ASSA ABLOY Annual Report 2005

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FY2005 Annual Report · ASSA ABLOY

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Annual Report 2005

Security, safety
and convenience
all over the world

2005 in brief

• S A L E S increased to SEK 27,802 M (25,526), with 5 percent organic growth.

• O P E R AT I N G I N C O M E (EBIT) amounted to SEK 4,078 M (3,683), an

increase of 11 percent.

• E A R N I N G S P E R S H A R E after tax and dilution amounted to SEK 6.97 (6.33),

an increase of 10 percent.

• O P E R AT I N G C A S H F L OW increased to SEK 3,702 M (3,439).

• J O H A N M O L I N was appointed as the new President and CEO on

1 December 2005.

Contents

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

Comments by division ...................................................56

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

Financial position ..........................................................58

Vision, Business Concept and Strategy ...........................6

Balance sheets .............................................................59

Brand Strategy................................................................9

Cash flow......................................................................60

The Market ...................................................................12

Cash flow analysis.........................................................61

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

Changes in equity .........................................................62

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

Financial risk management ............................................63

EMEA division ...............................................................24

Notes............................................................................66

Americas division ..........................................................28

Five years in summary ...................................................90

Asia Pacific division .......................................................32

Quarterly information.....................................................92

Global Technologies division..........................................36

Definitions of key data terms..........................................93

Report of the Board of Directors for 2005.......................42

Proposed disposition of earnings...................................94

Corporate governance report ........................................44

Audit report...................................................................95

Sales and earnings........................................................54

The ASSA ABLOY share................................................96

Income statements .......................................................55

Information for shareholders ..........................................99

ASSA ABLOY in brief

ASSA ABLOY is the world’s leading manufacturer and sup-
plier of locking solutions, meeting tough end-user demands
for safety, security and user-friendliness. With over 150
companies in more than 40 countries, and a world market
share of around 10 percent, ASSA ABLOY 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, Entrance Systems 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 29,500 employees and
sales of SEK 27.8 billion.

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

a more complete range of products than any other com-
pany on the market.

SALES
share of Group
total, %

EBIT
share of Group
total, %

SALES
share of Group
total, %

EBIT
share of Group
total, %

Americas

EMEA

ASSA ABLOY’s Americas division comprises companies in North and
South America. Americas is the Group’s second-largest division, account-
ing for 30 percent of total sales. During the year the division achieved an
organic growth of 5 percent and an EBIT margin of 18.3 percent. Its head
office is in New Haven, Connecticut, USA. Americas division has 24 pro-
duction units, 8 sales companies and 9,300 employees. The main markets
are the USA, Canada and Mexico. Some of the division’s leading compa-
nies are Corbin Russwin, Curries, Emtek, Medeco, Phillips and Sargent.

ASSA ABLOY’s EMEA division comprises all Group companies in Europe,
the Middle East and Africa. EMEA is the Group’s largest division, account-
ing for 41 percent of total sales. During the year it achieved organic growth
of 3 percent and an EBIT margin of 14.7 percent. Its head office is in Stock-
holm, Sweden. EMEA has 46 production units, 30 sales companies and
12,400 employees. The largest markets are Scandinavia and France, and
some of the division’s leading companies are Abloy, Assa, Tesa and
Vachette.

SALES
share of Group
total, %

EBIT
share of Group
total, %

Global
Technologies

ASSA ABLOY’s Global Technologies division is the Group’s worldwide organiza-
tion for global products and services. During the year the division achieved
organic growth of 10 percent and an EBIT margin of 14.1 percent. The division
accounts for 21 percent of the Group’s sales and has 15 production units, 40
sales companies and 3,500 employees. Global Technologies comprises four
business units:
– ASSA ABLOY HID, which accounts for 24 percent of Global Technologies’
sales. The business unit’s main areas are ID cards, card readers and access
control systems based on Radio-Frequency Identification (RFID). The products
are sold under well-known brand names such as HID and Indala.
– ASSA ABLOY Identification Technology (ITG), which accounts for 16 per-
cent of Global Technologies’ sales. The business unit’s products consist of vari-
ous types of identification technology based on RFID including smart cards,
electronic passports, ID cards and the electronic tagging of industrial products
and livestock. The products are sold under well-known brand names such as
Sokymat, ACG and Omnikey.
– ASSA ABLOY Entrance Systems, which accounts for 41 percent of Global
Technologies’ sales. The business unit is the world’s leading supplier of elec-
tronic door solutions. The products are sold under well-known brand names
such as Besam, EntreMatic and Doorman.
– ASSA ABLOY Hospitality, which accounts for 19 percent of Global Tech-
nologies’ sales. The business unit produces hotel locks and security systems
and sells chiefly to hotels and cruise ships. Its two leading companies and
brands are VingCard and Elsafe.

SALES
share of Group
total, %

EBIT
share of Group
total, %

GROUP SALES AND EBIT

Asia Pacific

ASSA ABLOY’s Asia Pacific division comprises the Group’s companies in
Australia, New Zealand, China and elsewhere in Asia. During the year the
division achieved organic growth of 2 percent and an EBIT margin of 11.1
percent. Asia Pacific accounts for 8 percent of the Group’s total sales and
has 9 production units, 8 sales companies and 4,300 employees. The divi-
sion’s largest markets are Australia, New Zealand and China. The largest
companies in the division are ASSA ABLOY Australia, ASSA ABLOY New
Zealand, Guli Security and ASSA ABLOY Wangli.

* 1996–2003 have not been adjusted for IFRS but

amortization of goodwill has been excluded.

Financials in brief

Sales, SEK M

of which: Organic growth

Acquired growth

Foreign exchange effects, SEK M

Operating income (EBIT), SEK M

Operating margin (EBIT), %

Income before tax, SEK M

of which, Foreign exchange effects, SEK M

Operating cash flow, SEK M2

Return on capital employed, %

Data per share (SEK/share)

Earnings after tax and dilution (EPS)

Cash earnings after tax and dilution (CEPS)

Shareholders´ equity after dilution

Dividend

Number of shares after dilution (thousands)

1 Proposed dividend.
2 Excluding restructuring payments.

2005

27,802

2004

25,526

643

4,078

14.7

3,556

3,702

15.9

2005

6.97

9.64

42.85

3.251

3,683

14.4

3,199

3,439

15.3

2004

6.33

8.93

34.74

2.60

378,718

Change, %

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED

INCOME BEFORE TAX /
OPERATING CASH FLOW

EARNINGS PER SHARE

2 Excluding restructuring payments.
3 Data for 2001 and 2003 excludes non-recurring items.
4 1996–2003 have not been adjusted for IFRS but amortization of goodwill has been excluded.

CEO’s statement

Great potential
through continuous improvements

• Sales totaled SEK 27,802 M (25,526).
• Organic growth reached 5 percent after a strong second

half of 2005.

• EBIT reached a record level of SEK 4,078 M, an increase

of 11 percent.

• Earnings per share were SEK 6.97, an increase of

10 percent.

• Proposed dividend is SEK 3.25.

On 1 December 2005 I took on the position of President
and CEO of ASSA ABLOY. During my first few months I
have concentrated on visiting as many Group companies as
possible. My first assessment is that the Group has great
potential for the future, with experienced staff and a good
position in the market.

Report on the year
The year 2005 was successful for ASSA ABLOY, with sales
totaling SEK 27,802 M and with an EBIT that rose by 11
percent to a record figure of SEK 4,078 M. The year started
relatively weak but sales improved continuously and
organic growth reached 5 percent for the full year.

These figures reflect good demand on the US market
which impacts both Americas and Global Technologies.
ASSA ABLOY has generally strengthened its position

through increased customer focus both within its tradi-
tional businesses and in segments of higher market growth
such as electromechanical locks, automatic doors, access
control and identification technology.

The Leverage & Growth program initiated in 2003
was concluded at the end of the year. The program has
improved the efficiency and productivity of the Group with
estimated annual savings of SEK 450 M. The program has
improved return on capital employed (ROCE) to 15.9 per-
cent, moving the Group towards its financial target of 20
percent ROCE by 2008.

ASSA ABLOY’s largest business division, EMEA,
achieved an organic growth of 3 percent. The year 2005
started slowly but improved as the year passed. The cre-
ation of united sales forces under the ASSA ABLOY brand
name and the implementation of Lean manufacturing were
initiated during the year. During 2005 R&D activity was
increased with several innovative products in the pipeline.
The profitability in EMEA was almost unchanged in 2005
despite the completion of the Leverage & Growth program,
which indicates that more structural work remains to be
done.

Americas had a successful year, with good growth of
5 percent and an improved level of profitability. The sales
forces were merged under the ASSA ABLOY brand name.

CEO’s statement

Intensified work directed towards the specification market
was well received, with a steep increase in the number of
quotations. The consolidation of manufacturing continued,
especially in Mexico where the Group faced problems at
the beginning of the year due to low demand. R&D efforts
were further coordinated during the year, with increased
output of innovative new products.

Asia Pacific did not live up to expectations, with only

2 percent growth and declining profitability. The low
organic growth was mainly due to weak demand in the resi-
dential market in Australia and New Zealand. Sales forces
were united under the ASSA ABLOY brand name in 2005.
Manufacturing was further concentrated to China, and the
volumes manufactured for other Group companies increased
sharply. Profitability in Asia Pacific will remain at a some-
what lower level than in the other divisions because of the
continuing increase of sales to other parts of the Group.
Global Technologies had a very successful year, with
strong growth of 10 percent and improved profitability. The
rapidly growing business area of ITG has been split into two
parts, one focusing on electronic access control and the other
on RFID (Radio-Frequency Identification) and ID manage-
ment. ASSA ABLOY Hospitality’s sales force was reorgan-
ized and parts of its manufacturing relocated, leading to
good improvements in both growth and profitability. ASSA
ABLOY Entrance Systems continued its good performance,
particularly in the USA, and added new products and services
through the acquisition of Doorman in the UK. From 1 Janu-
ary 2006 ASSA ABLOY Entrance Systems has become a sepa-
rate division in order to maximize the great growth potential.

Future development
A lot of work to improve efficiency and exploit synergies
within the Group remains for the years to come. One
important step is to unite sales forces under the ASSA
ABLOY brand name. The customer will meet one salesman
offering a portfolio of products from several product
brands. The Group is continuing to consolidate, relocate
and outsource manufacturing, to coordinate Research &
Development and to introduce shared administrative
services.

Product development will be increasingly directed
towards creating innovative products for market segments
with higher growth, which include electromechanical lock
solutions, automatic doors and security-door solutions as
well as electronic access and identification technologies.

Customers are increasingly looking for total locking
solutions that include ease of use and installation. ASSA
ABLOY has therefore developed open standards to allow
all our locks to integrate fully with the customer’s systems.
ASSA ABLOY strives to add customer value through
being close to the customer. Our efforts to lead the specifi-
cation market through early involvement in the customer’s
selection of security solutions are a good example of this
approach. The fast-growing service organization within
ASSA ABLOY Entrance Systems is another.

The year showed good development and progress in
many areas, which have improved ASSA ABLOY’s founda-
tion for continued success. This would not have been possi-
ble without the excellent professional work carried out by
our employees. They have shown themselves willing and
ready to change and meet the challenges of the future. They
know that continuous improvements are what it takes to
create success.

ASSA ABLOY is the largest company in our industry.
We have the right people and the necessary competencies
to continue to develop and strengthen our position.

ASSA ABLOY is a relatively young Group, created in
1994. The present Group has been formed through a large
number of acquisitions, but has in recent years focused
more on integrating, improving and renewing the various
businesses and company cultures.

The future creation of shareholder value will come from
a combination of profitable organic growth – based on the
development of innovative new products and services,
extended global market presence and continued improve-
ments in efficiency – and selective acquisitions.

Stockholm, 9 February 2006

Johan Molin
President and CEO of ASSA ABLOY

Security for visitors and works of art alike

Every year six million people visit the Louvre in Paris
– which makes it one of the world’s most popular museums.

respond quickly in case of fire, threat or accident so that

both people and works of art can be brought to safety. But

It is also the workplace for more than two thousand people,

it is equally important to have well designed security solu-

who include a specially trained corps of wardens. Museums

tions that protect the exhibits from theft or destruction, so

are often sited in historic old buildings that require specially

that future generations can enjoy the heritage of history.

planned security arrangements. It is vital to be able to

Vision, Business Concept and Strategy

Locks are the heart of
every security solution

Since Securitas and Wärtsilä merged their lock businesses in
1994, ASSA ABLOY has grown through a combination of
organic growth and acquisitions, and has improved its
earnings at the same time. Today ASSA ABLOY is the
world’s leading lock Group. Over the last eleven years
ASSA ABLOY has increased its sales from SEK 3 billion to
SEK 27.8 billion. The Group currently comprises more
than 150 companies with operations in over 40 countries.

Vision
“ASSA ABLOY will be the most successful and innovative
company on 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 objective
ASSA ABLOY’s primary financial objective is that return
on capital employed should exceed 20 percent. During the
acquisition phase of the Group’s strategy, substantial
amounts of goodwill were added, which have reduced
return on capital employed. The Group’s stated goal now is
to achieve its financial objective by 2008 at the latest.

• Sales should, on average, grow organically at about

5 percent a year over a business cycle.

• The EBIT margin should be improved to 16–17 percent.
This should be achieved mainly by exploiting synergies
within the Group.

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

cash flow should be maintained.

• Capital employed should be maintained at the present

absolute level, which means a relative improvement after
considering organic growth. Measures to make produc-
tion more specialized are reducing capital tied up in
inventory. Given the potential to increase utilization of
current production capacity, capital expenditure can be
maintained at today’s level – below current depreciation.

The new CEO has initiated a review of future restructuring measures. The results of this
review may affect the long-term financial objective.

ORGANIC GROWTH, %

* In 2003, organic growth was 0 percent.

Vision, Business Concept and Strategy

develop and strengthen collaboration with existing and
new distributors by means of education, sales support and
improved logistics and administration. At the same time
ASSA ABLOY is working to simplify end-users’ choice of
security products for different areas of application. During
2005 the coordination of marketing and sales forces under
the main ASSA ABLOY brand name was initiated.

3. Develop the door and window OEM markets
On many geographical markets ASSA ABLOY makes lim-
ited sales to Original Equipment Manufacturers of doors
and windows. The Group’s goal is to improve ASSA
ABLOY’s ability to meet the specific requirements of these
important customers. During 2005 ASSA ABLOY has
strengthened its positions on local OEM markets by working
actively with the customers on their product development.

Theme 2. Expand into new markets and segments
4. Capture and develop consumer opportunities
Today the consumer segment of the security market is frag-
mented, and consumers are looking for many different
security solutions. ASSA ABLOY’s goal is to increase the
Group’s presence in the consumer segment through a vari-
ety of channels and to create a new consumer category –
home security. ASSA ABLOY will offer relevant products
and services that make it possible for the consumer to cre-
ate a safer, more secure daily life. Yale is currently being
positioned as ASSA ABLOY’s worldwide consumer brand,
and Yale Security Point stores are a franchise concept that
ASSA ABLOY has launched during the year.

Strategy
For some years ASSA ABLOY has followed a strategy
model based on three phases of development:
1. Global platform. Build a worldwide presence and

steadily add new areas of expertise.

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

value for customers.

The refined business strategy
This strategy has been refined to enable ASSA ABLOY to
realize the Group’s Vision, Business Concept and financial
objective. The refined strategy is based on three overriding
themes subdivided into seven main activities. Implementa-
tion of the refined strategy has been in hand since its intro-
duction in 2004.

Theme 1. Grow our core business
1. Lead the specification market
ASSA ABLOY’s goal is to strengthen the Group’s collabora-
tion with architects and security consultants, who play an
important role in choosing security solutions for new con-
struction projects. Today’s large-scale office and factory
buildings have highly complex security requirements, and
by helping architects to specify security solutions, ASSA
ABLOY contributes to more secure buildings. During 2005,
work on project specifications of security solutions was
intensified and the number of specifications grew satisfac-
torily, especially on the US market.

2. Develop channels to market
More than 90 percent of ASSA ABLOY’s sales go through
fragmented local distribution. The Group’s goal is to

OPERATING MARGIN (EBIT), %1

OPERATING CASH FLOW / EBIT 1

NET CAPITAL EXPENDITURE /
DEPRECIATION 1

1 1996–2003 have not been adjusted for IFRS but amortiziation of goodwill has been excluded.

Vision, Business Concept and Strategy

5. Grow electromechanical door solutions
There is a rapid pace of growth in the electromechanical
door solutions segment. ASSA ABLOY’s goal is to increase
the total market by reducing the installation costs for end-
customers. This is being achieved by using open communica-
tion standards such as Hi-O, a platform for intelligent com-
munication between the various components of the door
environment, which simplifies installation. In order to expand
the market, these products are also sold through additional
sales channels such as installers of electronic security systems.

6. Develop the Asian potential
Asia offers a major potential growth market. ASSA
ABLOY’s goal is to develop the Group’s presence on mar-
kets in Asia, and particularly in China. At the same time the
Group is trying to increase the production of simple, high-
volume products in Asia. In 2005 ASSA ABLOY acquired
BEST Metaline, which is one of South Korea’s leading sup-
pliers of lock and door fittings and automatic doors. In
China ASSA ABLOY has acquired a majority stake in Wang-
li, which is focused on the manufacture and distribution of
high-security doors and high-security locks. Wangli has a
comprehensive distribution network in China and holds
a leading position in its segment.

Theme 3. Radically reduce our break-even cost
7. Capture purchasing and production synergies and
adopt Lean methods
The Group’s fragmented production structure, with result-

ing overcapacity in many areas, is one consequence of its
many acquisitions. The Group’s goal is to make the produc-
tion structure as a whole more efficient, while at the same
time maintaining a local presence for rapid assembly of cus-
tomer-tailored products. Manufacturing, especially of sim-
ple, high-volume products and components, will gradually
be moved to low-cost countries or outsourced. ASSA
ABLOY sees significant potential in further coordination of
purchasing and increased standardization of components.
In 2005 several production plants were closed or merged in
New Zealand, Australia, the United Kingdom, Denmark,
Italy, Spain and elsewhere. To an ever-increasing extent the
Group’s production units have adopted cost-effective
(‘Lean’) production methods. All activities from adminis-
tration to manufacturing are now being evaluated so as to
eliminate superfluous steps, smooth the product flow,
lessen administrative costs, reduce inventories and use
premises efficiently.

Completion of the Leverage & Growth program
Towards the end of 2003 a two-year action program,
‘Leverage & Growth’. was launched with the aims of tak-
ing advantage of economies of scale and creating a basis for
sustainable growth. Underperforming companies should be
turned round by the end of 2004, or else divested. The
action program was completed during 2005 at total cost of
SEK 1,320 M. The Group’s employees have been reduced
by a total of 1,400 people and annual savings are calculated
at SEK 450 M.

Brand Strategy

Clearer differentiation
of the Group’s brands

As a result of ASSA ABLOY’s many acquisitions the Group
possesses a wide range of brand names that are well recog-
nized by customers. To be able to manage and take advan-
tage of this valuable asset and to benefit from the size of
the Group, ASSA ABLOY is currently reviewing the brand
strategy.

ASSA ABLOY’s brand message Unlock Your Life was
launched in 2002. The aim is to link the word ‘security’ to
‘freedom’ and not to ‘fear’. As far as possible the normal
negative perceptions of security should be avoided. Its
opportunities should be stressed instead. This philosophy
pervades the Group’s whole brand strategy and brand
platform.

Fewer brands
To prevent duplication and high parallel development
costs, the number of brands will be reviewed and reduced.
ASSA ABLOY will be the Group’s only main brand for
security solutions, and represents the Group’s accumulated
knowledge, professionalism and sense of service. It is thus
not tied to any particular products.

The main brand will be backed by a number of strong

brands that the Group chooses to invest in. These are
currently being selected in close collaboration with the
Group’s regional units. The strong brands will sometimes
work as components of a product solution under the Group

brand ASSA ABLOY, but will also continue to operate as
independent brands where they can meet the needs of cus-
tomers.

The project to select the Group’s strong brands will
judge them on how general or specialized they are. The
review will also take account of how local or global each
brand is. The number of general brands should be restricted
to a smaller total.

Joint sales forces
In order to compete effectively on a global market, ASSA
ABLOY’s sales forces are increasingly working across com-
pany boundaries. The joint sales organizations work under
the Group brand ASSA ABLOY, but at the same time act
as representatives of the local product brands that the cus-
tomer already knows. The salesmen thus handle not just
a single brand but several product brands in meeting cus-
tomers’ security needs.

Yale the consumer brand
Yale is ASSA ABLOY’s worldwide consumer brand. On
some markets the brand will operate in conjunction with
strong local brands, while in other areas Yale will shine
more strongly on its own. The Yale Security Point stores are
one such example. This is a franchise concept currently
being tested in South Africa, Germany and Great Britain.

Security and safety for millions of commuters

Every day millions of people all over the world use
public transport systems to travel to and from work, visit

railway station in the world. City transport systems are

not just travel routes but are the workplaces of thousands

their friends and take part in leisure activities. In New York

of people. The authorities running the systems are respons-

City and its surroundings, eight million people a day use the

ible for the lives and security of everyone who uses them.

subway, buses and suburban trains. Three million people a

If an accident occurs, people must be able to get out easily

day pass through Shinjoku Station in Tokyo, the busiest

and quickly.

The Market

The security market – a growing
industry in course of change

Today ASSA ABLOY is the world’s leading lock company.
As the Group has grown, its product portfolio has been
augmented with products that are relevant not just to the
lock market but to the security market in general. The
requirements of different customers vary greatly. Thus
airports, private homes and hospitals have very different
security requirements.

Development of the security market is driven primarily
by the general trend towards higher security. As crime, vio-
lence and terrorism increase and look like continuing to
increase, the overall threat picture has changed. People’s
growing insecurity moves security considerations high up
the agenda, driving the development of more advanced
security solutions and the upgrading of existing security
solutions.

The total security market consists mainly of security
services and electronic and mechanical security products.
ASSA ABLOY estimates the total security market at more

than 200 billion Euro, and the Group is currently active in
about 15 percent of this total market.

Electronic and mechanical security products
ASSA ABLOY’s range of electronic security products
includes electronic cylinders, automatic doors and products
for access control. Annual growth of the market for elec-
tronic security products is expected to be around 10 per-
cent.

Besides locks, the main mechanical security products
also include handles, door closers, evacuation products and
door and window fittings. Demand for mechanical security
products is driven primarily by new construction and the
replacement of old locks in existing windows and doors.
This section of the market is expected to grow, in the long
term, at the same rate as each market’s GDP, averaged over
a business cycle. For ASSA ABLOY the market for mechani-
cal security products stays relatively stable. This is partly

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 means that in these sectors ASSA ABLOY’s market share is 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 targets
are based on the expected growth of these markets.

The Market

because its sensitivity to economic fluctuations is buffered
by a substantial aftermarket, and partly because ASSA
ABLOY’s operations are spread over a large number of
countries with different business cycles. Consolidation
between companies in the mechanical security segment is
common and this trend is expected to continue.

Distribution channels
A characteristic of today’s security market is that manu-
facturers of security products, such as ASSA ABLOY, are
usually separated from end-users behind various forms of
distribution. A high proportion of ASSA ABLOY’s products
are sold in small volumes to a large number of end-cus-
tomers with different needs. In consequence, the distribu-
tion of mechanical and electronic security products is in
general local and fragmented.

The role of the distributor can vary between the differ-
ent customer segments. In the commercial segment, distrib-
utors on some markets act as consultants, engineers and
project managers to produce good security solutions. They
have good knowledge of the customer’s needs and ensure
that the products meet local regulations.

Locksmiths, buying from ASSA ABLOY either direct or

through wholesalers, are among the most important dis-
tributors of mechanical security products. Many manufac-
turers of doors and windows integrate lock cases and other
security items into their products before delivery to their

customers. Wholesalers of building materials and locks
play important roles in supplying the solutions specified by
manufacturers for different construction projects. Retailers
– building materials supermarkets and ironmongers – serve
the consumer market.

In the case of electronic security products, products flow
from manufacturer to end-user mainly via security contrac-
tors and specialized distributors. But the products are also
sold through integrators 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 the increasingly standardized technology, which
makes it easier to integrate the different components of
security solutions with one another. This means that, to
remain competitive, manufacturers will be compelled to
focus on specific product segments.

Distribution is changing too. Door and window manu-
facturers, DIY chains and other players are gaining strength
by consolidation. Some locksmiths are placing growing
emphasis on electronics, while a growing number of IT
integrators are starting to offer physical security solutions
as well.

The Market

Another marked trend is that manufacturers in low-cost
countries 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
significantly 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 customers increasingly choose either a high-secu-
rity solution or a low-priced option.

Differences between markets
Americans spend more than twice as much on panic devices
as Europeans. Conversely, northern Europeans spend three
to four times as much as Americans on high-security locks
for their homes. Automatic doors are also significantly
more common in Europe than the USA. And use of electro-
mechanical products is far more widespread in the com-
mercial segment than the residential. If the demand for
security and safety solutions were to be the same in Europe
and the USA, the total market would be roughly doubled.
In the long term there is no reason why the present differ-
ences between segments should endure. One of ASSA
ABLOY’s challenges is to develop the market so as to
reduce the great differences between markets and segments
that are found today.

The world lock market is still relatively fragmented.
But in individual countries the market is relatively consoli-
dated, since in the industrialized regions of the world it is
very common that family-owned companies still hold lead-
ing positions on their own home markets. They are well-
established and have strong ties with local distribution
networks. However, in the less developed countries, estab-
lished lock standards and brands are less common.

Competitors
In the USA Ingersoll-Rand is the largest competitor in the
commercial segment and is also strong in the residential
segment. Other major players on the American market
include Stanley Works and, in the residential segment,
Black & Decker.

In EMEA the main competitors are the Swiss company
Kaba, which focuses on high-security solutions, and Dorma
in Germany.

Imports from low-cost countries provide much of the

competition in Australia and New Zealand.

In China the lock market remains 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.

The main competitors in Global Technologies division’s

segment of global products and solutions are Gemplus,
Dorma, Stanley Works and Onity.

USA and Canada
In general the residential segment in the USA currently 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.

In the USA and Canada it is important to plan security

solutions, via specialist specifiers, at an early stage of the
building’s planning or design. These specifiers ensure that
the security solutions meet all laws and regulations while
also offering the highest possible degree of user-friendliness
and convenience. Collaboration with architects is often
crucial here in creating the best security solutions.

GLOBAL-LEVEL COMPETITORS

ASSA ABLOY’S TOTAL SALES BY REGION, %

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

The Market

Rest of Asia
In other parts of Asia, ASSA ABLOY is represented by sales
offices. The Group has gained a strong position on the South
Korean market through its acquisition of BEST Metaline,
one of the country’s leading suppliers of lock and door fit-
tings and automatic doors. In India ASSA ABLOY has a
sales office to provide support to its Indian distributors.

Global products and solutions
ASSA ABLOY HID
Because the technological differences between markets in
different countries are small, cards and card readers for
both smart cards and traditional contact-based methods of
access control form a worldwide product segment. Demand
for products of this type continues to increase and growth
was strong in 2005. HID is ASSA ABLOY’s largest com-
pany in the segment. HID’s iClass cards hold a significant
share of the world market for electronic access control. The
market is still fairly fragmented.

ASSA ABLOY Identification Technology (ITG)
The fastest-growing segments of the RFID (Radio-Frequency
Identification) market are identification products for elec-
tronic passports, banks and payment systems for public
transport. The RFID market remains fairly fragmented.

ASSA ABLOY Entrance Systems
There are local differences in requirements for automatic
door solutions. Nonetheless, the requirements of the largest
customer segments – airports, hospitals, hotels, restaurants
and stores – are so similar everywhere that the product
segment is best marketed globally. The market for ASSA
ABLOY Entrance Systems is growing and consolidation is
continuing.

ASSA ABLOY Hospitality
The primary target group for ASSA ABLOY Hospitality
comprises large international hotel chains. The market has
shown some recovery after the decline of the last few years.
Price pressure in the aviation industry indicates that travel
should grow in the future.

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

Europe
EMEA is characterized by striking differences between dif-
ferent national markets. In many European countries EU
standardization of security products is now complete and
has become a driver for increased sales. It has raised previ-
ously low national requirements and thereby also raised the
quality of products. However, standardization only covers
the level of security provided, not shape or dimensions. In
these respects the national differences remain.

The countries of northern and southern Europe show
great differences. Customers in the north generally demand
higher quality in residential security products than those in
the south.

Most of the countries of eastern Europe currently have a

lower standard of locks than many other parts of Europe.
Foreign products – e.g. Swedish or German – are generally
perceived as superior. However development in eastern
Europe is proceeding rapidly and leading to rising standards.

Middle East
The largest markets in the Middle East are Saudi Arabia,
Iran, Israel and the United Arab Emirates. Many of the
markets in the region have thriving economies. ASSA
ABLOY has its strongest foothold in the region in Israel,
where Mul-T-Lock is market leader.

Africa
Apart from South Africa, most African countries have poor
security standards for both the residential and commercial
segments. ASSA ABLOY is the market leader in South
Africa, which is the largest market in Africa.

Australia and New Zealand
The lock markets in Australia and New Zealand are rela-
tively consolidated, and ASSA ABLOY’s companies are the
clear market leaders in both countries. The commercial and
residential segments each account for about half of Asia
Pacific division’s sales there.

China
The residential segment has weakened somewhat, but gen-
eral growth of the security market remains strong. China
currently has relatively poorly developed security standards
and produces an abundance of low-quality products that
are mostly exported. ASSA ABLOY has established its own
manufacturing plants and now faces a challenge in educat-
ing and developing the distribution chain towards products
offering higher security.

ASSA ABLOY’s products

Growth through
product development

ASSA ABLOY has the largest installed base of locks and
lock systems throughout the world. These products are tail-
ored to the different needs and lock standards of world
users. ASSA ABLOY’s pace of innovation is reflected in the
many patents that Group companies own. Mechanical
products still account for the majority of patents, but
electromechanical products are the fastest-growing area.
A continuous flow of innovative new products is the single
most important source of organic growth, and focused
product development is a critical success factor.

Complete security solutions vital to sales
ASSA ABLOY works all the time to develop its products in
ways that will satisfy the end-user’s requirements for secu-
rity, safety, convenience and design. To meet these customer
requirements more comprehensively, the Group focuses on
developing total security solutions for different customer
segments. Such solutions incorporate mechanical and
electromechanical products that also make installation and
after-sales service simpler. These complete security solu-
tions are becoming ever more crucial to the Group’s sales
and earnings.

Shared Technologies
The use of electromechanics in doors is growing rapidly,
which strengthens the need to integrate security solutions
with access control systems. ASSA ABLOY has therefore
created an organization named Shared Technologies to
take responsibility for the standardization of electronics
throughout the Group. The goal of standardization is to
achieve lower development costs and shorter development
times for new products. One area concerned is electronic
lock cylinders, which includes the Group’s CLIQ product
range. Another is Hi-O (Highly Intelligent Operation), a
platform for intelligent communication among the various
components in the door environment.

The importance of design
In all product groups, design has become an ever more
important factor in winning sales. Customers appreciate
the added value of being given greater choice regarding
shape, color and finish. ASSA ABLOY is working actively
to integrate design as an important part of product devel-
opment, and on several markets has taken initiatives to
work with industrial designers and interior decorators in

The Group has launched Hi-O (Highly Intelligent Operation) a new range of
electromechanical doors and door frames with a pre-installed cable harness
and contacts ready to connect up the lock unit. The new products are thus
far simpler to install and can easily be upgraded to more advanced locks
later.

developing designed products. Such products tend to
appeal more strongly to architects and specifiers, and
demand for them is rising steadily.

ASSA ABLOY’S SALES BY PRODUCT GROUP

ASSA ABLOY’s products

Mechanical products

Mechanical products still account for more than half of
ASSA ABLOY’s world sales. Mechanical locks provide
the two basic functions of any security device: identifica-
tion (the key) and mechanical strength (the lock). There
continues to be a large market for these products, which
combine good functionality in meeting many security
needs with a moderate cost. Examples of traditional
mechanical products include door locks, padlocks,
handles and door closers.

Increased security needs
There is a clear trend towards higher levels of security
in mechanical products. In many developing countries,
for example in Asia, rising standards of living mean that
more people feel a greater need for security. Simple,

low-quality locks are therefore being replaced by
modern high-security locks. But a growing demand
for sound security solutions applies to industrialized
countries too.

A large installed lock base
ASSA ABLOY has a large base of installed locks, which
creates great opportunities for product upgrades and
represents a solid foundation for the important after-
market. An essential part of the Group’s strategy is to
offer products that comply with existing dimensional
standards, but that are better at satisfying higher secu-
rity demands and easier to install.

can continue to utilize and improve existing components.
In comparison with the company’s previous series of lock
cases, Evolution provides a better range of products with
60 percent fewer components.

Modular platforms

Many of ASSA ABLOY’s mechanical products employ iden-
tical building blocks, which provide great opportunities to
gain benefit from economies of scale. By making product
development more efficient and basing products on modu-
lar platforms, Group companies can utilize common com-
ponents without loss of product variation.

Economies of scale in purchase of materials are another

advantage of using modular platforms. In addition,
improvements and updates are rapidly applied to the whole
product range, and products can be adapted quickly when
customers’ demands and requirements change.

Evolution
The Evolution series of lock cases is one example of modu-
larization applied to both product development and pro-
duction. The modular series of lock cases makes it simple to
provide new functions in the products while the company

Electromechanical
locks

Electromechanical locks are another of ASSA
ABLOY’s fast-growing product segments.

ELVA
ELVA is an electronic front-door lock intended for
the residential market. It has the basic design of a
traditional lock but has many new and convenient
functions.Thus the door can be locked either with a
key or by remote control.The coding technology
(using one-time codes) and security between the
remote control unit and the lock are the same as
that used by banks to communicate over the Inter-
net.A lost remote control unit can easily be barred
from use.

ASSA ABLOY’s products

Electromechanical products

As a rule electromechanical products provide higher secu-
rity than traditional mechanical products

because of their greater convenience.
Locking and unlocking become
simpler while the security of
the locked door increases.
ASSA ABLOY offers a large
range of electromechanical
products ranging from elec-
tric strikes and remotely
actuated door locks to auto-
matic doors and advanced

card-based solutions. By
exploiting developments in
microprocessor and commu-
nications technology, future
electromechanical products
will offer additional con-
trol and monitoring func-

tions. There are also great
opportunities of incorporating

electromechanics in ASSA ABLOY’s more traditional
mechanical products, and many Group companies are
developing electromechanics for this purpose. The Group’s
sales of electromechanical products are now growing at a
faster rate than those of mechanical products.

Simpler installation and operation
The trend is towards products that are simpler to install
and simpler to integrate with the other systems used to
automate buildings. This is driving the development of
more intelligent products with built-in communications.
Electromechanical products can now handle a long list of
security requirements and are especially suitable for the
more demanding security environments found in schools,
hospitals, airports, warehouses and museums.

Automatic doors

ASSA ABLOY has a world-leading position in auto-
matic doors. There is strong demand for convenience
and easier entrance and exit. As customer requirements
increase, many store chains and hospitals, for example,
are investing in tailored entrance systems that also
include service. ASSA ABLOY’s broad product range
gives the Group a unique abilty to integrate automatic
door operation with locking and access control so as to
meet customers’ demands for simple, convenient secu-
rity solutions.

Security solutions
for hotels

Modular platforms are used for electromechanical
products too. One example of a modular product is the
Signature hotel-room lock from VingCard. The applica-
tion of modular concepts to production allows the cus-
tomer to combine different components, with different
functionality and design, in creating security solutions.
The new product simplifies communication between
the electromechanical components and makes after-
market services easier.

ASSA ABLOY’s products

Identification and
access control

One of ASSA ABLOY’s fastest-growing product areas
is identification and access control based principally
on RFID (Radio-Frequency Identification) technology.
One advantage of RFID is that security monitoring
and access control take place without physical con-
tact. The need for more secure solutions is further
driving the development of ‘smart’ cards on which
personal information about the user can be stored.
Service aspects, such as administration of access
cards, are growing in importance in identification
and access control.

Where there are extra-high demands for security,

RFID and personal information can be combined
with biometry – for example, fingerprints or iris scans.
These products can provide extremely high levels of
security. Other techniques that can be applied to raise
security include holograms and ultraviolet inks. ASSA
ABLOY is also working with the American company
CoreStreet to develop a new system for secure identifi-
cation in electromechanical locks.

ASSA ABLOY is well positioned to claim a share
of the growing market for identification and access
control.

Security doors

ASSA ABLOY sells security doors
mainly on the American market. In the
USA there are stringent requirements
for emergency evacuation and fire
safety, which leads to a powerful
demand for security doors and espe-
cially steel doors.

Sustainable development

The environment and ethics
– a global responsibility

Since the Group was created, ASSA ABLOY has based its
operations on the four Cornerstones of Vision, Realism,
Ethics and Courage. These form the foundation of the
Group’s present endeavors towards sustainable develop-
ment. ASSA ABLOY is working systematically to meet its
ethical and social responsibilities towards its employees,
its shareholders and external bodies.

Risk management
ASSA ABLOY’s work on sustainable development is
marked by an awareness of risks, but also by efforts to
exploit opportunities and create advantages through
systematic handling of such issues.

The Group’s own analysis reveals three main areas

of risk:
– Environmental impact in production.
– Lack of business ethics on many different markets.
– Operations in, and suppliers from, low-cost countries.

ASSA ABLOY is working steadily to reduce risks in various
business processes, including production (with focus on
the environment), purchasing and acquisitions. It is also
addressing ethical and social issues.

Responsibility in the Group
ASSA ABLOY’s Board of Directors has the ultimate respon-
sibility for policy in this area, while the CEO is responsible
for producing, implementing and monitoring a detailed
framework of rules for sustainable development. There is
an executive at Head Office with primary responsibility for
sustainable development and at least one person with simi-
lar 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 Environ-
mental Director for environmental issues.

Code of Conduct
To facilitate risk management and the regulation of envi-
ronmental, ethical and social issues, a code of conduct enti-
tled simply ‘Our Code of Conduct’ was introduced in 2004.
This is based on a combination of ASSA ABLOY’s primary
policies and international conventions such as the United
Nations Declaration of Human Rights and the core con-
ventions of the International Labor Organization. The
Code was adopted throughout the organization during
2005 and is one means of bridging the cultural differences
in values that can arise. ASSA ABLOY has laid down a
universal standard of behavior that all employees should
acquaint themselves with.

Vision
• The world leader in safe and secure

lock solutions

• Leading in size and thought

Realism
• Develop the core business
• Know your business

Ethics
• High ethical standards
• Trust and respect other people

Courage
• Lead and embrace change
• Innovate

Sustainable development

Environmental impact in production
ASSA ABLOY has carried out thorough surveys of all its
factories in terms of the external environment, health and
safety. An environmental program was subsequently devel-
oped, which covers:
– Implementation of environmental management systems
meeting ISO 14001 or similar standards in all factories
with significant environmental impact by 2006 at latest.
– Review of the use of organic solvents and possible alter-

natives to them.

– Review of the use of hexavalent chromium and substitu-
tion of alternatives. Implementation of the EU’s directive
on Restriction of Hazardous Substances (RoHS), which
forbids the use of hexavalent chromium for passivating
certain electronic and electromechanical products.
– Internal audits, including more thorough local risk

analyses.

– Health and safety programs.
– Introduction and reporting of key parameters, for exam-
ple energy consumption, use of solvents, and accident
statistics. These parameters were internally reported for
the first time in 2005 and will form the basis for setting
quantifiable improvement targets.

Ethical and social business issues
In 2005 ASSA ABLOY began a survey of how its local com-
panies manage their ethical and social risks. The aim of the
survey is to raise awareness in the organization and to
ensure that the Code of Conduct is observed. The results
will lay the ground for action plans and indicators for
control and monitoring.

Evaluation of suppliers
Since 2004 local activities have been underway to include
issues from the Code of Conduct in the Group’s system for
monitoring its suppliers. A concept of how to evaluate and
inspect suppliers now exists. As part of the comprehensive
quality control operation for monitoring suppliers, pilot
inspections took place in 2005. In addition to actions on
suppliers, guidelines for the Group’s investments and acqui-
sitions have been prepared.

CODE OF CONDUCT

The Group’s Code of Conduct covers the following subjects:

• Business ethics
– Fair competition and antitrust legislation
– Bribery
– Records and reports
– Government investigations
– Conflict of interest

• Workers’ rights, human rights, consumer interests and

community 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

Ongoing initiatives
In 2006 the environmental program is being expanded with
greater control and more reporting from the divisions. A
program of internal audit is also being introduced to ensure
that the Code of Conduct is being observed and that ASSA
ABLOY’s basic needs in sustainable development are being
achieved. An action plan for continuous monitoring of the
Code of Conduct will be implemented in the Group.

The program for controlling suppliers will be extended
in 2006. This means that major suppliers operating in low-
cost countries will be inspected by auditors working in
the purchasing organization and specially trained for the
purpose.

The growing interchange of experience between ASSA

ABLOY’s companies will strengthen the Group and
improve the coordination of its work on sustainable
development.

Boom time for the Chinese construction industry

Construction is currently in a phase of expansion.
Forecasts indicate that, by 2007, total construction in

buildings are springing up, even if they are far less high than

the 101 floors of the world’s tallest building, Taipei 101.

progress in China will have increased by over 10 percent.

Working closely with architects is crucial to ensuring

Other large Asian cities such as Hong Kong and Singapore

that the right security systems are installed – and such

are growing and new houses, office blocks and commercial

specification work often leads directly to sales success.

EMEA division

–11

–10

–9

–8

–7

–6

–5

– 4

–3

–2

–1

+ 3

+ 9 +10 +11 +12

Increased focus on
production synergies

CHARACTERISTICS OF THE EMEA DIVISION

• The division’s markets are strongly diversified, with signifi-

cant local differences.

• EMEA comprises many and varied companies with good

knowledge of their local markets.

• In EMEA’s largest markets there is no clear distinction
between products for the residential and the commercial
segments.

The EMEA division comprises companies in Europe, the
Middle East and Africa. EMEA is the Group’s largest divi-
sion and accounts for 41 percent of total sales. During the
year the division achieved an organic growth of 3 percent
and an EBIT margin of 14.7 percent. The EMEA division
has 12,400 employees, 46 production units and 30 sales
companies. The division is organized into eleven geographi-
cal market regions. EMEA’s management is based in Stock-
holm, Sweden. The division’s largest markets are Scandi-
navia and France, and the leading companies are Abloy,
Assa, Tesa and Vachette.

Local differences
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. Consequently there
may be substantial differences between the products in
demand on each local market. ASSA ABLOY’s strength is

that its companies have a large installed base of locks in
every local market, which leads to good aftermarket sales.
ASSA ABLOY has excellent relationships with distributors
and good knowledge of local lock standards. The after-
market accounts for a significant fraction of EMEA’s sales.
Local brands play an important part in winning such
business.

In EMEA’s largest markets there is generally no clear
distinction between products for the residential segment
and products for the commercial segment. Many products
currently sell to customers 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 exam-
ple, the American market.

Many Group companies have a broad product range to

cater for different local demands and dimensional stan-
dards and different door materials such as wood, alu-
minum, steel and glass. With modification, some of these
products can be used in many of EMEA’s market regions
with the aim of creating more secure, more functional lock-
ing solutions. However, this requires increased efforts in
certain markets to inform and educate dealers, customers
and other interested parties about the advantages of better
security solutions.

Report on the year
Demand for ASSA ABLOY’s products was generally stable
during 2005. The year started weakly with relatively low
demand in the first half of the year, but sales improved in
the second half of 2005. EMEA saw strongest growth in its
markets in Scandinavia, eastern Europe, the Middle East
and Africa.

The prices of raw materials, including important metals

EMEA division, Key figures

EMEA division

2005

2004
SEK M SEK M

2005

2004
EUR M EUR M

11,369 10,747

1,225

1,179

280

284

11,649 11,031

1,255

1,210

184

174

Income statement

Sales, external

Sales, internal

Sales

Organic growth

Operating income (EBIT)

1,707

1,586

Operating margin (EBIT)

14.7% 14.4%

Capital employed

– of which goodwill

10,151

9,433

1,077

1,046

4,709

4,462

499

495

Return on capital employed

16.6% 16.3%

Cash flow

Operating income (EBIT)

Depreciation

Net capital expenditure

Change in working capital

Cash flow 1

1,707

1,586

499

529

–335

–340

1,901

1,826

184

–36

205

174

–37

201

Average number of employees

12,405 12,774

1 Excluding restructuring payments.

such as brass and zinc, continued to rise. However, Group
companies were largely able to compensate for these cost
increases by means of greater cooperation in purchasing
and by raising their own prices.

During 2005 EMEA began to unify the Group compa-

nies’ marketing and sales forces under the main ASSA
ABLOY brand name.

The Leverage & Growth action program, whose activi-

ties came to an end during the year, has improved ASSA
ABLOY’s production structure. ‘Lean manufacturing’
methods are used more and more widely in the division’s
factories.

Ongoing reductions of the cost base will play a major

role in ASSA ABLOY, and experience gained from the
Leverage & Growth program will be important in seeing
these continuing measures through.

The importance of the electromechanical product seg-
ment continues to grow throughout ASSA ABLOY, and in
EMEA the segment recorded good growth during the year.
One example of this progress was the success of CLIQ,
which achieved particularly good sales in Germany. The
German market is characterized by a relatively high pro-
portion of large office complexes with security solutions
based on masterkey systems. One advantage of CLIQ is
simpler key management, which makes it easy to exclude a
key from the system. Another is the ability to handle
systems with more than 2000 cylinders.

The year saw continued strong competition from low-

SALES / EBIT 2

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 2

EBIT / CASH FLOW 2

1 Excluding restructuring payments.
2 2003 has not been adjusted for IFRS but amortization of goodwill has been excluded.

EMEA division

cost countries offering simpler products aimed primarily at
the residential market. ASSA ABLOY’s competitive advan-
tages in this segment are its wide product range, well-
known brands, short delivery times and well-developed
local distribution network. Group companies are meeting
the growing competition by reducing costs and focusing on
product-based customer segmentation.

Market regions
Scandinavia continued to make good progress, with a
strong demand for ASSA ABLOY’s products that was
strengthened by good growth in new construction. There
was also rising demand from door and window manufac-
turers and ASSA ABLOY succeeded in winning several
major contracts.

The domestic market in Finland remained stable and

there were encouraging increases in export sales.

In France the demand for ASSA ABLOY products re-
mained stable. The Group has initiated the amalgamation
of the region’s sales organizations.

Sales development in Germany and Switzerland was
stable. The region has also continued with reorganization
and the integration of the Group’s German companies into
fewer but larger units.

In the United Kingdom, sales developed well during the

year, especially in the Do-It-Yourself market.

There was good demand for ASSA ABLOY’s products in

the Benelux countries. The Group’s acquisition of Nemef
has strengthened its position among Original Equipment
Manufacturers of doors and windows. In Belgium ASSA
ABLOY’s operations have been concentrated in a single
company.

The Italian market remained weak in 2005. ASSA
ABLOY’s focus in Italy is to improve domestic sales.
Restructuring of the Group’s Italian companies is continu-
ing, with the transfer of some production to low-cost
countries.

Spain experienced good demand on the domestic mar-
ket in 2005. Consolidation of ASSA ABLOY’s production
and sales companies has continued.

The Group’s companies in eastern Europe showed
strong growth during the year. The Group has continued to

invest in production plants in Romania and the Czech
Republic. Good access to a qualified workforce and high
efficiency mean that the plants in eastern Europe have good
capacity for future expansion.

ASSA ABLOY has also achieved very good growth in
the Middle East. The Group company Mul-T-Lock has con-
tinued to increase its market share in Israel and has intro-
duced a number of new products.

Group companies in Africa also exhibited good growth

in 2005. ASSA ABLOY acquired Security World in South
Africa, a franchise chain of security stores which has been
renamed Yale Security Point.

Ongoing initiatives
Unified sales forces
One of EMEA’s continuing initiatives is that the market
regions should create unified sales forces under the main
ASSA ABLOY brand. The sales forces will offer a broader
product range with strong local brands backed by products
from other parts of the Group.

Cost-efficient production
ASSA ABLOY is focusing on exploiting production syner-
gies between Group companies. Production should be con-
centrated in fewer factories and part of the production
moved to low-cost countries. The remaining factories will
manufacture a smaller number of different products but
larger volumes of each individual product.

The division is currently engaged in building up a ‘Lean
team’ with the aim of making both production and admin-
istration more efficient. The project began in 2005 and will
have high priority in the next few years.

Changing the production structure has been given
renewed impetus by the growing competition from new
players emanating for example from China. However,
ASSA ABLOY’s products are hard to copy because of the
great variation within the product families. In the future
standardized components will increasingly be produced
in low-cost countries and then assembled and tailored to
customers’ needs in the various local markets for rapid
delivery to customers.

EMEA DIVISION
SALES BY PRODUCT GROUP

KEY PRIORITIES

Exploit production synergies and achieve cost-efficient
production through continuing specialization.

Unify the sales organizations under the main ASSA ABLOY
brand name.

Continue to develop the specification of major projects.

Increase product development activities.

EMEA division

Specification gaining importance in major projects
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. Today’s large office and factory build-
ings have highly complex security requirements, and helping
the architects to specify appropriate security solutions gives
ASSA ABLOY an advantage later in the sales process.

EMEA is continuing to strengthen the resources devoted

to specification, in the form of both skills and systems.

Improved product range
EMEA will increase its efforts to coordinate product devel-
opment activities. ASSA ABLOY is working actively to
make greater use of electromechanics in developing new
products with improved functionality for specific applica-
tion areas. A number of new products will be launched
during 2006.

Safe emergency exits for stadium

Bern’s new football stadium, Stade de Suisse Wankdorf
Bern, was opened in July 2005. The stadium, which
seats 40,000, has a roof made from solar panels and is
part of a complex that includes a shopping mall, restau-
rants, offices and a school. It will be one of the official
European Championship stadiums during Euro 2008.
It is important to be able to evacuate a stadium
safely and quickly when it is packed with spectators.
This calls for locking systems that work perfectly even
in a panic situation. Two of ASSA ABLOY’s Group
companies installed all the emergency exit fittings,
including push-bar controls. The doors are fitted with

electronic solutions and hardware that is designed to
resist abuse. All push-bar hardware is surface-mounted,
in other words it did not require fitting inside the doors.
This reduced the installation costs and was an impor-
tant factor in the client’s choice of products from ASSA
ABLOY. Another factor was the wide selection of push-
bar controls and the fact that ASSA ABLOY was able to
offer complete security-door solutions that included
analysis, design and strategy. Following the project in
Bern one of ASSA ABLOY’s Group companies has
been selected to help plan future sports stadiums in
Switzerland.

Americas division

–11

–10

–9

–8

–7

–6

–5

– 4

–3

–2

–1

+ 3

+ 9 +10 +11 +12

Achieving continuous
improvements

CHARACTERISTICS OF THE AMERICAS DIVISION

• The division participates in both the residential and non-
residential (institutional, commercial and industrial) seg-
ments. The non-residential segment accounts for the
greater part of the division’s sales.

• Products for US and Canadian non-residential and
residential markets are clearly differentiated from prod-
ucts for other markets, as are the distribution channels
that serve them. Additionally, doors and door frames are
major components of solutions offered to non-residential
customers.

The Americas division comprises companies in North and
South America. Americas is ASSA ABLOY’s second-largest
division and accounts for 30 percent of total sales. During
the year the division had an organic growth of 5 percent and
an EBIT margin of 18.3 percent. Its head office is in New
Haven, Connecticut, USA. In the USA the division is sub-
divided into product groups and sales organizations, while
geographical organizations serve Canada, Mexico and South
America. Americas division has 9,300 employees in 24 pro-
duction units and 8 sales companies. The major companies
in the division include Corbin Russwin, Curries, Emtek,
Medeco, Phillips and Sargent.

Report on the year
After allowing for raw material inflation which character-
ized the construction industry during 2005, the overall non-
residential construction markets in the USA and Canada
remained steady at similar levels to 2004. During the year

there were significant increases in the prices of steel and other
raw materials, which in turn led to unavoidable increased
prices for ASSA ABLOY Group company products. Sales of
residential products continued to grow despite slower
growth rates in the US housing market.

The Mexican market showed weak development during
the year whereas the Canadian and South American markets
remained steady.

Some major activities in 2005 were to consolidate sales
forces and to develop specification resources for work in the
US market.

Clear distinction between market segments
The North American market differs from the European mar-
ket in having a clear distinction between products intended
for the non-residential segment and products intended for
the residential segment. As a result, very few of the division’s
products are suitable for both markets. The distribution
channels serving the two segments are also differentiated.
Another unique characteristic of ASSA ABLOY in the
USA and Canada is the manufacturing of non-residential
wood and metal doors and related door frames to comple-
ment its locking-related hardware and fittings.

The non-residential segment
The non-residential segment, comprising institutional, com-
mercial and industrial end-users, accounts for a very large per-
centage of the division’s sales in the USA and Canada. Typical
applications are in public buildings, hospitals, school and col-
lege campuses, airports, transport terminals, sports and shop-
ping centers, manufacturing plants and commercial offices.
These projects are inherently complex compared to a typical
residential building and often include such functional require-

Americas division

Americas division, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

2005

2004
SEK M SEK M

2005

2004
USD M USD M

8,775

8,242

1,177

1,125

8,806

8,270

1,182

1,129

217

199

Operating income (EBIT)

1,615

1,456

Operating margin (EBIT)

18.3% 17.6%

Capital employed

– of which goodwill

8,726

7,303

1,098

1,104

5,276

4,324

664

654

Return on capital employed

19.6% 18.2%

Cash flow

Operating income (EBIT)

Depreciation

Net capital expenditure

Change in working capital

Cash flow 1

1,615

1,456

230

227

–114

–195

–76

1,755

1,412

217

–15

236

199

–27

–11

192

Average number of employees

9,251

9,767

9,251

9,767

1 Excluding restructuring payments.

ments as the integration of door security and safety egress.
Security and safety standards for these more complex envi-
ronments are much more demanding and often require more
lock functionality than typical residential applications. Due
to the changing nature of intricate building, fire and life-
safety codes, needs for increasing levels of product function-
ality, complexity and durability are all significantly higher,
and it is increasingly essential that door opening solutions be
considered as a whole. Consequently the costs and price lev-
els of these products are commensurately higher.

A total solution from ASSA ABLOY is likely to include a
coordinated combination of doors and frames from the Door
Group; locks, door controls, exit devices, and access-control
products from the Architectural Hardware and Electro-
mechanical Groups; and high-security key system solutions
from the High Security and Aftermarket Group.

Significant non-residential projects this past year included

the Overture Center in Madison, Wisconsin designed by
Cesar Pelli and Associates and the Baptist Medical Center in
Jacksonville, Florida.

The residential segment
In 2005 the division’s Residential Group continued to
achieve strong growth, with sales mostly to the retrofit after-
market. It is notable that the US residential market is less
interested in high-security cylinders and key control than the
market in Europe.

Mexico
ASSA ABLOY’s companies in Mexico experienced a signifi-
cant change in order patterns during 2005 mainly due to a
major change in laws affecting the taxation of sales and

SALES / EBIT 2

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 2

EBIT / CASH FLOW 2

1 Excluding restructuring paymets.
2 2003 has not been adjusted for IFRS but goodwill amortization has been excluded.

Americas division

inventory that impacted several distribution channels. In
addition, competition in the residential market continued to
be strong. The outcome was that sales declined during the
first months of 2005 and began recovering slowly later in the
year following the implementation of new commercial strate-
gies for these changing markets.

The Mexican production facilities continued the ongoing
implementation of Lean methods in the factories and in busi-
ness processes as well as realigning the manufacturing foot-
print.

production profit centers to product development through to
marketing and sales, are continuously streamlining business
processes so that the companies can put together better inte-
grated solutions to meet complicated functional life-safety
and security needs.

Much of the effort in 2005 was concentrated on consol-
idating the sales forces in both the USA and Canada and on
integrating and realigning sales and marketing activities to
focus on the selling of complete solutions to meet end-
users’ needs.

Canada
ASSA ABLOY’s Canadian operations are directed exclusively
at the non-residential market and consist mainly of sales
companies. Despite the impact of higher material prices and
a construction market that has remained steady for the past
two years, the Group companies showed steady development
in 2005 and continued streamlining and coordination of all
sales and marketing activities in order to offer comprehen-
sive solutions to the market.

South America
The division’s operations in South America are centered on
manufacture of door locks and hardware in Brazil and Chile.
In 2005 there was good domestic and export sales develop-
ment based on targeted marketing efforts and increased spec-
ification activity. Ongoing implementation of Lean produc-
tion methods, resulting in improved customer satisfaction
and substantial collaboration with many other companies
across the Americas division, also fueled South American
sales growth.

Ongoing initiatives
Offering complete solutions
The division continues to work intensively to offer its non-
residential customers complete solutions for their safety and
security challenges and thereby provide greater value-added.
To achieve this, the Americas division requires precise know-
ledge of the true needs of both the installer and the end-user.
Collaborative efforts through the entire organization, from

Working closer with the market
Working more closely with the market has been a theme of
activities in 2005. From developing the specification process to
understanding the complex individual needs of end-users and
specific types of building, the division has been able to better
support the market and its important distributor partners.

Distributor partners are deeply involved with the Americas
division in defining the right products and solutions for given
applications and recommending them to the end-user. The
distributor often acts as the local consultant, engineer, project
manager and installer, with the ultimate objective of making
sure that the end-user receives the right product, and that it is
installed correctly.

The distributor partners are an integral part of the Ameri-

cas division’s plans, and continued efforts are being devoted
to ways of giving them additional support and transferring
even more knowledge to their contractor and end-user cus-
tomers.

Lean processes
In 2005 the move to Lean operations, as already employed in
the USA Door Group and Architectural Hardware Group,
was extended to most companies across the division and to a
wider range of functions. The first implementations of Lean
methods were focused on cost-efficient production opera-
tions, a profit-center organization and identifying purchasing
synergies within the division. These had the effects of stream-
lining product flows, controlling material costs at a time of
rising prices, simplifying decision-making, increasing speed

AMERICAS DIVISION
SALES BY PRODUCT GROUP

KEY PRIORITIES

Implement further Lean thinking in all units and business
functions.

Collaborate more closely with distribution channels and
end-users to identify coordinated marketing initiatives that will
sell products and solutions to meet the end-users’ needs.

Innovate more targeted end-user-specific integrated
solutions.

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

Continue incorporating emerging new technologies into
traditional mechanical door and hardware products.

Americas division

to market, and improving interaction with the market and
the sales force. The Lean philosophy continues to be a major
thrust in all the ASSA ABLOY Americas organizations and
has now been extended to functions such as product and
solutions design as well as many office processes.

Raising technology levels
The trend towards higher technology continued through
2005 with the addition of electromechanical actuators and
electronic intelligence to many traditional lock products.
Electromechanical products are a rapidly growing segment
and form crucial components of most integrated institutional
and commercial security systems.

The SARGENT v.N1 Access Control lock and the Bio-
Fob proximity credential are two recent examples of tech-
nology integration into traditional hardware.

The v.N1 Access Control lock is an integrated device
which incorporates an HID proximity reader and key pad

into the trim of the electromechanical lock, thus eliminating
the need for separate components around the door. The
integrated lockset provides Wiegand-technology output to
communicate to existing access control systems.

The BioFob is a hand-held biometric credential which
contains unique access information and fingerprint identifi-
cation information for a specific user. The biometric tech-
nology verifies that the person using it is indeed the person
authorized to do so. After the fingerprint is verified, the
BioFob activates the 125kHz HID or Indala signal for pres-
entation to the reader, and thus functions as a standard cre-
dential for allowing access to the door opening. Because the
biometric device is part of a hand-held credential, it allows
existing access control systems to be easily upgraded to a
higher level of security while allaying the user’s personal-
privacy concerns typically associated with biometric
databases.

Security and design interwoven at arts center

The Overture Center is a private initiative to promote
arts and culture in Madison, Wisconsin, USA. The arts
center is currently undergoing modernization under the
direction of internationally renowned architect Cesar
Pelli. His past work includes the Petronas Towers in
Kuala Lumpur and the International Finance Center in
China.

ASSA ABLOY has been involved in the moderniza-

tion project from the outset and has worked closely
with the architect to create a secure and practical build-
ing. The Overture Center has almost 1,300 doorways.
All doors and security solutions were supplied by ASSA
ABLOY. The design and acoustics dictated the form of
the building, which placed strict demands on ASSA
ABLOY’s products. All hardware is built into the doors,

and to ensure that doors to the halls and stages are as
quiet as possible they are opened electronically by push-
buttons, a feature that is appreciated by the client. Secu-
rity was considered right from the start. To prevent
unauthorized access backstage or to staff areas, ASSA
ABLOY has installed electromechanical locks that
require pass cards or the like.

Modernization of the Overture Center will be com-
pleted in 2006. The Center will occupy an entire block
in Madison and will include several stages, rehearsal
premises, a gallery and a lecture hall. The largest venue,
Overture Hall, seats 2,250 people. The Overture Center
has its roots in the Capitol Theatre, which opened its
doors in 1928.

Asia Pacific division

–11

–10

–9

–8

–7

–6

–5

– 4

–3

–2

–1

+ 3

+ 9 +10 +11 +12

Increased presence in Asia

CHARACTERISTICS OF THE ASIA PACIFIC DIVISION

• The division’s main sales markets are Australia, New

Zealand and China.

• Sales to the residential and commercial segments are

approximately equal.

• Asian markets now account for about 20 percent of

sales and 30 percent of production – some of which goes to
ASSA ABLOY’s other regions.

The Asia Pacific division comprises companies in Australia,
New Zealand, China and elsewhere in Asia and accounts for
8 percent of ASSA ABLOY’s total sales. During the year the
division achieved an organic growth of 2 percent and an
EBIT margin of 11.1 percent. Its head office is located in
Hong Kong. The division has 4,300 employees in 9 produc-
tion units and 8 sales companies. Its largest markets are Aus-
tralia, New Zealand and China, and the leading companies
in the division are ASSA ABLOY Australia, ASSA ABLOY
New Zealand, and Guli Security and ASSA ABLOY Wangli
in China.

Report on the year
As in the previous year, the residential and non-residential
segments each accounted for about half of the division’s
sales in 2005. The Australian and New Zealand commer-
cial market continued to show good growth. The residen-
tial market in Australia was somewhat weaker due to poor
residential and retail activity. The division was also affected
by the weak US dollar, which reduced the profitability of
the division’s export business.

Asian sales grew significantly in 2005, primarily due to

acquisitions. The trend of moving production from New
Zealand and Australia to Asia continued.

Non-residential segment
The division has established strong positions on the
institutional and commercial construction market in both
Australia and New Zealand. In 2005 efforts have been
focused on the specification of projects, increasing know-
ledge of customer requirements, and modification of prod-
ucts to tailor complete solutions for end-users.

The esthetic design of products has become more and
more important to sales success during 2005. The division
has made increased use of interior designers and architects
who have, for example, worked in the automotive industry
(Ford) or worked with distinguished architects such as Sir
Norman Foster.

A significant number of new products for the non-resi-

dential segment were introduced during 2005, including
some that combine traditional door hardware with high-
technology products from Global Technologies division.
These products are intended for up-market offices and sim-
ilar commercial buildings, where they provide an attractive
appearance without a visible card-reader.

There has also been growing collaboration between
Asia Pacific division’s specification team and ASSA ABLOY
Entrance Systems, which produces automatic doors. This
has led to increased sales of Group products in major pro-
jects.

Security Merchants, which was acquired in 2004 prima-

rily for its electronic expertise, has been working closely
with the division’s other companies to upgrade their prod-
uct offerings. By adding electromechanical products to their
portfolios this has enabled Group companies to offer a
wider range of products to specifiers.

Asia Pacific division

Residential segment
The residential segment in Australia has been weak during
2005, with decreasing demand partly mitigated by new-
product launches. Electromechanical keyless locksets have
been successfully launched in Australia and are now also
being sold in New Zealand and selected Asian markets. As
an alternative to using keys, householders operate exterior
door locks with a battery-powered remote device similar to
those employed by modern cars.

A designed range of locksets with a choice of levers and
knobs and a range of finishes to match modern decor was
launched in 2005 and has been equally successful on the
market.

ASSA ABLOY New Zealand produces security fittings
for residential doors and windows, most of which are sold
to Original Equipment Manufacturers. Although total sales
rose during 2005, the company’s export business was
impacted by the weak US dollar. During the year several of
the production lines were moved to China. The relocation
of production will continue in 2006.

Asia Pacific division, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

Operating income (EBIT)

2005

2004
SEK M SEK M

2005

2004
AUD M AUD M

2,019

1,726

190

121

2,209

1,847

245

278

356

389

320

343

Operating margin (EBIT)

11.1% 15.1%

Capital employed

– of which goodwill

1,985

1,671

995

818

340

171

324

159

Return on capital employed

12.9% 16.8%

Cash flow

Operating income (EBIT)

Depreciation

Net capital expenditure

Change in working capital

Cash flow 1

245

–40

–12

259

278

–29

–43

268

–7

–2

–5

–8

Average number of employees

4,352

3,629

4,352

3,626

1 Excluding restructuring payments.

SALES / EBIT 2

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 2

EBIT / CASH FLOW 2

1 Excluding restructuring payments.
2 2003 has not been adjusted for IFRS but amortization of goodwill has been excluded.

Asia Pacific division

China
During 2005 the division increased its footprint on the Chi-
nese market by acquiring the majority of Wangli, a leading
manufacturer of high-security doors and high-security
locks. The combination of the Wangli acquisition and good
growth by the established companies Guli and ASSA
ABLOY China has resulted in 2005 sales almost double
those of 2004. Guli continues to focus primarily on manu-
facturing products for ASSA ABLOY companies through-
out the world. Although the residential segment has slowed
as a result of various government initiatives, the growth
rate in China remains strong.

The sales organization in China has been restructured

with the creation of a separate organization to focus on
sales to the residential segment.

Together with Global Technologies division, Asia Pacific

division has opened a manufacturing plant to the west of
Shanghai. The plant will manufacture products for several
of the Group’s divisions.

Other Asian markets
The South Korean company BEST Metaline, acquired in
February 2005, has been integrated into the division during
the year and this has developed sales opportunities in Korea
for other Group companies. The company manufactures
locks, door fittings and automatic doors, and has a strong
position in specifying hardware to architects and construc-
tion companies. Efforts to introduce BEST Metaline prod-
ucts on other markets are ongoing.

In its other Asian markets the division’s companies are
focused mainly on sales of Group products. These markets
continued to develop well with the exception of Malaysia,
whose economy is in a weak state.

Ongoing initiatives
Moving production to low-cost countries
In 2005 two production units in New Zealand were closed
down and their production was moved to Asia. The Aus-
tralian plant for residential products is currently being
restructured and the bulk of this operation will be trans-
ferred to Guli in China.

As production moves away from the division’s mature

markets in Australia and New Zealand, the companies
there will concentrate on product development, the promo-
tion of brands and services offering local customization,
and sales and marketing of products from throughout the
ASSA ABLOY Group.

Developing specification skills and total solutions
Innovation and continuing product development are essen-
tial if the Asia Pacific division is to maintain an appealing
product range and continue to increase its sales. Another
important part of the sales strategy is to continue to
develop specification skills, both in the division’s own sales
force and among the distributors through whom most of
the products are sold. ASSA ABLOY Australia has a long
tradition of specification expertise, which is being used to
train people in other divisions.

The specification market is growing, and the ability to
support architects by proposing total security solutions and
specifying a building with the relevant security standards
can very often lead directly to successful sales. In Asian
markets in particular, specification sales are an important
route to improving local security standards and thereby
specifying higher-value products. The division’s growing
presence in China has already given it increased influence in
establishing higher standards there.

ASIA PACIFIC DIVISION
SALES BY PRODUCT GROUP

KEY PRIORITIES

Innovate – in both products and business methodology.

Capture benefits from low-cost production units by relocating
manufacture of mature products and increasing production of
low-cost products.

Increase sales in Asia relative to Australia / New Zealand.

Asia Pacific division

Adding electromechanical technology
The importance of electromechanical security products
continues to grow and there is an ongoing program to add
more electromechanical products to the division’s product
portfolio, and to add electromechanical functionality to
many traditional products. The opening of the new produc-
tion plant west of Shanghai has expanded the range of
electromechanical products.

Developing sales in China
The key consideration in acquiring Wangli was to develop
distribution on the Chinese market. In addition to its manu-
facturing facilities, Wangli has an established distribution
network that can be built on further.

To develop sales in China, the division’s existing Guli
company is being divided into a manufacturing operation,
serving the Group as a whole, and a sales organization sell-
ing products on the home market.

The Asia Pacific division will continue with its present

acquisition strategy in China. Another vital challenge in
developing its expansion there is the recruitment of com-
petent personnel. The division is continuing to expand its
graduate training program for future managers.

Tilting the balance towards Asia
During the year the balance between the Australian and
New Zealand markets and the Asian markets has continued
to change. A substantial part of the division’s production
has moved to Asia, and the growth focus continues to be
more on the developing markets of Asia. Sales growth in
the division will come both organically and through acqui-
sitions, with most future acquisitions taking place in Asia.
Ultimately, more than half of all sales are expected to arise
in Asia.

Unique security solutions keep Disneyland safe

ing factors when Disney chose to work with ASSA
ABLOY. The company’s well-documented ability to
work with a single client but several subcontractors
counted for a great deal. During the course of the pro-
ject ASSA ABLOY worked with architects, main con-
tractors, subcontractors and installers. An additional
factor was past experience in coordinating the complex
stages from production to installation.

Disneyland in Hong Kong is the biggest project so
far for ASSA ABLOY Hong Kong. It involved collabora-
tion between ASSA ABLOY’s Asia Pacific, Global Tech-
nologies and Americas divisions.

In September 2005 the world’s fifth Disneyland was
opened on Lantou Island, Hong Kong. 5.6 million
people are expected to visit the park in its first year, and
in 2008 the figure is predicted to rise to 10 million
visitors a year. The park has four main attractions:
Main Street USA, Adventureland, Fantasyland and
Tomorrowland, as well as two big hotel complexes with
1,000 rooms in total. Added to this are a host of restau-
rants and shops. ASSA ABLOY has supplied most of the
security products for the amusement park.

The large number of visitors each day places
extreme demands on security, and in many cases
required the development of
dedicated solutions for Dis-
ney. Every door at Disney-
land has unique products
that are tailored to the
colour, design and function
of the individual door. The
equipment installed by ASSA
ABLOY included mechani-
cal and electromechanical
locks, door closers and
emergency exit fittings.

Reliability and specialist

knowledge were the decid-

Global Technologies division

–11

–10

–9

–8

–7

–6

–5

– 4

–3

–2

–1

+ 3

+ 9 +10 +11 +12

Innovation drives growth

CHARACTERISTICS OF THE GLOBAL TECHNOLOGIES DIVISION

• The division’s products are sold primarily to the non-

residential segment.

• The largest markets are North America and Europe.

• There are four specialized business units: ASSA ABLOY
HID, ASSA ABLOY Identification Technology (ITG), ASSA
ABLOY Entrance Systems* and ASSA ABLOY Hospitality.

Global Technologies is the Group’s worldwide organization
dedicated to global products and services. Global Technolo-
gies accounts for 21 percent of ASSA ABLOY’s total sales.
During the year the division achieved an organic growth of
10 percent and an EBIT margin of 14.1 percent. Its head
office is located in Providence, Rhode Island, USA. Global
Technologies has 3,500 employees, 15 production units
and 40 sales companies.

Global Technologies’ four business units
• ASSA ABLOY HID, which accounted for 24 percent of

the division’s sales, primarily supplies ID cards, card read-
ers and control panels for authenticating identity. These
use various types of identification technology including
Radio-Frequency Identification (RFID), magnetic stripes
and biometry. The business unit both manufactures and
customizes personal ID cards. Its products are sold under
well-known brand names such as HID and Indala.

• ASSA ABLOY Identification Technology (ITG), which

accounted for 16 percent of the division’s sales, produces

ID management products based on RFID, such as elec-
tronic passports and identity cards and electronic tags for
inventory management of industrial products and for
marking livestock. The leading brand names in the busi-
ness unit are Sokymat, ACG and Omnikey.

• ASSA ABLOY Entrance Systems, which accounted for 41
percent of the division’s sales, is the world’s leading sup-
plier of complete automatic door solutions, sold under
well-known brand names such as Besam, EntreMatic and
Doorman. These are supported by a full range of after-
market services.

• ASSA ABLOY Hospitality, which accounted for 19 per-

cent of the division’s sales, produces door locking systems
and hotel-room safes and serves the hotel and cruise-ship
markets under leading global brand names such as Ving-
Card and Elsafe.

Report on the year
ASSA ABLOY HID
This newly formed business unit continued to show strong
growth on all major geographical markets. Sales were
largely driven by new products resulting from major invest-
ments in Research & Development.

The business unit’s largest company is HID, which is
also the world’s largest manufacturer of cards and card-
readers for authenticating identity for the security market.
HID pioneered the use of RFID for authentication. In 2005,
HID’s iCLASS line of contactless smart cards and readers
continued to expand and now represents the world’s second-
largest range of readers and cards for authenticating iden-
tity. The cards can be used for logical access and to make

*On 1 January 2006 ASSA ABLOY Entrance Systems became a separate division in order to take best advantage of the business opportunities to be found in existing operations and
through future acquisitions.

payments as well as for physical access control. For even
greater security, iCLASS cards can store digital versions of
users’ biometric information.

During the year, ASSA ABLOY HID acquired the Cana-
dian company Synercard, which produces software for pro-
viding, issuing and managing advanced digital, ‘smart’ and
photo ID cards. The acquisition will assist the rapid growth
and penetration of card personalization services, which
end-users and issuers of ID and security cards increasingly
request.

ASSA ABLOY Identification Technology (ITG)
The business unit achieved strong growth in all major prod-
uct areas and geographical markets in 2005. Integration of
acquired companies specializing in RFID and smart cards
resulted in further improvement in margins, despite contin-
ued investment in new and existing markets. The fastest-
growing market segments are those concerned with RFID,
electronic passports and related identification products for
international travel, public-transport ticketing and bank
services.

Global Technologies division

Global Technologies division, Key figures

Income statement

Sales, external

Sales, internal

Sales

Organic growth

Operating income (EBIT)

Operating margin (EBIT)

Capital employed

– of which goodwill

Return on capital employed

Cash flow

Operating income (EBIT)

Depreciation

Net capital expenditure

Change in working capital

Cash flow 1

2005
SEK M

2004
SEK M

5,638

4,811

122

100

5,760

4,911

10%

811

632

14.1%

12.9%

6,180

4,736

5,322

4,313

14.1%

11.8%

811

–141

–100

648

632

–78

652

The business unit is active in the market for electronic

Average number of employees

3,481

2,925

1 Excluding restructuring payments.

passports, offering a product range that includes both
transponders and readers. Worldwide regulations for more
secure passports are driving efforts to improve the authenti-
cating process for passports. The market for machine-read-
able passport systems began to take off in 2005 and the
business unit expects significant growth in this segment.
During the year ITG won a high-profile contract, in part-
nership with Philips, from the German government pass-
port agency.

SALES / EBIT 2

CAPITAL EMPLOYED /
RETURN ON CAPITAL EMPLOYED 2

EBIT / CASH FLOW 2

1 Excluding restructuring payments.
2 2003 has not been adjusted for IFRS but goodwill amortization has been excluded.

Global Technologies division

Good growth in the markets for tagging industrial prod-
ucts and livestock benefited Sokymat, although the growth
was partly offset by increased government regulations.

2005 also showed good growth for Omnikey’s desktop

smart-card readers for logical access to computers. The
applications include home banking, E-commerce and
credit-card payments.

ASSA ABLOY Entrance Systems
The business unit changed its name from Automatic Doors
to ASSA ABLOY Entrance Systems during 2005. Sales con-
tinued to grow strongly during the year.

In 2004 Besam’s US manufacturing was relocated to the

Group’s production unit in Charlotte, North Carolina. It
has generated good improvements in efficiency, allowing
faster growth, and the US operations developed well in
2005. Most markets in Europe also generated higher prod-
uct sales, and margins increased due to continued growth in
service sales. ASSA ABLOY Entrance Systems’ EntreMatic
brand, whose products are targeted at smaller customers
via distributors, doubled its sales in 2005.

A new factory in China, operated jointly with the Asia
Pacific division, started production in January 2005. The
factory will manufacture mainly low-price products for
both local and export markets.

The main factory in Landskrona, Sweden, focuses
on high-end products, and has improved efficiency by
adopting Lean manufacturing processes.

ASSA ABLOY Entrance Systems made several small
acquisitions during 2005. The most important was Door-
man in the UK, which supplies, installs and services manual
and automatic doors and roller shutters throughout the
country and has a strong presence in the retail segment.

ASSA ABLOY Hospitality
The new management team focused on improving cus-
tomer service, reorganizing the sales force, and reducing
manufacturing costs and overheads. The business generated
strong organic growth with clearly improved results. The
travel industry has begun to pick up, which has stimulated
building of new hotels, but high fuel costs and the impact of
natural disasters on key vacation spots are raising concerns
about this being sustained. Continued restructuring of the
business unit aims to strengthen competitiveness further.
Sales in 2005 were led by large casino and hotel pro-
jects. They included installation of Timelox systems at the
new Wynn’s Hotel in Las Vegas and VingCard systems at
the newly opened Disneyland in Hong Kong. In addition,
strong development in China was driven by construction
of hotels for the 2008 Olympics and the general good eco-
nomic climate in the region.

Ongoing initiatives
ASSA ABLOY HID
As customers accelerate their upgrading from old technolo-
gies, investment in new products and in sales and marketing
resources will continue. The convergence of physical and IT
security is helping to drive sales of higher-margin multi-
technology ID cards. There is also great potential for
adding new technology into traditional mechanical prod-
ucts. One initiative is to focus on embedded technologies.

ASSA ABLOY Identification Technology (ITG)
In its core area of RFID and ID management, ITG expects
significant growth from sales of the next generation of
products using contactless smart card technology. The busi-
ness unit will focus on industrial applications and on pass-
ports, where RFID may be combined with biometrics.

ITG has a strong growth potential in all segments, both

organically and by acquisitions. The business unit
continues to evaluate acquisition opportunities to further
complement its product offering.

GLOBAL TECHNOLOGIES DIVISION
SALES BY PRODUCT GROUP

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 ASSA ABLOY Entrance Systems.

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

Global Technologies division

ASSA ABLOY Entrance Systems
The business unit will focus on providing customers with
integrated solutions combining products and services for
entrances. Marketing activities for the EntreMatic brand
will be increased. New products are being developed for
markets of low penetration or high growth such as eastern
Europe and Asia.

ASSA ABLOY Entrance Systems will continue to pursue

an active acquisition strategy to expand its geographical
presence, enlarge its product portfolio and augment its
service operations. Focus on the higher-margin service
business will continue, using key-account management to
attract major retail, industrial and commercial customers.

ASSA ABLOY Hospitality
ASSA ABLOY Hospitality introduced its new modular Sig-
nature product line in November 2005. This will be fol-
lowed by a number of products to be released over the next
year which can be used to upgrade existing hotel security
solutions as well in new hotel systems. These include a new
check-in system, a ‘contactless’ RFID lock system and a
wireless communications system.

The business unit will focus on its strongest and best-
known brands, VingCard and Elsafe. Ongoing restructur-
ing will be directed at reducing manufacturing costs and
overheads, streamlining logistics and the supply chain, and
developing key-account management. The focus on services
will continue.

High stakes and high security

Bellagio, one of Las Vegas’s most famous luxury hotel-
casinos, opened its newly built Spa Tower at the start of
the year. The Spa Tower is a 33-storey hotel complex
with 809 rooms, 109 suites and two presidential suites.
The extension gives the hotel a total of 4,000 rooms.
The new hotel rooms in the Spa Tower are fitted
with hotel locks and safes supplied by ASSA ABLOY.
Most of the room locks have infrared communication
with a receiver inside the room, providing a cost-effec-
tive online alternative to other types of connection. The
receiver is linked to a server that allows receptionists
and security staff to see if a door has been left ajar. If a
staff member loses a pass card it can easily be cancelled

without having to physically check locks. Guests can
also change rooms without having to be issued with a
new card. In addition, the system provides sequential
and roaming intruder alarms, low-battery or mainte-
nance-needed notification, an instant staff locator, and
electronic event lists with real-time data transfer.

Bellagio chose to work with ASSA ABLOY because

this provided access to local sales and support in Las
Vegas, a factor that turned out to be decisive. The client
was also looking for the features that the online system
could offer. Furthermore, Bellagio had good experience
from an earlier partnership in 2003, when hotel rooms
in the older building were renovated.

Safety is paramount in a child’s world

Schools and day nurseries should be safe
places to attend. They are second homes for most children

Security in such places must not be neglected – it must be

easy for children, small or large, to get out if an incident

if you consider how much time they spend there. But home

occurs. And just the same degree of security should be

comforts and safety do not always go together. During

provided for a small nursery or rural school as for those

school lessons the classroom may be crowded and stressful,

with the resources of a large city.

and children in nurseries often become very lively.

Report of the Board of Directors
for 2005

The Annual Report of ASSA ABLOY AB (publ.), Corporate
identity number 556059-3575, contains the Group’s
accounts for the financial year 1 January – 31 December
2005. ASSA ABLOY is the world’s leading manufacturer
and supplier of locking solutions, meeting tough end-user
demands for safety, security and user-friendliness.

Important events
New President and CEO
On 1 December 2005 Johan Molin was appointed as the
new President and CEO of ASSA ABLOY. From that date he
also became a coopted member of the Board of Directors.
On the Board’s initiative Bo Dankis left his post as

President and CEO on 1 December 2005. He also left ASSA
ABLOY’s Board. Juan Vargues, Head of ASSA ABLOY
Entrance Systems, has been appointed as a new member of
the Executive Team.

Sales and earnings
Sales increased during the year to SEK 27,802 M (25,526),
with organic growth of 5 percent and acquired growth of
1 percent. Operating income (EBIT) amounted to SEK
4,078 M (3,683). The operating margin was 14.7 percent
(14.4). Earnings before tax totaled SEK 3,556 M (3,199).

Operating cash flow increased to SEK 3,702 M (3,439).

Earnings per share were SEK 6.97 (6.33).

Strategy
During the year a number of activities were initiated with
the aims of increasing efficiency and exploiting synergies
within the Group, in line with the strategy defined in 2004.
For example, work is in progress to reduce the large num-
ber of brands in the Group. Efforts to consolidate, relocate
and outsource the Group’s production are continuing.

The Leverage & Growth action program
The two-year action program that began in November
2003 was concluded during the year. Savings are expected
to amount to SEK 450 M a year from the start of 2006.
About SEK 350 M of savings were achieved in 2005.

During the year payments related to the action program

amounted to SEK 298 M and the total of employees who
have left the Group reached 1,300. The remaining 100
employees affected are expected to have left the Group
during the first quarter of 2006.

Acquisitions
BEST Metaline and Doorman Services were consolidated
from 1 February 2005. BEST Metaline is active in locks and
door fittings in South Korea. Doorman Services is one of
Britain’s leading door service companies. The two compa-
nies together have annual sales of over SEK 200 M. The
combined acquisition price including estimated earn-outs
was about SEK 150 M. Goodwill and other intangible
assets with indefinite life total about SEK 100 M.

On 1 June ASSA ABLOY acquired 70 percent of Wangli,

a major supplier of high-security doors and high-security
locks in China. The company has built up a comprehensive
distribution network in China and holds a leading position
in its segment. Annual sales total about SEK 200 M. The
acquisition price including estimated earn-outs was about
SEK 115 M. Goodwill and other intangible assets with
indefinite life total about SEK 100 M.

In addition a number of smaller acquisitions were made
during the year. These include the Swedish company Habo
Industry, active in locks and fittings for the window and
door industry; Security World, a franchise chain of security
stores in South Africa; and Tag Technology, a distributor of
RFID products in Italy. Some smaller distributors of auto-

matic doors in the USA, Canada and New Zealand were
also acquired. Combined sales for all the companies
amount to some SEK 200 M a year. The total acquisition
price including estimated earn-outs was about SEK 150 M.
Goodwill and other intangible assets with indefinite life
total about SEK 115 M.

Financing
In the second quarter of the year a refinancing of USD
330 M was arranged in the form of a private placement.
The loan consists of five tranches with terms between seven
and fifteen years and with both fixed and variable interest
rates. After the refinancing, the Group’s average loan dura-
tion is about three years.

Research and development
ASSA ABLOY’s expenditure on research and development
during the year amounted to SEK 588 M (500), which is
equivalent to 2.1 percent (2.0) of sales. A central function
known as Shared Technologies is responsible for the stan-
dardization of electronics in ASSA ABLOY’s Group-wide
common platforms. The goal of standardization is to
achieve lower development costs and a shorter develop-
ment time for new products.

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 exter-
nal environment chiefly through the subsidiaries Assa AB,
Assa Industri AB, AB FAS Låsfabrik and FIX AB. The com-
panies operate machine shops and foundries and associated
surface-coating plants, which have an impact on the exter-

nal environment through the discharge of water, air and
solid waste.

The subsidiaries Assa AB, Assa Industri AB, AB FAS 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 legislation.

Accounting principles
From 1 January 2005 ASSA ABLOY has adopted Inter-
national Financial Reporting Standards (IFRS) as endorsed
by the European Union (EU). The Parent company’s
accounts are prepared in accordance with the Swedish
Financial Accounting Standards Council’s recommendation
RR 32 ‘Preparation of Accounts for Corporate Bodies’. The
accounting principles of the Group and the Parent com-
pany are described in Note 1 on page 66. The effects of the
Group’s transition to IFRS are described in Note 38 on
page 85.

Outlook
Organic sales growth is expected to continue at a good rate.
The operating margin (EBIT) and operating cash flow are
expected to develop well, excluding the effects of future
restructuring. 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
position will accelerate growth and increase profitability.

Corporate governance report

ASSA ABLOY AB is a Swedish public company with head-
quarters in Stockholm, Sweden. The company’s governance
is based on its own articles of association, the Swedish
Companies Act, the rules of the Stockholm Stock Exchange
including the Swedish Code of Corporate Governance, and
other applicable Swedish and foreign laws and regulations.
ASSA ABLOY’s objective is that its activities should gen-
erate 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.

Shareholders
The number of shareholders in ASSA ABLOY at year-end
was 31,702. ASSA ABLOY’s principal shareholders are
Investment AB Latour and SäkI (9.5 percent of the capital
and 29.7 percent of the votes) and Melker Schörling and
companies (4.0 percent of the capital and 11.6 percent of
the votes). Foreign shareholders account for 41 percent of
the share capital and 28 percent of the votes, while the ten
largest shareholders account for 37 percent of the share
capital and 57 percent of the votes. Both the total number
of shareholders and the proportion of foreign shareholders
increased during the year.

Share capital and voting rights
ASSA ABLOY’s share capital at year-end amounted to SEK
366 M, distributed among 19,175,323 Series A shares and
346,742,711 Series B shares. Each Series A share carries ten
votes and each Series B share one vote. All shares give the
holders equal rights to the company's assets and earnings.

Share and dividend policy
ASSA ABLOY’s Series B share is quoted on the A list of the
Stockholm Stock Exchange. The trading lot is 200 shares.
ASSA ABLOY’s stock-market value at the end of the year
amounted to SEK 45,740 M (41,532). The goal of the
Board of Directors is that, in the long term, the dividend
should correspond to 33–50 percent of earnings after stan-
dard tax of 28 percent, but always taking into account
ASSA ABLOY's long-term financial requirements.

Annual General Meeting
Shareholders’ rights to decide on the affairs of ASSA
ABLOY are exercised at the Annual General Meeting.
Shareholders who are recorded in the share register on the
nominated day and who have notified their intention to
attend may take part in the Meeting, either in person or via
a proxy.

Decisions at the Annual General Meeting are normally
taken by simple majority. However, on certain matters the
Swedish Companies Act or ASSA ABLOY’s articles of asso-
ciation prescribe that proposals should be supported by a
higher proportion of the shares represented or votes cast at
the Meeting.

The Annual General Meeting must be held within six
months of the end of the company’s financial year. Matters
considered at the Annual General Meeting include divi-
dends; approval of the income statement and balance sheet;
discharge from liability of the Board of Directors and the
CEO; the election of Board members, the Chairman of the
Board, the Nomination Committee and, where applicable,
auditors; and the fixing of remuneration for the Board and
auditors.

The 2005 Annual General Meeting
At the 2005Annual General Meeting Bo Dankis, Carl
Douglas, Gustaf Douglas, Georg Ehrnrooth, Per-Olof
Eriksson, Lotta Lundén, Sven-Christer Nilsson, Melker
Schörling and Carl-Henric Svanberg were elected as Board
members. Georg Ehrnrooth was additionally elected Chair-
man of the Board. The Meeting fixed the dividend at SEK
2.60 per share.

The Meeting also decided on the fees payable to the
Board and to elected members of the Nomination Commit-
tee up to the end of the 2006 Annual General Meeting. If a
shareholder represented by one of the members of the
Nomination Committee ceases to be among the major
shareholders in ASSA ABLOY, the Committee has the right
to elect a representative of any of the current major share-
holders to take the place of such a member. The same
applies if a member of the Nomination Committee ceases
to be employed by such a shareholder or for any other rea-
son leaves the Committee before the 2006 Annual General
Meeting.

All members of the Board and the company’s appointed

auditor were present at the Annual General Meeting.

Nomination Committee
The duties of the Nomination Committee are to consider
the choice of the Chairman and other members of the
Board of Directors, the choice of Auditor, the choice of the
Chairman of the Annual General Meeting, questions of
remuneration and associated matters. The members of the
Nomination Committee before the 2006 Annual General
Meeting are Gustaf Douglas, Chairman (Investment AB
Latour and SäkI), Staffan Grefbäck (Alecta), Marianne

Nilsson (Robur) and Melker Schörling (Melker Schörling
and companies).

As a basis for its proposals to the 2006 Annual General

Meeting, the Nomination Committee has carried out an
assessment of whether the current Board is appropriately
composed for its purpose and is fulfilling the demands
placed on the Board by the company’s present situation and
future objectives. As one factor in this assessment, the Com-
mittee has studied the results of the evaluation of the
Board’s work carried out under the leadership of the Com-
mittee’s Chairman. Any recruitment of new Board members
is based on a profile of requirements laid down by the
Committee. The search for new Board members continues
throughout the year. The basis of the Committee’s proposed
choice of auditor is the preparatory work done by the Audit
Committee.

Shareholders who wish to put forward proposals to the

Nomination Committee can do so by e-mailing nomina-
tioncommittee@assaabloy.com. The Committee’s proposals
are published at the latest in conjunction with the formal
notification of the Annual General Meeting.

Board of Directors
In accordance with the Swedish Companies Act, the Board
of Directors is responsible for the organization and admin-
istration of the Group and for ensuring proper control of
bookkeeping, management of assets, financial circum-
stances etc. The Board decides on the Group’s overall goals,
strategies and policies and on acquisitions, divestments and
investments. The Board approves the Annual Report and
Interim Reports, recommends a dividend to the Annual
General Meeting and takes decisions about the Group’s
financial structure and the principles for remunerating the
management.
The Board’s other duties include:
• continually evaluating the company’s operating manage-

ment and the work of the CEO,

• ensuring that there are effective systems for monitoring
and regulating the company’s operations and financial
position with reference to its stated goals,

• ensuring that the company’s external presentation of
information is marked by openness and accuracy,
• ensuring that there is satisfactory control of the com-
pany’s compliance with laws and other regulations
applying to the company’s operations,

• ensuring that necessary ethical guidelines for the com-

pany’s conduct are set down.

Working procedures for the Board and instructions for
the division of duties between the Board and the CEO
are reviewed and set down at least once a year. The Board
has also issued written directives specifying how financial
reporting to the Board shall be presented, the division
of duties between the Board and the CEO, and the cir-
cumstances in which the Deputy CEO should stand in
for the CEO.

Corporate governance report

In addition to leading the work of the Board, the Chair-

man of the Board shall continually monitor the Group’s
operations and development by means of discussions with
the CEO. The Chairman shall consult with the CEO on
strategic issues and shall represent the company in matters
concerning the ownership structure. The Chairman shall
also, when necessary, take part in particularly important
external discussions and, in consultation with the CEO, in
other matters of especial significance. The Chairman shall
ensure that the work of the Board is evaluated each year
and that new members of the Board receive appropriate
training.

The Board meets at least four times a year. The regular
meetings take place in connection with the company’s pub-
lication of its year-end or quarterly results. At least one of
the Board meetings is combined with a visit and an in-depth
review of one of the Group’s businesses. Extra Board meet-
ings are held when necessary.

The Board has a Remuneration Committee and an
Audit Committee. The purpose of these Committees is to
make the work of the Board in these areas deeper and more
effective and to lay the ground for decision-making. The
Committees themselves have no decision-making powers.
The members of the Committees are chosen annually at the
first Board meeting. Instructions to the Committees are
included in the Board’s working procedures.

The Board’s work during 2005
The Board met eight times during the year. At three of the
meetings one Board member was absent. At the others, all
members were present.

At the start of the year the strategy for ASSA ABLOY
Entrance Systems was discussed. In this context the Board
approved the acquisition of Doorman Services, which repre-
sents a broadening of the Group’s offering in automatic
doors. Asia Pacific’s management presented the case for
investment in Wangli Security Products, which was
approved by the Board as an element in the Group’s strategy
for the Chinese market.

During the spring and summer the Executive Team’s
action program for some of EMEA’s markets was discussed.
The Board also reviewed the results of the Leverage &
Growth action program, which was concluded during the
year. In September the Board made a round trip to the
Group companies Urbis in Romania, Sokymat in Switzer-
land, Nemef in the Netherlands and Ruko in Denmark. The
visit to Sokymat’s factory in Granges formed the occasion
for a consideration of the strategy for ASSA ABLOY Identi-
fication Technology.

In the fall, recruitment was put in hand and the decision

taken to appoint Johan Molin as the new President and
CEO. As well as the new CEO, the Board also approved the
appointment of Juan Vargues as a member of the Executive
Team during the year. At the last Board meeting of the year,
the Executive Team presented its updated plans for the
ongoing work of consolidation, restructuring and out-
sourcing of the Group’s production.

Corporate governance report

Board members elected at the
2005 Annual General Meeting

Georg Ehrnrooth, Chairman
Board member and Chairman of
ASSA ABLOY since 1994
Born 1940
Graduate Engineer, Helsinki Technical
University, Honorary Doctor of Tech-
nology. President of Metra Oyj Abp (now Wärtsilä Oyj
Abp) 1991–2000, President of Lohja Oyj Abp 1979–1991,
various posts in Wärtsilä Oyj Abp 1965–1979.
Other appointments: Vice Chairman of Rautaruukki Oyj,
Board member of Nokia Abp, Sampo Abp, Sandvik AB and
Oy Karl Fazer Ab.
Shareholdings (including family and through companies):
251,680 Series B shares.

Melker Schörling, Vice Chairman
Member of the ASSA ABLOY Board
since 1994
Born 1947
Master of Business Administration,
Gothenburg School of Economics. Presi-
dent and CEO of Skanska AB 1993–1997, President and
CEO of Securitas AB 1987–1992, President of Crawford
Door 1984–1987, President of Essef Service 1979–1983,
Controller at ABB Fläkt 1975–1979, Controller at LM
Ericsson, Mexico 1970–1975.
Other appointments: Chairman of Securitas AB and Hexa-
gon AB, Vice Chairman of AarhusKarlshamns AB and
Board member of Hennes & Mauritz AB.
Shareholdings (including family and through companies):
5,310,080 Series A shares and 9,297,734 Series B shares.

Carl-Henric Svanberg, Vice Chairman
Member of the ASSA ABLOY Board
since 1994
Born 1952
Master of Science, Linköping University
and Bachelor of Economics, Uppsala

University. President and CEO of Telefonaktiebolaget LM
Ericsson since 2003, President and CEO of ASSA ABLOY
AB (publ) 1994–2003, various posts including Deputy Pres-
ident of Securitas AB 1986–1994, various posts in the ABB
Group 1977–1985.
Other appointments: Board member of Hexagon AB.
Shareholdings (including family and through companies):
3,920,031 Series B shares and Incentive 2001 convertibles
corresponding to 60,000 Series B shares.

Carl Douglas
Member of the ASSA ABLOY Board
since 2004
Born 1965
Bachelor of Arts. Self-employed.
Other appointments: Board member of

Securitas AB, Swegon AB and SäkI AB.
Shareholdings (including family and through companies): –

Gustaf Douglas
Member of the ASSA ABLOY Board
since 1994
Born 1938
MBA, Harvard Business School. Principal
owner of Investment AB Latour and SäkI

AB. Self-employed since 1980.
Other appointments: Chairman of Investment AB Latour,
Boxholms Skogar AB and Säkl AB, Vice Chairman of
Securitas AB, Board member of Moderata Samlingspartiet
since 2002.
Shareholdings (including family and through companies):
6,746,425 Series A shares and 19,000,000 Series B shares
through Investment AB Latour, and 7,118,818 Series A
shares and 2,000,000 Series B shares through SäkI AB.

Per-Olof Eriksson
Member of the ASSA ABLOY Board
since 1995
Born 1938
Master of Engineering, Honorary Doctor
of Technology. President and CEO of
Sandvik AB 1984–1994, various posts in the Sandvik
Group 1965–1984.
Other appointments: Chairman of Callans Trä AB and
Odlander, Fredriksson & Co, Board member of Senea AB,
SSAB Svenskt Stål AB, AB Volvo, Investmentbolaget
Öresund and Elkem AS. Member of the Royal Swedish
Academy of Engineering Sciences.
Shareholdings (including family and through companies):
10,000 Series B shares.

Lotta Lundén
Member of the ASSA ABLOY Board
since 2003
Born 1957
Bachelor of Economics. Founder and part-
ner in Konceptverkstan since 2004, Gen-
eral Manager of Coop Forum Sverige 2002–2003, Head of
Purchasing and later President and CEO of Guldfynd/Hall-
bergs Guld 1999–2001, various posts, mostly in marketing
and sales in IKEA both in Sweden and internationally
1980–1991 and 1994–1998.
Other appointments: Board member of JC AB, Bergendahls
Gruppen AB, Expanda AB, Exportrådet and Glitter.
Shareholdings (including family and through companies): –

Sven-Christer Nilsson
Member of the ASSA ABLOY Board
since 2001
Born 1944
Bachelor of Science, Lund University. Pres-
ident and CEO of Telefonaktiebolaget LM

Ericsson 1998–1999, various posts, mainly in marketing
and management, in the Ericsson Group 1982–1997.
Other appointments: Chairman of the National Swedish
Public Service Broadcasting Foundation (Sveriges Radio
AB, Sveriges Television AB and Sveriges Utbildningsradio
AB), Chairman of Swedish ICT Research AB and Board
member of TeliaSonera AB, CEVA Inc, i3 Micro Technol-
ogy AB, Innovationsbron AB and Startupfactory B.V.
Shareholdings (including family and through companies): –

Board members appointed by employee organizations
Seppo Liimatainen

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

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

Shareholdings: –

Deputy members appointed by employee organizations

Shareholdings: –

Rune Hjälm
Member of the ASSA ABLOY Board
since 2005
Born 1964
Employee representative, Swedish Metal
Workers Union

Per-Edvin Nyström
Member of the ASSA ABLOY Board
since 1994
Born 1955
Employee representative, Swedish Metal
Workers Union

Shareholdings: 7,727 Series B shares, Incentive 2001 con-
vertibles corresponding to 125 Series B shares and Incentive
2004 convertibles corresponding to 7,800 Series B shares.

Corporate governance report

Remuneration Committee
The duty of the Remuneration Committee is to survey and
discuss, on behalf of the Board, issues concerning the remu-
neration of the CEO and the Executive Team. The Commit-
tee also puts forward proposals for changes in the com-
pany’s remuneration policy. Subjects covered by this policy
include:
• the balance between fixed and variable remuneration and
the relationship between performance and remuneration,

• the main terms of bonus and incentive programs,
• the main conditions applying to non-monetary benefits,

pensions, periods of notice and severance pay.

The Board is responsible for decisions about the remunera-
tion of the CEO and other senior office-holders and any
changes to the company’s remuneration policy. The Remu-
neration Committee consists of Georg Ehrnrooth (Chair-
man), Melker Schörling and Sven-Christer Nilsson. The
Remuneration Committee held two meetings in 2005. At
one of the meetings one Committee member was absent. In
addition to its normal duties, the Remuneration Committee
this year oversaw the implementation of the Group’s new
pensions policy, which involves a change from defined
benefit to defined contribution pension plans. Meetings of
the Remuneration Committee are minuted, material for the
Board is attached, and an oral report is made at Board
meetings.

Audit Committee
The areas of responsibility of the Audit Committee include:
• review of treasury policy,
• control of the company’s financial reporting and internal

reporting and control systems,

• the scope and evaluation of the external audit,
• legal risks.

The Audit Committee consists of Gustaf Douglas (Chair-
man), Per-Olof Eriksson and Lotta Lundén. There is an
ongoing dialog with the appointed auditor, who also parti-
cipates in the Committee’s meetings. The Audit Committee
held three meetings in 2005, at all of which all members
were present. In addition to its normal duties, the Commit-
tee this year focused especially on preparatory work for the
Nomination Committee’s proposed choice of auditor at the
2006 Annual General Meeting, and a review of the admin-
istration of the Group’s pension assets. Meetings of the
Audit Committee are minuted, material for the Board is
attached, and an oral report is made at Board meetings.

Remuneration of the Board
Remuneration of the Board is in accordance with decisions
taken at the Annual General Meeting. The 2005 Annual
General Meeting decided that fees paid to the Board should
comprise a total sum of SEK 3.6 M (excluding remunera-
tion for Committee work), to be divided between the

Corporate governance report

members as follows: SEK 750,000 to the Chairman, SEK
550,000 to each of the Vice Chairmen and SEK 350,000
to each of the other members who is not employed by the
company. In addition, there should be payments to mem-
bers of the Audit and Remuneration Committees of SEK
100,000 to each of the Chairmen and SEK 50,000 to each
of the other members. The Chairman and other Board
members have no pension benefits or severance pay agree-
ments. The CEO and the employee representatives do not
receive a Director’s fee.

FEES TO BOARD MEMBERS IN 2005

SEK thousands

Fees

Social costs

Chairman of the Board

Other Board members (7)

Total

850

3,150

4,000

–

970

Total

850

4,120

4,970

Operating management and internal control
ASSA ABLOY’s business operations are split into divisions.
The Executive Team (Group Management) consists of the
CEO, the heads of the Group’s divisions, the Deputy CEO
(who is also Chief Financial Officer) and an Executive Vice
President responsible for market and business develop-
ment. The composition of this group gives a geographical
and strategic spread of responsibility designed to ensure
short decision-making paths.

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

Composition of the Board
ASSA ABLOY’s Board consists of ten full members – eight
elected at the Annual General Meeting and two employee
representatives chosen by the trades unions – plus two
deputy employee representatives. Bo Dankis left the Board
in December. Johan Molin has been a coopted member
since 1 December 2005.

The majority of the Board members elected at the

Annual General Meeting are independent in relation to the
company and the company management. Most of that
majority are also independent in relation to the company’s
major shareholders. One Board member is from Finland;
the others are from Sweden. The average age of the Board is
56. One member of the Board is a woman.

INDEPENDENCE OF THE BOARD

Name

Georg Ehrnrooth

Melker Schörling

Carl-Henric Svanberg

Carl Douglas

Gustaf Douglas

Per-Olof Eriksson

Lotta Lundén

Sven-Christer Nilsson

Independent in relation
to the company
and its management

Independent in relation
to the company’s
major shareholders

Yes

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

Common financial, accounting and investment policies

set the frameworks for financial control and monitoring.

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 to observe relevant stock market
rules.

Guidelines concerning brands aim to protect and

develop the major assets that the Group’s brands represent.
ASSA ABLOY has 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.

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.

Decentralized organization with a strong control
environment
ASSA ABLOY’s organization is strongly decentralized,
which is explained by a deliberate strategic choice imposed
primarily by the local and fragmented nature of the lock
industry, but also to some extent by the fact that the Group
was built up in a relatively short period by a large number
of acquisitions. Viewed historically, this structure has
meant that internal control originated from a strong,

centrally based control environment where the integrity,
ethical values, expertise and management philosophy of
the Executive Team (which achieved high visibility out in
the organization) were decisive in forming the basis for
other areas of internal control.

ASSA ABLOY’s operating structure is designed to create

the greatest possible transparency, to facilitate monitoring
and to promote the flow of information in different direc-
tions through the Group. The Group’s smallest component
units are 160 so-called benchmarking units, which nor-
mally correspond to a legal entity or part of a legal entity.
The next level in the operating structure currently consists
of 26 business units. Most of these are geographically based
but in Global Technologies and parts of Americas the
breakdown is based on different types of product group. All
business units belong to one of the Group’s divisions, which
form the next higher level in the Group’s structure. At each
of these three levels, there is a responsible person and/or a
management group who ensures that internal control of
financial reporting maintains a satisfactory quality.

Financial reporting and benchmarking
All benchmarking units submit their financial results
monthly, reported according to the Group’s IFRS account-
ing principles in the Hyperion Financial Management sys-
tem. The reports are consolidated and form the basis for
quarterly reports and monthly operating reviews at every-
thing from benchmarking-unit to Group level. The operat-
ing reviews conform to a long-established structure – Lock-
Pack – in which sales, income, cash flow and other key fig-
ures and trends are combined and form the basis for analy-
sis and actions by management and controllers at different
levels. The benchmarking units are compared and ranked
each month in relation to other units in the Group. The
ranking is in terms of the most important key figures for the
Group. This benchmarking, one of whose effects is to reveal
a number of winners in various categories every quarter,
provides an effective tool for review and for spreading good
ideas and business methods among the Group’s companies.
The financial reviews take the form both of regular
monthly meetings at divisional level – so-called perform-
ance reviews – and of more informal analysis. Other impor-
tant Group-wide components of internal control are the
annual business planning and budgeting process, and
quarterly forecasts of financial results for the current
calendar year.

Corporate governance report

Group-wide tools for increasing efficiency
As well as the guidelines and policies discussed above, some
20 systems and applications for increasing the efficiency of
business operations have been developed centrally. These
aids can, and in some cases should, be used by Group com-
panies – for example, for optimizing inventories and for
cost control. The tools are intended primarily for opera-
tional use, but in many cases also result in general and spe-
cific control activities linked to financial reporting being
implemented in the business and create increased aware-
ness of the importance of internal control.

The acquisition process
A large part of the ASSA ABLOY Group’s historical growth
and present size is explained by acquisitions. Acquisition is
also an important component of future strategy – mainly
with the aim of expanding into new markets and new seg-
ments. Against this background ASSA ABLOY has thought
it right to establish and refine a special Group-wide acquisi-
tion process, which lays down how acquisitions should be
handled. The process consists of four phases – strategy,
evaluation, execution and integration – and each phase
includes various predefined activities, decisions and docu-
mentation requirements.

The goodwill and other intangible assets with indefinite
useful life resulting from acquisitions are subject to a quar-
terly simplified valuation test and to an annual detailed in-
depth impairment testing.

Group internal control and internal audit functions
In 2005 the Parent company established a department for
Management Assurance and Special Assignments.

Its activities during the year included review and coordi-

nation of the external audit, and the launch of a project to
evaluate the Group’s internal control. In 2006 ASSA
ABLOY in general and this department in particular will
focus further on issues of internal control. One project,
known as Control Self Assessments, has been initiated as a
method for central recording of internal control combined
with support for the subsidiaries’ own procedures.

There is currently a limited internal audit within the
divisions, whereby the more experienced of the financial
staff carry out internal audits in units other than those they
are employed in. The audit results are currently reported to
divisional management and to the Management Assurance
department. In 2006 this operation will be developed: it
will become more Group-wide, special internal auditors
will be recruited, and the audit results will be reported to
the Board’s Audit Committee.

Corporate governance report

Financial objective
ASSA ABLOY’s primary financial objective is that return on
capital employed should exceed 20 percent. During the
acquisition phase of the Group’s strategy, substantial
amounts of goodwill were added, which have reduced
return on capital employed. The Group’s stated goal now is
to achieve its financial objective by 2008 at the latest.

• Sales should, on average, grow organically at about

5 percent a year over a business cycle.

• The EBIT margin should be improved to 16–17 percent.
This should be achieved mainly by exploiting synergies
within the Group.

marks ASSA ABLOY, and to keep risk analysis and risk
management as close as possible to the risks themselves, a
large proportion of risk management takes place at division
and business-unit level.

Strategic and operational risks
The main risks of these kinds that ASSA ABLOY encounters
relate to customers, suppliers, employees, competitors and
acquisition situations. Some country-specific risks also
arise. Customers and suppliers, and relationships with
them, are a matter for continuous local supervision. Cus-
tomers, suppliers and employees are also covered by the
Group’s Code of Conduct.

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

Competitors are subjected to both central and local risk

cash flow should be maintained.

• Capital employed should be maintained at the present

absolute level, despite organic growth. Measures to make
production more specialized are reducing capital tied up
in inventory. Given the potential to increase utilization of
current production capacity, capital expenditure can be
maintained at today’s level – below current depreciation.

The new CEO has initiated a review of future restructuring
measures. The results of this review may affect the long-
term financial objective.

Risks and risk management
As an international Group with a wide geographic spread,
ASSA ABLOY is exposed to a number of business and
financial risks. The business risks can be divided into strate-
gic, operational and legal risks. The financial risks are
related to exchange rates, interest rates, liquidity, the giving
of credit, raw materials and financial instruments. The
financial risks and the Group’s management of them are
described in the section ‘Financial risk management’ on
pages 63–65.

Risk management in ASSA ABLOY aims to identify,
control and reduce risks. This work begins with an assess-
ment of the probability of risks occurring and their poten-
tial effect on the Group. In the decentralized spirit that

analysis. In recent years low-price competition, mainly
from Asia, has increased in some segments. Quality fea-
tures, total solutions and breadth of product range have
become natural responses to reduce such risks.

As regards risks related to acquisitions, the Group fol-

lows a standardized, predefined process.

Legal risks
ASSA ABLOY continuously keeps track of likely or enacted
changes in the laws of the countries it operates in. From
time to time ASSA ABLOY is involved in legal disputes,
mainly concerned with such matters as product liability,
protection of intangible rights, the environment, and the
interpretation of supplier, distribution and employment
contracts. Where it is considered necessary, local legal
expertise is engaged to deal with these matters. With the
aim of charting and controlling legal risks, there is a system
of regular Group-wide reporting of outstanding legal mat-
ters. This is managed and coordinated by the Group’s cen-
tral legal department.

Many of the legal risks, for example those concerning

real estate or questions of liability, are covered by insur-
ance. ASSA ABLOY carries out regular reviews of risks and
risk assessment together with insurance-company represen-
tatives. At present there are no legal disputes that it is
believed could lead to significant costs.

The Executive Team

Back row (left to right): Göran Jansson, Åke Sund, Thanasis Molokotos
and Juan Vargues.
Front row (left to right): Joseph J. Grillo, Johan Molin and Geoff Norcott.

Corporate governance report

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

Thanasis Molokotos
Born 1958
Master of Science
Executive Vice President and Head of Americas division
Employed since 1996
Shareholdings: 25,000 Series B shares, Incentive 2001 con-
vertibles 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 and Head of Asia Pacific division
Employed since 2000
Shareholdings: Incentive 2001 convertibles corresponding
to 60,000 Series B shares and Incentive 2004 convertibles
corresponding to 101,200 Series B shares.

Johan Molin
Born 1959
Bachelor of Science in Economics
President and CEO and Head of EMEA division
Employed since 1 December 2005
Shareholdings: 21,900 Series B shares1).
CEO of Nilfisk-Advance 2001–2005. Various posts mainly
in finance and marketing, later divisional head, in the Atlas
Copco Group 1983–2001.

Åke Sund
Born 1957
Graduate Diploma in Marketing
Executive Vice President and Head of Market and Business
Development
Employed since 1994
Shareholdings: Incentive 2001 convertibles corresponding
to 60,000 Series B shares and Incentive 2004 convertibles
corresponding to 93,400 Series B shares.

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

Juan Vargues
Born 1959
Graduate in Mechanical Engineering, Master of Business
Administration
Executive Vice President and Head of ASSA ABLOY
Entrance Systems division
Employed since 2002
Shareholdings: Incentive 2004 convertibles corresponding
to 47,000 Series B shares.

Johan Molin acquired an additional 500,000 Series B shares on 17 February 2006.

Corporate governance report

Remuneration of the Executive Team
Remuneration of the Executive Team consists of fixed
salary, variable salary, other benefits, and pensions.

For the CEO, variable salary is based partly on improve-
ment in earnings per share compared with the previous year
(75 percent) and partly on organic growth (25 percent).
The variable salary is capped at a maximum of three-
quarters of fixed salary. For other members of the Execu-
tive Team, variable salary is based primarily on improve-
ment in operating income (for their own area of responsi-
bility) compared with the previous year (50 percent), and
also on organic growth (25 percent) and a personal target
(25 percent). In this case variable salary is capped at two-
thirds of fixed salary.

The members of the Executive Team other than the
CEO also have the opportunity to receive variable salary
based on improvement in earnings per share (67 percent)
and organic growth (33 percent). The maximum payment
of SEK 2 M per person applies if earnings per share increase
by 15 percent compared with the previous year and organic
growth reaches 9 percent. One-third of such variable salary
is paid the following year, while the other two-thirds is
retained for two years and grows at the same rate as the
Group’s return on capital employed. This residual two-
thirds is paid only if, at the end of the period, the 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 other
members of the Executive Team are through participation
in the ITP plan or equivalent. In addition, the CEO and cer-
tain other senior executives have the right to retire with a
pension at the earliest on reaching the age of 60. ASSA
ABLOY pays pension contributions amounting to 35 per-
cent of fixed salary to the CEO and pension contributions
amounting to about 60 percent of fixed salary to certain
other members of the Executive Team. Provided that cer-
tain assumptions about the return on pension capital are
met, this means that pensions will amount to about 65 per-
cent of fixed salary at the time of retiring for those between
the ages of 60 and 65, and about 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 fixed salary for 24 months. The payment

is made only where the company terminates the contract.
Others in the Executive Team are entitled to six months’
notice and receive a severance payment of 100 percent of
their fixed salary for a maximum of 12 months, which is
reduced by any income from employment that may arise.

Bo Dankis ceased to be employed as President and CEO

during the year. Under his contract he receives severance
pay amounting to 100 percent of his fixed salary for 24
months. During this period the company will also pay pen-
sion contributions equal to about 60 percent of his fixed
salary.

External audit
The 2002 Annual General Meeting appointed Pricewater-
houseCoopers as the company’s external auditors for a
four-year period up to the 2006 Annual General Meeting.
The auditor in charge during this period was Authorized
Public Accountant Anders Lundin.

PricewaterhouseCoopers have been the Group’s chief
auditors since the Group was formed in 1994, and Anders
Lundin has been the auditor or the auditor in charge since
1999. As well as ASSA ABLOY, Anders Lundin (born in
1956) is responsible for auditing the following companies:
Electrolux, Axis, Bong Ljungdahl, Industrivärden,
AarhusKarlshamn and SäkI.

PricewaterhouseCoopers undertake the audit of ASSA

ABLOY AB, the Group and a substantial 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 company’s auditor attends all meetings of the Audit

Committee and also the Board meeting in February, at
which he submits his observations and recommendations
concerning the Group’s annual accounts.

The external audit is carried out in accordance with
good auditing practice in Sweden. The auditing of annual
financial statements for legal entities outside Sweden is in
accordance with legal requirements and other applicable
regulations in the countries concerned and with good audit-
ing practice as defined by the International Federation of
Accountants (IFAC) for the issue of audit reports for the
legal entities. For information about fees paid to auditors in
2005, see Note 3.

REMUNERATION AND OTHER BENEFITS PAID TO THE EXECUTIVE TEAM IN 2005

SEK thousands

Bo Dankis

Johan Molin

Other members of the Executive Team (6)

Total

Fixed salary

Variable salary

Pension costs

Other benefits

Social costs

6,250

583

21,000

27,833

2,195

11,000

13,195

3,950

187*

7,700

11,837

1,500

1,595

3,500

230

5,500

9,230

Total

15,975

1,015

46,700

63,690

* As part of his employment contract, Johan Molin has received a one-off pension payment of SEK 5 M from the company.

Corporate governance report

Explanation of the deviation: the Board considers that
issues of responsibility are comprehensively regulated by
the Swedish Companies Act, and that a special statement as
proposed by the Code would be superfluous.

Clause 3.7.2
The Board should issue a report annually about how that
part of internal control that relates to financial reporting is
organized and how well it has functioned during the last
financial year. The report should be checked by the com-
pany’s auditor.

Explanation of the deviation: the Board considers that

internal control is an integrated part of corporate gover-
nance. No separate statement from the Board about how
well internal control has functioned during the financial
year need be issued.1 Nor is any separate audit needed,
which means that, overall, there is no reason to issue a sep-
arate report about internal control. Instead, ASSA ABLOY
has included its report on internal control in this corporate
governance report.

Clause 4.2.2
At the Annual General Meeting the Board should present a
proposal about the principles of remuneration for the com-
pany management and other conditions of employment for
approval by the Meeting. The proposal should be placed on
the company’s website in conjunction with the formal noti-
fication of the Annual General Meeting.

Explanation of the deviation: The principles applied in

ASSA ABLOY concerning the principles of remuneration
and other conditions of employment for the company man-
agement are presented at the Annual General Meeting and
on the website. According to the Swedish Companies Act it
is the Board’s duty to make regular decisions on such issues.
The Board does not consider that this responsibility should
be removed from the Board.

Other requirements of the Code
In all other respects ASSA ABLOY believes that it is meeting
the requirements of the Code at the end of 2005, while not-
ing that some of the requirements will apply for the first
time at the 2006 Annual General Meeting.

The Swedish Code of Corporate Governance
ASSA ABLOY has adopted the Swedish Code of Corporate
Governance, which has formed part of the rules of the
Stockholm Stock Exchange since 1 July 2005.

The Code, which is based on self-regulation using the
‘comply or explain’ principle, deals mainly with the organi-
zation 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 the
auditor, the Board’s responsibility for internal control,
processes for setting the remuneration of the company
management, and information about corporate gover-
nance.

Deviations from the Code
ASSA ABLOY has chosen to deviate from the following
Clauses of the Code:

Clause 2.1.2
A majority of the members of the Nomination Committee
should not be members of the Board. Neither the Chairman
of the Board nor any other Board member should be Chair-
man of the Nomination Committee.

Explanation of the deviation: the shareholders currently
represented on the Nomination Committee consider that it
is important, in the interests of an efficient, ongoing nomi-
nation process, that the membership of the Nomination
Committee should be limited in number. At the same time
the two main shareholders must be represented. This results
in an equal number of Board members and external mem-
bers on the Nomination Committee. A majority of the
external members had called for five members, which was
adjudged to be too many. The shareholders mentioned
above also consider it natural for the representative of the
shareholder with the largest number of votes to be Chair-
man of the Nomination Committee.

Clause 3.6.2
Immediately before signing off the Annual Report, the
Board and the CEO should issue a declaration that, to the
best of their knowledge, the Annual Report has been pre-
pared in accordance with good accounting practice for
quoted companies, that the information presented reflects
the facts and that nothing of significant importance is omit-
ted that could affect the picture of the company created by
the Annual Report.

1 According to the statement of the Swedish Council for Corporate Governance

published on 15 December 2005.

Sales and earnings

• Organic growth for comparable units was 5 percent (5).
• The operating margin (EBIT) was 14.7 percent (14.4).
• Earnings per share amounted to SEK 6.97 (6.33).

Sales
The Group’s sales increased to SEK 27,802 M (25,526).
Exchange-rate effects affected sales positively by SEK
643 M compared with 2004.

CHANGES IN SALES

Acquired growth

Organic growth

Currency effects

Total

2005

2004

–4

In local currencies, sales increased by 6 percent (10). Of
this, organic growth by comparable units accounted for 5
percent (5), while acquired units made a positive contribu-
tion of 1 percent (5).

SALES BY PRODUCT GROUP

2005

2004

Mechanical locks, lock systems and accessories

Electromechanical and electronic locks

Security doors and fittings

Mechanical locks, lock systems and accessories accounted
for 53 percent (53) of sales. Sales of electromechanical and
electronic locks rose to 29 percent (27), while sales of secu-
rity doors and fittings fell to 18 percent (20).

Cost structure
Total remuneration costs including social costs and pension
costs amounted to SEK 9,260 M (8,899), which represents
33 percent (35) of sales. The average number of employees
was 29,578 (29,160).

The average number of employees in the Parent com-

pany was 74 (52).

The Group’s material costs totaled SEK 8,059 M

(7,162), which represents 29 percent (28) of sales. The rise
was mainly due to the increased costs of metals such as steel
and brass.

Other purchasing costs totaled SEK 5,557 M (4,888),

which represents 20 percent (19) of sales.

Depreciation and write-down of fixed assets amounted

to SEK 884 M (924), which represents 3 percent (4) of
sales.

Operating income
Operating income (EBIT) amounted to SEK 4,078 M
(3,683) after positive currency effects of SEK 97 M. The
operating margin was 14.7 percent (14.4).

Operating income before depreciation (EBITDA)
amounted to SEK 4,960 M (4,606). The corresponding
margin was 17.8 percent (18.0).

Income before tax
Income before tax totaled SEK 3,556 M (3,199). This rep-
resents an increase of 11 percent compared with the pre-
vious year, with positive currency effects of SEK 73 M.
Financial items amounted to SEK –522M (–484). The
increase is due to higher interest rates mainly on borrowing
in USD. Profit margin – defined as income before tax in
relation to sales – amounted to 12.8 percent (12.5).

The Parent company’s income before tax amounted to

SEK 728 M (3,876).

Tax
The Group’s tax charge totaled SEK 943 M (843), which
corresponds to an effective tax rate of 27 percent (26).

Earnings per share
Earnings per share amounted to SEK 6.97 (6.33), which
represents an increase of 10 percent.

Income statements

Sales

Cost of goods sold

Gross income

Selling expenses

Administrative expenses

R&D costs

Other operating income and expenses

Share of earnings in associates

Operating income

Financial income

Financial expenses

Income before tax

Tax on income

Net income

Allocation of net income:

Shareholders in ASSA ABLOY AB

Minority interests

Earnings per share

before dilution, SEK

after dilution, SEK

Note

6–10

10, 12

GROUP

PARENT COMPANY

EUR M1
2005

SEK M
2005

SEK M
2004

Note

EUR M1
2005

SEK M
2005

SEK M
2004

2,996

27,802

25,526

–1,779

–16,508

–15,221

1,217

11,294

10,305

–526

–192

–63

440

–61

384

–102

282

–4,883

–1,781

–588

–4,272

–1,883

–500

4,078

3,683

–573

3,556

–943

2,613

164

–648

3,199

–843

2,356

281

2,608

2,349

–

3, 6, 8, 9

–34

–313

–331

10, 12

–2

–

–60

–1

–21

749

–

415

867

–554

728

–13

715

–

580

–

249

4,550

–923

3,876

–7

3,869

7.13

6.97

6.42

6.33

1 Average EUR/SEK rate = 9.28. Used for conversion from SEK to EUR above.

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, comprises ASSA ABLOY
Entrance Systems, ASSA ABLOY Hospitality, ASSA ABLOY
Identification Technology and ASSA ABLOY HID, all of
which serve a global market. Functions common to the whole
Group appear in the column headed ‘Other’ in the table.

From 1 January 2006 ASSA ABLOY Entrance Systems

has become a separate division.

EMEA
Sales totaled EUR 1,255 M (1,210), with organic growth of
3 percent. Operating income amounted to EUR 184 M
(174), with an operating margin (EBIT) of 14.7 percent
(14.4). Return on capital employed amounted to 16.6 per-
cent (16.3). Operating cash flow before interest paid
amounted to EUR 205 M (201).

EMEA made stable progress over the year as a whole, with
good sales performance in Scandinavia and Britain in par-
ticular. Growth markets in eastern Europe, the Middle East
and Africa are continuing to develop well. Other European
markets showed stable sales overall. The structural changes
in the division affected results positively but were offset by
higher selling costs.

Americas
Sales totaled USD 1,182 M (1,129), with organic growth
of 5 percent. Operating income amounted to USD 217 M
(199), with an operating margin (EBIT) of 18.3 percent
(17.6). Return on capital employed amounted to 19.6
percent (18.2). Operating cash flow before interest paid
amounted to USD 236 M (192).

Americas’ good performance was due to improved
demand in the USA, specifically in the important commer-
cial segment. The Architectural Hardware Group, which
represents about 40 percent of Americas’ sales, showed an
improved sales trend and continued to improve its prof-
itability. The Door Group showed strong growth, due

Local currency

Sales, external

Sales, internal

Sales

Organic growth

Share of earnings in associates

Operating income (EBIT)

Operating margin (EBIT)

Net financial items

Tax on income

Net income

Capital employed

– of which, goodwill

Assets

– of which, shares in associates

Liabilities

Operating income (EBIT)

Depreciation / amortization

Investments in fixed assets

Sales of fixed assets

Change in working capital

Cash flow 5

Adjustment for non-cash items

Paid and received interest

Operating cash flow 5

EMEA1
EUR M

Americas2
USD M

Asia Pacific3
AUD M

2005

2004

2005

2004

2005

2004

1,225

1,179

1,177

1,125

1,255

1,210

1,182

1,129

184

174

217

199

356

389

–

320

343

Global
Technologies 4
SEK M

2005

5,638

122

5,760

10%

2004

4,811

100

4,911

Other
SEK M

Total
SEK M

2005

2004

2005

2004

–622

–533

27,802

25,526

27,802

25,526

–

811

632

–300

–269

14.7%

14.4%

18.3%

17.6%

11.1%

15.1%

14.1%

12.9%

1,077

499

1,046

495

1,098

664

1 104

654

340

171

324

159

6,180

4,736

5,322

4,313

–389

–268

–

4,078

14.7%

–522

–943

2,613

26,653

15,716

15.9%

3,683

14.4%

–484

–843

2,356

23,461

13,917

15.3%

1,417

1,424

1,341

1,264

417

388

9,104

6,431

–1,862

340

184

–42

205

376

174

–49

201

243

217

–17

236

160

199

–36

–11

192

–

–20

–2

–13

–8

811

–187

–100

648

632

–104

652

–

475

–

33,692

30,117

2,924

1,108

10,767

12,977

19,279

18,864

–300

–269

4,078

–57

–52

–24

–26

–455

–16

–489

–1

–

–13

–

882

–871

204

–110

4,183

–26

–455

3,702

–384

–

3,683

923

–894

244

–12

3,944

–16

–489

3,439

–917

29,578

29,160

Return on capital employed

16.6%

16.3%

19.6%

18.2%

12.9%

16.8%

14.1%

11.8%

Acquisitions of shares in companies

Disposals of shares in companies

–3

–

–78

–

–27

–

–18

–

–195

–

–62

–

Average number of employees

12, 405

12,774

9,251

9,767

4,352

3,629

3,481

2,925

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

4 ASSA ABLOY Entrance Systems, ASSA ABLOY Hospitality, ASSA ABLOY Identification Technology and ASSA ABLOY HID.
5 Excluding restructuring payments.

Comments by division

largely to price rises resulting from the increased cost of
steel. The Residential Group showed strong growth and
profitability. Other units are showing weaker performance.

Asia Pacific
Sales totaled AUD 389 M (343), with organic growth of 2
percent. Operating income amounted to AUD 43 M (52),
with an operating margin (EBIT) of 11.1 percent (15.1).
Return on capital employed amounted to 12.9 percent
(16.8). Operating cash flow before interest paid amounted
to AUD 46 M (51).

During the year Australia performed well in the com-

mercial segment but the performance of the residential
segment in Australia and New Zealand is a burden on the
whole division. Restructuring costs and dilution by
acquired units were the main factors in the division’s
reduced margin. Sales in Asia were good. The acquisitions
of BEST Metaline in South Korea and Wangli in China
strengthen the division’s position on these important
growth markets.

Global Technologies
Sales totaled SEK 5,760 M (4,911), with organic growth
of 10 percent. Operating income amounted to SEK 811 M
(632), with an operating margin (EBIT) of 14.1 percent
(12.9). Return on capital employed amounted to 14.1
percent (11.8). Operating cash flow before interest paid
amounted to SEK 648 M (652).

Global Technologies is performing well, with strong

sales growth and a rising margin.

ASSA ABLOY Entrance Systems achieved good sales

growth during the year, especially in the service sector,
which improved its market position in both Europe and
the USA.

The market for ASSA ABLOY Hospitality developed
well during the year. Profitability improved in line with
growing sales and ongoing restructuring.

ASSA ABLOY Identification Technology is showing
strong sales growth for a variety of product applications
based on RFID technology.

ASSA ABLOY HID performed well, especially in North

America, with strong growth and high margins.

SEKM

Sales, external

Sales, internal

Sales

Organic growth

Share of earnings in associates

Operating income (EBIT)

Operating margin (EBIT

Net financial items

Tax on income

Net income

Capital employed

– of which, goodwill

Return on capital employed

EMEA1

Americas2

Asia Pacific3

2005

2004

2005

2004

11,369

10,747

8,775

8,242

280

284

11,649

11,031

8,806

8,270

1,707

14.7%

1,586

14.4%

1,615

18.3%

1,456

17.6%

2005

2,019

190

2,209

2004

1,726

121

1,847

Global
Technologies4

2005

5,638

122

5,760

10%

2004

4,811

100

4,911

Other

Total

2005

2004

2005

2004

–622

–533

–

245

278

811

632

–300

–269

11.1%

15.1%

14.1%

12.9%

27,802

25,526

27,802

25,526

4,078

14.7%

3,683

14.4%

–522

–943

2,613

26,653

15,716

15.9%

–484

–843

2,356

23,461

13,917

15.3%

10,151

4,709

16.6%

9,433

4,462

16.3%

8,726

5,276

7,303

4,324

1,985

995

1,671

818

6,180

4,736

5,322

4,313

–389

–268

–

19.6%

18.2%

12.9%

16.8%

14.1%

11.8%

Assets

13,360

12,850

10,657

8,360

2,432

2,001

9,104

6,431

–1,862

–

475

–

33,692

30,117

2,924

1,108

10,767

12,977

19,279

18,864

–300

–269

4,078

– of which, shares in associates

Liabilities

3,209

3,393

1,931

1,055

Operating income (EBIT)

Depreciation / amortization

Investments in fixed assets

Sales of fixed assets

Change in working capital

Cash flow 5

Adjustment for non-cash items

Paid and received interest

Operating cash flow 5

1,707

499

–390

1,586

529

–436

1,615

230

–126

1,456

227

–263

–76

1,901

1,826

1,755

1,412

–

447

245

–111

–12

259

331

278

–67

–43

268

811

–187

–100

648

632

–104

652

Acquisitions of shares in companies

Disposals of shares in companies

–30

–

–707

–

–158

–135

–

–195

–

–62

–

Average number of employees

12,405

12,774

9,251

9,767

4,352

3,629

3,481

2,925

–57

–52

–24

–26

–455

–16

–489

–1

–

–13

–

882

–871

204

–110

4,183

–26

–455

3,702

–384

–

3,683

923

–894

244

–12

3,944

–16

–489

3,439

–917

29,578

29,160

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

4 ASSA ABLOY Entrance Systems, ASSA ABLOY Hospitality, ASSA ABLOY Identification Technology and ASSA ABLOY HID.
5 Excluding restructuring payments.

Financial position

• Capital employed amounted to SEK 26,653 M (23,461).
• Net debt rose to SEK 12,240 M (12,208).
• Net debt / equity ratio was 0.85 (1.09).

SEK M

Capital employed

– of which, goodwill

Net debt

Minority interests

Shareholders’ equity

2005

2004

26,653

15,716

12,240

23,461

13,917

12,208

14,342

11,226

Capital employed
Capital employed in the Group – defined as total assets less
interest-bearing assets and non-interest-bearing liabilities
including deferred tax liabilities – amounted to SEK 26,653
M (23,461). The return on capital employed was 15.9 per-
cent (15.3).

Intangible assets amounted to SEK 16,078 M (14,138).

The change is explained mainly by changes in exchange
rates. During the year goodwill of SEK 249 M arose from
acquisitions. A valuation model based on discounted future
cash flow is used for impairment testing of goodwill and
other intangible assets with indefinite life. No write-down
took place this year. Tangible assets amounted to
SEK 5,702 M (5,279). Investments in tangible and intan-
gible assets, less sales of tangible and intangible assets,
totaled SEK 667 M (650). Depreciation according
to plan amounted to SEK 882 M (923).

Deferred tax receivables amounted to SEK 1,349 M
(1,488). The reduction is due principally to increased pay-
ments into pension funds and claimed deductions for tax-
deductible goodwill.

Accounts receivable totaled SEK 4,818 M (4,146) and
inventories totaled SEK 3,679 M (3,135). The average col-
lection period for accounts receivable was 56 days (53).
Material throughput time averaged 108 days (109). The
Group has been making long-term systematic efforts to
reduce capital tied up in inventory.

Net debt
Net debt amounted to SEK 12,240 M (12,208), of which
pension obligations accounted for SEK 1,634 M (1,677).
Net debt was reduced by the strong operating cash flow but
increased to a comparable extent by changed exchange
rates, dividends to shareholders and acquisitions.

External financing
The Group’s long-term loan financing consists mainly of a
Private Placement program in the USA amounting to USD
330 M (–). The Group’s short-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) and a Swedish Com-
mercial Paper program for SEK 5,000 M (5,000).

There are also substantial credit facilities, chiefly in the
form of a Multi-Currency Revolving Credit (MCRF) agree-
ment for a maximum of EUR 1,000 M (1,000), which at
year-end was not being utilized at all.

At year-end the Private Placement was being utilized
for SEK 2,625 M, the EMTN program for SEK 2,829 M,
the global Commercial Paper program for SEK 1,302 M,
and the Swedish Commercial Paper program for SEK 399
M. The interest coverage ratio, defined as income before
tax, plus net interest, divided by net interest, amounted to
8.2 (7.6).

Periods for fixed-interest-rate borrowings are generally

short, averaging 16 months at the end of the year. This is
partly because Group revenues largely follow economic
trends in each country, and partly due to a strong cash flow.
Cash and cash equivalents amounted to SEK 958 M
(1,017). Cash and cash equivalents are invested in banks
with high credit ratings.

Equity
Equity in the Group totaled SEK 14,413 M (11,253) at
year-end. The return on shareholders’ equity amounted to
18.1 percent (20.0). The equity ratio was 42.8 percent
(37.4). The net debt / equity ratio, defined as net debt
divided by shareholders’ equity, was 0.85 (1.09).

Balance sheets

ASSETS

Non-current assets

Intangible assets

Tangible assets

Shares in subsidiaries

Shares in associates

Receivables from subsidiaries

Other long-term financial assets

Deferred tax receivables

Total non-current assets

Current assets

Inventories

Accounts receivable

Receivables from subsidiaries

Current tax receivables

Other short-term receivables

Prepaid expenses and accrued income

Derivative financial instruments

Short-term investments

Cash and cash equivalents

Total current assets

TOTAL ASSETS

Assets pledged

EQUITY AND LIABILITIES

Equity (Group / Parent company) 2

Parent company’s shareholders

Share capital

Other contributed capital / Reserve fund

Reserves / Premium reserve

Retained earnings incl. / excl. net income

Net income in Parent company

Minority interests

Total equity

Non-current liabilities

Long-term loans

Convertible debenture loans

Long-term loans to subsidiaries

Deferred tax liabilities

Pension obligations

Other long-term provisions

Other long-term liabilities

Total non-current liabilities

Current liabilities

Short-term loans

Convertible debenture loans

Derivative financial instruments

Accounts payable

Short-term liabilities to subsidiaries

Current tax liabilities

Short-term provisions

Other short-term liabilities

Accrued expenses and prepaid income

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Contingent liabilities

GROUP

PARENT COMPANY

Note

EUR M1
2005

SEK M
2005

SEK M
2004

Note

EUR M1
2005

SEK M
2005

SEK M
2004

1,705

16,078

14,138

605

5,702

5,279

–

143

–

171

1,349

130

1,488

1,294

12,202

25,497

–

235

–

2,216

–

2,475

23,337

21,071

1,541

14,531

27,795

390

511

–

102

1,098

3,573

3,679

4,818

3,135

4,146

–

129

344

365

958

10,355

33,692

–

172

266

–

1,017

9,046

30,117

942

113

427

–

366

8,887

1,061

4,028

–

366

8,887

–479

2,452

–

1,521

14,342

11,226

1,528

14,413

11,253

295

100

–

173

610

739

100

207

–

2,783

943

–

153

4,225

1,804

–

245

1,634

1,677

156

5,757

8,112

6,966

5,594

943

–

1,949

1,521

–

196

344

657

–

304

586

677

256

1,435

3,573

2,413

13,522

33,692

2,070

10,752

30,117

–

1,989

18,758

5,105

–

2,083

3,624

833

19,647

34,178

–

5,207

33,002

None

944

–

519

366

8,905

–

4,892

715

366

645

8,260

2,014

3 869

1,578

14,878

15,154

–

1,578

14,878

15,154

–

100

235

–

943

2,216

3,104

1,804

2,216

–

335

3,159

7,124

407

100

–

3,842

943

–

507

–

1,192

11,241

10,108

–

1,711

3,624

16,141

34,178

10,724

33,002

111

1,050

817

1,070

10,088

7,393

1 Closing-day EUR/SEK rate used for conversion from SEK to EUR above = 9.43.
2 Restricted equity: share capital, reserve fund and premium reserve. Unrestricted equity: retained earnings and net income.

Cash flow

• Operating cash flow amounted to SEK 3,702 M (3,439).
• Net capital expenditure amounted to SEK 667 M (650).

Relationship between cash flow from operating
activities and operating cash flow

SEK M

Cash flow from operating activities

2004

Net capital expenditure

3,683

Tax paid

Operating cash flow

2005

3,450

–667

919

3,702

2004

3,339

–650

750

3,439

Company acquisitions
Total outlay on company acquisitions amounted to SEK
422 M (804). Acquired net debt totaled SEK –10 M (–30).
Acquisitions made during the year were financed by intern-
ally generated cash flow.

Change in net debt
Net debt was reduced by the strong operating cash flow but
increased to a comparable extent by changed exchange
rates, dividends to shareholders and acquisitions.

SEK M

Net debt at 1 January

IFRS adjustment (IAS 39)

Operating cash flow

Restructuring payments

Tax paid

Acquisitions

Dividend

Translation differences

Net debt at 31 December

2005

2004

12,208

13,454

–

–3,702

–3,439

298

919

413

951

321

750

929

457

1,076

12,240

–264

12,208

Operating cash flow

SEK M

Operating income (EBIT)

Depreciation / amortization

Net capital expenditure

Change in working capital

Paid and received interest

Adjustment for non-cash items

Operating cash flow

Operating cash flow / Income before tax

2005

4,078

882

-667

-110

-455

-26

3,702

1.04

923

-650

-12

-489

-16

3,439

1.08

The Group’s operating cash flow amounted to SEK
3,702 M (3,439), equivalent to 104 percent (108) of
income before tax.

The Parent company’s cash flow amounted to SEK

829 M (–648).

Net capital expenditure
Direct net capital expenditure on tangible and intangible
fixed assets totaled SEK 667 M (650), equivalent to 76 per-
cent (70) of depreciation / amortization of tangible and
intangible fixed assets falling due during the financial year.
The low level of capital expenditure is explained principally
by the Group’s long-term efforts to optimize capital expen-
diture.

Change in working capital

SEK M

Inventories

Accounts receivable

Accounts payable

Other working capital

Change in working capital

2005

–108

–95

215

–122

–110

2004

–79

–135

107

–12

Efforts to reduce the Group’s average material throughput
times in its inventories are continuing. During the year ris-
ing material prices and increased volumes have increased
the capital tied up in inventories, which burdened cash flow
by SEK –108 M (–79). The average material throughput
time is now 108 days (109). The increased capital tied up in
accounts receivable is chiefly due to stronger sales.

Cash flow analysis

GROUP

PARENT COMPANY

Note

EUR M1
2005

SEK M
2005

SEK M
2004

Note

EUR M1
2005

SEK M
2005

SEK M
2004

OPERATING ACTIVITIES

Operating income

Depreciation and amortization

Non-cash items

Cash flow before interest and tax

Paid and received interest

Dividends received

Tax paid on income

Cash flow before changes in working capital

Changes in working capital

Cash flow from operating activities

INVESTING ACTIVITIES

Investments in tangible and intangible assets

Sales of tangible and intangible assets

Investments in subsidiaries

Reduction of equity in subsidiaries

Sales of shares in subsidiaries

Investments in associates

Other investments

440

–3

532

–49

–

–99

384

–12

372

–87

–41

–

4,078

3,683

882

–26

923

–16

4,934

4,590

–455

–489

–

–919

3,560

–110

3,450

–805

138

–384

–

–3

–

–750

3,351

–12

3,339

–842

192

–904

–

–13

Cash flow from investing activities

–113

–1,052

–1,505

FINANCING ACTIVITIES

Dividends

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

Cash and cash equivalents at 31 December

1 Average EUR/SEK rate = 9.28.
2 Closing-day EUR/SEK rate = 9.43.
These rates have been used for the conversions from SEK to EUR above.

–104

–147

–251

108

–14

102

–951

–1,374

–2,325

1,017

–132

958

–457

–1,277

–1,734

100

880

100

1,017

415

249

–

421

1,487

13,802

–

–1

–

252

–187

3,322

–

1,536

14,240

3,387

–15

–133

1,520

14,107

3,478

–5

–15

–

–45

–8

–142

–14,456

–

222

–

8,348

4,996

–

–5

–1,124

–102

–951

–1,335

–12,380

–1,437

–13,331

–

829

–

833

–457

–2,545

–3,002

–648

652

–648

–

Reserves

Retained
earnings

Minority
interests

Share
capital

366

Other
contributed
capital

8,905

–18

–479

–18

–479

366

8 887

366

8 887

–479

–475

1,539

–3

1,536

366

8,887

1,061

4,028

560

2,349

–457

2,452

–81

2,371

2,608

–951

–2

Unrestricted
shareholders’
equity

Retained
earnings

2,472

3,869

–457

5,883

Total

9,847

–481

–18

–499

2,356

1,857

–457

11,253

–77

11,176

1,542

–3

1,539

2,613

4,152

–951

14, 413

Total

11,743

3,869

–457

15,154

5,883

15,154

–40

715

675

–40

715

675

–951

5,607

14,878

Changes in equity

GROUP
SEK M

Opening balance 1 January 2004

Translation differences for the year

Transaction costs connected with convertible bond issue

Income/expenses reported directly to equity

Net income from income statement

Total income and expenses

Dividend for 2003

Acquisitions of shares of subsidiaries

Closing balance 31 December 2004

Opening balance 1 January 2005

Effect of changed accounting principle, IAS 39

Adjusted opening balance 1 January 2005

Translation differences for the year

Changes in value of cash flow hedging instruments

Income/expenses reported directly to equity

Net income from income statement

Total income and expenses

Dividend for 2004

Acquisitions of shares of subsidiaries

Closing balance 31 December 2005

Note

PARENT COMPANY
SEK M

Opening balance 1 January 2004

Net income from income statement

Total income and expenses

Dividend for 2003

Closing balance 31 December 2004

Opening balance 1 January 2005

Group contributions net

Net income

Total income and expenses

Dividend for 2004

Transfer from premium reserve

Closing balance 31 December 2005

Restricted shareholders’ equity

Share
capital

366

Reserve
fund

Premium
reserve

645

8 260

Note

26, 27

366

645

8,260

366

8,260

8,905

–8,260

Financial risk management

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

Organization and activities
ASSA ABLOY’S Treasury Policy, which is reviewed annually
by the Board of Directors, constitutes a framework of guide-
lines and regulations for the management of financial risks
and financial activities.

ASSA ABLOY’S financial activities are coordinated cen-

trally within the subsidiary ASSA ABLOY Treasury S.A. in
Switzerland, which is 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.

Exposure of Group earnings
A general strengthening of the Swedish krona in 2006 by
one percent is calculated to have a negative impact of about
SEK 265 M on Group sales and of about SEK 20 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.

From 2005 onwards, instead of hedging individual
flows, the Group hedges a basket of flows with the aims of
facilitating contract management and reducing administra-
tive costs.

FORECAST TRANSACTION FLOWS BY MAJOR CURRENCY FOR
2006 (IMPORTS + AND EXPORTS –)

Currency risk
Currency risk affects ASSA ABLOY mainly through transla-
tion of capital employed and net debt, through translation
of income in foreign subsidiaries, and through flow of
goods between countries.

Currency

USD

EUR

CHF

GBP

Currency exposure (SEK M)

372

216

–254

257

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 inter-
nal needs.

Currency

USD

EUR

SEK*

GBP

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. At year-end, the aver-
age interest rate duration, excluding pension obligations,
was about 16 months.

EFFECTIVE INTEREST RATE BY CURRENCY, 31 DECEMBER 2005

Interest rate

4.5%

4.4%

5.0%

4.3%

4.6%

NET DEBT BY CURRENCY (IN MILLIONS)

Average for the Group

Currency

USD

EUR

SEK

GBP

Other (SEK)

Currency
exposure

Forward
contracts

External
borrowing

546

278

1,347

119

905

–9

–381

948

119

905

555

659

399

Total internal bank (SEK)

11,012

SEK

External loans

Overdrafts

Cash and cash equivalents

Long-term interest-bearing receivables

Pension obligations

Accrued financial items

Net debt

366

272

–958

–71

1,634

–15

12,240

* The SEK figure includes the effects of interest rate swaps.

External funding and interest rate swap
The table ‘External funding / net debt’ on page 64 gives an
overview of interest rate swaps associated with debt. The
interest-rate derivatives are structured to have durations
matching the underlying debt securities. The internal bank
swaps parts of the EMTN loan in EUR and the Private
Placement program in USD to floating rates.

Sensitivity analysis
A rise/fall of 1 percentage point in market rates is calculated
to have a negative/positive impact in the form of higher/
lower interest expense of SEK 65 M / SEK 69 M for the
year 2006.

Financial risk management

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 available facilities should
include a reserve (facilities confirmed but not used) equiva-
lent to 10 percent of the Group’s annual total sales.

Maturity structure
The column ‘End of facility’ in the table ‘External funding /
net debt’ below shows that duration until repayment of
debts contracted 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
pension liabilities, was 35 months. This is up from 2004

(14 months) because a refinancing was arranged in the sec-
ond quarter in the form of a Private Placement in the USA
for USD 330 M. The loan consists of five tranches with
durations between seven and fifteen years.

RATINGS

Agency

Standard & Poor’s

Moody’s

Short term

Long term

Outlook

A –

n/a

Stable

Ratings from both agencies remain unchanged from the previous
year.

Credit risk
Financial risk management exposes ASSA ABLOY to cer-
tain counterparty risks. Such exposure may arise, for exam-
ple, from the placement of surplus cash, from trade receiv-
ables, and from the use of debt securities and derivative
financial instruments.

EXTERNAL FUNDING / NET DEBT (IN MILLIONS)

Credit facilities

Private Placement Program

Incentive Program

Other long-term
interest-bearing loans

Total long-term loans

Confirmed

Committed

Amount
SEK

End of
facility

636

397

556

943

May-2012

May-2015

Apr-2017

May-2017

May-2020

Jun-2009

158

n/a

3,723

EMTN Program

Confirmed

14,143

Dec-2006

Global CP Program

Swedish CP Program

Nordic MTN Program

Incentive Program

Bank loan

Other short-term
interest-bearing loans

Overdrafts etc

Total short-term loans

Confirmed

Committed

n/a

Jun-2006

Nov-2006

Feb-2006

7,948

5,000

1,414

943

477

536

208

1,223

n/a

31,892

Book
value,
SEK

634

641

397

556

943

158

3,726

2,829

1,302

399

943

477

536

208

272

7,909

Multi-Currency RF

Committed

9,429

Dec-2010

Total credit facilities

45,044

Cash and cash equivalents

Long-term interest-bearing investments

Pension obligations

Net debt

* Hedge accounting.

11,635

–958

–71

1,634

12,240

Currency Amount

Market
value, SEK

USD

EUR

USD

SEK

EUR

USD

EUR

100

300

180

599

100

634

641

397

400

559

943

161

3,735

2,828

1,311

400

943

477

536

210

272

7,920

11,655

–958

–71

1,634

12,260

Interest
rate
swap

Yes*

Average interest
rate duration

Fixed six-monthly

Fixed quarterly

11.5 years

14.5 years

Fixed quarterly

Yes*

5 months

Yes*

15 days

16 days

Fixed quarterly

1 month

Financial risk management

ASSA ABLOY’s 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
through the cash pool network put in place by the internal
bank. About 80 percent of commercial sales were settled
through cash pools in 2005. The Group may nevertheless
deposit surplus funds on a short-term basis with banks in
order to match debt maturities.

Derivative financial 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 counterparty) is agreed in the case of interest deriva-
tives.

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
Derivative financial instruments such as currency and inter-
est-rate forwards are used to the extent necessary. The use
of derivative financial instruments is solely to reduce expo-
sure to financial risks. Derivative financial instruments are
not used with speculative intent.

The positive and negative market values in the table
below show the market values of instruments outstanding
at year-end, based on available market values, and are the
same as the values reported on the balance sheet. The nomi-
nal value represents the gross value of the contract.

OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS AT 31 DECEMBER (SEK M)

Instrument

Foreign exchange forwards – funding

Foreign exchange forwards – transaction

Currency basket option

Interest rate swaps

Total

Positive
market
value 2005

Negative
market
value 2005

–40

–6

–

–8

–54

Nominal
value 2005

8,417

621

572

3,326

12,936

Positive
market
value 2004

Negative
market
value 2004

–19

–26

–

–88

–133

Nominal
value 2004

7,032

452

504

4,823

12,811

Notes

Note 1 Significant accounting and
valuation principles

The Group
From 1 January 2005 ASSA ABLOY applies International Finan-
cial Reporting Standards (IFRS) as endorsed by the European
Union (EU), the Swedish Annual Accounts Act and standard RR 30
of the Financial Accounting Standards Council. The accounting
principles are based on IFRS as endorsed by 31 December 2005
and have been applied to all years presented, unless stated other-
wise. This Note describes the most significant accounting princi-
ples that have been applied in the preparation of the financial
reports, which comprise the information appearing on pages
42–94.

Basis of preparation
ASSA ABLOY’s consolidated financial statements have been pre-
pared in accordance with IFRS. The preparation of financial state-
ments is based on estimates and assumptions made for accounting
purposes. The management also makes judgments about the appli-
cation of the Group’s accounting principles. Estimates and assump-
tions may affect the income statement and balance sheet as well as
the supplementary information that appears in the financial
reports. Thus changes in estimates and assumptions may lead to
changes in the financial statements.

For example, estimates and assumptions play an important part
in the valuation of items such as identifiable assets and liabilities in
acquisitions, impairment testing of goodwill and other assets, the
fixing of actuarial assumptions for calculating employee benefits
and other types of provisions. Estimates and assumptions are con-
tinually reassessed and are based on a combination of historical
experience and reasonable expectations about the future.

The Group considers that estimates and assumptions relating to

impairment testing of goodwill and other intangible assets with
indefinite useful life are of significant importance to the consoli-
dated financial statements. The Group tests carrying amounts for
impairment on an annual basis. The recoverable amounts of Cash-
Generating Units are established by calculating their values in use.
The calculations are based on certain assumptions about the future
which, for the Group, are associated with risks of material adjust-
ments in reported amounts during the next financial year. Major
assumptions and the effects of likely changes to them are described
in Note 15.

Also see Note 38 about the transition to, and adoption of, IFRS

and the effects on the consolidated financial statements.

New and amended standards not yet effective

The following new standards and amendments to current stan-

dards have been published but are not yet effective, and have not
been applied in the preparation of the financial reports:
• IAS 1 Amendment, Presentation of Financial Statements: Capital

Disclosures, 1 January 2007 1, 2)

• IAS 19 Amendment, Actuarial Gains and Losses, Group Plans

and Disclosures, 1 January 2006 1)

• IAS 21 Amendment, The Effects of Changes in Foreign Exchange

Rates, Net Investment in a Foreign Operation, 1 January
2006 1, 2)

• IAS 39 Amendment, Cash Flow Hedge Accounting of Forecast

Intragroup Transactions, 1 January 2006 1)

• IAS 39 Amendment, The Fair Value Option, 1 January 2006 1)
• IAS 39 and IFRS 4 Amendment, Financial Guarantee Contracts,

1 January 2006 1, 2)

• IFRS 1 and IFRS 6 Amendment, before 1 January 2006 2)
• IFRS 6, Exploration for and Evaluation of Mineral Resources, 1

January 2006 1)

• IFRS 7, Financial Instruments: Disclosures, 1 January 2007 1, 2)
• IFRIC 4, Determining whether an Arrangement contains a Lease,

1 January 2006 1)

• IFRIC 5, Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds, 1 January
2006 1)

• IFRIC 6, Liabilities arising from Participating in a Specific Mar-
ket: Waste Electrical and Electronic Equipment, 1 December
2005 2)

• IFRIC 7, Applying the Restatement Approach under IAS 29,

Financial Reporting in Hyperinflationary Economies, 1 March
2006 1, 2)

• IFRIC 8, Scope of IFRS 2, 1 March 2006 1, 2)

Of the new and amended standards listed above, it is assessed that
the amendment to IAS 19 could have the most significant effect on
the consolidated financial statements. The amendment means that
the Group can choose to recognize actuarial gains and losses
directly in equity instead of distributing them over the expected
average remaining working lives of the employees as under the
present principle. The potential effect of the amendment to IAS 19
and the possible effects of other new and amended standards are
being assessed.

Consolidated financial statements
The consolidated financial statements cover ASSA ABLOY AB (the
Parent company) and companies in which the Parent company
held, directly or indirectly, more than 50 percent of the voting
rights at the end of the period, as well as companies in which the
Parent company exercises control by some other means. Compa-
nies acquired during the year are included in the consolidated
financial statements with effect from the date when control was
obtained. Companies sold during the year are included in the con-
solidated financial statements up to the date when control ceased.
The consolidated financial statements have been prepared in
accordance with the purchase method, which means that the cost
of acquisition of shares in subsidiaries is eliminated against their
equity at the time of acquisition. In this context, equity in sub-
sidiaries is determined on the basis of the fair value of assets, liabil-
ities and contingent liabilities at the date of acquisition. Thus only
that part of subsidiaries’ equity that has arisen after the acquisition
is included in the Group’s equity. A positive difference between the
cost of acquisition and the fair value of the Group’s share of
acquired net assets is reported as goodwill.

Intra-group transactions and balance sheet items and un-
realized profits on transactions between Group companies are
eliminated in the Group financial statements.

1 Earlier adoption is encouraged.
2 Not endorsed by the EU at 31 December 2005.

Minority interests
Minority interests are based on subsidiaries’ accounts with appli-
cation of fair-value adjustments resulting from completed acquisi-
tion analysis. Minority participations in subsidiaries’ income are
reported in the income statement with net income divided between
the Parent company’s shareholders and minority interests. Minor-
ity participations in subsidiaries’ equity are reported as a separate
item in the Group’s equity.

Associates
Associates are defined as companies which are not subsidiaries but
in which the Group has a significant, but not a controlling, interest.
This is usually taken to be companies where the Group’s share-
holding represents between 20 percent and 50 percent of the voting
rights. Participations in associates are accounted for in accordance
with the equity method. In the consolidated balance sheet, share-
holdings in associates are reported at cost, adjusted for participa-
tion in income after the date of acquisition. Dividends from associ-
ates are reported as a reduction in the carrying amount of the
investment. Participations in the income of associates are reported
in the consolidated income statement as part of operating income
as the investments are related to business operations.

Segment reporting
The Group’s business operations are split organizationally into
four divisions. Three divisions are based on products sold in local
markets in the respective division: EMEA, Americas and Asia
Pacific. Global Technologies’ products are sold worldwide. The
divisions reflect a partition of the Group’s operations according to
major risks and returns. The divisions form the operational struc-
ture for internal control and reporting and also constitute the
Group’s segments for external financial reporting. There are no
secondary segments.

Foreign currency translation
Functional currency corresponds to local currency in each country
where Group companies operate.

Transactions in foreign currencies are translated to functional

currency by application of the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses arising
from the settlement of such transactions are normally reported in
the income statement, as are those arising from translation of mon-
etary balances in foreign currencies at the closing-day rate. Excep-
tions are transactions relating to qualifying cash flow hedges or net
investment hedges, which are reported in equity. Receivables and
liabilities are valued at the closing-day rate.

The Group applies the current method to translate the accounts
of foreign subsidiaries prepared in functional currencies other than
the Group’s presentation currency. The current method means that
all balance sheet items except net income are translated at the clos-
ing-day rate, net income being translated at the average rate. The
income statement is translated at the average rate for the period.
Exchange-rate differences arising from the translation of foreign
subsidiaries are reported in the translation reserve in equity.

Notes

The rates for currencies used in the Group, relative to the

Group’s presentation currency (SEK), were as follows – the
weighted average for the year, and the closing-day rate:

Currency

Average rate
2005

2004

Country

Argentina

Australia

Brazil

Canada

Switzerland

Chile

China

Czech Republic

Denmark

Estonia

Euro zone

ARS

AUD

BRL

CAD

CHF

CLP

CNY

CZK

DKK

EEK

EUR

Closing-
day rate

2005

2.62

5.83

3.42

6.84

6.06

2004

2.22

5.15

2.49

5.50

5.85

2.54

5.68

3.09

6.17

6.00

2.49

5.39

2.51

5.65

5.90

0.013

0.012

0.015

0.012

0.91

0.31

1.25

0.59

9.28

0.88

0.29

1.23

0.58

9.12

0.98

0.32

1.26

0.60

9.43

0.80

0.30

1.21

0.58

9.02

United Kingdom GBP

13.54

13.38

13.73

12.74

Hong Kong

Hungary

Israel

Kenya

South Korea

Lithuania

Mexico

Malaysia

Norway

New Zealand

Poland

Romania

Russia

Singapore

Slovenia

Slovakia

Thailand

USA

South Africa

HKD

HUF

ILS

KES

KRW

LTL

MXN

MYR

NOK

NZD

PLN

ROL

RUR

SGD

SIT

SKK

THB

USD

ZAR

0.96

0.94

1.03

0.85

0.037

0.036

0.037

1.66

1.64

0.099

0.093

1.74

0.110

0.00729

–

0.00791

2.69

0.68

1.97

1.16

5.25

2.31

2.64

0.65

1.93

1.09

4.85

2.02

2.73

0.75

2.10

1.18

5.43

2.44

1.53

0.08

–

2.61

0.59

1.74

1.09

4.75

2.21

0.0003 0.0002

0.26

4.48

0.25

4.34

0.28

4.78

0.24

4.05

0.039

0.038

0.039

0.038

0.24

0.18

7.45

1.18

0.23

0.18

7.33

1.15

0.25

0.19

7.95

1.26

0.23

0.17

6.62

1.17

Revenue
Revenue comprises the fair value of goods sold, excluding VAT and
discounts and after eliminating intra-group sales. The Group’s sales
revenue arises principally from sales of products. Service related to
products sold makes up a very limited fraction of revenue. Revenue
from sales of the Group’s products is recognized when all signifi-
cant risks and rewards associated with ownership are transferred
to the purchaser in accordance with applicable conditions of sale,
which is normally upon delivery. If the product requires installa-
tion at the customer’s premises, revenue is recognized when instal-
lation is completed. Revenue from service contracts is recognized
through distribution over the contract period.

Notes

Intra-group sales
Transactions between Group companies are carried out at arm’s
length and thus at market prices. Intra-group sales are eliminated
from the consolidated income statement, and profits on such trans-
actions have been eliminated in their entirety.

Government grants
Grants and support from governments, public authorities etc are
reported when there is reasonable assurance that the company 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.

Research and development
Research costs are expensed as they are incurred. The costs of
development work are reported in the balance sheet only to the
extent that they are expected to generate future economic benefits
for the Group and provided such benefits can be reliably measured.
Development costs so reported are amortized over the expected
useful life. Development costs recorded as assets but not yet in use
are subject to annual impairment testing. Costs for development of
existing products are expensed as they are incurred.

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

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, associ-
ated tax effects are also reported in the income statement. The tax
effects of items reported directly against equity are themselves
reported against equity. Deferred tax is accounted for under the lia-
bility method. This means that deferred tax is accounted for on all
temporary differences between the carrying amounts of assets and
liabilities and their respective tax bases. 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 subsidiaries are not reported in the consoli-
dated financial statements since the Parent company can control
the time at which the temporary differences are cancelled and it is
not considered likely that such cancellation will occur in the fore-
seeable future. Deferred tax receivables and deferred tax liabilities
are offset when there is a legal right to do so and when the deferred
tax amounts concern the same tax authority.

Cash flow statement
The cash flow statement has been prepared according to the in-
direct method. The reported cash flow includes only transactions
involving cash payments. ‘Cash and cash equivalents’ covers cash
and bank balances and short-term financial investments with dura-
tions of less than three months.

Goodwill and acquisition-related intangible assets
Goodwill represents the positive difference between the cost of
acquisition and the fair value of the Group’s share of the acquired
company’s net identifiable assets at the date of acquisition, and is
reported at cost less accumulated impairment losses. Goodwill is
allocated to Cash-Generating Units (CGU) and each year is system-
atically tested for impairment using a valuation model based on
discounted future cash flow. Deferred tax receivables based on
local tax rates are reported in terms of tax-deductible goodwill
(with corresponding reduction of the goodwill value). Such
deferred tax receivables are expensed as the tax deduction is
utilized.

Other acquisition-related intangible assets consist chiefly of
various types of intangible rights such as brands, patents and cus-
tomer relationships. Identifiable acquisition-related intangible
assets are initially recognized at fair value at the date of acquisition
and subsequently at cost less accumulated amortization and
impairment losses. Amortization is on a straight-line basis over
estimated useful life. Acquisition-related intangible assets with
indefinite useful life are tested for impairment every year in the
same way as goodwill, as described above.

Other intangible assets
An intangible asset that is not acquisition-related is reported only if
it is likely that the future economic benefits associated with the
asset will flow to the Group and if the cost of acquisition can be
measured reliably. Such an asset is initially recognized at cost and is
amortized over its estimated useful life, usually between three and
five years. Its carrying amount is cost less accumulated amortiza-
tion and impairment losses.

Tangible assets
Tangible assets are reported at cost less accumulated depreciation
and impairment losses. Cost includes expenditure that can be
directly attributed to the acquisition of the asset. Subsequent
expenditure is added to the carrying amount if it is probable that
economic benefits associated with it will flow to the Group and if
the cost can be reliably measured. Expenditure on repairs and
maintenance is expensed as it is incurred. No depreciation is
applied to land. For other assets, cost is depreciated over estimated
useful life, which for the Group leads to the following depreciation
periods (on average):
– office buildings, 50 years
– industrial buildings, 25 years
– machinery and other technical plant, 7–10 years
– equipment and tools, 3–6 years.

Profit or loss on the disposal of a tangible asset is recognized in the
income statement as ‘Other operating income’ or ‘Other operating
expenses’, based on the difference between the selling price and the
carrying amount.

Notes

Leasing
The Group’s leasing is chiefly operational leasing. The leasing
payments are expensed at a constant rate over the period of the
contract and are reported as operating costs.

Impairment
Assets with indefinite useful life are not amortized but are tested
for impairment on an annual basis. For impairment testing pur-
poses assets are grouped at the lowest organizational level where
there are separate identifiable cash flows, so called Cash-Generat-
ing Units (CGU). For assets that are depreciated/amortized, impair-
ment testing is carried out when events or circumstances indicate
that the carrying amount may not be recoverable.

When impairment has been established, the value of the asset is
reduced to its recoverable amount. The recoverable amount is the
higher of the asset’s fair value less costs to sell, and its value in use.

Inventories
Inventories are valued in accordance with the ‘first in, first out’
principle at the lower of cost 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 a fair allocation of indirect
manufacturing costs.

Accounts receivable
Accounts receivable are reported at their fair value, which corre-
sponds to amortized cost less any provision for bad debts. A provi-
sion is recognized when it is probable that the recorded amounts
will not flow to the Group. The year’s change in such a provision is
reported in the income statement.

Financial instruments
Financial instruments are initially recorded at fair value. Subse-
quent measurement of financial instruments depends on the classi-
fication at initial recognition, which in turn depends on the original
purpose of acquiring the instrument. Financial instruments are
divided into the following categories:
• ‘Financial instruments at fair value through profit and loss’ are
financial assets held for trading, financial assets at fair value
through profit and loss (classified at inception) and derivatives
that are not part of a hedge relationship qualifying for hedge
accounting. Gains and losses arising from changes in the fair
value of financial instruments at fair value through profit and
loss are included in the income statement in the period in which
they arise. The category includes current financial investments
and derivatives that are not part of hedge relationships qualify-
ing for hedge accounting. See also the section below regarding
hedge accounting.

• ‘Loans and other receivables’ are non-derivative financial assets,
with fixed or determinable payments, which are not traded on an
active market. Such a receivable usually arises when the Group
provides a counterparty with cash or supplies a customer with
goods or services without intention of trading the receivable.
Loans and other receivables are carried at amortized cost using
the effective interest method. The category covers non-current
receivables, accounts receivable and other current receivables.

• ‘Held-to-maturity investments’ are non-derivative financial

assets with fixed or determinable payments and fixed maturities

which the Group has the intention and ability to hold to matu-
rity. After initial recognition, these investments are carried at
amortized cost using the effective interest method. The Group
normally holds no, or very limited, amounts as held-to-maturity
investments.

• ‘Available-for-sale financial assets’ includes non-derivative

financial assets that are either classified as available for sale or
are not classified in any of the other categories of financial
assets. The Group normally holds no positions falling into this
category.

Financial liabilities, which are neither recorded at fair value
through profit and loss nor included in a hedge relationship quali-
fying for hedge accounting, are reported at amortized cost using
the effective interest method. The category covers non-current
and current loan liabilities which are not hedged items, other non-
current and current liabilities, and accounts payable.

Acquisitions and disposals of financial instruments are recog-
nized on trade-date, i.e. when the Group is committed to the pur-
chase or sale. Transaction costs are included initially in the fair
value of all financial instruments apart from those reported at fair
value through profit and loss.

The fair value of a quoted financial instrument is based on the
bid price on the closing day. Regarding financial instruments in a
non-active market and for unlisted securities, fair value is deter-
mined by using an appropriate method of valuation, for example
using available information on comparable arm’s length transac-
tions, comparison with similar instruments, and analysis of dis-
counted cash flows.

The current and non-current distinction is applied consistently

to all financial instruments. When settlement or disposal is
expected to occur more than 12 months after closing day, a finan-
cial asset is reported as a non-current asset. Thus, when settlement
or disposal is expected to occur within 12 months of closing day,
financial assets are reported as current assets. Financial liabilities
with maturity later than 12 months after closing day are reported
as non-current liabilities and those with maturity within 12
months of closing day as current liabilities.

A financial asset is derecognized when the right to receive cash

flow from the asset expires or is transferred to another party
because all risks and rewards associated with the asset have been
transferred to that party. A financial liability is derecognized when
the obligation is discharged or cancelled or when it expires.

Hedge accounting
Hedge accounting is applied only to transactions that are desig-
nated to hedge a specific risk and that qualify for hedge account-
ing. The Group holds a limited number of such hedge relationships
and they include both fair value hedges and cash flow hedges.
A financial liability is a hedged item when it is included in a
hedge relationship qualifying for hedge accounting, thus effectively
hedged by a derivative designated as a hedging instrument. The
liability (the hedged item) as well as the derivative (the hedging
instrument) is recognized at fair value. Changes in the fair value of
a liability which is the hedged item of a qualifying fair value hedge
are reported in the income statement in the period in which they
arise. Gain or loss from revaluation of the hedging instrument of
such a qualifying fair value hedge is reported in the income state-
ment at the same time as gain or loss from the hedged item.

Notes

Gain or loss from revaluation of a hedging instrument of a
cash-flow hedge qualifying for hedge accounting is reported in
equity in the period in which it arises and is transferred to the
income statement in the period that the hedged cash flow is recog-
nized. Ineffective portion of the gain or loss is reported in the
income statement in the period in which it arises.

Provisions
Provisions are recognized when the Group has a legal or construc-
tive obligation resulting from past events and it is probable that an
outflow of resources will be required to settle the obligation and
that a reliable estimate can be made of the amount. Provisions are
reported at a value representing the probable outflow of resources
that will be needed to settle the obligation.

Employee benefits
Both defined contribution and defined benefit pension plans exist
in the Group. Comprehensive defined benefit plans are found
chiefly in the USA, the UK and Germany. Post-employment medical
benefits also exist, mainly in the USA, which are reported in the
same way as defined benefit pension plans. Calculations related to
the Group’s defined benefit plans are performed by independent
actuaries and are based on a number of actuarial assumptions such
as discount rate, future inflation and salary increases. Obligations
are valued on the closing day at their discounted value. For funded
plans, obligations are reduced by the fair value of the plan assets.
Unrecognized actuarial gains and losses lying outside the so-called
ten-percent corridor (i.e. exceeding the higher of 10 percent of the
present value of the obligation or the fair value of plan assets) are
spread over the expected average remaining working lives of the
employees. In principle, pension costs for defined benefit plans are
spread over the employee’s service period. The part of the interest
component in the pension cost that relates to the deficit in pension
plans is reported as a financial expense. The Group’s payments
related to defined contribution pension plans are reported as cost
in the period to which they refer, based on the services performed
by the employee.

The Parent company
The Group’s Parent company, ASSA ABLOY AB, is responsible for
the management of the Group and handles common Group func-
tions. The Parent company’s revenue consists of intra-group fran-
chise revenue, and its main balance sheet items consist of shares in
subsidiaries, intra-group receivables and liabilities, and external
borrowing.

The Parent company has prepared its annual accounts in accor-

dance with the Swedish Annual Accounts Act (1995:1554) and
standard RR 32 of the Swedish Financial Accounting Standards
Council.

RR 32 requires the Parent company, in its annual accounts, to
apply all the International Financial Reporting Standards (IFRS)
endorsed by the EU in so far as this is possible within the frame-
work of the Annual Accounts Act and with regard to the relation-
ship between accounting and taxation. RR 32 states what excep-
tions from, and additions to, IFRS should be made.

The differences between the Group’s and the Parent company’s

accounting principles are detailed below. In accordance with the
transition rules in RR 32 the company has elected not to apply
Chapter 14, sections a-e, of the Annual Accounts Act, which deal
with the valuation of certain financial instruments at fair value.
From 1 January 2006 the rules of Chapter 14, sections a–e, will be
applied. This will represent a change in accounting principles. The
accounting principles for the Parent company described below
have been applied consistently to all periods presented in the
Parent company’s financial statements.

The Parent company’s changed accounting principles resulting
from the adoption of RR 32 have not involved any adjustments to
the figures reported for 2004.

Revenue
The Parent company’s revenue consists of intra-group franchise
revenues. These are reported in the income statement as ‘Other
operating income’ to make it clear that the Parent company has no
product sales similar to those of other Group companies concerned
with external business.

Share-based incentive programs
Current share-based incentive programs were issued at market
value and therefore involve no personnel costs for the Group.

Dividend revenue
Dividend revenue is recognized when the right to receive payment
is judged to be firm.

Dividend
The dividend is reported as a liability once the Annual General
Meeting has approved the dividend.

Tangible assets
Tangible assets owned by the Parent company are reported at cost
less accumulated depreciation and any impairment losses in the
same way as for the Group. All leasing contracts in the Parent
company consist of operational leasing and are reported according
to applicable rules.

Shares in subsidiaries
Shares in subsidiaries are reported at cost less impairment losses.

Receivables from subsidiaries
Receivables from subsidiaries are valued as the amounts that are
expected to be received.

Liabilities to subsidiaries
Liabilities to subsidiaries are valued at the amounts at which the
liabilities are expected to be settled.

Employee benefits
Payments related to defined contribution pension plans are
expensed in the period they relate to.

Group contributions
The company reports Group contributions in accordance with a
statement from the Emerging Issues Task Force of the Swedish
Financial Accounting Standards Council. Group contributions are
reported according to their financial implications. This means that
Group contributions that are paid with the aim of minimizing the
Group’s total tax charge are reported directly against equity after
deduction for their actual tax effects. Group contributions compa-
rable to dividends are reported as such, which means that received
Group contributions and their actual tax effects are reported in the
income statement and paid Group contributions and their actual
tax effects are reported directly against equity.

Notes

Note 2 Sales
The Group’s sales revenues come chiefly from sales of products.
Service related to products sold accounts for a very limited part of
revenues (3–4 percent).

Sales to customers, by country

SEK M

USA

France

United Kingdom

Germany

Sweden

Australia

Netherlands

Spain

Finland

Canada

Norway

Mexico

Denmark

Asia (excluding China)

Italy

China

Belgium

Middle East

New Zealand

Czech Republic

Switzerland

South America

South Africa

Austria

Central America (excluding Mexico))

Russia

Portugal

Baltic countries

Poland

Romania

Other countries

Total

Note 3 Auditors’ fees

SEK M

Audit

PricewaterhouseCoopers

Other

Assignments other
than audit

PricewaterhouseCoopers

Other

Total

Group

2005

2004

9,278

2,294

2,010

1,466

1,286

1,186

1,070

1,029

765

744

662

570

534

533

457

429

362

347

327

326

280

263

238

195

130

128

111

108

524

8,414

2,260

1,675

1,380

1,180

1,056

1,036

961

739

728

576

649

503

394

454

286

356

273

319

263

244

238

222

179

129

118

122

103

529

27,802

25,526

Group

Parent company

2005

2004

2005

2004

–

Notes

Note 4 Other operating income and expenses

Note 8 Depreciation and amortization

SEK M

Rent received

Profit/loss from sales of fixed assets

Government grants

Other non-business-related income

Business-related taxes

Other, net

Total

Group

2005

2004

–42

–40

SEK M

Intangible rights

Machinery

Equipment

Buildings

Land and land improvements

Total

Group

Parent company

2005

2004

2005

2004

497

244

122

882

504

246

125

923

–

Parent company
Other operating income in the Parent company consists mainly of
franchise revenues from subsidiaries.

Note 9 Employee benefits
Salaries, wages and other remuneration (of which,
performance-related salary paid to managing directors)

Note 5 Share of earnings in associates

SEK M

Låsgruppen Wilhelm Nielsen AS

Cerraduras de Colombia Cerracol S.A

Total

Group

2005

2004

Note 6 Operational leasing agreements

SEK M

Leasing fees paid during the year:

Group

Parent company

2005

200

2004

144

2005

2004

Group

Parent company

SEK M

Sweden

Finland

Norway

Denmark

United Kingdom

Belgium

Netherlands

France

Germany

Switzerland

Italy

Spain

SEK M

Nominal value of agreed
future leasing fees:

Due for payment in 2006 (2005)

Due for payment in 2007 (2006)

Due for payment in 2008 (2007)

Due for payment in 2009 (2008)

Due for payment in 2010 (2009)

Due for payment in 2011 (2010)
or later

Total

2005

2004

2005

2004

Czech Republic

183

139

591

121

393

Romania

Israel

South Africa

Canada

USA

Mexico

South America

China

Australia

New Zealand

Note 7 Expenses by nature
In the income statement costs are broken down by function. Cost
of goods sold, Selling expenses, Administrative expenses and
Research & Development costs amount to SEK 23,760 M (21,873)
in total. Below, these same costs are broken down by nature.

SEK M

Remuneration of employees (Note 9)

Direct material costs

Depreciation and write-downs (Notes 15, 16)

Other expenses

Total

Group

2005

2004

9,260

8,059

884

8,899

7,162

924

5,557

4,888

23,760

21,873

Other

Total

SEK M

Sweden

Other

Total

Social costs (of which, pensions)

SEK M

Total

SEK M

Total

Group

2005

2004

530 (4)

297 (0)

274 (3)

117 (1)

596 (1)

69 (0)

211 (2)

613 (2)

530 (2)

227 (2)

92 (–)

268 (1)

63 (0)

29 (0)

74 (0)

78 (0)

484 (9)

288 (1)

254 (1)

118 (0)

484 (2)

71 (0)

224 (1)

586 (2)

511 (1)

209 (0)

130 (–)

270 (–)

58 (0)

23 (–)

64 (0)

61 (–)

135 (0)

111 (0)

2,241 (21) 2,053 (11)

146 (1)

169 (0)

52 (0)

111 (1)

288 (0)

130 (–)

134 (2)

42 (–)

68 (0)

316 (0)

243 (–)

112 (2)

7,305 (43) 6,949 (30)

Parent company

2005

72 (2)

9 (–)

81 (2)

2004

63 (4)

4 (–)

67 (4)

Group

2005

2004

1,955 (384) 1,950 (433)

Parent company

2005

2004

46 (22)

36 (17)

Remuneration of the Parent company’s
Board of Directors and CEO
Salaries and other remuneration paid to the Board of Directors and
the CEO totaled SEK 13 M (15). Social costs for the Directors and
the CEO amounted to SEK 14 M (10), of which SEK 9 M (4) con-
sisted of pension costs. Detailed information about remuneration
and social costs applying to the Directors and senior management
appears in the Corporate Governance report.

Severance pay agreement
A severance pay agreement has been signed with the CEO by
which he receives 100 percent of his fixed salary for 24 months.
The agreement applies only where the company gives notice of
severance.

Absence for illness

Total absence for illness:

– long-term

– men

– women

– aged 29 or younger

– aged 30–49

– aged 50 or older

Parent company

2005

2004

1.5

–

0.4

2.7

1.4

1.8

0.3

1.1

–

0.2

2.1

0.6

1.5

0.5

Note 10 Exchange-rate differences in the

income statement

SEK M

2005

2004

2005

2004

Group

Parent company

Exchange-rate differences
reported in the income statement

Exchange-rate differences
reported in financial expenses

Total

–7

–4

–27

–5

–

–20

Note 11 Financial income

Group

Parent company

Notes

Note 12 Financial expenses

Group

Parent company

SEK M

2005

2004

Intra-group interest expenses

–

Interest expenses, convertible
debenture loans

Interest expenses, other liabilities

–46

–499

Exchange-rate differences, net (Note 10)

–7

Changes in value of derivative
financial instruments

Other financial expenses

Total

–36

–573

–33

–632

193

–198

–648

2005

–348

–46

–183

–

–20

–554

2004

–385

–33

–295

–20

–

–190

–923

Towards the end of 2004, EUR 300 M of the EMTN program was
redeemed with the aim of refinancing with a medium-term loan
in USD in order to improve the average duration of liabilities.
The redemption involved costs in the Parent company with corre-
sponding income from the premature closure of the related interest
rate swap.

Note 13 Tax on income

SEK M

Current tax paid

Tax attributable to prior years

Deferred tax

Total

Group

Parent company

2005

–818

–132

–942

2004

–707

–77

–59

2005

–13

–

–843

–13

2004

–

–7

–

–7

Explanation for the difference between nominal Swedish tax rate
and effective tax rate based on income before tax:

Percent

2005

2004

2005

2004

Group

Parent company

Swedish rate of tax on income

Effect of foreign tax rates

Non-taxable income /
non-deductible expenses, net

Deductible goodwill

Tax losses utilized

–6

–1

–3

–1

–

–15

–

–11

–

–28

–

Group

2005

2004

SEK M

2005

2004

2005

2004

Other

Earnings from participations in
subsidiaries (A)

Intra-group interest income

External interest income
and similar items

Total

–

164

375

491

4,044

506

867

4,550

Effective tax rate in income statement 27

Note 14 Earnings per share
Earnings per share before dilution

(A) Earnings from participations in subsidiaries

Dividends from subsidiaries

Write-downs of shares in subsidiaries

Earnings from sales of shares in subsidiaries

Total

Parent company

2005

2004

13,588

2,845

–13,210

–3

375

–177

1 376

4,044

Write-downs of shares in subsidiaries of SEK 13,210 M (177) were
mainly due to dividends received from subsidiaries.

Earnings assigned to the Parent company’s shareholders

2,608

2,349

Weighted average number of shares issued (thousands) 365,918 365,918

Earnings per share before dilution (SEK per share)

7.13

6.42

Earnings per share after dilution

Group

2005

2004

Earnings assigned to the Parent company’s shareholders

2,608

2,349

Interest expenses for convertible debenture loans, after tax

Net profit for calculating earnings per share after dilution

2,641

2,373

Weighted average number of shares issued (thousands) 365,918 365,918

Assumed conversion of convertible
debentures (thousands)

12,800

9,185

Weighted average number of shares for calculation
(thousands)

378,718 375,103

Earnings per share after dilution (SEK per share)

6.97

6.33

Notes

Note 15 Intangible assets

2005
SEK M

Opening accumulated acquisition value

Purchases

Acquisitions of subsidiaries

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Opening accumulated amortization/impairment

Sales/disposals

Reclassifications

Impairment

Amortization for the year

Translation differences

Closing accumulated amortization/impairment

Book value

2004
SEK M

Opening accumulated acquisition value

Purchases

Acquisitions of subsidiaries

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Opening accumulated amortization/impairment

Sales/disposals

Reclassifications

Impairment

Amortization for the year

Translation differences

Closing accumulated amortization/impairment

Goodwill

13,917

249

–

–3

1,535

15,716

–

15,716

Goodwill

13,814

125

461

–16

–

–467

13,917

–

Book value

13,917

Group

Intangible
rights

473

–20

666

–252

–1

–18

–36

–305

361

Group

Intangible
rights

410

–40

–

–16

473

–230

–

–47

–252

221

Parent company

Intangible
rights

–

–18

–

–1

–

–4

–

–5

Parent company

Intangible
rights

–

–1

–

–1

–

–2

Total

14,390

104

324

–20

1,579

16,382

–252

–1

–18

–35

–304

16,078

Total

14,224

165

540

–56

–483

14,390

–230

–47

–252

14,138

Intangible rights consist mainly of brands and licences with finite useful life. The book value of intangible rights with indefinite life
amounts to SEK 126 M (79).

Useful life is taken as indefinite where the time period during which it is judged that an asset will contribute economic benefits cannot

be defined.

Amortization and write-down of intangible rights have mainly been reported as administrative costs in the income statement.
In the Parent company the book value of intangible rights with indefinite life amounts to SEK 29 M (0).

Impairment testing of goodwill and intangible rights with indefinite useful life
Goodwill and intangible rights with indefinite useful life are assigned to the Group’s Cash-Generating Units, as summarized in the
following table:

2005
SEK M

Goodwill

Intangible rights with indefinite useful life

2004
SEK M

Goodwill

Intangible rights with indefinite useful life

Architectural
Hardware Group

ASSA ABLOY
Entrance
Systems

ASSA ABLOY
Identification
Technology

3,442

–

3,442

2,446

2,465

2,136

–

2,136

Architectural
Hardware Group

ASSA ABLOY
Entrance
Systems

ASSA ABLOY
Identification
Technology

2,869

–

2,869

2,188

–

2,188

1,715

–

1,715

Other

7,692

107

7,799

Other

7,145

7,224

Notes

Total

15,716

126

15,842

Total

13,917

13,996

For each Cash-Generating Unit, the Group assesses each year
whether any write-down of goodwill is needed, in accordance with
the accounting principles described in Note 1. Recoverable
amounts for Cash-Generating Units have been established by cal-
culation of value in use. These calculations are based on estimated
future cash flows, which in turn are based on financial budgets
approved by the management and covering a three-year period.
Cash flows beyond three years are extrapolated using estimated
growth rates according to the principles below.

Main assumptions used to calculate useful values:

• Budgeted operating margin.
• Growth rate for extrapolating cash flows beyond the three-year

period.

• Discount rate after tax used for estimated future cash flows.

The management has established the budgeted operating margin
on a basis of earlier results and its expectations about future mar-
ket development. For extrapolating cash flows beyond the three-
year period, a growth rate of 3 percent is used for all Cash-Gener-
ating Units. This growth rate is thought to be a conservative esti-
mate. In addition, an average discount rate of 8 percent in Swedish
kronor after tax is used for the Group. However the rate has been
adjusted for a small number of Cash-Generating Units to reflect
the specific risks faced by these Units. Overall, the discount rate
employed varies between 8.0 and 9.5 percent.

Sensitivity analysis
A sensitivity analysis has been carried out for each Cash-Generat-
ing Unit. The results of the analyses can be summarized as follows:
If the estimated operating margin after the end of the budget
period had been 10 percent lower than the management’s figure,
total recoverable value would be 9 percent lower.

If the estimated growth rate to extrapolate cash flows beyond

the budget period had been 10 percent lower than the starting
assumption of 3 percent, total recoverable value would be 5 per-
cent lower.

If the estimated weighted capital expenditure used for the
Group’s discounted cash flow had been 10 percent higher than the
starting assumption of 8.0 to 9.5 percent, total recoverable value
would be 14 percent lower.

These calculations are hypothetical and should not be viewed as

an indication that these figures are any more or less likely to be
changed. The sensitivity analysis should therefore be treated with
caution.

None of the hypothetical cases above would lead to a write-

down of goodwill in a particular Cash-Generating Unit.

Group

Land and land
improvements

Machinery

Equipment

695

4,910

1,402

–

–9

761

–16

–4

–

–1

–3

–24

–

737

341

–106

503

234

–99

126

Total

9,899

664

–339

982

5,745

1,688

11,344

–3,006

–846

–4,919

–

–497

–241

–1

–244

–61

186

–1

–864

–397

–3,676

–1,084

–5,996

–

2,069

–

604

354

5,702

Group

Machinery

Equipment

4,974

1,361

365

–200

–35

–238

207

–138

–69

4,910

1,402

–2,940

193

–

–504

210

–3,006

–

1,904

–789

136

–2

–

–246

–846

–

556

Total

9,954

689

–436

–428

9,899

–4,796

397

–1

–876

335

–4,919

299

5,279

Parent company

Equipment

–

–4

–

–9

–

–2

–

–9

–

Parent company

Equipment

–2

–

–9

–

–2

–

–10

–

Notes

Note 16 Tangible assets

2005
SEK M

Opening accumulated acquisition value

Purchases

Acquisitions of subsidiaries

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Buildings

2,892

–

–125

286

3,150

Opening accumulated depreciation/impairment

–1,051

Sales/disposals

Reclassifications

Impairment

Depreciation for the year

Translation differences

Closing accumulated depreciation/impairment

Construction in progress

Book value

–4

–

–122

–92

–1,212

–

1,938

The tax value of the Group’s Swedish buildings was SEK 83 M (87).
The tax value of the Group’s Swedish land was SEK 11 M (12).

2004
SEK M

Opening accumulated acquisition value

Purchases

Acquisitions of subsidiaries

Sales/disposals

Reclassifications

Translation differences

Closing accumulated acquisition value

Buildings

2,922

–77

–107

2,892

Opening accumulated depreciation/impairment

–1,051

Sales/disposals

Reclassifications

Impairment

Depreciation for the year

Translation differences

–12

–

–125

Closing accumulated depreciation/impairment

–1,051

Construction in progress

Book value

–

1,841

Land and land
improvements

697

–21

–19

–14

695

–16

–

–1

–16

–

679

Note 17 Shares in subsidiaries

Company name

ASSA ABLOY EMEA AB

Timelox AB

Corporate identity number,
Registered office

556061-8455 Stockholm

556214-7735 Landskrona

ASSA ABLOY Entrance Systems Group AB

556204-8511 Landskrona

Sokymat AB

ASSA ABLOY Kredit AB

556514-7997 Ronneby

556047-9148 Stockholm

ASSA ABLOY Identification Technology Group AB

556645-4087 Stockholm

ASSA ABLOY Svensk Fastighets AB

ASSA ABLOY Asia Holding AB

ASSA ABLOY IP 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.

ASSA ABLOY Inc

ABLOY Holdings Ltd

556645-0275 Stockholm

556602-4500 Stockholm

556645-4087 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

39347-83 Salem, Oregon

1148165260 St Laurent

ASSA ABLOY Australia Pacific Pty Ltd

ACN 095354582 Oakleigh, Victoria

ASSA ABLOY South Asia Pte Ltd

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

Lips Technology BV

ASSA ABLOY Innovation AB

ASSA ABLOY Hospitality AB

WHAIG Limited

ASSA ABLOY Asia Pacific Ltd

Total

199804395K Singapore

GIP980312169 Mexico

33274584 Amsterdam

556192-3201 Stockholm

556180-7156 Göteborg

EC21330 Bermuda

53451 Hong Kong

Notes

Parent company

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

48,190,000

3,400,000

27,036,635

400

2,500

1,000

100,100

1,000,000

100

529

131

631

538

376

1,394

928

1,582

943

901

184

2,259

242

765

423

12,202

Notes

Note 18 Shares in associates

2005
Company name

Talleres Agui S.A.

Låsgruppen Wilhelm Nielsen AS

Cerraduras de Colombia Cerracol S.A

Renato Fattorini SRL

Other

Total

2004
Company name

Talleres Agui S.A.

Låsgruppen Wilhelm Nielsen AS

Cerraduras de Colombia Cerracol S.A

Renato Fattorini SRL

Other

Total

Country of
registration

Spain

Norway

Colombia

Italy

Country of
registration

Spain

Norway

Colombia

Italy

Number of
shares

4,802

305

182,682

–

Number of
shares

4,802

305

182,682

–

% of share
capital

Book value
SEK M

–

% of share
capital

Book value
SEK M

–

Note 19 Deferred tax on income

Note 21 Inventories

SEK M

Deferred tax receivables

Tax-deductible goodwill

Provisions

Other deferred tax receivables

Deferred tax liabilities

Fixed assets

Other deferred tax liabilities

Group

2005

2004

SEK M

Materials and supplies

696

415

238

701

456

331

Work in progress

Finished goods

Paid in advance

1,349

1,488

Total

Group

2005

2004

1,040

1,149

1,439

874

968

1,266

3,679

3,135

153

157

245

SEK 265 M (123) of the inventory value on 31 December 2005
was reported at net realizable value. Direct material costs during
the year amounted to SEK 8,059 M (7,162), of which SEK 123 M
(81) represented write-downs of inventory.

Deferred tax entitlement, net

1,196

1,243

Change in deferred tax during the year

Note 22 Accounts receivable

At 1 January

Exchange-rate differences

Acquisitions of subsidiaries

Reported in income statement

Reported against equity

At 31 December

1,243

1,344

SEK M

–132

–43

–59

–

1,196

1,243

Accounts receivable

Provision for bad debt

Total

Group

2005

2004

5,102

4,404

–284

–258

4,818

4,146

There is limited concentration of credit risks associated with
accounts receivable because the Group has a large number of
customers with a wide international spread.

The Group has additional tax losses carried forward of some SEK
700 M (500) for which tax receivables have not been recognized.

Note 20 Other long-term financial assets

Group

Parent company

SEK M

2005

2004

2005

2004

Other shares and participations

Interest-bearing long-term receivables

Other long-term receivables

Total

171

130

–

Notes

Group

2005

943

2,783

3,726

2004

5,983

6,029

3,735

6,152

Group

2005

2004

943

902

1,886

1,804

Note 23 Derivative financial instruments

SEK M

Currency contracts, positive value

Interest rate swaps – cash flow hedging

Interest rate swaps – fair value hedging

Currency basket options

Currency contracts – held for trading

Currency contracts, negative value

Interest rate swaps – fair value hedging

Interest rate swaps – held for trading

Currency contracts – held for trading

Derivative financial instruments, net (liability)

Group

2005

2004

(A) Long-term loans
Maturities of long-term loans:

–

SEK M

Between two and five years

Over five years

Book value

Fair value of long-term loans

Securities pledged against long-term loans:

Real-estate mortgages

Chattel mortgages

Total

(B) Convertible debenture loans

Values of derivative financial instruments at the end of 2004 are
reported in the comparatives as accrued interest expenses or
accrued interest income.

Note 24 Cash and cash equivalents

SEK M

Cash and bank balances

Short-term investments
(duration <3 months)

Total

Group

Parent company

2005

916

958

2004

831

186

1,017

2005

223

610

833

2004

Short-term investments shown in the consolidated balance sheet
amounted to SEK 104 M (230) at year-end, of which SEK 62 M
(44) were either non-realizable receivables with a term to maturity
of over three months or investments in securities. These items are
not classified as cash and cash equivalents and are not included in
the table above.

Note 25 Borrowings

SEK M

2005

2004

2005

2004

Long-term loans (A)

2,783

4,225

–

3,104

Group

Parent company

Convertible debenture loans
long-term part (A, B)

Convertible debenture loans
short-term part (B)

Short-term loans (C)

Total

943

1,804

943

1,804

943

–

6,966

5,594

11,635

11,623

943

3,842

5,728

–

507

5,415

SEK M

Incentive 2001

Incentive 2004

Book value

Fair value of convertible debenture loans

1,886

1,804

Incentive 2001 has a variable interest rate equivalent to 0.9*EURI-
BOR + 54 basis points. Any conversion of Incentive 2001 will take
place in a 30-day period in October and November 2006. Full con-
version 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 per-
cent of the total number of votes.

Incentive 2004 has a variable interest rate equivalent to
0.9*EURIBOR + 47 basis points. Any conversion of Incentive
2004 will take place in a 90-day period between March and June
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.

Also see the table ’External funding / Net debt’ on Page 64.

SEK M

Corporate credit line

Other short-term loans

Book value

Fair value of short-term loans

Group

2005

272

6,694

6,966

2004

204

5,390

5,594

6,977

5,595

Check credits granted to the Group totaled SEK 1,223 M (1,024),
of which SEK 272 M (204) was utilized.

Notes

Note 26 Parent company’s equity
The Parent company’s equity is split between restricted and un-
restricted equity. Restricted equity consists of share capital, the
reserve fund and the premium reserve. Restricted funds must not
be reduced by issue of dividends. Unrestricted equity consists of
retained earnings and the year’s net income.

The reserve fund contains premiums (amounts received from
share issues that exceed the nominal value of the shares) relating to
shares issued up to 1996.

The premium reserve contains premiums (amounts received

from share issues that exceed the nominal value of the shares)
relating to shares issued from 1997 onwards. In accordance with
the transition rules relating to the new Swedish Companies Act
that came into force on 1 January 2006, the full amount held in the
premium reserve on 31 December 2005 has been moved to the
reserve fund. From 1 January 2006 the premium reserve is trans-
ferred to form part of unrestricted equity.

Note 27 Share capital, number of shares and dividend per share

Opening balance at 1 January 2004

Closing balance at 31 December 2004

Number of votes, thousands

Opening balance at 1 January 2005

Closing balance at 31 December 2005

Number of votes, thousands

All shares have a par value of SEK 1.00 and provide the holders
with equal rights to the Company's assets and earnings. All shares
are entitled to dividends subsequently issued. Each Series A share
carries 10 votes and each Series B share one vote. All issued shares
are fully paid-up.

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 conversion of outstanding convertible bonds,
similarly rounded, was 378,718 thousand (375,103).

Note 28 Reserves

Group
SEK M

Translation
reserve

Hedging
reserve

Opening balance at 1 January 2004

Currency translation differences

Closing balance at
31 December 2004

Opening balance at 1 January 2005

Effect of changed accounting principle,
IAS 39

Adjusted opening balance
at 1 January 2005

–

–479

–

–479

Cash flow hedging instruments, fair value

–

Currency translation differences

1,539

Closing balance at
31 December 2005

1,060

–

–3

–

Total

–479

–475

–3

1,539

1,061

Number of shares (thousands)

Series A

19,175

191,753

19,175

191,753

Series B

346,743

Total

365,918

538,496

365,918

538,496

Share capital
SEK (thousands)

365,918

Dividend per share
The dividend paid out during the financial year amounted to a
total sum of SEK 951 M (457), corresponding to SEK 2.60 (1.25)
per share. At the Annual General Meeting on 25 April 2006, a
dividend of SEK 3.25 per share for the year 2005 – a total sum of
SEK 1,189 M – will be proposed.

The hedging reserve consists of changes in the fair value of hedging
instruments used to hedge cash flows.

The translation reserve consists of all currency translation
differences that arise in the translation of financial reports from
foreign operations prepared in a currency other than Swedish
kronor, the currency used to present the Group’s financial reports.
Currency translation differences arising from the revaluation of
liabilities originating from instruments used to hedge net capital
expenditure in foreign operations are also carried to the translation
reserve.

Notes

Note 29 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 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. The figures below include both defined benefit
pension plans and post-retirement medical benefits.

Specification of pension obligations (SEK M)

2005

2004

Present value of funded defined benefit obligations

4,166

3,294

Fair value of plan assets

Net value of funded plans

Present value of unfunded defined benefit obligations

Unrecognized actuarial gains (losses), net

Unrecognized past service cost

–3,009

–2,243

1,157

1,051

726

–326

666

–111

Provisions for defined benefit plans, net

1,560

1,609

The following amounts are recognized in
the income statement:

Pension cost (SEK M)

Defined benefit plans:

Current service costs

Interest cost

Expected return on plan assets

Net actuarial losses (gains)

Past service costs

Losses (gains) on curtailments/settlements

Specification of movements in provision for pensions

2005

2004

2005

2004

Opening balance, provisions for defined benefit
plans, net

109

227

119

208

–183

–154

–2

–

–5

–7

Pension cost, defined benefit plans

Contributions

Effect of acquisitions/disposals, net

Curtailments

Currency translation differences

Closing balance, provisions for
defined benefit plans, net

1,609

1,887

169

–352

–1

–7

142

161

–384

–1

–47

–7

1,560

1,609

Pension cost, defined benefit plans

169

161

of which, included in

Operating income

Net financial items

Pension cost, defined contribution plans

Total pension cost

125

215

384

116

272

433

Pension cost for defined contribution plans is recognized in its
entirety in the income statement.

Actuarial gains/losses resulting from changes in the actuarial
assumptions for defined benefit pension plans are recognized to the
extent that their accumulated amount exceeds the ‘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 cor-
ridor is recognized as income/expense over the expected average
remaining service period. Amortization of actuarial gains/losses
that arose in 2005 will start in 2006.

The actual return on plan assets regarding defined benefit plans

was SEK 282 M (148) in 2005.

The following amounts are recognized in the balance sheet:

Pension obligations (SEK M)

Dec 31 2005

Dec 31 2004

Provisions for defined benefit pension plans

Provisions for defined contribution pension plans

Provisions for pensions, total

1,560

1,634

Assets regarding defined contribution pension plans

–22

Pension obligations, net

1,612

1,609

1,677

–22

1,655

There are no defined benefit plans with surpluses within the

Group. Partly funded or unfunded pension plans are reported as

provisions for pensions. Out of pension obligations for defined

benefit plans, SEK 463 M (382) relates to post-retirement medical

benefits.

Key actuarial assumptions (weighted average)*

2005

2004

Discount rate

Expected return on plan assets

Future salary increases

Future pension increases

Future medical benefit increases

Expected inflation

4.7%

7.3%

3.0%

2.3%

15.0%

2.3%

5.2%

6.9%

2.1%

1.5%

8.0%

2.5%

* These 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 employees in Sweden are guaranteed in part through
insurance with Alecta. According to statement URA 42 from the
Swedish Financial Accounting Standards Council’s Emerging
Issues Task Force, this is a defined benefit plan that covers many
employers. For the 2005 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 con-
tracted to Alecta amount to SEK 10 M (9), of which SEK 3 M (2)
relates to the Parent company. Alecta’s surplus may be distributed
to the policy-holders and/or the persons insured. At the end of
2005 Alecta’s surplus expressed as collective consolidation level
amounted to 128.5 percent (128.0). Collective consolidation 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 IAS 19.

Notes

Note 30 Other provisions

Note 34 Net debt

Group

Total purchase price

SEK M

Long-term interest-bearing receivables

Short-term interest-bearing investments

Cash and bank balances

Pension obligations

Long-term interest-bearing liabilities

Short-term interest-bearing liabilities

Total

Note 35 Company acquisitions

2005
SEK M

Cash paid, including direct acquisition costs

Unpaid parts of purchase prices

Fair value of acquired net assets

Goodwill

Intangible assets

Tangible assets

Inventories

Receivables

Cash and cash equivalents

Interest-bearing liabilities

Other liabilities

Minority interests

Acquired net assets at fair value

Acquired net assets at book value

Purchase prices settled in cash

Cash and cash equivalents in acquired subsidiaries

Change in Group cash and cash equivalents
resulting from acquisitions

Net sales in 2005 from times of acquisition

EBIT in 2005 from times of acquisition

Net income in 2005 from times of acquisition

Net sales, full year

EBIT, full year

Net income, full year

Group

2005

–62

–104

–916

1,634

3,726

7,963

2004

–31

–230

–831

1,677

6,029

5,594

12,240

12,208

Total

393

422

–173

249

135

–18

–132

–48

173

143

393

–28

365

449

617

SEK M

At 1 January

Utilized during the year

Currency translation differences

At 31 December

Balance-sheet breakdown:

Other long-term provisions

Other short-term provisions

Total

Restructuring
reserve

Group

Other

586

–298

344

–5

–

Total

679

–303

432

344

432

The restructuring reserve is concerned chiefly with future restruc-
turing measures and is expected to be utilized during 2006.

Note 31 Other short-term liabilities

SEK M

Excise duty

Employee withholding tax

Advances received

Social security contributions and other taxes

Other short-term liabilities

Total

2005

145

327

657

2004

133

393

677

Note 32 Accrued expenses and prepaid income

SEK M

2005

2004

2005

2004

Group

Parent company

Personnel-related expenses

1,023

Customer-related expenses

Prepaid income

Accrued interest expenses

Other

Total

797

220

941

362

118

816

2,413

2,070

–

Note 33 Contingent liabilities

Group

Parent company

SEK M

Guarantees

2005

120

Guarantees on behalf of subsidiaries

924

2004

119

692

2005

125

2004

118

9,963

7,275

–

1,050

817

10,088

7,393

Other

Total

The group has contingent liabilities in the form of bank guarantees
and other guarantees that arose in the normal course of business.
No significant liabilities are expected to occur through these con-
tingent liabilities.

No individual major acquisitions were made in 2005. The year’s
largest acquisitions are described below.

2004
SEK M

BEST Metaline
On 31 January 2005 the Group acquired 100 percent of the share
capital of BEST Metaline, one of South Korea’s leading suppliers of
lock and door fittings. The acquisition has given ASSA ABLOY a
foothold on the South Korean market. BEST Metaline was founded
in 1994 and specializes in lock and door fittings and also in auto-
matic doors. The company has a strong position in the customer
specification segment serving architects and construction compa-
nies. Its goodwill lies mainly in synergies and intangible assets that
do not meet the criteria for separate reporting.

Doorman Services
On 1 February 2005 the Group acquired 100 percent of the share
capital of Doorman Services, one of the United Kingdom’s leading
door service companies. The acquisition has strengthened ASSA
ABLOY’s automatic-door business. Doorman Services supplies
installations and servicing of manual and automatic doors and
security shutters for stores in Britain. The acquisition gives ASSA
ABLOY a strong position in the store segment and the opportunity
to offer a broad range of services for the entire entrance environ-
ment. Goodwill lies mainly in synergies.

Wangli
On 1 June 2005 ASSA ABLOY acquired 70 percent of Wangli, a
leading supplier of high-security doors and high-security locks in
China. The company has built up a comprehensive distribution
network in China and holds a leading position in its segment.
Wangli’s business is located in the Zhejiang region of southern
China. Its goodwill lies mainly in synergies and intangible assets
that do not meet the criteria for separate reporting.

Cash paid, including direct acquisition costs

Unpaid parts of purchase prices

Total purchase price

Fair value of acquired net assets

Goodwill

Intangible assets

Tangible assets

Inventories

Receivables

Cash and cash equivalents

Interest-bearing liabilities

Other liabilities

Acquired net assets at fair value

Acquired net assets at book value

Purchase prices settled in cash

Cash and cash equivalents in acquired subsidiaries

Change in Group cash and cash equivalents
resulting from acquisitions

Net sales in 2004 from times of acquisition

EBIT in 2004 from times of acquisition

Net income in 2004 from times of acquisition

Net sales, full year

EBIT, full year

Net income, full year

Notes

Total

785

804

–343

461

154

107

–13

–110

343

257

785

–13

772

696

111

755

120

Notes

Note 36 Average number of employees, with breakdown into women and men

Average number of employees by country and by gender

Women

2005

2004

585

423

205

128

745

103

922

465

207

158

267

505

420

105

370

2,178

1,791

366

1,366

333

140

272

552

424

202

126

780

106

918

472

198

242

297

475

385

104

360

1,880

1,992

141

1,082

396

165

192

Men

Total

2005

923

686

466

144

1,010

136

521

2004

836

680

461

152

927

132

551

1,386

1,444

802

268

212

577

372

507

267

404

322

3,919

1,150

325

1,659

583

300

443

788

250

278

636

376

553

265

389

292

4,389

1,235

508

1,084

630

328

354

2005

1,508

1 108

672

271

2004

1,388

1 104

663

278

1,755

1,707

201

624

2,308

1,268

475

370

844

877

927

372

774

399

6,097

2,941

691

3,025

916

440

715

201

657

2,362

1,260

448

520

933

851

938

369

749

356

6,269

3,227

649

2,166

1,026

493

546

12,196

11,622

17,382

17,538

29,578

29,160

Women

Men

Total

2005

2004

2005

2004

2005

2004

Women

Men

Total

2005

2004

2005

2004

2005

2004

–

Group

Sweden

Finland

Norway

Denmark

United Kingdom

Belgium

Netherlands

France

Germany

Switzerland

Italy

Spain

Czech Republic

Romania

Israel

South Africa

Canada

USA

Mexico

South America

China

Australia

New Zealand

Other

Total

Parent company

Sweden

Other

Total

Gender-split in senior management

Group

Board of Directors *

Executive Team

Total

* Excluding employee representatives.

Note 37 Cash flow

SEK M

Adjustments for non-cash items

Profit on sales of equipment

Change in pension obligations

Other

Adjustments 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 and intangible assets

Sales of tangible and intangible assets

Net capital expenditure

Investments in subsidiaries

Acquired assets and liabilities according to acquisition analyses:

Intangible assets

Tangible assets

Inventory

Accounts receivable

Other receivables

Minority interests

Long-term liabilities

Accounts payable

Other short-term liabilities

Acquired net debt

Purchase price

Less, acquired cash and cash equivalents

Less, unpaid parts of purchase prices

Plus, paid parts of purchase prices
relating to previous years

Investments in subsidiaries

Investments in associates

Other investments

Investments in / sales of other shares

Investments in / sales of other financial assets

Other investments

–324

–51

–82

–79

–56

–10

–422

–19

–384

–13

–3

Group

2005

2004

–14

–4

–8

–26

–475

–455

–108

–95

215

–122

–110

–805

138

–667

–18

–

–16

–663

174

–489

–79

–135

107

–12

–842

192

–650

–671

–63

–135

–101

–8

–

–30

–804

–

–143

–904

–

–4

–9

–13

Notes

Note 38 Transition to IFRS
Summary
According to the EU, from 2005 onwards quoted companies
should prepare their Group accounts in accordance with interna-
tional accounting principles issued by the International Accounting
Standards Board (IASB), which have been endorsed by the EU. The
principles are known as International Financial Reporting Stan-
dards (IFRS). Accordingly, ASSA ABLOY has adopted IFRS from
2005. The transition to IFRS came into effect from 1 January 2004,
which means that comparative figures for 2004 have been adjusted
in accordance with IFRS. However, comparatives relating to finan-
cial instruments have not been adjusted, since IAS 39 has been
adopted only from 1 January 2005. The information given here
provides an overview of the impact of the new accounting regula-
tions on the Group’s 2004 accounts. In summary, the transition has
had the following effects:
• Amortization of goodwill has ceased, and amortization of good-

will charged as a cost during 2004 was reversed.

• Deferred tax receivables relating to future tax-deductible good-
will have been taken into consideration from 1 January 2004.

• Intangible rights pertaining to 2004 acquisitions have been

distinguished from goodwill and amortized over their estimated
useful life.

• Some provisions for acquisition-related restructuring that did not

meet the requirements of IFRS have been expensed.

• Financial instruments are being reported at fair value from

1 January 2005.

Summary of effects on the consolidated
income statement for 2004

SEK M

Sales

Operating income

Net income

2004

Adjustment

Under IFRS

25,526

2,770

1,495

–

25,526

+ 913

+ 861

3,683

2,356

Summary of effects on the consolidated balance sheet
at 31 December 2004

SEK M

Capital employed*

Net debt*

Equity

2004

Adjustment

Under IFRS

22,683

12,208

10,448

+ 778

–

+ 805

23,461

12,208

11,253

* See the section ‘Definitions of key data terms’, page 93.

The transition to IFRS in general
In recent years Swedish accounting practice, through the standards
of the Swedish Financial Accounting Standards Council, has
moved steadily towards IFRS. However, there remained a number
of differences at the transition to IFRS, mainly related to date of
adoption and transition rules but also to the changes in IFRS made
by the Improvement Project of the IASB.

Notes

The transition to IFRS for ASSA ABLOY
ASSA ABLOY introduced IFRS at the start of the 2005 financial
year on 1 January 2005, and the opening balance sheet and the
quarterly information for 2004 were adjusted in accordance with
IFRS at the transition. Earlier financial years were not adjusted,
which accords with the transition rules in IFRS 1. The most signifi-
cant effects concern the reporting of acquisitions, including the
reporting of goodwill, and the reporting and valuation of financial
instruments. Reclassifications affecting cash and cash equivalents,
shareholders’ equity, minority interests, provisions and share of
income in associates were also carried out to adjust the income
statement and the balance sheet to accord with IFRS.

The transition followed the rules of IFRS 1 ‘First-time Adoption

of International Financial Reporting Standards’. IFRS contains
some rules offering alternative options, and ASSA ABLOY made
the following choices:
• IFRS 3 'Business Combinations’ has been adopted prospectively,

and no adjustments have been made for acquisitions made
before 1 January 2004.

• Accumulated translation differences relating to the translation of

foreign operations were zeroed at the time of transition.

Alternative transition rules regarding initial values of tangible
fixed assets, compound financial instruments, different transition
dates within the Group, classification of financial instruments
previously reported, share-based remuneration, and insurance
contracts, did not apply to the Group.

Business Combinations
IFRS 3 'Business Combinations’ deals with the reporting of com-
pany acquisitions. Adjustments relating to allocation of the pur-
chase price were made for acquisitions made after 1 January 2004.
Adjustments were also made for restructuring reserves that did not
meet the requirements of IFRS because goodwill had diminished
and restructuring costs had been set against income. Under IFRS 3
amortization of goodwill has ceased, and the amortization of
goodwill set against income in 2004 is reversed in line with IFRS.
To the extent that amortization of goodwill is tax-deductible,
goodwill has been reduced and the corresponding deferred tax
receivables reported, which are then expensed when the tax deduc-
tion is utilized.

Amortization of goodwill has been replaced by an annual

impairment test. Goodwill and other acquisition-related intangible
assets with indefinite life are tested for the need of write-down. The
impairment testing is carried out systematically each year on Cash-
Generating Units with the aid of a valuation model based on dis-
counted future cash flow.

The acquisition process has changed under IFRS 3, mainly as
regards allocation of the purchase price. To a greater extent than
before, the purchase price is allocated to identifiable intangible
assets, which are amortized over their estimated useful life. The
adoption of IFRS 3 has thus affected the accounting for acquisi-
tions of companies but not the Group's acquisition strategy.

Financial instruments
IAS 39 ‘Financial Instruments’ has been adopted from 1 January
2005, without adjustment of comparatives. The accumulated
effects of revaluation of financial instruments in accordance with
IAS 39, SEK -77 M, has been reported as an adjustment of equity.
The adoption of IAS 39 represents a change in accounting princi-
ples and has been reported as a reduction in unrestricted reserves.
Reporting of financial instruments under IAS 39 is giving rise to
increased volatility in both the income statement and the balance
sheet because of fair-value adjustments. These fluctuations are rela-
tively limited for ASSA ABLOY. ASSA ABLOY has used financial
instruments chiefly to hedge transaction exposure and in Treasury
operations. Changed methods of carrying out hedging operations
in 2005 have limited fluctuation effects following the adoption of
IAS 39. Also see the section on Financial Risk Management, pages
63–65.

Effects on key data
The adoption of IFRS has had a positive effect on ASSA ABLOY’s
key data. For example, Return on capital employed1, Return on
shareholders’ equity1, Earnings per share1 and Net debt / Equity
ratio1 have improved, mainly because goodwill is no longer
amortized.

Reconciliation of financial reports produced in accordance
with earlier Swedish accounting rules (‘SW GAAP’) and IFRS
The reconciliation on the following pages shows the effects of the
change to IFRS on the balance sheets at 1 January 2004 and 31
December 2004 and the income statement for 2004. IAS 39 was
adopted from 1 January 2005 and the effects of that change
(SEK –77 M in unrestricted reserves) are therefore not shown in
the reconciliation. A summary of the adjustments made appears
on page 89.

1 See the section ‘Definitions of key data terms’, page 93.

IFRS adjustments

Balance sheet at 1 January 2004

EUR M

SEK M

Note

SW GAAP

Adjustment

IFRS

SW GAAP

Adjustment

IFRS

Notes

B, C

1,628

–105

1,523

–952

13,814

ASSETS

Non-current assets

Goodwill

Intangible rights

Tangible assets

Shares in associates

Other long-term financial assets

Deferred tax receivables

Total non-current assets

Current assets

Inventories

Accounts receivable

Current tax receivables

Other short-term receivables

Prepaid expenses and accrued income

Short-term investments

Cash and bank balances

Cash and cash equivalents

Total current assets

TOTAL ASSETS

Assets pledged

EQUITY AND LIABILITIES

Equity

Share capital

Restricted reserves

Other contributed capital

Reserves

Unrestricted reserves

Net income

B, C

Retained earnings including net income

B, D

Minority interests

Total equity

Minority interests

Provisions

Pension provisions

Deferred tax liabilities

Other provisions

Total provisions

Non-current liabilities

Long-term loans

Convertible debenture loans

Deferred tax liabilities

Pension obligations

Other long-term provisions

Other long-term liabilities

Total non-current liabilities

Current liabilities

Short-term loans

Accounts payable

Current tax liabilities

Short-term provisions

Other short-term liabilities

Accrued expenses and prepaid income

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Contingent liabilities

588

2,351

334

455

–

975

3,326

1,005

–

1,087

208

103

342

881

100

–

992

421

164

–

205

903

3,326

–9

–18

–79

–9

–1,005

982

–41

–1

–2

–208

–31

–103

–342

208

599

179

2,342

334

455

–

975

3,317

–

982

–

1,086

–

881

100

208

277

1,269

421

164

199

962

3,317

–6

–9

167

5,431

173

1,626

21,248

3,030

4,131

139

253

207

208

–

880

8,848

30,096

366

–

8,905

–

560

9,847

–

7,987

907

283

1,887

349

100

102

770

–80

–167

–713

880

–80

–9,118

8,905

370

–370

–

9,863

–9

560

–16

1,887

–1,887

283

935

–283

–935

3,105

–3,105

14,766

167

5,329

173

856

21,328

3,030

4,131

139

253

207

375

713

–

8,848

30,176

366

9,118

–

7,987

907

–

100

8,994

3,821

1,489

250

–

776

1,862

8,198

30,176

696

283

1,887

349

2,519

11,513

3,821

1,489

250

586

776

1,814

8,736

30,096

696

586

–48

538

–80

Notes

IFRS adjustments

Balance sheet at 31 December 2004

EUR M

SEK M

Note

SW GAAP

Adjustment

IFRS

SW GAAP

Adjustment

IFRS

A,B,C

1,553

ASSETS

Non-current assets

Goodwill

Intangible rights

Tangible assets

Shares in associates

Other long-term financial assets

Deferred tax receivables

Total non-current assets

Current assets

Inventories

Accounts receivable

Current tax receivables

Other short-term receivables

Prepaid expenses and accrued income

Short-term investments

Cash and bank balances

Cash and cash equivalents

Total current assets

TOTAL ASSETS

Assets pledged

EQUITY AND LIABILITIES

Equity

Share capital

Restricted reserves

Other contributed capital

Reserves

Unrestricted reserves

Net income

B, C

Retained earnings including net income

A,B,C,D

Minority interests

Total equity

Minority interests

Provisions

Pension provisions

Deferred tax liabilities

Other provisions

Total provisions

Non-current liabilities

Long-term loans

Convertible debenture loans

Deferred tax liabilities

Pension obligations

Other long-term provisions

Other long-term liabilities

Total non-current liabilities

Current liabilities

Short-term loans

Accounts payable

Current tax liabilities

Short-term provisions

Other short-term liabilities

Accrued expenses and prepaid income

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Contingent liabilities

572

2,247

348

460

–

1,003

3,250

1,009

–

–56

164

–

1,158

186

284

468

200

–

676

620

169

–

232

1,129

3,250

–10

–21

–92

113

–1,009

984

–53

–164

272

–3

–186

–23

–75

–284

186

223

–2

1,543

585

165

2,335

348

460

–

113

1,003

3,338

–

984

–53

–

272

1,247

–

468

200

186

899

620

169

230

1,193

3,338

14,012

142

5,163

130

793

20,276

3,135

4,146

172

266

230

831

–

9,046

29,322

366

9,106

–

–519

1,495

–

10,448

4,225

1,804

–

6,097

5,594

1,521

304

677

2,089

10,185

29,322

817

–95

116

695

795

–186

–831

1,017

13,917

221

5,279

130

1,488

21,071

3,135

4,146

172

266

–

1,017

9,046

795

30,117

366

–

8,887

–479

–

2,452

11,253

–

4,225

1,804

245

1,677

245

1,677

2,015

8,112

5,594

1,521

304

586

677

2,070

10,752

30,117

817

586

–19

567

795

–9,106

8,887

–479

519

–1,495

2,452

805

–27

1,677

–1,677

209

679

–209

–679

2,565

–2,565

IFRS adjustments

Income statement for 2004

Sales

Cost of goods sold

Gross income

Selling expenses

Administration expenses

R&D costs

Other operating income and expenses

Amortization of goodwill

Share of earnings in associates

Operating income

Net financial items

Share of earnings in associates

Income before tax

Tax

Minority interests

Net income

Allocation of net income:

Shareholders in ASSA ABLOY AB

Minority interests

Earnings per share

after tax and before dilution, SEK

after tax and dilution, SEK

Notes

Note

SW GAAP

Adjustment

IFRS

SW GAAP

Adjustment

IFRS

EUR M

SEK M

B, C

2,799

–1,661

1,138

–468

–206

–55

–107

–

304

–53

252

–87

–1

164

–8

107

100

–1

–6

2,799

–1,669

1,130

–468

–206

–55

–

404

–53

–

351

–93

–

258

257

25,526

–15,148

10,378

–4,272

–1,883

–500

–978

–

2,770

–484

2,294

–792

–7

1,495

–73

978

913

–8

905

–51

861

4.09

4.05

2.33

2.28

25,526

–15,221

10,305

–4,272

–1,883

–500

–

3,683

–484

–

3,199

–843

–

2,356

2,349

6.42

6.33

The table below shows the adjustments (A–J) made in the balance sheets and the income statement presented above. Where an item in a
balance sheet or the income statement is affected by several different types of adjustment (Notes A–D), a breakdown and totals are given.
The amounts of the other adjustments are given directly in the balance sheets and the income statement above.

Summary of IFRS adjustments (SEK M)

Note Adjustment

Balance sheet at 1 January 2004

Income statement for 2004

Balance sheet at 31 December 2004

Goodwill

Deferred tax
receivables

Retained
earnings

Tax
charge

Goodwill

Deferred tax
receivables

Retained
earnings

Reversal of goodwill amortization for 2004

Acquisition-related adjustments

Deferred tax on tax-deductible goodwill

Reclassification of equity

–166

–786

–952

–16

786

770

–32

592

560

–60

–51

929

–267

–757

–95

–6

701

695

929

–94

–57

1,674

2,452

Cash and bank balances and Short-term investments (<3 months) moved to Cash and cash equivalents

Minority interests moved into Equity

Pension provisions moved from Provisions to Liabilities

Deferred tax moved from Provisions to Liabilities

Other provisions split up and moved to Current / Non-current liabilities

Share of earnings in associates moved into Operating income

Five years in summary

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.

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 earnings. 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 were to realize Group synergies and strengthen
sustainable 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 strat-
egy 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.

2005
Sales were relatively weak at the start of the year but then
steadily improved, which resulted in good organic growth
for the year as a whole. The Group’s performance was
founded on good demand in the US market. A number of
relatively small companies were acquired, mainly in the
Asia Pacific and Global Technologies divisions.

The Leverage & Growth program was concluded by the
end of the year. The program has contributed to increasing
the Group’s efficiency and productivity, with annual sav-
ings of around SEK 450 M. Operating margin and operat-
ing cash flow both improved during the year. Johan Molin
succeeded Bo Dankis as President and CEO.

ASSA ABLOY strengthened its overall position by
focusing on customer value both in its traditional business
and in segments of rather higher market growth such as
electromechanical locks, automatic doors, access control
systems and identification technology.

Five years in summary

(Amounts in SEK M unless stated otherwise)

2001

2002

2003

20041)

2005

2001-2003 have not been adjusted for IFRS

Sales and income

Sales

Organic growth, %

Acquired growth, %

Operating income before depreciation / amortization (EBITDA)

Depreciation / amortization

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 (excluding minority interests)

Data per share, SEK

Earnings per share after tax and before dilution

Earnings per share after tax and dilution (EPS)

Cash earnings per share after tax and dilution (CEPS)

Shareholders’ equity per share after dilution

Dividend per share (for 2005, as proposed by the Board)

Price of Series B share at year-end

Key data

Gross margin (EBITDA), %

Operating margin (EBIT), %

Profit margin (EBT), %

Return on capital employed, %

Return on shareholders’ equity, %

Equity ratio, %

Net debt / equity ratio, times

Interest coverage ratio, times

Interest on convertible debenture loan after tax, SEK M

Number of shares, thousands

Number of shares after dilution, thousands

Average number of employees

22,510

25,397

24,080

25,526

27,802

4,020

1,721

2,133

1,476

949

2,631

–7,112

4,259

–222

2,338

27,861

16,371

15,534

481

11,846

2.992

2.982

8.072

35.80

1.00

151.00

17.9

10.22

7.32

9.72

8.92

35.6

1.31

3.5

9.0

4,545

1,907

2,638

2,015

1,270

3,847

–4,268

568

146

3,525

26,701

16,213

13,989

331

12,381

3.53

9.08

35.85

1.25

99.50

17.9

10.4

7.9

9.9

38.2

1.13

3.9

27.2

4,249

1,856

1,073

583

3,180

–1,827

–1,772

–419

3,265

22,984

14,766

12,290

10,678

3.302

3.312

8.612

31.23

1.25

85.50

17.6

9.92

7.92

9.62

9.92

35.9

1.15

4.7

17.8

4,606

923

3,683

3,199

2,356

3,339

–1,505

–1,734

100

3,4393

23,461

13,917

12,208

11,226

6.42

6.33

8.93

34.74

2.60

113.50

18.0

14.4

12.5

15.3

20.0

37.4

1.09

7.6

24.0

4,960

882

4,078

3,556

2,613

3,450

–1,052

–2,325

3,7023

26,653

15,716

12,240

14,342

7.13

6.97

9.64

42.85

3.25

125.00

17.8

14.7

12.8

15.9

18.1

42.8

0.85

8.2

33.1

353,751

361,730

24,211

365,918

370,935

28,754

365,918

370,935

28,708

365,918

378,718

29,160

365,918

378,718

29,578

1 2004 has been adjusted for IFRS – see information about main effects in Note 38 on pages 85-89.
2 Excluding non-recurring items.
3 Excluding restructuring payments.

Quarterly information

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

Q1
2004

Q2
2004

Q3
2004

Q4 Full year
2004

2004

Q1
2005

Q2
2005

Q3
2005

Q4 Full year
2005

2005

Sales

Organic growth

Gross income

Gross income / Sales

6,283

6,533

6,447

6,263 25,526

6,269

6,984

7,019

7,530 27,802

2,487

2,658

2,621

2,539 10,305

2,544

2,860

2,851

3,039 11,294

39.6% 40.7% 40.7% 40.5% 40.4%

40.6% 41.0% 40.6% 40.4% 40.6%

Operating income before depreciation /
amortization (EBITDA)

1,102

1,165

1,189

1,150

4,606

1,102

1,243

1,317

1,298

4,960

Gross margin (EBITDA)

17.5% 17.8% 18.4% 18.4% 18.0%

17.6% 17.8% 18.8% 17.2% 17.8%

Depreciation / amortization

–233

–236

–224

–230

–923

–212

–221

–214

–235

–882

Operating income (EBIT)

Operating margin (EBIT)

869

929

965

920

3,683

890

1,022

1,103

1,063

4,078

13.8% 14.2% 15.0% 14.7% 14.4%

14.2% 14.6% 15.7% 14.1% 14.7%

Net financial items

–118

–121

–127

–118

–484

–126

–122

–134

–140

–522

Income before tax (EBT)

Profit margin (EBT)

Tax

Net income

Allocation of net income:

Shareholders in ASSA ABLOY AB

Minority interests

OPERATING CASH FLOW

Operating income (EBIT)

Depreciation / amortization

Net operating capital expenditure

Change in working capital

Paid and received interest

Non-cash items

Operating cash flow 1

751

808

838

802

3,199

764

900

969

923

3,556

12.0% 12.4% 13.0% 12.8% 12.5%

12.2% 12.9% 13.8% 12.3% 12.8%

–196

–210

–221

–216

–843

–205

–243

–263

–232

–943

555

598

617

586

2,356

559

657

706

691

2,613

553

Q1
2004

869

233

–123

–344

–45

615

596

Q2
2004

929

236

–166

–184

–144

–19

652

615

Q3
2004

965

224

585

2,349

Q4 Full year
2004

2004

920

230

3 683

923

–146

–215

–650

142

–67

–36

374

–12

–233

–489

–16

1,082

1,090

3,439

558

Q1
2005

890

212

–140

–333

–83

549

0.72

654

705

691

2,608

Q2
2005

Q3
2005

Q4 Full year
2005

2005

1 022

1,103

1,063

4,078

221

–161

–201

–80

214

235

–135

–231

102

–87

–7

322

–205

–34

882

–667

–110

–455

–26

813

1,190

1,150

3,702

0.90

1.23

1.25

1.04

Operating cash flow / Income before tax

0.82

0.81

1.29

1.36

1.08

CHANGE IN NET DEBT

Net debt at start of period

Effects of IFRS (IAS 39)

Operating cash flow

Restructuring payments

Tax paid

Acquisitions

Dividend

Translation differences

Net debt at end of period

Net debt / equity ratio

Q1
2004

Q2
2004

Q3
2004

Q4 Full year
2004

2004

Q1
2005

Q2
2005

Q3
2005

Q4 Full year
2005

2005

13,454 14,481 14,570 13,387 13,454

12,208 12,499 13,860 12,769 12,208

–

–615

–652 –1 082 –1,090 –3,439

–549

–813 –1,190 –1,150 –3,702

164

830

–

322

457

112

103

–27

–

129

161

103

–

321

750

929

457

613

–106

–289

–482

–264

167

111

–

429

373

123

951

668

122

–

141

257

113

–

298

919

413

951

–131

110

1,076

14,481 14,570 13,387 12,208 12,208

12,499 13,860 12,769 12,240 12,240

1.36

1.35

1.20

1.09

1.03

1.07

0.94

0.85

NET DEBT

Long-term interest-bearing receivables

Short-term interest-bearing investments

Cash and bank balances

Pension obligations

Q1
2004

–57

Q2
2004

–34

–263

–160

–859 –1,062

Q3
2004

–35

–232

–878

Q4
2004

–31

–230

–831

Q1
2005

–37

–171

–896

Q2
2005

–40

–249

–881

Q3
2005

–36

–147

–945

Q4
2005

–62

–104

–916

1,954

1,946

1,782

1,677

1,739

1,860

1,601

1,634

Long-term interest-bearing liabilities

9,032

8,980

8,861

6,029

6,138

8,068

7,908

3,726

Short-term interest-bearing liabilities

4,674

4,900

3,889

5,594

5,726

5,102

4,388

7,963

Total

1 Excluding restructuring payments.

14,481 14,570 13,387 12,208

12,499 13,860 12,769 12,240

Quarterly information

CAPITAL EMPLOYED AND FINANCING

Q1
2004

Q2
2004

Q3
2004

Q4
2004

Q1
2005

Q2
2005

Q3
2005

Q4
2005

Capital employed

– of which, goodwill

Net debt

Minority interests

25,159 25,350 24,577 23,461

24,675 26,759 26,292 26,653

14,611 14,644 14,382 13,917

14,562 15,631 15,519 15,716

14,481 14,570 13,387 12,208

12,499 13,860 12,769 12,240

Shareholders’ equity (excl. minority interests)

10,661 10,760 11,169 11,226

12,147 12,820 13,449 14,342

DATA PER SHARE
SEK

Earnings per share after tax and before dilution

Earnings per share after tax and dilution

Cash earnings per share after tax and dilution

Q1
2004

1.51

1.50

2.12

Q2
2004

1.62

1.61

2.26

Q3
2004

1.68

1.65

2.28

Q4 Full year
2004

2004

1.60

1.57

2.27

6.42

6.33

8.93

Q1
2005

1.52

1.49

2.11

Q2
2005

1.79

1.75

2.36

Q3
2005

1.93

1.89

2.75

Q4 Full year
2005

2005

1.89

1.84

2.42

7.13

6.97

9.64

Shareholders’ equity per share after dilution

31.24

33.88

34.72

34.74

36.90

38.84

40.44

42.85

NUMBER OF SHARES

March
2004

June
2004

Sept
2004

Dec
2004

March
2005

June
2005

Sept
2005

Dec
2005

Number of shares before dilution, thousands 3

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

Number of shares after dilution, thousands 3

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

378,718 378,718 378,718 378,718

3 Accumulated weighted average.

Definitions of key data terms

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
assets.

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

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

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

Operating cash flow:
See consolidated operating cash flow for
definitions.

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

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

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

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

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

Return on shareholders’ equity:
Net income excluding minority interests, plus
interest expenses after tax for convertible deben-
ture loans, as a percentage of average sharehold-
ers‘ equity (excluding minority interests) after
dilution.

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

Earnings per share after tax and before
dilution:
Net income excluding minority interests divided
by weighted average number of shares before
dilution.

Earnings per share after tax
and dilution:
Net income excluding minority interests, plus
interest expenses after tax for convertible deben-
ture loans, divided by weighted average number
of shares after dilution.

Cash earnings per share after tax
and dilution:
Net income plus interest expenses after tax for
convertible debenture loans, plus depreciation
and amortization, less share of earnings in associ-
ates and adjustments for changes in deferred tax,
divided by weighted average number of shares
after dilution.

Shareholders’ equity per share
after dilution:
Equity excluding minority interests, plus convert-
ible debenture loan, divided by number of shares
after dilution.

Proposed disposition of earnings

The following retained earnings are available for disposition
by the shareholders at the Annual General Meeting:

Net income for the year: SEK 715 M
Retained earnings brought forward: SEK 4,892 M
TOTAL: SEK 5,607 M

The Board of Directors and the President and CEO propose that a dividend of SEK 3.25 per share,
a maximum total of SEK 1,189 M, be distributed to shareholders
and that the remainder, SEK 4,418 M, be carried forward to the new financial year.

Friday 28 April 2006 has been proposed as the qualification day for dividends.
If the Annual General Meeting confirms this proposal, the dividend is expected to be distributed
by VPC AB on Thursday 4 May 2006.

Stockholm, 9 February 2006

Georg Ehrnrooth
Chairman

Melker Schörling
Vice Chairman

Carl-Henric Svanberg
Vice Chairman

Johan Molin
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 9 February 2006

PricewaterhouseCoopers AB

Anders Lundin
Authorized Public Accountant

Audit report

To the Annual General Meeting of the shareholders of ASSA ABLOY AB
Corporate identity number 556059-3575

We have audited the annual accounts, the consolidated accounts, the accounting records and the adminis-
tration of the Board of Directors and the President and CEO of ASSA ABLOY AB (publ) for the year 2005.
The Board of Directors and the President and CEO are responsible for these accounts and the administra-
tion of the company as well as for the application of the Annual Accounts Act when preparing the annual
accounts and the application of International Financial Reporting Standards IFRSs as adopted by the EU
and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express
an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those

standards require that we plan and perform the audit to obtain reasonable assurance that the annual
accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assess-
ing the accounting principles used and their application by the Board of Directors and the President and
CEO and significant estimates made by the Board of Directors and the President and CEO when preparing
the annual accounts and consolidated accounts as well as evaluating the overall presentation of information
in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from
liability, we examined significant decisions, actions taken and circumstances of the company in order to
be able to determine the liability, if any, to the company of any Board member or the President and CEO.
We also examined whether any Board member or the President and CEO has, in any other way, acted in
contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe
that our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true

and fair view of the company’s financial position and results of operations in accordance with generally
accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance
with International Financial Reporting Standards IFRSs as adopted by the EU and the Annual Accounts Act
and give a true and fair view of the Group’s financial position and results of operations. The statutory
administration report is consistent with the other parts of the annual accounts and the consolidated
accounts.

We recommend to the Annual General Meeting of shareholders that the income statements and balance

sheets of the Parent company and the Group be adopted, that the profit of 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 and CEO be discharged from liability for the financial year.

Stockholm 9 February 2006

PricewaterhouseCoopers AB

Anders Lundin
Authorized Public Accountant

The ASSA ABLOY share

Share price movement in 2005
The closing price of ASSA ABLOY’s Series B share at the
end of 2005 was SEK 125.00 (113.50), corresponding to a
market capitalization of SEK 45,740 M (41,532). The price
of the ASSA ABLOY share thus rose by 10 percent com-
pared with its closing price at the end of 2004. During the
same period, the all-share index of the Stockholm Stock
Exchange (OMXS) rose by 33 percent. The highest closing
price for the share was SEK 126.00, recorded on 29 Decem-
ber, and the lowest was SEK 89.25, recorded on 28 April.

Listing and trading
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.

During 2005 a total of 648 million shares (594) were
traded, which is an average of 2.6 million shares (2.3) per
trading day and represents about 180 percent (165) of the
listed shares.

Ownership structure
The number of shareholders at year-end was 31,702
(30,191). Investors outside Sweden accounted for 41 per-
cent (36) of the capital and 28 percent (24) of the votes. The
ten largest shareholders accounted for some 37 percent (37)

of the share capital and 57 percent (57) of the votes. Share-
holders with more than 50,000 shares represented about 1
percent of the total number of shareholders and accounted
for 91 percent of the capital and 94 percent of the votes.

Share capital and voting rights
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.

Dividend and dividend policy
The Board of Directors and President propose that SEK
3.25 per share (2.60) – a maximum total amount of SEK
1,189 M – be paid as a dividend to shareholders for the
2005 financial year, corresponding to a direct return of 2.6
percent (2.3) on the Series B share. The aim is that, in the
long term, the dividend should correspond to 33–50 per-
cent 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 1996–2005

DIVIDEND PER SHARE 1996–2005

Data per share

SEK/share 1

Earnings after tax and dilution 8

Dividend

Direct yield, % 5

Dividend % 6, 8

Share price at end of period

Highest share price

Lowest share price

Shareholders’ equity 8

1996

0.93

0.30

1.0

31.6

29.28

28.97

12.38

5.40

1997

1.23

0.43

0.8

31.6

51.24

52.95

28.69

8.64

1998

1.76

0.60

0.8

33.5

75.65

92.73

48.07

1999

2.00 3

0.74

0.6

32.6

2000

2.73

0.90

0.5

30.9

2001

2.98 2

1.00

0.7

30.5

2002

3.53

1.25

1.3

32.2

2003

3.31 2

1.25

1.5

33.9

2004

6.33

2.60

2.3

42.0

2005

6.97

3.25 4

2.6

47.6

119.50

184.50

151.00

99.50

85.50

113.50

125.00

140.00

206.70

186.00

159.50

110.00

113.50

126.00

73.21

110.50

9.93

16.95 3

30.58 3

94.50

35.80

76.50

35.85

67.00

31.23

84.00

34.74

89.25

42.85

Number of shares (thousands) 7

265,396

295,448

324,200

356,712

361,730

370,935

378,718 378,718

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 dilution.
8 1996–2003 have not been adjusted for IFRS.

ASSA ABLOY’s 10 largest shareholders
Based on the share register at 31 December 2005.

Owner
Investment AB Latour

SäkI

Melker Schörling and companies

Alecta

Wärtsilä Corporation

Robur unit trusts

SEB unit trusts

SHB/SPP unit trusts

Nordea unit trusts

Second Swedish National Pension Fund

Other shareholders

Total number

Source: SIS Ägarservice AB and VPC AB.

The ASSA ABLOY share

A shares
6,746,425

7,118,818

5,310,080

B shares
19,000,000

2,000,000

9,296,636

18,375,000

17,270,350

17,247,595

10,224,530

9,500,612

6,662,811

6,418,026

230,747,151

19,175,323

346,742,711

Capital, % Voting rights, %
16.1%

7.0%

2.5%

4.0%

5.0%

4.7%

2.8%

2.6%

1.8%

63.1%

100.0%

13.6%

11.6%

3.4%

3.2%

1.9%

1.8%

1.2%

42.9%

100.0%

OWNERSHIP STRUCTURE (BY SHARE CAPITAL)

OWNERSHIP STRUCTURE (BY VOTES)

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 dilution

* 1 SEK per share – number of shares at end of period.
Source: SIS Ägarservice AB and VPC AB.

A shares

C shares

B shares

Share capital, SEK*

20,000

2,000,000

1,746,005

1,428,550

50,417,555

2,095,206

1,714,260

60,501,066

3,809,466

4,190,412

16,761,648

18 437,812

18,437,812

19,175,323

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

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

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.
Any conversion of Incentive 2001 will take place in a 30-
day period in October and 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. Any conversion of
Incentive 2004 will take place in a 90-day period between
March and June 2009.

Over 4,000 employees in more than 15 countries are
participating in the two current Incentive programs, Incen-
tive 2001 and Incentive 2004.

Financial analysts who follow ASSA ABLOY

Company

ABG Sundal Collier

Alfred Berg ABN AMRO

Bear Stearns International

Carnegie

Cheuvreux

CSFB

Danske Bank

Deutsche Bank

Dresdner Kleinwort Wasserstein

Goldman Sachs

Hagströmer & Qviberg

Handelsbanken Capital Markets

JP Morgan

Kaupthing Bank

Lehman Brothers

Merrill Lynch

Morgan Stanley

SEB Enskilda

Société Générale

S&P Equity Research

Swedbank

UBS

Name

Anders Jegers

Henrik Fröjd

Daniel Cunliffe

Anders Idborg

Lars Norrby

Patrick Marshall

Henrik Breum

Christofer Sjögren

Colin Grant

James Moore

Patric Lindqvist

Henrik Saläng

Nick Paton

Peder Frölén

Brian Hall

Ben Maslen

Gustaf Lindskog

Julian Beer

Gaël de Bray

Lars Glemstedt

Niclas Höglund

Olof Cederholm

Telephone number

+44 207 905 5631

+46 8 572 358 33

+44 207 516 6628

+46 8 676 86 88

+46 8 723 51 76

+44 207 888 0289

+45 33 44 09 04

+46 8 463 55 15

+44 207 475 9161

+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 8 522 296 52

+33 1 42 13 84 14

+46 8 545 069 68

+46 8 5859 1800

+46 8 453 73 06

E-mail

anders.jegers@abgsc.com

henrik.frojd@alfredberg.se

dcunliffe@bear.com

andidb@carnegie.se

lnorrby@cheuvreux.com

patrick.marshall@csfb.com

hbre@danskebank.com

christofer.sjogren@db.com

colin.grant@drkw.com

james.moore@gs.com

patric.lindqvist@hq.se

hesa06@handelsbanken.se

nicholas.j.paton@jpmorgan.com

peder.frolen@kaupthing.se

brhall@lehman.com

Ben_Maslen@ml.com

Gustaf.Lindskog@morganstanley.com

julian.beer@enskilda.se

gael.de-bray@sgcib.com

lars_glemstedt@sandp.com

niclas.hoglund@swedbank.com

olof.cederholm@ubs.com

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 Tuesday 25 April
2006. Shareholders wishing to attend the Annual General
Meeting should:
– be registered in the share register kept by VPC AB no later

than Wednesday 19 April 2006

– notify ASSA ABLOY AB of their intention to attend by

16.00 on Wednesday 19 April 2006.

Registration in the share register
To have the right to attend the Annual General Meeting,
shareholders whose shares are nominee-registered through
a bank or other nominee must request, by Wednesday 19
April 2006 at the latest, that their holdings be temporarily
registered under their own names in the share register kept
by VPC AB. Shareholders must notify the nominee well in
advance about this.

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 19 April 2006 via:
– Website
– E-mail
– Post

www.assaabloy.com
bolagsstamma@assaabloy.com
ASSA ABLOY AB, “Årsstämma”,
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 identity number
– Address and daytime telephone number
– Number of shares held
– Any accompanying adviser

A shareholder who is to be represented by a proxy should
send in a form of appointment for the proxy. Where a cor-
porate body appoints a proxy, the form of appointment
should be accompanied by a proof of registration for the

corporate body (or, if this is not available, by a document
carrying similar authority). Documents must not be more
than one year old. To ensure admission to the Annual Gen-
eral Meeting, forms of proxy and proofs of registration
should reach the company at the above address by 19 April
2006 at the latest.

Nomination Committee
The duties of the Nomination Committee are to consider
the choice of the Chairman and other members of the
Board of Directors, the choice of Auditor, the choice of the
Chairman of the Annual General Meeting, the remunera-
tion of the Board, and associated matters. The current
members of the Nomination Committee before the 2006
Annual General Meeting are Gustaf Douglas (Investment
AB Latour and SäkI), Chairman, Staffan Grefbäck (Alecta),
Marianne Nilsson (Robur) and Melker Schörling (Melker
Schörling and companies).

Dividend
Friday 28 April 2006 has been set as the qualification day
for dividends. If the Annual General Meeting decides to
follow the recommendation of the Board of Directors, divi-
dends are expected to be distributed through VPC AB on
Thursday 4 May 2006.

www.assaabloy.com

Reports can be ordered from:
ASSA ABLOY AB
– Website
– Telephone 08-506 485 00
08-506 485 85
– Fax
ASSA ABLOY AB
– Post
Box 70340
SE-107 23 Stockholm, Sweden

Future financial reports
First quarter: 25 April 2006
Second quarter: 9 August 2006
Third quarter: 8 November 2006
Fourth quarter and Year-end Report: February 2007
2006 Annual Report: March 2007

Production: ASSA ABLOY in partnership with n3prenör.
English editing: Marcom International. Photographs: Ulf Huett, Kristian Älegård and others.
Printing: Ljungbergs tryckeri AB, Klippan.

100

ASSA ABLOY is the world’s largest lock Group

and the only global player in our industry. By means

of organic growth based on innovative products,

global presence and improved efficiency and backed

by selective acquisitions, we will continue to

lead development in the lock industry.

Johan Molin
President and CEO

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