aims to introduce new
solutions and concepts that are adapted to local needs and
that will work effectively with the security investments that
customers have already made.

Its leading position enables the Group to leverage tech-

nology investments and market development in the inter-
ests of end-customers and distributors all over the world.
The local business operations are enhanced by the strength
and resources of the ASSA ABLOY Group.

ASSA ABLOY is being developed with long-term sus-

tainability in mind. The external environment, ethical
values and employee relations are important elements.

Business concept

ASSA ABLOY leads a process of consolidation and the
development of the lock industry. The Group’s united
strength will increase customer benefit by delivering secure,
safe, convenient and well designed security solutions.

Targets

The primary target of the ASSA ABLOY Group:
Return on capital employed should exceed 20 percent.
During the acquisition phase of the Group’s strategy sub-
stantial amounts of goodwill have been added, which have
diluted the return on capital employed. The target, which
has remained unchanged since the Group was formed in
1994, will be reached in 2008 through the following sub-
targets:

FINANCIAL TARGETS – A 5-YEAR PERSPECTIVE

20%

Return
on capital
employed

ORGANIC GROWTH:
• About 5% per annum
over a business cycle

MARGIN IMPROVEMENT: 2–3%
• Stand-alone improvements
• Leverage Group synergies

CAPITAL RATIONALIZATION:
• Inventory reductions
• Maintained capital
expenditure level

ACCUMULATED
GOODWILL AMORTIZATION:
• SEK 5 billion

Leverage and Growth
In the fall of 2003 ASSA ABLOY launched a two-year
action program concentrating on the Group’s Leverage and
Growth. The program focuses on simultaneously progress-
ing phases 2 and 3 of the strategy by taking advantage of
the Group’s united strength and capturing growth opportu-
nities within the industry. The two-year program will cost
SEK 1.3 billion to carry out and is expected to pay for itself
within three years.

Organization

ASSA ABLOY reorganized its businesses during 2003 with
the aim of increasing flexibility and putting itself in a posi-
tion to exploit market opportunities more quickly. This was
a natural move at a time when focus had shifted from the
acquisition phase of the overall strategy to leveraging syn-
ergies and increasing customer benefit.

The new organization consists of four divisions:

• Americas
• EMEA (Europe, Middle East and Africa)
• Asia Pacific
• Global Technologies (door automatics, identification,

and solutions for the international hospitality industry)

To support these divisions a central organization for mar-
ket and business development has been established.

To reflect the reorganization, the Executive Team was

reduced from 17 to 7 people in the interests of greater
decision-making efficiency. Each division is headed by an
Executive Vice President with a clear mandate, wide-
ranging authority and his own resources. The Executive
Team meets monthly. Experience and best practice are
shared between companies, and benchmarking is employed
at many 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 highly effective tool to
encourage a dynamic improvement process amongst all
units.

Subtargets:
• Sales should grow organically at about 5 percent a year

over a business cycle.

• The EBITA margin should be improved by 2–3 percent-
age points. This should be achieved mainly by utilizing
synergies within the Group.

• The long-term positive trend in ASSA ABLOY’s operat-

ing cash flow should be maintained.

• Capital employed should be maintained at the present

absolute level, in spite of growth, in a five-year
perspective. Measures should include improvement of
production flows, which will reduce capital tied up in
inventory. Capital expenditure should be maintained at
today’s level, which is below current depreciation.

• Amortization of goodwill totaled over the next five-year

period should amount to SEK 5 billion.

Strategy

For several years now, ASSA ABLOY has followed a strat-
egy model based on three phases of development:
1. Build a worldwide presence and successively add new

areas of expertise

2. Leverage synergies and develop the strength of the Group
3. Accelerate organic growth by increasing focus on creat-

ing value for customers

STRATEGY

CUSTOMER VALUE

• Upgrading of security
• Complete offering
• Partner concepts

LEVERAGE GROUP SYNERGIES

• Corporate identity
• World-leading technology
• Joint R&D, platforms,
components

GLOBAL PLATFORM

• Geographic/areas of
expertise
• Installed base generating
recurring revenue
• Operational excellence

Leverage and Growth

Developing strengths
and sustainable growth

In November 2003 the Group launched a two-year action
program to leverage Group strength and build a foundation
for sustainable growth.

Leverage

Use resources more efficiently
The aim of this program is to exploit ASSA ABLOY’s com-
bined resources more efficiently, so that the performance of
the whole Group exceeds the sum of what each company
can achieve on its own. By means of benchmarking, the
individual companies will benefit from one another’s devel-
opments and improve their own working methods.

Twelve companies are identified as low performers.
In 2003 they had aggregate sales of SEK 1.5 billion and a
combined operating margin close to zero. Profitability
among these companies must be significantly improved –
if not, they will be divested or closed down before the end
of 2004.

ACTION PROGRAM 2004–2005

G R O W T H
L E V E R A G E

GROWTH
• Innovation and new concepts
• Channel management
• Brand-building

LEVERAGE
• Use resources more efficiently
• Smarter ways of working
• Increase productivity

Smarter ways of working
Purchasing activities within the Group will be further co-
ordinated. The number of suppliers is very large – there are
currently nearly 5,000 suppliers in Europe alone. It should
be possible to reduce them by 30 percent as a first step. This
will allow the remaining suppliers to sell larger volumes
and develop closer relationships. As an example, six facto-
ries in France used to have 57 packaging suppliers. Today,
there are eight suppliers and the prices are 20 percent lower.
Successful product concepts and sales activities in differ-

ent markets will be shared within the Group. Today, there
are major differences in demand between Americas and
Europe. By adapting to local preferences and paying atten-
tion to cross-selling activities the Group will aim to maxi-
mize the potential value of its markets.

Increase productivity
The Group currently has about 75 production units as a
result of the acquisitions made since 1994. Production will
be increasingly specialized and some production will be
transferred to low-cost countries. A proportion of compo-
nent manufacture will also be put out to subcontractors.
However, the priority is to increase productivity, not to
reduce staff numbers.

Growth

Innovation and new concepts
The lock industry is characterized by long product life and
a relatively low level of innovation. At present locks are
changed on average every twenty years, and many still offer
relatively low security. In recent years the demand for secu-
rity and safety has increased and ASSA ABLOY will capi-
talize on this trend by focusing on the end-users of locks
and security solutions. The market wants solutions that are
ever more integrated, secure and convenient. Combinations
of locks, alarms, lighting, access control, technical monitor-
ing and building evacuation are becoming more important.

In the spirit of our brand idea ‘Unlock Your Life’, ASSA
ABLOY intends increasingly to offer more complete solu-
tions designed specifically for different customer segments.
A large proportion of product development has been
driven by technology and to a lesser extent by customers’
unique requirements. ASSA ABLOY will increasingly base
its locks and security solutions on common technical plat-
forms with the aim of leveraging the Group’s strengths and
shortening lead times from innovation to market launch.

Channel management
Collaboration with distributors and installers will increase
in order to enhance knowledge of the end-users’ require-
ments and to secure the aftermarket of the more than one
billion ASSA ABLOY locks installed throughout the world.
The distribution channels will be developed on a partner-
ship basis, with increased support in the form of systems,
sales promotion measures and training.

The Group will cooperate with the distribution network

to speed up its turnover of goods and to reduce its tied-up
capital. Existing products and services will also be com-
bined in new ways to better reflect end-users’ needs.

TRUE LEADERSHIP

L E A D E R S H I P

THE MARKET GROWS
– customer satisfaction

ATTRACTIVE TO
DISTRIBUTORS
– partnerships

EDUCATE THE MARKET

T R U E

IDENTIFY TRUE CUSTOMER NEEDS
– invest in R&D

Brand building
The Group will increase investment in a number of selected
brands. ASSA ABLOY currently has 90 brands, which
include some world-leading names. Some of these will be
reinforced, others retained for specific product areas and
others discontinued.

Today ASSA ABLOY sells its products principally to
other companies. Since the consumer market is judged to
have great potential for high rates of growth, ASSA
ABLOY intends to strengthen some brands that are aimed
directly at consumers, or where demand for a product can
be increased by a stronger brand. The main barriers to
rapid development of the consumer market are tradition,
and lack of knowledge among the individual consumers
about what makes a good or bad lock. It is therefore vital
to educate and actively develop the market in order to
increase demand. One response to this need is the
Armadillo sales concept launched towards the end of 2003,
which consists of specially designed shops directed at the
individual consumer.

On 27 November 2003 ASSA ABLOY opened the world’s first Armadillo
Home Security concept store in Melbourne, Australia. The store will bring the
latest available residential security technology to Australian consumers.

Evacuation of buildings The challenge in public
places is to meet the demands for high security and for safety. Many

doors that are normally kept locked for security reasons must be easy

to open in an emergency so that people can escape quickly. Electrically

controlled panic exit devices overcome the problems since they can be

set in different operating modes for different times of day.

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Market

A growing
world lock market

The global lock market is fragmented, and in the industrial-
ized part of the world many companies are still family-
owned. These typically have leading positions in their own
home markets and strong, well-established relationships
with their local distribution networks. In less-developed
countries, established lock standards and strong brands are
less common.

The needs of different market segments also vary

greatly. Airports have different needs from private houses;
shopping malls from schools; factories from hospitals and
hotels.

The size of the global market

There is no established method to estimate the size of the
global lock market accurately. Few countries produce well-
defined statistics for the industry, and the information that
exists also varies in what product areas are included.

ASSA ABLOY’s 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.

ASSA ABLOY believes that a fair estimate of the size of

the world lock market is around EUR 25 billion.

Year-on-year growth

The major players

Viewed over a business cycle, the world lock market is
growing year-on-year. The reasons for this steady expan-
sion are greater prosperity in the developing world and a
sense of increased vulnerability everywhere. The focus on
security has intensified and people realize that they must
take responsibility for their own security. It has become
easier to discuss security, and many companies have moved
it up the agenda. Locks form one important component in
this growing concern with security.

Major imbalances

There remain major imbalances between different markets.
Americans spend more than twice as much per head on
panic exit devices for evacuating buildings as Europeans
do. Conversely, northern Europeans spend more than three
times as much as Americans on high-security locks for the
residential market. Door automatics are also several times
more widely used in Europe than the USA. If it is assumed
that security and evacuation solutions could be equal in size
in Europe and America, a rough estimate indicates that it
should be possible to double the total market. ASSA
ABLOY’s view is that there is no long-term reason for these
differences to continue. Rather, there is a challenging
opportunity for ASSA ABLOY to equalize these imbalances
by informing and developing the market.

With annual sales of SEK 24 billion, about 10–12 percent
of the world market, ASSA ABLOY is the market leader.
The second-largest company is Ingersoll Rand, followed by
other leading players such as Kaba, Black & Decker,
Stanley Works and Dorma. Other companies have grown
too, some internationally through export sales or by estab-
lishing operations away from their domestic markets.

TOTAL SALES
BY REGION, SEK M

Western Europe, 10,581

North America, 9,377

South Pacific, 1,148

South and Central America, 1,054

Eastern Europe, 663

Asia, 602

Middle East and Africa, 562

Other, 93

Americas

EMEA

North America
The USA’s war against terrorism and rising levels of crime
in society have intensified security concerns and the devel-
opment of new security Standards in America. This is par-
ticularly evident in government bodies such as the Depart-
ment of Defense and in schools, and it drives forward the
development of higher security. ASSA ABLOY’s most
important segment in the USA is the institutional market
such as schools and hospitals. Interest in high-security
locks, smart cards and biometry has increased significantly.
Product development for the non-residential market is car-
ried out in close collaboration with insurance companies,
police and fire services, customer organizations and other
important influencers.

The residential market in the USA has a lower standard

of locks than in Europe. Instead, alarms play a major role
in home security. However, better locks are a preventive
measure while alarms only react when harm has already
occurred. The residential market therefore holds great
potential, and the ASSA ABLOY company Emtek, which
sells to speciality hardware dealers in the USA, has grown
rapidly in recent years by focusing on design and security.

South America
Major parts of South America have a fragmented market
and have not yet developed security Standards. The markets
have a great need for security solutions and represent a
growth market for the future.

Western Europe
EU standardization now governs many European countries,
which has provided a driver for higher sales. It has raised
previously low national requirements and thereby also
raised the quality of security products.

A survey carried out by ASSA ABLOY shows that west-

ern European households believe that there are too few
types of electromechanical and electronic locks for their
homes, especially when compared with locks for hotels and
modern cars. The survey also shows that over half of all
households would have chosen an electronic door-lock if
they had known what alternatives existed.

Eastern Europe
Eastern Europe currently has a lower standard of locks
than the rest of Europe. Foreign locks – e.g. Swedish or
German – are considered better than local products. In
Russia both the consumer market and commercial con-
struction are booming.

Africa
With the exception of South Africa, most African countries
have inadequate security Standards for both the residential
and commercial markets. South Africa is currently the
largest market in Africa and ASSA ABLOY is the market
leader there.

TOTAL SALES
IN AMERICAS, SEK M

TOTAL SALES
IN EMEA, SEK M

TOTAL SALES
IN ASIA PACIFIC, SEK M

USA, 8,686

Mexico, 731

Canada, 691

South America, 195

Central America (excl. Mexico), 128

Australia, 914

Asia excl. China, 358

China, 244

New Zealand, 234

Western Europe, excl. the
Nordic countries, 7,783

The Nordic countries, 2,798

Eastern Europe, 663

Africa, 307

Middle East, 255

Electromechanical locks offer the customers a whole new level of security, convenience and flexibility. Nowhere is this trend more apparent than in airport and
transportation security, where there are numerous opportunities to combine electromechanical blocking mechanisms with electronic identification.

Asia Pacific

Asia
In Asia, China is the fastest-growing market, with a mass
flow of population from rural areas to the cities. The mar-
ket is still undeveloped and has an excess of low-quality
products. ASSA ABLOY has established itself in China
with its own factories, and now faces a major challenge in
educating and developing the distribution chain to accept
products of higher quality.

Australia and New Zealand
In the South Pacific area, both Australia and New Zealand
have been spared the recession that has affected much of
the rest of the world. Construction activities – new build
and renovation – have continued to grow at an overall rate
of 6–7 percent a year. Forecasts are that the construction
market will maintain its growth, or even increase it in some
segments, over the coming years.

Global Technologies

Advanced technologies grow
In recent years sales of advanced security products have
risen strongly. This applies particularly to electronic lock

cylinders, where ASSA ABLOY more than doubled its sales
in 2003. One clear trend – led largely by hospitals and com-
mercial companies – is towards a rapidly increasing elec-
tronic content in security solutions.

There is a strong demand for opening and closing doors

automatically while retaining or increasing the level of
security. This is a complex market segment which demands
high functionality in security solutions.

Advanced technical solutions such as identification
technology for access control are expanding in other areas
also. Ordinary contact-based cards of the type used in
cash machines and in stores are not considered sufficiently
reliable and convenient to be read many times a day in
access control systems. Contactless cards based on radio-
frequency identification technology are therefore now
widely used. These can be further developed into smart
cards which can carry far greater volumes of data and can
receive, store and transmit information. Such cards offer
promising potential for the future based on utilizing the
same card for different applications. The new iCLASS card
from the ASSA ABLOY company HID, which provides a
higher level of security technology, is one product that has
attracted great interest.

ASSA ABLOY products

New products unlock the way to
organic growth

A continuous flow of innovative new products is the single
most important source of organic growth. Planned and
focused product development is critical to success. ASSA
ABLOY’s level of innovation is reflected in the many
patents that its companies obtain. Although mechanical
lock technology still accounts for the largest number of
patents, the fastest-growing area is that of electromechani-
cal and electronic products for locking, identification and
passage control.

Mechanical locks

Mechanical locks and accessories and mechanical mas-
terkey systems continue to form the core of the ASSA
ABLOY product range, accounting for over half of the
Group’s sales worldwide. Mechanical locks provide the
two primary functions of any security device: identification
(the key) and a strong barrier (the lock).

demand for modern high-security locks. In developed mar-
kets there is a similar demand for the peace of mind that
higher security can provide. Here the Group’s huge
installed base of locks creates a solid foundation for sales
by directing customers towards its familiar brands when
they are seeking replacements and upgrades.

Electromechanics

Electromechanical technology can provide even greater secu-
rity and is currently showing the strongest rate of growth.
Electrical assistance makes locking and unlocking operations
easier while adding to the impregnability of the locked door.
Many ASSA ABLOY products now use motorized and sole-
noid locks, electric strikes, and magnets for door locking.
Electromechanical locks and components also form part of
many integrated solutions for access control and safe emer-
gency evacuation of buildings.

The most notable trend is towards higher levels of secu-
rity. In many developing markets, rising standards of living
mean that more people experience a growing need for
security. Where simple locks once sufficed, there is now a

By exploiting developments in microprocessor and com-
munications technology, electronics can add a further layer
of security plus new monitoring and control options. There
is a trend towards integrating all the systems involved in

managing a property, which is driving the development of
more intelligent lock products.

Identification
In the field of identification, the main growth area is
Radio Frequency Identification (RFID). The prime
advantage of RFID is that it is a non-contact technology.
Where even greater security is needed, ‘smart’ cards can
store information about the authorized user on the card
itself. The combination of RFID and biometric informa-
tion such as fingerprints or iris scans has a very high level
of security.

Door Automatics
Through Besam, ASSA ABLOY has acquired a world-lead-
ing position in door automatics. The Group’s global cover-
age gives it an unrivalled opportunity to integrate door
automatics with locking and access control and thereby to
meet customers’ demands for maximum convenience and
simplicity allied to security and safety.

Hotel locks
In the hospitality industry ASSA ABLOY started a technical
revolution when VingCard introduced its first card-
operated lock in the late 1970s. The ability to give each
new hotel guest a unique new key without changing the
lock transformed the industry. Since then there has been
ongoing development of electromechanical and then
electronic solutions. Today, the key card is also used to
open in-room safes, to give access to elevators and recre-
ation areas, to control room temperature and as a charge
card for use in neighboring stores and restaurants. Smart-
card systems offer further options, including automatic
recording of room visits by maintenance and cleaning staff.

Security doors and fittings

Throughout the world, door and window manufacturers
are customers for the Group’s locks and fittings. But in sev-
eral markets, notably the USA and France, ASSA ABLOY
itself has become a major supplier of security doors.
Another successful development in the USA is the design of
up-market door fittings.

Industrial locks

Industrial locks have also been influenced by developments
in electronics. These locks are marketed to manufacturers
of products such as vending machines, parking meters,
payphones and lockers. They are integrated into the end-
product and often combined into a coin lock. The latest
electronic options assist with time control, tracking and
in-company security functions by recording the visits of
personnel servicing the machines.

Global platforms

A recent development in ASSA ABLOY’s product planning
is international collaboration in designing new product
platforms, which can then be adapted to local standards. A
notable example is the CLIQ technology first launched in
Scandinavia in 2001 and rolled out in other countries since.
CLIQ is a cylinder-based masterkey system that combines
mechanical and electronic security and is ideal for colleges,
apartment blocks and industrial estates with a rapid
turnover of keyholders because of the ease of canceling lost
keys and issuing new keys.

Evolution is a modular lock case based on common
components which can be set up to serve a number of dif-
ferent local market requirements.

SALES
BY PRODUCT GROUP, %

Mechanical locks, lock systems
and accessories, 54%

Electromechanical and
electronic locks, 24%

Security doors and fittings, 19%

Industrial locks, 3%

Sustainable development

Environment, ethics and
social responsibility

It has always been important that ASSA ABLOY follows
the cornerstones of vision, ethics, courage and realism that
were adopted when the Group was formed in 1994. These
cornerstones provide a natural platform for ASSA
ABLOY’s activities in the areas of environmental issues,
business ethics and social responsibility. Through common,
committed actions, the Group’s market positions and
brands will be strengthened. At the same time ASSA
ABLOY will do everything possible to avoid environmental
harm and possible claims for damages.

ASSA ABLOY has identified and analyzed environmen-

tal risks and opportunities in the Group’s whole value-
chain. In contrast to many consumer goods, the greatest
environmental impact in ASSA ABLOY’s case comes from
production operations. A steering group led by the Group
CEO has been set up, and during 2003 there was estab-
lished a new organization, following the same general
structure as the Group, to ensure compliance with the
guidelines.

OUR CORNERSTONES

A S S A A B L O Y
E T H I C S

V I S I O N

VISION
• The true leading lock company
• Leading in size and thought

REALISM
• Know your numbers
• Seek the truth
• Don´t be afraid of
details
• Profit drives growth

ETHICS
• Believe in the individual
• Lead by example
• Confidence in
competence

COURAGE
• Lead change

C O U R A G E

R E A L I S M

The external environment has priority

In its environmental work ASSA ABLOY focuses on its
own production and its major suppliers. Today, products
including chemicals are handled, energy is consumed and
waste products are disposed of. All these operations should
be carried out systematically and with great care for the
environment, directed towards overall sustainability. Com-
panies as widely spread as Guli in China, Phillips in Mexico
and Vachette in France now hold ISO 14001 certification.
One current example is that ASSA ABLOY is seeking
opportunities to introduce a new method for electroplating
components that offers reduced consumption of both plat-
ing metals and water. Conserving energy and reducing
water consumption are important, and moreover often
yield a direct economic benefit.

ASSA ABLOY is also seeking to recycle the production
waste that arises in various manufacturing processes. And
organic solvents are currently widely used for degreasing
metals, but ASSA ABLOY has begun to replace them with
water-based products.

Again, chromium plating can use either hexavalent or
trivalent chromium. The latter is less poisonous but gives a
rather less fine finish which customers in some markets
have previously been reluctant to accept. A project has been
initiated to inform them about the environmental consider-
ations, and in many places this has resulted in a greater use
of the trivalent form.

Environmental factors and social responsibility will
play an increasingly important role when evaluating suppli-
ers. A questionnaire for ASSA ABLOY’s suppliers has been
prepared that covers both their environmental work and
health and safety in the workplace. The purpose of these
evaluations is to create a basis for discussions about
improvements. The evaluations sometimes show that more
detailed studies are required.

The extraction of various materials, especially metals,
that are used in ASSA ABLOY’s products has a significant
impact on the external environment, and working condi-

Many of the guidelines used in ongoing development
are based on each country’s legal requirements and on rele-
vant international Standards and guidelines including ISO
14001, the UN Global Compact, and the OECD Guidelines
for multinational enterprises.

ASSA ABLOY also works locally towards strong social

involvement, with support for local projects.

ASSA ABLOY’s Environmental Policy

Global Environmental Policy
At ASSA ABLOY we are committed to true leader-
ship.

Our Environmental Policy
• We meet or exceed legal requirements
• We continuously develop strategies to reduce

consumption of resources, prevent pollution and
improve the overall environmental impact caused
by our operations and our products at every stage
of the value-chain

• We continuously seek ways to improve our work

environment by reducing risks that can cause acci-
dents or pollution

• We require management personnel to be respon-
sible for implementing and upholding this policy
in their business units and groups through aware-
ness, training, measurement and reporting

• We encourage and foster openness and communi-

cation of our policy to our stakeholders

• We apply our policy in all business transactions

and expect our employees, partners and suppliers
to apply them as well

• We will strive to implement certifiable environ-
mental management systems at all local produc-
tion units.

Our environmental policy and procedures are based
on each country’s legal requirements and on relevant
international Standards and guidelines including ISO
14001, the UN Global Compact, and the OECD
Guidelines for multinational enterprises.

tions in these industries may be severe. Since the materials
are often bought and sold via commodity exchanges, and
since ASSA ABLOY is a relatively small purchaser, it is hard
for the Group to discover which producer they are coming
from and therefore hard to influence the conditions of pro-
duction.

ASSA ABLOY has grown rapidly, and there still remains

much for the Group as a whole to do in order to meet its
ambitious targets.

Strict rules of business ethics

ASSA ABLOY operates with high standards of business
ethics. For example, the Group does not tolerate any anti-
competitive activities, the giving or taking of bribes, nor
any other form of inducement. The Group makes no party-
political donations of any kind and can therefore derive no
commercial advantage from such contributions. But ASSA
ABLOY Group companies do belong to local business
organizations and thereby indirectly support business poli-
tics that favor free enterprise.

A socially aware outlook

ASSA ABLOY is setting up businesses in many parts of the
world and strengthening its production resources in the
third world and elsewhere. This produces many advantages
for the countries concerned, but it is especially important
that the Group acts responsibly in such countries. For
instance, anyone employed by ASSA ABLOY or by any of
the Group’s suppliers must have reached the minimum age
required by local laws. ASSA ABLOY’s approach is that
employees are free to organize themselves or have the
option to join existing organizations. The Group will toler-
ate no form of forced labor, and it naturally respects human
rights throughout the world.

Nor will ASSA ABLOY tolerate any form of discrimina-

tion or harassment. Discrimination may arise on grounds
of ethnic origin, sexual orientation, gender, religion, politi-
cal opinion, nationality or upbringing. Equal opportunities
and diversity are important for the future development of
ASSA ABLOY.

The Group also strives for safe and healthy workplaces.

In addition, consumers’ demands for good, safe products
and trustworthy product information must be met.

Identification When the amount of important information stored in an
organization increases, the problem of controlling access to buildings and records

increases in step with it. The use of an electronic access control system with con-

tactless smart cards that can receive, store and transmit information can assure

high security, functionality and flexibility all at once. Biometry can add a further

level of security to a smart card by allowing the cardholder’s identity to be veri-

fied from such features as fingerprints or the iris of the eye.

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Division EMEA

Reorganization creates a platform
to exploit economic recovery

EMEA

Hans Johansson

“Selling locks is not enough in today’s

highly competitive environment. As the leader

in our industry we must identify the needs of

different groups of customers and then align

our product solutions to fit them.”

ASSA ABLOY’s new EMEA division embraces the Group’s
companies in Europe, the Middle East and Africa. The divi-
sion is the largest in the Group, accounting for 41 percent of
total sales. In the region the Group has 35 production units,
30 sales companies and 12,500 employees.

The region has experienced flat sales growth in 2003

primarily due to the slow economic climate and dis-
advantageous foreign exchange rates. Over a 12-month
period the US dollar depreciated by 20 percent against the
Euro. Later in the year the economic climate slowly
improved. As signs of a slow economic recovery now begin
to appear on the horizon, ASSA ABLOY is positioned to
make the most of the opportunities it provides. As the
world’s leading lock Group, ASSA ABLOY offers a broad
product range, multiple service offerings and technological
advances that no other company can match.

The two largest European operations, Scandinavia and
France, have managed to keep volumes and margins stable

under difficult market conditions. In
the Netherlands, Lips, which sells
lock products to both the com-
mercial and residential markets,
has developed positively. EMEA’s
two main German companies,
IKON and effeff, have also expe-
rienced an upturn in sales after
slow performance during the first

half of the year.
The UK companies are beginning to
benefit from relocating some production to

eastern Europe and China as well as from the
launch of new products developed in collaboration with
other Group companies. The Italian business has been
underperforming and during the year there has been some
reduction of exports and consolidation of production. A
positive trend is seen in Spain, especially in the project spec-
ification market.

In eastern Europe a strong demand for ASSA ABLOY
products is emerging as living standards rise and people feel
a need for improved security. In Russia both the consumer
market and commercial construction are booming. The
Group’s presence is increasing, especially in retail sales and
high-end hotel and identification products. A new office in
Moscow was set up in April 2003 to coordinate operations
and launch growth initiatives targeted at all sectors of the
market.

In May 2003 the EMEA region established an office in

Dubai, with the objective of taking full advantage of the
increased economic and construction activity in the
dynamic Middle Eastern region. This will be achieved by
developing business through sales and marketing activities,
improvement of the distribution network and education.
The office will also coordinate the Group’s many brands
into complete packages for different market segments.

Mul-T-Lock in Israel has a steady demand for its prod-

ucts, particularly in the UK, Germany and the Americas.

In South Africa, the volatile currency has had a negative

impact on sales even though ASSA ABLOY South Africa

The Yale brand is one of the oldest international brands in the world and one
of the best-known names in the locking industry. Yale protects millions of
homes and businesses worldwide. In EMEA alone, Yale-branded products
with an estimated value of EUR 60 M were sold in 2003.

maintained its leading position on the domestic market in
2003 and is now using that experience as a blueprint for
operations elsewhere in Africa. New sales offices in East
Africa, Nigeria and Angola have been added to the five
existing offices in southern Africa.

Current standing

The main markets are France, Germany and the UK. During
the year the strongest markets have been Finland, Germany,
Benelux and parts of eastern Europe.

The focus during 2003 has been to streamline the orga-
nization’s efficiency with respect to manufacturing, market-
ing, sales and distribution. The market was divided geo-
graphically into 11 market divisions. Each division has
identified existing and future business opportunities and
assigned specific strategic objectives.

ASSA ABLOY believes that much more than selling
locks is needed to succeed effectively in today’s highly com-

EMEA, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

2003

2002
SEK M SEK M

2003

2002
EUR M EUR M

9,858

10,168

1,081

1,112

318

364

10,176

10,532

1,116

1,152

–1%

Operating income before
goodwill amortization (EBITA)1

Operating margin before goodwill
amortization (EBITA)1

1,359

1,417

149

155

13.4%

Goodwill amortization

–338

–343

Operating income (EBIT)1

1,021

1,074

–37

112

–38

117

Operating margin (EBIT)1

10.1%

Capital employed

– of which goodwill

8,519

10,064

4,728

5,056

939

521

1,099

552

Return on capital employed 1

10.6%

10.2%

10.6%

10.2%

Return on capital employed
before goodwill 1

29.0%

27.0%

29.0%

27.0%

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation

Net capital expenditure

Change in working capital1

Cash flow1

1,359

1,417

505

–357

514

–437

247

1,573

1,741

149

–39

172

155

–48

190

Average number of employees

12,481

12,972

12,481

12,972

1 Excluding non-recurring items

SALES / EBITA

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EUR M

400

EUR M

300

200

100

2002

2003

Sales, EUR M

EBITA, EUR M

1,400

1,200

1,000

800

600

400

200

EUR M

2002

2003

Capital employed, EUR M

Return on capital employed, %
Return on capital employed before
goodwill, %

EBITA / CASH FLOW

EUR M

2002

2003

EBITA, EUR M
Cash flow, EUR M

Division EMEA

petitive environment. As the leader in the industry ASSA
ABLOY must identify the needs of many disparate groups of
customers and then align its product solutions to fit them.

The near future

The economic outlook for the EMEA region is showing
signs of a gradual improvement. There is unlikely to be any
dramatic rise in sales or shifts in market share in the near
future. However, the market continues to show rising
demand for higher levels of security.

In response to this demand, locking solutions are

becoming increasingly sophisticated. The ongoing roll-out
of ASSA ABLOY’s patented CLIQ lock technology is evi-
dence for that. This new generation of smart, programm-
able cylinders and battery-powered keys has been very well
received in Scandinavia, Germany, France and Finland and
will be available on most of EMEA’s markets in 2004.

Electromechanical locks offer the customers a whole
new level of security, convenience and flexibility. Nowhere
is this trend more apparent than in airport and transporta-
tion security, where there are numerous opportunities to
combine electromechanical blocking mechanisms with elec-
tronic identification.

Similar considerations affect ASSA ABLOY’s largest
single market sector, commercial construction. New con-
struction has been limited in many parts of the region over

the past few years but opportunities are reviving as industry
restructures and downsizes to compete more effectively.
The growing number of high-technology firms with valu-
able intellectual property to protect demands highly secure
and flexible electromechanical locking solutions. These
solutions could also incorporate strict access control com-
bined with safe, fast emergency exit.

In the residential market widespread housing shortages

in many countries have increased demands for new con-
struction. As living standards rise, there will also be a grow-
ing demand for affordable higher-security locking solutions
to upgrade existing properties.

Towards the end of the year EMEA started to imple-
ment the Group’s two-year action program, ‘Leverage and
Growth’. The main objective is to return to a level where
ASSA ABLOY can create sustainable growth by using its
resources more efficiently. This objective will be achieved
by more cross-selling and improved channel management.
ASSA ABLOY will also achieve savings through a combi-
nation of production efficiency, personnel reductions,
lower inventory and improved selling procedures. On the
supply side EMEA is taking advantage of its strong market
presence to streamline the number of suppliers and then to
leverage the best prices possible. The division will also
improve the profitability of any low-performing Group
companies, or else close them down.

EMEA – SALES BY PRODUCT GROUP

Mechanical locks, lock systems
and accessories, 71%

Electromechanical and
electronic locks, 13%

Security doors and fittings, 10%

Industrial locks, 6%

Vachette’s innovative RADIAL locking system has a unique combination of
a highly original key profile and several rows of multi-directional pins arranged
radially across the lock cylinder. The mobile element that forms part of the key
has enabled Vachette to patent the system, thereby making key-duplication
outside its own factories illegal.

Division EMEA

KEY PRIORITIES

Near future
• Increase productivity through reduction in personnel and

consolidation of production
• Reduce the number of suppliers
• Turn-around low performers

Long term
• Common product platforms, e.g. Evolution lock case
• Increase penetration of electromechanical products
• Provide complete offerings on all markets

The longer term

Looking forward, EMEA will be developing new multiple
platforms from which to launch product lines and design
concepts tailored to appeal to specific regional differences.
No two regions have exactly the same product preferences.
It is ASSA ABLOY’s mission to identify the differences and
ensure that the Group has products and designs in every
market that enjoy popular acceptance.

EMEA will continue to sell to effectively the same cus-
tomer base, but with a product portfolio constantly adapt-
ing to its needs. Growth will come increasingly from more
advanced, high-security locking solutions designed for the
commercial, institutional and industrial sectors, including
transportation and communications. Electromechanical
and electronic technologies will become even more impor-
tant. More energy will be devoted to educating the market
about their advantages and providing support to distribu-
tors, specifiers, architects and builders. Other significant
product areas will include panic exit devices; mechanical
masterkey systems for controlling access to offices and
institutions; and designer door hardware such as handles,
lock cases and hinges.

Geographically, the Middle East and parts of eastern
Europe including Russia have the potential to offer particu-
larly good growth opportunities over the next few years.

Eastern Europe has the potential to offer particularly good growth opportunities over the next few years.

Division Americas

Americas holds its position
in a challenging climate

AMERICAS

Thanasis Molokotos

“We have well thought out strategies. It is

the localization and adaptation of those

strategies that allow us to be flexible to market

demands. This is our culture of continuous

improvement at work. It makes us better

partners to our customers and distribution

channels.”

ASSA ABLOY’s Americas division comprises all markets in
North, Central and South America. The Americas division
is the ASSA ABLOY Group’s second-largest, accounting for
35 percent of total sales. The division operates 24 produc-
tion units and 12 sales companies and has 10,100 employ-
ees. The division has been affected by the weak economic
climate in 2003. There has been a persistent softness in the
division’s most important market segment – new construc-
tion in the continental United States. Despite this, the divi-
sion as a whole has succeeded in generating strong cash
flow and maintaining cost control while retaining its
culture of continuous improvement in all aspects of its
businesses.

The region is still coming to terms with the new
economic realities two years after 9/11. Thanks to ASSA

ABLOY’s global resources, product
diversity and operational excel-
lence, the Americas division has
managed well during the reces-
sion. It has been more important
than ever to utilize the division’s
synergies to the fullest with
respect to the coordination of
capital expenditure, cost control,
improved manufacturing efficiency,

distribution and sales.
Some 90 percent of sales in the Americas

division come from the non-residential sector,

more specifically commercial and institutional construction.
In the USA new commercial construction – office buildings
and industrial premises – has been hit hardest by the down-
turn of the past two years, but institutional new-construc-
tion showed slight recovery in the second half of 2003. The
Door Group has been impacted the hardest, although sales
volume began to recover late in the year. The Architectural
Hardware Group has remained relatively constant.

Assisted by continuing efforts to educate the market on
the benefits of key control and higher-security locking solu-
tions, most of the region’s companies have shown sales
growth in electromechanical and high-security products.
The Residential Group has shown strong growth coupled
with increased profitability. Emtek continues its success in
marketing its premium residential products.

New products and technical innovation remain impor-

tant drivers of growth. Emtek has had success with new
products launched this year. Additionally, strategic partner-
ships have enabled the Group to develop innovative life-
safety solutions for the marketplace. One such innovation
is SARGuide by Sargent. SARGuide integrates electrolumi-
nescent technology into an exit device to illuminate the
touchpad with the word EXIT. This highly visible exit indi-
cator informs people of the exit location in the event of a
fire or power failure. Other ASSA ABLOY companies too
are now developing proprietary life-safety products incor-
porating this technology.

In 2003 Medeco launched the most powerful
patented key system in its history, Medeco3.
Medeco3 includes 13 billion potential combinations
and three separate means of locking while retaining
full dimensional compatibility with all North
American lockset types.

A strong market has been the basis for ASSA ABLOY’s

continued growth in Canada. Success in gaining market
share has also come through greater coordination and
cooperation among the main units and joint efforts in the
high-security sector for new construction.

The Mexican economic market has been rather

unsteady, with the mid-term election creating uncertainty.
Some new market initiatives are expected to come to
fruition during the coming year. ASSA ABLOY has been
successful in developing official Security Standards for a
number of its products. Outsourcing of some US product
lines to some of the Mexican companies is now complete.
Additional opportunities for competitive sourcing are also
being sought.

Americas, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

2003

2002
SEK M SEK M

2003

2002
USD M USD M

8,625

10,545

1,069

1,086

8,657

10,633

1,073

1,095

–2%

Operating income before
goodwill amortization (EBITA)1

Operating margin before goodwill
amortization (EBITA)1

1,428

1,728

176

178

16.5%

16.3%

16.5%

16.3%

Goodwill amortization

–331

–375

Operating income (EBIT)1

1,097

1,353

–41

135

–39

139

Operating margin (EBIT)1

12.6%

12.8%

12.6%

12.8%

Capital employed

– of which goodwill

7,528

5,010

9,711

5,930

1,046

1,109

696

677

Return on capital employed 1

12.4%

12.2%

12.4%

12.2%

Return on capital employed
before goodwill 1

43.8%

39.2%

43.8%

39.2%

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation

Net capital expenditure

Change in working capital1

1,428

1,728

250

–212

312

–281

1,527

1,855

176

–26

189

178

–29

191

The turbulent situation in Brazil and the revaluation of

Cash flow1

the local currency have been challenging for La Fonte.
Marketing programs have emphasized the strength of the
company as a complete provider of locking solutions for all

Average number of employees

10,091

10,363

10,091

10,363

1 Excluding non-recurring items

300

250

200

150

100

SALES / EBITA

USD M

2002

2003

Sales, USD M

EBITA, USD M

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

USD M

1,250

1,000

750

500

250

2002

2003

Capital employed, USD M

Return on capital employed, %
Return on capital employed before
goodwill, %

EBITA / CASH FLOW

USD M

2002

2003

EBITA, USD M
Cash flow, USD M

Division Americas

types of building. One such example is the Door by Door
Solution program featuring a high-quality showroom with
various door security solutions. In addition, as a result of
Group sharing of best practices, a new profit-center struc-
ture has streamlined production, significantly increasing
efficiency. Further savings have come from an improved
overhead structure.

In Chile, Poli has built on its market-leading position

through its franchise-like PuntOkey program, selling
through dedicated dealer outlets located in high-traffic
areas such as shopping malls and subway stations.

Current standing

Prospects for organic growth in the near term will remain
limited until a sustainable upturn in the US economy
becomes a reality. A program to expand electromechanical
product offerings has been underway, with the majority of
them scheduled to launch in 2004.

The realignment of the American units that took place
in 2001 has had very positive effects in helping the Group
through the recession. Operational efficiency has improved
throughout the regional organization. On the product
development side, there has been a campaign to raise inno-
vation levels, shorten time-to-market cycles, maximize
resource utilization and minimize production costs. ‘Local
ownership’ initiatives have improved accountability and
maintained high enthusiasm.

Concentrated efforts directed at end-users such as
schools, colleges, hospitals and larger companies have cre-

ated additional demand not only for individual products
but for more complete solutions. For example, HES, Secu-
ritron, Sargent and SALock, an outside business partner,
have cooperated to develop a business solution targeted at
the package delivery industry. It allows recipients of deliv-
eries to access and retrieve their package at a time conven-
ient for them through the assignment of a unique pin code.
Additionally, increased specification activity, further sup-
ported by the distribution base, has secured a rising number
of projects.

The near future

A strong brand is particularly important in tough economic
times. ASSA ABLOY has more than 25 actively sold brands
in the Americas division which stand for quality and relia-
bility among professional locksmiths, architects and the
construction trade alike. Medeco, Yale, Sargent, Corbin
Russwin, Norton, Ceco and Curries, to name a few, are
well known brands in the industry. As part of the Group’s
new two-year action program, the roles of these individual
brands are being developed in specific channels.

On the supply side the Americas division has managed
to consolidate the number of suppliers by working through
two regional purchasing councils. By being more selective
with suppliers, the division is able to create a true partner-
ship whereby a mutual business commitment yields
increased materials quality, services and timely delivery.
More and more sourcing agreements are being reached
with sister companies within the worldwide ASSA ABLOY

AMERICAS – SALES BY PRODUCT GROUP

Mechanical locks, lock systems
and accessories, 56%

Electromechanical and
electronic locks, 6%

Security doors and fittings, 36%

Industrial locks, 2%

After some 150 years of existence, the Corbin Russwin, Sargent and Yale
brands are widely recognized and accepted in the North American market-
place. Each of these driver brands has its own proprietary installed base.
Between them, they can always offer their customers more than one alterna-
tive in terms of complete door-security solutions.

Group. Thus Yale now relies on supplies from TESA in
Mexico and Guli in China for its residential range of
products.

To maximize use of Group resources and products
wherever possible, the Americas division has also put in
place a number of cross-selling, joint manufacturing and
R&D agreements.

Increased focus on channel management has proved
successful. ASSA ABLOY offers distributors effective pur-
chasing tools in the form of software packages, as well as
direct order platforms via the Internet which facilitate the
order process and serve to build client loyalty.

The longer term

In the long term, the Americas division will continue to
focus on brand positioning and aligning its marketing strat-
egy to meet the evolving market needs. It will continue to
take advantage of Group synergies for product develop-
ment, manufacturing and sales. Important steps are the
new consolidated World Class lock manufacturing facility
in Mexico, the consolidation of frame and door manufac-
turing and of door-closer manufacturing in the USA, and
the outsourcing to Mexico of selected products. In some
operational groups, the number of R&D initiatives will be
scaled back in order to make better use of joint resources.
Several new-product initiatives are underway, particu-
larly in high-security and electromechanical locks for the
construction sector. ASSA ABLOY has launched new train-
ing initiatives to improve the know-how of the Group’s

Division Americas

primary distributors, and has set up a new sales force to
concentrate on the growing college and university market.
Mexico is a country with strong underlying growth
potential from the standpoint of both sales and manufac-
turing. ASSA ABLOY also anticipates that the large Brazil-
ian market will move forward once political stability is
regained. The consolidation of all its Latin American (and
indeed all its American) interests within a single market
division can only help ASSA ABLOY to exploit synergies
and leverage the Group’s inherent strength.

KEY PRIORITIES

Near future
• Turn-around low performers
• Focus on excellence in sales and marketing initiatives
• Maintain a holistic view of operational excellence

Long term
• Provide solutions responsive to the increased security

needs after 9/11

• Educate the marketplace on the importance of high

security and life-safety solutions

• Increase market presence of electromechanical

products

Mexico is a country with strong underlying growth potential from the standpoint of both sales and manufacturing.

Division Asia Pacific

South Pacific success provides a
launch pad for Asian growth

ASIA PACIFIC

Geoff Norcott

“Our top priority is to develop the

distribution and sales-force presence on key

Asian markets.”

ASSA ABLOY’s Asia Pacific division is a vast geographical
area with great cultural and economic diversity. The divi-
sion currently accounts for 7 percent of ASSA ABLOY’s
total sales. It operates four production units and five sales
companies and has some 3,500 employees. The new division
brings together the Group’s companies in Australia and
New Zealand as well as China’s largest lock manufacturer,
Guli, and a chain of sales offices in South East Asia. But the
region also encompasses India, Japan and Korea, which
gives it great potential for growth as the economies of Asia
reawaken after years of recession. ASSA ABLOY forecasts
strong sales growth in the region over the coming years.
In the South Pacific area, both Australia and New

Zealand have been spared the economic downturn that has
affected much of the rest of the world. The total increase in
construction activities – new build and renovation – has
been 6–7 percent annually and is forecast to climb into
double digits in some segments.

In 2003 all ASSA ABLOY companies in Australia and
New Zealand have achieved ongoing growth. Lockwood in

Australia continues to enjoy a lead-
ing market position in both com-
mercial and residential sectors,
while Interlock is the leading
residential supplier in New
Zealand. Interlock also has a
substantial export business sell-
ing to Original Equipment Manu-

facturer markets in America and

elsewhere and has succeeded in
winning new orders despite the weak

US economy.

Until now most residential sales have gone

to renovation, but efforts are underway to increase sales to
the first-fit market. Some 130,000 new homes are built in
Australia each year, but at present Lockwood has only a
limited share of sales to this segment, generated primarily
through OEM sales to door and window manufacturers.
Interlock has a comparable position in New Zealand.

To better exploit the residential segment, Lockwood
launched a new concept, the Traka-key system, during the
year. This is based on a single trackable registered key. Dur-
ing construction the builder can use the single key to open
any door in the house. Since the key is tracked, the builder
can control its use by subcontractors in order to prevent
pilferage. Then, once the house is ready, the new home
owner receives a key from Lockwood which overrides the
builder’s key. The Traka-key system is cost-effective and
highly secure and is only available if the entire house is
equipped with locks from Lockwood. It is already helping
to increase the company’s sales penetration in this market
and has won the support and approval of insurance compa-
nies and home building associations.

In the region’s Asian markets the elimination of un-
profitable products at the beginning of the year had a bene-
ficial effect on margins, and the launch of new products
produced some growth in the first quarter. However, the
region continued to suffer from weak economic activity.
This slump has been primarily felt in Hong Kong and
Singapore where new construction was formerly booming.

Lockwood in Australia has in recent
years shifted focus to higher-security
products and has successfully taken
advantage of the Group’s strength and expertise in this area. One example is
the Twin keying system based on technology developed by Assa in Sweden.

As a consequence, sales there have been rather slow,
although those in Thailand and Malaysia have been satis-
factory in the light of market conditions.

Expansion hopes for China have not yet been realized,

although Guli has retained its position as the country’s
leading lock maker. The Chinese market is both fragmented
and fast moving. Most lock makers rely more on design
than higher security and this represents both a challenge
and opportunity for ASSA ABLOY as the market develops
in sophistication. High-profile events such as the Beijing
Olympics in 2008 provide potential platforms to expose
the Group’s philosophies and technology.

At the end of 2003 the Guli manufacturing plant in
Guangdong province geared up significantly to take on
production of commodity items for other Group compa-
nies, such as mechanical locks for the UK and door closers
for the Group as a whole. Within the Asia Pacific region,
steps have been underway for some time to move an

Asia Pacific, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

2003

2002
SEK M SEK M

2003

2002
AUD M AUD M

1,506

1,490

109

123

1,615

1,613

288

309

283

307

Operating income before
goodwill amortization (EBITA)1

Operating margin before goodwill
amortization (EBITA) 1

240

205

14.9%

12.8%

14.9%

12.8%

Goodwill amortization

Operating income (EBIT)1

–52

188

–53

152

–10

Operating margin (EBIT) 1

11.8%

9.5%

11.8%

9.5%

Capital employed

– of which goodwill

Return on capital employed 1

Return on capital employed
before goodwill 1

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation

Net capital expenditure

Change in working capital1

Cash flow1

1,513

1,585

839

11.8%

848

5.7%

280

155

320

171

11.8%

5.7%

32.3%

17.3%

32.3%

17.3%

240

–53

–28

215

205

–74

226

–10

–5

–14

Average number of employees

3,507

3,696

3,507

3,696

1 Excluding non-recurring items

SALES / EBITA

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

AUD M

100

AUD M

2002

2003

Sales, AUD M

EBITA, AUD M

500

400

300

200

100

AUD M

2002

2003

Capital employed, AUD M

Return on capital employed, %
Return on capital employed before
goodwill, %

EBITA / CASH FLOW

AUD M

2002

2003

EBITA, AUD M
Cash flow, AUD M

Division Asia Pacific

increasing share of production from Australia and New
Zealand to lower-cost countries including China. ASSA
ABLOY is beginning to consider these low-cost manufac-
turing locations as a part of the Group’s forward product
strategy rather than purely as places to make mature
products.

In the Asia Pacific region new-product programs play a
particularly key role in driving business and winning mar-
ket share. Every three years, every product in the extensive
portfolio is updated. This differs from many other areas,
which rely heavily on sales of well established products.

Throughout the region costs are being cut back through

restructuring the operations of companies and by refining
administration functions. This has made it possible to
increase sales by some ten percent without having to
increase the number of employees.

Current standing

The main markets for the Asia Pacific division are
Australia, New Zealand and China. The leading positions
of Lockwood in Australia and Interlock in New Zealand
give them good leverage with component suppliers as
regards prices and delivery. This puts them in the position
of being able both to influence the quality of locking solu-
tions offered to the market, and to push for better lock
Standards. Some of the smaller, more specialized Group
companies such as Abloy and Trimec in Australia and
Lockwood Arrow in New Zealand perform an important

role as suppliers of electromechanical and other higher-end
niche products. They are currently growing at about 20
percent annually.

The most promising opportunities for future growth in
terms of sales volumes and market share are in Asia, where
the market is fast growing. ASSA ABLOY is looking for a
number of select acquisitions in the region. These will be
made in the next two to three years to give the company a
better distribution base through which to move new and
existing products.

The rapid pace of social and economic change in Asia is
increasing the need for the types of security products, solu-
tions and services that the Group can provide. Shanghai,
for example, has attracted a new wave of foreign invest-
ment. Many western companies are establishing businesses
there, and there are many other cities like it. A top priority
for ASSA ABLOY is to develop its distribution and sales-
force presence on key Asian markets. Once this is done, the
potential for growth in the Asia Pacific region is strong.
In the fast-developing market for electromechanical
locks, the ASSA ABLOY Group, including its Global Tech-
nologies division, is by far the leading player in the South
Pacific area, selling electromechanical products through
half a dozen distributors. Trimec sells a large portion of the
electric strikes sold in Australia. The region’s objective is to
establish a strong position in Asia by coordinating the
electromechanical products with core products manufac-
tured locally.

ASIA PACIFIC – SALES BY PRODUCT GROUP

Mechanical locks, lock systems
and accessories, 56%

Electromechanical and
electronic locks, 6%

Security doors and fittings, 36%

Industrial locks, 2%

Guli Security Products Limited is the
largest and most advanced manufacturer
of high-quality locking products in China.

The near future

Branding on the Australian market is hardly an issue
because Lockwood is by far the leading brand with a strong
market share and approximately 65 percent unaided brand
recall. But in Asia there are many brands competing for
market share. ASSA ABLOY is currently evaluating the
true strengths of the Group’s different brands in Asia. The
objective of the branding strategy will be to create a group
of six or seven major brands, as compared to 20 or 30
today. This brand policy will be initiated in 2004.

Once the new brand platforms have been established,

attention will focus on boosting local presence in Asia.
Where appropriate, this will be achieved by acquiring
either a manufacturing company or a base for distribution.

The longer term

The policy of constant product renewal requires a high
pace of innovation that can only be sustained by drawing
on the technology of other Group companies.

Intra Group Trade within ASSA ABLOY is growing all

the time. The South Pacific companies sell many other
Group products, and the Guli plant already supplies lever
mortise locks as well as rim locks to the UK and light-duty
door closers to Australia, New Zealand and elsewhere. The
region is now studying what new product lines – for exam-
ple, secondary-security items such as door bolts and other
less advanced products – can be manufactured at Guli in

Division Asia Pacific

China. The aim is to create a new package of products that
can be used across the entire Group.

Further growth in Asia will primarily come through
strategic acquisitions which will provide manufacturing
and distribution channels.

ASSA ABLOY Asia Pacific aims to sustain 5–10 percent
organic growth annually. The methodology is to utilize the
skills of the Group’s mature companies in the South Pacific
to support its ambitious growth objectives in Asia.

KEY PRIORITIES

Near future
• Increase Asian presence
• Develop the Chinese market
• New brand platforms
• Increased cross-selling

Long term
• Build leading position in Asia
• Profitable growth
• Increase outsourcing to Asia based on cost leadership
• Build new product platforms

One of the key priorities in the near future is to develop the Chinese market.

Division Global Technologies

Growing demand for
electromechanical products

GLOBAL TECHNOLOGIES

Following the reorganization, ASSA ABLOY has

begun to realize synergies that the three sectors
can offer to each other, and to the Group’s
geographical regions, from a product

Joseph J. Grillo

“Electromechanical products offer

tremendous advantages to the cus-

tomer in terms of security, convenience

and flexibility. To reach their maximum

potential market penetration these products

require a dedicated sales and service support

and quick responses to customer feedback.”

The Global Technologies division accounts for 17 percent
of ASSA ABLOY’s total sales. The division operates ten
production units and 41 sales companies and has 2,600
employees. Global Technologies is the Group’s worldwide
organization dedicated to high-technology products and
services. The division comprises three sectors:
• The Identification Technology Group, consisting of

highly recognized brands within the electronic access
control industry, such as HID, Indala and ACG
• Door Automatics, consisting of Besam, the world-

leading supplier of automatic door solutions

• ASSA ABLOY Hospitality, which includes two leading-

brand companies serving the hotel and cruise ship sector:
VingCard and Elsafe

development and sales perspective as
well as in production and distribution.
Performance for the Identifica-
tion Technology Group (ITG) in
2003 was promising. Sales

were good in North Amer-
ica, which accounts for 70
percent of ITG’s total
sales, and in Europe. In
Europe, ITG launched an
expansion strategy for
increased production, sales
and distribution capacity fol-
lowed by the introduction of a
number of new products. During

the year ITG made four strategic

acquisitions in Europe to broaden its produc-

tion and sales base.

In Door Automatics, Besam showed good profit

improvement in Europe in 2003. In North America, how-
ever, Besam suffered from a temporary downturn in sales
due in part to a number of structural problems. The com-
pany is actively developing the profitable service side of the
business. In addition, Besam expects to realize substantial
savings in production costs after co-locating its US manu-
facturing base at Yale’s manufacturing facility in Charlotte,
North Carolina. This move was completed in 2003.
ASSA ABLOY Hospitality’s sales continue to be
impacted by poor occupancy rates in the hotel business
worldwide and by high overhead costs resulting from
excess production capacity. These costs, combined with
negative currency exposure at both the point of production
in Europe and the point of sale in North America, its
biggest single market, continue to weigh on margins.

Despite relatively stagnant sales for the Hospitality sec-

tor, the Global Technologies division as a whole is doing

Besam sells and services a comprehen-
sive range of automatic door systems
which include swing doors, sliding
doors and revolving doors primarily for
the retail, healthcare and transport sec-
tors. Besam’s door systems are sold
together with a comprehensive mainte-
nance and service package designed to
ensure long reliable operation and to
prevent unexpected downtime.

well, with good profit margins for both Identification
Technology and Door Automatics.

Current standing

The Identification Technology Group is currently the
fastest-growing business in the Global Technologies seg-
ment, reporting increased sales and profits on all markets.
Its established members are three US manufacturing com-
panies – HID, Indala and Card Technologies and Services
(CTS) – a US-based Research & Development Center, and
four sales and distribution companies in the USA, Europe,
Asia and Latin America.

During 2003, ITG acquired four additional companies
in Europe: Interlock, Metget, Sokymat and ACG. All spe-
cialize in the field of Radio Frequency Identification (RFID)
technology already used by HID and Indala. RFID is a
method of contactless electronic identification using short-
range radio links between cards and readers. Its primary

Global Technologies, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

Operating income before
goodwill amortization (EBITA)1

Operating margin before goodwill
amortization (EBITA) 1

Goodwill amortization

Operating income (EBIT)1

Operating margin (EBIT) 1

Capital employed

– of which goodwill

Return on capital employed 1

Return on capital employed
before goodwill 1

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation

Net capital expenditure

Change in working capital1

Cash flow1

Average number of employees

1 Excluding non-recurring items

2003
SEK M

2002
SEK M

4,093

4,177

3,194

3,285

542

450

13.0%

13.7%

–238

304

7.3%

5,288

4,189

5.6%

–186

264

8.0%

5,519

4,380

6.1%

46.5%

45.0%

542

–64

–10

549

450

–49

540

2,574

1,676

1,200

1,000

800

600

400

200

SALES / EBITA

SEK M

2002

2003

Sales, SEK M

EBITA, SEK M

180

150

120

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EBITA / CASH FLOW

SEK M

8,000

SEK M

200

150

100

2002

2003

EBITA, SEK M
Cash flow, SEK M

6,000

4,000

2,000

2002

2003

Capital employed, SEK M

Return on capital employed, %
Return on capital employed before
goodwill, %

Division Global Technologies

use is in controlling access to commercial, institutional,
educational and residential premises. The technology is
advancing rapidly through the use of higher frequencies
and smarter cards with higher data-storage capacity, more
sophisticated encryption techniques and new methods of
authenticating cardholders.

Thanks to increasing cooperation with ASSA ABLOY
companies throughout the Group, Besam’s performance for
Door Automatics in Europe and the Asia Pacific region is
progressing well, particularly in Sweden, Finland, Germany
and Australia. In the North American market, the synergies
resulting from the relocation of the company’s US manufac-
turing to Yale’s main site are expected to improve perform-
ance and will be assisted by the expansion of the servicing
side.

The Hospitality market shows signs of a more stable
market development after the long period of decline follow-
ing 11 September 2001. ASSA ABLOY Hospitality is begin-
ning to see improvements both from marketing initiatives
and from cost and sales synergies derived from closer co-
operation with ITG and other Group companies. This will
be particularly important in combating rising competition
in the large North American market.

As one significant move, ASSA ABLOY Hospitality is
expanding its profitable business in customer-services con-
tracts. This has already been successful in the United King-
dom and there is good potential for growth throughout the
world as locking solutions for the hospitality industry
become increasingly sophisticated and technically complex.

The near future

To ensure continued growth and healthy profit margins, the
ASSA ABLOY Group has entered into a phase where fully
leveraging Group strength is a priority. This work has
already started within Global Technologies with new initia-
tives such as moving or consolidating production and
improving supply management systems at the various
companies.

To make the most of ASSA ABLOY’s know-how and to
maximize cost synergies wherever possible, the Group will
be making far greater use of joint platforms for sales, key
account management, administration and training. ASSA
ABLOY has already begun to streamline the supply chain
by reducing the number of individual suppliers in the
marketplace so as to negotiate and receive more advanta-
geous pricing agreements with the suppliers when purchas-
ing electronic components and other materials.

One of the great assets of a global company like ASSA

ABLOY is its strong mix of local, regional and global
brands. The Group is currently analyzing the increasingly
important issues of joint and multiple branding. ASSA
ABLOY Hospitality has been rolled out as a general sales
organization for the different underlying brand names.
For Door Automatics, Besam, by virtue of its worldwide
presence on the market, is a global brand which enjoys high
recognition. In the case of Identification, ITG will continue
to use a multiple branding approach to address its different
customer categories. As the Group increases its focus on
vertical market segmentation using joint branding profiles,
it is also looking into ways of using the ASSA ABLOY
name more widely.

GLOBAL TECHNOLOGIES – SALES BY PRODUCT GROUP

Mechanical locks, lock systems
and accessories, 3%

Electromechanical and
electronic locks, 97%

HID’s iClass technology represents a major investment in a true multi-
application smart card. With its higher data storage capacity, faster data
transfer and greater security based on encryption of data, the card can, for
example, be used to control access by opening doors, to pay for meals in
cafeterias and to log on and off a computer network. For added security,
iClass cards can carry the holder’s biometric template.

The longer term

The Global Technologies business is characterized by for-
ward-looking locking solutions. The future success of the
Global Technologies companies will depend on their ability
to compete aggressively by offering exciting new products
that will exceed the customer’s expectations.

In the Identification sector this means smarter smart
cards that offer higher security and a wider range of appli-
cations. One area of access control that is on the threshold
of expansion is the demand for cards for biometric applica-
tions that can store fingerprint and iris authentication data.
In the Hospitality sector future growth will depend on
making the most of the huge installed base by offering
seamless functionality that integrates keys and smart cards.
For Door Automatics, higher-margin services offer the best
return on invested capital but must be combined with a
product range that remains at the forefront of technology.
In general there is a bright future for electromechanical

locks, which are rolling out on markets throughout the
world. These new locks offer great advantages to the cus-
tomer in terms of security, convenience and flexibility.
During 2003 Global Technologies was under-

performing the rest of the Group with a return on capital
employed at 6 percent. ASSA ABLOY will increase sales
and profit margins by expanding the profitable service
businesses and by selective acquisitions of companies that
will give ASSA ABLOY access to new products, new mar-
kets and greater scope for future growth.

KEY PRIORITIES

Near future
• Capture synergies within the division
• Reestablish Besam USA
• Improve cost level in ASSA ABLOY Hospitality
• Development of acquired companies within ITG Europe

Long term
• Create combinations of products to penetrate installed

base

• Increase end-customer value through product solution

offerings

• Further leverage on Group synergies

Division Global Technologies

One area of access control that is on the threshold of expansion is the
demand for cards for biometric applications that can store fingerprint and iris
authentication data.

Hotels The greatest advantage for hotels in using electronic locks is the total
key control they provide, which eliminates problems with lost or copied keys. The

latest generation of electronic hotel locks makes it possible to give every new guest

an individual key code.

The system can also keep a log of all users who make authorized entries to hotel

rooms, for example for cleaning or maintenance. Furthermore, guests can use their

room entry cards for transactions in the hotel’s restaurants, shops and casino.

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S

Report of the Board of Directors
for 2003

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 2003.

Important events

New President and CEO
Bo Dankis was appointed as the new President and CEO of
ASSA ABLOY in March 2003.

New organization
During the year ASSA ABLOY changed its organization
with the aims of increasing flexibility and being able to
respond to market opportunities more quickly. Eleven
regions were reduced to three geographical divisions –
EMEA (Europe, Middle East and Africa), Americas (North
and South America) and Asia Pacific (Asia, Australia and
New Zealand) – plus Global Technologies, a division for
the global products Door Automatics, Identification, and
solutions for the international Hospitality industry. The
Executive Team was reduced from 17 people to seven.

Two-year action program (Leverage and Growth)
An action program has been launched to leverage Group
strength and create a foundation for sustainable growth.
Targets have been defined for all divisions (EMEA, Ameri-
cas, Asia Pacific and Global Technologies). Under the pro-
gram ASSA ABLOY will increase its focus on innovation,
market activities, channel management and brand building.
Low-performing companies will either be turned round,
divested or closed down before the end of 2004. Simplifica-
tion of the operational structure and further acceleration in
coordinating purchasing will create significant savings. The
cost of the program will be SEK 1,320 M with a payback
time of less than three years.

The greatest costs have been incurred in the EMEA and
Americas divisions. For the Group as a whole, items affect-
ing liquidity will cost SEK 935 M, chiefly related to a
reduction of 1,400 in personnel. Assets have been written
down by SEK 385 M. Annual savings from 2005 onwards
are estimated at SEK 450 M. Savings of half this amount
are estimated for 2004.

NON-RECURRING ITEMS

SEK M

EMEA

Americas

Asia Pacific

Global Technologies

Total

Total
cost

860

230

120

110

1,320

Cash
costs

760

935

Write
downs

Personnel
reduction,
number

100

180

385

1,100

100

–

200

1,400

In EMEA the program is directed towards productivity
increases, which will be achieved primarily by reducing the
number of employees. In Americas the emphasis is on
underperforming companies. Asia Pacific’s part of the pro-
gram concentrates on consolidation of production, while
Global Technologies will direct itself towards realizing
synergies in its Identification businesses in Europe.

Acquisitions by Global Technologies
On 1 January ASSA ABLOY Identification Technology
Group acquired Interlock Holding AG in Switzerland. The
Swedish company Metget AB was acquired on 1 July and
the Swiss company Sokymat SA on 1 November. The com-
panies develop, manufacture and market transponders for
access-control cards, industrial logistics and other impor-
tant applications of radio-frequency identification. The
acquisitions will contribute significant synergies as well as
high-technology production and development.

On 1 November the identification technology business
of ACG (Advanced Component Group AG) and the shares
in OMNIKEY AG were acquired. ACG is an independent
distributor and provider of technology to the market for
radio-frequency identification and smart cards. OMNIKEY
is a leading manufacturer of readers for smart cards, focus-
ing on IT applications. The company complements ASSA
ABLOY’s strength in reader technology by adding IT appli-
cations. ACG is based in Germany with distribution and
sales activities in Europe, the Middle East, Asia, Australia
and North and South America. The acquisition gives ASSA
ABLOY significant depth and strength throughout the
value chain of radio-frequency identification and smart
cards, as well as access to important technology and sup-
plier contracts.

The combined purchase price of these acquisitions on a

debt-free basis was SEK 520 M. The goodwill arising in
connection with the acquisitions totals SEK 357 M. The
companies’ sales in 2004 are estimated at SEK 800–900 M,
with limited profitability initially. The acquisitions will
contribute to earnings per share from 2004.

Acquisitions in Americas
The outstanding 20 percent of shares in ASSA ABLOY
Door Group were acquired on 1 July from the joint-venture
partner SPX Corporation. The purchase price was USD 80
M and gives rise to additional tax-deductible goodwill of
USD 60 M. The transaction contributed to earnings per
share from the date of acquisition.

Acquisitions in EMEA
Nemef BV in the Netherlands and Corbin Srl in Italy were
acquired from Black & Decker on 5 January 2004 in accor-
dance with the contract signed in March 2003.

The acquisitions strengthen the Group’s position in the
Netherlands and Italy and include well-known brands such
as Nemef and Corbin. Nemef manufactures and sells a
complete range of locks and cylinders in Apeldoorn,
Netherlands. The company was founded in the early 1900s
and is one of Europe’s leading manufactures of lock cases.
Corbin manufactures lock cylinders in Bologna, Italy and
sells locks and padlocks.

The acquisition price for the two companies is EUR 66
M. Goodwill arising in connection with the acquisition is
about EUR 40 M. The companies have annual sales of EUR
50 M with good profitability. The acquisition will con-
tribute to earnings per share from 2004.

In 2003 the outstanding minority stakes in effeff and

Keso were aquired.

Environmental impact

Four of the ASSA ABLOY Group’s subsidiaries in Sweden
carry out licensable business activities in accordance with
Swedish environmental regulations. The Group’s activities
liable to license and registration affect the external environ-
ment chiefly through the subsidiaries Assa AB, Assa Indus-
tri 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 exter-
nal environment through the discharge of water, air and
solid waste.

The subsidiaries Assa AB, Assa Industri AB, AB FAS
Låsfabrik and FIX AB are actively addressing environmen-
tal issues, and are certified in accordance with ISO 14001.

Most units outside Sweden carry out licensable business
activities and hold comparable licenses under local legisla-
tion.

Legal disputes

In the 2002 Annual Report ASSA ABLOY reported that the
company Ibertech in Texas had sued VingCard. The parties
subsequently settled and the suit was withdrawn. The costs
resulting from the dispute have a negligible effect on the
income statement.

ASSA ABLOY is involved in other disputes that require

no further disclosure at this time.

Accounting principles

The new recommendations of the Swedish Financial
Accounting Standards Council for 2003 have been adopted
from 1 January 2003. This has not required any adjustment
of figures for previously reported periods. In all other
respects accounting principles are unchanged from previ-
ous years.

Changed accounting principle in 2004
From 2004 ASSA ABLOY will adopt the Swedish Financial
Accounting Standards Council’s Recommendation RR 29
‘Employee benefits’. The rules are based on IAS 19.
Pensions and other remuneration after retirement have pre-
viously been reported in accordance with each country’s
local rules. The move to RR 29 will after deduction for
deferred tax have a negative effect of some SEK 700 M on
the Group’s shareholders’ equity. ASSA ABLOY will report
this effect as a correction to the opening shareholders’
equity on 1 January 2004. The move itself will thus have no
effect on income or cash flow. Nor will there be any change
to the ASSA ABLOY Group’s obligations to its employees.

Change to IFRS in 2005
From 2005 ASSA ABLOY will report according to Inter-
national Financial Reporting Standards (IFRS, formerly
IAS). The Interim Report for the first quarter of 2005 and
the 2005 Annual Report will include a reconciliation com-
paring the 2004 financial reports according to IFRS and
according to the company’s current accounting principles.

The recommendations of the Swedish Financial
Accounting Standards Council have gradually moved
towards IFRS, but there still remain a number of differ-
ences between the two. Based on what is known today, the
main differences between ASSA ABLOY’s current account-
ing principles and the future IFRS will be:
• Reporting of employee benefits (but this difference will
disappear with the introduction of RR 29 in 2004)
• Reporting of financial instruments, which means that
many instruments will be reported at current market
value and which will also intensify the need to allow
reporting of hedging transactions

• Goodwill and certain intangible assets will no longer be
amortized. Instead, regular impairment tests will be per-
formed.

The company’s financial reports will also be affected by
changed requirements for classification and explanation
under IFRS. These changes will probably affect the com-
pany’s Key Financial Information, but the differences can-
not yet be quantified.

For the present, reporting routines will be reviewed in
order to be able to collect the data required for future IFRS
reporting. During 2004 the company will also record informa-
tion for use in the comparisons to be included in the Quarterly
Reports and Annual Report for 2005. A project group headed
by the CFO and a number of working groups to address these
issues have been set up. It is planned to use the figures for the
third quarter of 2004 as a test of the new routines.

Preliminary training of relevant personnel has been
undertaken and will be augmented throughout 2004. In the
last quarter of 2004 ASSA ABLOY plans to give the stock
market and analysts additional information about the
effects that the introduction of IFRS will have on the com-
pany’s financial reporting.

Outlook for the future

ASSA ABLOY expects to report stable sales in SEK in
2004. At present exchange rates, sales growth due to
organic growth and to acquisitions will be offset by nega-
tive translation effects and by discontinued volumes from
low-performing companies. The operating margin before
goodwill amortization, EBITA, is expected to increase,
mainly as a result of the Leverage and Growth action pro-
gram. After excluding payments related to restructuring,
the strong cash flow is expected to continue.

In the long term ASSA ABLOY expects security-driven

demand to increase. Focus on customer benefit and on
innovation, and the leveraging of ASSA ABLOY’s strong
positions, will accelerate growth and improve profitability.

Corporate governance

ASSA ABLOY’s objective is that its activities should gener-
ate good long-term returns for its shareholders and other
stakeholders. An effective scheme of corporate governance
for ASSA ABLOY comprises a number of interactive com-
ponents, which are described below.

RTIN

Owners
Annual General
Meeting
Nomination Committee

Board of Directors
Audit Committee
Remuneration Committee

CIAL REPO

Executive Management
Management philosophy • Policies and guidelines
Internal control and risk management

FINAN

The Board has a Remuneration Committee consisting of
three people. There is also an Audit Committee, which like-
wise consists of three people. The purpose of these commit-
tees is to assist the Board in giving deeper and more effi-
cient consideration to these matters.

The Audit Committee has three meetings a year, one of
which forms the annual year-end accounting meeting, held
in conjunction with the ordinary Board meeting. The com-
pany’s auditor participates in the Audit Committee’s meet-
ings. The Committee’s duties include review of financial
policy and control of the company’s financial reporting,
internal reporting and control systems and legal risks.
There is an ongoing dialog with the appointed auditor. The
Audit Committee consists of Melker Schörling (Chairman),
Gustaf Douglas and Per-Olof Eriksson.

DECENTRALIZED ORGANIZATION

From 2003 a Nomination Committee has also been set

Ownership

ASSA ABLOY’s principal shareholders are Wärtsilä Corpo-
ration (7.6 percent of the capital and 22.8 percent of the
votes), Investment AB Latour/SäkI (8.0 percent of the capital
and 17.3 percent of the votes) and Melker Schörling (3.0 per-
cent of the capital and 4.5 percent of the votes). The number
of shareholders at year-end was 26,214. ASSA ABLOY’s
share capital at year-end amounted to SEK 366 M, distrib-
uted among 19,175,323 Series A shares and 346,742,711
Series B shares. All shares give the holders equal rights to the
company's assets and earnings. Each Series A share carries
10 votes and each Series B share one vote.

Annual General Meeting

The Annual General Meeting must be held within six
months of the end of the company’s financial year. Share-
holders who are recorded in the share register on the nomi-
nated day and who have notified their intention to attend
may take part in the Meeting.

Board of Directors

The Board consists of nine members, two employee repre-
sentatives and two deputy employee representatives. The
Board meets on not less than four occasions a year, at least
one of which is a meeting combined with a visit and an in-
depth review of a country in which the company has opera-
tions. During 2003, seven Board meetings were held.

The Board decides on the Group’s overall strategy and
the acquisition of companies and real estate. In addition,
the Board is responsible for the organization and adminis-
tration of the Group in accordance with the Swedish Com-
panies Act. Working procedures for the Board and instruc-
tions for the President have been set down in written form
and are reviewed annually.

up with the tasks – before each General Meeting – of
preparing for the selection of Directors, the setting of
Directors’ remuneration and associated issues. The Nomi-
nation Committee consists of Gustaf Douglas (Chairman),
Georg Ehrnrooth and Melker Schörling.

Remuneration of Board and Management

Remuneration of the Board is in accordance with decisions
taken at the Annual General Meeting. There are no sepa-
rate fees for committee work. The Chairman of the Board
and the Directors receive fees that are decided by the Board
within the framework of a total sum decided by the Annual
General Meeting, which is currently SEK 3.6 M (1.9). The
Chairman and other Directors have no pension benefits or
severance pay agreements. The President and the employee
representatives do not receive a Director’s fee. Remunera-
tion of the President and the Executive Team is determined
by the Remuneration Committee and approved by the
Board. The Remuneration Committee also determines the
remuneration of all executives who report directly to mem-
bers of the Executive Team. The Remuneration Committee
consists of Georg Ehrnrooth (Chairman), Melker Schörling
and Sven-Christer Nilsson. The Remuneration Committee
held two meetings in 2003.

Remuneration of the Executive Team consists of basic

salary, variable bonuses, other benefits, and pensions.
Bonuses are given chiefly for improvement in operating
income compared with the previous year in the recipient’s
area of responsibility. Bonuses may also be based on organic
growth. Bonus payments of these types are capped at a maxi-
mum of two-thirds of basic salary. The Executive Team also
receives bonuses based on improvement in earnings per share.
The maximum payment of SEK 2 M per person applies if
earnings per share increase by 25 percent compared with the
previous year. Half of this type of bonus payment is paid out

Corporate governance

the following year, while the other half is retained for four
years and grows at the same rate as the Group’s return on
capital employed. It is paid out only if the person concerned
is still employed by ASSA ABLOY at the end of the period.
Basic pension arrangements for the President and others in
the Executive Team are through participation in the ITP plan
or equivalent. In addition, the President and certain other
senior executives have the right to retire with a pension at the
earliest on reaching the age of 60. The pension is based on
basic salary at the time of 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 for the remainder of life. The Presi-
dent has a severance payment agreement providing 100 per-
cent of his basic salary for 24 months. The payment is made
only where the company terminates the contract. The Presi-
dent is also entitled to reimbursement for any losses resulting
from relocation. Others in the Executive Team receive a sever-
ance payment of 100 percent of their basic salary for a maxi-
mum of 12 months. Salary and ongoing pension contribu-
tions were paid to the former President up to 26 March 2003.
No remuneration has been paid since that date.

REMUNERATION AND OTHER BENEFITS PAID TO
SENIOR OFFICE-HOLDERS

Salaries/
Fees

Pension
costs

Bonus

Other
bene- Social
costs

fits

Total

Other Board members

President

Other senior executives
(6 people)

Total

SEK M

Chairman

Executive Team shareholdings in ASSA ABLOY

Members of the Executive Team hold Series B shares and
options, and have taken part in the convertible debenture
loan 2001/06 Series 1–4 through purchase of shares in
ASSA ABLOY Incentive 2001 Holding S/A, as detailed in
the table below. Shares have been purchased at market
value in line with the offer made to all employees in 2001.

EXECUTIVE TEAM SHAREHOLDINGS IN ASSA ABLOY
AT 31 DECEMBER

Series
B shares

Incentive
program 1

Options 2

2003

2002

2003

2002

2003

2002

Bo Dankis

86,000 86,000 10,750 10,750

Göran Jansson

351,784 351,784 60,000 60,000

Hans Johansson

646,821 646,821 60,000 60,000

Geoff Norcott

60,000 60,000 81,065 81,065

Thanasis Molokotos 25,000 25,000 55,000 55,000

Joseph J. Grillo

32,500 32,500

Åke Sund

175,000 190,751 60,000 60,000

1 Equivalent number of Series B shares at conversion prices EUR 15.8–25.3.
2 Equivalent number of Series B shares at conversion price SEK 118.

Incentive programs

ASSA ABLOY is constantly striving to strengthen the moti-
vation of its personnel and their involvement in the Group’s
continuing development. Since 1995 there have been
several Incentive programs, which also aim to increase
employees’ shareholdings in ASSA ABLOY. Over 4,000
employees in more than 15 countries are taking part in the
current Incentive program.

Executive management

ASSA ABLOY’s business operations are divided into four
divisions. The Executive Team (Group Management) con-
sists of the CEO, the heads of the Group’s four divisions,
the Deputy CEO (who is also CFO) and an Executive Vice
President responsible for market and business develop-
ment. The composition of this group gives a geographical
and strategic spread of responsibility designed to ensure
rapid, short decision-making paths.

Management philosophy

ASSA ABLOY’s firm conviction is that people make the dif-
ference. The Group’s management philosophy is based on
trust, positive thinking, and respect for local conditions and
values. The four cornerstones of Vision, Realism, Ethics
and Courage play a central role in the Group.

Policies and guidelines

The Group’s most important policies and guidelines con-
cern environmental issues, financial control, the Group’s
brands, and communication issues.

The environmental policy provides guidance for the
Group’s environmental work and is based on international
Standards in this field, such as ISO 14001, the UN Global
Compact and the OECD’s Guidelines.

Common financial, reporting and investment policies
set the frameworks for financial control and monitoring.
Guidelines concerning brands aim to protect and

develop the major assets that the Group’s brands represent.
The ASSA ABLOY brand is used as an endorsement brand
standing behind the local brands.

ASSA ABLOY’s communication policy aims to treat all

interested parties in the same way; to present important
information at the right time and in the right way; to meet
legal requirements and observe relevant stock market rules;
and to maintain a high level of ethics.

Internal control and risk management

The Board has overriding responsibility for an efficient sys-
tem of internal control and risk management, while the
President is responsible for executing internal control and
risk management. Risk management includes assessing the

risks that the company is exposed to. This includes identify-
ing business risks, determining where they come from and
estimating their potential impact.

In the annual budget process, the Executive Team

establishes business frameworks while also laying the basis
for a high degree of decentralization of the Group’s opera-
tions.

Internal financial reporting is based on the Group’s
various benchmarking units. Results are monitored against
budgets and against previous years’ performance. Continu-
ous benchmarking among all the Group’s units forms an
important part of the control and monitoring of opera-
tions.

For information about financial risks see Page 55.

Decentralized organization

The Group tries to achieve a simple, ‘flat’ organization in
which all its businesses are divided into benchmarking units
included in the Group’s four operating divisions. A bench-
marking unit may be either a factory or a sales company.
The Group currently has more than 70 factories and more
than 80 sales companies.

The local management group for a benchmarking unit
has operational responsibility for its earnings, and as a rule
reports direct to the management of its division. This
makes for a ‘flat’ organization with rapid, short decision-
making paths.

The multinational management is important in ensuring

understanding of, and sensitivity to, local needs, business
procedures and distribution requirements. These are vital
in achieving success because of the very local nature of the
lock industry.

Corporate governance

External audit

The 2003 Annual General Meeting appointed Pricewater-
houseCoopers as auditors for the period up to the 2006
Annual General Meeting.

PricewaterhouseCoopers is undertaking the audit of
ASSA ABLOY AB, the Group and a substantial majority of
its subsidiaries round the world. The audit also covers the
administration of ASSA ABLOY AB by the Board of Direc-
tors and the President.

The audit is carried out in accordance with generally
accepted auditing standards. The auditing of annual finan-
cial statements for legal entities outside Sweden is in
accordance with legal requirements and other applicable
regulations in the countries concerned and with generally
accepted auditing standards as defined by the International
Federation of Accountants (IFAC) for the issue of audit
reports for the legal entities.

The Group’s accounting and valuation principles com-

ply with Sweden’s Annual Accounts Act and the recom-
mendations and pronouncements of the Swedish Financial
Accounting Standards Council, in accordance with the list-
ing contract of the Stockholm Stock Exchange.
For remuneration of auditors, see Note 4.

Financial reporting

External financial information is provided at regular inter-
vals via Quarterly Reports issued as press releases, and via
the Annual Report. News and other important information
that could affect the share price are issued via press
releases. Coinciding with press releases and the presenta-
tion of quarterly and year-end results, telephone confer-
ences and meetings with analysts and investors are held. All
Reports and press releases are simultaneously published on
ASSA ABLOY’s website, www.assaabloy.com.

ORGANIZATIONAL STRUCTURE

Executive Team

EMEA

Americas

Asia Pacific

Global
Technologies

Benchmarking units

Sales and earnings

2003

2002

Operating income before depreciation and amortization

• Organic growth for comparable units was 0 percent (2)
• Operating margin before amortization of goodwill and

excluding non-recurring items (EBITA) was 13.9 percent
(14.2)

• Earnings per share excluding non-recurring items

amounted to SEK 3.31 (3.53)

Sales

The Group’s sales fell in 2003 to SEK 24,080 M (25,397).
Exchange-rate effects affected sales negatively by SEK
2,660 M compared with 2002. In local currencies, sales
increased by 5 percent. Organic growth by comparable
units accounted for 0 percent (2) growth, while acquired
units made a positive contribution of 5 percent (15).

CHANGES IN SALES

Acquired growth

Organic growth

Currency effects

–10

–5

–4

Mechanical locks, lock systems and accessories accounted
for 54 percent (57) of sales. Sales of electromechanical and
electronic locks rose to 24 percent (23). Sales of security
doors and fittings also increased to 19 percent (17), while
industrial locks retained their share of the Group’s total
sales at 3 percent (3).

SALES BY PRODUCT GROUP

2003

2002

Mechanical locks, lock systems and accessories

Electromechanical and electronic locks

Security doors and fittings

Industrial locks

Cost structure

Total remuneration costs including social costs and pension
costs amounted to SEK 8,351 M (8,750), which represents
35 percent (34) of sales. The average number of employees
was 28,708 (28,754).

The average number of employees in the Parent Com-

pany was 43 (37).

The Group’s material costs totaled SEK 6,527 M

(7,055), which represents 27 percent (28) of sales.

Other costs, primarily other purchases, totaled net SEK
4,951 M (5,047), which represents 21 percent (20) of sales.

Depreciation of tangible fixed assets amounted to
SEK 861 M (920), which represents 4 percent (4) of sales.

Non-recurring items

Non-recurring items of SEK 1,320 M represent the costs
incurred in connection with the Leverage and Growth pro-
gram. SEK 935 M are costs affecting cash flow, with pay-
ments expected to be made in 2004 and 2005, and SEK 385
M represent writedown of property, machinery, equipment
and inventories. In connection with the program the num-
ber of employees is being reduced by 1,400.

Operating income

Operating income (EBIT) excluding non-recurring items
amounted to SEK 2,393 M (2,638). The operating margin
was 9.9 percent (10.4).

Depreciation and amortization for the year totaled SEK

1,856 M (1,907), of which SEK 959 M (957) represented
goodwill.

(EBITDA), adjusted for non-recurring items, amounted to
SEK 4,249 M (4,545). The corresponding margin was 17.6
percent (17.9). Consolidated operating income before
goodwill amortization (EBITA) amounted to SEK 3,352 M
(3,595) and was affected negatively by exchange-rate
effects totaling SEK 405 M. The operating margin before
goodwill amortization was 13.9 percent (14.2).

Income before tax

Income before tax and non-recurring items totaled SEK
1,903 M (2,015). This represents a reduction of 6 percent
compared with the previous year, with negative currency
effects of SEK 186 M. Financial items amounted to SEK
–497 M (–631). The improvement is due to lower interest
rates and reduced net debt. Profit margin – defined as
income before tax and non-recurring items in relation to
sales – amounted to 7.9 percent (7.9).

The Parent Company’s income before tax amounted to

SEK -439 M (-24).

Tax

The Group’s tax charge totaled SEK 556 M (689), which
corresponds to an effective tax rate of 35.5 percent (34.2)
after adjusting for non-recurring items and tax pertaining
to them.

Earnings per share

Earnings per share excluding non-recurring items
amounted to SEK 3.31 (3.53), affected by negative cur-
rency effects of SEK 0.22 per share. Earnings per share
excluding goodwill and non-recurring items amounted to
SEK 5.89 (6.13), with negative currency effects of SEK
0.49 per share.

PARENT COMPANY

EUR M1
2003

SEK M
2003

SEK M
2002

–

–26

–

–4

–48

–

–48

–

–234

–

202

–

–161

–

533

–

–32

372

–440

–

–439

–

296

–692

–

–24

–2

–

–26

–48

–439

Income statements

Sales

Cost of goods sold

Gross income

Selling expenses

Administrative expenses

R&D costs

Other operating income

Other operating expenses

Goodwill amortization

Non-recurring items

Operating income

Income from shares and shareholdings
in subsidiaries

Financial items

Share in earnings of associated companies

Income before tax

Tax

Minority interests

Net income

Earnings per share

after tax and before conversion, SEK

after tax and full conversion, SEK

Note

3, 6

after tax and full conversion but excluding goodwill, SEK

1 Average EUR/SEK rate: 9.12.
2 Excluding non-recurring items.

EUR M1
2003

2,640

GROUP

SEK M
2003

24,080

SEK M
2002

25,397

–1,602

–14,613

–15,526

1,038

9,467

9,871

–434

–184

–49

–23

–105

–145

118

–

–55

–61

–2

–3,957

–1,679

–447

180

–212

–959

–1,320

1,073

–

–497

583

–556

–18

3.302

0.07

3.312

5.892

–4,039

–1,742

–429

119

–185

–957

–

2,638

–

–631

2,015

–689

–56

1,270

3.53

6.13

Comments by division

ASSA ABLOY is organized into three geographical divi-
sions and one product division. The geographical divisions,
EMEA (Europe, Middle East and Africa), Americas (North
and South America) and Asia Pacific (Asia, Australia and
New Zealand), consist of a number of local lock companies
which are active mainly on a local market. The product
division, Global Technologies, covers Identification, Door
Automatics and Hospitality, which all serve a global
market. The column ‘Other’ includes common Group
functions.

EMEA

Sales totaled EUR 1,116 M (1,152), with 1 percent negative
organic growth. Operating income before goodwill amorti-
zation and excluding non-recurring items amounted to
EUR 149 M (155), with an operating margin (EBITA) of
13.4 percent (13.4). Return on capital employed before
goodwill amounted to 29.0 percent (27.0). Operating cash
flow before interest paid amounted to EUR 172 M (190).
EMEA’s two largest market areas, France and Scandi-

navia, maintained stable volumes and margins in weak
market conditions. France has strengthened its position in
the Do-It-Yourself sector.

Eastern Europe, Benelux and Finland showed good
organic growth during the year, while Italy, the United
Kingdom and Africa have lost sales volume. The improved
incomes in the United Kingdom, Germany and Benelux are
due to structural changes made earlier.

Americas

Sales totaled USD 1,073 M (1,095), with 2 percent negative
organic growth. Operating income before goodwill amorti-
zation and excluding non-recurring items amounted to
USD 176 M (178), with an operating margin (EBITA) of
16.5 percent (16.3). Return on capital employed before
goodwill amounted to 43.8 percent (39.2). Operating cash
flow before interest paid amounted to USD 189 M (191).
Demand in the commercial sector was weak, especially
in the first half-year. The Architectural Hardware Group,
which represents about 40 percent of Americas, succeeded
in improving its profitability with unchanged volumes. The
Door Group is the unit most affected by the weak market
because of the relatively large dependence of its sales on

new construction. Duties on imported steel had an adverse
effect on profitability. South America and Mexico also
showed weak development.

The Residential Group showed strong growth with

good profitability.

Asia Pacific

Sales totaled AUD 309 M (307), with 5 percent organic
growth. Operating income before goodwill amortization
and excluding non-recurring items amounted to AUD 46 M
(39), with an operating margin (EBITA) of 14.9 percent
(12.8). Return on capital employed before goodwill
amounted to 32.3 percent (17.3). Operating cash flow
before interest paid amounted to AUD 42 M (43).

Australia and New Zealand showed good development
of both profits and margins throughout the year, but devel-
opment was weaker in South East Asia and China. New
construction has fallen back in the formerly expanding
markets of South East Asia.

Global Technologies

Sales totaled SEK 4,177 M (3,285), with 6 percent
organic growth. Operating income before goodwill amor-
tization and excluding non-recurring items amounted to
SEK 542 M (450), with an operating margin (EBITA) of
13.0 percent (13.7). Return on capital employed before
goodwill amounted to 46.5 percent (45.0). Operating
cash flow before interest paid amounted to SEK 549 M
(540).

Global Technologies is developing well, with good sales

growth and margin development. The EBITA operating
margin was affected by dilution effects from acquisitions.
The Identification business developed positively, espe-
cially in North America, with good growth and improved
margins. The acquisitions in Europe are initially producing
weaker profitability there.

Strong aftermarket sales in the Door Automatics busi-
ness more than compensated for weaker new-project sales.
Europe and Asia are showing good development, while
North America was restructured during the year.

The Hospitality market stabilized during the year,

although at a low level. Profitability is weak.

Results by division

EMEA1
EUR M

Americas2
USD M

Asia Pacific3
AUD M

Global
Technologies4
SEK M

Other
SEK M

Total
SEK M

2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

1,081

1,112

1,069

1,086

1,116

1,152

1,073

1,095

–1%

–2%

149

155

176

178

288

309

283

307

4,093

3,194

4,177

3,285

–544

–665

24,080 25,397

542

450

–217

–206

3,352

3,595

13.4% 13.4%

16.5% 16.3%

14.9% 12.8%

13.0% 13.7%

Sales, external

Sales, internal

Sales

Organic growth

EBITA 5

EBITA / Sales

13.9% 14.2%

–959

–957

14,766 16,214

9.6%

9.9%

Goodwill amortization

Operating income (EBIT) 5

–37

112

–38

117

–41

135

–39

139

–10

–238

–186

304

264

–217

–206

2,393

2,638

Operating margin (EBIT) 5

10.1% 10.1%

12.6% 12.8%

11.8%

9.5%

7.3%

8.0%

9.9% 10.4%

Capital employed

– of which, goodwill

939

521

1,099

1,046

1,109

552

696

677

280

155

320

171

4,189

4,380

5,288

5,519

136

–178

22,984 26,701

Return on capital employed 5

10.6% 10.2%

12.4% 12.2%

11.8%

5.7%

5.6%

6.1%

Return on capital employed
before goodwill 5

EBITA 5

Depreciation

Net operating capital expenditure

Change in working capital 5

Cash flow 5

Items not affecting cash flow

Interest paid and received

Operating cash flow

29.0% 27.0%

43.8% 39.2%

32.3% 17.3%

46.5% 45.0%

34.4% 33.3%

149

–39

172

155

–48

190

176

–26

189

178

–29

191

–10

–14

–5

542

–64

–10

549

450

–49

540

–217

–206

3,352

3,595

–8

897

950

–694

–839

–52

168

405

3,723

4,111

–5

–520

–581

–520

–581

3,265

3,525

Average number of employees

12,481 12,972

10,091 10,363

3,507

3,696

2,574

1,676

28,708 28,754

SEK M

EMEA1

Americas2

Asia Pacific3

Global
Technologies4

Other

Total

Sales, external

Sales, internal

Sales

Organic growth

EBITA 5

EBITA / Sales

2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

9,858 10,168

8,625 10,545

1,506

1,490

4,093

3,194

24,080 25,397

318

364

109

123

10,176 10,532

8,657 10,633

1,615

1,613

4,177

3,285

–544

–665

–1%

–2%

24,080 25,397

1,359

1,417

1,428

1,728

240

205

542

450

–217

–206

3,352

3,595

13.4% 13.4%

16.5% 16.3%

14.9% 12.8%

13.0% 13.7%

13.9% 14.2%

–959

–957

14,766 16,214

9.6%

9.9%

Goodwill amortization

–338

–343

–331

–375

Operating income (EBIT) 5

1,021

1,074

1,097

1,353

–52

188

–53

152

–238

–186

304

264

–217

–206

2,393

2,638

Operating margin (EBIT) 5

10.1% 10.1%

12.6% 12.8%

11.8%

9.5%

7.3%

8.0%

9.9% 10.4%

Capital employed

– of which goodwill

Return on capital employed 5

10.6% 10.2%

12.4% 12.2%

11.8%

5.7%

5.6%

6.1%

4,728

5,056

5,010

5,930

839

848

4,189

4,380

8,519 10,064

7,528

9,711

1,513

1,585

5,288

5,519

136

–178

22,984 26,701

Return on capital employed
before goodwill 5

29.0% 27.0%

43.8% 39.2%

32.3% 17.3%

46.5% 45.0%

34.4% 33.3%

EBITA 5

Depreciation

1,359

1,417

1,428

1,728

505

514

250

312

Net operating capital expenditure

–357

–437

–212

–281

Change in working capital 5

247

Cash flow 5

1,573

1,741

1,527

1,855

240

–53

–28

215

205

–74

226

542

–64

–10

549

450

–49

540

–217

–206

3,352

3,595

–8

897

950

–694

–839

–52

168

405

3,723

4,111

1 Europe, Middle East and Africa.
2 North and South America.
3 Asia, Australia and New Zealand.

4 Door Automatics, Hospitality and Identification.
5 Excluding non-recurring items.

Financial position

• Capital employed amounts to SEK 22,984 M (26,701)
• Net debt was reduced to SEK 12,290 M (13,989)
• Net debt / equity ratio is 1.15 (1.13).

SEK M

Capital employed

– of which, goodwill

Net debt

Minority interests

Shareholders’ equity

2003

22,984

14,766

12,290

2002

26,701

16,213

13,989

331

10,678

12,381

Capital employed

Capital employed in the Group – defined as total assets less
interest-bearing assets and non-interest-bearing liabilities
including deferred tax liabilities – amounted to SEK 22,984
M (26,701). The return on capital employed, adjusted for
non-recurring items, was 9.6 percent (9.9).

Intangible assets amounted to SEK 14,933 M (16,386).

The change is explained mainly by depreciation and the
weak US dollar. During the year goodwill of SEK 1,096 M
arose from acquisitions. A valuation model based on dis-
counted future cash flow is used for regular impairment
tests of goodwill. No writedown took place in 2003.
Tangible fixed assets amounted to SEK 5,329 M
(6,175). Investments in tangible fixed assets, less sales of
tangible fixed assets, totaled SEK 694 M (839). Deprecia-
tion according to plan amounted to SEK 861 M (920).
Deferred tax receivables amounted to SEK 507 M
(486). One reason for the increase is that most of the non-
recurring items are not tax-deductible until later tax years.
Accounts receivable totaled SEK 4,131 M (4,242) and
inventories totaled SEK 3,030 M (3,595). The average col-
lection period for accounts receivable was 56 days (57).
Material throughput time averaged 108 days (121), the
improvement being due to the systematic efforts being
undertaken by the Group to reduce capital tied up in
inventory.

Net debt

Net debt amounted to SEK 12,290 M (13,989), of which
pension liabilities accounted for SEK 723 M (1,023). The
reduction of net debt can be attributed primarily to the
strong operational cash flow and to exchange-rate effects.

External financing
The Group’s long-term loan financing consists mainly of an
EMTN program for a maximum of EUR 1,500 M (1,500),
a Nordic MTN program for EUR 300 M (300) and a
Swedish Commercial Paper program for SEK 5,000 M
(3,000). At year-end the EMTN program was being utilized
for SEK 5,443 M, the Commercial Paper program for SEK
1,493 M and the Nordic MTN program for SEK 1,814 M.
During the year the Group’s financing options were
increased with a global Commercial Paper of USD 1,000
M, which was being utilized for SEK 1,795 M at year-end.
There is also a Multi-Currency Revolving Credit (MCRF)
agreement for a maximum of EUR 820 M (825), which at
year-end was not being utilized at all. The interest coverage
ratio, defined as income before tax, plus net interest,
divided by net interest, amounted to 4.7 (3.9).

Periods for fixed-interest-rate borrowings 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.

Cash and cash equivalents amounted to SEK 880 M
(1,408). Cash and cash equivalents are invested in banks
with high credit ratings.

Shareholders’ equity

Shareholders’ equity in the Group totaled SEK 10,678 M
(12,381) at year-end. The return on capital employed
amounted to 9.9 percent (9.9). The equity ratio was 35.9
percent (38.2). The net debt / equity ratio, defined as net
debt divided by shareholders’ equity, was 1.15 (1.13).

ASSETS

Fixed assets

Intangible fixed assets

Tangible fixed assets

Shares in subsidiaries

Receivables from subsidiaries

Other financial fixed assets

Deferred tax receivables

Total fixed assets

Current assets

Inventories

Accounts receivable

Other receivables

Receivables from subsidiaries

Short-term investments

Cash and bank balances

Total current assets

TOTAL ASSETS

Assets pledged

SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity

Restricted equity

Share capital

Restricted reserves

Unrestricted equity

Unrestricted reserves

Net income

Total shareholders’ equity

Minority interests

Provisions

Provisions for pensions

Deferred tax liability

Other provisions

Total provisions

Long-term liabilities

Long-term loans

Long-term loans to subsidiaries

Convertible debenture loans

Other long-term non-interest-bearing liabilities

Total long-term liabilities

Current liabilities

Short-term loans

Tax liability

Accounts payable

Liabilities to subsidiaries

Accrued expenses and prepaid income

Other current liabilities

Total current liabilities

TOTAL SHAREHOLDERS’ EQUITY
AND LIABILITIES

Contingent liabilities

1 EUR/SEK rate on 31 Dec: 9.07.

Note

Balance sheets

GROUP

PARENT COMPANY

EUR M1

SEK M
31 Dec 2003 31 Dec 2003 31 Dec 2002

SEK M

EUR M1

SEK M
31 Dec 2003 31 Dec 2003 31 Dec 2002

SEK M

1,646

588

14,933

5,329

16,386

6,175

–

210

507

–

182

486

2,556

248

–

23,187

2,248

–

22,276

2,762

–

2,313

20,979

23,229

2,810

25,487

25,085

334

455

–

975

3,288

3,030

4,131

599

–

375

713

8,848

29,827

3,595

4,242

703

–

410

1,082

10,032

33,261

1,005

131

366

9,118

1,185

366

10,343

402

1,270

–

829

906

3,716

None

982

321

–48

–

7,514

8,021

633

8,213

33,700

198

8,269

33,354

None

366

8,905

2,911

–439

366

8,905

3,394

–26

1,177

10,678

12,381

1,295

11,743

12,639

331

103

214

881

–

100

992

421

164

–

205

903

723

283

935

1,023

310

–

1,941

1,334

7,987

8,317

–

907

100

–

916

8,994

9,312

3,821

250

1,489

–

1,862

776

8,198

5,289

463

1,546

–

2,001

604

9,903

–

648

248

100

–

996

–

5,875

2,248

907

–

6,020

2,762

916

284

9,030

9,982

–

723

–

1,417

12,852

9,917

1,425

12,927

10,733

3,288

29,827

33,261

3,716

33,700

33,354

696

446

795

7,213

Cash flow

• Operating cash flow amounted to SEK 3,265 M (3,525)
• Net capital expenditure amounted to SEK 694 M (839)

Relationship between cash flow from operating
activities and operating cash flow

SEK M

Cash flow from operating activities

2003

2002

Net capital expenditure

Tax paid

Operating cash flow

Acquisitions

Operating cash flow

SEK M

Operating income before goodwill amortization
and non-recurring items (EBITA)

Depreciation (excluding goodwill amortization)

Net capital expenditure

Change in working capital

Interest paid and received

Items not affecting cash flow

Operating cash flow

Operating cash flow / Income before tax

3,352

897

–694

168

–520

3,265

1.72

3,595

950

–839

405

–580

–6

3,525

1.75

Total outlay on acquisitions amounted to SEK 1,254 M
(3,335). Acquired net debt totaled SEK 169 M (92). Acqui-
sitions made during the year were financed by internally
generated cash flow.

2003

3,180

–694

779

3,265

2002

3,847

–839

517

3,525

The Group’s operating cash flow amounted to SEK 3,265
M (3,525), equivalent to 172 percent (175) of income
before tax.

The Parent Company’s cash flow amounted to SEK

Change in net debt

Net debt was reduced primarily by the strong cash flow and
by translation differences applying in particular to debts in
the USA.

SEK M

Note

2003

Net debt at 1 January

Operating cash flow

Tax paid

Acquisitions

New share issues

Dividend

Translation differences

Net debt at 31 December

13,989

–3,265

779

1,355

2002

15,534

–3,525

517

3,569

–

–1,244

457

–1,025

12,290

354

–1,216

13,989

452 M (141).

Net capital expenditure

Direct net capital expenditure on tangible fixed assets
totaled SEK 694 M (839), equivalent to 81 percent (91) of
depreciation of tangible fixed assets falling due during the
financial year. The reduced level of capital expenditure is
explained principally by the Group’s long-term efforts to
optimize capital expenditure.

Change in working capital

SEK M

Inventories

Accounts receivable

Short-term receivables

Current working liabilities

Change in working capital

2003

274

–120

168

2002

169

197

122

–83

405

The program to reduce the Group’s material throughput
times in its inventories has generated a contribution to cash
flow of SEK 274 M (169) during the year. The average
throughput time is now 108 days (121). The increased
capital tied up in accounts receivable is due chiefly to the
stronger sales towards the end of the year.

Cash flow analysis

Note

EUR M1
2003

GROUP

SEK M
2003

SEK M
2002

PARENT COMPANY

EUR M1
2003

SEK M
2003

SEK M
2002

OPERATING ACTIVITIES

Operating income

Depreciation and amortization

Adjustment for non-recurring items

Adjustment for items not included in cash flow

Cash flow before interest and tax

Interest paid and received

Dividends received

Tax paid on income

Cash flow before changes in working capital

Changes in working capital

Cash flow from operating activities

INVESTING ACTIVITIES

Net capital expenditure

Investments in subsidiaries

Sales of shares in subsidiaries

Investments in associated companies

Other investments

118

204

145

473

–57

–

–86

330

348

–76

–120

–

–5

1,073

1,856

1,320

4,311

–520

–

–779

3,012

168

3,180

–694

–1,096

–

–45

2,638

1,907

–

–6

4,539

–580

–

–517

3,442

405

3,847

–839

–3,425

–

–9

–4

–

–3

–40

–

–11

–1

–100

–

–32

372

–

–29

–367

296

–

–100

294

194

–8

–912

–

375

–570

316

–2

119

–124

–5

–1,962

312

–

Cash flow from investing activities

–200

–1,827

–4,268

–101

–920

–1,646

FINANCING ACTIVITIES

New share issues

Dividends paid

Net cash effect of changes in borrowings

Cash flow from financing activities

–

–50

–144

–194

–

–457

–1,315

–1,772

1,244

–354

–322

568

CASH FLOW

–46

–419

146

CASH AND CASH EQUIVALENTS 2

Cash and cash equivalents at 1 January

Cash flow

Effect of translation differences

Cash and cash equivalents at 31 December

1 Average EUR/SEK rate: 9.12
2 EUR/SEK rate on 31 Dec: 9.07

155

–46

–12

1,408

–419

–109

880

1,418

146

–156

1,408

–

–50

179

129

–

–457

1,635

1,178

1,260

–354

886

1,792

452

141

200

452

–

652

141

–

200

Changes in shareholders’ equity

GROUP
SEK M

Closing balance 31 December 2001

Repurchase of own convertible securities

Translation differences for the year

Total changes in shareholders’ equity not reported
in the income statement

Transfers between unrestricted and restricted reserves

Net income

Dividend

Converted shares

New share issue*

Closing balance 31 December 2002

Translation differences for the year

Total changes in shareholders’ equity not reported
in the income statement

Transfers between unrestricted and restricted reserves

Net income

Dividend

Share
capital

354

Restricted
reserves

9,291

366

–307

125

1,234

10,343

–1,225

Closing balance 31 December 2003

366

9,118

* New share issue liquidity reduced by SEK 16 M for costs of issue after tax.

Unrestricted
reserves

2,201

–108

–1,643

–1,751

307

1,270

–354

1,672

–1,255

1,225

–457

1,194

Total

11,846

–108

–1,643

–1,751

1,270

–354

127

1,244

12,381

–1,255

–457

10,678

The accumulated translation difference since 1 January 1999 amounts to SEK –1,998 M (–743). This year’s translation differences include currency effects from hedging operations of
SEK –130 M.

PARENT COMPANY
SEK M

Closing balance 31 December 2001

Repurchase of own convertible securities

Share
capital

354

Premium
reserve

6,885

Reserve
fund

645

Total changes in shareholders’ equity not reported
in the income statement

Net income

Dividend

Converted shares

New share issue

Closing balance 31 December 2002

Net income

Dividend

366

125

1,250

8,260

Closing balance 31 December 2003

366

8,260

645

Unrestricted
reserves

3,856

–108

–26

–354

3,368

–439

–457

2,472

Total

11,740

–108

–26

–354

127

1,260

12,639

–439

–457

11,743

Financial risk management

ASSA ABLOY is exposed to a variety of financial risks
through its international business operations.

Organization and activities

ASSA ABLOY’S Finance 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. ASSA ABLOY’S financial
activities are coordinated centrally within the subsidiary
ASSA ABLOY Treasury SA in Switzerland, which acts as
the Group’s internal bank. External financial transactions
are conducted by the internal bank, which also handles
transactions involving foreign currencies and interest rates.
The internal bank achieves many economies of scale when
borrowing funds, fixing interest rates and exchanging cur-
rency flows.

Currency risks

Currency risks affect ASSA ABLOY mainly through trans-
lation of capital employed and net debt, through transla-
tion of income in foreign subsidiaries, and through flow of
goods between countries.

Translation exposure
The effect arising on translation of capital employed is
limited by the fact that financing is largely done in local
currency.

The capital structure in each country is optimized based
on local legislation. So far as this constraint allows, the cur-
rency exposure and gearing per currency should reflect the
overall exposure and gearing for the whole Group to limit
the effect from movements in individual currencies. The
internal bank uses currency derivatives to supply the appro-
priate funding and eliminate currency exposure.

The table ‘Net debt by main currencies’ shows the use of
currency forward contracts in association with funding, for
main currencies. The forward contracts are used to neutral-
ize the exposure arising between net debt and internal
needs.

Net debt by main currencies (in millions)

Currency
exposure

Forward

External
contracts borrowing

Currency

USD

EUR

SEK

GBP

Other

791

291

1,684

482

–609

193

310

900

1,493

11,884

632

–880

723

–69

12,290

Total internal bank (SEK)

11,884

Overdrafts and other (SEK)

Cash and cash equivalents (SEK)

Provisions for pensions (SEK)

Accrued financial items (SEK)

Net debt (SEK)

Exposure of Group earnings
A general strengthening of the Swedish krona by one per-
cent has a negative impact of about SEK 230 M on Group
sales and SEK 6 M on Group earnings.

Transaction exposure
Currency risks in the form of transaction exposure, or the
relative values of exports and imports of goods, are limited
in the Group.

Nevertheless subsidiaries within the ASSA ABLOY
Group hedge their transaction exposure by means of inter-
nal currency forward contracts with the internal bank. The
policy is to hedge approximately 70 percent of currency
flows from imports and exports forecasted to arise within
the next twelve months.

External contracts
– volume of contracts maturing in 2004 (SEK M)

Contracts, nominal value*

1,579

Total sales 2003

24,080

* sum of absolute values using exchange rates at inception of contracts.

The internal bank hedges the exposure transferred from the
subsidiaries. Open positions that may arise should always
be kept below 1 percent equivalent of the Group’s total
assets.

Financial risk management

Interest rate risks

Interest rate fluctuations have a direct impact on ASSA
ABLOY’s net interest 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
duration in the Group is generally short, with an average
duration of less than a year. At year-end, the average
interest rate duration was about 8 months.

External funding and interest rate swap
The table ‘External funding / Net debt’ below gives an
overview of interest rate swaps associated with debt. The
internal bank swaps the full Euro EMTN loan to floating
rates.

Sensitivity analysis
An increase of one percentage point in market rates would
have a negative impact of SEK 89 million on interest
expense for the year 2004.

Effective interest rate by main currencies*

Liquidity risks

USD

EUR

SEK

GBP

Average for the Group

2.0%

3.4%

3.9%

2.9%

* These are the effective rates on external borrowing at year-end. Financing costs on total

net debt amounted to 3.5% at year-end.

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 exter-
nal borrowing and external investments. ASSA ABLOY
strives to have access, on every occasion, to both short-term
and long-term loan facilities. The available facilities should
include a reserve (facilities confirmed but not used) equiva-
lent to 10 percent of the Group’s total sales.

EXTERNAL FUNDING / NET DEBT (IN MILLIONS)

Credit facilities

Confirmed programs

EMTN Program

Global CP Program

Commercial Paper Program

MTN Program

Committed

Multi-Currency RF A

Multi-Currency RF B

Incentive Program

Bank loan

Overdrafts and other

Total credit facilities

Cash and cash equivalents

Provisions for pensions

Accrued financial items

Net debt

Amount

SEK

End of
facility

Utilized
Cur-
rency

SEK

Average interest

Interest
rate swap
rate duration associated

Prin-
cipal

600

250

1,493

200

5,443

1,795

1,493

1,814

EUR

USD

SEK

EUR

2.9 years

22 days

37 days

fixed quarterly

EUR

USD

100

fixed quarterly

fixed six-monthly

907

432

632

12,516

–880

723

–69

12,290

Yes

13,608

Dec-06

7,197

5,000

2,722

2,449

4,990

907

432

994

38,299

n/a

Jun-06

Feb-05

Feb-07

Nov-06

Feb-06

n/a

Maturity structure
The column ‘End of facility’ in the table ‘External funding /
Net debt’ shows that duration until repayment of debts
contracted by the internal bank is not concentrated in the
short term. Where there are many transactions with
different maturities, the duration is computed by weighted
average. At year-end, the total average duration was 22
months.

Ratings

Standard & Poor’s

Moody’s

Credit risks

Short term Long term

Outlook

A –

n/a

stable

Financial risk management exposes ASSA ABLOY to cer-
tain counterparty risks. This exposure arises, for instance,
from the placement of surplus cash, through the use of
derivative instruments and from trade receivables.

ASSA ABLOY policy is to minimize the potential credit
risk from cash surplus by having no cash in bank accounts
and by using cash available from subsidiaries to amortize
ASSA ABLOY debt. This objective is mainly controlled
through the cash pool network put in place by the internal
bank. Approximately 75 percent of commercial sales were
settled through cash pools in 2003. Nevertheless the Group
may deposit surplus funds on a short-term basis with banks
to match maturities.

Derivative instruments are allocated to banks according

to risk factors set in the Finance Policy to limit counter-
party risk.

The internal bank enters into derivative contracts exclu-
sively with banks participating in the syndicated credit sys-
tem or with banks rated AAA and AA. An ISDA (full net-
ting of transactions in case of default by one counterparty)
is agreed in the case of interest derivatives.

Financial risk management

Trade receivables are spread over a large number of

individual clients, thus minimizing credit risk.

Financial instruments and accounting treatments

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.

Currency derivatives hedging funding
All contracts hedging funding activity will mature within
12 months. Interest spreads are amortized into interest
expense and income over the life of the contracts. The
remaining spot parts of the contracts are revalued to the
year-end spot market rates and charged to the income state-
ment. The fair value of these contracts exceeds book value
by SEK 2 M.

No currency options were held at end of year.

Currency derivatives hedging transaction exposure
Subsidiaries do not revalue their forward contracts on an
ongoing basis. Currency effects from forward contracts are
recorded when the underlying transactions are realized.
Interest spreads are amortized into interest expense and
income over the life of the contracts. The positions which
may from time to time exist between internal contracts and
their external hedge with banks are revalued to the year-
end spot market rates and charged to the income statement.
The year-end fair value of the external currency forward
contracts with bank hedging transactions exposure exceeds
book value by SEK 28 M.

Interest rate derivatives
Interest income and expense are recorded on an accrual
basis. The fair value of interest rate derivatives is not recog-
nized in the balance sheet. The year-end fair value of the
outstanding contracts was SEK 112 M.

Notes

Note 1 Accounting and valuation principles

The Group’s accounting and valuation principles comply
with Sweden’s Annual Accounts Act and the recommenda-
tions of the Swedish Financial Accounting Standards
Council.

The new recommendations of the Financial Accounting

Standards Council for 2003 were adopted from1 January
2003. This has not required any adjustment of figures for
previously reported periods. In all other respects account-
ing principles are unchanged from previous years.

Consolidated accounts
The consolidated financial statements include the Parent
Company and companies 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 con-
trol by some other means. The consolidated income state-
ment includes companies acquired during the year, with
values as from the date of acquisition. Income from compa-
nies sold during the year is included in the consolidated
income statement for the period up to date of disposal. The
consolidated financial statements are prepared in accor-
dance 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 deter-
mined on the basis of the fair value of assets, liabilities and
provisions at the date of acquisition. If the acquisition value
of shares in a subsidiary exceeds the acquired shareholders’
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 dissolved in accordance with a
defined plan.

Minority interests
Minority interests in the year’s income statement and share-
holders’ equity are based on subsidiaries’ accounts pre-
pared in accordance with the Group’s accounting princi-
ples. Minority participations in subsidiaries’ equity are
shown as a separate item in the consolidated balance sheet.

Associated companies
Associated companies are defined as companies which are
not subsidiaries but companies in which the Parent Com-
pany has shareholdings which, directly or indirectly, repre-
sent at least 20 percent of all participations. Participations
in associated companies are reported in accordance with
the equity method. The consolidated income statement
includes shares in the income before tax of associated com-
panies. In cases in which the acquisition value of shares in
associated companies was higher than the shareholders’
equity in the acquired company at the acquisition 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 tax on associated
companies’ income is included in the Group’s tax expense.
In the consolidated balance sheet, shareholdings in associ-
ated 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 trans-
lating the accounts of all foreign subsidiaries that are con-
sidered to operate with a high degree of independence. The
current method means 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 aver-
age rate for the financial year. Subsidiaries operating in
high-inflation countries, e.g. Romania, are translated using
the 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 differ-
ences on hedging operations are eliminated from the
income statement and, like differences that arise when for-
eign net assets are translated, are carried directly to share-
holders’ 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
(weighted average for the year and rate at year-end):

profits arising from intra-Group sales have been eliminated
in their entirety.

Argentina

Australia

Bermuda

Brazil

Canada

Switzerland

Chile

China

Czech Republic

Denmark

Estonia

Euroland

United Kingdom

Hong Kong

Hungary

Indonesia

Israel

India

Japan

Kenya

Lithuania

Mauritius

Mexico

Malaysia

Nigeria

Norway

New Zealand

Poland

Romania

Russia

Singapore

Slovenia

Slovakia

Thailand

USA

Uruguay

South Africa

Zimbabwe

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

SKK

THB

USD

UYU

ZAR

ZWD

Average
rate

Year-end
rate

2.70

5.23

8.14

2.61

5.74

6.01

2.46

5.41

7.20

2.48

5.56

5.82

0.012

0.97

0.29

1.23

0.58

9.12

13.24

1.04

0.036

0.87

0.28

1.22

0.58

9.07

12.81

0.93

0.035

0.00094

0.00085

1.78

0.17

0.070

0.11

2.64

0.29

0.75

2.12

1.66

0.16

0.067

0.09

2.63

0.27

0.64

1.89

0.061

0.052

1.14

4.68

2.08

1.08

4.72

1.93

0.00024

0.00022

0.26

4.63

0.039

0.22

0.19

8.07

0.29

1.08

0.25

4.23

0.038

0.22

0.18

7.20

0.25

1.08

0.0099

0.009

Revenue recognition
Revenue recognition of sales of goods is reported at the
time of delivery to the customer in accordance with the
conditions of sale. All sales are reported less VAT, dis-
counts, returns and freight. Intra-Group sales are elimi-
nated from the consolidated income statement.

Intra-Group sales
Transfer pricing between Group companies is carried out at
arm’s length basis and thus at market prices. Internal

Leasing
Only operational leasing of limited scope occurs in the
Group, and the leasing payments are expensed at a con-
stant rate over the period of the contract.

Research and development
Research costs are expensed as they are incurred. The costs
of development work are included in the balance sheet only
to the extent that they are expected to generate future eco-
nomic benefits. Such costs for development work are depre-
ciated on a straight-line basis. Other development costs are
expensed as they are incurred.

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 depreciation period of five years is applied
for intangible rights. Group goodwill is amortized over 10–20
years, depending on the type of company acquired. Goodwill
in well-established companies with independent and well-
known brands is amortized over 10 years. Goodwill in com-
panies 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.

Tax
The income statement reports all tax that is to be paid or
received for the current year, adjustments relating to tax due
for previous years, and changes in deferred tax. Tax sums
have been calculated as nominal amounts in accordance
with the tax regulations in each country and in accordance
with tax rates that have either been decided or have been
notified and can confidently be expected to be confirmed.
For items reported in the income statement, associated tax
effects are also reported in the income statement. The tax
effects of items reported directly against shareholders’
equity are themselves reported against shareholders’ equity.
Deferred tax is accounted for under the balance sheet
liability method. This means that deferred tax is accounted
for on all temporary differences between the book values of
assets and liabilities and their taxable values. Deferred tax
receivables relating to tax losses carryforward or other
future tax allowances are reported to the extent that it is
probable that the allowance can be set against taxable
income in future taxation. Deferred tax liabilities relating
to temporary differences resulting from investments in

Notes

subsidiaries are not reported in ASSA ABLOY’s consoli-
dated accounts since the Parent Company can always con-
trol the time at which the temporary differences are can-
celed and it is not considered likely that such cancelation
will occur in the foreseeable future. In the Parent Company,
because of the relationship between accounting and taxa-
tion, deferred tax liabilities on untaxed reserves are shown
in the Parent Company’s accounts as part of untaxed
reserves.

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 equiva-
lents are taken to include short-term investments that (a) are
exposed to only small risks of change in value and (b) are
traded on an open market for known sums and have a matu-
rity date less than three months from the date of acquisition.

Intangible and tangible fixed assets
Intangible and tangible fixed assets are reported at acquisition
value after deduction for accumulated depreciation. Expendi-
ture on improvements that raise an asset’s performance above
its original level increases the book value of the asset. Expen-
diture on repairs and maintenance is shown as a cost. Tangi-
ble and intangible fixed assets are depreciated on a straight-
line basis over the asset’s expected useful life. If the book value
of an asset exceeds its estimated scrap value, the asset is
immediately written down to its scrap value. A valuation
model based on discounted future cash flow is used for regu-
lar impairment tests of goodwill.

Inventories
Inventories are valued in accordance with the FIFO (First in,
first out) principle at the lower of acquisition value and net
realizable value at year-end. 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 are valued in the amounts that after individual
assessment are expected to be received.

Foreign currencies
Receivables and liabilities are valued at the year-end rate.
The forward rate has been used when exchange rates have
been hedged by means of forward contracts. Transactions in
foreign currencies are translated at the rate current on the
transaction date. When the currency effects of future budg-

eted flows are hedged, the hedging instrument is not revalued
for the changed exchange rates. The full effect of changes in
exchange rates is shown in the income statement at the time
that the hedging instrument falls due for payment.

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.

Pensions
Methods for calculating pension costs and pension liabili-
ties vary between countries. Companies follow their coun-
try’s local rules and the reported figures are consolidated in
the Group accounts.

Recommendation RR 29 ‘Employee benefits’ will be

adopted from 1 January 2004.

Note 2 Sales by country 1

2003

8,686

2,108

1,585

1,261

1,089

914

852

731

709

691

650

545

455

390

358

311

260

255

244

240

234

197

195

128

124

110

568

2002

10,376

2,061

1,602

1,079

981

863

797

993

663

733

487

600

418

381

396

273

178

299

268

228

190

198

194

180

116

571

24,080

25,397

SEK M

USA

France

United Kingdom

Germany

Sweden

Australia

Spain

Mexico

Finland

Canada

Netherlands

Norway

Denmark

Italy

Asia (excluding China)

Belgium

Switzerland

Middle East

China

Czech Republic

New Zealand

South Africa

South America

Central America (excluding Mexico)

Russia

Portugal

Baltic countries

Poland

Romania

Other countries

Total

1 Sales to customers in each country.

Note 3 Salaries, wages, other remuneration and

Note 4 Auditors’ fees

Notes

social costs

Salaries, wages and other remuneration (including performance-
related bonuses awarded to managing directors, shown in brackets)

Group

SEK M

Audit

PricewaterhouseCoopers

Others

Assignments other than audit

PricewaterhouseCoopers

Others

Total

Group

Parent
Company

2003

2002

2003

2002

–

Note 5 Depreciation and amortization

SEK M

Goodwill

Intangible rights

Machinery

Equipment

Buildings

Land and land improvements

Group

Parent
Company

2003

2002

2003

2002

959

491

255

115

957

530

255

134

–

Total

1,856

1,907

Note 6 Operational leasing agreements

SEK M

Leasing fees paid during the year:

SEK M

Group
2003

276

Group
2003

Parent Company
2003

2003

403 (3)

278 (1)

243 (1)

123 (0)

480 (1)

467 (2)

57 (0)

576 (2)

120 (0)

47 (0)

93 (0)

212 (1)

115 (–)

2002

338 (5)

273 (–)

270 (1)

115 (1)

426 (1)

484 (1)

47 (0)

564 (2)

103 (0)

43 (–)

98 (0)

217 (1)

98 (–)

2,143 (13)

2,575 (19)

74 (1)

17 (–)

62 (1)

107 (0)

58 (–)

215 (1)

267 (1)

149 (0)

41 (0)

79 (2)

75 (0)

14 (–)

69 (1)

100 (0)

54 (1)

268 (1)

257 (–)

112 (–)

32 (–)

69 (1)

Parent Company

46 (0)

45 (4)

SEK M

Sweden

Finland

Norway

Denmark

Germany

United Kingdom

Belgium

France

Netherlands

Czech Republic

Canada

Australia

New Zealand

USA

China

Romania

Israel

Italy

South Africa

Mexico

Spain

Switzerland

South America

Other countries

Total

Sweden

6,426 (30)

6,701 (35)

Nominal value of agreed future leasing fees:

Due for payment in 2004

Due for payment in 2005

Due for payment in 2006

Due for payment in 2007

Due for payment in 2008

Social costs (including pensions shown in brackets)

Group

SEK M

Total

Sweden

2003

2002

Due for payment in 2009 or later

1,925 (384) 2,049 (401)

Total

Parent Company

25 (12)

31 (17)

Note 7 Non-recurring items

Absence for illness 1

SEK M

Parent Company

Provision for restructuring

Women
2003

Men
2003

Total
2003

Write-downs of fixed assets and inventories

Total

215

504

Group

2003

2002

935

385

1,320

–

aged 29 or younger

– of which, long-term absence for illness

aged 30–49

– of which, long-term absence for illness

aged 50 or more

– of which, long-term absence for illness

Total

1 During the period 1 July – 31 December 2003.

1.1

–

1.9

–

0.9

–

1.7

–

0.3

–

0.2

0.4

–

1.3

–

0.3

–

1.0

Note 8 Income from participations in Group

companies

SEK M

Dividends

Liquidation loss

Write-downs of shares in subsidiaries

Income from disposal of shares in subsidiaries

Total

Parent Company

2003

2002

733

–

–700

–

280

–79

–

296

Notes

Note 9 Financial items

Note 11 Intangible fixed assets

Group

Parent
Company

2003

2002

2003

2002

–

211

–

478

–27

–

535

–12

Goodwill

SEK M

Opening acquisition value

Purchases/acquisitions

Reclassifications

Translation differences

–721

–861

–363

–584

Closing accumulated acquisition value

–

–497

–631

–531

–440

–643

–692

Group

Parent
Company

Opening amortization

Reclassifications

Write-downs

Amortization for the year

Translation differences

Closing accumulated amortization

2003

2002

2003

2002

Closing net book value

Group

2003

2002

18,943 18,513

1,030

2,629

–

167

–1,888 –2,366

18,085 18,943

–2,730 –2,142

–

–5

–2

–959

–957

374

370

–3,320 –2,730

14,766 16,213

SEK M

Dividends

Interest income and similar income items

176

Interest income from Group companies

Exchange-rate differences

Interest expenses and similar
expense items

Interest expenses from Group
companies

Total

Note 10 Tax

SEK M

Current tax paid

Tax attributable to prior years

Deferred tax

Total

–572

–596

–92

109

–7

–86

–556

–689

–

–2

–

–2

Intangible rights

SEK M

2003

2002

2003

2002

Group

Parent
Company

Explanation for the difference between nominal Swedish tax rate
and effective tax rate based on income before tax and excluding non-recur-
ring items of SEK 1,320 M.

Opening acquisition value

Purchases/acquisitions

Non-recurring items are expected to be wholly tax-deductible in future tax
years.

Deferred tax has been applied to some SEK 350 M of non-recurring items,
but not to the remainder because of existing deductions for losses in the
countries concerned.

Sales/disposals

Reclassifications

Translation differences

Closing accumulated
acquisition value

407

–22

–1

–36

409

–2

–46

410

407

Percent

Swedish rate of tax on income

Effect of foreign tax rate

Non-deductible goodwill amortization

Other non-deductible expenses

Other

Effective tax rate before restructuring costs

Group

2003

2002

28.0

–3.5

7.4

5.4

–1.8

35.5

28.0

–6.6

11.7

3.4

–2.3

34.2

Opening amortization

–235

–222

Sales/disposals

Reclassifications

Write-downs

Amortization for the year

Translation differences

Closing accumulated
amortization

–

–35

–3

–30

–243

–235

Deferred tax liabilities and deferred tax receivables are made up as follows:

Closing net book value

167

172

–

–1

–

–1

–

SEK M

Deferred tax liabilities

Fixed assets

Inventories

Short-term receivables and liabilities

Deferred tax receivables

Fixed assets

Inventories

Short-term receivables and liabilities

Provisions

Tax-deductible losses

Group

2003

2002

188

228

283

310

179

146

507

112

129

486

Note 12 Tangible fixed assets

Buildings

SEK M

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Machinery

Group

2003

2002

SEK M

3,012

3,041

Opening acquisition value

117

–51

179

–18

Purchases/acquisitions

Sales/disposals

Reclassifications

–231

–278

Translation differences

Notes

Group

2003

2002

5,321

5,967

474

–249

–686

529

–69

–185

–921

Closing accumulated acquisition value

2,874

3,012

Closing accumulated acquisition value

4,877

5,321

Opening depreciation

–861

–813

Opening depreciation

Sales/disposals

Reclassifications

Write-downs

Depreciation for the year

Translation differences

–13

–155

–115

–20

–16

–134

117

Sales/disposals

Reclassifications

Write-downs

Depreciation for the year

Translation differences

–2,904 –3,058

206

–177

–491

487

–2

–530

568

Closing accumulated depreciation

–1,025

–861

Closing accumulated depreciation

–2,870 –2,904

Closing net book value

1,849

2,151

Closing net book value

2,007

2,417

The taxable value of the Group’s Swedish buildings was SEK 90 M.

Equipment

Land and land improvements

SEK M

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Opening depreciation

Sales/disposals

Reclassifications

Write-downs

Depreciation for the year

Translation differences

Closing accumulated depreciation

Closing net book value

Group

2003

2002

681

707

–4

–13

–42

645

–8

–10

–1

–16

629

–1

–63

681

–8

–

–1

–8

673

The taxable value of the Group’s Swedish land was SEK 12 M.

SEK M

2003

2002

2003

2002

Group

Parent
Company

Opening acquisition value

1,467

1,527

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Closing accumulated
acquisition value

212

267

–189

–122

–7

–197

–198

1,326

1,467

Opening depreciation

–787

–783

Sales/disposals

Reclassifications

Write-downs

Depreciation for the year

Translation differences

164

–5

–15

–2

–255

143

139

Closing accumulated depreciation

–755

–787

Closing net book value

571

680

Construction in progress

SEK M

–2

–

–9

–

–2

–

–9

–15

–

–13

–

–3

–

–9

Group

2003

2002

273

254

Notes

Note 13 Shares in subsidiaries

Parent Company

ASSA ABLOY Scandinavia AB

Timelox AB

AA Besam AB

Metget AB

Aug. Stenman AB

Organization number,
Registered Office

556061-8455 Eskilstuna

556214-7735 Landskrona

556204-8511 Landskrona

556514-7997 Ronneby

556047-9148 Eskilstuna

ASSA ABLOY Global Technology Management AB

556645-4087 Stockholm

ASSA ABLOY Svensk Fastighets AB

556645-0275 Stockholm

ASSA ABLOY OY

ASSA ABLOY Norge a.s.

ASSA ABLOY Danmark A/S

ASSA ABLOY Deutschland GmbH

Lips Nederland BV

Ambouw B.V.

Striffler Nederland B.V.

VEMA Sales B.V.

ASSA ABLOY France SAS

Interlock Holding AG

ASSA ABLOY Ltd

Yale Security Products SpA

Mul-T-Lock Ltd

1094741-7 Joensuu

979207476 Moss

CVR 10050316 Herlev

HR B 66227 Berlin

23028070 Dordrecht

31021889 Hoevelaken

08017187 Amersfoort

18066659 Amsterdam

412140907 R.C.S. Versailles

CH-020.3.913.588-8 Zürich

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.

Grupo Industrial Phillips, S.A de C.V.

Lips Technology BV

ASSA ABLOY Innovation AB

ASSA ABLOY Hospitality AB

ASSA ABLOY Treasury S.A.

YSM9612049Y4 Mexico D.F.

GIP980312169 Mexico

33274584 Amsterdam

556192-3201 Eskilstuna

556180-7156 Stockholm

CH-660-2045998-0 Geneva

205,500,000

ASSA ABLOY Reinsurance S.A.

CH-660-1690000-9 Geneva

ASSA ABLOY Int. Management Services Ltd

Codas Electrónica S.A.

ASSA ABLOY Asia Pacific Ltd

Total

EC21330 Bermuda

8805 Buenos Aires

53451 Hong Kong

Note 14 Other financial fixed assets

Shares in associated companies
Group

Talleres Agui S.A.

Låsgruppen Wilhelm Nielsen AS

Cerraduras de Colombia Cerracol S.A

Renato Fattorini SRL

Other

Total

Organization number,
Registered Office

A20065744 Astigarraga

934372816 Bergen

00008028 Bogotá

8727 Pavia

300,000

100,100

120

1,000,000

Number
of shares

4,802

305

182,682

–

Number
of shares

% of
share
capital

Book
value
SEK M

15,000

1,000

30,491

400

1,000

800,000

150,000

60,500

3,515

180

12,499,999

10,736

1,330,000

240,000

13,787,856

100,220

100

48,190,000

100,000

231,299,904

27,036,635

400

2,500

1,000

100

631

538

376

1,394

1,582

976

598

1,079

184

2,319

242

225

862

11,354

423

23,187

% of
share
capital

Book
value
SEK M

–

Notes

2003

2002

907

916

Note 14 Continued

Note 19 Convertible debenture bonds

Group

Parent
Company

SEK M

2003

2002

2003

2002

Shares in associated companies

Other shares and participations

Long-term receivables

Total

210

182

–

Note 15 Inventories

SEK M

Materials and stock items

Work in progress

Finished goods

Paid in advance

Total

Note 16 Number of shares

Group

2003

2002

825

967

1,031

1,152

1,210

1,390

3,030

3,595

INCENTIVE 2001 has a variable interest rate equivalent to 0.9 x EURIBOR +
54 basis points. Convertible debenture loans within INCENTIVE 2001 can be
converted in October/November 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 dilution effects
with full conversion will amount to 1.35 percent of share capital and 0.92
percent of the total number of votes. The program has a total value of EUR
100 M.

Note 20 Accrued expenses and prepaid income

Group

Parent
Company

SEK M

2003

2002

2003

2002

Personnel-related expenses

Interest expenses

Other

Total

747

801

1,072

1,134

1,862

2,001

Number of shares on
31 December 2002

Number of shares on
31 December 2003

Series A
shares

Series B
shares

Share
capital

Note 21 Assets pledged

19,175,323

346,742,711

365,918,034

SEK M

19,175,323

346,742,711

365,918,034

Relating to long-term liabilities to credit institutions:

Group

2003

2002

Real-estate mortgages

Chattel mortgages

Total

Note 22 Contingent liabilities

SEK M

Guarantees

Guarantees on behalf of subsidiaries

Other

Total

Group

Parent
Company

2003

2002

2003

2002

120

567

696

123

321

109

103

7,104

7,110

–

446

7,213

Regarding legal disputes see Report of the Board of Directors, Page 41.

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
10 votes and each Series B share one vote.

The average number of shares during the year, rounded to the nearest
thousand, was 365,918 thousand (359,952 thousand). The average number
of shares after full conversion, similarly rounded, was 370,935 thousand
(366,716 thousand).

The proposed dividend is SEK 1.25 per share or a maximum total dividend of
SEK 457 M.

Note 17 Long-term liabilities due for payment later
than five years after the financial year-end

SEK M

Liabilities to credit institutions

Other liabilities

Total

Group

2003

2002

Note 18 Corporate credit line

Check credits granted to the Group totaled SEK 903 M (928), of which
SEK 264 M (117) was utilized.

Notes

Note 23 Average number of employees by country and by gender

Women

Men

Total

USA

Mexico

France

China

United Kingdom

Sweden

Germany

Finland

Australia

Spain

Czech Republic

Romania

South America

Norway

South Africa

Italy

New Zealand

Netherlands

Israel

Canada

Switzerland

Denmark

Belgium

Other countries

Total

Parent Company

Sweden

2003

1,919

2,113

926

1,035

2002

2,040

2,215

953

1,132

2003

4,505

1,282

1,491

1,008

2002

4,505

1,398

1,467

1,029

813

492

471

420

392

310

460

351

156

219

324

253

145

100

122

118

175

854

444

470

435

419

290

450

304

138

230

391

266

144

140

160

946

790

687

589

667

362

470

546

468

345

285

362

320

273

256

184

154

117

306

935

669

747

706

574

654

347

379

392

491

470

303

369

236

278

255

142

167

298

2003

6,424

3,395

2,417

2,043

1,759

1,282

1,261

1,107

981

977

822

821

702

687

669

538

507

420

340

316

306

272

181

481

2002

6,545

3,613

2,420

2,161

1,789

1,113

1,217

1,141

993

944

797

683

530

721

861

569

513

319

351

315

236

307

158

458

11,505

11,846

17,203

16,908

28,708

28,754

Gender split in Company management

Group

Board of Directors

Executive Team

Total

Women
2003

–

Men
2003

Total
2003

Note 24 Cash and cash equivalents

Group

Parent
Company

SEK M

2003

2002

2003

2002

Cash and bank balances

Short-term investments

Cash and cash equivalents

713

167

880

1,082

326

1,408

633

652

198

200

Short-term investments shown in the consolidated balance sheet at year-end
were SEK 375 M (410), of which SEK 208 M (84) were either non-realizable
receivables with a term to maturity of more than three months or investments
in securities. These items are not classified as cash and cash equivalents and
are not included in the above table.

Short-term investments shown in the Parent Company’s balance sheet were
SEK 19 M (2).

Notes

Group

2003

2002

–713 –1,082

–375

–410

–60

–64

8,894

9,232

3,821

5,289

723

1,023

12,290 13,989

Note 25 Cash flow

Note 26 Net debt

SEK M

ADJUSTMENTS FOR NON-CASH ITEMS

Change in pension provisions

Adjustment for non-cash items

PAID AND RECEIVED INTEREST

Interest paid

Interest received

Paid and received interest

CHANGE IN WORKING CAPITAL

Inventory increase/decrease (–/+)

Accounts receivable increase/decrease (–/+)

Other short-term receivables increase/decrease (–/+)

Trade and other short-term payables increase/decrease (+/–)

Change in working capital

Group

2003

2002

SEK M

–6

Cash and bank balances

Short-term interest-bearing investments

Long-term interest-bearing receivables

Long-term interest-bearing liabilities

Short-term interest-bearing liabilities

–697

–796

Pension provisions

177

216

Total

–520

–580

274

–120

168

169

197

122

–83

405

–952 –1,070

258

231

–694

–839

NET CAPITAL EXPENDITURE

Purchases of tangible fixed assets

Sales of tangible fixed assets

Net capital expenditure

INVESTMENTS IN SUBSIDIARIES

Acquired assets and liabilities according
to acquisition analyses:

Intangible fixed assets

Tangible fixed assets

Inventory

Accounts receivable

Other receivables

Long-term liabilities

Accounts payable

Other short-term liabilities

Less, acquired net debt

Purchase price

Less, acquired cash and cash equivalents

Less, unpaid part of purchase price

Less/Plus, paid parts of purchase price
relating to previous years

Investments in subsidiaries

INVESTMENTS IN ASSOCIATED COMPANIES

Investments in associated companies

OTHER INVESTMENTS

Investments in other shares

Investments in / sales of other financial assets

Other investments

–1,106 –2,630

–156

–116

–196

–172

137

169

–244

–254

–489

–243

125

284

–1,254 –3,335

198

140

–

–63

–230

–1,096 –3,425

–31

–14

–45

–9

–

Proposed disposition of earnings

As shown in the consolidated balance sheet, the Group’s unrestricted equity amounts to SEK 1,194 M (1,672).
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 –439 M
Unappropriated earnings brought forward: SEK 2,911 M
Total: SEK 2,472 M

The Board of Directors and the President propose that a dividend of SEK 1.25 per share, a maximum total of
SEK 457 M, be distributed to shareholders and that the remainder be carried forward to the new financial year.

Stockholm, 5 February 2004

Georg Ehrnrooth
Chairman

Melker Schörling
Vice Chairman

Carl-Henric Svanberg
Vice Chairman

Bo Dankis
President

Gustaf Douglas

Per-Olof Eriksson

Lotta Lundén

Sven-Christer Nilsson

Patricia O’Driscoll

Mats Persson
Employee representative

Seppo Liimatainen
Employee representative

Our audit report was issued on 6 February 2004

PricewaterhouseCoopers AB

Anders Lundin
Authorized Public Accountant

Audit report

To the General Meeting of the shareholders of ASSA ABLOY AB
Corporate Organization 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 2003. 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 dis-
closures 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 6 February 2004

PricewaterhouseCoopers AB

Anders Lundin
Authorized Public Accountant

Comments on ‘Five years in summary’

1999

Continued good organic growth and benchmarking
between the operational units produced further improve-
ments in margins. During the year a total of eleven compa-
nies were acquired. The major acquisitions were Lock-
wood, Australia’s leading lock manufacturer; effeff, a
world-leading manufacturer of electric strikes; and
Mul-T-Lock, Israel’s leading manufacturer of locks and
high-security cylinders. The acquisitions were financed in
part by a fully subscribed share issue, which brought in
SEK 2.0 billion. During the year a bonus issue and split
were also carried out.

2000

Continued good organic growth and benchmarking
between the operational units produced further improve-
ments in margins. Yale Intruder Security, the lock division
of Williams plc, was acquired during the year. A new share
issue to provide part of the financing for the Yale Intruder
Security acquisition was 99.9 percent subscribed and
brought in SEK 1.5 billion. 19.8 million Series B shares
were also issued as part payment to Williams plc. The
American company HID Corporation, a world leader in
the field of contactless cards and card readers using radio-
frequency identification technology, was also acquired at
the end of the year.

2001

Organic growth was held back by rationalization of the
product range, mainly in acquired units. The reported oper-
ating margin was reduced by dilution from acquired units.
Nine companies in total were acquired during the year –

including a majority stake in the US steel-door manufac-
turer UDP, plus Tesa in Spain, Phillips in Mexico and
Interlock in New Zealand – which added strength in both
geographical and product terms.

In 2001 ASSA ABLOY changed its financing, largely
replacing the previous bank financing with capital-market-
based long-term bonds and short-term financing. A con-
vertible-based incentive program for the Group’s employ-
ees was launched.

2002

The year saw continuing improvements and growth despite
difficult market conditions. ASSA ABLOY’s long-term
efforts to reduce working capital and achieve cost-efficient
capital expenditure produced a very strong cash flow.
Operating cash flow after payment of tax amounted to SEK
3 billion, an increase of 67 percent over 2001. A more pre-
cise focus was directed towards Group-wide purchasing,
with targets set for reducing the number of suppliers and
exploiting Group synergies.

Besam, the world leader in door automatics, was

acquired during the year.

2003

Business was affected by weak demand in major markets in
Europe and North America. Substantial negative exchange-
rate effects due mainly to the weak US dollar reduced fig-
ures for both sales and income. The main acquisitions were
in Europe in the Identification sector.

Following the appointment of Bo Dankis as the Group’s

new President and CEO, a new organization consisting of
four divisions (EMEA, Americas, Asia Pacific and Global
Technologies) was implemented. The Executive Team was
reduced from 17 people to seven. A two-year action pro-
gram entitled ‘Leverage and Growth’ was launched
towards the end of the year. Restructuring costs linked to
the action program amounted to SEK 1,320 M. The aims of
the program are to realize Group synergies and strengthen
sustained organic growth.

Five years in summary

(Amounts in SEK M unless stated otherwise)

19991

20001

2001

2002

2003

10,277

14,394

22,510

25,397

24,080

1,861

667

1,382

1,194

981

619

1,218

1.24

8,534

3,246

2,998

267

5,269

18.1

13.5

11.6

9.5

15.6

28.7

17.9

16.2

49.2

0.57

5.3

8.7

2,705

985

2,107

1,720

1,402

915

1,756

1.25

19,779

12,078

8,560

560

10,659

2.76

2.73

3.88

5.81

30.58

0.90

184.50

18.8

14.6

12.0

9.7

13.7

34.2

16.7

13.3

43.1

0.80

5.5

8.5

4,020

1,721

3,159

2,133

1,476

949

2,338

1.422

27,861

16,371

15,534

481

11,846

2.992

2.982

5.392

8.072

35.80

1.00

151.00

17.9

14.0

10.22

7.32

9.72

32.92

13.32

8.92

35.6

1.31

3.5

9.0

4,545

1,907

3,595

2,638

2,015

1,270

3,525

1.75

26,701

16,213

13,989

331

12,381

3.53

6.13

9.08

35.85

1.25

99.50

17.9

14.2

10.4

7.9

9.9

33.3

13.4

9.9

38.2

1.13

3.9

27.2

4,249

1,856

3,352

1,073

583

3,265

1.722

22,984

14,766

12,290

10,678

3.302

3.312

5.892

8.612

31.23

1.25

85.50

17.6

13.9

9.92

7.92

9.62

34.42

13.32

9.92

35.9

1.15

4.7

17.8

314,409

324,200

12,654

352,453

356,712

16,881

353,751

361,730

24,211

365,918

370,935

28,754

365,918

370,935

28,708

Sales and income

Sales

Organic growth, %

Acquired growth, %

Operating income before depreciation (EBITDA)

Depreciation and amortization

Operating income before goodwill amortization (EBITA)

Operating income (EBIT)

Income before tax (EBT)

Net income

Cash flow

Operating cash flow

Operating cash flow / Income before tax (EBT)

Capital employed and financing

Capital employed

– of which goodwill

Net debt

Minority interests

Shareholders’ equity

Data per share, SEK

Earnings per share after tax and before conversion

Earnings per share after tax and full conversion (EPS)

Earnings per share after tax and full conversion excluding goodwill

Cash earnings per share after tax and full conversion (CEPS)

Shareholders’ equity per share after full conversion

Dividend per share (for 2003, as proposed by the Board)

Price of Series B share at year-end

2.16

2.003

2.61

4.103

16.953

0.74

119.50

Key data

Gross margin (EBITDA), %

Operating margin before goodwill amortization (EBITA), %

Operating margin (EBIT), %

Profit margin (EBT), %

Return on capital employed, %

Return on capital employed before goodwill, %

Operational return on capital employed, %

Return on shareholders’ equity, %

Equity ratio, %

Net debt / Equity ratio, times

Interest coverage ratio, times

Interest on convertible debenture loan after tax, SEK M

Number of shares, thousands

Number of shares after full conversion, thousands

Average number of employees

1 Key data for 1999 and 2000 have been adjusted for changes in accounting principles.
2 Excluding non-recurring items.
3 Adjusted for new share issue with a correction factor of 0.987.

Quarterly information

THE GROUP IN SUMMARY
(Amounts in SEK M unless stated otherwise)

Q1
2002

Q2
2002

Q3
2002

Q4 Full year
2002

2002

Q1
2003

Q2
2003

Q3
2003

Q4 Full year
2003

2003

Sales

Organic growth1

Gross income

6,303

6,245

6,459

6,389

25,397

6,124

5,930

6,096

24,080

–2%

2,408

2,438

2,506

2,520

9,871

2,390

2,299

2,333

2,445

9,467

Gross income / Sales

38.2% 39.0% 38.8% 39.4%

38.9%

39.0% 38.8% 39.3% 40.1%

39.3%

Operating income before depreciation (EBITDA)

1,104

1,106

1,172

1,163

4,545

1,078

993

1,044

1,135

4,249

Gross margin (EBITDA)

Depreciation

Operating income before goodwill
amortization (EBITA)

Operating margin before goodwill
amortization (EBITA)

Goodwill amortization

Non-recurring items

Operating income (EBIT)

Operating margin (EBIT)

Financial items

Income before tax (EBT)

Profit margin (EBT)

Tax

Minority interest

Net income

OPERATING CASH FLOW

Operating income before goodwill amortization (EBITA)

Depreciation

Net operating capital expenditure

Change in working capital

Paid and received interest

Adjustment for non-cash items

Operating cash flow

Operating cash flow / Income before tax

17.5% 17.7% 18.1% 18.2%

17.9%

17.6% 16.7% 17.6% 18.6%

17.6%

–242

–239

–231

–950

–232

–223

–219

–223

–897

863

867

933

932

3,595

846

770

824

912

3,352

13.7% 13.9% 14.5% 14.6%

14.2%

13.8% 13.0% 13.9% 15.0%

13.9%

–232

–247

–246

–957

–244

–237

–238

–240

–959

–

630

–

635

–

686

–

686

–

2,638

–

602

–

533

–

–1,320

586

–648

1,073

10.0% 10.2% 10.6% 10.7%

10.4%

9.8% 9.0% 9.9% 11.0%3

9.9%3

–171

–154

–165

–141

–631

–135

–129

–120

–113

–497

461

484

523

547

7.3% 7.7% 8.1% 8.6%

–162

–170

–184

–173

468

407

467

–758

583

7.6% 6.9% 7.9%

9.2%3

7.9%3

–165

–143

–165

Q4 Full year
2002

2002

–14

284

Q1
2002

863

242

–155

–160

643

1.40

–13

301

Q2
2002

867

239

–17

322

Q3
2002

933

239

–12

363

932

231

–212

–138

–335

148

137

274

–169

–145

–107

–24

886

1,002

1.83

1.91

–1

994

1.82

2,015

7.9%

–689

–56

1,270

3,595

950

–839

405

–581

–5

3,525

1.75

–7

257

Q2
2003

770

223

–4

299

Q3
2003

824

219

–184

–163

–190

–83

291

258

–169

–107

–156

–11

–83

–4

–845

–556

–18

Q4 Full year
2003

2003

912

223

3,352

897

–694

168

–520

–4

299

Q1
2003

846

232

–157

–298

–88

564

578

1,054

1,069

3,265

1.21

1.42

2.26

1.903

1.723

CHANGE IN NET DEBT

Q1
2002

Q2
2002

Q3
2002

Q4 Full year
2002

2002

Q1
2003

Q2
2003

Q3
2003

Q4 Full year
2003

2003

Net debt at beginning of period

15,534 14,987 12,640 15,116

15,534

13,989 13,702 13,405 12,829

13,989

Operating cash flow

Paid tax

Acquisitions

New share issue

Dividend

Translation differences

Net debt at end of period

Net debt / Equity ratio, times

–643

–886 –1,002

–994

–3,525

–564

–577 –1,054 –1,069

–3,265

162

148

216

149

101

3,151

121

517

3,569

– –1,2442

–

354

–

–1,2442

354

333

106

–

457

151

675

–

198

535

–

779

1,355

–

457

–215

–936

226

–291

–1,216

–162

–312

–348

–203

–1,025

14,987 12,640 15,116 13,989

13,989

13,702 13,405 12,829 12,290

12,290

1.26

1.04

1.21

1.13

1.10

1.12

1.09

1.15

CAPITAL EMPLOYED AND FINANCING

Capital employed

– of which goodwill

Net debt

Minority interest

Shareholders’ equity

Q1
2002

Q2
2002

Q3
2002

Q4
2002

Q1
2003

Q2
2003

Q3
2003

Q4
2003

27,285 25,209 28,035 26,701

26,452 25,683 24,743 22,984

15,744 14,531 16,956 16,213

15,755 15,137 14,910 14,766

14,987 12,640 15,116 13,989

13,702 13,405 12,829 12,290

437

389

402

331

315

295

143

11,861 12,180 12,517 12,381

12,435 11,983 11,772 10,678

1 Organic growth relates to comparable units after adjusting for acquisitions and changes in exchange rates.
2 New share issue liquidity is reduced by SEK 16.3 M for costs of issue after tax.
3 Excluding non-recurring items.

DATA PER SHARE
SEK

Earnings per share after tax and before conversion

Earnings per share after tax and full conversion

Earnings per share after tax and full conversion
excluding goodwill

Cash earnings per share after tax and full conversion

Q1
2002

0.80

0.81

1.45

2.15

Q2
2002

0.85

0.84

1.48

2.17

Q3
2002

0.88

1.55

2.24

Q4 Full year
2002

2002

1.00

1.65

2.52

3.53

6.13

9.08

Q1
2003

0.82

1.48

2.13

Q2
2003

0.70

0.71

1.34

2.10

Q3
2003

0.82

0.81

1.46

2.09

Q4 Full year
2003

2003

0.961

0.971

1.611

2.291

3.301

3.311

5.891

8.611

Shareholders’ equity per share after full conversion

35.76

35.64

36.53

35.85

36.01

34.77

34.14

31.23

NUMBER OF SHARES

Q1
2002

Q2
2002

Q3
2002

Q4
2002

Q1
2003

Q2
2003

Q3
2003

Q4
2003

Number of shares before conversion, thousands

353,799 355,340 358,276 359,952

365,918 365,918 365,918 365,918

Number of shares after full conversion, thousands

361,730 363,222 366,089 366,716

370,935 370,935 370,935 370,935

1 Excluding non-recurring items.

Definitions

Organic growth:
Change in sales for comparable units after adjust-
ments for acquisitions and currency-rate effects.

Capital employed:
Total assets less interest-bearing assets and non-
interest-bearing liabilities including deferred tax
liability.

Operational return on capital employed:
Income before tax plus net interest and goodwill
amortization as a percentage of average capital
employed.

Gross margin (EBITDA):
Operating income before depreciation and
amortization as a percentage of sales.

Operating margin before goodwill
amortization (EBITA):
Operating income before goodwill amortization as
a percentage of sales.

Operating margin (EBIT):
Operating income as a percentage of sales.

Profit margin (EBT):
Income before tax as a percentage of sales.

Operating cash flow:
See consolidated cash flow statement.

Net capital expenditure:
Investments in tangible fixed assets less
disposals of tangible fixed assets.

Depreciation:
Depreciation/amortization of intangible and
tangible fixed assets.

Net debt:
Interest-bearing liabilities less interest-bearing
investments.

Capital employed excluding goodwill:
Total assets less interest-bearing assets and non-
interest-bearing liabilities including deferred tax
liability and goodwill.

Equity ratio:
Shareholders‘ equity including minority interests
as a percentage of total assets.

Interest coverage ratio:
Income before tax plus net interest divided by net
interest.

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.

Return on capital employed before goodwill:
Income before tax plus net interest and goodwill
amortization as a percentage of average capital
employed excluding goodwill.

Return on capital employed:
Income before tax plus net interest as a percent-
age of average capital employed.

Earnings per share after tax and full
conversion:
Net income plus interest expenses after tax for
convertible debenture loans per weighted aver-
age number of shares after full conversion.

Earnings per share after tax and full
conversion excluding goodwill:
Net income excluding goodwill amortization plus
interest expenses after tax for convertible deben-
ture loans per weighted average number of
shares after full conversion.

Cash earnings per share after tax and full
conversion:
Net income plus interest expenses after tax for
convertible debenture loans, plus depreciation
and amortization, plus profit share from minority
interests, less profit share from associated com-
panies and adjustments for changes in deferred
tax, per weighted average number of shares after
full conversion.

Shareholders‘ equity per share after full
conversion:
Shareholders‘ equity plus convertible debenture
loans per share after full conversion.

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

share capital at year-end 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
10 votes and each Series B share one vote. The trading lot is
200 shares.

Trading

During the year a total of 713 million shares (355) were
traded, which is an average of 2.9 million shares (1.4) per
trading day and represents about 203 percent (101) of the
issued shares.

Ownership structure

The number of shareholders at year-end was 26,214
(21,450). Investors outside Sweden, including Wärtsilä
Corporation, account for 49 percent (57) of the capital.

Share price movement

Dividend and dividend policy

The price of the ASSA ABLOY share fell by 14 percent in
2003. During the same period, the Stockholm Exchange
All-Share index (SAX) rose by 30 percent. The share’s clos-
ing price at year-end was SEK 85.50, corresponding to a
market capitalization of SEK 31,286 M. Including all
shares due for conversion, the market capitalization is
calculated to be SEK 31,715 M.

The Board of Directors and President propose that SEK 1.25
per share (1.25) be paid, a maximum total of SEK 457 M, as
a dividend to shareholders for the 2003 financial year, corre-
sponding to a direct return of 1.5 percent (1.3) on the Series
B share. 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 of 28 percent,
but always taking into account ASSA ABLOY's long-term
financial requirements.

SHARE PRICE MOVEMENT AND TRADING 1994–2003

DIVIDEND PER SHARE 1995–2003

SEK
200
175
150
125
100

100,000

75,000

50,000

25,000

B share
Afv General index

Shares traded 1,000s
(incl. off-floor trading)

Data per share

SEK

1.25

1.00

0.75

0.50

0.25

0.00

Dividend per share, SEK

SEK/share 1

1995

1996

1997

1998

1999

2000

2001

2002

2003

Earnings after tax and full
conversion

Dividend

Direct yield, % 5

Earnings after 28% standard tax

Dividend, % 6

Share price at end of period

Highest share price

Lowest share price

Shareholders’ equity

0.56

0.22

1.6

0.60

36.7

13.24

15.16

5.23

4.37

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

1.76

0.60

0.8

1.79

33.5

75.65

92.73

48.07

9.93

2.00 3

0.74

0.6

2.27

32.6

119.50

140.00

73.21

2.73

0.90

0.5

2.91

30.9

184.50

206.70

110.50

16.95 3

30.58 3

2.98 2

1.00

0.7

3.28 2

30.5

151.00

186.00

94.50

35.80

3.53

1.25

1.3

3.88

32.2

99.50

159.50

76.50

35.85

3.31 2

1.25 4

1.5

3.69 2

33.9

85.50

110.00

67.00

31.23

Number of shares (1,000s) 7

221,684

265,396

295,448

324,200

356,712

361,730

370,935

1 Adjustment made for new issues.
2 Excluding non-recurring items.
3 Key data adjusted following change in accounting principle.
4 Proposed dividend.

5 Dividend as percentage of share price at end of period.
6 Dividend as percentage of earnings per share after 28% standard tax.
7 After full conversion.

Share capital

Year

Transaction

1989

1994

1996

1997

1998

1999

2000

2001

2002

100:1 split

Bonus issue

Non-cash issue

New share issue

Conversion of C shares into A shares

New share issue

Converted debentures

Converted debentures before split

Bonus issue

4:1 split

New share issue

Converted debentures after split and new issues

Converted debentures

New share issue

Non-cash issue

Converted debentures

New share issue

Converted debentures

Number of shares after full conversion

* SEK 1 per share – balanced number of shares.

Source: SIS Ägarservice AB och VPC AB.

A shares

C shares

B shares

Share capital, SEK*

20,000

2,000,000

1,428,550

50,417,555

1,714,260

60,501,066

66,541,706

66,885,571

67,179,562

268,718,248

295,564,487

295,970,830

301,598,383

313,512,880

333,277,912

334,576,089

344,576,089

346,742,711

351,760,143

1,746,005

2,095,206

3,809,466

4,190,412

16,761,648

18,437,812

19,175,323

2,000,000

53,592,110

64,310,532

70,732,118

71,075,983

71,369,974

285,479,896

314,002,299

314,408,642

320,036,195

332,688,203

352,453,235

353,751,412

363,751,412

365,918,034

370,935,466

ASSA ABLOY’s 10 largest shareholders

Data is based on the share register at 31 December 2003 or the latest known information.

Owner

Wärtsilä Corporation 1

SäkI

Melker Schörling and companies 1

Investment AB Latour 1

Robur unit trusts

Nordea unit trusts

Alecta

A shares

10,546,425

7,118,818

1,510,080

The Third Swedish National Pension Fund

AMF Pension Fund

The Fourth Swedish National Pension Fund

Other shareholders

Total number

19,175,323

B shares

17,270,350

954,200

9,296,636

21,162,421

16,090,578

11,791,731

10,271,332

8,961,869

8,860,000

7,488,400

234,595,194

346,742,711

Capital %

Voting rights %

Accumulated %

7.6

2.2

3.0

5.8

4.4

3.2

2.8

2.4

2.0

64.2

100.0

22.8

13.4

4.5

3.9

3.0

2.2

1.9

1.7

1.6

1.4

43.6

100.0

22.8

36.2

40.7

44.6

47.6

49.8

51.7

53.4

55.0

56.4

100.0

1 In 2004 Melker Schörling and companies as well as Investment AB Latour have acquired Wärtsilä Corporation’s A shares.

Source: SIS Ägarservice AB and VPC AB.

Ownership structure 31 December 2003

Shareholding

1–1,000

1,001–5,000

5,001–20,000

20,001–50,000

50,001–500,000

500,001–

Total

Source: SIS Ägarservice AB.

No. of shareholders

Percent

No. of shares

Capital %

Voting rights %

21,290

3,593

753

237

247

26,214

81.2

13.7

2.9

0.9

0.4

100.0

6,058,624

8,208,387

7,659,430

7,661,615

39,905,254

296,424,724

365,918,034

1.7

2.2

2.1

10.9

81.0

100.0

1.1

1.5

1.4

7.4

87.2

100.0

The ASSA ABLOY share

Convertible debentures for personnel

In 2001 a further convertible debenture, Incentive 2001,

The ASSA ABLOY Group has issued convertible deben-
tures to employees in the Group. The first debenture was
issued in 1995 and about 400 employees participated in the
issue. The debenture amounted to about SEK 75 M 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 debenture amounted to SEK 250 M and
ran from 8 December 1997 to 2 December 2002.

was issued, based on four series of convertible bonds each
with a value of EUR 25 M. The only difference between the
series of bonds is the conversion price. The debenture was
offered to employees in 16 countries, and 4,500 employees
decided to participate. On full conversion, at a conversion
price for Series 1 of EUR 15.8, Series 2 of EUR 19, Series 3
of EUR 22.1 and Series 4 of EUR 25.3, an additional
5,017,432 shares would be created. The convertible bonds
can be converted in October/November 2006.

Financial analysts who follow ASSA ABLOY

Company

ABG Sundal Collier

Alfred Berg Fondkommission AB

CAI Cheuvreux

Carnegie

Cazenove

CSFB

Deutsche Bank

Dresdner Kleinwort Wasserstein

Enskilda Securities

Goldman Sachs

Hagströmer & Qviberg

Handelsbanken

Human Securities AB

JP Morgan

Kaupthing Bank Sverige AB

Lehman Brothers

Merrill Lynch

Morgan Stanley

Nordea

Swedbank

UBS

Name

Anders Jegers

Lars Norrby

Sasu Ristimäki

Anders Idborg

Ilan Chaitowitz

Patrick Marshall

Mattias Karlkjell

Colin Grant

Anders Trapp

Nick Paton

Patric Lindqvist

Mikael Sens

Telephone number

E-mail

+44 207 9055 631

+46 8 572 359 65

+44 207 621 5173

+46 8 676 86 88

+44 207 155 8207

+44 207 888 0289

+46 8 463 55 00

+44 207 475 9161

+46 8 522 297 57

+44 207 774 6987

+46 8 696 20 84

+46 8 701 12 51

anders.jegers@abgsc.com

lars.norrby@alfredberg.se

sristimaki@caicheuvreux.com

andidb@carnegie.se

ilan.chaitowitz@cazenove.com

patrick.marshall@csfb.com

mattias.karlkjell@db.com

colin.grant@drkw.com

anders.trapp@enskilda.se

nick.paton@gs.com

patric.lindqvist@hagqvi.com

mise03@handelsbanken.se

Mattias Eriksson

+46 8 506 520 62

mattias.eriksson@humansecurities.se

Andreas Willi

Peder Frölén

Brian Hall

+44 207 325 4853

+46 8 791 47 86

+44 207 102 4726

andreas.p.willi@jpmorgan.com

peder.frolen@kaupthing.se

brhall@lehman.com

Raymond Greaves

+44 207 996 4783

raymond_greaves@ml.com

Daniel Cunliffe

Magnus Behm

+44 207 425 2057

+46 8 534 920 08

daniel.cunliffe@morganstanley.com

magnus.behm@nordea.com

Anders Bruzelius

+46 8 585 912 88

anders.bruzelius@swedbank.com

Anders Fagerlund

+46 8 453 73 30

anders.fagerlund@ubs.com

Öhman J:or Fondkommission AB

Johan Gahm

+46 8 402 52 68

johan.gahm@ohman.se

Information for shareholders

Annual General Meeting

Nomination Committee

The Annual General Meeting of ASSA ABLOY will be held
at Norra Latin, Drottninggatan 71b, Stockholm at 15.00
on Tuesday 27 April 2004. Shareholders are entitled to
attend if they are registered at VPC, Värdepapperscentralen
(Swedish Central Securities Depository and Clearing
Organization), no later than Friday 16 April 2004 and if
they have notified ASSA ABLOY of their intention to
attend the Annual General Meeting.

The duty of the Nomination Committee is, before each
Annual General Meeting, to consider in advance the choice
of Board members, the remuneration of the Board and
associated matters. The Committee is appointed at the
Annual General Meeting. The current members of the
Nomination Committee before the 2004 Annual General
Meeting are Gustaf Douglas (chairman), Georg Ehrnrooth
and Melker Schörling.

Registration in the share register

Dividend

ASSA ABLOY’s share register is kept by VPC. Only hold-
ings registered by a shareholder are recorded under the
shareholder’s own name in the register. Shareholders with
nominee-registered shares can attend the Annual General
Meeting only if they register their holdings under their own
names. Shares must be registered to the shareholder by Fri-
day 16 April 2004 at the latest.

Friday 30 April 2004 has been set as the qualification day
for dividends. If the Annual General Meeting decides to
follow the recommendation of the Board of Directors,
dividends are expected to be distributed by VPC AB on
Wednesday 5 May 2004.

ASSA ABLOY Reports can be ordered from:

Notification of intention to attend

Shareholders must notify ASSA ABLOY of their intention
to attend the Annual General Meeting no later than 4 p.m.
on Wednesday 21 April 2004 via:
– www.assaabloy.com
– Telephone: +46 8 506 485 00
+46 8 506 485 85
– Fax:
ASSA ABLOY AB, Bolagsstämman,
– Post:
Box 70340, SE-107 23 Stockholm, Sweden.

The notification should state:

– Name
– Personal identity number or Corporate Organization

number

– Address and daytime telephone number
– Number of shares held

Shareholders who are to be represented by a proxy should
send a form of appointment with their notification. Those
who represent corporate bodies should present a copy of
their proof of registration or similar document confirming
their due authority.

ASSA ABLOY AB
– www.assaabloy.com
– Telephone: +46 8 506 485 00
+46 8 506 485 85
– Fax:
ASSA ABLOY AB
– Post:
Box 70340
SE-107 23 Stockholm
Sweden

Financial information from ASSA ABLOY
will be published as follows:

Interim reports:
First quarter: 27 April 2004
Second quarter: 21 July 2004
Third quarter: 2 November 2004

Fourth quarter and Year-end Report: February 2005

2004 Annual Report: March 2005

Board of Directors

Georg Ehrnrooth

Melker Schörling

Carl-Henric Svanberg

Bo Dankis

Gustaf Douglas

Per-Olof Eriksson

Georg Ehrnrooth
Chairman
Born 1940
Master of Science (Engineering)
Board Chairman: Varma Mutual Pension
Insurance Co
Vice Chairman: Rautaruukki Corporation
Board member: Nokia Corporation, Sampo plc,
Sandvik AB (publ) and Oy Karl Fazer Ab
Member of the ASSA ABLOY Board since 1994
Holdings through company: 251,680 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
Member of the ASSA ABLOY Board since 1994
Holdings privately and through company:
5,310,0801 Series A shares and 9,296,636
Series B shares

Carl-Henric Svanberg
Vice Chairman
Born 1952
Master of Science, Bachelor of Economics
President and CEO of Telefonaktiebolaget
LM Ericsson
President and CEO of ASSA ABLOY from 1994 to
March 2003
Board member: Hexagon AB
Member of the ASSA ABLOY Board since 1994
Holdings through company: 3,912,991 Series B
shares and Incentive 2001 convertibles corre-
sponding to 60,000 Series B shares

Bo Dankis
President and CEO
Born 1954
Master of Science
President and CEO of the ASSA ABLOY Group
since March 2003. Employed since 1997
Member of the ASSA ABLOY Board since 2003
Holdings: 86,000 Series B shares and Incentive
2001 convertibles corresponding to 10,750
Series B shares

Gustaf Douglas
Born 1938
MBA, Harvard Business School
Principal owner of Investment AB Latour and SäkI
Board Chairman: Investment AB Latour,
Boxholms Skogar AB, Stockholm Chamber of
Commerce, Säkl 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:
6,746,425 Series A shares1 and 21,162,421
Series B shares
through SäkI AB: 7,118,818 Series A shares and
954,200 Series B shares

Per-Olof Eriksson
Born 1938
Master of Engineering, Doctor of Technology h.c.
Board Chairman: SAPA AB, Thermia AB,
Odlander, Fredriksson & Co. and Consolis Oy
Board member: AB Custos, SSAB Svenskt Stål
AB, AB Volvo and Preem Petroleum AB. Member
of the Royal Swedish Academy of Engineering
Sciences
Member of the ASSA ABLOY Board since 1995
Holdings: 10,000 Series B shares

1 Including transactions during 2004

Lotta Lundén

Sven-Christer Nilsson

Patricia O’Driscoll

Seppo Liimatainen

Mats Persson

Joakim Järrebring

Per-Edvin Nyström

Seppo Liimatainen
Born 1950
Employee representative, Federation of Salaried
Employees in Industry and Services
Member of the ASSA ABLOY Board since 2003
Holdings: 2,600 Series B shares and Incentive
2001 convertibles corresponding to 125 Series
B shares

Mats Persson
Born 1955
Employee representative, Swedish Metal Workers
Union
Member of the ASSA ABLOY Board since 1994
Holdings: 0

Deputy Members

Joakim Järrebring
Born 1976
Employee representative
Member of the ASSA ABLOY Board since 2003
Holdings: 0

Per-Edvin Nyström
Born 1955
Employee representative, Swedish Metal Workers
Union
Member of the ASSA ABLOY Board since 1994
Holdings: 7,727 Series B shares and Incentive
2001 convertibles corresponding to 125
Series B shares

Lotta Lundén
Born 1957
Bachelor of Economics
Previous positions: Business Area Manager of
IKEA of Sweden, Commercial Director of IKEA
Singapore and Malaysia, Managing Director of
Guldfynd/Hallbergs Guld, General Manager of
Coop Forum Sverige
Member of the ASSA ABLOY Board since 2003
Holdings: 0

Sven-Christer Nilsson
Born 1944
Bachelor of Science (Computer Science)
Partner in Startupfactory, a venture capital
company
Board Chairman: The National Swedish Public
Service Broadcasting Foundation and Xelerated,
Inc. (USA)
Board member: TeliaSonera AB, CEVA, Inc.
(USA) and Startupfactory B.V. (The Netherlands)
Member of the ASSA ABLOY Board since 2001
Holdings: 0

Patricia O’Driscoll
Born 1959
Bachelor of Sociology
Chief Executive Officer of Northern Foods plc
Member of the ASSA ABLOY Board since 2003
Holdings: 0

Executive Team

Hans Johansson
Born 1955
Master of Science
Responsible for EMEA
Executive Vice President
Employed since the Group was formed
Holdings: 646,821 Series B shares and Incentive
2001 convertibles corresponding to 60,000
Series B shares

Thanasis Molokotos
Born 1958
Master of Science
Responsible for Americas
Executive Vice President
Employed since 1996
Holdings: 25,000 Series B shares and Incentive
2001 convertibles corresponding to 55,000
Series B shares

Geoff Norcott
Born 1947
Bachelor of Engineering Hons. (Industrial),
1st class
Responsible for Asia Pacific
Executive Vice President
Employed since 1999
Holdings: Options corresponding to 81,065
Series B shares and Incentive 2001 convertibles
corresponding to 60,000 Series B shares

Åke Sund
Born 1957
Graduate Diploma in Marketing
Executive Vice President responsible for Market
and Business Development
Employed since the Group was formed
Holdings: 175,000 Series B shares and Incentive
2001convertibles corresponding to 60,000 Series
B shares

Bo Dankis
Born 1954
Master of Science
President and Chief Executive Officer
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
Deputy CEO and Chief Financial Officer
Employed since 1997
Holdings: 351,784 Series B shares and Incentive
2001 convertibles corresponding to 60,000
Series B shares

Joseph J. Grillo
Born 1957
Bachelor of Finance and Economics
Responsible for Global Technologies
Executive Vice President
Employed since 2001
Holdings: Incentive 2001 convertibles correspon-
ding to 32,500 Series B shares

Left to right: Åke Sund, Bo Dankis, Göran Jansson, Geoff Norcott, Hans Johansson, Thanasis Molokotos and Joseph J. Grillo.

Production: n3prenör
Photo: Craig Bartlett, August Eriksson, Ulf Huett Nilsson, Lars Nybom and others.
Printed by Strokirk-Landströms 2004.

We are the world’s largest lock Group

and the only global player in our industry.

We will draw benefit from our size to become true

leaders in both innovation and cost-efficiency.

Bo Dankis
President and CEO

ASSA ABLOY AB (publ)
P.O. Box 70340, SE-107 23 Stockholm, Sweden · Visiting address: Klarabergsviadukten 90
Tel: +46 8 506 485 00 · Fax: +46 8 506 485 85
Corporate Organization no.: 556059-3575
www.assaabloy.com