ASSA ABLOY Annual Report 2004

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FY2004 Annual Report · ASSA ABLOY

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Annual Report 2004

Security, safety and convenience

2004 in brief

Sales increased to SEK 25,526 M (24,080) with organic growth of

5 percent. Exchange-rate effects had a negative impact of SEK 982 M.

(cid:2) Operating income before goodwill amortization (EBITA) amounted to

SEK 3,748 M (3,352) – an increase of 12 percent.

(cid:2) Earnings per share after tax and full conversion amounted to SEK 4.05

(3.31) – an increase of 22 percent.

(cid:2) Operating cash flow increased to SEK 3,439 M (3,265).

(cid:2) The two-year Leverage & Growth action program is progressing well,
with a long series of specific activities. Annual savings are expected to

reach SEK 450 M during the second half of 2005.

(cid:2) During 2004 ASSA ABLOY reviewed the Group’s strategies, which can
be summarized in three main themes: increasing growth in the current

core business, expanding into new markets and new segments, and

reducing the cost base.

Contents

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

Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

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

Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Vision, Business Concept and strategy . . . . . . . . . . . . . . . 6

Cash flow analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Leverage & Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Changes in shareholders’ equity . . . . . . . . . . . . . . . . . . . 56

The market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Financial risk management . . . . . . . . . . . . . . . . . . . . . . . 57

ASSA ABLOY’s products . . . . . . . . . . . . . . . . . . . . . . . . 16

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Sustainable development . . . . . . . . . . . . . . . . . . . . . . . . 20

Proposed disposition of earnings . . . . . . . . . . . . . . . . . . . 72

Division EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Audit report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Division Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Comments on ‘Five years in summary’ . . . . . . . . . . . . . . 74

Division Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Five years in summary . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Division Global Technologies . . . . . . . . . . . . . . . . . . . . . . 36

Quarterly information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Report of the Board of Directors for 2004 . . . . . . . . . . . . . 42

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . 45

The ASSA ABLOY share . . . . . . . . . . . . . . . . . . . . . . . . . 78

Sales and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Information for shareholders . . . . . . . . . . . . . . . . . . . . . . 81

Income statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Results by division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

(cid:2)
ASSA ABLOY in brief

ASSA ABLOY is the world's leading manufacturer and sup-
plier of locking solutions, dedicated to satisfying end-user
needs for security, safety and convenience. With over 100
companies in more than 40 countries, and a world market
share of around 10 percent, the Group is the strongest
global player in the locking industry.

The Group operates in all major regions – both mature
and developing markets – and enjoys market-leading posi-
tions in large parts of Europe and North America and in
Australia. In the fast growing area of electromechanical

locking solutions, the Group holds leading positions in
Identification, Automatic Doors and Hotel Security.

Since its formation in 1994, ASSA ABLOY has devel-
oped from a regional company with 4,700 employees to a
global Group of companies with 29,000 employees and
sales of SEK 25.5 billion.

As the world’s leading lock Group, ASSA ABLOY
offers a more complete range of products than any other
company on the market.

SALES
share of
Group total, %

EBITA
share of
Group total, %

EMEA

SALES
share of
Group total, %

EBITA
share of
Group total, %

Americas

ASSA ABLOY’s Americas division comprises companies in North, Central
and South America. The division is the Group’s second-largest, accounting
for 32 percent of total sales. During the year it achieved organic growth of 6
percent and an EBITA margin of 17.6 percent. Americas division has 22 pro-
duction units, 12 sales companies and 9,800 employees. The main markets
are the USA, Canada and Mexico. Some of the division’s leading companies
are Corbin Russwin, Curries, Emtek, Phillips and Sargent.

ASSA ABLOY’s EMEA division comprises all companies in Europe, the Mid-
dle East and Africa. EMEA is the Group’s largest division, accounting for 42
percent of total sales. During the year it achieved organic growth of 3 percent
and an EBITA margin of 15.0 percent. EMEA has 42 production units, 30
sales companies and 12,800 employees. The largest markets are Scandi-
navia and France, and some of the division’s leading companies are Abloy,
Assa, Tesa and Vachette.

Edgar Velardo, Emtek, USA

Kerstin Pipo, Ikon, Germany

Camille Smith, Sargent, USA

SALES
share of
Group total, %

EBITA
share of
Group total, %

Global
Technologies

ASSA ABLOY’s Global Technologies division is the Group’s worldwide organization
dedicated to high-technology products and services. The division accounts for
19 percent of the Group’s sales and has 2,900 employees. During the year it
achieved organic growth of 5 percent and an EBITA margin of 13.0 percent. Global
Technologies comprises three business areas:
– The Identification Technology Group (ITG), which accounts for 42 percent of
Global Technologies’ sales. ITG’s products consist of various types of identification
technology for access control, Radio Frequency Identification (RFID) and smart
cards. The products are sold under well-known brand names such as HID, Indala,
Sokymat and ACG.
– Automatic Doors, which accounts for 40 percent of Global Technologies’ sales.
This business area consists of Besam, which is the world’s leading supplier of
automatic door solutions.
– ASSA ABLOY Hospitality, which accounts for 18 percent of Global Technolo-
gies’ sales. This business area produces hotel locks and security systems and sells
chiefly to hotels and cruise ships. Its two leading companies and brands are Ving-
Card and Elsafe.

GROUP SALES AND EBITA

SEK M

26,000

SEK M

4,000

19,500

13,000

6,500

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 Asia Pacific division comprises companies in Australia, New
Zealand, China and elsewhere in Asia. Asia Pacific accounts for 7 percent of
the Group’s total sales and has 5 production units, 7 sales companies and
3,600 employees. During the year it achieved organic growth of 7 percent
and an EBITA margin of 15.1 percent. The division’s largest markets are
Australia, New Zealand and China. The largest companies in the division
are Lockwood in Australia, Interlock in New Zealand and Guli in China.

Financials in brief

Sales, SEK M

of which: Organic growth

Acquired growth

Foreign exchange effects, 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 effects, SEK M

Operating cash flow, SEK M

Return on capital employed, %

Return on capital employed before goodwill amortization, %

Data per share (SEK/share)

Earnings after tax and full conversion (EPS)

Earnings after tax and full conversion excluding goodwill

Cash earnings after tax and full conversion (CEPS)

Shareholders’ equity after full conversion

Dividend

2004

2003

Change, %

25,526

24,080

–982

3,748

14.7

2,294

–78

3,3522

13.92

1,9032

3,4393

3,265

11.8

16.0

2004

4.05

6.66

9.06

32.66

2.601

9.62

13.32

2003

3.312

5.892

8.612

31.23

1.25

–4

Change, %

108

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

378,717

370,935

1 Proposed dividend.
2 Excluding non-recurring items.
3 Excluding restructuring payments.

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 4

INCOME BEFORE TAX /
OPERATING CASH FLOW 4

EARNINGS PER SHARE 4

%
30

SEK M
4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

SEK M
30,000

25,000

20,000

15,000

10,000

5,000

Capital employed, SEK M

Return on capital employed, %

Return on capital employed
before goodwill amortization, %

4 Data for 2001 and 2003 excludes non-recurring items.

Income before tax, SEK M

Operating cash flow, SEK M

SEK
7

Earnings per share, SEK

Earnings per share excluding goodwill, SEK

CEO’s statement

A clear strategy
for better security

How many keys do you have on your keyring? The fact
that we nearly always carry keys and access cards around
with us demonstrates our daily need for security. And the
fact that we have so many different keys on our keyring
shows how fragmented the lock industry still is.

It is neither particularly secure nor convenient to carry a

full keyring around. There is clearly a need for some inno-
vative new solutions. And to be able to create and launch
innovative solutions calls not just for good ideas, but also
for worldwide resources in development, marketing, logis-
tics and manufacturing.

ASSA ABLOY is the only truly global player in our
industry. In the past ten years we have acquired many of the
lock industry’s strongest companies and built a lock Group
that is world-leading in both size and vigor. But the fact
that you are still carrying all those keys around on your
ring shows that, despite our success, we have yet to achieve
our biggest victories. We have restructured a whole indus-
try and are now ready to take the next step, which is to
change our industry – to change how companies, institu-
tions and private individuals relate to security and to locks.
Our task now is to exploit our size, our market position

and our worldwide presence to become the leader both in
strength of innovation and in cost management. That, in
essence, is what we are saying in the new strategy and
vision that we defined and presented during 2004.

2004 was, above all, a good business year for ASSA
ABLOY. We are back to good organic growth of 5 percent.
The Group’s operating margin has improved markedly and
we are continuing to deliver strong cash flow. During the
year work under our Leverage & Growth action program
continued. We set out to solve a number of specific struc-
tural issues, turn round a handful of underperforming com-
panies and work towards a long-term improvement in our
organic growth. As a result of our restructuring measures
efficiency has improved. We have sold two companies, and
we are now expecting profitability from the companies that

were not performing to the required level before. During
the year we also worked hard to develop our marketing and
sales operations and we are continuing with that.

A refined business strategy

In 2004 we decided to take the next step in developing our
industry. We have therefore clarified and simplified our busi-
ness strategies, which we have condensed into three main
themes. The first theme is to increase growth in our core
business by strengthening cooperation with architects, door
manufacturers, suppliers of security systems and distributors
all over the world. In short, to become even better at what we
are already good at. The second theme is concerned with
expanding in markets and in segments with higher growth.
This covers three principal markets: the consumer market,
where customers actively choose their own security solu-
tions; the market for electronic access-control; and the fast-
growing Chinese market, where we need to increase our
presence. The third theme is to try to gain more benefit from
our advantages of scale and thereby radically lower our
costs. This requires greater specialization of our factories,
better utilization of production capacity in low-cost coun-
tries, and continuing coordination of our purchasing.

People make the company

We are now investing more resources – both centrally and
in the divisions – to develop the expertise that our employ-
ees possess. We are therefore launching a comprehensive
skills development program in Human Resources, while in
communications we are working to strengthen our com-
pany culture and our common values. In just ten years we
have built a remarkable Group – and we must now invest in
further development of our own employees, with the over-
all purpose of achieving our business goals and our Vision.
Our future is directed towards developing and selling

security solutions – solutions that reduce the number of
keys on our keyrings and that, above all, improve the
security of everything that is important in our lives.

Stockholm, February 2005

Bo Dankis
President and CEO

Secure access – safe and
convenient for teachers and students

Colleges and universities Many college and
university sites have a mixture of open and closed areas, in

With their high data storage capacity, fast data transfer

and ability to use encryption and biometric information,

which students, teachers and other staff must all feel safe.

cards can also be used to log on to computer networks and

An electronic card system allows everyone to be securely

to make payments, for example in university cafeterias.

identified and given authorized access to the places they

And it is quick and easy to invalidate lost cards or restore

need to go.

security after a break-in.

Vision, Business Concept and Strategy

Placing locks at the heart
of every security solution

Over the last ten years ASSA ABLOY has built a world-
leading lock Group and changed the structure of the locking
industry. This has been achieved through acquisitions and
through improving the performance of the acquired compa-
nies. The Group was formed in 1994 when Securitas and
Wärtsilä merged their lock businesses. Over the last ten years
ASSA ABLOY has increased its sales from SEK 3 billion to
SEK 25.5 billion. At the same time the number of companies
has increased to more than 100, with operations in over 40
countries.

In the light of the Group's rapid development – with
acquisitions that have led to involvement in new markets and
technologies – ASSA ABLOY has carried out a full, fact-
based review of the Group’s strategies for existing and poten-
tial markets, and of expected future developments. The work
has resulted in a refined business strategy whose goal is to
further strengthen the Group’s position by driving organic
growth and improving efficiency. ASSA ABLOY’s new busi-
ness strategy is more precise than before, and the Group’s
Vision and Business Concept have been updated in line with
the strategy.

Vision

“ASSA ABLOY will be the most successful and innovative
company in our markets by placing locks at the heart of
security and providing safe and secure solutions that give
true added value to our customers. Our solutions make
people around the world feel safer and more secure, creating
more freedom in their lives.”

Business Concept

“ASSA ABLOY provides safe and secure solutions that are
well-designed, convenient and cost-efficient. Through
customer relevance and innovation, our solutions create
superior value for businesses and for people at work, at
home and at leisure.”

Financial objectives

The primary financial objective for the ASSA ABLOY Group
is that 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
reduced return on capital employed. The goal is to achieve
the secondary financial objectives detailed below and on the
next page by 2008 at the latest.

FINANCIAL OBJECTIVES

ORGANIC GROWTH:
• About 5% a year
over a business cycle

MARGIN IMPROVED TO 16–17%
• Stand-alone improvements
• Leverage Group synergies

STRONG CASH FLOW:
• The long-term positive trend in
operating cash flow should
be maintained

CAPITAL RATIONALIZATION:
• Inventory reductions
• Maintained capital expenditure level

20%

Return
on capital
employed

Secondary financial objectives:
• Sales should, on average, grow organically at about 5

percent a year over a business cycle.

• The EBITA margin should be improved to 16–17 per-

cent. This should be achieved mainly by exploiting syner-
gies within the Group.

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

ting cash flow should be maintained.

• Capital employed should be maintained at the present
absolute level in spite of organic growth. Measures to
make production more specialized will reduce capital
tied up in inventory. Given the potential to increase uti-
lization of current production capacity, capital expendi-
ture can be maintained at today’s level – below current
depreciation.

Strategy

For a number of years ASSA ABLOY has followed a strat-
egy model based on three phases of development:
1. Global platform. Build a worldwide presence and add

new areas of expertise.

2. Leverage synergies and develop the Group’s strength.
3. Customer value. Accelerate organic growth by creating

value for customers.

ASSA ABLOY has accomplished the main objectives in the
the first phase and created a global platform, although
there are still areas of expertise that can be added. As

regards exploiting the Group’s size and advantages of scale,
a major step towards correcting some structural imperfec-
tions was taken last year with the launch of the Leverage &
Growth action program.

The locking industry today

The world of locks and locking solutions is changing. New
players are entering the arena, both from emerging markets
and from other industries. The rapid development of new
technologies is impacting all parts of the industry. ASSA
ABLOY’s present competitors are improving their prod-
ucts, their quality and their sales strategies. The way people
buy locks is changing and so are the various channels
through which ASSA ABLOY’s products are distributed. In
several market segments there are trends towards providing
holistic safety and security solutions rather than offering
individual products. Customers are similarly shifting focus
from traditional products to a comprehensive notion of
safety and security.

At the same time customers’ preferences are polarizing.

While some are willing to pay a higher price for well-
known, innovative brand names, others are satisfied with
finding a low-price alternative that will meet basic security
requirements. ASSA ABLOY is now well positioned to
meet these market changes.

A refined business strategy

ASSA ABLOY’s new strategies aim to realize the Group’s
Vision, fulfill the Group’s Business Concept and achieve the
Group’s financial objectives. The refined strategy is based
on three overriding themes subdivided into seven main
activities, as detailed overleaf:

Americas division’s new manufacturing plant in Guadalajara, Mexico.

Vision, Business Concept and Strategy

Theme 1. Grow our core business
1. Lead the specification markets
Architects and security consultants play an important role
in choosing security solutions for new construction. ASSA
ABLOY’s goal is to strengthen the Group’s resources and
ability to market high-security solutions in the specification
segment.

2. Develop channels to market
A clear majority of ASSA ABLOY’s sales goes through frag-
mented local distribution. The Group’s goal is to develop
existing and new channels and to influence end-users of
ASSA ABLOY’s products more effectively.

3. Develop the door and window OEM markets
In many geographical markets ASSA ABLOY has a low
market share of the important door and window OEM
markets. The Group’s goal is to improve ASSA ABLOY’s
ability to adapt to large customers’ specific requirements.

Theme 2. Expand into new markets and segments
4. Capture and develop consumer opportunities
Customers are demanding security solutions, but the con-
sumer market is currently fragmented. ASSA ABLOY’s goal
is to increase the Group’s presence in the consumer segment
through all channels and to offer integrated solutions that
meet customers’ needs for safety and security.

5. Grow electromechanical door solutions
The electromechanical door solutions segment is showing
rapid growth. ASSA ABLOY’s goal is to increase market
shares and lower costs by developing Standards, adapting
wireless and similar technologies for use with locks, and
leveraging the Group’s worldwide strength. Efforts will
also be made to use sales channels such as electric installers
to reach a larger market.

6. Develop the Asian potential
Asia in general and China in particular provide a potential
market for growth. ASSA ABLOY’s goal is to develop the
Group’s presence on domestic Asian markets and to benefit
from low-cost manufacturing.

Theme 3. Radically reduce our break-even cost
7. Capture purchasing and production synergies and adopt
Lean methods
Because of its many acquisitions, the Group has a complex
and fragmented production capacity. ASSA ABLOY’s goal
is to use the Group’s size to realize purchasing synergies,
to benefit from economies of scale in production, and to
adopt Lean methods to achieve even more cost-efficient
production throughout the Group. Some production will
be moved to low-cost countries.

BUSINESS STRATEGY

Grow our
core business

1. Lead the specification markets

2. Develop channels to market

3. Develop the door
and window OEM markets

novation

Custo

r
e
l

Expand into new markets
and segments

4. Capture and develop
consumer opportunities

5. Grow electromechanical
door solutions

6. Develop the Asian
potential

Cost effic i e n c y

Radically reduce our break-even cost

7. Capture purchasing and production synergies and adopt Lean methods

Leverage & Growth

Progress
during 2004

The two-year Leverage & Growth action program was
launched towards the end of 2003 to leverage the Group’s
strength and create a basis for sustainable growth. Under-
performing companies should be turned round by the
end of 2004, or else divested. The cost of the program
amounted to SEK 1,320 M and it would involve a reduc-
tion of 1,400 in the number of people employed.

The largest part of the program affects EMEA division
and is directed towards raising productivity, which is being
achieved primarily by reductions in the workforce. Americas
division’s part of the program, which was completed during
the year, mainly concerned underperforming units. Asia
Pacific division’s part of the program is concentrating on
consolidation of production, while Global Technologies divi-
sion is focusing on realizing synergies in the Identification
business in Europe and on strengthening its competitiveness
in Hospitality.

Work under the action program is proceeding well, with
a long list of specific activities. Two underperforming units
in Americas division have been divested during the year,
while other underperforming units have been improved.
No further divestments under the action program are
planned.

In 2004, payments made under the action program

amounted to SEK 321 M of the planned total of SEK
935 M, and 750 of the 1,400 employees affected left the
Group. Negotiations concerning 1,150 of the 1,400 redun-
dancies have been completed.

The action program will be completed during 2005. In
2004 ASSA ABLOY achieved savings of SEK 150 M. Dur-
ing 2005, the action program is expected to generate addi-
tional savings of SEK 200 M, making SEK 350 M in all.
From the second half of 2005 onwards, the Group’s annual
savings are expected to reach SEK 450 M.

Total cost

Still to be spent
at 31 Dec 2004

ESTIMATED COST SAVINGS
FROM THE LEVERAGE & GROWTH
ACTION PROGRAM

LEVERAGE & GROWTH (SEK M)

Division

EMEA

Americas

Asia Pacific

Global Technologies

Total

1 Of the total cost, SEK 385 M relates to write-down of assets.

860

230

120

110

1,3201

513

586

SEK M
500

400

300

200

100

From the second half of 2005, annual savings are
expected to be SEK 450 M.

Besam doors – efficient entrances
for millions of people all over the
world

Shopping centers and offices 50 million
people a day pass through our doors in stores, shopping

Shops must seem welcoming but must deter shoplifting.

Offices must admit staff and visitors while protecting com-

centers, hospitals and office buildings. Automatic doors

mercial data worth far more than any security system. In

provide convenience for everyone, including parents with

fire or emergency, rapid escape is vital. The balance of secu-

baby carriages and people in wheelchairs.

rity, safety and access control can best be met by sophisti-

cated systems incorporating locks, door controls and per-

sonal identification.

The market

The security market
– two worlds in one

Today ASSA ABLOY is the world’s leading lock Group. As the
Group has grown, its product range too has expanded to include
a number of product groups, in addition to locks, that are crucial
to security. Hence when assessing ASSA ABLOY’s market it has
become relevant not just to consider the lock market but to widen
the perspective to the security market in general.

higher security. Increased threats in the world around us, in the
form of crime, violence and terrorism, create insecurity, which
in turn increases security awareness. This drives the develop-
ment of more advanced security solutions and upgrades of
existing lock solutions to obtain increased protection.

However, this section also contains product groups where

ASSA ABLOY estimates the total security market at around
200 billion Euro. The market can be divided into two sections,
Security Services and Electronic Security Products, and
Mechanical Security Products.

ASSA ABLOY has no manufacturing. These include, for ex-
ample, fire protection, X-ray scanners and CCTV surveillance
cameras, and also Security Services, which mainly comprise
guards and surveillance.

Security Services and Electronic Security Products
Electronic Security Products include electronic cylinders, auto-
matic doors and products for access control, which form part
of ASSA ABLOY’s product portfolio. The annual growth in
the market for Electronic Security Products in which ASSA
ABLOY is mainly active is around 10 percent.

The development of Security Services and Electronic Secu-

rity Products is driven mainly by the general trend towards

Mechanical Security Products
As well as locks themselves, Mechanical Security Products also
include products such as handles, strikes, hinges, door closers,
exit devices and door and window fittings.

The development of Mechanical Security Products is driven

mainly by new construction, which means that this section of
the market is expected to grow at about the same rate as GDP.
However, a substantial aftermarket creates stability and makes

The product groups that ASSA ABLOY manufactures today mean that the Group is active in about 15 percent of the total security market. ASSA
ABLOY’s market can therefore be estimated at around 30 billion Euro, which in turn gives the Group a market share of around 10 percent. Three
quarters of this business is in Mechanical Security Products and the remaining one quarter in Electronic Security Products. ASSA ABLOY’s
growth target is based on the expected growth in these two markets.

SECURITY SERVICES AND
ELECTRONIC SECURITY PRODUCTS

MECHANICAL
SECURITY PRODUCTS

EUR billion

120

100

Other

Doors and windows

Logical authorization control

Automatic doors

Access control

Surveillance cameras (CCTV)

Fire alarms

X-ray inspection systems

Intrusion protection

Other IT security

Alarm centers

Security guards

Locks, exit hardware
and door closers

Door and window
hardware

Interior hardware

The main product areas where ASSA ABLOY is active are shown in boldface.

the market less sensitive to changes in the economic climate, as
does the fact that ASSA ABLOY’s operations are geographi-
cally distributed over a large number of countries with different
economic cycles.

Distribution channels for security products

A characteristic of today’s security market is that security prod-
uct manufacturers such as ASSA ABLOY are usually isolated
from end-users behind at least one layer of distributors.

Locksmiths and similar firms are among the most impor-
tant distributors of Mechanical Security Products, but other
players have a significant role too. Many manufacturers of
doors and windows integrate lock cases and other security
items into their products before delivery to customers. Whole-
salers of building materials and locks play important parts in
delivering the solutions specified by manufacturers for different
construction projects. Retailers such building material super-
markets and ironmongers serve the consumer market. In the
case of Electronic Security Products, products flow from manu-
facturers to end-users mainly via security installers and special-
ized distributors. But the products are also sold through inte-
grators who often offer turnkey solutions for the installation of
perimeter security, access control and IT security.

Trends

One of the most obvious trends in the security market is the
increased demand for electronic products. Another clear trend
is increased technical standardization, which makes it easier to
integrate the different components of security solutions with
one another. This means that, to remain competitive, manufac-
turers will be forced to specialize and focus on specific product
segments.

Distribution is changing too. A number of door and win-
dow manufacturers, DIY chains and other players are gaining
strength by consolidation. The role of some locksmiths is mov-
ing towards increased use of electronics; conversely, IT integra-
tors are starting to offer physical security solutions to an ever
greater extent.

Another clear trend is that manufacturers in low-cost coun-
tries in Asia and elsewhere are increasing their market shares in
the low-price segments of the western world. In some European
countries this type of import has increased by nearly 50 percent
a year over the last five years. A change can also be seen in the
demand for different levels of security solution. In the past
the greatest potential was in the middle segment, but now cus-
tomers increasingly choose either a high-security solution or a
low-priced alternative.

Major differences between markets

There are substantial differences between markets. Americans
spend more than twice as much on exit devices as Europeans.
Conversely, northern Europeans spend three to four times more
than Americans on high-security locks for their homes. Auto-
matic doors are also significantly more common in Europe than

ELECTRONIC SECURITY PRODUCTS

MECHANICAL SECURITY PRODUCTS

Manufacturing

Intruder
alarms

CCTV

Access
control

Locks

Exit
hardware

Door/
window hardware

Route
to market

Distributors

Route
to market

Wholesalers

Door/
window OEM

Integrators.
dealers,
installers

Locksmiths

Distributors

Retail

Building
contractors

Primarily commercial end-users

Commercial and residential end-users

The market

the USA. Electromechanical products are now far more widely
used in the commercial segment than in private homes. In the
long term these differences are likely to disappear. Assuming
that all security and safety solutions could be used equally
widely in Europe and in the USA, a rough estimation indicates
that the total value of the market could be doubled. Informing
and developing the market to reduce the international differ-
ences in these market segments is a major challenge for ASSA
ABLOY.

Americas division

In the USA the commercial segment, including schools, hospi-
tals and companies, is ASSA ABLOY’s most important market.
Interest in security has risen significantly. Product development
is carried out in close collaboration with insurance companies,
police and fire services, customer organizations and other lead-
ers of opinion.

In general the residential segment in the USA has lower lock
Standards than in Europe. Instead, alarms play a major role in
security awareness. However, the media are giving more and
more coverage to the fact that better locks are a proactive
measure while alarms are a reactive measure when damage
has already been done. The residential segment is growing
also as a result of rising housing construction.

South America
Much of South America is a fragmented market and there are
few established security Standards. However, the region has a
major need for security solutions and is a future growth market.

GLOBAL-LEVEL COMPETITORS

Sales (EUR M)

ASSA ABLOY

Ingersoll-Rand
(Security & Safety)

Black & Decker
(Hardware and
Home Improvement)

Doma

Kaba

Stanley Works
(Security Solutions)

500

1,000

1,500

2,000

2,500

3,000

There are five main players in terms of competition at global level.

Competitors
In the USA the largest competitor is Ingersoll-Rand with brands
including Schlage and with other strong brands in the commer-
cial segment. Other major players on the American market
include Stanley Works and, in the residential segment, Black &
Decker.

EMEA division

EMEA division is characterized by striking differences between
different national markets. Although local consolidation has
come quite a long way in many countries in EMEA division, the
market as a whole remains fairly fragmented.

Western Europe
In many European countries EU Standards for security prod-
ucts are now established and have become a driver for
increased sales. They have raised previously low national
requirements and thereby also raised the quality of products.
However, Standards only cover the level of security provided,
not shape or dimensions. In these respects the national differ-
ences remain.

A survey conducted by ASSA ABLOY shows that western

European households believe that there are too few types of
electromechanical and electronic locks available for private
homes, especially when compared with locks in hotels and
modern cars. The survey indicates that more than 50 percent of
households would have chosen an electronic door-lock if they
had been aware of the alternatives available.

Eastern Europe
Currently eastern Europe has a lower standard of locks than
other parts of Europe. Foreign products – e.g. Swedish or Ger-
man – are perceived as superior. The positive development in
Russia is continuing.

Middle East
The largest markets in the Middle East are Saudi Arabia, Iran,
Israel and the United Arab Emirates. Here ASSA ABLOY has
its strongest foothold in Israel, where the Group company
Mul-T-Lock is market leader.

Africa
With the exception of South Africa, security Standards for both
the residential and the commercial segments are generally low
in African countries. South Africa is currently the largest mar-
ket in Africa, and ASSA ABLOY is the market leader there.

The market

Global Technologies division
Identification Technology Group (ITG)
Because the technological differences between markets are
small, cards and card readers for both smart cards – based on
radio-frequency identification (RFID) – and traditional con-
tact-based methods of access control form a worldwide
product segment. Demand for products of this type continues
to increase and growth was strong in 2004. The market
remains fairly fragmented and the strongest competition comes
from the global players and from security integrators such as
Tyco, Honeywell and GE Infrastructure.

Automatic Doors
There are a great many local differences between different parts
of the world in what they ask of automatic door solutions.
Nonetheless, the requirements of the largest customer segments
– airports, hospitals, hotels, restaurants and stores – are so simi-
lar everywhere that the product segment is best marketed glob-
ally. The market is growing and margins improving, especially
in Europe but also in the USA where competition is fiercest.
Consolidation is ongoing, and the strongest competitors, in
addition to the global players Dorma and Stanley Works,
include Agta Record from Switzerland, Boon Edam from the
Netherlands and Horton Automatics in the USA.

ASSA ABLOY Hospitality
The primary target group for ASSA ABLOY Hospitality
includes large international hotel and restaurant chains, which
makes it desirable to organize this business on a global basis.
Continuing low demand in the travel industry accounts for the
present weakness of the hospitality market. Terrorism, political
disturbances and natural catastrophes can all be viewed as
causes. At the same time there are contrary trends, for example
price pressure in the aviation industry which is likely to lead to
more traveling in the future. The largest competitors are Onity
and Saflok.

Competitors
The largest competitor in the EMEA division is the Swiss com-
pany Kaba, which focuses primarily on high-security solutions.
Other major players include Dorma and Abus in Germany,

Sécuridev in France and Evva in Austria.

Asia Pacific division
Australia and New Zealand
The lock markets in Australia and New Zealand are relatively
consolidated. ASSA ABLOY’s companies, headed by Lock-
wood in Australia and Interlock in New Zealand, are the clear
market leaders. Growth remains healthy in both residential and
commercial segments.

China
China is the fastest-growing market in Asia, with a major
movement of population from country to town. Today the
market is undeveloped in terms of security Standards and pro-
duces an abundance of low-quality products that are mostly
exported. ASSA ABLOY has established its own manufactur-
ing plants in China and now faces a major challenge in educat-
ing and developing the distribution chain towards products
offering higher security.

Rest of Asia
In other parts of Asia, ASSA ABLOY is represented by sales
offices. During the year ASSA ABLOY acquired BEST Met-
aline, one of the largest players on the Korean market. Japan
and India are other important markets with potential for
expansion.

Competitors
In Australia and New Zealand competition comes largely from
imports from low-cost countries, as well as some global compe-
tition. In China the lock market is still very fragmented, and
even the largest companies have low market shares. Tri-Circle,
whose business is strongly focused on padlocks, is the largest
lock manufacturer in China. More than half of Tri-Circle’s sales
are exports. In Japan the market leader is Miwa.

ASSA ABLOY’s products

Increased demand for
total security solutions

ASSA ABLOY has a world-leading position not just in
sales, but also in the form of a strong and highly varied
range of products. The development of ASSA ABLOY’s
products starts from the differing needs of customers. A
continuous flow of innovative new products is the single
most important source of organic growth. Focused product
development is thus a critical success factor.

ASSA ABLOY works all the time to develop its products

in ways that will satisfy the end-user’s requirements for
security, safety, convenience and design. To meet these cus-
tomer requirements more comprehensively, the Group
focuses on developing total security solutions. Together

with a complete mechanical or electromechanical product,
these total solutions include installation and after-sales
service as well.

Design growing in importance

Design is becoming an ever more important factor in selling
ASSA ABLOY’s products. Customers appreciate being
given greater choice regarding shape, color and finish, and
this adds value to the product. During the year the Group
has launched a number of products where design has
played a major role in the development process. Sales of
these ‘designed’ products are rising faster than sales of

Brighthandle – Design is becoming more important for lock products.

standard products. A good example of a designed product
is Brighthandle.

Modular platforms

Many of ASSA ABLOY’s products, and especially mechani-
cal locks, contain similar components. This creates a power-
ful opportunity to exploit economies of scale among the
Group’s many companies. Product development and pro-
duction are focused on a number of efficient modular plat-
forms which can then be used by all companies. Likewise,
many different ASSA ABLOY companies can utilize compo-
nents produced in a single plant. ASSA ABLOY also works
constantly to coordinate its purchasing and to limit the
number of suppliers to the Group so as to improve its
procurement performance.

New electromechanical products

ASSA ABLOY’s fastest growing product segment is electro-
mechanical products for doors and windows. The develop-
ment of improved technologies has opened up new opportu-
nities to incorporate better components in tailored solutions.
These new electromechanical components provide greater
convenience, for example by automating doors and locks.

ASSA ABLOY’s SALES
BY PRODUCT GROUP

Security
doors, 20%

Mechanical
products, 53%

Electromechanical
products, 27%

Simpler use with electronic authentication.

The iClass card combines RFID and a smart card.

ASSA ABLOY’s products

Mechanical products

Mechanical locks and accessories continue to form the core
of the ASSA ABLOY product range, accounting for over
half the Group’s worldwide sales. Mechanical locks pro-
vide the two primary functions of any security device: iden-
tification (the key) and mechanical strength (the lock).

There is a clear trend towards higher levels of security.

In many developing countries, rising standards of living
mean that more people feel the need for greater security.
Simpler locks are being replaced by modern high-security
locks. In developed markets there is a similar demand for
the peace of mind that higher security provides. The
Group’s huge installed base of locks in these markets cre-
ates a solid foundation for new installations and upgrades –
and the products are continually being improved.

Modularization of the various product components is
an important part of the development of new mechanical
lock products. The Evolution series of lock cases from the
Swedish company Assa AB is an example of modulariza-
tion. The modular series of lock cases makes it possible
to provide new functions in the products, while the com-
pany can continue to utilize and improve existing lock
components. In comparison with the company’s previous
series of lock cases, Evolution provides a better range of
products with 60 percent fewer components.

Another advantage of using modular platforms when
developing products is that ASSA ABLOY achieves economies
of scale in its purchase of materials. This also reduces the capi-
tal tied up in materials and makes it possible to automate the
production process more fully. Modular platforms also mean
that improvements and updates are applied to the whole prod-
uct range and that new requirements from customers can
quickly be incorporated in the products.

Electromechanical products

The market for electromechanical door systems is growing
faster than the traditional mechanical lock market. ASSA
ABLOY has developed a communication Standard that
links together the various components around the door and
also makes the individual components more intelligent.
This makes it simpler to install doors and door frames,
which opens up new channels to the market. Another
advantage of ASSA ABLOY’s new communication Stan-
dard is that it gives customers a greater ability to check that
their electromechanical doors are working as intended.

A growing trend in electromechanical lock products is
to incorporate of an identification unit (reader) directly in
the lock.

The new Evolution series of locks – an example of modular product development put into practice.

ASSA ABLOY’s products

Security doors

On the American market, ASSA ABLOY is also a major
manufacturer of security doors. During the year the Ameri-
cas division launched a new range of electromechanical
doors and door frames with a pre-installed cable harness
and contacts ready to connect up the lock unit. Such pre-
wiring of the doors and door frames simplifies installation,
and doors and frames can easily be upgraded and fitted
with electromechanical locks later. This is the Americas
division’s first step towards the ‘intelligent door’, with com-
ponents that are connected to the existing wiring and can
intercommunicate via the Hi-O communication Standard.

Shared Technologies

The growing use of electronics in doors, and the need to
integrate doors into access control systems, for example,
places new demands on lock and door products. In 2004 a
central unit, Shared Technologies, was created to take
responsibility for the standardization of electronics in
ASSA ABLOY’s Group-wide platforms.

The goal is that standardization should result in lower

development costs and shorter development times for
new products. ASSA ABLOY aims to make the Group’s
products easier than competitive products to use and to

integrate in new or existing security systems. For this rea-
son interfaces are open and designed to permit simple inte-
gration into other systems.

To enable ASSA ABLOY to develop the right platforms

for future products, local customers are involved in the
process of definition and development. This allows the
Group to undertake generation-planning of its products
and to foresee when the market will be ready for new
security solutions.

CoreStreet

In 2004 ASSA ABLOY intensified its cooperation with the
American company CoreStreet, which is aimed at develop-
ing a new system of secure identification in electromechani-
cal locks. Using both fixed and wireless communication
links, the new system makes it possible to provide central
administration of access control to control points without a
fixed connection, such as freight containers, trucks and the
cockpit doors of aircraft.

The system is based on CoreStreet’s CRT technology
(CoreStreet Real Time™), which makes it possible to con-
trol both authentication and authorization securely, using a
very small data format.

Doors pre-wired for electronic locking can be installed more
cheaply and simply.

Hi-O – Highly Intelligent Operation – the platform for intelligent
communication between the various components of the door
environment.

Sustainable development

Improved documentation
and supervision

ASSA ABLOY’s work towards sustainable development is
founded on the four Cornerstones of Vision, Realism, Ethics
and Courage laid down when the Group was formed in 1994.
The primary strategy for achieving sustainable development is
constantly to integrate all measures concerned into the Group’s
day-to-day work.

ASSA ABLOY has identified the areas where such measures

are desirable, relevant and advantageous for the Group. The
main areas are environmental responsibility, business ethics
and social responsibility. Within these primary classifications a
large number of issues have to be addressed.

A comprehensive analysis of the Group’s risks and opportuni-
ties in the field of sustainable development was initiated in 2002,
together with an audit of the current position. The analysis, cover-
ing all the main elements of the value-chain, was completed in
2003 and showed that the industry as a whole – as well as ASSA
ABLOY specifically – belongs to a medium-risk rather than a
high-risk segment. ASSA ABLOY has defined the issues that need
to be addressed and analyzed how important they are to sustain-
able development and what opportunities ASSA ABLOY has to
influence each individual link in the value-chain.

For example, ASSA ABLOY’s most important raw materials

are metals. Mining and extraction operations often carry risks
of major environmental damage and also problems in defending
the human rights of workers. However, ASSA ABLOY has little
ability to influence the mining industry. This is partly because
trading in metals takes place on commodity exchanges where the

producer is often unknown, and partly because ASSA ABLOY is a
small player on this market and a long way down the value-chain.
The use of lock products is, in a broad view, uncontrover-

sial, but there remains much for the Group to do. ASSA
ABLOY concentrates on taking action in areas where the
Group’s impact is greatest.

Risks and opportunities

ASSA ABLOY has identified risks in the following areas:
• Risks related to operations in, and suppliers from, countries
of low production costs. These include environmental, ethi-
cal and social issues.

• Problems of business ethics, such as bribery and conflicts
of interest, arise in many markets where ASSA ABLOY is
active. ASSA ABLOY has therefore established a zero-
tolerance policy regarding bribes, for example.

• Environmental problems of historical origin arising in pro-
duction operations. Many plants now forming part of the
Group have occupied the same site for a long time, in some
cases more than a century. Instances of soil pollution requir-
ing clean-up are arising. ASSA ABLOY is already undertak-
ing remedial measures, and is investigating where there are
risks of environmental damage. The costs of these cleaning
operations are relatively small.

• There are still production operations today that give rise to envi-
ronmental impact – for example, the use of organic solvents.

Vision
• The world leader in safe and secure

lock solutions.

• Leading in size and thought.

Realism
• Develop the core business.
• Know your business.

Vision

People
make the difference

Realism

Ethics

Ethics
• High ethical standards.
• Trust and respect other people.

Courage
• Lead and embrace change.
• Innovate.

Collaboration

Courage

The list of potential risk could be extended, especially at a time
when some business operations are being moved to low-cost
countries. However, there are many opportunities too, which
contribute to the economic argument for ASSA ABLOY to
intensify its involvement in sustainable development.

Directives and organization
ASSA ABLOY has produced a number of directives that apply
to the whole Group. These are documented and in many cases
translated into several languages. The documents are available
to everyone on the website www.assaabloy.com.

Ultimately it is the Board of Directors that takes responsi-

bility for these directives, and ASSA ABLOY’s President and
CEO reports to the Board on relevant activities. The CEO also
has operational responsibility and heads the control group
dealing with such issues. There is an executive with primary
responsibility for sustainable development in the Parent Com-
pany and at least one person with similar responsibility in each
division. In each subsidiary, the Managing Director and/or the
Human Resources Director is responsible for ethical and social
issues and the Environmental Director for environmental
issues.

• Business ethics

– Fair competition and antitrust legislation

– Bribery
– Records and reports
– Government investigations
– Conflict of interest
• Workers’ rights, human rights, consumer interests and com-

munity outreach
– Child labor
– Forced or bonded labor
– Freedom of association and collective bargaining
– Working hours, overtime and overtime compensation
– Discrimination, harassment, equal opportunities, gender

balance and diversity

– Employee privacy
– Alcohol and/or drug abuse
– Human rights under special circumstances
– Consumer interests
– Community outreach

• Environment, health & safety issues

– Environment
– Health & safety

Management systems
Group Management has decided that ASSA ABLOY should
implement certifiable environmental management systems
meeting ISO 14001 in all Group production plants that gener-
ate significant environmental impact.

A Code of Conduct has been produced detailing the values

and guidelines that apply in ASSA ABLOY.

All Group companies should ensure that the guidelines
are followed locally. An overriding system for managing and
following up sustainability issues is in course of preparation
in the Parent Company.

Responsibility for the environment
ASSA ABLOY has carried out an analysis of all links in the value-
chain and identified the most significant environmental impacts.
The analysis revealed major differences between companies in
the impact they have on the environment. Thus manufacturing
companies have greater impact than those that just sell products.
From the Group point of view it is important to concentrate com-
mon efforts on production in the first instance. A survey is also in
hand to assess historical environmental impacts on soil and
ground water at all plants with a relevant risk pattern. This
should be complete before 2007.

To ensure that the Group’s suppliers act correctly, a special

Another goal is to eliminate all use of chlorinated solvents

questionnaire has been put to many of them since 2002. The
questionnaire currently covers quality and environmental
issues and is being expanded to include human rights and
working conditions. The Code of Conduct provides further
rules of behavior for suppliers.

Ethics and social responsibility
ASSA ABLOY adopted its Code of Conduct in October 2004.
The Code is based on a series of internationally accepted con-
ventions ratified in most countries. It can naturally not replace
local laws, which in many cases are more specific, but it
expresses the values and guidelines that should apply within the
Group. ASSA ABLOY is a Group active throughout the world,
and major cultural differences inevitably exist between employ-
ees in different countries. It is nevertheless valuable from the
Group point of view that employees should share the same val-
ues on many issues. An action that constitutes acceptable
behavior in one part of the world may create problems for other
employees within the Group. Our Code of Conduct covers the
following subjects, among others:

and hexavalent chromium.

In 2004 ASSA ABLOY listed all its planned environmental
measures in an Environmental and Stakeholder Integrity Pro-
gram together with time schedules for carrying out all Group-
wide and local projects. In addition, ASSA ABLOY intends to
implement relevant parts of the EU’s directives on Waste Elec-
trical and Electronic Equipment (WEEE) and the Restriction of
Hazardous Substances (RoHS) in electrical and electronic
equipment within firm time frames.

External auditing
Since March 2004 ASSA ABLOY has been included in the
FTSE4Good series of indexes, which judges companies on
their work on environmental and social issues with a view to
encouraging socially responsible investment. Rating institutes
and unit trusts also actively follow ASSA ABLOY’s progress in
sustainable development.

Ongoing developments
ASSA ABLOY continually monitors the evolution of the laws
and conventions governing issues in the field of sustainable
development. However, probably the most important factor is
the common platform of values concerning such issues that is
being built up in the Group.

Yale – keeping safe what we value
most, for more than a century

Safe houses Many of our customers today are look-
ing for secure protection for their homes and holiday

ASSA ABLOY’s goal is clear: by placing its locks at the

heart of every security solution, the Group can provide

houses. As the world’s leading lock Group, ASSA ABLOY

solutions that will make people around the world feel safer

can offer customers everything from individual products to

and more secure and able to live their lives more freely.

convenient integrated solutions for their home security.

Division EMEA

Focus on
the Leverage & Growth program

CHARACTERISTICS OF THE EMEA DIVISION

The division operates in a strongly diversified market
with significant local differences.

Many and varied companies with good knowledge of
their own markets’ requirements.

No clearly defined boundary between the residential
and commercial segments.

Bo Dankis, President and CEO of ASSA ABLOY and head of EMEA division.

Introduction

The EMEA division comprises companies in Europe, the
Middle East and Africa. EMEA is the Group’s largest divi-
sion and accounts for 42 percent of total sales. During the
year the division achieved an organic growth of 3 percent
and an EBITA margin of 15.0 percent. The EMEA division
has 42 production units, 30 sales companies and 12,800
employees. The division is organized into eleven geographi-
cal market regions, each with its own management group
which is responsible for the region’s marketing strategy,
finances and business development. EMEA’s divisional man-
agement is based in Stockholm, Sweden. ASSA ABLOY’s
largest markets in the division are Scandinavia and France,
and the leading companies are Abloy, Assa, Tesa and
Vachette.

A strongly diversified market
The EMEA division companies operate in a strongly diver-
sified market with significant local differences. Different
traditions in the markets of northern Europe, southern

Europe, the Middle East and Africa, reinforced by different
Building Standards and different climates, mean that there
are many different needs to be met. ASSA ABLOY’s
strength is that its companies have excellent knowledge of
customers’ requirements in each local market, which wins
them high levels of repeat business and provides a strong
basis for their operations. ASSA ABLOY also has strong
links with distributors and good knowledge of local lock
Standards. The aftermarket accounts for a significant frac-
tion of the division’s sales, which means that local brands
serve an important function.

No clear boundary between the residential
and commercial segments

In Europe there is no clearly defined boundary between
products for the residential segment and products for the
commercial segment. Many products currently sell to cus-
tomers in both segments. An interior door lock for an office
will serve equally well in a home. In this respect the European
market contrasts with, for example, the American market.

Report on the year

Division EMEA, Key figures

2004 saw good demand for ASSA ABLOY’s products.
Growth was strongest in the residential segment in Scandi-
navia and the Benelux countries. There was also good
demand in the Do-It-Yourself segment, but growth in the
commercial segment was rather lower this year. The weak
US dollar and rising material prices had a negative effect on
some of the division’s regions during the year. However,
ASSA ABLOY was able to compensate for the higher mat-
erial prices by means of higher prices for its own products.

Scandinavia
In Scandinavia, the residential segment made strong
advances in 2004 after a weak 2003. Intensified marketing
and increased discussion in the media about how best to
protect the home contributed to rising sales. Development
in the commercial market was less strong, but increased
focus on higher security meant that sales still showed some
growth. There was also growing demand from door and
window manufacturers for ASSA ABLOY’s products. To
shorten lead-times in delivering to customers, the Group
has expanded its assembly capacity in Denmark while mov-
ing component manufacture to Sweden.

Finland
In Finland, growth took off in the latter part of 2004 and
the business also improved its margins. Abloy invested in
the aftermarket, which gave stability to its operations.
Abloy also increased its export share, especially in the high-
security segment, thanks in past to the launch of the new
Abloy PROTEC lock cylinder.

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

2004

2003
SEK M SEK M EUR M EUR M

2004

2003

10,747

9,858

1,179

1,081

284

318

11,031 10,176

1,210

1,116

–1%

1,650

1,359

181

149

15.0% 13.4%

–358

–338

1,292

1,021

–39

142

–37

112

Operating margin (EBIT)1

11.7% 10.1%

Capital employed

– of which goodwill

9,204

8,519

1,020

4,748

4,728

526

939

521

Return on capital employed 1

13.5% 10.6%

Return on capital employed
before goodwill amortization1

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation (excluding
goodwill amortization)

Net capital expenditure

Change in working capital

Cash flow 2

17.2% 14.2%

1,650

1,359

181

149

500

505

–340

–357

1,826

1,573

–37

201

–39

172

Average number of employees

12,774 12,481

1 Excluding non-recurring items.
2 Excluding restructuring payments.

SALES / EBITA

EUR M
400

EUR M

100

300

200

100

2003

2004

Sales, EUR M

EBITA, EUR M

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EBITA / CASH FLOW

%
30

EUR M
1,200

1,000

800

600

400

200

2003

2004

Capital employed, EUR M

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

EUR M
70

2003

2004

EBITA, EUR M
Cash flow, EUR M

Division EMEA

France
France achieved good growth during the year. Residential
new construction increased. Electromechanical solutions
are beginning to take market share from the traditional
mechanical lock market.

Germany and Switzerland
The German and Swiss markets are showing signs of new
growth after several years of weakness. As part of the
Leverage & Growth program, ASSA ABLOY carried out
a major reorganization in Germany during the year. The
number of units was reduced from seven to two. The re-
organization has improved ASSA ABLOY’s positioning
on the market.

United Kingdom
Most of the Group’s business in the United Kingdom lies in
relatively simple lock products – a segment with many play-
ers and price pressure. This business lost some market share
during the year, and some production was moved to coun-
tries with lower production costs, resulting in redundancies
in Britain. The Group also reorganized the companies serv-
ing the residential segment and invested resources in more
efficient product development. ASSA ABLOY’s business in
the high-security segment showed good development in
2004.

Italy
ASSA ABLOY’s companies in Italy showed weak sales and
poor profitability. The profitability of export sales – tradi-
tionally important – was hurt by worsening exchange rates.
The Italian operations have embarked on a major reorgani-
zation involving specialization of units and the movement
of some production to low-cost countries. New investments
have been made, and the Group acquired Corbin in Italy
at the start of the year. ASSA ABLOY is working towards

specific goals designed to build up its organization in Italy
so as to achieve a critical mass.

Benelux
In Benelux, integration between companies acquired earlier
is progressing well, and synergies between the companies are
becoming apparent. To strengthen ASSA ABLOY’s customer
offering on the market and specifically to boost its position in
the OEM segment for door and window manufacturers,
Nemef in the Netherlands was acquired during 2004.

Spain
Sales on the Spanish market rose in 2004 despite reduced
exports. As part of ASSA ABLOY’s strategy to get closer to
the customer, the companies developed specially tailored
security solutions. ASSA ABLOY consolidated its produc-
tion companies and sales companies in Spain in 2004 and
also focused on initiatives in the specification segment.

Eastern Europe
ASSA ABLOY’s companies in eastern Europe showed
strong growth during the year. The Group is investing in
manufacturing units in the low-cost countries of eastern
Europe such as Romania and the Czech Republic, both for
production itself and for the development of new products.
Ongoing investment in skills development has resulted in
ASSA ABLOY now having some 70 locally employed
graduate engineers in Romania. The availability of a well-
qualified workforce and high levels of efficiency mean that
the east European plants have good future expansion
capacity.

Middle East
After two years of reduced demand, Mul-T-Lock has
increased its market shares on the Israeli market and has
launched a number of new products.

DIVISION EMEA
SALES BY PRODUCT GROUP

Security
doors, 13%

Mechanical
products, 69%

Electromechanical
products, 18%

Perti Lempiäinen, Abloy, Finland.

Division EMEA

Africa
The African market is highly fragmented and ASSA
ABLOY’s operations in the region are concentrated prima-
rily on South Africa, where the Group has held a strong
position for many years. However, low-price imports had a
negative impact on the business in 2004.

Ongoing initiatives

The EMEA division works continually to develop its distri-
bution and product offerings to customers and to make
them more efficient. One prioritized area has been to focus
on specific customer segments. Thus the companies work-
ing in the car-lock segment were brought together during
the year. FAB in the Czech Republic, which supplies locks
to the Volkswagen Group, and C.E. Marshall in England,
which supplies locks to the Ford Group, have formed a
joint Car Lock Group. Cooperation between the companies
will enable ASSA ABLOY to offer the automotive industry
a more attractive product package.

A similar initiative in cooperation has been undertaken
by the EMEA companies that supply security solutions to
airports. Through exchange of expertise between the com-
panies, ASSA ABLOY can now offer security solutions to
airports in all its markets worldwide.

Greater cooperation with the OEM segment
During the year the EMEA division has advanced its stand-
ing with OEM door and window manufacturers, which
are important channels for ASSA ABLOY’s products. Col-
laboration with the OEM segment will affect generation-
planning for the division’s products and may also influence
projects spanning several customer segments and countries.

Competence Centers for specification
In the security industry it is becoming increasingly impor-
tant to become involved in the building process at an early
stage when a new housing development, factory or office
complex is to be built. By specifying a total security solu-
tion covering security, safety, convenience and design,
ASSA ABLOY stands a good chance of going on to supply
security solutions to the building. Today’s large office and
factory buildings have highly complex security require-
ments, and helping the architects to specify appropriate
security solutions gives ASSA ABLOY an advantage later in
the sales process. To train salesmen to specify new building
projects, special Competence Centers have been set up in
Norway and Spain.

The importance of exploiting production synergies
There is great potential for coordinating production in the
ASSA ABLOY Group. In the long term, production will be
concentrated in fewer plants, and a proportion of produc-
tion will be moved to low-cost countries. Plants will manu-
facture fewer different products but larger volumes of indi-
vidual products. Faster delivery times and ready availability
of products are also important to ASSA ABLOY’s sales.
Installers therefore remain important both as partners and
as customers.

Leverage & Growth to be completed during 2005
The Leverage & Growth action program will come to an
end in the course of 2005 as the reorganization of ASSA
ABLOY’s companies in the United Kingdom, Germany,
Spain and Italy is completed.

KEY PRIORITIES

Exploit production synergies in the division through on-
going specialization.

Continue to develop ASSA ABLOY’s product offerings to
specific customer segments.

Develop cooperation across geographical boundaries for
large customers and projects.

Christine Phoko, ASSA ABLOY South Africa.

Division Americas

Growing with increased margins

CHARACTERISTICS OF THE AMERICAS DIVISION

A clear majority of the division’s sales comes from the
non-residential segment.

There is a significant differentiation between products and
channels for the institutional and commercial segment and
products for the residential segment.

Doors and door frames are major components of solu-
tions offered to the non-residential segment in the USA.

The Americas division comprises companies in North,
Central and South America. Americas is ASSA ABLOY’s
second-largest division and accounts for 32 percent of total
sales. During the year the division had an organic growth of
6 percent and an EBITA margin of 17.6 percent. The divi-
sion is subdivided into product and channel focused groups
in the USA and into geographical regions elsewhere. Its
head office is in New Haven, Connecticut, USA. Americas
division has 22 production units, 12 sales companies and
about 9,800 employees. Among the major companies in the
division are Corbin Russwin, Curries, Emtek, Phillips and
Sargent.

Report on the year

The economic climate in the division’s markets was gener-
ally more favorable in 2004 than in 2003, resulting in good
growth in both non-residential and residential segments.
The Door Group and the Residential Group reported
improved sales during the year, and the Door Group has
continued to develop positively despite higher material

Thanasis Molokotos, Executive Vice President of ASSA ABLOY and
head of Americas division.

costs. The Architectural Hardware Group has also
improved its margins through continuing focus on imple-
menting Lean operations. The division’s EBITA margin rose
by 110 basis points during the year as a consequence of
continuous improvement efforts, the Leverage & Growth
action program and better market conditions. Significant
increases in material prices, primarily due to the global steel
market situation, had some negative effect, but the division
was able to offset the impact through operational efficien-
cies and price increases to the market.

Clear distinction between market segments

The North American market differs from the European
market in having a clear distinction between products
intended for the non-residential segment and products
intended for the residential segment. The commercial seg-
ment accounts for a very large percentage of the division’s
sales. Due to the segment and channel distinctions, only a
few of the division’s products are suitable for both office
and home applications.

The non-residential segment
The non-residential segment consists primarily of public
buildings, offices, schools and hospitals. Security and safety
Standards for these environments are much more demand-
ing than for typical residential applications; consequently,
product functionality, quality and prices are all significantly
higher. Growth in the commercial segment recovered this
year after being weak for a number of years.

Products sold to the non-residential segment include
doors and door frames from the Door Group; door fittings,
handles, locks etc. from the Architectural Hardware Group
and the Electromechanical Group; and high-security prod-
ucts from the High Security and Aftermarket Group.

Emtek continues the positive trend
In the residential segment, Emtek continued to show strong
growth and rising margins. The company, based in Califor-
nia, focuses on high-end residential products.

Division Americas, 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

2004

2003
SEK M SEK M USD M USD M

2004

2003

8,242

8,625

1,125

1,069

8,270

8,657

1,129

1,073

–2%

1,452

1,428

198

176

17.6% 16.5%

–314

–331

1,138

1,097

–43

155

–41

135

Operating margin (EBIT)1

13.8% 12.6%

Capital employed

– of which goodwill

7,049

7,528

1,066

1,046

4,332

5,010

655

696

Return on capital employed 1

14.6% 12.4%

Return on capital employed
before goodwill amortization 1

18.7% 16.2%

Actions under the Leverage & Growth program
The division’s operations have been rationalized by the
divestment of its two companies specializing in the deten-
tion segment – Folger Adam Security and Trussbilt. Their
products did not fit ASSA ABLOY’s core business, and the
companies were underperforming on sales and margins.
Other companies included under the Leverage & Growth
action program have improved their sales and margins.

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation (excluding goodwill
amortization)

Net capital expenditure

Change in working capital

Cash flow2

1,452

1,428

198

176

227

250

–195

–212

–72

1,412

1,527

–27

–10

192

–26

189

Average number of employees

9,767 10,091

1 Excluding non-recurring items.
2 Excluding restructuring payments.

SALES / EBITA

USD M
300

USD M
60

250

200

150

100

2003

2004

Sales, USD M

EBITA, USD M

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EBITA / CASH FLOW

%
50

USD M
1,250

1,000

750

500

250

2003

2004

Capital employed, USD M

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

USD M
70

2003

2004

EBITA, USD M
Cash flow, USD M

Division Americas

Mexico
Continued efforts have been made by ASSA ABLOY’s com-
panies in Mexico to improve the division’s market position.
Implementation of Lean manufacturing principles, cross-
learning with other companies and participation in Group
procurement practices have helped to improve overall per-
formance.

Tesa Mexico has built a new plant in Guadalajara,
which started production in September 2004. The plant
has significantly increased manufacturing capacity and
efficiency. Production was previously split among eight
different buildings but has now been concentrated in one
building laid out for one-piece-flow Lean operations.
The plant supplies products to both the domestic
and export markets. Among its exports are Yale-branded
products for the US residential market and products and
components for other Group companies in the USA, where
strategically beneficial.

Canada
ASSA ABLOY’s Canadian operations have achieved
growth during the year despite low non-residential growth
in the marketplace. All but one, Fleming Door, are sales
and service companies. The sales companies have been neg-
atively impacted by the weak US dollar.

South America
ASSA ABLOY’s companies in South America have grown
with increased margins during 2004. The Brazilian market,
which accounts for a relatively small percentage of the divi-
sion’s sales, has undergone significant improvements. La
Fonte has been restructured, with a new management,
new organization, cost reductions and more efficient
administrative functions. Its success is also due in part to
substantial collaboration with many companies across the
Americas division. By working together on the develop-
ment of new products, the companies offer more attractive
security solutions on their own local markets.

Ongoing initiatives
Specification skills increasingly important
The division is expanding its knowledge of the various cus-
tomer categories. Different types of buildings require differ-
ent solutions. The development of specification skills is an
important initiative in the Americas division. Modern
safety and security Standards are complex, and new build-
ing regulations constantly appear. Helping architects to
solve their safety and security requirements during the
design and planning phases of a building project can often
lead on directly to good sales.

DIVISION AMERICAS
SALES BY PRODUCT GROUP

Security
doors, 40%

Mechanical
products, 51%

Electromechanical
products, 9%

Joaquim Chaves, La Fonte, Brazil.

Division Americas

Education of ASSA ABLOY’s distributors
Distributors are an essential part of the Americas division’s
marketing strategy. Educational support to ASSA ABLOY’s
distributors as well as end-users will help bring the impor-
tance of integrated solutions to the forefront.

Implementation of Lean business
principles and profit centers
In the USA the Door Group and the Architectural Hard-
ware Group have accelerated the implementation in all
major companies of new, more cost-efficient production
methods (Lean operations) and a profit-center organiza-
tion. These efforts focus on improved production-line effi-
ciency to create a better product flow; lower administrative
costs; clearer accountability; and streamlined decision-
making – all of which result in greater speed to market and
promote effective innovation. Each profit center focuses on
one line of products or one market segment, which again
produces a clearer division of responsibilities and more
effective interaction with the market and the sales force.

Purchasing Council team
Another important objective for the Americas division is to
further leverage the Group’s procurement synergies. A Pur-
chasing Council team coordinates pricing negotiations with
suppliers to the division. In 2004 this proved extremely
important in finding an efficient way to handle increased
material prices.

Offering complete solutions
The division is working towards offering customers more
complete solutions to their safety and security problems
and hence providing greater added value. Achieving this
calls for precise knowledge of the true needs of both the
installer and the end-user. ElectroLynx™ – a new system
of pre-wiring doors and frames to simplify installation of
electromechanical locks and other hardware – is one such
solution. Another is the LiteGuide™ system, which assists
emergency evacuation of buildings by clearly illuminating
the egress door opening by means of illuminated door
frames and door and hardware components.

KEY PRIORITIES

Implement Lean operations in all units.

Collaborate more closely with distribution channels and
end-users to invest further in coordinated marketing
initiatives that will sell products and solutions.

Innovate end-user-specific integrated solutions.

Educate the marketplace on the importance of high-
security and life-safety solutions.

Sylvia Romero, Emtek, USA.

Division Asia Pacific

Moving towards Asia

CHARACTERISTICS OF THE ASIA PACIFIC DIVISION

The division’s main sales markets are Australia, New
Zealand and China.

There is an equal split between sales to the residential and
commercial segments.

The product units in China supply significant volumes to
ASSA ABLOY’s other regions.

The Asia Pacific division comprises companies in Australia,
New Zealand, China and elsewhere in Asia. The Asia Pacific
division accounts for 7 percent of ASSA ABLOY’s total sales.
During the year the division achieved an organic growth of 7
percent and an EBITA margin of 15.1 percent. Its head office
is located in Hong Kong. The Asia Pacific division has 5 pro-
duction units, 7 sales companies and 3,600 employees. The
division’s largest markets are Australia, New Zealand and
China, and the leading companies in the division are Lock-
wood, Interlock and Guli.

Report on the year

The Australian and New Zealand markets showed good
sales growth during 2004. Thanks to strong local currencies
in Australia and New Zealand and a fixed exchange rate for
the Chinese currency against the US dollar, the division has
succeeded in managing the year’s weaker dollar and higher
raw-material prices well. However, the weak US dollar had
a negative impact on the division’s export business.

The residential and commercial segments each account
for about half of the division’s sales. Growth in the residen-
tial segment fell back a little from the previous high level but

Geoff Norcott, Executive Vice President of ASSA ABLOY and head of Asia Pacific division.

new housebuilding remains strong. The commercial seg-
ment recorded continuing good growth this year.

Complete solutions increase value to customers
In order to retain its strong market positions in Australia
and New Zealand, the division must get closer to end-users
and take a more market-oriented view of its business. Innov-
ative products, user modifications and knowledge of cus-
tomer requirements are crucial for ASSA ABLOY to keep its
present strong positions. To further improve the division’s
performance, the product offering must be expanded, pri-
marily by offering more support services to the aftermarket.

Electromechanical products increasingly important
Another important success factor will be the ability to add
electromechanics to security solutions. The division’s acqui-
sition of Security Merchants was one move directed at
increasing the electromechanical content in its locks and
other products. Security Merchants will concentrate prima-
rily on helping the division’s other companies to add electro-
mechanical features to their existing products, while also
working to develop new electromechanical products.

A significant new product developed for the mature
Australian and New Zealand markets is Nexion. This is a
remote-control security system that allows householders to
open the door of the house with a remote device. Later it
will be possible to link it into the home’s alarm system. Nex-
ion has just been launched on the Australian market and has
been very well received by both customers and distributors.

Increased sales to the OEM segment
Interlock in New Zealand produces security fittings for resi-
dential doors and windows. Most of Interlock’s business is
with Original Equipment Manufacturers (OEMs), and this
business in particular was impacted by the weak US dollar
in 2004. In order to serve this market better and to reduce
transport costs, production will be relocated to China and
the USA in 2005.

Correct specification leads to higher sales
The specification market is growing, and it is essential that
the Asia Pacific division increases its efforts to train capable
specifiers in accordance with ASSA ABLOY’s overall strat-
egy. The ability to support architects by specifying a build-
ing with the relevant security standards can very often lead
directly to successful sales. Lockwood in Australia has a
high level of specification expertise which is being used to
train more specifiers in the division. One current specifica-
tion project is ASSA ABLOY’s support for the organizers of
the 2008 Beijing Olympics to ensure world-class security
standards for the buildings there.

Division Asia Pacific, 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

2004

2003
SEK M SEK M AUD M AUD M

2004

2003

1,726

1,506

121

109

1,847

1,615

320

343

288

309

278

240

15.1% 14.9%

–57

221

–52

188

–11

–10

Operating margin (EBIT)1

11.9% 11.8%

Capital employed

– of which goodwill

1,620

1,513

864

839

314

168

280

155

Return on capital employed 1

12.3% 11.8%

Return on capital employed
before goodwill amortization 1

15.5% 15.1%

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation (excluding goodwill
amortization)

Net capital expenditure

Change in working capital

Cash flow 2

278

240

–29

–43

268

–53

–28

215

–5

–8

–10

–5

Average number of employees

3,629

3,507

3,629

3,507

1 Excluding non-recurring items.
2 Excluding restructuring payments.

SALES / EBITA

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EBITA / CASH FLOW

AUD M
100

AUD M
20

AUD M
400

2003

2004

Sales, AUD M

EBITA, AUD M

300

200

100

2003

2004

Capital employed, AUD M

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

%
40

AUD M
20

2003

2004

EBITA, AUD M
Cash flow, AUD M

Division Asia Pacific

China
The Chinese market has generated strong growth for several
years, but today accounts for a relatively small proportion
of the Asia Pacific division’s total sales. In 2004 the pace of
growth slowed in response to the efforts of China’s political
leaders to temper overheating of the economy. Despite this
slowing, the residential segment grew by some 15 percent
and the commercial segment by some 10 percent during the
year.

Other Asian markets
ASSA ABLOY’s companies in Asian markets other than
China achieved higher earnings in 2004 than in 2003. The
Asia Pacific division has mainly sales companies in these
countries. These businesses are showing growth and will be
developed in future years. Market shares in Asian markets
outside China are still generally small. One major project
during the year was the sale of a comprehensive security
solution to the newly opened Hong Kong Disneyland.

Concentrate on the mass-market segment
The segment for high-end products is still relatively small in
China, and the division does not therefore envisage making
major marketing efforts in this segment at present. ASSA
ABLOY will concentrate primarily on products for the
mass-market segment, although some of the Group’s spe-
cialized companies aim to develop the high-end segment.
The Group’s largest company in China is Guli, which is now
focusing primarily on producing goods for ASSA ABLOY’s
other markets and supplying products to Group companies
throughout the world.

New plant near Shanghai
Together with Global Technologies division, Asia Pacific
division is building a plant in Suzhou, west of Shanghai. The
plant will manufacture automatic-door products for Besam
internationally while also supplying electromechanical
products for the Asia Pacific division’s local markets. The
plant will start deliveries early in 2005.

Actions under the Leverage & Growth program
The aim of the Leverage & Growth action program in the
Asia Pacific division has been to consolidate production and
to transfer parts of manufacturing to low-cost countries.
The division contained one underperforming company that
was affected by the action program and has been reorgan-
ized; it is now showing higher sales and better margins.

Acquisition in South Korea
In February 2005 ASSA ABLOY completed the acquisition
of BEST Metaline in South Korea. The company specializes
in lock and door fittings and automatic doors, and also has
a strong position in specifying customized hardware to
architects and construction companies. The acquisition of
BEST Metaline strengthens ASSA ABLOY’s position in
north east Asia.

DIVISION ASIA PACIFIC
SALES BY PRODUCT GROUP

Security
doors, 26%

Mechanical
products, 64%

Electromechanical
products, 10%

Wiek Cuppen, Lockwood, Australia.

Division Asia Pacific

acquire companies with an established distribution chain
and network of contacts that it can build on. In some cases
the local managements and employees will own minority
shareholdings in the companies. This is a departure from
ASSA ABLOY’s usual strategy of having wholly owned
Group companies, but part-ownership and local stakehold-
ing are important parts of Chinese business and will help the
companies to succeed.

Recruitment vital to success
Recruitment of competent people for its expansion in China
is one of the greatest challenges the Asia Pacific division
faces. The division is currently training people in its estab-
lished Australian and New Zealand markets who will
then work in China on project management and company
development.

Sales to Asia’s dynamic markets must increase
In the longer term the balance between the different markets
served by the Asia Pacific division will change. At present a
clear majority of the division’s sales are to Australia and
New Zealand and considerably less are to Asia. Ultimately,
more than half of all sales should be to Asia. Growth in the
division will come both organically and through acquisi-
tions, and most of the division’s acquisitions in future years
will therefore be in Asia.

Ongoing initiatives
Transfer of production to low-cost countries
In 2005 the division will transfer parts of ASSA ABLOY’s
production units from Australia and New Zealand to
China. Assembly and completion of products and customer
modifications will remain in Australia and New Zealand, as
will manufacture of newly developed products such as Nex-
ion. As production gradually moves away from the divi-
sion’s largest markets, the companies in Australia and New
Zealand will concentrate on sales and marketing of Group
products. Active promotion of ASSA ABLOY’s brands will
be crucial to success in these mature markets.

Developing solutions for the end-user
The companies within the Asia Pacific division sell most of
their products to distributors, and ASSA ABLOY has greatly
increased the development of complete security solutions to
the end-user. Innovation and continuing product develop-
ment are essential if ASSA ABLOY is to maintain an appeal-
ing product range.

Electromechanical security products are becoming ever

more important. The Asia Pacific division’s product port-
folio will be expanded to include more electromechanical
products, and electromechanical functionality will be added
to many existing products.

Developing distribution on the Chinese market
The Asia Pacific division’s highest priority is to develop dis-
tribution on the Chinese market. The division’s strategy is to

KEY PRIORITIES

Innovate in product segments, electromechanical
solutions and business processes.

Develop and capture benefits from low-cost production
units.

Complete the restructuring process.

Develop a cross-cultural management team to handle
Asian acquisitions.

Increase manufacture of low-cost products for other
divisions.

Stasia Dye, ASSA ABLOY Asia Pacific, New Zealand.

Division Global Technologies

Rising demand for
Identification and Automatic Doors

CHARACTERISTICS OF THE GLOBAL TECHNOLOGIES DIVISION

The division’s products are sold entirely to the non-
residential segment.

The division’s largest markets are North America and
Europe.

Three separate business areas: Identification Technology
Group (ITG), Automatic Doors and ASSA ABLOY
Hospitality.

Global Technologies division is the Group’s worldwide
organization dedicated to high-technology products and
services. Global Technologies accounts for 19 percent of
ASSA ABLOY’s total sales. During the year the division
achieved an organic growth of 5 percent and an EBITA
margin of 13.0 percent. Its head office is located in Provi-
dence, Rhode Island, USA. Global Technologies division
has 10 production units, 41 sales companies and about
2,900 employees.

Global Technologies division
consists of three business areas:
– The Identification Technology Group (ITG), which

accounts for 42 percent of the division’s sales. ITG’s prod-
ucts comprise various types of identification technology
for access control as well as Radio Frequency Identifica-
tion (RFID) and smart cards. These are sold under well-
known brand names such as HID, Indala, Sokymat and
ACG.

– Automatic Doors, which accounts for 40 percent of the
division’s sales. This business area consists of Besam,

Joseph J. Grillo, Executive Vice President of ASSA ABLOY and
head of Global Technologies division.

which is the world’s leading supplier of automatic door
solutions.

– ASSA ABLOY Hospitality, which accounts for 18 percent
of the division’s sales. This business area consists of hotel
locking systems and safes, and serves the hotel, cruise-
ship and other lodging markets with leading brands such
as VingCard and Elsafe.

Report on the year
Identification Technology Group (ITG)
During 2004 ITG recorded rising demand and strong sales
growth in all its product areas. The companies acquired in
2003, mainly in Europe, have given ITG a more balanced
business than it had before, and a priority in 2004 was to
integrate these earlier acquisitions. Today 40 percent of
ITG’s sales are in North America, 40 percent in Europe and
20 percent in Asia, Australia and New Zealand. The mar-
gins for ITG have improved during the year. The acquired
companies, which specialize in Radio-Frequency Identifica-
tion (RFID) and smart cards, have been well integrated into
the Group.

Demand for ITG products from the access-control mar-
ket has been good all year. Growth was especially strong in
North America.

Strong growth for HID
HID is the world’s largest manufacturer of access-control
readers and cards for the security market. The company is
also a pioneer of Radio-Frequency Identification (RFID)
for authenticating access. HID achieved strong growth on
all markets in 2004. The company’s products, such as the
multi-application iClass card, combine a variety of tech-
nologies with RFID, including magnetic stripes, barcodes
and modules with smart chips.

Holograms or ultraviolet inks can be supplied for users

requiring higher security. HID’s long experience in card
technology has also given the company a strong position in
the development of contactless cards, which are now used
for applications such as secure access, IT signatures and
digital cash. For even greater security such cards can also
store users’ biometric templates based on fingerprints, iris
scans etc.

Product launches during 2004
During the year ITG launched its first access control prod-
ucts under HID’s new VertX brand. VertX CS is a new class
of access control panels specifically designed to manage
access control from a remote central station. Offering full
‘plug and play’ card access-control functionality in an
open-architecture platform, VertX CS is fully scalable from
two-door retail installations to large corporate campuses.

The future of electronic passports
Several ITG companies are active in the market for elec-
tronic passports. The intention is to introduce a more
secure passport than today’s and to improve the authenti-

Division 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 amortization 1

Cash flow

Operating income before
goodwill amortization (EBITA)1

Depreciation (excluding goodwill
amortization)

Net capital expenditure

Change in working capital

Cash flow2

Average number of employees

1 Excluding non-recurring items.
2 Excluding restructuring payments.

2004

2003
SEK M SEK M

4,811

4,093

100

4,911

4,177

637

542

13.0% 13.0%

–249

–238

388

304

7.9%

7.3%

5,077

5,288

4,068

4,189

7.4%

5.6%

12.2%

9.9%

637

542

–78

–2

652

–64

–10

549

2,925

2,574

cating process. The ASSA ABLOY companies in this field
are already offering a product range that includes both the
transponders and readers for electronic passports. The first
purchases of these systems are expected in 2005 with signif-
icant growth in coming years.

SALES / EBITA

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

EBITA / CASH FLOW

SEK M
1,500

1,200

900

600

300

SEK M
180

SEK M
6,000

150

120

4,000

2,000

2003

2004

Sales, SEK M

EBITA, SEK M

%
30

2003

2004

Capital employed, SEK M

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

SEK M
300

250

200

150

100

2003

2004

EBITA, SEK M
Cash flow, SEK M

Division Global Technologies

Automatic Doors

Besam constitutes the entire Automatic Doors business of
the Global Technologies division. In 2004 the company
achieved good growth with further improved margins. The
growth of service business was particularly strong in all
geographic markets. Europe is Besam’s largest market and
accounts for some 70 percent of sales. Other markets are
the USA, accounting for 25 percent of sales, and Asia,
Australia and New Zealand, which represent 5 percent.

Reorganization on the US market
Besam’s business in the USA has been reorganized, with
manufacturing relocated to the Yale plant at Charlotte in
North Carolina. This move is now complete and in 2004
the production unit achieved major improvements in effi-
ciency. As a result of this reorganization, and backed by
active marketing and sales efforts, Besam succeeded during
the year in reversing the negative trend on the American
market. Against stiff competition, Besam has been success-
ful in winning a number of important contracts.

Good growth in Europe
Besam has shown strong growth on a number of its European
markets especially in the United Kingdom, Spain and central
and eastern Europe. Market growth was driven primarily by
public investments, the implementation of the Disability Dis-
crimination Act in Britain, and expansion programs led by
the international retail chains. Besam was successful in
securing several major contracts, particularly in the retail
segment.

The Swedish production plant in Landskrona accounts

for a major part of the output of Besam’s more complex
products. The factory was reorganized in 2004 with the
aim of reworking production flows so as to improve

efficiency and reduce administration costs. The reorganiza-
tion of manufacturing has been a success and the plant is
now achieving more efficient production.

Positive development in Asia Pacific
Although Asian, Australian and New Zealand markets rep-
resent a small fraction of Besam’s sales, they achieved satis-
factory growth in 2004. To meet expected future demand
and benefit from lower production costs, Besam and the
Asia Pacific division are building a new production plant in
Suzhou, China. This will supply both local and export mar-
kets with Besam’s products mainly intended for the lower
end of the market.

Launch of a new brand, EntreMatic
EntreMatic is a new brand in the Automatic Doors business
area. Products carrying this name will build on Besam’s
established technology and know-how, but will be offered
through an indirect channel. EntreMatic will act as a com-
plementary brand to reach smaller customers not suited to
a direct sales approach.

ASSA ABLOY Hospitality

The weak demand that still prevails in the hotel and travel
industry had a negative effect on ASSA ABLOY Hospital-
ity, the division’s business area directed at the hotel and
cruise-ship markets. For this reason ASSA ABLOY Hospi-
tality was reorganized in 2004, and a new management
team has been put in place.

VingCard in Norway reorganized
VingCard in Norway was reorganized during 2004 with
the aims of raising efficiency and lowering production
costs. Employee numbers were cut back because of plant

DIVISION GLOBAL TECHNOLOGIES
SALES BY PRODUCT GROUP

Security
doors, 1%

Mechanical
products, 11%

Electromechanical
products, 88%

Berrit Laursen, Besam, Sweden.

overcapacity. In addition, parts of VingCard’s production
will be relocated to low-cost countries. Overall, the restruc-
turing of the Hospitality business area will continue in
2005 with increased emphasis being placed on the strong
VingCard and Elsafe brands.

Acquisition in China
ASSA ABLOY Hospitality has acquired Kingsgate in
China, which manufactures hotel safes. Kingsgate showed
modest growth for the year with positive margins, and its
acquisition will strengthen the position of the Hospitality
business area on Asian markets.

Ongoing initiatives
Vast potential for ITG
Within a timeframe of a few years, ITG has the potential to
show strong growth in all segments. This will be achieved
in part through organic growth but also through acquisi-
tions. In its core area of electronic access control, ITG will
see significant growth from sales of the next generation of
products using contactless smart card technology. For HID,
VertX and other products based on an open architecture
represent a major growth opportunity.

Elsewhere, ITG will focus on replicating its success in
selling RFID technology for access control by applying the
same fundamental technology to other rapidly growing
market segments. These include industrial applications and
national identity cards / electronic passports, where RFID
may be combined with biometrics.

Expanding Automatic Doors by
acquisitions and product launches
In the Automatic Doors business area, Besam will extend
its product portfolio through selective acquisitions, either

Division Global Technologies

to expand geographically or to diversify the range of solu-
tions offered to its commercial and retail customer base.
Besam will also expand its EntreMatic business into new
geographic markets in order to reach smaller customers.
New products are being developed to address markets of
low penetration or high growth such as eastern Europe
and Asia. Besam will also continue to focus on the higher-
margin service business, using key-account management to
attract major retail, industrial and commercial customers.

Acquisition in the UK
In February 2005 ASSA ABLOY signed an agreement to
acquire Doorman Services. The company supplies, installs
and services manual and automatic doors and roller shut-
ters throughout the UK and has a strong presence in the
retail segment. The acquisition strengthens ASSA ABLOY’s
Automatic Doors business area.

Focus on strong brands in the Hospitality group
The Hospitality group will focus on its strongest and best-
known brands, VingCard and Elsafe. Ongoing restructur-
ing will be directed at reducing the costs of manufacturing
locking systems and safes, reducing the overhead structures
of the business, and streamlining logistics and the supply
chain. Development in such areas as card activation, RFID-
based locks and wireless ‘on-line’ locks will continue, so
that hotel chains and other customers can be offered the
latest technical innovations. Other major initiatives will
emphasize key-account management and increasing service
revenue.

KEY PRIORITIES

Establish a presence in growing RFID markets by
developing new products.

Improve efficiency and lower production costs.

Increase service and maintenance business in ASSA
ABLOY Hospitality and Besam.

Coordinate strategy for key-account management with
the Group’s other divisions to increase sales of all Global
Technologies products.

David Sullivan, HID EMEA, United Kingdom.

Complex demands on both accessi-
bility and control call for many different
locking and authentication functions

Airports Modern airports are divided into multiple
security zones with complex security needs. There are often

Airports also have public areas with open access. With

so many people in one place and most unfamiliar with the

thousands of staff with different access authority deter-

site layout, a critical consideration is safety in a security

mined by their duties. An electronic card system allows

alert or other emergency. Clearly signed emergency exits

everyone to go just to areas where their job requires.

guiding people through just a few doors allow quick, safe

evacuation.

Report of the
Board of Directors for 2004

The Annual Report of ASSA ABLOY AB (publ.), Corpo-
rate Organization number 556059-3575, contains the
Group’s accounts for the financial year 1 January – 31
December 2004.

LEVERAGE & GROWTH ACTION PROGRAM (SEK M)

Important events
Refined business strategy
During the year ASSA ABLOY has carried out a review of
the Group’s strategy to take account of the changes that
have occurred on the market and within ASSA ABLOY.

The strategy developed is founded on three themes. The

Global Technologies

Division

EMEA

Americas

Asia Pacific

Total

Total cost

Still to be spent
at 31 Dec 2004

860

230

120

110

1,3201

513

586

first theme aims to strengthen organic growth in ASSA
ABLOY’s core business. This includes activities in the speci-
fication market for new construction; actively exploiting
and developing existing distribution channels; and exploit-
ing the potential of the door and window industry to better
advantage. The second theme is concerned with expansion
in attractive and fast-growing markets and product seg-
ments, including the consumer market, the Chinese market
and the electromechanical lock segment. The third theme
focuses on exploiting the Group’s size to generate signifi-
cant savings, especially in production and purchasing.

The two-year Leverage & Growth action program
A two-year action program was launched towards the end
of 2003 to leverage the Group’s strength and create a basis
for sustainable growth. Underperforming units should be
turned round by the end of 2004, or else divested. The cost
of the program amounted to SEK 1,320 M and it would
involve a reduction of 1,400 in the number of people
employed.

The largest part of the program applies to EMEA division

and is directed towards raising productivity, which is being
achieved primarily by reductions in the workforce. Americas
division’s part of the program, which was completed during
the year, mainly concerned underperforming units. Asia
Pacific division’s part of the program is concentrating on
consolidation of production, while Global Technologies divi-
sion is focusing on realizing synergies in the Identification
business in Europe and on strengthening its competitiveness
in the Hospitality business.

1 Of the total cost, SEK 385 M relates to write-down of assets.

In 2004, payments made under the action program amoun-
ted to SEK 321 M of the planned total of SEK 935 M, and
750 of the 1,400 employees affected left the Group. Negoti-
ations concerning 1,150 of the 1,400 redundancies have
been completed.

By the second half of 2005, annual savings are expected
to be running at SEK 450 M. Savings in 2004 amounted to
SEK 150 M.

Acquisitions in EMEA division

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 total
acquisition price was EUR 66 M. Goodwill arising in con-
nection with the acquisition was about EUR 40 M. The
companies have annual sales of about EUR 50 M with
good profitability. The companies have contributed to
earnings per share from the date of acquisition.

A small business concerned with secure handling of keys

was acquired in Sweden during the year.

Acquisitions in Asia Pacific division

Security Merchants Group in Australia and New Zealand
was acquired on 4 March 2004. Security Merchants is a
leader in project specification and electronic and electro-
mechanical security solutions, and the acquisition will help
to strengthen ASSA ABLOY’s position in this area. Security

Report of the Board of Directors for 2004

Merchants has annual sales of about AUD 30 M. The com-
pany has contributed to earnings per share from the date of
acquisition.

On 13 December 2004 a contract was signed for the
acquisition of BEST Metaline, one of South Korea’s leading
companies in lock and door fittings. BEST Metaline will add
new products to ASSA ABLOY’s security offering and will
strengthen ASSA ABLOY’s market position in north east
Asia. BEST Metaline’s sales in 2004 totaled around SEK
65 M and the company is expected to make a positive con-
tribution to earnings per share from the date of acquisition.

Acquisitions by Global Technologies division
Two small businesses were acquired during the year. Panija
in England works in identification, while Kingsgate in
China manufactures hotel safes.

On 31 January 2005 a contract was signed for the
acquisition of Doorman Services, one of the UK’s leading
door service companies. The acquisition will broaden ASSA
ABLOY’s offering in automatic doors. Doorman Services’
sales in 2004 totaled around GBP 11 M and the company is
expected to make a positive contribution to earnings per
share from the date of acquisition.

Divestments in Americas division
On 24 August 2004 ASSA ABLOY completed the sale of
the principal operating assets of Folger Adam Security
Detention to Phelps-Tointon. Folger Adam was part of the
acquisition of Intruder Security Group from Williams in
August 2000. On 20 September 2004 the principal operat-
ing assets of Trussbilt Detention were sold to a group of
private investors. Trussbilt was part of the acquisition of
United Door products in June 2001. Both Folger Adam
Security Detention and Trussbilt Detention are active in
locks for prisons. The divested businesses have annual sales
of about SEK 200 M, and the transactions will have a posi-
tive effect on ASSA ABLOY’s operating margin from the
respective dates of sale.

Cooperation agreements
During the year ASSA ABLOY invested in the Swedish
company Brighthandle, which develops innovative door
handles. Collaboration with the American development
company CoreStreet, which is involved in identification
and access control, was also intensified.

Incentive 2004
During the year an international incentive program, Incen-
tive 2004, was launched, which offers the Group’s employ-
ees the opportunity to benefit from growth in the value of
the ASSA ABLOY share. This is expected to lead to greater
interest in the Group’s financial performance and to
strengthen employees’ sense of involvement in the Group.
Almost 2,000 employees in some 15 countries took part in
the program, which amounts to EUR 100 M and will run
until June 2009.

Financing
During the year ASSA ABLOY renegotiated the conditions
of the company’s back-up facility. The facility amounts to
EUR 1,000 M and runs for an initial period of five years.
The conditions include no financial covenants and are inde-
pendent of ratings. ASSA ABLOY has also repurchased
EMTN loans worth EUR 300 M, out of a total of EUR
600 M, with a redemption date of December 2006. The
purpose is to improve the maturity structure and thereby
reduce risk and adjust the loan portfolio to the Group’s
current requirements.

New dividend policy
ASSA ABLOY’s Board of Directors decided in 2004 to
adopt a new dividend policy under which, in the long term,
33–50 percent of earnings after standard tax of 28 percent
will be distributed, but always taking into account ASSA
ABLOY’s long-term financial requirements. The change to
IFRS accounting from 2005 means that the income state-
ment will no longer be burdened with amortization of
goodwill. This permits a significant increase in the dividend
paid.

Report of the Board of Directors for 2004

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 Industri
AB, AB FAS Låsfabrik and FIX AB. The companies operate
machine shops and foundries and associated surface-coating
plants, which have an impact on the external environment
through the discharge of water, air and solid waste.

The subsidiaries Assa AB, Assa Industri AB, AB FAS Lås-

fabrik and FIX AB are actively addressing environmental
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

ASSA ABLOY is involved in a number of disputes, but
these require no further disclosure considering the size of
the disputed amounts, applicable insurance cover, etc.

Accounting principles

From 2004 ASSA ABLOY is adopting the Swedish Finan-
cial Accounting Standards Council’s Standard RR 29

‘Employee benefits’ in the Group’s accounting. The rules
are based on IAS 19. Pensions and other remuneration after
retirement have previously been reported in accordance
with each country’s local rules. The move to RR 29 had a
negative effect of some SEK 815 M on the Group’s share-
holders’ equity after deduction for deferred tax. In accor-
dance with RR 29, this effect is reported as a correction to
the opening shareholders’ equity on 1 January 2004. The
move itself will have no effect on income or cash flow. Nor
will there be any change to the ASSA ABLOY Group’s obli-
gations to its employees. In other respects, accounting prin-
ciples are unchanged from previous years. The effects of the
change to IFRS in 2005 are described in Note 1.

Outlook

Organic sales growth is expected to continue at a good rate.
The operating margin (EBITA) is expected to rise, mainly
due to savings resulting from the restructuring program.
Excluding restructuring payments, the strong cash genera-
tion is expected to continue. Long term, ASSA ABLOY
expects an increase in security-driven demand. Focus on
end-user value and innovation as well as leverage on ASSA
ABLOY’s strong positions will accelerate growth and
increase 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 interacting 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 (cid:127) Policies and guidelines
Internal control and risk management

FINAN

DECENTRALIZED ORGANIZATION

Ownership

ASSA ABLOY’s principal shareholders are Investment AB
Latour and SäkI (9.8 percent of the capital and 29.8 percent
of the votes) and Melker Schörling and companies (4.0 per-
cent of the capital and 11.6 percent of the votes). The num-
ber of shareholders at year-end was 30,191. 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 represen-
tatives 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 operations.
During 2004, 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 responsi-
ble for the organization and administration of the Group in
accordance with the Swedish Companies Act. Working pro-
cedures for the Board and instructions for the CEO have
been set down in written form and are reviewed annually.

The Board has a Remuneration Committee consisting
of three people. There is also an Audit Committee, which

consists of four people. The purpose of these committees is
to assist the Board in giving deeper and more efficient con-
sideration to these matters. The Audit Committee holds
three meetings a year, one of which forms the annual year-
end meeting, held in conjunction with the ordinary Board
meeting. The Committee’s duties include review of finan-
cial policy and control of the company’s financial report-
ing, internal reporting and control systems, and legal risks.
There is an ongoing dialog with the appointed auditor, who
participates in the Audit Committee’s meetings.

The Audit Committee consists of Melker Schörling
(Chairman), Gustaf Douglas, Per-Olof Eriksson and Lotta
Lundén. There is also a Nomination Committee with the
duties – before each General Meeting – of preparing for the
selection of Directors, the setting of Directors’ remunera-
tion and associated issues. The Nomination Committee
consists of Gustaf Douglas (Chairman), Georg Ehrnrooth
and Melker Schörling, plus two representatives of the
major institutional shareholders. In November 2004
Marianne Nilsson of Robur and Staffan Grefbäck of
Alecta were appointed as members of the Nomination
Committee prior to the 2005 Annual General Meeting.

Remuneration of Board and Management

Remuneration of the Board is in accordance with decisions
taken at the Annual General Meeting. There are no separate
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 (3.6). The Chairman
and other Directors have no pension benefits or severance
pay agreements. The CEO and the employee representatives
do not receive a Director’s fee. Remuneration of the CEO
and the Executive Team is determined by the Remuneration
Committee and approved by the Board. The Remuneration
Committee consists of Georg Ehrnrooth (Chairman), Melker
Schörling and Sven-Christer Nilsson. The Remuneration
Committee held three meetings in 2004.

Remuneration of the Executive Team consists of basic
salary, variable salary, other benefits, and pensions. Vari-
able salary is based primarily on improvement in operating
income compared with the previous year in the recipient’s
area of responsibility. Variable salary may also be based on
organic growth. Such variable salary is capped at a maxi-
mum of two-thirds of basic salary. The Executive Team also
has the opportunity to receive variable salary based on
improvement in earnings per share. The maximum pay-
ment of SEK 2 M per person applies if earnings per share
increase by 25 percent compared with the previous year.
Half of such variable salary is paid 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. This
second half is paid only if, at the end of the period, the

Corporate Governance

person concerned has neither left his job on his own initiative
nor been dismissed for breach of contract.

Basic pension arrangements for the CEO and others in the

Executive Team are through participation in the ITP plan or
equivalent. In addition, the CEO and certain other senior exec-
utives have the right to retire with a pension at the earliest on
reaching the age of 60. ASSA ABLOY pays a premium on pen-
sions amounting to about 60 percent of basic salary. Assuming
service of at least 15 years, this means that pensions will
amount to 70 percent of basic salary at the time of retiring for
those between the ages of 60 and 65, and 50 percent of this
salary after the age of 65 for the remainder of life. The CEO has
a severance payment agreement providing 100 percent of his
basic salary for 24 months. The payment is made only where
the company terminates the contract. The CEO is also entitled
to reimbursement for any losses resulting from relocation. Oth-
ers in the Executive Team are entitled to six months’ notice and
receive a severance payment of 100 percent of their basic salary
for a maximum of 12 months, which is reduced by any income
from employment that may arise.

REMUNERATION AND OTHER BENEFITS PAID TO SENIOR
OFFICE-HOLDERS

Salary/ Variable Pension
salary

Fee

Other Social

costs benefits costs Total

SEK M

Chairman

Other Board
members

CEO

Other senior
executives (5 people)

Total

–

Executive Team shareholdings in ASSA ABLOY

Members of the Executive Team hold Series B shares, and
have taken part in the convertible debenture loans 2001/06
Series 1-4 and 2004/09 Series 1-4 through purchase of shares
in ASSA ABLOY Incentive 2001 Holding S.A. and ASSA
ABLOY Incentive 2004 Holding S.A., as detailed in the table
below. The shares were purchased at market value in line with
the offers made to employees in 2001 and 2004.

EXECUTIVE TEAM SHAREHOLDINGS IN ASSA ABLOY
AT 31 DECEMBER

Series B shares

Incentive
programs1

2004

2003

2004

2003

86,000

267,550

10,750

230,000 351,784

231,200

60,000

–

161,200

60,000

Bo Dankis

Göran Jansson

Geoff Norcott

Thanasis Molokotos

25,000

86,100

55,000

Joseph J. Grillo

Åke Sund

–

164,800

32,500

135,000 175,000

153,400

60,000

1 Equivalent number of Series B shares at conversion prices EUR 10.20 – 25.30.

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 Incen-
tive programs.

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 divisions, the
Deputy CEO (who is also CFO) and an Executive Vice Presi-
dent responsible for market and business development. The
composition of this group gives a geographical and strategic
spread of responsibility designed to ensure short decision-
making paths.

Management philosophy

ASSA ABLOY’s firm conviction is that people make the com-
pany. 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 concern
ethics and social responsibility, environmental issues, finan-
cial control, the Group’s brands, and communication issues.
In 2004 ASSA ABLOY adopted a Code of Conduct that
applies to the whole Group. The Code, which is based on a
set of internationally accepted conventions, defines the val-
ues and guidelines that should govern the Group in matters
such as business ethics, rights and privileges and social
responsibility.

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.

Corporate Governance

Internal control and risk management

The Board has overriding responsibility for an efficient sys-
tem of internal control and risk management, while the
CEO is responsible for executing internal control and risk
management. Risk management includes continually iden-
tifying, quantifying and assessing the business risks that the
company is exposed to.

In the annual budget process, the Executive Team estab-
lishes business frameworks while also laying the basis for a
high degree of decentralization of the Group’s operations.

Internal financial reporting is based on the Group’s vari-

ous 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 operations.
For information about financial risks see the section

‘Financial risk management’ on page 59.

takes the audit of ASSA ABLOY AB, the Group and a sub-
stantial majority of its subsidiaries round the world. The
audit of ASSA ABLOY AB also covers the administration
by the Board of Directors and the CEO.

The audit is carried out in accordance with good audit-

ing practice in Sweden. The auditing of annual financial
statements for legal entities outside Sweden is in accor-
dance with legal requirements and other applicable regula-
tions in the countries concerned and with good auditing
practice as defined by the International Federation of
Accountants (IFAC) for the issue of audit reports for the
legal entities. For remuneration of auditors, see Note 4.

The Group’s accounting and valuation principles com-
ply with Sweden’s Annual Accounts Act and the standards
and pronouncements of the Swedish Financial Accounting
Standards Council, in accordance with the listing contract
of the Stockholm Stock Exchange.

Decentralized organization

Financial reporting

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 short decision-making
paths. Examples of central functions are Operations,
Shared Technologies and Supply Management – areas
where there are obvious economies of scale.

The Group’s 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.

External audit

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

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.

The Swedish Code of Corporate Governance

The Swedish Code of Corporate Governance was published
on 16 December 2004. The Code, which is based on self-regu-
lation using the ‘comply or explain’ principle, deals mainly
with the organization and methods of working of a company’s
annual general meeting, board of directors and management,
and the interaction between the three. The subjects covered
include rules for the appointment of the board and auditor, the
board’s responsibility for internal control, processes for setting
the remuneration of the company management, and informa-
tion about corporate governance. ASSA ABLOY intends to
adopt the Code from 1 July 2005, when the Code is expected
to become part of the rules of the Stockholm Stock Exchange.

ORGANIZATIONAL STRUCTURE

Executive team

EMEA

Americas

Asia Pacific

Global
Technologies

Benchmarking units

Sales and earnings

• Organic growth for comparable units was 5 percent (0).
• Operating margin before amortization of goodwill and

excluding non-recurring items (EBITA) was 14.7 percent
(13.9).

• Earnings per share excluding non-recurring items

amounted to SEK 4.05 (3.31).

Sales

The Group’s sales rose in 2004 to SEK 25,526 M (24,080).
Exchange-rate effects affected sales negatively by SEK 982 M
compared with 2003. In local currencies, sales increased by
10 percent. Of this, organic growth by comparable units
accounted for 5 percent (0), while acquired units made a
positive contribution of 5 percent.

CHANGES IN SALES
%

Acquired growth

Organic growth

Currency effects

Total

2004

2003

–4

–10

–5

Depreciation of tangible fixed assets amounted to SEK

860 M (861), which represents 3 percent (4) of sales.

Operating income

Operating income (EBIT) amounted to SEK 2,770 M
(1,073). The operating margin was 10.9 percent (4.5).

Depreciation and amortization for the year totaled SEK

1,872 M (1,856), of which SEK 978 M (959) represented
goodwill.

Operating income before depreciation and amortization

(EBITDA), adjusted for non-recurring items, amounted to
SEK 4,642 M (4,249). The corresponding margin was 18.2
percent (17.6).

Consolidated operating income before goodwill amorti-
zation (EBITA) amounted to SEK 3,748 M (3,352) and was
affected negatively by exchange-rate effects totaling SEK
146 M.

The operating margin before goodwill amortization was

14.7 percent (13.9).

Income before tax

Mechanical locks, lock systems and accessories accounted
for 53 percent (57) of sales. Sales of electromechanical and
electronic locks rose to 27 percent (24). Sales of security
doors and fittings also increased to 20 percent (19).

SALES BY PRODUCT GROUP
%

Mechanical locks, lock systems and accessories

Electromechanical and electronic locks

Security doors and fittings

2004

2003

Income before tax and non-recurring items totaled SEK
2,294 M (1,903). This represents an increase of 21 percent
compared with the previous year, with negative currency
effects of SEK 78 M. Financial items amounted to SEK
–484 M (–497). The improvement is due to reduced net
debt. Profit margin – defined as income before tax and non-
recurring items in relation to sales – amounted to 9.0 per-
cent (7.9).

The Parent Company’s income before tax amounted to

SEK 3,876 M (-439).

Cost structure

Tax

Total remuneration costs including social costs and pension
costs amounted to SEK 8,526 M (8,351), which represents
33 percent (35) of sales. The average number of employees
was 29,160 (28,708).

The Group’s tax charge totaled SEK 792 M (556), which
corresponds to an effective tax rate of 34.5 percent (35.5)
after adjusting for non-recurring items and tax pertaining
to them.

The average number of employees in the Parent Com-

pany was 52 (43).

Earnings per share

The Group’s material costs totaled SEK 7,213 M

(6,527), which represents 28 percent (27) of sales.

Other purchasing costs totaled SEK 5,146 M (4,951),

which represents 20 percent (21) of sales.

Earnings per share excluding non-recurring items
amounted to SEK 4.05 (3.31). Earnings per share excluding
goodwill and non-recurring items amounted to SEK 6.66
(5.89).

Income statements

GROUP

PARENT COMPANY

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

Note

3, 6

Income from shares and shareholdings in subsidiaries 8

Interest income and similar income items

Interest expenses and similar expense items

Shares of earnings in 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

after tax and full conversion but excluding goodwill, SEK

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

EUR M1
2004

SEK M
2004

SEK M
2003

2,799

25,526

24,080

–1,661

–15,148

–14,613

1,138

10,378

9,467

–468

–206

–55

–17

–107

–

304

–

–73

252

–87

–1

164

–4,272

–1,883

–3,957

–1,679

–500

181

–157

–978

–447

180

–212

–959

–

–1,320

2,770

1,073

–

186

–670

2,294

–792

–7

1,495

4.09

4.05

6.66

–

224

–721

583

–556

–18

0.06

3.302

0.07

3.312

5.892

EUR M1
2004

SEK M
2004

SEK M
2003

–

–36

–

444

–101

–

425

–1

–

–331

–

580

–

249

4,044

506

–923

–

–234

–

202

–

–32

481

–921

–

3,876

–439

–7

–

424

3,869

–439

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, Auto-
matic Doors and Hospitality, which all serve a global mar-
ket. The column headed ‘Other’ in the table includes com-
mon Group functions.

EMEA

Sales totaled EUR 1,210 M (1,116), with organic growth.
of 3 percent. Operating income before goodwill amortiza-
tion and excluding non-recurring items amounted to EUR
181 M (149), with an operating margin (EBITA) of 15.0
percent (13.4). Return on capital employed before goodwill
amortization amounted to 17.2 percent (14.2). Operating
cash flow before interest paid amounted to EUR 201 M
(172).

EMEA made excellent progress this year, which was
mainly due to the two largest market areas, Scandinavia
and France, and in part to improved market conditions.
Eastern Europe and Israel showed strong organic
growth during the year, while Italy and the United King-
dom lost sales volumes, which had a negative impact on
results. The structural changes in the division affected
results positively. The acquisition of Nemef strengthened
the division’s position in the Benelux area.

Americas

Sales totaled USD 1,129 M (1,073), with organic growth of
6 percent. Operating income before goodwill amortization
and excluding non-recurring items amounted to USD 198 M
(176), with an operating margin (EBITA) of 17.6 percent
(16.5). Return on capital employed before goodwill amorti-
zation amounted to 18.7 percent (16.2). Operating cash
flow before interest paid amounted to USD 192 M (189).

Good progress in Americas was due in part to improved

demand in the USA, specifically in the important commer-
cial segment. Profitability was also improved by the struc-
tural measures undertaken and by the divestment of the
Detention Group. The Architectural Hardware Group,
which represents about 40 percent of Americas’ sales,
continued to improve its profitability despite relatively

stable volumes. The Door Group showed strong growth,
due in part to a rise in new construction and in part to price
rises resulting from the increased cost of steel. The Residen-
tial Group showed strong growth and profitability. South
America and Mexico also developed well.

Asia Pacific

Sales totaled AUD 343 M (309), with organic growth of 7
percent. Operating income before goodwill amortization
and excluding non-recurring items amounted to AUD 52 M
(46), with an operating margin (EBITA) of 15.1 percent
(14.9). Return on capital employed before goodwill amorti-
zation amounted to 15.5 percent (15.1). Operating cash
flow before interest paid amounted to AUD 51 M (42).
Australia showed weak positive growth of both vol-
umes and margins during the year, while sales volumes in
New Zealand grew strongly. The division’s exports were hit
by changes in exchange rates. Development in China and
South East Asia was strong. The acquisition of Security
Merchants strengthens the division’s position, chiefly in
Australia and New Zealand.

Global Technologies

Sales totaled SEK 4,911 M (4,177), with organic growth of
5 percent. Operating income before goodwill amortization
and excluding non-recurring items amounted to SEK 637 M
(542), with an operating margin (EBITA) of 13.0 percent
(13.0). Return on capital employed before goodwill amorti-
zation amounted to 12.2 percent (9.9). Operating cash flow
before interest paid amounted to SEK 652 M (549).

Global Technologies is making good progress, with
good development of sales and margins after allowing for
the dilution effects of acquisitions. The Identification busi-
ness area developed positively, especially in North America,
with strong growth and improved margins. The acquired
units in Europe developed well.

Automatic Doors achieved gradually increasing sales

growth during the year in terms of both new sales and
service. Europe and Asia are showing strong advances
while North America improved after restructuring meas-
ures were implemented. The market for Hospitality fell
back this year. Profitability continued to be weak as parts
of the business were restructured and a number of manage-
ment changes were made.

EMEA1
EUR M

Americas2
USD M

Asia Pacific3
AUD M

Global
Technologies4
SEK M

Other
SEK M

Total
SEK M

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

Sales, external

Sales, internal

Sales

Organic growth

EBITA 5

EBITA / Sales

1,179

1,081

1,125

1,069

1,210

1,116

1,129

1,073

181

–1%

149

198

–2%

176

320

343

288

309

4,811

4,093

100

4,911

4,177

637

542

15.0% 13.4%

17.6% 16.5%

15.1% 14.9%

13.0% 13.0%

Goodwill amortization

Non-recurring items

Operating income (EBIT)

–39

–

142

–37

–94

–43

–

155

–41

–29

106

–11

–

–10

–23

Operating margin (EBIT) 5

11.7% 10.1%

13.8% 12.6%

11.9% 11.8%

Capital employed

– of which, goodwill

1,020

526

939

521

1,066

1,046

655

696

314

168

280

155

Return on capital employed 5

13.5% 10.6%

14.6% 12.4%

12.3% 11.8%

–249

–

388

7.9%

5,077

4,068

7.4%

–238

–110

194

7.3%

5,288

4,189

5.6%

–533

–544

25,526 24,080

–269

–217

3,748

3,352

14.7% 13.9%

–978

–959

–

–1,320

2,770

10.9%

1,073

9.9%

–269

–217

–268

136

22,683 22,984

14,012 14,766

11.8%

9.6%

Return on capital employed
before goodwill amortization 5

Assets

Liabilities

EBITA 5

Depreciation (excluding goodwill)

Investments – acquisitions

Investments – disposals

Change in working capital

Cash flow 6

Items not affecting cash flow

Interest paid and received

Operating cash flow 6

17.2% 14.2%

18.7% 16.2%

15.5% 15.1%

12.2%

9.9%

16.0% 13.3%

1,398

1,295

1,225

1,252

376

345

378

181

–49

201

356

149

–50

172

160

198

–36

–10

192

206

176

–42

189

–13

–11

–8

–5

6,186

1,109

6,446

1,158

475

758

29,322 29,827

12,977 12,928

18,874 19,149

637

–104

–2

652

542

–87

–10

549

–269

–217

3,748

3,352

–24

–9

–16

–489

–520

894

–894

244

–48

897

–952

258

168

3,944

3,723

–16

–489

–520

3,439

3,265

Acquisitions of shares in companies

Disposals of shares in companies

–78

–

–14

–

–78

–

–18

–

–13

–

–62

–

–267

–

Average number of employees

12,774 12,481

9,767 10,091

3,629

3,507

2,925

2,574

–13

–

–37

–

–917

–1,133

–

29,160 28,708

SEK M

EMEA1

Americas2

Asia Pacific3

Global
Technologies4

Other

Total

Sales, external

Sales, internal

Sales

Organic growth

EBITA 5

EBITA / Sales

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

2004

2003

10,747

9,858

8,242

8,625

1,726

1,506

4,811

4,093

25,526 24,080

284

318

121

109

100

11,031 10,176

8,270

8,657

1,847

1,615

4,911

4,177

–533

–544

–1%

–2%

1,650

1,359

1,452

1,428

278

240

637

542

15.0% 13.4%

17.6% 16.5%

15.1% 14.9%

13.0% 13.0%

Return on capital employed
before goodwill amortization 5

17.2% 14.2%

18.7% 16.2%

15.5% 15.1%

12.2%

9.9%

16.0% 13.3%

6,186

1,109

6,446

1,158

475

758

29,322 29,827

12,977 12,928

18,874 19,149

Goodwill amortization

Non-recurring items

Operating income (EBIT)

–358

–

1,292

–338

–860

161

–314

–

1,138

–331

–230

867

–57

–

221

–52

–120

Operating margin (EBIT) 5

11.7% 10.1%

13.8% 12.6%

11.9% 11.8%

Capital employed

– of which, goodwill

9,204

4,748

8,519

4,728

7,049

4,332

7,528

5,010

1,620

1,513

864

839

Return on capital employed 5

13.5% 10.6%

14.6% 12.4%

12.3% 11.8%

–249

–

388

7.9%

5,077

4,068

7.4%

–238

–110

194

7.3%

5,288

4,189

5.6%

Assets

Liabilities

EBITA 5

Depreciation (excluding goodwill)

Investments – acquisitions

Investments – disposals

Change in working capital

12,616 11,748

3,410

3,230

8,105

1,058

9,010

1,482

1,650

1,359

1,452

1,428

500

–436

505

–458

101

227

–263

–72

250

–341

129

Cash flow 6

1,826

1,573

1,412

1,527

1,940

1,865

320

278

–67

–43

268

351

240

–57

–28

215

Items not affecting cash flow

Interest paid and received

Operating cash flow 6

637

–104

–2

652

542

–87

–10

549

Acquisitions of shares in companies

–707

–127

Disposals of shares in companies

–

–632

–135

–

–70

–

–62

–

–267

–

Average number of employees

12,774 12,481

9,767 10,091

3,629

3,507

2,925

2,574

25,526 24,080

–269

–217

3,748

3,352

14.7% 13.9%

–978

–959

–

–1,320

2,770

10.9%

1,073

9.9%

–269

–217

–268

136

22,683 22,984

14,012 14,766

11.8%

9.6%

–269

–217

3,748

3,352

–24

–9

–16

–489

–520

–13

–

–37

–

894

–894

244

–48

897

–952

258

168

3,944

3,723

–16

–489

–520

3,439

3,265

–917

–1,133

–

29,160 28,708

1 Europe, Middle East and Africa.
2 North and South America.

3 Asia, Australia and New Zealand.
4 Automatic Doors, Hospitality and Identification.

5 2003 excluding non-recurring items.
6 Excluding restructuring payments.

Financial position

• Capital employed amounts to SEK 22,683 M (22,984).
• Net debt was reduced to SEK 12,208 M (12,290).
• Net debt / equity ratio was 1.17 (1.15).

debt was reduced by the strong operational cash flow but
increased to a comparable extent by company acquisitions
and the changed accounting principles applying to
employee benefits and the dividend paid.

SEK M

Capital employed

– of which, goodwill

Net debt

Minority interests

Shareholders’ equity

Capital employed

2004

2003

22,683

14,012

12,208

22,984

14,766

12,290

10,448

10,678

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 22,683
M (22,984). The return on capital employed, excluding
goodwill amortization and non-recurring items, was 16.0
percent (13.3).

Intangible assets amounted to SEK 14,154 M (14,933).

The change is explained mainly by amortization. During
the year goodwill of SEK 671 M arose from acquisitions.
A valuation model based on discounted future cash flow is
used for regular impairment testing of goodwill. No write-
down took place this year.

Tangible fixed assets amounted to SEK 5,163 M
(5,329). Investments in tangible fixed assets, less sales of
tangible fixed assets, totaled SEK 650 M (694). Deprecia-
tion according to plan amounted to SEK 860 M (861).
Deferred tax receivables amounted to SEK 793 M
(507). The increase is due principally to the increased pen-
sion liability arising in connection with the move to RR 29.
Accounts receivable totaled SEK 4,146 M (4,131) and
inventories totaled SEK 3,135 M (3,030). The average collec-
tion period for accounts receivable was 55 days (56). Mater-
ial throughput time averaged 105 days (108), the improve-
ment 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 12,208 M (12.290), of which
pension liabilities accounted for SEK 1,677 M (723). Net

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 global Commercial Paper program for a maximum of
USD 1,000 M (1,000), a Nordic MTN program for EUR
300 M (300) and a Swedish Commercial Paper program for
SEK 5,000 M (5,000).

At year-end the EMTN program was being utilized for
SEK 2,706 M, the global Commercial Paper program for
SEK 4,128 M, the Nordic MTN program for SEK 902 M
and the Swedish Commercial Paper program for SEK 549
M. During the year the Group’s financing options were
increased by an Incentive Program of EUR 100 M, equiva-
lent to SEK 902 M. There is also a Multi-Currency Revolv-
ing Credit (MCRF) agreement for a maximum of EUR
1,000 M (820), 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
5.7 (4.7).

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 1,017 M
(880). Cash and cash equivalents are invested in banks with
high credit ratings.

Shareholders’ equity

Shareholders’ equity in the Group totaled SEK 10,448 M
(10,678) at year-end. The return on capital employed
amounted to 13.2 percent (9.9). The equity ratio was 35.6
percent (35.9). The net debt / equity ratio, defined as net
debt divided by shareholders’ equity, was 1.17 (1.15).

Balance sheets

Note

EUR M1
2004

SEK M
2004

SEK M
2003

EUR M1
2004

SEK M
2004

SEK M
2003

GROUP

PARENT COMPANY

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 and work in progress

Accounts receivable

Other receivables

Prepaid expenses and accrued income

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 from 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: 9.02.

1,569

14,154

14,933

572

5,163

5,329

–

166

793

–

210

507

2,826

25,497

23,187

246

2,216

2,248

–

2,247

20,276

20,979

3,081

27,795

25,487

348

460

–

3,135

4,146

3,030

4,131

438

266

–

230

831

392

207

–

375

713

1,003

3,250

9,046

8,848

29,322

29,827

–

566

5,105

7,514

633

577

5,207

8,213

3,658

33,002

33,700

Inga

1,009

–56

164

366

9,106

–519

1,495

366

9,118

1,185

987

225

424

366

8,905

2,014

3,869

366

8,905

2,911

–439

1,158

10,448

10,678

1,677

15,154

11,743

186

284

468

–

200

676

620

169

–

232

1,677

209

679

723

283

935

2,565

1,941

4,225

7,987

–

1,804

–

907

100

6,097

8,994

5,594

304

1,521

–

2,089

677

3,821

250

1,489

–

1,862

776

8,198

1,129

10,185

–

344

246

200

–

790

–

3,104

2,216

1,804

–

5,875

2,248

907

–

7,124

9,030

507

–

1,122

10,108

12,852

1,191

10,724

12,927

3,250

29,322

29,827

3,658

33,002

33,700

817

696

819

7,393

7,213

Cash flow

• Operating cash flow amounted to SEK 3,439 M (3,265).
• Net capital expenditure amounted to SEK 650 M (694).

Relationship between cash flow from operating
activities and operating cash flow

SEK M

Cash flow from operating activities

Net capital expenditure

2004

2003

Tax paid

Operating cash flow

3,748

3,352

2004

3,339

–650

750

3,439

2003

3,180

–694

779

3,265

Company acquisitions

Total outlay on company acquisitions amounted to SEK
804 M (1,254). Acquired net debt totaled SEK -30 M
(169). Acquisitions made during the year were financed by
internally generated cash flow.

Change in net debt

Net debt was reduced primarily by the strong cash flow,
while the change to RR 29 regarding the reporting of pen-
sions has increased reported net debt by SEK 1,164 M.
Company acquisitions were financed out of operating cash
flow.

SEK M

Net debt at 1 January

Operating cash flow

Restructuring payments

Tax paid

Acquisitions

Dividend

Change to RR 29

Translation differences

2004

2003

12,290

13,989

–3,439

–3,265

321

750

929

457

1,164

–264

–

779

1,355

457

–

–1,025

Net debt at 31 December 2

12,208

12,290

2 Note 28.

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

894

–650

–48

–489

–16

3,439

1.50

897

–694

168

–520

3,265

1.72

The Group’s operating cash flow amounted to SEK 3,439 M
(3,265), equivalent to 150 percent (172) of income before
tax.

The Parent Company’s cash flow amounted to SEK

–648 M (452).

Net capital expenditure

Direct net capital expenditure on tangible fixed assets
totaled SEK 650 M (694), equivalent to 76 percent (81) 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

Accounts payable

Other working capital

Change in working capital

2004

–79

–135

–48

2003

274

–120

–33

168

Efforts to reduce the Group’s average material throughput
times in its inventories are continuing. Rising material
prices and a planned increase in stocks of steel in particular
have increased the capital tied up in inventories, which
burdened cash flow by SEK –79 M (274). The average
throughput time is now 105 days (108). The increased capi-
tal tied up in accounts receivable is due chiefly to stronger
sales.

Cash flow analysis

Note

EUR M1
2004

SEK M
2004

SEK M
2003

EUR M1
2004

SEK M
2004

SEK M
2003

GROUP

PARENT COMPANY

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

Reduction of shareholders’ equity in subsidiaries

Sales of shares in subsidiaries

Investments in associated companies

Other investments

304

205

–

–2

507

–54

–

–82

371

–5

366

–72

–99

–

–1

2,770

1,872

–

–16

1,073

1,856

1,320

4,626

4,311

–489

–520

–

–750

3,387

–48

3,339

–650

–904

–

–13

–

–779

3,012

168

3,180

–694

–1,096

–

–45

–

–21

364

–

371

381

249

–32

–

252

–187

3,322

–

–29

–367

296

–

3,387

–100

3,478

294

194

–8

–912

–

–1

–7

–1,584

–14,456

915

548

–

–1

8,348

4,996

–

–5

Cash flow from investing activities

–165

–1,505

–1,827

–123

–1,124

–920

FINANCING ACTIVITIES

Dividends paid

Net cash effect of changes in borrowings

Cash flow from financing activities

CASH FLOW

CASH AND CASH EQUIVALENTS 2

Cash and cash equivalents at 1 January

Cash flow

Effect of translation differences

–50

–140

–190

–457

–1,277

–1,734

–457

–1,315

–1,772

–50

–279

–329

–457

–2,545

–3,002

–457

1,635

1,178

100

–419

–71

–648

452

880

100

Cash and cash equivalents at 31 December

113

1,017

1 Average EUR/SEK rate: 9.12.
2 EUR/SEK rate on 31 Dec: 9.02.

1,408

–419

–109

880

–71

–

652

–648

–

200

452

–

652

Changes in shareholders’ equity

GROUP
SEK M

Closing balance 31 December 2002

Translation differences for the year

Share
capital

366

Restricted
reserves

10,343

Transfers between unrestricted and restricted reserves

–1,225

Net income

Dividend

Closing balance 31 December 2003

366

9,118

Change to RR 29

Translation differences for the year

Transfers between unrestricted and restricted reserves

Transaction costs connected with convertible bond issue

Net income

Dividend

–12

Closing balance 31 December 2004

366

9,106

The accumulated translation difference since 1 January 1999 amounts to SEK –2,433 M (–1,998).

Unrestricted
reserves

1,672

–1,255

1,225

–457

1,194

–815

–435

–18

1,495

–457

976

PARENT COMPANY
SEK M

Closing balance 31 December 2002

Net income

Dividend

Share
capital

366

Premium

reserve

Reserve
fund

Unappropriated
earnings

8,260

645

Total

12,381

–1,255

–457

10,678

–815

–435

–18

1,495

–457

10,448

Total

12,639

–439

–457

11,743

3,869

–457

15,154

3,368

–439

–457

2,472

3,869

–457

5,883

Closing balance 31 December 2003

366

8,260

645

Net income

Dividend

Closing balance 31 December 2004

366

8,260

645

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 (hereinafter referred to as
‘the Group Policy’) is reviewed annually by the Board of
Directors. It constitutes a framework of guidelines and reg-
ulations for the management of financial risks and financial
activities. ASSA ABLOY’S financial activities are coordi-
nated centrally within the subsidiary ASSA ABLOY Trea-
sury S.A. 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 currency flows.

Currency risk

Currency risk affects 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 currency’ below shows the use of
currency forward contracts in association with funding, for the
major currencies. The forward contracts are used to neutralize
the exposure arising between net debt and internal needs.

Net debt by currency (in millions)

Exposure of Group earnings
A general strengthening of the Swedish krona in 2005 by
one percent has a negative impact of about SEK 240 M on
Group sales and SEK 18 M on Group earnings.

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

Through 2004, subsidiaries within the ASSA ABLOY

Group hedged their transaction exposure by means of
internal currency forward contracts with the internal bank.
The Group Policy has been to hedge externally approxi-
mately 70 percent of currency flows from imports and
exports forecast to arise within the next twelve months.
From 2005, instead of hedging individual flows, the
Group will hedge a basket of flows with the aims of facilitat-
ing contract management and reducing administrative costs.
Forecast transaction flows by major currency for 2005

are as follows (imports + and exports -):

Currency exposure

Currency

USD

EUR

CHF

GBP

SEK M

498

289

–288

226

Interest rate risk

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 dura-
tion in the Group is generally short, averaging less than a
year. At year-end, the average interest rate duration,
excluding pensions, was about 9 months.

Currency
exposure

Forward

External
contracts borrowing

Effective interest rate by currency

Currency

USD

EUR

SEK

GBP

Other

618

283

1,862

102

683

–66

–317

1 313

102

–683

Total internal bank (SEK)

10,486

Overdrafts and external loans (SEK)

Cash and cash equivalents (SEK)

Provisions for pensions (SEK)

Accrued financial items (SEK)

Net debt (SEK)

Currency

USD

EUR

SEK

GBP

Average for the Group

684

600

549

10,486

1,054

–1,017

1,677

12,208

Interest rate

2.5%

4.7%

4.9%

4.6%

3.9%

Financial risk management

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 parts of the EMTN loan to floating
rates.

Sensitivity analysis
An increase of one percentage point in market rates would
have a negative impact of SEK 57 M on interest expense for
the year 2005.

Liquidity risk

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 Group Policy is to have
available facilities that include a reserve (facilities con-
firmed but not used) equivalent to 10 percent of the
Group’s annual total sales.

Maturity structure
The column ‘End of facility’ in the table ‘External funding /
net debt’ shows that duration until repayment of debts con-
tracted by the internal bank is not concentrated in the short

term. When there are many transactions with different
maturities, the duration is computed by weighted average.
At year-end, the average duration, excluding pensions, was
14 months. This is down from 2003 (22 months) as, just
prior to year-end, EUR 300 M of the outstanding EMTN of
EUR 600 M was repurchased with the objective of refi-
nancing with medium-duration USD debt so as to achieve
an average duration at least at the level of 2003.

Ratings

Agency

Standard & Poor’s

Moody’s

Short term

Long term Outlook

A –

n/a

Stable

Ratings from both institutions remain unchanged from the
previous year.

Credit risk

Financial risk management exposes ASSA ABLOY to
certain counterparty risks. Such exposure may arise, for
example, from the placement of surplus cash, from trade
receivables, and from the use of debt securities and deriva-
tive instruments.

The Group 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 controlled primarily

External funding / net debt (in millions)

Amount

End of
SEK facility

Utilized

SEK Currency Principal

Market
value, SEK

Average interest
rate duration

Interest
rate swap

1.9 years

13 days

21 days

Fixed quarterly

Fixed six-monthly

Fixed annually

Yes

EUR

USD

SEK

EUR

USD

EUR

300

624

549

100

13,532

Dec 06

6,615

5,000

n/a

2,706

Jun 06

2,706

4,128

549

902

9,022

Dec 09

902

Jun 09

902 Nov 06

Feb 06

Feb 05

n/a

397

498

1,086

40,659

902

397

498

556

11,540

–1,017

1,677

12,208

2,830

4,128

549

902

396

498

556

11,663

–1,017

1,677

12,331

Credit facilities

Confirmed programs:

EMTN Program

Global CP Program

Swedish CP Program

Nordic MTN Program

Committed:

Multi-Currency RF

Incentive Program

Bank loan

Overdrafts etc.

Total credit facilities

Cash and cash equivalents

Provisions for pensions

Accrued financial items

Net debt

through the cash pool network put in place by the internal
bank. Approximately 80 percent of commercial sales were
settled through cash pools in 2004. The Group may never-
theless deposit surplus funds on a short-term basis with
banks in order to match debt maturities.

Derivative instruments are allocated to banks according
to risk factors set in the Group Policy to limit counterparty
risk.

The internal bank enters into derivative contracts ex-
clusively with banks participating in the syndicated credit
system or with banks rated AAA and AA. An ISDA (full
netting of transactions in case of default by one counter-
party) is agreed in the case of interest derivatives.

Trade receivables are spread over a large number of

individual customers, thus minimizing credit risk.

Commodity risk
The Group is exposed to price risk related to purchases of
certain commodities (primarily metals) used as raw materi-
als in its business. To date, the Group has engaged in very
limited hedging of materials traded on world markets
through commodity forward contracts.

Financial instruments and accounting treatment

Financial derivative instruments such as currency and
interest-rate forwards are used to the extent necessary.
The use of derivative instruments is solely to reduce ex-
posure to financial risks. Financial derivative instruments
are not used with speculative intent.

Financial risk management

Currency-derivative hedging of funding
All contracts used to hedge funding activity will mature
within 12 months. Interest spreads are amortized into inter-
est expense and income over the life of the contracts. The
remaining spot portions of the contracts are revalued at year-
end spot market rates and charged to the income statement.

Currency-derivative hedging of 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 at year-end
spot market rates and charged to the income statement.

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.

Outstanding derivative instruments at
31 December 2004 (SEK M)

Instrument

Positive
market
value

Negative
market
value

Foreign exchange forwards – funding

Foreign exchange forwards – transaction

Currency basket option

Interest rate swaps

Total

–

–19

–26

–

–88

–133

Nominal
value

7,032

452

504

4,823

12,811

Notes

NOTE 1 Accounting and valuation principles

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

The new standard of the Financial Accounting Standards

Council, RR 29 ‘Employee benefits’, was adopted from
1 January 2004. Pensions and other remuneration after
retirement were previously reported according to each
country’s local rules. In the consolidated financial state-
ments, reporting is now in accordance with RR 29. The
introduction of RR 29 has meant a reduction of SEK 815 M
in the Group’s shareholders’ equity, but has not required
any adjustment of figures for previously reported periods.
Apart from the adoption of RR 29, accounting 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 income from companies acquired during the
year 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 the date of disposal.
The consolidated financial statements are prepared in
accordance with the purchase method, which means that
the acquisition value of shares in subsidiaries is eliminated
against their shareholders’ equity at the time of acquisition.
In this context, shareholders’ equity in subsidiaries is 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 are companies in which the Parent
Company has shareholdings which, directly or indirectly,
represent at least 20 percent of all participations and/or is
considered to have a significant influence. 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 sur-
plus value, and is charged against share in earnings of asso-
ciated companies. Participation in tax on associated com-
panies’ income is included in the Group’s tax expense. In
the consolidated balance sheet, shareholdings in associated
companies are reported at the acquisition value, adjusted
for dividends and participation in income after the date of
acquisition. In determining the equity share, untaxed
reserves are attributed to shareholders’ equity after deduc-
tion 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 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 at year-end. Exchange rate differences on
hedging operations are eliminated from the income state-
ment and, like differences that arise when foreign net assets
are translated, are carried directly to shareholders’ equity
in the balance sheet. Interest differentials on forward con-
tracts are annualized and reported in the income statement.

Notes

Exchange rates
The rates for currencies used in the Group were as follows
(weighted average for the year, and rate at year-end):

Average rate

Year-end rate

customer’s premises, revenue is recognized when installa-
tion is completed. All sales are reported less VAT, discounts,
returns and freight. Intra-Group sales are eliminated from
the consolidated income statement.

Argentina

Australia

Bermuda

Brazil

Canada

Switzerland

Chile

China

Czech Republic

Denmark

Estonia

Euroland

United Kingdom

Hong Kong

Hungary

Indonesia

Israel

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

JPY

KES

LTL

MUR

MXN

MYR

NGN

NOK

NZD

PLN

ROL

RUR

SGD

SIT

SKK

THB

USD

UYU

ZAR

ZWD

2.49

5.39

7.34

2.51

5.65

5.90

2.22

5.15

6.68

2.49

5.50

5.85

0.012

Intra-Group sales

Transfer pricing between companies in the Group is carried
out at arm’s length and thus at market prices. Internal prof-
its arising from intra-Group sales have been eliminated in
their entirety.

0.88

0.29

1.23

0.58

9.12

13.38

0.94

0.036

0.80

0.30

1.21

0.58

9.02

12.74

0.85

0.037

Government grants

Grants from governments, public authorities etc are
reported when there is reasonable assurance that the com-
pany will comply with the conditions attaching to the grant
and that the grant will be received. Grants related to assets
are handled by reducing the carrying amount of the asset by
the amount of the grant.

0.00082

0.00071

1.64

0.068

0.093

2.64

0.27

0.65

1.93

0.055

1.09

4.85

2.02

1.53

0.064

0.08

2.61

0.23

0.59

1.74

0.050

1.09

4.75

2.21

0.00022

0.00023

0.25

4.34

0.038

0.23

0.18

7.33

0.26

1.15

0.24

4.05

0.038

0.23

0.17

6.62

0.25

1.17

0.0026

0.0012

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 use-
ful 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 companies that, in addition, constitute a
strategic acquisition in terms of products or markets is
amortized over 20 years. The depreciation period for office
buildings is 50 years, and for industrial buildings 25 years.
A depreciation period of 7-10 years is applied to machinery
and other technical facilities. Equipment and tools are
depreciated over 3-6 years.

Borrowing costs

Borrowing costs are recognized as expenses in the period in
which they are incurred.

Reporting by segment
The Group’s business operations are divided organization-
ally among four divisions: EMEA, Americas, Asia Pacific
and Global Technologies. The divisions form the Group’s
segments. There are no secondary segments.

Revenue recognition
Revenue from sales of the Group’s products is recognized
when significant risks and rewards associated with owner-
ship are transferred to the purchaser in accordance with
applicable conditions of sale, which is normally the time
of delivery. If the product requires installation on the

Notes

Tax on income
The income statement includes 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 carried forward 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 sub-
sidiaries are not reported in ASSA ABLOY’s consolidated
accounts since the Parent Company can always control the
time at which the temporary differences are canceled and it
is not considered likely that such cancellation will occur in
the foreseeable future. In the Parent Company, because of
the relationship between accounting and taxation, 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 cost less
accumulated depreciation. Expenditure on improvements
that raise an asset’s performance above its original level
increases the carrying amount of the asset. Expenditure on
repairs and maintenance is shown as a cost. Tangible and
intangible fixed assets are depreciated systematically over the
asset’s expected useful life. If the carrying value of an asset
exceeds its estimated recoverable amount, the asset is imme-
diately written down to the recoverable amount. A valuation
model based on discounted future cash flow is used for regu-
lar impairment testing 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 budgeted
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 financial year or prior financial years which, on the
closing date, were likely to be incurred, but which were
uncertain as to amount or date of payment.

Pensions
Both defined-contribution and defined-benefit pension
plans exist in the Group. Comprehensive defined-benefit
plans are found chiefly in the USA and the UK. In the USA
post-retirement medical benefits are also available, which
are reported in the same way as defined-benefit pension
plans. Assessments related to defined-benefit pension plans
are made by independent actuaries and are based on vari-
ous actuarial assumptions concerning discount rate, future
inflation, salary increases etc. Obligations are valued on
the closing day at the current value of expected future pay-
ments. For funded plans, obligations are reduced by the fair
value of the plan assets. Funded plans with a positive value
in the form of net assets are reported as financial fixed
assets. In principle, pension costs for defined-benefit plans
are spread over the employee’s service period. Actuarial
profits and losses lying outside the so-called ten-percent
corridor are spread over the expected average remaining
service period. The Group’s payments related to defined-
contribution pension plans are reported as a cost in the
period to which they refer, based on the services performed
by the employee. The part of the interest component in the
pension cost that relates to the deficit in pension plans is
reported as a financial expense.

Notes

Transition to IFRS in 2005
Summary
ASSA ABLOY will report its Group accounting according
to International Financial Reporting Standards (IFRS) from
2005. The transition has effect from 1 January 2004 and
comparative figures for 2004 will be adjusted in accor-
dance with IFRS. In accordance with IFRS 1, ASSA
ABLOY has chosen not to make adjustments for acquisi-
tions made before 1 January 2004. The information given
here provides a preliminary overview of the impact of the
new accounting rules on the Group’s accounting.
In summary, these are the expected effects of the change:
• Amortization of goodwill will cease, and amortization of
goodwill charged as a cost during 2004 will be canceled.
• Deferred tax receivables will be considered in relation to

tax-deductible goodwill from 1 January 2004.

• Intangible rights pertaining to 2004 acquisitions will be
differentiated from goodwill and written off over their
estimated useful life.

• Some provisions for acquisition-related restructuring
that do not meet the requirements of IFRS will be
charged as costs.

• Financial instruments will be reported in the balance

sheet at their fair value.

Expected effect on the Group’s income statement for
2004

SEK billion

Sales

Operating income

Net income

2004 Adjustment Under IFRS

25.5

2.8

1.5

–

+ 0.9

+ 0.8

25.5

3.7

2.3

Expected effect on the Group’s balance sheet for 2004

SEK billion

Capital employed

Net debt

Shareholders’ equity

2004 Adjustment Under IFRS

22.7

12.2

10.5

+ 0.8

+ 0.1

+ 0.7

23.5

12.3

11.2

General comments on the change to IFRS
In recent years Swedish accounting, through the standards
of the Swedish Financial Accounting Standards council, has
moved steadily towards IFRS. Nonetheless, a number of
differences remain, mainly concerning dates of adoption
and transition rules, but also related to the changes in IFRS
made through the Improvement Project of the International
Accounting Standard Board (IASB). From ASSA ABLOY’s
perspective, the Swedish accounting rules are in line in all
important respects with the changes introduced in the
European Union on 1 January 2005.

The change to IFRS for ASSA ABLOY
ASSA ABLOY is adopting IFRS from the financial year that
began on 1 January 2005. The Interim Report for the first

quarter of 2005, to be published in April 2005, will be the
first prepared according to IFRS.

The opening balance for 2004 and quarterly informa-

tion for 2004 will be adjusted in line with IFRS. Earlier
financial years will not be adjusted, which is in accordance
with the changeover rules in IFRS 1.

In 2003 a project group headed by the Chief Financial
Officer was established to evaluate the effects of the transi-
tion to IFRS and to make practical preparations for, and
carry through, the change in 2005. Continual contact was
maintained between the project group and the Company’s
auditors, and the progress of the project was reported back
regularly to the Executive Team, the Audit Committee and
the Board of Directors. The most important effects relate to
accounting for acquisitions, including accounting for good-
will, and accounting for and valuation of financial instru-
ments.

Acquisitions and mergers

IFRS 3, ‘Business Combinations’, deals with company acqui-
sitions and mergers. ASSA ABLOY does not intend to adjust
any acquisitions made before the date of transition (1 Janu-
ary 2004). Adjustments relating to allocation of the purchase
price are being made for acquisitions made after this date.
Adjustments will also be made for restructuring reserves that
do not meet the requirements of IFRS. Under IFRS 3, all
amortization of goodwill ceases, and the amortization of
goodwill set against income in 2004 will be canceled in line
with IFRS when 2004 comparatives are restated. To the
extent that amortization of goodwill is tax-deductible,
deferred tax receivables will be accounted for and expensed
when the tax deduction is utilized.

Amortization of goodwill will be replaced by an impair-
ment test that will be carried out every quarter for all Cash-
Generating Units (CGUs). Goodwill and acquisition-related
intangible assets will be tested for impairment at the same
level as monthly performance is reviewed within the Group.
Accounting for acquisitions will be changed under IFRS 3,
mainly as regards purchase price allocation. To a greater
extent than before, the purchase price will be allocated to
identifiable intangible assets, which will be amortized over
their estimated useful life. The adoption of IFRS 3 will affect
accounting for acquisitions but not the Group’s acquisition
strategy.

Financial instruments

IAS 39, ‘Financial Instruments’, will be adopted from 1
January 2005 without adjustment of comparison figures.
The accumulated effects of revaluation of financial instru-
ments in accordance with IAS 39 will be reported as an
adjustment of shareholders’ equity. The reporting of these
effects, which represents a change in accounting principles,
will be made as a reduction of unrestricted reserves, after a

Notes

deduction for tax. Reporting of financial instruments under
IAS 39 will give rise to increased volatility in both the
income statement and the balance sheet. ASSA ABLOY
believes that these fluctuations should be limited. ASSA
ABLOY has used financial instruments chiefly to hedge
transaction exposure and in Treasury operations. From
2005 this type of hedging operation will use different
methods, which are expected to limit fluctuation effects
resulting from the adoption of IAS 39.

Effects on key figures
The adoption of IFRS will have a positive effect on ASSA
ABLOY’s key figures. For example, Return on capital
employed, Return on shareholders’ equity, Earnings per
share and Net debt / Equity ratio will all be improved,
mainly because goodwill will no longer be amortized.

Note 2 Sales by country 1

2004

8,414

2,260

1,675

1,380

1,180

1,056

1,036

961

739

728

649

576

503

454

394

356

319

286

273

263

244

238

222

179

129

122

118

103

529

2003

8,686

2,108

1,585

1,261

1,089

914

650

852

709

691

731

545

455

390

358

311

234

244

255

240

260

195

197

139

128

110

124

429

25,526

24,080

SEK M

USA

France

United Kingdom

Germany

Sweden

Australia

Netherlands

Spain

Finland

Canada

Mexico

Norway

Denmark

Italy

Asia (excluding China)

Belgium

New Zealand

China

Middle East

Czech Republic

Switzerland

South America

South Africa

Austria

Central America (excluding Mexico)

Portugal

Russia

Poland

Baltic countries

Romania

Other countries

Total

1 Sales to customers in each country.

Note 3 Salaries, wages, other remuneration

and social costs

Salaries, wages and other remuneration
(of which, performance-related salary paid to managing directors)

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

Other countries

Total

Social costs (of which, pensions)

SEK M

Total

Absence for illness

Total absence for illness:

– long-term

– men

– women

– aged 29 or younger

– aged 30–49

– aged 50 or older

1 During the period 1 July – 31 December 2003.

Group

2004

2003

475 (9)

403 (3)

285 (1)

278 (1)

242 (1)

243 (1)

116 (0)

123 (0)

491 (1)

480 (1)

471 (2)

467 (2)

69 (0)

57 (0)

583 (2)

576 (2)

220 (1)

120 (0)

58 (0)

215 (0)

47 (0)

93 (0)

227 (0)

212 (1)

125 (–)

115 (–)

1,866 (11) 2,143 (13)

67 (0)

23 (–)

58 (0)

74 (1)

17 (–)

62 (1)

129 (–)

107 (0)

61 (–)

58 (–)

168 (0)

215 (1)

270 (–)

267 (1)

207 (0)

149 (0)

42 (–)

108 (2)

41 (0)

79 (2)

6,576 (30) 6,426 (30)

Parent company

62 (5)

4 (–)

66 (5)

46 (0)

–

46 (0)

Group

2004

2003

1,950 (433)1,925 (384)

Parent company

36 (17)

25 (12)

Parent company

2004

20031

1.1

–

0.2

2.1

0.6

1.5

0.5

1.0

–

0.2

1.7

0.4

1.3

0.3

Note 4 Auditors’ fees

Note 9 Financial items

Notes

Group

Parent company

Group

Parent company

2004

2003

2004

2003

SEK M

2004

2003

2004

2003

Note 5 Depreciation and amortization

Group

Parent company

Exchange-rate differences

2004

2003

2004

2003

Total

SEK M

Audit

PricewaterhouseCoopers

Other

Assignments other than audit

PricewaterhouseCoopers

Other

Total

SEK M

Goodwill

Intangible rights

Machinery

Equipment

Buildings

Land and land improvements

SEK M

Leasing fees paid during the year

SEK M

Nominal value of agreed
future leasing fees

Due for payment in 2005

Due for payment in 2006

Due for payment in 2007

Due for payment in 2008

Due for payment in 2009

Due for payment in 2010 or later

Total

–

978

493

245

121

959

491

255

115

–

Dividends

Interest income and
similar income items

Interest income from Group companies

Exchange-rate differences

Total

Interest expenses and
similar expense items

Interest expenses from
Group companies

164

–

186

176

–

224

–

506

–

506

–

478

–

481

–670

–721

–518

–363

–

–670

–721

–385

–20

–923

–531

–27

–921

Net financial items

–484

–497

–417

–440

Note 10 Tax

SEK M

Current tax paid

Tax attributable to prior years

Deferred tax

Totalt

Group

Parent company

2004

–707

–77

–8

2003

–572

–92

109

–792

–556

2004

2003

–

–7

–

–7

–

Explanation for the difference between nominal Swedish tax rate
and effective tax rate according to the income statement:

Group Parent company

2004

144

2004

Group Parent company

2004

Percent

Swedish rate of tax on income

Non-recurring items

Effect of foreign tax rates

Non-deductible goodwill amortization

Other non-deductible expenses

Other

Effective tax rate according to
the income statement

121

393

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

Total

1,872

1,856

Note 6 Operational leasing agreements

Note 7 Non-recurring items

SEK M

Provision for restructuring

Write-downs of fixed assets and inventories

Total

Group

2004

2003

–

935

385

1,320

Note 8 Income from participations
in Group companies

Deferred tax liabilities

Fixed assets

Inventories

Short-term receivables and liabilities

Deferred tax receivables

Fixed assets

Inventories

Short-term receivables and liabilities

Parent company

Provisions

Tax-deductible losses

SEK M

Dividends

Write-downs of shares in subsidiaries

Income from disposal of shares in subsidiaries

Total

2004

2,845

–177

1,376

4,044

2003

733

–700

–

Write-downs of shares in subsidiaries includes SEK 177 M (700) arising from
dividends received from subsidiaries.

The Group has additional tax losses carried forward of some SEK 500 M
which have not been accounted for as deferred tax receivables because it is
not probable that the tax losses can be realized.

Group

2004

28.0

–

–2.0

7.0

4.5

–3.0

2003

28.0

59.9

–3.5

7.4

5.4

–1.8

34.5

95.4

Group

2004

2003

121

209

462

148

793

188

283

179

146

507

Notes

Note 11 Intangible fixed assets

Note 12 Tangible fixed assets

Goodwill

SEK M

Buildings

Group

2004

2003

SEK M

Opening acquisition value

18,085

18,943

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Translation differences

671

–26

1,030

Purchases/acquisitions

–

Sales/disposals

–606

–1,888

Reclassifications

Closing accumulated acquisition value

18,124

18,085

Translation differences

Opening amortization

–3,320

–2,730

Closing accumulated acquisition value

Group

2004

2003

2,874

3,012

–77

–105

2,846

117

–51

–231

2,874

Opening depreciation

–1,025

–861

Sales/disposals

Write-downs

Amortization for the year

Translation differences

–

–978

176

–

–5

–959

374

Sales/disposals

Reclassifications

Write-downs

Closing accumulated amortization

–4,112

–3,320

Depreciation for the year

Closing net book value

14,012

14,766

Translation differences

–12

–

–121

–13

–155

–115

Intangible rights

SEK M

2004

2003

2004

2003

The taxable value of the Group’s Swedish buildings was SEK 87 M.

Group

Parent company

Closing net book value

1,825

1,849

Closing accumulated depreciation

–1,021

–1,025

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Closing accumulated
acquisition value

410

–40

–

–16

407

–22

–1

–36

394

410

Opening amortization

–243

–235

Sales/disposals

Reclassifications

Amortization for the year

Translation differences

Closing accumulated
amortization

–

–34

–35

–252

–243

Closing net book value

142

167

–

–1

–

–1

–

–2

–

–1

–

–1

Amortization of intangible rights has mostly been reported as administration
costs in the income statement.

Land and land improvements

SEK M

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Opening depreciation

Reclassifications

Write-downs

Depreciation for the year

Translation differences

Closing accumulated depreciation

Closing net book value

Group

2004

645

–21

–19

–14

611

–16

–1

–16

595

2003

681

–4

–13

–42

645

–8

–10

–1

–16

629

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

Notes

Equipment

Group

Parent company

2004

2003

SEK M

2004

2003

2004

2003

4,877

5,321

Opening acquisition value

1,326

1,467

Note 12 cont.

Machinery

SEK M

Opening acquisition value

Purchases/acquisitions

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

409

–200

–35

–237

4,814

474

–249

–686

4,877

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

Opening depreciation

–2,870

–2,904

Sales/disposals

Reclassifications

Write-downs

Depreciation for the year

Translation differences

193

–

–493

209

206

–177

–491

487

Closing accumulated depreciation

–2,926

–2,870

Closing net book value

1,888

2,007

222

–138

–69

212

–189

–197

1,367

1,326

–755

136

–2

–

–245

–787

164

–5

–15

–255

143

–2

–

–9

–

–2

–

–2

–

–9

–

–2

–

–9

Closing net book value

556

571

–811

–755

–10

Construction in progress

SEK M

Construction in progress

Group

2004

299

2003

273

Note 13 Shares in subsidiaries

Parent company

ASSA ABLOY EMEA AB

Timelox AB

AA Besam AB

Sokymat AB

ASSA ABLOY Kredit AB

Organization number,
Registered Office

556061-8455 Stockholm

556214-7735 Landskrona

556204-8511 Landskrona

556514-7997 Ronneby

556047-9148 Stockholm

ASSA ABLOY Identification Technology Group AB

556645-4087 Stockholm

ASSA ABLOY Svensk Fastighets AB

Metget Intressenter AB

AA Asia Holding AB

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.

Nemef BV

ASSA ABLOY France SAS

Interlock Holding AG

ASSA ABLOY Ltd

Mul-T-Lock Ltd

ASSA ABLOY Holdings (SA) Ltd

AA US International Holdings, Inc.

556645-0275 Stockholm

556608-9222 Ronneby

556602-4500 Stockholm

1094741-7 Joensuu

979207476 Moss

CVR 10050316 Herlev

HR B 66227 Berlin

23028070 Dordrecht

31021889 Hoevelaken

08017187 Amersfoort

18066659 Amsterdam

08023138 Apeldoorn

412140907 R.C.S. Versailles

CH-020.3.913.588-8 Zürich

2096505 Willenhall

520036583 Yavne

1948/030356/06 Johannesburg

040916454 Delaware

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

4,000

12,499,999

10,736

1,330,000

13,787,856

100,220

100

1,000

12,221

631

538

376

1,394

1,236

1,582

943

901

184

Notes

Note 13 cont.

Parent company

ASSA ABLOY Inc

ABLOY Holdings Ltd

Organization number,
Registered Office

39347-83 Salem, Oregon

1148165260 St Laurent

ASSA ABLOY Australia Pacific Pty Ltd

ACN 095354582 Oakleigh, Victoria

ASSA ABLOY South Asia Pte Ltd

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 Int. Management Services Ltd

Codas Electrónica S.A.

ASSA ABLOY Asia Pacific Ltd

Total

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

199804395K Singapore

YSM9612049Y4 Mexico D.F.

GIP980312169 Mexico

33274584 Amsterdam

556192-3201 Stockholm

556180-7156 Göteborg

EC21330 Bermuda

8805 Buenos Aires

53451 Hong Kong

Organization number,
Registered Office

A20065744 Astigarraga

934372816 Bergen

00008028 Bogota

8727 Pavia

Number
of shares

% of share
capital

Book value,
SEK M

100

48,190,000

3,400,000

231,299,904

27,036,635

400

2,500

1,000

100,100

240

1,000,000

100

2,259

242

225

862

423

25,497

Number
of shares

% of share
capital

Book value,
SEK M

4,802

305

182,682

–

Group

Parent company

Note 16 Number of shares

SEK M

2004

2003

2004

2003

Shares in associated companies

Other shares and participations

Long-term receivables

Total

108

166

133

210

–

Note 15 Inventories

SEK M

Materials and stock items

Work in progress

Finished goods

Paid in advance

Total

Group

2004

2003

874

968

825

967

1,266

1,210

3,135

3,030

SEK 123 M of the inventory value on 31 December 2004 was reported at net
realisable value.

Number of shares on
31 December 2004

Number of votes on
31 December 2004

Series
A shares

Series
B shares

Total

19,175,323 346,742,711 365,918,034

191,753,230 346,742,711 538,495,941

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, to the nearest thousand, was
365,918 thousand (365,918). The average number of shares after full conver-
sion of outstanding convertible bonds, similarly rounded, was 375,103 thou-
sand (370,935).

The proposed dividend is SEK 2.60 per share – a maximum total amount of
SEK 951 M.

Note 17 Provision for pensions

ASSA ABLOY has defined-benefit plans in a number of countries, those in
the USA and the UK being the most significant ones. In principle, the plans
cover substantially all employees and provide benefits based on an
employee’s service and remuneration at or near retirement. In the USA there
are also obligations related to post-retirement medical benefits. Figures
below include both defined-benefit pension plans and post-retirement med-
ical benefits. Due to ASSA ABLOY’s application of RR 29 from 1 January
2004, comparative figures are not available. RR 29 accords in all material
respects with IAS 19, ‘Employee benefits’.

Notes

Note 17 cont.

The amounts recognized in the income statement are as follows:

Pension cost (SEK M)

Current service costs

Interest cost

Expected return on plan assets

Net actuarial losses (gains) recognized

Past service costs

Losses (gains) on curtailments/settlements

Total pension cost

of which recorded as:

Operating income

Financial items

2004

119

208

–154

–

–5

–7

161

116

Cost of defined-contribution plans was SEK 272 M. The actual return on plan
assets regarding defined-benefit plans was SEK 148 M in 2004.

Actuarial gains/losses, resulting from changes in the actuarial assumptions
for defined-benefit plans, are recognized to the extent that their accumulated
amount exceeds the 10 percent corridor, i.e. 10 percent of the higher of the
obligation’s present value or the fair value of plan assets. The surplus/deficit
outside the 10 percent corridor is recognized as income/expense over the
expected average remaining service period. Amortization of actuarial
gains/losses that arose in 2004 will start in 2005.

The amounts recognized in the balance sheet are as follows:

Key actuarial assumptions
(weighted average) 1

Discount rate

Expected return on plan assets

Future salary increases

Future pension increases

Future medical-benefit increases

Expected inflation

1 Jan 2004

31 Dec 2004

5.6%

7.1%

1.9%

1.2%

9.0%

2.4%

5.2%

6.9%

2.1%

1.5%

8.0%

2.5%

1 The actuarial assumptions have been used in calculating the defined-benefit pension

obligations.

Pensions with Alecta
Commitments for old-age pensions and family pensions for salaried employ-
ees in Sweden are guaranteed in part through insurance with Alecta. Accord-
ing to statement URA 42 from the Swedish Financial Accounting Standards
Council’s Emerging Issues Taskforce, this is a defined-benefit plan that cov-
ers many employers. For the 2004 financial year the company has not had
access to information making it possible to report this plan as a defined-
benefit plan. Pension plans in accordance with ITP that are guaranteed
through insurance with Alecta are therefore reported as defined-contribution
plans. The year’s contributions that are contracted to Alecta amount to SEK
9 M. Alecta’s surplus may be distributed to the policy-holders and/or the per-
sons insured. At the end of 2004 Alecta’s surplus expressed as collective
consolidation level amounted to 128.0 percent (119.9). Collective consolida-
tion level consists of the market value of Alecta’s assets as a percentage of its
insurance commitments calculated according to Alecta’s actuarial calculation
assumptions, which do not comply with RR 29.

Pension obligations (SEK M)

Provisions for defined-benefit plans

Provisions for defined-contribution plans

Provisions for pensions, total

Assets regarding defined-contribution plans

Pension obligations, net

2004

1,609

1,677

–22

1,655

Note 18 Other provisions

SEK M

Restructuring

Other

Total

Group

2004

2003

586

679

935

–

935

There are no defined-benefit plans with surpluses within the Group. Partly
funded or unfunded pension plans are reported as provision for pensions.
Out of pension obligations for defined-benefit plans, SEK 382 M relates to
post-retirement medical benefits.

Specification of pension obligations (SEK M)

Present value of funded defined-benefit obligations

Fair value of plan assets

Funded status

Present value of unfunded defined-benefit obligations

Unrecognized actuarial gains (losses), net

Unrecognized past service cost

Provision for pensions, net

2004

3,294

–2,243

1,051

666

–111

1,609

Specification of movements in provision for pensions (SEK M) 2004

Net provision on 31 December 2003

Adoption of RR 29, 1 January 2004

Net provision on 1 January 2004

Pension cost, defined-benefit plans

Contributions

Effect from acquisitions/disposals, net

Curtailments

Currency translation differences

Provision for pensions, net

723

1,164

1,887

161

–384

–1

–47

–7

1,609

Note 19 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

2004

2003

–

Note 20 Corporate credit line

Overdrafts granted to the Group totaled SEK 1,024 M (903), of which
SEK 204 M (264) was utilized.

Note 21 Convertible debenture bonds

SEK M

Incentive 2001

Incentive 2004

Total

Group

2004

2003

902

1,804

907

–

907

Notes

Note 21 cont.

Note 23 Assets pledged

SEK M

Relating to long-term liabilities to credit institutions:

Real-estate mortgages

Chattel mortgages

Total

Note 24 Contingent liabilities

Group

2004

2003

SEK M

Guarantees

Guarantees on behalf
of subsidiaries

Other

Total

Group

Parent company

2004

119

692

817

2003

120

567

696

2004

118

2003

109

7,275

7,104

–

7,393

7,213

INCENTIVE 2001 has a variable interest rate equivalent to 0.9*EURIBOR + 54
basis points. Convertible debenture loans within INCENTIVE 2001 can be
converted from October 2006. Full conversion at a conversion rate of EUR
15.80 for Bond 1, of EUR 19.00 for Bond 2, of EUR 22.10 for Bond 3 and of
EUR 25.30 for Bond 4 will add 5,017,432 shares. The dilution effects with full
conversion will amount to 1.4 percent of share capital and 0.9 percent of the
total number of votes.

INCENTIVE 2004 has a variable interest rate equivalent to 0.9*EURIBOR + 47
basis points. Convertible debenture loans within INCENTIVE 2004 can be
converted from March 2009. Full conversion at a conversion rate of EUR
10.20 for Bond 1, of EUR 12.20 for Bond 2, of EUR 14.30 for Bond 3 and of
EUR 16.30 for Bond 4 will add 7,782,155 shares. The dilution effects with full
conversion will amount to 2.1 percent of share capital and 1.4 percent of the
total number of votes.

Full conversion of both programs will add a total of 12,799,587 shares and
result in dilution effects amounting to 3.4 percent of share capital and 2.3
percent of the total number of votes. Each program has a total value of EUR
100 M.

Note 22 Accrued expenses and prepaid income

Group

Parent company

SEK M

2004

2003

2004

2003

Personnel-related expenses

Customer-related expenses

Interest expenses

Prepaid income

Other

Total

964

295

718

2,089

747

175

810

1,862

–

Note 25 Average number of employees by country and by gender

Women

Men

Total

Group

USA

Mexico

France

China

United Kingdom

Sweden

Germany

Finland

Australia

Romania

Spain

Czech Republic

South Africa

Norway

Netherlands

South America

Italy

New Zealand

Switzerland

Israel

Canada

Denmark

Belgium

Other countries

Total

2004

1,880

1,992

918

1,082

2003

1,919

2,113

926

1,035

2004

4,389

1,235

1,444

1,084

2003

4,505

1,282

1,491

1,008

780

552

472

424

396

385

297

475

360

202

106

141

242

165

198

104

126

192

813

492

471

420

392

351

310

460

324

219

100

156

253

145

122

118

175

927

836

788

680

630

553

636

376

389

461

551

508

278

328

250

265

292

152

132

354

946

790

687

589

470

667

362

345

468

320

546

285

362

184

273

256

154

117

306

2004

6,269

3,227

2,362

2,166

1,707

1,388

1,260

1,104

1,026

938

933

851

749

663

657

649

520

493

448

369

356

278

201

546

2003

6,424

3,395

2,417

2,043

1,759

1,282

1,261

1,107

981

821

977

822

669

687

420

702

538

507

306

340

316

272

181

481

11,622

11,505

17,538

17,203

29,160

28,708

Note 25 cont.

Parent company

Sweden

Other countries

Total

Gender split in Company management

Group

Board of Directors 1

Executive Team

Total

1 excluding Employee Representatives.

Notes

Women

Men

Total

2004

2003

2004

2003

2004

2003

–

Women

Men

Total

2004

2003

2004

2003

2004

2003

–

Group

2004

2003

Note 26 Cash and cash equivalents

Note 27 cont.

SEK M

2004

2003

2004

2003

SEK M

Group

Parent company

Cash and bank balances

Short-term investments

831

186

Cash and cash equivalents

1,017

713

167

880

633

652

Short-term investments shown in the consolidated balance sheet at year-end
were SEK 230 M (375), of which SEK 44 M (208) 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 2 M (19).

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

–671

–1,106

–63

–135

–101

–8

–30

–156

–116

–196

–172

137

169

Note 27 Cash flow

Group

Purchase price

–804

–1,254

SEK M

2004

2003

Less, acquired cash and cash equivalents

ADJUSTMENTS FOR NON-CASH ITEMS

Profit on sales of equipment

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 (–/+)

Accounts payable increase/decrease (+/–)

Other working capital increase/decrease (–/+)

Change in working capital

NET CAPITAL EXPENDITURE

Purchases of tangible fixed assets

Sales of tangible fixed assets

Net capital expenditure

–18

–16

–663

174

–489

–79

–135

–48

–894

244

–650

–

–697

177

–520

274

–120

–33

168

–952

258

–694

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

Note 28 Net debt

SEK M

Cash and bank balances

Short-term interest-bearing investments

Long-term interest-bearing receivables

Long-term interest-bearing liabilities

Short-term interest-bearing liabilities

Pension provisions

Total

–

–143

–904

–

–4

–9

–13

198

–63

–1,096

–31

–14

–45

Group

2004

–831

–230

–31

6,029

5,594

1,677

2003

–713

–375

–60

8,894

3,821

723

12,208

12,290

Proposed disposition of earnings

As shown in the consolidated balance sheet, the Group’s unrestricted equity amounts to SEK 976 M (1,194).
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 3,869 M
Unappropriated earnings brought forward: SEK 2,014 M
Total: SEK 5,883 M

The Board of Directors and the President and CEO propose that a dividend of SEK 2.60 per share, a maximum
total of SEK 951 M, be distributed to shareholders and that the remainder, SEK 4,932 M, be carried forward
to the new financial year.

Stockholm, 16 February 2005

Georg Ehrnrooth
Chairman

Melker Schörling
Vice Chairman

Carl-Henric Svanberg
Vice Chairman

Bo Dankis
President and CEO

Carl Douglas

Gustaf Douglas

Per-Olof Eriksson

Lotta Lundén

Sven-Christer Nilsson

Seppo Liimatainen
Employee representative

Mats Persson
Employee representative

Our audit report was issued on 16 February 2005

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 for the year 2004. The Board of Directors and the President are
responsible for accounting and administration and for ensuring that the annual accounts and consolidated accounts com-
ply with the Annual Accounts Act. 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, judging the significant estimates made by the Board of Directors and the President in draw-
ing up the annual accounts and the consolidated accounts, and 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 exam-
ined 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 Presi-
dent has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Asso-
ciation. 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 give thereby 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. The Directors’ Report is consistent with the rest of
the annual accounts and the consolidated accounts.

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, 16 February 2005

PricewaterhouseCoopers AB

Anders Lundin
Authorized Public Accountant

Comments on ‘Five years in summary’

2000

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 & 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 pro-
gram are to realize Group synergies and strengthen sus-
tained organic growth.

2004

Some recovery in demand on major markets contributed to
a notable improvement in organic growth. Acquisitions
contributed to business performance in the EMEA and
Global Technologies divisions. Negative exchange-rate
effects continued to decrease reported sales and earnings.
The operating margin rose in response to better sales vol-
umes and savings from the ongoing action program, while
higher costs for important metals were neutralized by
higher selling prices and changes in the purchasing struc-
ture. Operating cash flow was strong as usual.

During the year ASSA ABLOY refined the Group’s
strategy with the aims of strengthening organic growth in
ASSA ABLOY’s core business and in certain attractive and
fast-growing markets and product segments, and of better
exploiting the Group’s size to generate significant savings,
especially in production and purchasing.

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 acquisi-
tion 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 tech-
nology, 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 Inter-
lock in New Zealand – which added strength in both geo-
graphical 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
investments 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 precise 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 automatic doors, was

acquired during the year.

Five years in summary

(Amounts in SEK M unless stated otherwise)

2000 1

2001

2002

2003

2004

Sales and income

Sales

Organic growth, %

Acquired growth, %

Operating income before depreciation and amortization (EBITDA)

Depreciation and amortization

Operating income before goodwill amortization (EBITA)

Operating income (EBIT)

Income before tax (EBT)

Net income

Cash flow

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities

Cash flow

Operating cash flow

Capital employed and financing

Capital employed

– of which, goodwill

Net debt

Minority interests

Shareholders’ equity

Data per share, SEK

14,394

22,510

25,397

24,080

25,526

2,705

985

2,107

1,720

1,402

915

1,799

–5,189

4,609

1,219

1,756

19,779

12,078

8,560

560

4,020

1,721

3,159

2,133

1,476

949

2,631

–7,112

4,259

–222

2,338

27,861

16,371

15,534

481

4,545

1,907

3,595

2,638

2,015

1,270

3,847

–4,268

568

146

3,525

26,701

16,213

13,989

331

4,249

1,856

3,352

1,073

583

3,180

–1,827

–1,772

–419

3,265

22,984

14,766

12,290

4,642

1,872

3,748

2,770

2,294

1,495

3,339

–1,505

–1,734

100

3,439

22,683

14,012

12,208

10,659

11,846

12,381

10,678

10,448

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 2004, as proposed by the Board)

2.76

2.73

3.88

5.81

30.58

0.90

2.99 2

2.98 2

5.39 2

8.07 2

35.80

1.00

Price of Series B share at year-end

184.50

151.00

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 amortization, %

Return on shareholders’ equity, %

Equity ratio, %

Net debt / Equity ratio, times

Interest coverage ratio, times

Interest on convertible debenture loan after tax, SEK M

18.8

14.6

12.0

9.7

13.7

16.7

13.3

43.1

0.80

5.5

8.5

17.9

14.0

10.2 2

7.3 2

9.7 2

13.3 2

8.9 2

35.6

1.31

3.5

9.0

3.53

6.13

9.08

35.85

1.25

99.50

17.9

14.2

10.4

7.9

9.9

13.4

9.9

38.2

1.13

3.9

27.2

3.30 2

3.31 2

5.89 2

8.61 2

31.23

1.25

85.50

17.6

13.9

9.9 2

7.9 2

9.6 2

13.3 2

9.9 2

35.9

1.15

4.7

17.8

4.09

4.05

6.66

9.06

32.66

2.60

113.50

18.2

14.7

10.9

9.0

11.8

16.0

13.2

35.6

1.17

5.7

24.0

Number of shares, thousands

352,453

353,751

365,918

Number of shares after full conversion, thousands

356,712

361,730

370,935

378,717

Average number of employees

16,881

24,211

28,754

28,708

29,160

1 Key data for 1999 and 2000 have been adjusted for changes in accounting principles.
2 Excluding non-recurring items.

Quarterly information

THE GROUP IN SUMMARY

SEK M

Sales

Organic growth1

Gross income

Gross income / sales

Q1
2003

Q2
2003

Q3
2003

Q4
2003

Full
year
2003

Q1
2004

Q2
2004

Q3
2004

Q4
2004

Full
year
2004

6,124

5,930

6,096 24,080

6,283

6,533

6,447

6,263 25,526

–2%

2,390

2,299

2,333

2,445

9,467

2,509

2,688

2,633

2,568 10,378

39.0% 38.8% 39.3% 40.1% 39.3%

39.9% 40.8% 40.8% 41.0% 40.7%

Operating income before depreciation (EBITDA)

1,078

993

1,044

1,135

4,249

1,120

1,168

1,196

1,158

4,642

Gross margin (EBITDA)

17.6% 16.7% 17.6% 18.6% 17.6%

17.8% 17.9% 18.6% 18.5% 18.2%

Depreciation

–232

–223

–219

–223

–897

–230

–232

–220

–212

–894

Operating income before
goodwill amortization (EBITA)

846

770

824

912

3,352

890

936

976

946

3,748

Operating margin before goodwill amortization (EBITA)

13.8% 13.0% 13.9% 15.0% 13.9%

14.2% 14.3% 15.1% 15.1% 14.7%

Goodwill amortization

Non-recurring items

Operating income (EBIT)

Operating margin (EBIT)

–244

–237

–238

–240

–959

–243

–247

–245

–243

–978

–

602

–

533

–

–1,320 –1,320

586

–648

1,073

–

647

–

689

–

731

–

703

2,770

9.8% 9.0% 9.9% 11.0%3

9.9%3

10.3% 10.6% 11.3% 11.2% 10.9%

Financial items

–135

–129

–120

–113

–497

–118

–121

–127

–118

–484

Income before tax (EBT)

Profit margin (EBT)

Tax

Minority interests

Net income

OPERATING CASH FLOW

Operating income before goodwill amortization (EBITA)

Depreciation (excluding goodwill amortization)

Net operating capital expenditure

Change in working capital

Paid and received interest

Non-cash items

Operating cash flow

Q1
2003

846

232

–157

–298

–88

564

468

407

467

–758

583

530

571

605

588

2,294

7.6% 6.9% 7.9%

9.2%3

7.9%3

8.4% 8.7% 9.4% 9.4% 9.0%

–165

–143

–165

–4

299

–7

257

–4

299

Q2
2003

770

223

Q3
2003

824

219

–83

–4

–845

Q4
2003

912

223

–556

–18

Full
year
2003

3,352

897

–184

–163

–190

–694

–83

291

258

168

–169

–107

–156

–520

–11

–183

–197

–208

–204

–792

–2

345

–2

372

–2

395

–1

–7

383

1,495

Q1
2004

890

230

–123

–362

–45

Q2
2004

936

232

–166

–187

–144

–19

Q3
2004

976

220

Q4
2004

946

212

Full
year
2004

3,748

894

–146

–215

–650

135

–67

–36

366

–48

–233

–489

–16

578

1,054

1,069

3,265

6152

6522

1,0822

1,0902

3,4392

Operating cash flow / Income before tax

1.21

1.42

2.26

1.903

1.723

1.16

1.14

1.79

1.85

1.50

CHANGE IN NET DEBT

Net debt at start of period

Operating cash flow

Restructuring payments

Tax paid

Acquisitions

Dividend

Change to RR 29

Translation differences

Net debt at end of period

Net debt / Equity ratio

Q1
2003

Q2
2003

Q3
2003

Q4
2003

Full
year
2003

Q1
2004

Q2
2004

Q3
2004

Q4
2004

Full
year
2004

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

12,290 14,425 14,514 13,331 12,290

–564

–578 –1,054 –1,069 –3,265

–615

–652 –1,082 –1,090 –3,439

–

333

106

–

457

–

151

675

–

198

535

–

779

1,355

457

–

164

830

–

1,108

322

457

–

112

103

–27

–

129

161

103

–

321

750

929

457

1,164

–162

–312

–348

–203 –1,025

613

–106

–289

–482

–264

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

14,425 14,514 13,331 12,208 12,208

1.10

1.12

1.09

1.15

1.37

1.40

1.26

1.17

1 Organic growth relates to comparable units after adjusting for acquisitions and changes in exchange rates.
2 Excluding restructuring payments.
3 Excluding non-recurring items.

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

Earnings per share after tax and full conversion
excluding goodwill

Cash earnings per share after tax and full conversion

Q1
2003

Q2
2003

Q3
2003

Q4
2003

Q1
2004

Q2
2004

Q3
2004

Q4
2004

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

24,966 24,934 23,949 22,683

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

15,432 15,210 14,699 14,012

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

14,425 14,514 13,331 12,208

315

295

143

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

10,523 10,400 10,598 10,448

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
2003

0.961

0.971

Full
year
2003

3.301

3.311

1.611

2.291

5.891

8.611

Q1
2004

0.94

1.60

2.18

Q2
2004

1.02

1.01

1.67

2.28

Q3
2004

1.08

1.07

1.71

2.29

Q4
2004

1.05

1.03

1.68

2.31

Full
year
2004

4.09

4.05

6.66

9.06

Shareholders’ equity per share after full conversion

36.01

34.77

34.14

31.23

30.87

32.91

33.19

32.66

NUMBER OF SHARES

Mar
2003

Jun
2003

Sep
2003

Dec
2003

Mar
2004

Jun
2004

Sep
2004

Dec
2004

Number of shares before conversion, thousands2

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

Number of shares after full conversion, thousands2

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

370,935 371,449 373,889 375,103

1 Excluding non-recurring items.
2 Accumulated weighted average.

Definitions

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

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

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

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

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

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

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 dispos-
als of tangible fixed assets.

Depreciation:
Depreciation/amortization of intangible and
tangible fixed 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 amortization:
Income before tax plus net interest and goodwill
amortization as a percentage of average capital
employed.

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 divided by weighted
average 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 divided by 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, divided by weighted average number of
shares after full conversion.

Shareholders’ equity per share
after full conversion:
Shareholders‘ equity plus convertible debenture
loans divided by numbers of shares after full con-
version.

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.

Share price movement

The price of the ASSA ABLOY share rose by 33 percent in
2004. During the same period, the Stockholm Exchange
All-Share index (SAX) rose by 18 percent. The share’s
closing price at year-end was SEK 113.50, corresponding
to a market capitalization of SEK 41,532 M.

Trading

During the year a total of 594 million shares (713) were
traded, which is an average of 2.3 million shares (2.9) per

trading day and represents about 165 percent (203) of the
issued shares.

Ownership structure

The number of shareholders at year-end was 30,191
(26,214). Investors outside Sweden account for 36 percent
(49) of the capital.

Dividend and dividend policy

The Board of Directors and President propose that SEK
2.60 per share (1.25) – a maximum total amount of SEK
951 M – be paid as a dividend to shareholders for the 2004
financial year, corresponding to a direct return of 2.3 per-
cent (1.5) on the Series B share. The aim is that, in the long
term, the dividend should correspond to 33-50 percent of
ASSA ABLOY's earnings after standard tax of 28 percent,
but always taking into account ASSA ABLOY's long-term
financial requirements.

SHARE PRICE MOVEMENT AND TRADING 1994–2004

DIVIDEND PER SHARE 1995-2004

SEK
200
180
160
140
120
100
80

B share
Afv General Index

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

SEK

3.0

2.5

2.0

1.5

1.0

0.5

0.0

100,000

80,000

60,000

40,000

20,000

Dividend per share, SEK

Data per share

SEK/share 1

Earnings after tax and full conversion

Dividend

Direct yield, % 5

Dividend, % 6

Share price at end of period

Highest share price

Lowest share price

Shareholders’ equity

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

0.56

0.22

1.6

36.7

13.24

15.16

5.23

4.37

0.93

0.30

1.0

31.6

29.28

28.97

12.38

5.40

1.23

0.43

0.8

31.6

51.24

52.95

28.69

8.64

1.76

0.60

0.8

33.5

75.65

92.73

48.07

9.93

2.00 3

0.74

0.6

32.6

2.73

0.90

0.5

30.9

2.98 2

1.00

0.7

30.5

3.53

1.25

1.3

32.2

3.31 2

1.25

1.5

33.9

4.05

2.604

2.3

41.1

119.50

184.50

151.00

99.50

85.50

113.50

140.00

206.70

186.00

159.50

110.00

113.50

73.21

110.50

94.50

16.95 3

30.58 3

35.80

76.50

35.85

67.00

31.23

84.00

32.66

Number of shares (1,000s) 7

221,684

265,396

295,448

324,200

356,712

361,730

370,935

378,718

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 adjusted earnings in line with dividend policy.
7 After full conversion.

The ASSA ABLOY share

A shares

C shares

B shares

Share capital, SEK1

20,000

2,000,000

1,746,005

1,428,550

50,417,555

2,095,206

1,714,260

60,501,066

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

378,717,621

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

359,542,298

3,809,466

4,190,412

16,761,648

18,437,812

19,175,323

A shares

6,746,425

7,118,818

5,310,080

B shares

Capital, % Voting rights, %

20,000,000

2,000,000

9,296,636

19,485,973

17,270,350

11,114,000

10,680,600

9,891,738

9,567,179

8,402,200

229,034,035

7.3

2.5

4.0

5.3

4.7

3.0

2.9

2.7

2.6

2.3

62.6

100.0

16.2

13.6

11.6

3.6

3.2

2.1

2.0

1.8

1.6

42.5

100.0

19,175,323

346,742,711

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

1 SEK 1 per share – number of shares at end of period.

ASSA ABLOY’s 10 largest shareholders

Based on the share register at 31 December 2004.

Owner

Investment AB Latour

SäkI

Melker Schörling and companies

Robur unit trusts

Wärtsilä Corporation

SEB

AMF pension

Nordea unit trusts

The third National Swedish Pension fund

Alecta

Other shareholders

Total number

Source: SIS Ägarservice AB and VPC AB.

Ownership structure at 31 December 2004

Shareholding

1–1,000

1,001–5,000

5,001–20,000

20,001–50,000

50,001–500,000

500,000–

Total

Source: SIS Ägarservice AB.

No. of shareholders

Percent

24,563

4,105

907

237

267

112

81.4

13.6

3.0

0.8

0.9

0.4

No. of
shares

7,508,540

9,462,600

9,256,964

7,634,909

41,679,781

290,375,240

30,191

100.0

365,918,034

Capital, % Voting rights, %

2.1

2.6

2.5

2.1

11.4

79.4

100.0

1.4

1.8

1.7

1.4

7.7

86.0

100.0

The ASSA ABLOY share

Convertible debentures for personnel

The ASSA ABLOY Group has issued several convertible
debentures 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.

In 2001 a convertible debenture, Incentive 2001, 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. On full conversion,
at a conversion price for Series 1 of EUR 15.80, Series 2 of
EUR 19.00, Series 3 of EUR 22.10 and Series 4 of EUR

25.30, an additional 5,017,432 shares would be created.
The convertible bonds can be converted in October/
November 2006.

In 2004 a further convertible debenture, Incentive 2004,
was issued. Like Incentive 2001, this is 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 conver-
sion price. On full conversion, at a conversion price for
Series 1 of EUR 10.20, Series 2 of EUR 12.20, Series 3 of
EUR 14.30 and Series 4 of EUR 16.30, an additional
7,782,155 shares would be created. The convertible bonds
can be converted from March 2009.

Over 4,000 employees in more than 15 countries are

participating in the two current Incentive programs,
Incentive 2001 and Incentive 2004.

Financial analysts who follow ASSA ABLOY

Company

ABG Sundal Collier

Alfred Berg ABN AMRO

CAI Cheuvreux

Carnegie

Cazenove

CSFB

Dresdner Kleinwort Wasserstein

Enskilda Securities

Goldman Sachs

Hagströmer & Qviberg

Handelsbanken

JP Morgan

Kaupthing Bank Sverige AB

Lehman Brothers

Merrill Lynch

Morgan Stanley

Swedbank

UBS

Name

Anders Jegers

Henrik Fröjd

Sasu Ristimäki

Anders Idborg

Ilan Chaitowitz

Patrick Marshall

Colin Grant

Julian Beer

James Moore

Patric Lindqvist

Henrik Saläng

Nick Paton

Peder Frölén

Brian Hall

Raymond Greaves

Daniel Cunliffe

Anders Bruzelius

Anders Fagerlund

Öhman J:or Fondkommission AB

Johan Gahm

Telephone number

E-mail

+44 207 9055 631

+46 8 572 358 33

+44 207 621 5173

+46 8 676 86 88

+44 207 155 8207

+44 207 888 0289

+44 207 475 9161

+46 8 522 296 52

+44 207 774 1515

+46 8 696 20 84

+46 8 701 12 51

+44 207 325 5044

+46 8 791 47 86

+44 207 102 4726

+44 207 996 4783

+44 207 425 2057

+46 8 585 912 88

+46 8 453 73 30

+46 8 402 52 68

anders.jegers@abgsc.com

henrik.frojd@alfredberg.se

sristimaki@caicheuvreux.com

andidb@carnegie.se

ilan.chaitowitz@cazenove.com

patrick.marshall@csfb.com

colin.grant@drkw.com

julian.beer@enskilda.se

james.moore@gs.com

patric.lindqvist@hagqvi.com

hesa06@handelsbanken.se

nicholas.j.paton@jpmorgan.com

peder.frolen@kaupthing.se

brhall@lehman.com

raymond_greaves@ml.com

daniel.cunliffe@morganstanley.com

anders.bruzelius@swedbank.com

anders.fagerlund@ubs.com

johan.gahm@ohman.se

Information for shareholders

Annual General Meeting

The Annual General Meeting of ASSA ABLOY will be
held in the Great Hall of the Royal Academy of Music,
Nybrokajen 11, Stockholm at 15.30 on Wednesday 27
April 2005. Shareholders wishing to attend the Annual
General Meeting should:
– be registered in the share register kept by VPC AB no later

than Friday 15 April 2005;

– notify ASSA ABLOY AB of their intention to attend by

16.00 on Thursday 21 April 2005.

Registration in the share register

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
Friday 15 April 2005 at the latest.

Notification of intention to attend

Shareholders must notify ASSA ABLOY of their intention
to attend the Annual General Meeting no later than 16.00
on Thursday 21 April via:
– Website
– E-mail
– Post

www.assaabloy.com
bolagsstamma@assaabloy.com
ASSA ABLOY AB, ‘Bolagsstämma’,
Box 70340, SE-107 23 Stockholm, Sweden

– Telephone +46 8 506 485 00
+46 8 506 485 85
– Fax

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.

Nomination Committee

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 2005 Annual General
Meeting are Gustaf Douglas (Chairman), Georg Ehrnrooth
and Melker Schörling, plus two representatives of the
major institutional shareholders, Marianne Nilsson of
Robur and Staffan Grefbäck of Alecta.

Entitlement to dividend

Monday 2 May 2005 has been set as the qualification day
for dividends. If the Annual General Meeting decides to fol-
low the recommendation of the Board of Directors, divi-
dends are expected to be distributed through VPC AB on
Friday 6 May 2005.

Reports can be ordered from

www.assaabloy.com

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

Future financial reports

Interim reports:
First quarter: 27 April 2005
Second quarter: 17 August 2005
Third quarter: 8 November 2005

Fourth quarter and Year-end Report: February 2006

2005 Annual Report: March 2006

Board of Directors

Georg Ehrnrooth

Melker Schörling

Carl-Henric Svanberg

Bo Dankis

Carl Douglas

Gustaf Douglas

Georg Ehrnrooth
Chairman
Born 1940
Master of Science (Engineering)
Vice Chairman: Rautaruukki Oyj
Board member: Nokia Abp, Sampo Abp,
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,
and Karlshamns AB
Board member: Hennes & Mauritz AB
Member of the ASSA ABLOY Board since 1994
Holdings privately and through company:
5,310,080 Series A shares and 9,296,836 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 March
2003
Holdings: 86,000 Series B shares, Incentive
2001 convertibles corresponding to 10,750
Series B shares and Incentive 2004 convertibles
corresponding to 256,800 Series B shares

Carl Douglas
Born 1965
B.A.
Board member: Boxholms Skogar AB, Swegon
AB, Securitas AB and SäkI AB
Member of the ASSA ABLOY Board since 2004
Holdings: 0

Gustaf Douglas
Born 1938
Bachelor of Economics
Principal owner of Investment AB Latour and SäkI
Board Chairman: Investment AB Latour,
Boxholms Skogar AB and Säkl AB
Vice Chairman: 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 shares and 21,462,421
Series B shares
Through SäkI AB: 7,118,818 Series A shares and
954,200 Series B shares

Per-Olof Eriksson

Lotta Lundén

Sven-Christer Nilsson

Seppo Liimatainen

Mats Persson

Joakim Järrebring

Per-Edvin Nyström

Per-Olof Eriksson
Born 1938
Master of Engineering, Doctor of Technology h.c.
Board Chairman: Callans Trä AB,Odlander,
Fredriksson & Co. and Consolis Oy
Board member: Senea AB, SSAB Svenskt Stål
AB, AB Volvo, Investmentbolaget Öresund and
Elkem ASA. Member of the Royal Swedish Acad-
emy of Engineering Sciences
Member of the ASSA ABLOY Board since 1995
Holdings: 10,000 Series B shares

Lotta Lundén
Born 1957
Bachelor of Economics
Board member: J C, Bergendahlsgruppen,
Exportrådet and Glitter. Partner in Koncept-
verkstan
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

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, Incentive
2001 convertibles corresponding to 125
Series B shares and Incentive 2004 convertibles
corresponding to 7,800 Series B shares

Auditor

PricewaterhouseCoopers AB
Auditor in charge
Anders Lundin
Born 1956
Authorized Public Accountant

Executive Team

Bo Dankis
Born 1954
Master of Science
President and Chief Executive Officer
Head of EMEA division
Employed since 1997
Holdings: 86,000 Series B shares, Incentive
2001 convertibles corresponding to 10,750
Series B shares and Incentive 2004 convertibles
corresponding to 256,800 Series B shares

Joseph J. Grillo
Born 1957
Bachelor of Finance and Economics
Executive Vice President of ASSA ABLOY
Head of Global Technologies division
Employed since 2001
Holdings: Incentive 2001 convertibles
corresponding to 32,500 Series B shares and
Incentive 2004 convertibles corresponding to
132,300 Series B shares

Göran Jansson
Born 1958
Graduate Diploma in Business Administration
Deputy CEO and Chief Financial Officer
Employed since 1997
Holdings: 230,000 Series B shares, Incentive
2001 convertibles corresponding to 60,000
Series B shares and Incentive 2004 convertibles
corresponding to 171,000 Series B shares

Thanasis Molokotos
Born 1958
Master of Science
Executive Vice President of ASSA ABLOY
Head of Americas division
Employed since 1996
Holdings: 25,000 Series B shares, Incentive
2001 convertibles corresponding to 55,000
Series B shares and Incentive 2004 convertibles
corresponding to 31,100 Series B shares

Geoff Norcott
Born 1947
Bachelor of Engineering Hons. (Industrial),
1st class
Executive Vice President of ASSA ABLOY
Head of Asia Pacific division
Employed since August 2000
Holdings: Incentive 2001 convertibles
corresponding to 60,000 Series B shares
and Incentive 2004 convertibles
corresponding to 101,200 Series B shares

Åke Sund
Born 1957
Graduate Diploma in Marketing
Executive Vice President of ASSA ABLOY
Head of Market and Business Development
Employed since the Group was formed
Holdings: 135,000 Series B shares, Incentive
2001 convertibles corresponding to 60,000
Series B shares and Incentive 2004 convertibles
corresponding to 93,400 Series B shares

ASSA ABLOY’s Executive Team: Geoff Norcott, Thanasis Molokotos, Åke Sund, Joseph J. Grillo, Göran Jansson and Bo Dankis.

Production: n3prenör
English editing: Marcom International
Photographs: Ulf Huett, gettyimages and others
Printing: Ljungbergs tryckeri AB, Klippan

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

innovation, cost-efficiency and creating

added value for our customers.

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