ASSA ABLOY Annual Report 2006

FY2006 Annual Report · ASSA ABLOY

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Annual Report 2006

Contents

ASSA ABLOY in brief
CEO’s statement
Vision and strategy
The Market
ASSA ABLOY’s products
Sustainable development
Our employees
EMEA division
Americas division
Asia Pacific division
Global Technologies division
Entrance Systems division
Report of the Board of Directors
Corporate governance report
Sales and earnings
Income statement – Group
Comments by division

1
2
6
8
12
16
18
20
22
24
26
28
32
34
44
45
46

47
Results by division
48
Financial position
49
Balance sheet – Group
50
Cash flow
51
Cash flow statement – Group
Changes in equity – Group
52
Parent company’s financial statements 53
55
Financial risk management
58
Notes
78
Five years in summary
80
Quarterly information
81
Definitions of key data terms
82
Proposed disposition of earnings
83
Audit report
84
The ASSA ABLOY share
87
Information for shareholders

Freedom2006 in brief

Important
events

Financials
in brief

• Sales increased to SEK 31,137 M (27,802), with

9 percent organic growth.

• Operating income (EBIT) excluding restructuring
costs amounted to SEK 4,771 M (4,078), an
increase of 17 percent.

• Earnings per share excluding restructuring costs

amounted to SEK 7.99 (6.97).

• Operating cash flow amounted to SEK 3,528 M

(3,702).

• A three-year restructuring program to realize syn-
ergies in the Group’s production was initiated
during the year. Savings are expected to amount
to SEK 600 M a year from 2009.

• The pace of acquisition increased this year. Acqui-
sitions included Fargo Electronics, which is a world
leader in the fast-growing segment of secure issu-
ance of cards.

Key figures

Sales, SEK M
of which: Organic growth, %
Acquired growth, %
Foreign exchange effects, %

Operating income (EBIT), SEK M
Operating margin (EBIT), %
Income before tax (EBT), SEK M
Operating cash flow, SEK M
Return on capital employed, %

Data per share (SEK/share)

Earnings per share after tax and dilution (EPS)
Earnings per share after tax and dilution (EPS)2
Shareholders’ equity after dilution
Dividend
Number of shares after full dilution (thousands)
1 Proposed dividend.
2 Excluding restructuring items.

2006

31,137
9
3
0
4,7712
15.32
4,1002
3,5282
17.12

2006

4.72
7.99
39.13
3.251
376,033

2005

27,802
5
1
3
4,078
14.7
3,556
3,702
15.9

2005

6.97
6.97
42.85
3.25
378,718

Change, %

15
–5

Change, %

–33
15
–9
0

Group sales and Operating income

Income before tax /
Operating cash flow

Earnings per share

SEK M

35,000

SEK M

5,000

28,000

21,000

14,000

7,000

4,000

3,000

2,000

1,000

Sales, SEK M

Operating income, SEK M 2, 4

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

SEK M

SEK

Earnings per share, SEK 2, 3, 4

Income before tax, SEK M 2, 3, 4
Operating cash flow, SEK M 2

2 Excluding restructuring items.
3 Data for 2001 and 2003 excludes non-recurring items.
4 1997–2003 have not been adjusted for IFRS but amortization of goodwill has been excluded.

ASSA ABLOY’s divisions

Divisions

Share of Group total

EMEA

ASSA ABLOY’s EMEA division includes companies in Europe,
the Middle East and Africa. During 2006, the division
achieved an organic growth of 8 percent, sales of SEK
12,509 M and an operating income excluding restructuring
costs of SEK 1,972 M. The EMEA division employs 12,283
people and its head office is located in London, England. Its
most important markets are Scandinavia and France. Some
of the leading companies in the division are Abloy, Assa,
Tesa and Vachette.

Sales

Operating income (EBIT)1

Americas

Asia Pacific

Global Technologies

Entrance Systems

ASSA ABLOY’s Americas division consists of companies in
North and South America. During 2006, the division
achieved an organic growth of 10 percent, sales of SEK
10,142 M and an operating income excluding restructuring
costs of SEK 1,945 M. The Americas division employs 9,641
people and its head office is located in New Haven, Con-
necticut, USA. Its primary markets are the USA, Canada and
Mexico. Some of the leading companies in the division are
Corbin Russwin, Curries, Emtek, Medeco, Phillips and SAR-
GENT.

ASSA ABLOY’s Asia Pacific division includes companies in
Australia, New Zealand, China and the rest of Asia. During
2006, the division achieved an organic growth of 4 percent,
sales of SEK 2,309 M and an operating income excluding
restructuring costs of SEK 213 M. The Asia Pacific division
employs 5,099 people and its head office is located in Hong
Kong. Its largest markets are Australia, New Zealand and
China. The largest companies in the division are ASSA
ABLOY Australia, ASSA ABLOY New Zealand, Guli Security
Products and ASSA ABLOY Wangli.

Global Technologies is the Group’s worldwide organization
focusing mainly on the product sectors of access control,
secure issuance of cards, RFID identification technology and
hotel security. During 2006, the division achieved an organic
growth of 12 percent, sales of SEK 4,220 M and an operating
income excluding restructuring costs of SEK 612 M. The Glo-
bal Technologies division employs 2,183 people and its head
office is located in Providence, Rhode Island, USA. The divi-
sion’s most important brands are HID, Fargo Electronics and
VingCard.

Entrance Systems is ASSA ABLOY’s worldwide supplier of
complete solutions for automatic doors. The division also
has a complete range of services for the after-sales market.
During 2006, the division achieved an organic growth of 11
percent, sales of SEK 2,715 M and an operating income
excluding restructuring costs of SEK 368 M. The Entrance
Systems division employs 1,926 people and its head office
is located in Landskrona, Sweden. Entrance Systems
includes well-known brands such as Besam and EntreMatic.

Sales

Operating income (EBIT)1

Sales

Operating income (EBIT)1

Sales

Operating income (EBIT)1

Sales

Operating income (EBIT)1

1 Excluding restructuring costs.

ASSA ABLOY in brief

ASSA ABLOY is the world’s leading manufacturer and
supplier of door opening solutions, meeting tough end-
user demands for safety, security and convenience. With
over 150 companies operating in more than 40 countries
and over 10 percent of the world market, the Group is the
strongest global player in the lock industry.

ASSA ABLOY is represented in all major regions, on
both mature and emerging markets, with leading posi-
tions in much of Europe and North America and in Aus-
tralia. In the rapidly growing electromechanical security

sector, the Group has a leading position in fields such as
access control, identification technology, automatic
doors and hotel security.

Since ASSA ABLOY was founded in 1994, the Group
has grown from a regional company to an international
group with over 30,000 employees and sales of over
SEK 31 billion.

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

a more complete range of door opening solutions than
any other company on the market.

Security2

President and CEO of ASSA ABLOY

Johan Molin3

CEO’s statement

Growth and synergies

A Group with
good prospects ahead

Report on the year
I am delighted to report that 2006 was a very good year for
ASSA ABLOY, with the highest organic growth in the com-
pany’s history and a strong improvement in profitability.
A number of complementary acquisitions have contributed
an additional 3 percent to sales, which totaled SEK 31,137 M,
an increase of 12 percent compared with 2005. Operating
income excluding restructuring costs increased by 17 per-
cent and totaled SEK 4,771 M (4,078).

ASSA ABLOY’s strong performance is based on good
economic growth in our most important markets in Europe
and North America together with success in fast-growing
segments such as electromechanical locks, access control,
automatic doors and identification technology. Acquisi-
tions such as those of Fargo Electronics and Adams Rite
illustrate the great potential for acquisitions that still exists
on the market. This applies both to acquisitions of technol-
ogy and to complementary acquisitions.

A three-year restructuring program intended to exploit

synergies and increase efficiency in the Group’s manufac-
turing units was launched during the year and consists of
some 50 individual restructuring measures. The program
means that large parts of production will change their
function from full production to focus mainly on final
assembly. Parts of production will be transferred to low-
cost countries, which will mean the closing of a number of
production units. The total cost of the restructuring pro-
gram is SEK 1,274 M, and it is estimated to produce SEK 600
M of annual savings when the full effect is felt in 2009. In
addition, the closing of car-lock manufacture in the UK has
burdened results with a further SEK 200 M.

Sales volume growth, acquisitions and the restructur-
ing measures carried out have contributed to the strong
increase in operating income. During the year we have
made a number of price increases which have largely com-
pensated for the substantial rise in raw-material costs.

During the year we have made several changes to the
Executive Team. Tomas Eliasson took up the post of Chief
Financial Officer (CFO) and brings broad industrial and
financial experience from other global companies. Ulf
Södergren as Chief Technology Officer (CTO), Tzachi
Wiesenfeld as Head of EMEA division and Martin Brandt as
Head of Asia Pacific division were all three recruited inter-
nally as a result of their outstanding performance.

Report on the divisions
EMEA division made very good progress during the year,
with strong organic growth of 8 percent and substantially
improved profitability. The project to combine the sales
organizations under the ASSA ABLOY brand name has
achieved good results and produced stronger sales.
Towards the end of the year a project to create compe-
tence groups in Research & Development was initiated,
with the aim of increasing efficiency. A large proportion of
the restructuring program concerns EMEA and means that
important products such as cylinders and lock cases are
being moved progressively to our specialized production
plants in eastern Europe and China. A strengthening of the
purchasing function has been carried out to manage the
increased level of outsourcing, especially of components.
Americas division had a highly successful year with
organic growth of 10 percent, which is significantly better
than our main competitors on the US market. Our invest-
ments in a common sales organization and more specifi-
cation work to stimulate demand have proved to be very
successful. The project to implement Lean methods in
all the Group’s production has come a very long way in
Americas and contributed strongly to the improved oper-
ating margin of 19.2 percent. The integration of the
acquired companies Adams Rite and Baron Metal was suc-
cessful and produced growth of both sales and earnings.

Asia Pacific division made only weak progress during the
year, with 4 percent organic growth and reduced profitabil-
ity. Sales in Asia developed well, with strong growth on the
Chinese market. But demand was weak on the important
residential markets of Australia and New Zealand. The divi-
sion’s profitability was impaired by the substantial rise in
raw-material prices. However, the operating margin
improved gradually and reached 12.0 percent in the fourth
quarter. Ongoing structural changes involving transfer of
production out of Australia and New Zealand, together with
further price increases, are expected to improve profits.

2006 was a highly successful year for Global Technolo-
gies division, with continuing strong organic growth of 12
percent. Major investments in market and product devel-
opment were made, with several important new products
and an expanded presence in China, India and Brazil. These
actions are expected to contribute to continuing rapid
growth in 2007. In the ASSA ABLOY ITG business unit, a
reorganization directed at increased focus on customer
segments was carried out.

CEO’s statement

A comprehensive transfer of production to China and
Malaysia was initiated during the year. The division also
acquired VisionCard and Fargo Electronics. Fargo gives the
Group a leading world position in the fast-growing segment
of secure issuance of cards, which is an area expected to
continue to grow rapidly in coming years.

value in different customer segments. One example of this
is Futurelab, through which we conduct customer surveys
on the Internet. This has proved an effective way of rapidly
recording customer preferences and thereby increasing
the targeting accuracy of our new products.

During the past year ASSA ABLOY has achieved great

‘‘New products are the most important source of organic growth’’

successes and strong growth on the
market and has gained market share
in many areas. This progress has
been made possible by our employ-

ees’ high levels of expertise, their willingness to develop
and their ability to adapt themselves to market changes.
I want to thank everyone working on the restructuring pro-
gram and I retain great confidence that we will succeed in
reshaping the organization in accordance with our plans.
Since ASSA ABLOY was formed in 1994 the Group has
quickly established a world-leading position. Despite its
rapid expansion, the Group still has very good opportuni-
ties for growth, partly in new markets that have rising
needs for safety and security, and partly in the fastest-
growing segments such as electronic cylinders, access con-
trol, automatic doors and identification technology. Our
prospects for increased profitability are great thanks to the
Group’s market-leading position, its continued growth and
the ongoing restructuring program.

Future shareholder value will be created through a
combination of profitable organic growth based on inno-
vative products and services; improved efficiency; and
selective acquisitions.

Stockholm, 13 February 2007

Johan Molin
President and CEO

Organic growth for Entrance Systems division amounted
to 11 percent and was allied to increased market shares.
Growth in the US and Asian markets was particularly strong.
The division continues to make acquisitions of comple-
mentary service companies. Profitability fell back a little
during the year, partly as a result of dilution from acquisi-
tions and partly because of increased aluminum prices.
Development of new products accelerated during the year
and several exciting new products will be launched in 2007.

Future prospects
The Group’s fastest-growing businesses in electromechan-
ics, access control, identification technology and auto-
matic doors currently account for some 30 percent of sales.
By their nature, these businesses are of a more global char-
acter, which means that investment in ASSA ABLOY as a
universal brand will be intensified at the same time as the
sales organization is consolidated.

The pace of acquisition was stepped up during the year,

and by the second half of the year acquired sales reached
about 5 percent of the total. We intend to continue acquir-
ing companies in order to add new technology, strengthen
our geographical presence, for example in Asia, and com-
plement our existing operations.

New products are the most important source of organic

growth, and product development was therefore intensi-
fied during the year, with an increase in the number of
electronic engineers and the expansion of development
resources in low-cost countries. Group-wide product
development was further strengthened in the areas of
electronic cylinders, Radio-Frequency Identification (RFID)
technology and Hi-O. ASSA ABLOY’s Hi-O initiative is an
open standard based on the Internet communications pro-
tocol TCP/IP which simplifies lock installations and allows
simple connection of the door’s lock components to other
security systems. Hi-O will be launched widely towards the
end of 2007.

Through close collaboration with our customers we are

striving to develop products that create increased added

Vision and strategy

Since Securitas and Wärtsilä merged their lock divisions in
1994, creating ASSA ABLOY, the Group’s sales have grown
from SEK 3 billion to SEK 31 billion, through both organic
growth and acquisitions. Profitability has also steadily
improved. Today ASSA ABLOY is the world’s leading lock
group, employing over 30,000 people in 150 companies
active in over 40 countries.

Vision
ASSA ABLOY’s vision is:
• To be the true world leader, most successful and
innovative provider of door opening solutions.
• To lead in innovation and provide well-designed,

convenient, safe and secure solutions that give true
added value to our customers.

• To offer an attractive company to our employees.

Financial objectives
ASSA ABLOY’s primary financial objective is a return on
capital employed (ROCE) in excess of 20 percent. The
Group’s stated goal is to achieve its financial objective by
2008 at the latest.
• Sales should increase organically by an average of about

5 percent a year over a business cycle.

• The operating margin (EBIT) should be improved to
16–17 percent. This should be achieved through con-
tinued growth, a modern product portfolio and realiz-
ing synergies in the Group.

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

ing cash flow should be maintained.

• Capital efficiency should be continuously improved.

Given the potential to improve the utilization of current
production capacity, capital expenditure can be main-
tained at today’s level, below current depreciation.

Strategy
In recent years the Group has launched a project to update
its strategy in order to enhance its leading market position.
This year the Executive Team has worked to develop that
strategy further.

The overall aim is to lead the trend towards higher
security with a product-driven offering that focuses on the
customer.

The main product areas are mechanical locks and secu-
rity doors, electromechanical and electronic locks, access
control, identification technology and automatic doors.
The strategic action plans have been split into three
focused areas: market presence, product leadership, and
cost-effectiveness.

Market presence
ASSA ABLOY’s strategy to increase its market presence has
three main thrusts:
•
•
•

Exploit the strength of the brand portfolio.
Increase growth in the core business.
Expand onto new markets.

Exploit the strength of the brand portfolio
ASSA ABLOY owns many of the industry’s strongest brands.
To become better at meeting the increasing demand for
more complete security solutions, sales teams on the local
markets will gradually be united under the master brand of
ASSA ABLOY. The Group’s local brands will gradually be
linked more strongly to the ASSA ABLOY master brand.
However, a number of global brands will supplement the
master brand. One example of a global brand is Yale, which
is used on the residential market. Another is ABLOY, which
is used for customers demanding very high security.

Financial objectives

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

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

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

CAPITAL EFFICIENCY:
• Maintained capital expenditure level
• Working capital

20%

Return
on capital
employed

Vision and strategy

Organic and acquired
growth, %

18.0

13.5

9.0

4.5

0.0

Organic

Acquired

Increase growth in the core business
Growth in the core business should be increased through
a number of activities. One of the most important is to
develop the project and specification market by continuing
to work closely with architects, security consultants and
major end-users. Another prioritized area is continuing
investment in the development of distribution channels,
for example through education and clear market segmen-
tation. In the fast-growing area of electronic and automatic
door solutions, where the Group has a market-leading
position, ongoing investment will be made in the develop-
ment of channels to market.

Expand onto new markets
The Group will expand onto new geographical markets by
developing distribution channels, with customized prod-
uct offerings and through acquisitions. The Group’s posi-
tion on the OEM market in door and window manufacture
is high on some markets and much lower on others.
Improved market coverage offers great potential here.
Efforts to develop products and distribution channels for
the residential market are continuing. By exploiting the
Group’s strength in specific technologies, for example RFID
adapted to special application sectors such as electronic
passports, interesting new growth areas are created.

Product leadership
The overall goal is continuously to develop products with
greater customer benefit and lower product costs. A vital
activity for achieving this is to increase the use of common
product platforms with fewer components. To increase
customer benefit, ASSA ABLOY also develops new products
in close collaboration with end-users and distributors. The
product development process will be further streamlined
by more clearly distinguishing the maintenance and
improvement of existing products from new development.
The technical level of lock and door products is con-
tinuously on the rise in response to the ever-increasing
demands placed on them. To meet the technical require-

ments and take advantage of the Group’s size, ASSA ABLOY
has created a new Group function for product develop-
ment, Shared Technologies, responsible for developing
Group-wide electronics and software platforms.

Cost-effectiveness
ASSA ABLOY focuses on cost-effectiveness in all areas. The
efforts towards common product platforms, fewer compo-
nents and common product development have been cov-
ered above.

In addition, ASSA ABLOY decided in early 2006 to

implement an extensive restructuring program directed at
its production arrangements and expected to take three
years. The program includes about 50 individual restruc-
turing measures. The roles of many production units will
change to focus primarily on assembly; and some will be
closed down. Much of the standard production will be
relocated to low-cost countries. The cost of the program
has been calculated at just under SEK 1,500 M, including
the closure of car-lock manufacturing in the UK, and it is
expected to generate savings of SEK 600 M a year once the
program is complete in 2009. The goal is to improve the
manufacturing infrastructure and streamline the produc-
tion process as a whole, while ensuring a local presence for
fast and efficient assembly of customized products.

Lean methods are being implemented in the Group’s

divisions. Many of the Group companies have followed
these principles for many years, resulting in greater effi-
ciency.

A far-reaching supply management project covering
both raw materials and components has been initiated.
This will become increasingly important as outsourcing
of component supply to external suppliers increases.

Support functions, such as IT, customer support and
finance, will be coordinated at the country and division
levels.

Operating margin
(EBIT), % 1, 2

Operating cash flow

Return on capital
employed 1,2

SEK M

4,000

3,000

2,000

1,000

1 2002–2003 have not been adjusted for IFRS but amortization of goodwill has been excluded.
2 2003 and 2006 excluding restructuring items.

The Market

The security market
– a growing sector in change

ASSA ABLOY is a world leader in secure and convenient
door opening solutions, including locks and access control.
ASSA ABLOY has solutions for all types of doors in a range
of environments. Demands vary widely between customer
segments. Continuous product development has given the
Group a wide product portfolio that meets the needs of
many customer segments. The ASSA ABLOY Group is repre-
sented in all major regions on both mature and emerging
markets. Advances in the security market are primarily
fueled by the global trend toward higher security.

The total security market consists primarily of security
services, plus electronic and mechanical security products.
ASSA ABLOY estimates the total security market at some-
thing over EUR 200 billion.

With the product groups ASSA ABLOY manufactures
and sells today, the Group is active in about 15 percent of
the total security market. This means that ASSA ABLOY’s
market can be estimated at about EUR 30 billion, giving the
Group a market share of just over 10 percent in its sectors.
Two-thirds of the Group’s activities concern mechanical
security products, a segment that is expected to grow at
the rate of each market’s GDP. The remaining one-third is
in the faster-growing segment of electronic and electro-
mechanical security products. ASSA ABLOY’s growth goals
are based on the expected growth of these markets.

Complete security solutions
ASSA ABLOY works with architects, authorities and major
end-customers to offer the best security solutions for vari-
ous kinds of door openings. The need for security varies.
Airports, hospitals, offices and private homes all have a
range of security needs. Accordingly, the security solution
for each door is adapted to the door’s location and area of
use – for example, as a main entrance or the door to a com-
puter hall or a conference room. The functionality of the

door itself must also be adapted in terms of security and
convenience. For example, whether it is an outer or inner
door, how often it will be opened, how many people will
use it, and specific requirements such as fire-safety reg-
ulations. In addition, the products must increasingly be
integrated into new or existing security systems.

Local differences
Americans spend more than twice as much on panic exit
devices as Europeans do. Conversely, northern Europeans
spend three to four times as much on high-security locks
for their homes as Americans do. Automatic doors are also
much more widespread in Europe than in the USA. Electro-
mechanical products are far more widespread in the com-
mercial segment than in the residential segment.

In global terms, the locking market is still relatively frag-
mented; however, the market in each country is fairly con-
solidated, since security companies in the industrialized
parts of the world are often still family-owned and leaders
in their home markets. The companies are well-established
and have strong ties to local distribution networks. In less
developed countries, however, established brands and lock
standards are less common.

Distribution channels
Manufacturers of security products reach their end-
customers primarily through various types of distributors.
A large proportion of ASSA ABLOY products are sold in small
volumes to a large number of end-customers with a range
of needs. In consequence the distribution of mechanical
and electromechanical products is mainly local and frag-
mented.

Building and lock wholesalers and locksmiths all play a
vital part in delivering the products that have been speci-
fied for various construction projects. ASSA ABLOY has

The security market

The whole security market

ASSA ABLOY’s sales by product group

Doors and windows 40%

Security guards & other 27%

ASSA ABLOY’s product areas 15%

Alarm centers 9%

Intrusion protection 3%

Fire alarms 2%

IT security & logical
authorization control 4%

Mechanical locks,
lock systems and
accessories, 51%

Security doors
and fittings, 18%

Electromechanical
locks, access control,
automatic doors and
identification
technology, 31%

The Market

Customer groups
Major customers – including airports, commercial institu-
tions and hospitals, with a large number of people passing
through daily. Normally ASSA ABLOY has primary contact
with the customer’s security manager, a person well famil-
iar with the security needs of the facility who actively parti-
cipates in planning the security solutions. The lead times
for this kind of project are often long and involve mainly
custom solutions. Distribution and installation are largely
implemented by security installers and locksmiths.

Small and midsize customers – a segment character-
ized by the customers’ need for professional advice and
installation. This need is mainly met by specialized distribu-
tors and installers, such as locksmiths. ASSA ABLOY works
actively to train distributors and to provide customized
solutions for small and midsize companies such as stores
and offices.

Consumers – the majority of consumer sales are
replacements or upgrades of existing security products.
Private consumers need extensive advice and help with
installation. ASSA ABLOY has developed a range of home-
security concepts to meet the needs of consumers.
Depending on the geographical market, ASSA ABLOY
works with door and window manufacturers (OEMs) or
specialized distribution channels such as building supply
stores and locksmiths.

built up close relationships with architects and security
consultants in order to specify appropriate products to
achieve a well-functioning security solution. Many door
and window manufacturers install lock cases and fittings
in their products before delivery to customers.

Electronic security products go from manufacturer to
end-user via security installers and special distributors. The
products are also sold through security integrators, who
often offer a complete solution for installation of traditional
security solutions, access control and computer security.

Bringing innovative solutions to market requires close

collaboration not only with distributors, but also with
architects, specifiers and major end-users. This stimulates
demand from distributors and customers.

The role of the distributors
One of the most crucial aspects of an effective security
solution is the installation of all the components. ASSA
ABLOY works closely with the distribution channels to offer
end-customers the right products, a correct installation
and therefore an effective security solution. The distribu-
tors also have a vital role in taking care of service and
support after installation. The distributor’s role may vary
between customer segments. In the commercial segment,
distributors on some markets act as consultants, techni-
cians and project managers to create good security solu-
tions. They have solid knowledge of the customer’s needs
and ensure that the products meet local regulations.

As security solutions become increasingly complex,
the need for skills in the distribution phase becomes even
more important. Locksmiths are an example of specialized
security distributors who are important distributors of
mechanical and electromechanical security products on
many markets. They purchase directly from the manufac-
turer or via wholesalers and provide advice, deliveries,
installation and service.

Distribution channels and customer groups

ASSA ABLOY

Integrators of
security systems

Locksmiths and

security installers

Wholesalers – building and
lock supplies

Retailers – DIY, building supplies,
ironmongers, security shops

OEMs, door and window
manufacturers

LARGE INSTITUTIONAL AND
COMMERCIAL CUSTOMERS
• Healthcare • Education • Retail
• Hospitality • Offices • Industrial

SMALL & MIDSIzE CUSTOMERS
• Offices • Shops

RESIDENTIAL CUSTOMERS
• Apartments
• Houses

10 The Market

Trends

Higher security
Today there is a general trend toward higher security fueled
in part by the increasing uncertainty in society, rising crime
and terror threats. The trend is also powered by technical
developments that allow better, more convenient security
solutions.

Convergence of technology
The industry is heavily influenced by the global trend of
converging technologies. Compatibility between different
systems is increasingly common and of growing impor-
tance as common standards are established. This creates
business opportunities in the lock and physical access
control sector, since it means that security products are
increasingly easy to integrate with other security systems.

Changing demand
Customer preferences in terms of security solutions are
becoming polarized: some demand advanced solutions,
while others choose simpler ones at a lower cost. Architects
and security consultants are coming into the construction
process at an earlier stage, allowing for better security solu-
tions from the start.

What drives demand

2/3 aftermarket1

1/3 new construction

The large aftermarket gives good stability.

1 The aftermarket comprises renovations,

replacements and upgrades.

ASSA ABLOY’s total sales by region, %

Central and South America, 2%

Asia, 5%

Australia and
New Zealand, 5%

Africa, 1%

North
America, 39%

Europe, 48%

ASSA ABLOY designs tailored solutions for
customers in the retail trade.

Competitors
Although the industry has been consolidated to some
extent in the past ten years, it is still fragmented from a
global perspective. Some countries have one strong manu-
facturer that holds a large percentage of the local market.
These companies are often focused on the domestic market
with limited international activity.

ASSA ABLOY is a market leader on the global scale, with

five major players as its main competitors, three in the
United States and two in Europe. These competitors are
strongest on their home markets and also have a presence
on some other markets, although none have such a wide
range as ASSA ABLOY. The Asian market is still very frag-
mented; the biggest manufacturers hold only a small market
share. One continued trend is that Asian manufacturers are
becoming increasingly important as sub-suppliers, mainly
to the established lock companies in Europe and North
America, but without brands of their own.

Living by the Swan Lake

Wuxi Swan Lake is a newly constructed housing area of 110
hectares in the Jiangshu province of China and is the biggest
in Wuxi city. The area will house around 11,000 residents
once it is finished in the year 2008. Wuxi Swan Lake lies on
the outskirts of the 3,000-year-old city of Wuxi located along
Lake Tai Hu on the central part of the Yangtze River delta.
Other waterfront cities like Barcelona, Brisbane, Buenos
Aires and Amsterdam were studied before the Wuxi Swan
Lake was shaped.

ASSA ABLOY Wangli Security Products is a major player
on the Chinese residential market for high-security doors
and locks and has provided over 2,000 doors for Wuxi Swan
Lake.

Together with strict security requirements Wangli faced

stiff specifications regarding ease of use, design and color.
There were also some requests for special modifications.
Wangli’s technicians worked on site so as to provide prompt
solutions to any problems arising.

High-security doors and locks intended for the main
entrance doors of residential buildings are regulated by a
strict standard set by the Ministry of Public Security of the
People’s Republic of China. The standard stipulates technical
requirements and testing methods for mechanical and
burglarproof locks as well as guarantees of their working life.

12 ASSA ABLOY’s
products

Product leadership for
enhanced growth

ASSA ABLOY is a world leader with the largest base of
installed locks and security solutions in the world. The
Group offers the market’s widest product range, with con-
tinuous development based on the customers’ needs and
local requirements and standards. The majority of patents
are still for mechanical products, but ASSA ABLOY’s fastest-
growing segment is electromechanical products and solu-
tions for access control, based on RFID technology and
other electronic identification methods.

Innovation and product development
The global security market is changing rapidly. A continu-
ous flow of innovative new products is one of the keys to
creating long-term profitability. To make better use of
ASSA ABLOY’s collective development strength and to
coordinate new technology with the aid of our existing

central organization, Shared Technologies, the Executive
Team was strengthened this year by the appointment of a
Chief Technology Officer (CTO).

Separating product development resources from
maintenance/improvement resources and investing in
more cross-border projects ensures better use of the total
resources and increases the rate of release of new products.
To benefit from economies of scale and streamline
production, ASSA ABLOY is working more and more with
modular platforms. These will allow the Group companies
to use common components while maintaining product
variation. Improvements and updates will also be adopted
faster throughout the product range, allowing products to
be altered at the same rate as customer requirements
change. And, perhaps most importantly, modular product
platforms cut the time to market.

RFID and biometrics
give double security

Mexico City International Airport is Latin
America’s busiest airport. With nearly
340,000 flights carrying 32 million pas-
sengers each year and about 20,000 staff
on site, the airport has a great need for
access control systems. Given the size,
amenities and complexity of the airport,
controlling access to restricted areas is a
huge task.

By combining RFID technology and a
biometric solution based on fingerprint
reading, the airport achieves a dual
authentication process. The fingerprint
readers use contactless smart card tech-
nology from HID Global. To pass a con-
trolled door, a cardholder must first
establish identity by presenting a valid
access control card. After reading and ver-
ification of the card, the cardholder then
places a finger on the biometric reader
to verify that the person carrying the cred-
ential is its owner. The contactless smart
card also includes personal information
such as photo, name, title and a color
code identifying the card carrier’s area of
duty. This sophisticated access solution
manages secure operations areas and
high-profile VIP rooms throughout the
airport.

ASSA ABLOY’s
products

Growing demand for complete security solutions
End-users’ ever-increasing demands for better secu-
rity, safety, convenience and design are the founda-
tion for ASSA ABLOY’s product development. To meet
its customers’ varying demands, the Group develops
complete solutions for different customer segments.
Reliable functionality under rough conditions is one
such requirement; for example, when locks are sub-
jected to corrosion or extreme loadings. The security
solutions may combine mechanical and electrome-
chanical products. ASSA ABLOY products need to
become easier to install and integrate in the increas-
ingly complex systems required to manage a building.
The Group’s wide product range and great expertise in
electronic access control make this advance possible.

m
o
c
.
l

e
t
o
h
e
c
i
.

w
w
w

Besam opens a door
to the North Pole

Located about 200 kilometers above the Arctic
Circle, ICEHOTEL in Jukkasjärvi, Sweden is built
anew each year almost entirely of ice and snow.
ICEHOTEL has approximately 85 rooms but the
figure varies from year to year according to the
design.

The Group company Besam, which is a leading
supplier of automatic door solutions, had the task
of providing a system for the hotel’s main entrance.
The project was initiated in the spring of 2006 and
was finished in time for the opening of the 2006/
2007 season.

Due to its unusual location and construction,

ICEHOTEL’s door system is exposed to extreme
weather and temperature conditions. The sliding-
door operators, for example, need to be able to
function in temperatures that are regularly
between –5 and –10 degrees Celsius. Because the
hotel is built differently each year, suppliers’ prod-
ucts need to be as flexible as possible to fit into the
architect’s design.

Installing an automated door into a block of ice

is a unique experience and is a testament to the
durability of Besam products. ICEHOTEL features
a special Besam UniSlide solution in its main
entrance. This is one of the most high-profile and
challenging installations that Besam has under-
taken.

In addition, Besam will provide entrance sys-
tems for the growing chain of ABSOLUT ICEBARs
around the world, including locations in Stock-
holm, Tokyo, Milan and London.

14 ASSA ABLOY’s
products

The intelligent door

The intelligent door
The latest product launches ensure that ASSA ABLOY prod-
ucts will easily fit into new or existing security systems and
work with competitors’ products. They feature open inter-
faces that are prepared for ready integration. Highly Intelli-
gent Operation (Hi-O), is a new technology based on a
known open standard (CAN Open) for communication and
management of electromechanical products around the
door. Simplified project planning, fast and easy wiring and
the ability to link the entire door environment to the build-
ing’s IP network allow even better security and continuous
monitoring.

In 2006, ASSA ABLOY initiated cooperation with Cisco
Systems, the world leader in IP (Internet Protocol) networks.
The companies will develop compatible technologies for
physical access control and logical access to systems and
databases. During the course of the year, a network door
combining ASSA ABLOY’s Hi-O lock technology system and
Cisco’s access control and security monitoring technology
was demonstrated.

The electronic key
The market for electronic keys – which mainly comprise
cards for access control – is growing strongly. In 2006
ASSA ABLOY acquired Fargo Electronics, a world leader in
technology for secure issuance of electronic ID cards,
including card printers, card readers, related equipment
and software. The acquisition gives ASSA ABLOY access to
the technology and expertise needed to issue electroni-
cally encrypted keycards with very high security. Fargo’s
technology is expected to form the basis of future credit
and debit cards, passports, driver’s licenses and keycards.
There will also be joint solutions – such as a single card
combining the functions of credit card and keycard. The
acquisition of Fargo gives ASSA ABLOY a leading position in
this field similar to the position the Group already holds in
master-key systems. ASSA ABLOY is now the world leader
in both mechanical and electronic keys.

The intelligent door is connected to the network and each piece of hard-
ware around the door can communicate interactively with other systems
including security, maintenance and building management. The benefits
are accurate information about every device, plug-and-play installation,
and the ability to configure the devices from a remote location.

Hotel convenience in a card

Hotels and casinos in Las Vegas are large and often
house shopping malls, spas and restaurants as well
as thousands of hotel rooms. At these mega-com-
plexes the various amenities are frequently a long
way apart. To improve guest convenience and oper-
ational efficiency, the Wynn hotel chain has installed
a TimeLox locking system linked to the Internet in
both Las Vegas and Macau. If a room change is re-
quested, the guest does not have to go all the way
back to the front desk to receive new keys. The hotel
staff can simply make the change in a so-called Prop-
erty Management System, and the existing key is
remotely reassigned to the new room. The TimeLox
online system also streamlines security and adminis-
trative systems. For example, the system can monitor

the position of each door. If a door is unlatched for an
extended period of time, the system can send an alert
to security personnel. Or if someone finds a key and
starts trying all the doors, the system will automati-
cally alert security to these activities and cancel the
key. Reporting-cards allow housekeepers to insert a
pre-coded card such as ‘plumber needed’ so that
repairs can be quickly reported and attended to.
About 20, 000 rooms in Las Vegas are equipped with
the TimeLox online system. Future releases will
include the ability to send an SMS or email directly to
predetermined staff members in order to ensure that
the situation is addressed and logged automatically.

Keeping Britain’s water clean and pure

Scottish Water is the UK’s fourth largest water and
waste water service provider and is a publicly owned
company answering to the Scottish Parliament. It pro-
vides services to 2.2 million private customers and
130,000 business customers across the UK. Scottish
Water needed a unified and effective system of pro-
tection against extreme weather and persistent acts
of vandalism.

Safeguarding a water utility involves protecting
the property and facilities against attempted security
breaches and vandalism, often in remote locations.

Scottish Water decided to standardize the Abloy
master-key system on all its sites to control access for

front-line staff, each of whom may have different
levels of responsibility and security clearance.

Scottish Water required standardized locks across
multiple sites that could be opened by several people
with varying access rights. These systems needed to
be integrated across different lock types such as
cylinders, padlocks and industrial locks so that
authorized personnel could access specific areas
without requiring multiple sets of keys.

Abloy solutions are used by water companies
worldwide to safeguard sites from unauthorized
access and, more importantly, to protect the public.

16 Sustainable development Ethics, the environment,
and employees

Sustainability Report
2005–2006

Vision, realism, ethics, and courage are the cornerstones of
ASSA ABLOY’s operations. They form the foundation of the
Group’s work on environmental issues, business ethics and
social responsibility. ASSA ABLOY’s extensive systematic
work on these issues, which affect both internal and exter-
nal stakeholders, is one pillar of the Group’s long-term
development.

Risk analysis
The Group’s regular risk analysis, covering the entire value
chain and including the environment, ethics and social
issues, has identified the following primary risks:
• Environmental impact of production.
• Business ethics problems.
• Operations and suppliers in low-cost countries.

Vision, Realism, Ethics and Courage

More information about sust
ainable development can be
found in ASSA ABLOY’s Sustain
ability Report 2005–2006 and
on www.assaabloy.com.

Risk management
in business processes

Organization
Sustainable development efforts are coordinated by a cen-
tral manager and at least one person in each division. The
President and/or the HR Director of each Group company
is responsible for ethical and social issues, while the Envi-
ronmental Manager is in charge of environmental matters.

Code of Conduct
ASSA ABLOY’s continuous work on risk management and
the control of environmental, ethical, and social issues is
based on its publication ‘Our Code of Conduct’. The Code is
a part of the effort to formalize the common basic values
represented by ASSA ABLOY’s four cornerstones: vision,
realism, ethics, and courage. The Code of Conduct is based
on the Group’s overall policies as well as international
guidelines such as the UN Declaration of Human Rights
and the core conventions of the International Labor
Organization.

Environment, health and safety
The ASSA ABLOY Group’s environmental program aims to
cut the environmental impact of production while contin-
uously improving health and safety conditions for employ-
ees at all of the Group’s production facilities. The environ-
mental program is summarized in a few main points,
including some key figures which can be found in ASSA
ABLOY’s Sustainability Report 2005–2006.

ISO 14001
By the end of 2006, most of the Group’s production facili-
ties had implemented ISO 14001 or an equivalent environ-
mental management system. The table shows the number
of certificates in 2005 and 2006, with the corresponding
number of certifiable systems (North American units). The
number of production facilities with some kind of environ-
mental impact is estimated at 50–60.

Limiting harmful substances in manufacturing
ASSA ABLOY is constantly working to reduce and find
replacements for harmful substances in its production.
Many production facilities have already phased out
chlorinated solvents. About ten still use them, and are focus-
ing on investigating opportunities for phasing them out.

Power consumption and greenhouse gases
For the first time, ASSA ABLOY has measurable figures for
power consumption and carbon dioxide emissions in
Group companies. These figures will now be used for
benchmarking between the Group companies and as a
basis for improvement measures.

Certificate

ISO 14001 certificates
Certifiable systems

Total

2006

2005

29
24

20
9

Sustainable development

Audit
2006 saw extensive audits of sustainable development
in several of the Group’s manufacturing companies. The
studies included the external environment, the working
environment, human rights, and business ethics. The
results of the audits are being used to develop detailed
action plans. ASSA ABLOY also applies its internal audit tool
to its suppliers. For example, some 40 suppliers in China
have been evaluated on site during the year. The biggest
suppliers were audited first regarding both environmental
impact and working conditions.

Ethical and social issues
A sweeping internal survey of ethical and social issues,
including gender equality, was conducted in 2006. Group
companies completed a detailed checklist based on the
Code of Conduct regarding pay levels, working hours, and
the assurance of no child labor. Other issues taken up were
measures concerning alcohol and drug problems and busi-
ness ethics. The questions also covered the introduction of
the Code of Conduct in the Group companies. The results
of the evaluation were used to establish an action program,
based on exchange of experience between the companies.

A costeffective
environmental deal

ASSA ABLOY is developing production methods
that impact the environment as little as possible.
One example is investments in more surface-
treatment methods with less environmental
impact. One of several possible new methods
replaces the use of perchloroethylene and
trichloroethylene solvents with N-propyl
bromide (NPB), an organic solvent with less
harmful effects.

TESA in Mexico and Mul-T-Lock in Israel
invested in modern surface-treatment facilities
in 2006. Both companies previously bought
these services in. Having their own surface-
treatment plants will give them more control
over the process and make production more
cost-effective. Mul-T-Lock can now run more
than 20 surface-treatment processes at once,
which has increased productivity and flexibility.
Quality has also improved while water and
power consumption have dropped.

In Mexico, one improvement is that waste
water is now led from the plating machines to
the purification tanks by gravity, reducing the
number of pumps and slashing power consump-
tion. In addition, a series of automatic high-
power heaters with separate temperature
settings has been installed, which has further
reduced power consumption. Rinsing methods
have also been improved through multiple-step
rinsing and spray flushing, which has dramati-
cally reduced water consumption.

Our employees

ASSA ABLOY’s employees the world over.

ASSA ABLOY strives to provide an attractive workplace
where motivated employees have the freedom to grow.
The Group focuses on developing managers and staff who
will meet the requirements of the future while supporting
and facilitating collaboration and integration between the
Group companies.

Common knowledge base
In 2006, the ASSA ABLOY Orientation Program was intro-
duced in the Group. The interactive web-based program
will give employees worldwide a common knowledge base
about ASSA ABLOY. The program deals with the Group’s

history, products, Code of Conduct, competitors and more.
The ASSA ABLOY Orientation Program is a mandatory part
of the introductory process that all employees must go
through.

What do the employees think of ASSA ABLOY?
For the first time, a global employee survey was held in 2006.
With a response rate of 75 percent, the survey showed that
ASSA ABLOY staff members are generally satisfied with
their working situation. In areas where the results were less
positive, measures have been implemented to improve
conditions. The survey will be repeated on a regular basis.

Employee survey

My workplace is a good place to work

In my workplace, the customer always comes first

Disagree, 15%

Agree, 61%

Disagree, 12%

Agree, 62%

No opinion, 24%

No opinion, 26%

Increased motivation at work

ASSA ABLOY’s employee survey showed that the staff on
the whole need more feedback on their work and more
recognition for their good efforts. Employees also
expressed a desire for more opportunity to participate in
and influence the decision-making process.

One company that immediately drew up an action
plan based on the survey was HES in the USA. It began by
contacting other Group companies to see what it could
learn from them. Then the Human Resources department
worked with the HES management to develop routines
for measuring and supporting management feedback on
the employees’ efforts. Result-oriented monthly meet-
ings were one result.

A project group was established to develop an action
plan for boosting employee influence. The group consists
of representatives from several areas and levels of the
organization. HES expects the final result to be that
the corporate mission, vision and core values will be
rewritten by the staff themselves.

Management and
employee skills
enhancement

Management skills enhancement
Two Group-wide training programs, ASSA ABLOY Manage-
ment Training and the ASSA ABLOY Business Leadership
Program, aim to build up managerial skills.

ASSA ABLOY Management Training has been in place
since 1996 and has seen about 250 participants so far. In
2006, the tenth edition of this program was held. The year-
long program aims to facilitate integration between the
companies in the Group, in part by giving the participants
an opportunity to create networks and learn about the
business, products and experiences of different parts of
the Group.

The ASSA ABLOY Business Leadership Program was
introduced in 2005 and is carried out in collaboration
with the Institute of Management Development (IMD) in
Lausanne, Switzerland. So far, 90 managers from different
parts of the Group have participated.

Employee skills enhancement
The ASSA ABLOY Scholarship Program lets employees
spend a short period working in a different company in the
Group. Open to all employees, the purpose of the program
is to give participants the opportunity to share their own
knowledge and experiences while gaining experience of a
different culture and other methods and procedures,
which they can bring back to their own workplace. Some
20 employees participated in the program in 2006.

Talent Management
The goal of ASSA ABLOY’s annual Talent Management
Process is to take advantage of the whole Group’s
resources – the leaders and specialists of tomorrow – as
well as to offer opportunities for career advancement out-
side the employee’s own unit. The process embraces the
entire Group and involves a structured review of succes-
sion planning and skills enhancement.

Exchange student
focused on production

Jeanette Bloch Hansen from Ruko in Denmark
was one of the participants in the ASSA ABLOY
Scholarship Program in 2006. She spent five
weeks working at Guli Security Products in
China. Since Guli produces door fittings for
Ruko, the exchange focused on ensuring qual-
ity in that segment of production. Jeanette
participated actively in Guli’s working meth-
ods and learned first-hand about their pro-
duction process. She returned home with a
wealth of knowledge about China, Chinese
culture and Guli. But more importantly, she
has a wide network of contacts for the future.

“The advantage of Ruko and Guli being in the
same Group is that we can be frank and demand
the best of each other. That leads to open,
innovative development,” says Jeanette Bloch
Hansen.

Division

E
M
E
A

Stronger demand lifts sales in EMEA

Characteristics of the EMEA division
• The division’s markets are strongly diversified,

with significant local differences.

• EMEA comprises many and varied companies
with good knowledge of their local markets.
• In EMEA’s largest markets there is no clear dis-
tinction between products for the residential
and the commercial segments.

Report on the year
During the year the division achieved sales of SEK 12,509 M
(11,649), an increase of 7 percent, of which 8 percent was
organic growth. Operating income excluding restructuring
costs increased by 16 percent to SEK 1,972 M (1,707),
which represents an operating margin (EBIT) of 15.8 per-
cent (14.7).

EMEA reported strong organic growth in 2006, driven
by the momentum in the construction industry and suc-
cessful product launches. Several of the largest European
market regions, such as DACH (Germany, Austria, Switzer-
land), France and the UK, improved their sales trends after
reporting slow growth in previous years. Scandinavia and
Finland performed very well. The Middle East, Africa, Israel
and East Europe reported excellent growth, although these
market regions are still relatively small. The chain of Yale
Security Point stores in South Africa that was acquired in
2005 developed very well.

In 2006 Tzachi Wiesenfeld was appointed Executive

Vice President and Head of EMEA division, taking over
from CEO Johan Molin who was also acting Head of EMEA.
A newly formed management team has been in place since
the fall of 2006.

During 2006 the security industry has increasingly
moved towards electromechanical and electronic security
solutions. There is an increasing demand for products like
electric strikes, electromechanical locks and combinations
of mechanical and electromechanical products to make a
complete security solution. This part of the market is grow-
ing faster than the more traditional products.

EMEA improved its profitability through a combination
of higher volumes and effective cost controls. EMEA is now
starting to see the effects of ongoing restructuring pro-
grams, with an improved production structure. Market
regions such as Italy, Spain and the UK underwent restruc-
turing in the last couple of years, and all reported improved
performance in 2006.

Prices of the main raw materials, such as brass and zinc,

soared during the year, which diluted the operating mar-
gin. However, EMEA was able to compensate for cost
increases to a great extent by increasing its own prices and
through supply management savings.

Restructuring
In 2006 the EMEA division continued to move the produc-
tion of its entry-level products from high-cost countries to
low-cost countries in eastern Europe or China. Three pro-
duction units in eastern Europe were selected to be cent-
ers of excellence for future product manufacturing. Good

Sales / Operating income

Capital employed /
Return on capital employed

Operating income /
Cash flow

SEK M

14,000

12,000

10,000

8,000

6,000

4,000

2,000

2,800

2,400

2,000

1,600

1,200

800

400

12,000

10,000

8,000

6,000

4,000

2,000

Sales, SEK M
Operating income, SEK M 1, 2

Capital employed, SEK M
Return on capital employed, % 1, 2

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

SEK M

2,000

1,500

1,000

500

Operating income, SEK M 1, 2
Cash flow, SEK M 1, 2

21 EMEA

division

access to a skilled but cost-effective workforce and high
efficiency mean that plants in eastern Europe have good
capacity for future expansion. In addition to the restructur-
ing described above, the manufacturing of car locks in the
UK is in the process of being closed down.

During the year all of EMEA’s production units worked
hard to implement Lean manufacturing. EMEA recruited a
central Lean Team and added local Lean Teams at various
production sites, with a calendar of Lean events where
EMEA aims to improve factories’ production flows.

Ongoing initiatives
Operational excellence
EMEA is focusing on exploiting production synergies
between Group companies. Production of core compo-
nents will be concentrated at specialized facilities - for
example cylinders in the Czech Republic and lock cases in
Romania. Non-core components will continue to be out-
sourced to selected suppliers in low-cost countries. As a
result, production plants in western Europe will focus more
on final assembly and customization of products to main-
tain high-level customer service. EMEA has also concen-
trated its efforts in supply management to benefit from
economies of scale.

Product innovation
EMEA will continue to invest in ongoing development of
traditional products to ensure that the division has prod-
ucts to meet all the latest security and safety requirements,
convenience expectations and market demands. New
regulations and standards are used as an opportunity to
upgrade products. Besides providing safety and security, it
is important that products are aesthetically pleasing. It is
also vital to increase the focus on electromechanical prod-
ucts and to develop future platforms for electronic cylin-
ders. Here the ASSA ABLOY Group initiative Hi-O is playing
a key role.

Commercial organizations
It is becoming increasingly important to be involved in
specification during the early phases of the building pro-
cess when a new hospital, factory or office complex is to be
built. ASSA ABLOY is working more closely with architects
and security consultants to put together a comprehensive
security solution. There is a growing trend towards com-
plete tailor-made solutions for buildings.

EMEA is creating sales teams that meet the specific
needs of different customer segments and thereby achiev-
ing a more efficient sales process.

Shared services
Back-office services will be consolidated on a country-by-
country basis to reduce administration costs for both sales
and general administration. Shared services have already
been implemented in certain market regions, Germany
being a good example where significant cost savings have
been made.

Human Resources
Finding, training and keeping highly skilled employees is
critical for EMEA, given the considerable change that is
ongoing in the division, for example the extensive restruc-
turing program. EMEA will ensure that key employees have
the right career paths in place to move more quickly into
senior management positions. To cater for these changes
EMEA is strengthening its Human Resources efforts.

Acquisitions
EMEA is actively looking for acquisition targets to fill geo-
graphical gaps, for example in German-speaking countries
and eastern Europe, or to complement its technological
expertise and distribution capacity.

Sales by product group

Mechanical locks,
lock systems and
accessories, 74%

Security doors
and fittings, 12%

Electromechanical
and electronic
locks, 14%

Key figures

SEK M

Income statement
Sales
Organic growth
Operating income (EBIT)1
Operating margin (EBIT)1

Capital employed
Capital employed
– of which goodwill
Return on capital employed1

Cash flow
Cash flow1

Average number of employees
1 Excluding restructuring items.

2006

2005

12,509 11,649
3%
1,707
14.7%

8%
1,972
15.8%

9,183 10,151
4,709
4,631
16.6%
19.1%

1,899

1,901

12,283 12,405

22 Division

A
m
e
r
i
c
a
s

US new construction
drives excellent performance

Characteristics of the Americas division
• The division participates in both the residential
and non-residential (institutional, commercial
and industrial) segments. The non-residential
segment accounts for a clear majority of the divi-
sion’s sales.
In the North American market there is a clear dis-
tinction between products intended for the non-
residential segment and products intended for
the residential segment. As a result, very few of
the US and Canadian products are suitable for
both markets. The distribution channels serving
the two segments are also differentiated.

•

• Doors and door frames are major components of
solutions offered to non-residential customers.

Report on the year
During the year the division achieved sales of SEK 10,142 M
(8,806), an increase of 15 percent, of which 10 percent was
organic growth and 6 percent acquired growth. Operating
income excluding restructuring costs increased by 20 per-
cent to SEK 1,945 M (1,615), which represents an operating
margin (EBIT) of 19.2 percent (18.3).

The Americas division had strong sales in response
to good demand on its major markets. The larger non-
residential segment continued to benefit from good levels
of new construction. The operating margin for the division
rose during the year as a result of higher sales and continu-
ous improvement. Raw-material price increases have
affected the division, with some of the costs being
absorbed through efficiencies and some through price
increases.

Acquisitions by the Americas division this year included

Adams Rite and Baron Metal Industries. Adams Rite has a
strong brand and a specialized product range primarily in
locks for the OEM segment. The company has about 300
employees mainly in the USA and also has a small opera-
tion in the UK. Baron Metal Industries is one of Canada’s
leading manufacturers of steel doors. The company has
about 140 employees. These acquisitions strengthen ASSA
ABLOY’s door product offering in Canada and increase its
presence in the OEM segment.

The US non-residential segment
The non-residential segment, comprising institutional,
commercial and industrial end-users, accounts for a large
percentage of the division’s sales in the USA and Canada.
Typical applications are in public buildings, hospitals,
school and college campuses, airports, transport terminals,
sports and shopping centers, manufacturing plants and
commercial offices.

Since security and safety standards are more complex
for these environments, they often require more lock and
door functionality than typical residential applications. The
changing nature of intricate building, fire and life-safety
codes calls for significantly higher and ever rising levels of
product functionality, complexity and durability, and it is
increasingly essential that solutions should consider the
whole environment of the door opening.

It is increasingly important also to be able to offer a
complete package of solutions to satisfy end-user needs.
A total solution from ASSA ABLOY is likely to include a
coordinated combination of doors, door-frames, locks,
door controls or exit devices, access-control products and
high-security key system solutions.

Capital employed /
Return on capital employed

Operating income /
Cash flow

Sales / Operating income

SEK M

12,000

10,000

8,000

6,000

4,000

2,000

2,400

2,000

1,600

1,200

800

400

SEK M

10,000

8,000

6,000

4,000

2,000

Sales, SEK M
Operating income, SEK M1, 2

Capital employed, SEK M
Return on capital employed, % 1, 2

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

SEK M

2000

1500

1000

500

Operating income, SEK M 1, 2
Cash flow, SEK M 1, 2

23 Americas
division

The US residential segment
The residential segment, which constitutes a smaller part
of the division’s sales, developed well, even though the
Group companies in this segment experienced a slowdown
in demand during the later part of 2006.

many office processes. Lean methods have the benefits of
streamlining product flows, controlling material costs at a
time of rising prices, simplifying decision-making, increas-
ing speed to market, and improving interaction with the
market and the sales force.

Other markets in the Americas division
Market conditions in Mexico were stable and the Group
companies improved their performance. Implementation
of Lean methods in both production and business pro-
cesses continued.

The Canadian operations are focused on the non-
residential market and have performed well during the
year.

The division achieved good sales on the Latin American
markets. All Group companies in Americas division are con-
tinuing the implementation of Lean production methods,
which has resulted in improved margins.

Ongoing initiatives
Complete solutions
The division continues to further develop its complete
solutions for non-residential customers to meet their
safety and security demands. To achieve this, the Americas
division is building specific knowledge of the true needs of
both the installer and the end-user. Working more closely
with the market continues to be an important theme for
the division. Better understanding of the complex needs of
end-users and specific types of building helps the sales
force to sell complete solutions to vertical market seg-
ments.

Distributor partners are deeply involved with the Amer-
icas division in defining the right products and solutions for
given applications. 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,
in order to meet increasingly complex and demanding
codes.

Lean processes
The Lean philosophy continues to be a major thrust in all
the division’s organizations and has now been extended to
functions such as product and solutions design as well as

Sales by product group

Mechanical locks,
lock systems and
accessories, 58%

Security doors
and fittings, 35%

Electromechanical
and electronical
locks, 7%

Ongoing initiatives with Lean processes have become
ingrained in the division’s way of working. Further develop-
ment of Lean operations in production and work processes
and through capturing purchasing synergies is continuing.

Raising technology levels
Electromechanical products with more sophisticated
technology make up a rapidly growing segment and form
crucial components of most integrated security systems.
One example is the SARGENT Electric Latch Retraction exit
device which adds electronics to mechanical products and
improves functionality. A new product development pro-
cess using a thorough ‘voice of the customer’ research
method significantly reduces time to market. The product
utilizes the ASSA ABLOY Americas ElectroLynx quick-
connect system to facilitate simple electrification of the
component during the installation process. Through its
added functionality the exit device can now be used in
conjunction with an automatic door operator and in access
control applications. It can also be tied into the building’s
fire detection system to meet complex fire-safety building
codes.

Acquisitions
The Americas division continues to investigate acquisition
opportunities that are similar to recent acquisitions made
in North America.

Key figures

SEK M

Income statement
Sales
Organic growth
Operating income (EBIT)1
Operating margin (EBIT)1

Capital employed
Capital employed
– of which goodwill
Return on capital employed1

Cash flow
Cash flow1

Average number of employees
1 Excluding restructuring items.

2006

2005

10,142
10%
1,945
19.2%

8,806
5%
1,615
18.3%

8,545
5,076
22.3%

8,726
5,276
19.6%

1,724

1,755

9,641

9,251

24 Division

A
s
i
a
P
a
c
i
fi
c

Developing distribution and
production in China

Characteristics of the Asia Pacific division
• The division’s main sales markets are Australia,

China and New Zealand.

• Approximately 60 percent of sales are to the
commercial segment and 40 percent to the
residential segment.

• There is great growth potential in the large,

fragmented markets of Asia. These markets are
generally undeveloped, with low security stan-
dards, and are therefore mostly price-driven.
• The production units in China supply significant

volumes to ASSA ABLOY’s other regions.

Report on the year
During the year the division achieved sales of SEK 2,309 M
(2,209), an increase of 5 percent, of which 4 percent was
organic growth and 3 percent acquired growth. Operating
income excluding restructuring costs decreased by 13 per-
cent to SEK 213 M (245), which represents an operating
margin (EBIT) of 9.2 percent (11.1).

Demand in the non-residential market in Australia and
New Zealand continued to generate good growth. The res-
idential market in those regions was weak due to poor
residential new construction. The division’s sales on Asian
markets have shown a positive trend, with strong growth
on most local markets. The division has continued to move
production from New Zealand and Australia to China.
Profitability was negatively affected by the global price
increases on raw materials. To compensate for the result-
ing high cost inflation, the division started to increase its
prices during the second half of the year.

There has been a change of management in the Asia
Pacific division. The new management team has been in
place since the autumn of 2006 and is headed by Martin
Brandt, who is Executive Vice President and Head of Asia
Pacific division.

Australia and New Zealand
In the non-residential segment the division has further
developed its specification teams, which has been success-
ful in achieving good growth within institutional and com-
mercial construction. Specification teams from Asia Pacific,
Global Technologies and Entrance Systems have collabor-
ated in developing joint security solutions that use a wide
range of products to provide increased customer benefit.
The division has also continued to develop part of the
distribution to serve smaller commercial clients better.
Increased knowledge of customer needs and tailored
solutions for end-users have resulted in higher growth
and profit.

The designed range of locksets with a choice of levers

and knobs together with a range of finishes to match
modern decor has proved to be successful in the residen-
tial segment. The newly launched electromechanical
keyless locksets were also well received by the market even
though sales have been held back by the low rate of new
construction.

The production of security fittings for residential doors
and windows, most of which are exported to OEM markets,
continued to show volume growth. However, profit was
negatively impacted by the weak US dollar and the produc-
tion was therefore relocated to China.

Capital employed /
Return on capital employed

Operating income /
Cash flow

Sales / Operating income

SEK M

2,500

1,875

1,250

625

400

300

200

100

SEK M

2,000

1,500

1,000

500

Sales, SEK M
Operating income, SEK M 1, 2

Capital employed, SEK M
Return on capital employed, % 1, 2

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

300

250

200

150

100

SEK M

Operating income, SEK M 1, 2
Cash flow, SEK M 1, 2

25 Asia Pacific
division

China
There was strong growth in both domestic sales in China
and intra-Group sales to other ASSA ABLOY divisions. The
division and Wangli have increased their integration and
cooperation in order to benefit from Wangli’s distributors
and production capacity. Wangli’s large network of distrib-
utors has been important in driving organic growth, which
accelerated during the second half of 2006.

ASSA ABLOY has a good market position in the rapidly
growing segment of high-end non-residential projects. The
division has established specification teams in China to
further strengthen its market position when tendering for
large commercial and institutional projects. For such non-
residential projects the division offers complete security
solutions utilizing ASSA ABLOY products from Group com-
panies in other geographical regions.

Other Asian markets
Sales in Hong Kong and Singapore have developed well and
the division has recruited specification teams to address
both the residential and the commercial segments. BEST
Metaline in South Korea has been refocused as a sales
company and its production has been outsourced. A new
presence has been established in India with the aim of
capturing growth opportunities better.

Ongoing initiatives
Moving production to China
The relocation of production from Australia and New
Zealand to China continues. During 2006 two production
units in New Zealand were closed down and their produc-
tion was moved to China. The Australian plant for residen-
tial products is in the process of being transferred to Guli
in China. As production moves to China, companies in
Australia and New Zealand will concentrate on assembly,
product development and sales and marketing of products.

Product development
Innovation and continuing product development are
essential factors if the Asia Pacific division is to maintain an
appealing product range and to improve sales.

The importance of electromechanical security products

continues to grow and there is great growth potential in
the commercial segment for electronic cylinders. The Asia
Pacific division is working together with Group companies
Assa and effeff to develop suitable products for the local
market.

Asia Pacific is investing in a Research & Development

department in China to develop products intended for
both intra-Group sales and the Chinese market. Together
with other Group companies Guli is also developing
modular platforms and components that will serve many
Group companies on other geographical markets.

Reorganization of the sales force
Sales organizations will be reorganized to follow the Group
strategy of changing from a product supplier to a provider
of security solutions. Key Account Management will be
established for large nationwide customers. To attract
more project business, Asia Pacific will continue to
strengthen specification resources and to work with archi-
tects to create a pull effect in the market. A channel-
focused sales force will serve smaller customers through
locksmiths and wholesalers. Back-office organizations will
be streamlined by implementing Lean sales processes, for
example in the order intake. The aim of the reorganization
is to create a more efficient and focused sales force.

Acquisitions
In the large security markets in China and India there are
great opportunities for acquisitions to increase the divi-
sion’s geographical presence and to build up local distribu-
tion. Acquisition targets are companies that complement
the local product offering and add distribution and manu-
facturing capacity. In Australia there are also opportunities
to acquire niche companies to complement the product
range and to exploit the division’s specification skills.

Sales by product group

Mechanical locks,
lock systems and
accessories, 55%

Security doors
and fittings, 27%

Electromechanical
and electronic
locks, 18%

Key figures

SEK M

Income statement
Sales
Organic growth
Operating income (EBIT)1
Operating margin (EBIT)1

Capital employed
Capital employed
– of which goodwill
Return on capital employed1

Cash flow
Cash flow1

Average number of employees
1 Excluding restructuring items.

2006

2005

2,309
4%
213
9.2%

2,209
2%
245
11.1%

1,974
955
10.8%

1,985
995
12.9%

112

259

5,099

4,352

26 Division

G
o
b
a
l

T
e
c
h
n
o
o
g
e
s

Security focus drives organic growth

Characteristics of the Global Technologies division
• The division consists of three specialized

business units, HID Global, ASSA ABLOY Identifi-
cation Technologies (ITG) and ASSA ABLOY
Hospitality, dedicated to global products and
services.

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

residential segment.

• The largest markets are North America and

Europe.

Global Technologies’ three business units:
• HID Global is primarily concerned with electronic
access control. Its product offering includes card
readers, access control cards, card printers for secure
issuance of cards, and control panels used for authenti-
cation. These products utilize many technologies
including radio-frequency identification (RFID),
magnetic stripe and biometrics. The products are sold
under well-known brand names such as HID, Indala
and Fargo Electronics.

• ASSA ABLOY Identification Technologies (ITG) pro-

duces identification products based on RFID and smart
card technology, such as identification cards, electronic
passports and electronic tags for inventory manage-
ment of industrial products and for marking livestock.
Sokymat, ACG and Omnikey are leading brands in the
business unit.

• ASSA ABLOY Hospitality produces door-locking sys-
tems and hotel-room safes and serves the hotel and
cruise-ship markets under leading global brands such as
VingCard and Elsafe.

Report on the year
During the year the division achieved sales of SEK 4,220 M
(3,387), an increase of 24 percent, of which 12 percent was
organic growth and 12 percent acquired growth. Operat-
ing income excluding restructuring costs increased by
29 percent to SEK 612 M (476), which represents an oper-
ating margin (EBIT) of 14.5 percent (14.1).

Continued focus on security in more mature markets,

such as North America and Europe, drove RFID and elec-
tronic-security product growth. Legislation and raised
security standards increased demand for high-security
products such as electronic passports. The strong world
economy also benefited the division. The hospitality mar-
ket in particular continued its recovery based on strong
travel demand.

In June ITG acquired VisionCard, which is a leading Euro-

pean manufacturer of contactless cards for ski lifts, public
transportation and access-control markets. In September
HID Global acquired Fargo, which is a global leader in the
development of secure technologies for ID-card issuance
systems – including secure card printers, card readers,
materials and software. Fargo’s integration with HID Global
is progressing according to plan with the objective of real-
izing sales synergies.

The operating margin is boosted by growth in sales
volumes but constrained by continuing investments in
an enlarged marketing and sales organization in the fast-
growing segments.

Development within the business units
HID Global
The iCLASS line of contactless high-frequency smart cards
and readers continued to expand, finding new types of cus-
tomers, and now represents one-third of HID Global’s busi-
ness. Customers use the cards for logical access, for making
payments and for physical access control. For even greater
security, iCLASS cards can store digital versions of users’
biometric information. HID Global’s low-frequency prod-
ucts maintained their customer base and market share
with continued strong growth.

HID Global has invested in sales and distribution infra-
structure for the Chinese and Indian markets, resulting in
strong growth in Asia. The business unit will continue geo-
graphic expansion into emerging markets.

The security industry is moving toward products that
provide standardized communication methodologies so
that all products within a security system can communi-
cate with each other. To meet this trend HID Global has
launched several products compatible with standard IT
systems, for example, VertX and Edge Reader.

Sales / Operating income

Capital employed /
Return on capital employed

Operating income /
Cash flow

SEK M

5,000

4,000

3,000

2,000

1,000

SEK M

1,000

800

600

400

200

5,000

4,000

3,000

2,000

1,000

Sales, SEK M
Operating income, SEK M 1

Capital employed, SEK M
Return on capital employed, % 1

1 Excluding restructuring items.

700

600

500

400

300

200

100

Operating income, SEK M 1
Cash flow, SEK M 1

27 Global Technologies

division

HID Global broadened its iClass product line by adding

the bioCLASS biometric reader and the FIPS 201 Govern-
ment Smart Card products. The latter are designed for
United States government agencies and contractors
adopting contactless smart card technology.

In the new collaboration between ASSA ABLOY and
Cisco Systems, HID Global has the premier role in develop-
ing compatible technologies that allow convergence of
physical and logical access. The collaboration is designed
to ensure that ASSA ABLOY’s Hi-O-enabled products com-
municate with Cisco’s integrated IP solutions.

ASSA ABLOY Identification Technologies (ITG)
ITG had good growth in all vertical market segments for
RFID products, which include access and security, indus-
trial logistics, and food and animal tagging. Electronic pass-
ports have been a great success; ITG is already supplying
nine countries including Germany and Spain and demand
continues to increase.

Logical access control, including logging-on to comput-
ers, developed well with the Omnikey brand. The HID Global
and ITG business units carried out joint product develop-
ment that expanded the product offering in both physical
and logical access control.

A new management team for ITG was appointed during

the year. The objective is to increase customer focus on
vertical market segments for RFID products. ITG also
started to consolidate brands and sales forces, which will
continue in 2007.

ASSA ABLOY Hospitality
The Hospitality business unit continued to restructure and
launched several new products that generated strong
growth. The business unit is reinvigorating its main brands
VingCard and Elsafe through closer relationships with dis-
tribution channels and improved support to customers.

The recently launched Signature line generated good
sales. RFID-based locks and ‘RF online’ locking systems that
allow communication from the front desk to all doors in a
hotel are other examples of ongoing product innovation. A
new front-desk encoder system was also launched in 2006.
These products will all help to reposition VingCard and
Timelox as true industry leaders in innovation.

Ongoing initiatives
At divisional level, Global Technologies will continue to
focus on growth opportunities. Organic growth will come
from innovative new products, a broader geographical
presence and continued refinement of brand and channel
management.

An important trend is the increased cooperation
among all ASSA ABLOY’s technology areas via its Shared
Technologies initiative. Group companies in other ASSA
ABLOY divisions use technology originating from the Glo-
bal Technologies division when adding RFID and wireless
technology to more traditional lock products.

Global Technologies division will continue to investi-
gate acquisition opportunities across all business units.
Acquisition targets will add either geographic market share
or distribution capacity or new technologies.

HID Global
HID Global will focus on the integration of Fargo and real-
izing sales synergies. The business unit will continue to
launch IT-based products and develop the HID CONNECT
and Axio electronic cylinder programs. The Cisco collabo-
ration on Hi-O technology is expected to generate new
business opportunities. The business unit will continue to
consolidate the distribution activities of its HID and Indala
brands while expanding in emerging markets.

ASSA ABLOY Identification Technologies (ITG)
During 2007 ITG will complete the merging of its sales
forces into one, and will consolidate brands. The business
unit will expand production capacity in its manufacturing
center in Malaysia to meet demand for electronic pass-
ports. Another important initiative is to adopt the RFID
technology used in electronic passports in developing new
products for mass transit and contactless payment cards.

ASSA ABLOY Hospitality
ASSA ABLOY Hospitality will finalize its restructuring with
production consolidation and additional outsourcing initi-
atives. Based on recent product launches the business unit
will develop growth opportunities outside the traditional
hospitality market.

Electromechanical locks, access control and identification technology, of which:

Sales by product group

ASSA ABLOY
Hospitality, 25%

ASSA ABLOY
Identification
Technologies (ITG), 27%

HID Global, 48%

Key figures

SEK M

Income statement
Sales
Organic growth
Operating income (EBIT)1
Operating margin (EBIT)1

Capital employed
Capital employed
– of which goodwill
Return on capital employed1

Cash flow
Cash flow1

Average number of employees
1 Excluding restructuring items.

2006

2005

4,220
12%
612
14.5%

3,387
12%
476
14.1%

4,911
3,568
15.5%

2,871
2,309
17.3%

426

341

2,183

1,767

28 Division

E
n
t
r
a
n
c
e
S
y
s
t
e
m

Greater market share
on the largest markets

Characteristics of the Entrance Systems division
• The division is ASSA ABLOY’s worldwide supplier
of complete solutions for automatic doors, with
a complete range of services for the aftermarket.

• A significant part of sales goes direct to major
end-customers in the commercial, health care
and transport sectors.

• Entrance Systems’ products and services are sold
to commercial and institutional customers.
• Entrance Systems has been a separate division

since 1 January 2006.

Report on the year
During the year the division achieved sales of SEK 2,715 M
(2,373), an increase of 14 percent, of which 11 percent was
organic growth and 3 percent acquired growth. Operating
income excluding restructuring costs increased by 10 per-
cent to SEK 368 M (335), which represents an operating
margin (EBIT) of 13.6 percent (14.1).

2006 was a positive year for Entrance Systems, with
good demand for the division’s products. Despite tough
competition, Entrance Systems has seen strong growth on
its major markets. The division is a market leader in Europe
and also has a good position on other large markets, such
as the United States and Australia.

During 2006 Entrance Systems has worked successfully
on integration to bring about synergy effects with acquired
companies, particularly in the service area. This leads to
even more growth opportunities for the companies in the
Group.

The operating margin has benefited from the growth in

volume, but is constrained by dilution from acquisitions.
Rising prices of raw materials, particularly aluminum, have
had some negative effect on the division.

Europe
Entrance Systems has grown strongly in Europe and its
companies have increased their market shares in several
regions. The division has also seen strong growth on mar-
kets where it has previously been somewhat weaker, such
as Germany, Italy and France. The division has increased the
proportion of direct sales to major end-customers such as
Lidl and Carrefour.

North America
In North America, Entrance Systems has seen very strong
growth in both new sales and service. The relocation of
manufacturing undertaken earlier has resulted in greater
efficiency. The majority of sales in North America are direct
sales; distributor sales are only a small part. Entrance Sys-
tems has increased its service presence in priority regions.
Customization of the products, such as adaptation to local
fire regulations and adaptation for disability, is a crucial
factor for good sales in the region.

Asia and Australia
In Asia and Australia, sales have been strong. Entrance
Systems has performed well in Australia, with strong
organic growth. The division has also acquired Perth Door
Services, a vital addition to the service organization. Some
regions have shown excellent demand with several major
projects – for example in Singapore. Establishment on the
Chinese market is under way, and the division has made
some organizational changes during the year.

Sales / Operating income

Capital employed /
Return on capital employed

Operating income /
Cash flow

SEK M

3,000

2,500

2,000

1,500

1,000

500

420

350

280

210

140

3,500

3,000

2,500

2,000

1,500

1,000

500

Sales, SEK M
Operating income, SEK M1

Capital employed, SEK M
Return on capital employed, % 1

1 Excluding restructuring items.

400

350

300

250

200

150

100

Operating income, SEK M 1
Cash flow, SEK M 1

Entrance Systems
division

EntreMatic
EntreMatic is a separate Group company with its own
brand which focuses on distribution sales of components
instead of offering complete door systems and service. The
company has grown strongly on existing markets in 2006
and has established itself on several regional markets in
Europe and Asia. Marketing of the EntreMatic brand will be
intensified.

Ongoing initiatives
Enhanced service operations
Entrance Systems is working steadily to expand its cus-
tomer offerings to include selling complete automatic
door solutions, including service, for the total door envi-
ronment. Continuous preventive service is profitable for
customers. Regular contact with the end-customers also
enhances opportunities for additional sales. The division is
putting major emphasis on training service technicians in
sales techniques to take advantage of their daily customer
contacts.

The large number of service orders each year indicates

great potential for automating routines in the division.
The division aims to make its service organization more
efficient, to further automate its processes and to make
more customer visits.

Acquisitions
Opportunities for acquisitions are great, as the market for
automatic doors is relatively fragmented. Entrance Systems
is actively seeking acquisitions that will give it a broader
geographic base. Europe and North America in particular
have several regional companies selling automatic doors,
as well as many smaller local service companies. There are
also opportunities for acquisitions to further expand
Entrance Systems’ product range.

Expanding presence in Asia
Expanding its presence in China and gaining access to the
robust market growth there is one of the division’s greatest
opportunities in the coming years. To succeed better on
the local markets in Asia, Entrance Systems is working to
adapt its products to local requirements and demands.
One example is specially adapted openers for sliding doors
for the Chinese market.

Sales by product group

Service, 40%

Automatic doors, 60%

In 2007, Entrance Systems will establish itself on several

new markets in Asia, including South Korea.

Product development
Investments in product development have been stepped
up, and the division has several important ongoing
projects. Entrance Systems is working to develop a global
product range with common components that can be
adapted to local markets. Among other things, special
products are being developed for growth markets such as
eastern Europe and Asia. Entrance Systems has launched a
large revolving door with built-in sliding doors, called the
UniTurn. The great flexibility of the door offers major
advantages during peak access times of the day. Since
design is an increasingly important factor for good sales,
the division has also launched a new revolving door with
narrow, more aesthetic door profiles.

Efficiency
Entrance Systems is working to further improve efficiency
not only in logistics and production but also in administra-
tive processes.

Restructuring and the implementation of Lean meth-
ods in the main factory in Landskrona have significantly
improved work flows in the past two years. This has
allowed the factory to produce larger volumes with the
same workforce. Entrance Systems is constantly working
on streamlining its processes in both Europe and North
America to further increase the rate of production.

Today, Entrance Systems has relatively little production

of its own and works extensively with component suppli-
ers. The division has four final-assembly plants: two in
Europe and one each in the United States and China. The
Chinese production plant provides the other plants with
components, and is itself a final-assembly plant for the
local market. Purchases of components from low-cost
countries in Asia and eastern Europe continue to rise.

Key figures

SEK M

Income statement
Sales
Organic growth
Operating income (EBIT)1
Operating margin (EBIT)1

Capital employed
Capital employed
– of which goodwill
Return on capital employed1

Cash flow
Cash flow1

2006

2005

2,715
11%
368
13.6%

2,373
8%
335
14.1%

3,121
2,453
11.5%

3,309
2,427
11.1%

332

307

Average number of employees

1,926

1,714

1 Excluding restructuring items.

30 ASSA ABLOY

Annual Report 2006

Report of the Board of Directors, corporate
governance report and financial reports

Report of the Board of Directors, corporate

governance report and financial reports

Contents

32
Report of the Board of Directors
34
Corporate governance report
44
Sales and earnings
45
Income statement – Group
46
Comments by division
47
Results by division
48
Financial position
49
Balance sheet – Group
50
Cash flow
51
Cash flow statement – Group
Changes in equity – Group
52
Parent company’s financial statements 53
55
Financial risk management
58
Notes
78
Five years in summary
80
Quarterly information
81
Definitions of key data terms
82
Proposed disposition of earnings
83
Audit report

Ekonomi&
B
o
l
a
g
s
s
t
y
r
n
n
g

Förvaltningsberättelse
38
Bolagsstyrningsrapport
40
Omsättning och resultat
50
Resultaträkningar
51
Rapportering per division
52
Finansiell ställning
54
Balansräkningar
55
Kassaflöde
56
Kassaflödesanalyser
57
Förändringar i eget kapital
58
Finansiell riskhantering
59
60
Noter
Kommentarer till fem år i sammandrag 78
79
Fem år i sammandrag
80
Kvartalsinformation
81
Nyckeltalsdefinitioner
82
Förslag till vinstdisposition
83
Revisionsberättelse

Innehåll

ASSA ABLOY
Annual Report 2006

Report of the Board of Directors

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
2006. ASSA ABLOY is the world’s leading manufacturer
and supplier of door opening solutions that meet custo-
mers’ demands for security, safety and convenience.

Important events
Sales and earnings
During the year sales increased by 12 percent to SEK
31,137 M (27,802), with organic growth of 9 percent and
acquired growth of 3 percent. Operating income (EBIT)
excluding restructuring costs increased by 17 percent to
SEK 4,771 M (4,078), representing an operating margin of
15.3 percent (14.7). Income before tax totaled SEK 2,626 M
(3,556).

Operating cash flow amounted to SEK 3,528 M (3,702).
Earnings per share excluding restructuring items increased
by 15 percent to SEK 7.99 (6.97).

Restructuring
During the year a comprehensive three-year restructuring
program was initiated with the aims of increasing effi-
ciency and realizing synergies within the Group more
quickly. The program includes some 50 individual restruc-
turing measures. The roles of a large number of production
units will be changed to focus mainly on final assembly, and
some units will be closed. The total cost of the program is
SEK 1,274 M, and it is expected to generate cost savings of
about SEK 600 M a year once the whole program is com-
pleted in 2009. The full cost of the program has been
expensed in 2006.

In addition to the restructuring described above, the
costs of closing the remaining car-lock manufacturing in

Britain amount to SEK 200 M. Of the total restructuring
costs of SEK 1,474 M, it is estimated that SEK 1,275 M relate
to payments associated chiefly with redundancies. Write-
downs, chiefly relating to machinery and equipment, have
totaled SEK 199 M.

During 2006 about 500 out of the total of 2,000

employees affected by the restructuring program have left
the Group.

Payments related to restructuring amounted to SEK

342 M for the full year.

Acquisitions
Adams Rite, a leading American manufacturer of locks and
fittings for aluminum doors, was acquired by Americas divi-
sion in April. The acquisition brings ASSA ABLOY comple-
mentary products and new distribution channels. The
company’s annual sales are USD 50 M. The acquisition con-
tributed to earnings per share from the acquisition date.
Americas division also acquired Baron Metal, Canada’s
leading manufacturer of steel doors and doorframes, in
April. The company’s annual sales are CAD 30 M, and it con-
tributed to earnings per share from the acquisition date.

In June VisionCard, a leading European manufacturer of
contactless cards for the ski-lift, public transportation and
access control markets, was acquired by Global Technolo-
gies division. The company has annual sales of EUR 13 M and
contributed to earnings per share from the acquisition date.
In August Global Technologies division acquired Fargo
Electronics, a world-leading company in systems for secure
issuance of ID cards. A secure process for managing the
issuing of cards for identification and access control is
becoming an ever more important factor in all security
solutions. Fargo has annual sales of USD 90 M, with high
profitability. The acquisition had a mildly diluting effect on

Report of the Board of Directors

earnings per share in 2006 and is expected to contribute
to earnings per share in 2007.

In addition a number of smaller acquisitions were made
during the year, including Perth Door Services in Australia.
These companies have total annual sales of about SEK 200
M. The total acquisition price on a tax-free basis for all
acquisitions, including estimated earn-outs, is about SEK
3,100 M. Goodwill and other intangible assets with indefi-
nite useful life amount to about SEK 2,700 M.

Research and development
ASSA ABLOY’s expenditure on research and development
during the year amounted to SEK 719 M (588), which is
equivalent to 2.3 percent (2.1) of sales.

A collaborative venture with Cisco Systems, the world

leader in IP (Internet Protocol) systems, has been laun-
ched. The companies will jointly develop compatible tech-
nologies for convergence between security products for
physical entry and for logical access.

Acquisitions in 2007
In early 2007 Pyropanel, Australia’s leading company in
fireproof doors, and Pemko, a US manufacturer of door
components, were acquired. The companies have combi-
ned annual sales of nearly SEK 500 M and are expected to
contribute to earnings per share from the acquisition date.

Changes to the Executive Team
During the year the following executives were appointed
as new members of the Executive Team: Tomas Eliasson as
Chief Financial Officer, Ulf Södergren as Chief Technology
Officer (CTO), Tzachi Wiesenfeld as Head of EMEA division
and Martin Brandt as Head of Asia Pacific division.

Incentive program for senior executives
An incentive program for senior executives has been
implemented during the year. The program concerns
fewer than 100 people in some 15 countries. The program
is issued at market price and based on four convertible
bonds with a total value of EUR 38.4 M and a maturity date
of June 2011.

The maximum dilution effect of the program is estima-

ted to amount to 0.6 percent of share capital.

Environmental impact
Four of the ASSA ABLOY Group’s subsidiaries in Sweden
carry out licensable business activities in accordance with
Swedish environmental regulations. The Group’s activities
liable to license and registration affect the external envi-
ronment chiefly through the subsidiaries Assa AB, Assa
Industri AB, AB FAS Låsfabrik and FIX AB. The companies
operate machine shops and foundries and associated sur-
face-coating plants, which have an impact on the external
environment through the discharge of water, air and solid
waste.

The subsidiaries Assa AB, Assa Industri AB, AB FAS Lås-
fabrik and FIX AB are actively addressing environmental
issues, and are certified in accordance with ISO 14001. Most
units outside Sweden carry out licensable business activi-
ties and hold comparable licenses under local legislation.

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. 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.

ASSA ABLOY
Annual Report 2006

Corporate governance report

ASSA ABLOY AB is a Swedish public company with head-
quarters in Stockholm, Sweden. The company’s gover-
nance 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 Gover-
nance, and other applicable Swedish and foreign laws and
regulations.

ASSA ABLOY’s objective is that its activities should
generate good long-term returns for its shareholders and
other stakeholders. An effective scheme of corporate
governance for ASSA ABLOY comprises a number of inter-
acting components, which are described below.

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 applica-
ble, Auditors; and the fixing of remuneration for the Board
and Auditors. Extraordinary General Meetings may be held
if the Board of Directors believes that they are needed or if
ASSA ABLOY’s Auditors or holders of at least 10 percent of
the shares so request.

Shareholders
The number of shareholders in ASSA ABLOY at year-end
was 26,118. 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 (3.9 percent of the capital and 11.5 percent of
the votes). Foreign shareholders account for 53 percent
of the share capital and 36 percent of the votes. The ten
largest shareholders account for 32 percent of the share
capital and 54 percent of the votes. The total number of
shareholders fell during the year, while the proportion of
foreign shareholders increased.

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 Large Cap list
of the Stockholm Stock Exchange – the list for larger com-
panies. The trading lot is 200 shares. ASSA ABLOY’s stock-
market value at the end of the year amounted to SEK
54,521 M. The goal of the Board of Directors is that, in the
long term, the dividend should correspond to 33–50 per-
cent of earnings after standard tax of 28 percent, but
always taking into account ASSA ABLOY’s long-term finan-
cial 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 associ-
ation prescribe that proposals should be supported by a
higher proportion of the shares represented or votes cast
at the Meeting. Individual shareholders who wish to have
an issue raised at the Annual General Meeting can apply to
ASSA ABLOY’s Board of Directors at a special address that is
published on the company’s website in good time before
the Meeting.

The 2006 Annual General Meeting
The Annual General Meeting in April 2006 was attended by
shareholders representing 46 percent of the company’s
capital and 62 percent of the votes.

At the meeting Gustaf Douglas, Melker Schörling, Carl-

Henric Svanberg, Carl Douglas, Per-Olof Eriksson, Lotta
Lundén and Sven-Christer Nilsson were re-elected as mem-
bers of the Board. Johan Molin, President and CEO of ASSA
ABLOY, was elected as a new member of the Board. Gustaf
Douglas was elected as the new Chairman of the Board to
succeed Georg Ehrnrooth, who was thanked for his services
after twelve years as Chairman. Melker Schörling and Carl-
Henric Svanberg were re-elected as Vice Chairmen. Price-
waterhouseCoopers, with Authorized Public Accountant
Peter Nyllinge as Auditor in Charge, were appointed as
Auditors for a four-year period up to the Annual General
Meeting of 2010.

The Meeting fixed the dividend at SEK 3.25 per share.
The Meeting also decided on the fees payable to the Board
and the Auditors and appointed the members of the Nomi-
nation Committee up to the 2007 Annual General Meet-
ing. Against the background of the new Swedish Compa-
nies Act that came into force on 1 January 2006, the Meet-
ing approved a number of changes to the company’s artic-
les of association. The Meeting also approved the issue of
convertible debentures and the incentive program for
senior executives of the ASSA ABLOY Group. For informa-
tion about current incentive programs, see page 86 and
Note 25 on page 70 as well as the ASSA ABLOY website
www.assaabloy.com, where the minutes of the 2006
Annual General Meeting are also available.

Nomination Committee
The duties of the Nomination Committee are to consider the
choice of the Chairman, Vice Chairmen 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 prior to the
2007 Annual General Meeting are Melker Schörling (Melker
Schörling AB), Chairman, Gustaf Douglas (Investment AB
Latour and SäkI), Staffan Grefbäck (Alecta) and Marianne
Nilsson (Swedbank Robur). If a shareholder represented by
one of the members of the Nomination Committee ceases to
be among the major shareholders in ASSA ABLOY, the Com-
mittee has the right to elect a representative of any of the
current major shareholders to take the place of such a

Corporate governance report

member. The same applies if a member of the Nomination
Committee ceases to be employed by such a shareholder or
for any other reason leaves the Committee before the 2007
Annual General Meeting. Up to 13 February 2007 no changes
in the composition of the Nomination Committee had taken
place.

As a basis for its proposals to the 2007 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
Committee has studied the results of the evaluation of the
Board’s work carried out under the leadership of the
Committee’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.

Shareholders who wish to put forward proposals to

the Nomination Committee can do so by e-mailing
nominationcommittee@assaabloy.com. The Nomination
Committee’s proposals and information about its work
during the year are published at the latest in conjunction
with the formal notification of the Annual General Meet-
ing, which is expected to be issued about 20 March 2007.

Board of Directors
In accordance with the Swedish Companies Act, the Board
of Directors is responsible for the organization and admi-
nistration 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
objectives, strategies and policies and on acquisitions,
divestments and investments. The Board approves the
Annual Report and Interim Reports, recommends a divi-
dend and principles for remunerating Management to the
Annual General Meeting and takes decisions about the
Group’s financial structure.
The Board’s other duties include:
• continually evaluating the company’s operating

management 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 objectives,

• ensuring that the company’s external presentation of
information is marked by openness and accuracy,

• ensuring that there is satisfactory control of the

company’s compliance with laws and other regulations
applying to the company’s operations,

• ensuring that necessary ethical guidelines for the

company’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 and the division
of duties between the Board and the CEO.

In addition to leading the work of the Board, the Chairman

of the Board shall continually monitor the Group’s opera-
tions 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 concer-
ning the ownership structure. The Chairman shall also,
when necessary, take part in particularly important exter-
nal 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
publication 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
meetings are held when necessary. All meetings follow an
approved agenda. Before each meeting, a draft agenda
including documentation relating to each point on the
agenda is sent to all Board members.

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 effec-
tive and to lay the ground for decision-making. The Com-
mittees themselves have no decision-making powers. The
members of the Committees are chosen at the inaugural
Board meeting each year. Instructions to the Committees
are included in the Board’s working procedures.

The Board’s work during 2006
During the year the Board held five regular meetings and
three extra meetings. At three Board meetings one Board
member was absent. At the others, all members were present.
At the regular Board meetings the President and CEO
reported the Group’s results and financial position, inclu-
ding the outlook for the coming quarter. Investments,
acquisitions and divestments were also considered. All
acquisitions exceeding SEK 100 M are decided by the Board.
The most important issues considered by the Board
during the year covered the three-year restructuring pro-
gram initiated with the aims of increasing efficiency and
exploiting synergies in the Group more quickly; the acqui-
sition of Fargo Electronics and a number of other acquisi-
tions, mainly in Americas and Global Technologies divi-
sions; and a review of the Group’s strategy.

The year’s Board visit was to California, USA, where the

Board attended a world security exhibition in San Diego
and visited the Group companies HID Global in Irvine and
Adams Rite in Pomona. The visit to Adams Rite, which was
acquired at the start of the year, was combined with a dis-
cussion of the strategy for Americas division.

During the year the Board also decided to recommend

an incentive program for senior executives to the Annual
General Meeting, and approved the appointment of Martin
Brandt, Tomas Eliasson, Ulf Södergren and Tzachi Wiesen-
feld as members of the Executive Team.

In November the Board decided that Gustaf Douglas
should replace Melker Schörling as Chairman of the Remune-
ration Committee, and that Melker Schörling should replace
Gustaf Douglas as Chairman of the Audit Committee.

ASSA ABLOY
Annual Report 2006

Remuneration Committee
The duty of the Remuneration Committee is to survey and
discuss, on behalf of the Board, issues concerning the
remuneration of the CEO and the Executive Team. The
Committee also puts forward proposals for changes in the
company’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 remu-
neration of the CEO and other senior executives and any
changes to the company’s remuneration policy.

Remuneration of the Board
Remuneration of the Board is in accordance with decisions
taken at the Annual General Meeting. The 2006 Annual
General Meeting decided that fees paid to the Board
should comprise a total sum of SEK 3,250,000 (excluding
remuneration for Committee work), to be divided
between the 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 members 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 agreements. The CEO and the employee
representatives do not receive a Director’s fee.

Since November 2006 the Remuneration Committee

Fees to Board members in 2006

has consisted of Gustaf Douglas (Chairman) and Sven-
Christer Nilsson. The Remuneration Committee held two
meetings during the year, attended by all current mem-
bers. In addition to its normal duties, the Committee this
year prepared the Board’s proposal of an incentive pro-
gram for senior executives which was approved at the
2006 Annual General Meeting.

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:
• annual review of the company’s treasury policy,
• control of the company’s financial reporting and inter-

nal reporting and control systems,

• monitoring of operations in the internal audit function,
• the scope and evaluation of the external audit,
• monitoring of legal risks.

Since November 2006 the Audit Committee has con-
sisted of Melker Schörling (Chairman), Per-Olof Eriksson and
Lotta Lundén. There is an ongoing dialog with the appointed
auditor, who also participates in the Committee’s meetings.
The Audit Committee held three meetings during the year,
at which all members were present.

In addition to its normal duties, the Committee this
year focused especially on preparatory work for the Nomi-
nation Committee’s proposed choice of Auditor at the
2006 Annual General Meeting, and audit aspects of the
restructuring program.

Meetings of the Audit Committee are minuted,
material for the Board is attached, and an oral report is
made at Board meetings.

SEK thousands

Chairman of the Board
Other Board
members (6)

Total

Fees

850

2,750

3,600

Social
costs

800

890

Total

940

3,550

4,490

Composition of the Board
ASSA ABLOY’s Board consists of eight members without
deputies, who are elected at the Annual General Meeting
for a period of one year. In addition there are two employee
representatives with deputies, who in accordance with
Swedish law are chosen by the employee organizations.

With the exception of the CEO, no Board members are

members of the Executive Team. All Board members are
from Sweden. The average age of Board members is 56.
One member of the Board is a woman.

The majority of the Board members elected at the
Annual General Meeting are independent in relation to the
company and the company management. Three of the
members composing that majority are also independent in
relation to the company’s major shareholders.

The CEO has no significant shareholdings or partner-
ships in companies that have important business relation-
ships with ASSA ABLOY.

Independence of the Board

Name

Gustaf Douglas
Melker Schörling
Carl-Henric Svanberg
Carl Douglas
Per-Olof Eriksson
Lotta Lundén
Johan Molin
Sven-Christer Nilsson

Independent in
relation to the
company and its
management

Independent in
relation to the
company’s major
shareholders

Yes
Yes
No
Yes
Yes
Yes
No
Yes

No
No
–
No
Yes
Yes
–
Yes

37 Corporate governance report report

Board members elected at the 2006 Annual General Meeting

Gustaf Douglas, Chairman
Member of the ASSA ABLOY Board since 1994. Chairman since 2006.
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 the Swedish Conservative Party since 2002 and Securitas Direct since 2006.
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.

Melker Schörling, Vice Chairman
Member of the ASSA ABLOY Board since 1994.
Born 1947.
Master of Business Administration, Gothenburg School of Economics. CEO of a number of companies, including Securitas
AB 1987–1992 and Skanska AB 1993–1997.
Other appointments: Chairman of MSAB, AarhusKarlshamns AB, Hexagon AB, Securitas AB and Securitas Systems AB,
Board member of Hennes & Mauritz AB.
Shareholdings (including family and through companies): 5,310,080 Series A shares and 9,304,734 Series B shares.

Carl-Henric Svanberg, Vice Chairman
Member of the ASSA ABLOY Board since 1994.
Born 1952.
Master of Science and Bachelor of Economics. President and CEO of Telefonaktiebolaget LM Ericsson. President and CEO of
ASSA ABLOY between 1994 and March 2003.
Other appointments: Board member of Hexagon AB and Melker Schörling AB. Carl Henric Svanberg has been awarded
honorary doctorates by Luleå Technical University and Linköping University.
Shareholdings (including family and through companies): 3,920,031 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): –

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, Cross Country Systems AB and Odlander, Fredriksson & Co, Board
member of Senea 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 of and partner in Konceptverkstan since 2004, General Manager of Coop Forum Sweden
2002–2003, Head of Purchasing and later President and CEO of Guldfynd/Hallbergs 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 Bergendahls Gruppen AB, Expanda AB, Exportrådet , Borås Wäfveri AB, Green Cargo
AB, Akademibokhandeln AB, Gallerix AB and Sven-Axel Svenssons Bijouterier AB.
Shareholdings (including family and through companies): –

Gustaf Douglas

Melker Schörling

Carl-Henric Svanberg

Carl Douglas

Per-Olof Eriksson

Lotta Lundén

ASSA ABLOY
Annual Report 2006

Johan Molin

Sven-Christer Nilsson

Seppo Liimatainen

Mats Persson

Rune Hjälm

Per Edvin Nyström

Johan Molin
Member of the ASSA ABLOY Board since 2006.
Born 1959.
Bachelor of Science in Economics. President and CEO of ASSA ABLOY since 2005. CEO of Nilfisk-Advance 2001–2005.
Various posts mainly in finance and marketing, later divisional head, in the Atlas Copco Group 1983–2001.
Other appointments: Board member of Nilfisk-Advance.
Shareholdings (including family and through companies): 500,000 Series B shares and Incentive 2006 convertibles
corresponding to 224,700 Series B shares.

Sven-Christer Nilsson
Member of the ASSA ABLOY Board since 2001.
Born 1944.
Bachelor of Science, Lund University. President 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, Tilgin AB and Innovationsbron AB.
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.

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

Rune Hjälm
Member of the ASSA ABLOY Board since 2005. Chairman of ASSA ABLOY’s European Works Council (EWC).
Born 1964.
Employee representative, Swedish Metal Workers Union.
Shareholdings: –

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

39 Corporate governance report

report

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 Chief Financial
Officer, the Chief Technology 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.

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 inter-
nationally accepted conventions, defines the values and guide-
lines that should govern the Group in matters such as busi-
ness 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 decentralized, which is
explained by a deliberate strategic choice imposed
primarily by the local nature of the lock industry. Another
important factor is that the Group was built up in a relati-
vely short period by a large number of acquisitions. Viewed
historically, this structure has meant that internal control
originated from a strong, centrally based control environ-
ment where the integrity, ethical values, expertise and
management philosophy of the Executive Team (which
achieved high visibility out in the organization) were deci-
sive 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 financial
and operational monitoring and to promote the flow of
information and communication in the Group. The Group’s
smallest component units are 150 so-called benchmarking
units, which normally correspond to a legal entity or part of
a legal entity. The next level in the operating structure cur-
rently consists of 27 business units. These are either geo-

graphically based or organized around various types of prod-
uct 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 levels, there are designated
people and a management group responsible for ensuring
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 accounting
principles in the Hyperion Financial Management system.
The reports are consolidated and form the basis for quarterly
reports and monthly operating reviews at everything from
benchmarking-unit to Group level. The operating reviews
conform to a long-established structure – LockPack – in
which sales, income, cash flow and other key figures and
trends are combined and form the basis for analysis 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 num-
ber of winners in various categories every quarter, provides
an effective tool for review and for spreading good ideas and
good business methods among the Group’s companies. The
financial reviews take the form both of regular monthly
meetings at divisional level – so-called performance reviews
– and of more informal analysis. Other important Group-
wide components of internal control are the annual busi-
ness planning and budgeting process, and quarterly fore-
casts of financial results for the current calendar year.

Group-wide tools for increasing efficiency
As well as the guidelines and policies discussed above,
some 20 systems and applications for increasing the effi-
ciency of business operations have been developed cen-
trally. These aids can, and in some cases should, be used by
Group companies – for example, for optimizing inventories
and for cost control. The tools are intended primarily for
operational use, but in many cases also result in general
and specific control activities linked to financial reporting
being implemented in the business and create increased
awareness 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. Acquisitions
will continue to be an important growth factor for expansion
onto new markets, into new technologies and on markets
where the market share is low. Complementary acqui-
sitions on existing markets may also become appropriate.
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
documentation requirements.

ASSA ABLOY
Annual Report 2006

Goodwill and other intangible assets with indefinite
useful life resulting from acquisitions are subject to a simp-
lified valuation test each quarter and to detailed in-depth
impairment testing once a year.

Group internal control and internal audit function
During the year the work of the Group’s unit for Manage-
ment Assurance and Special Assignments (MASA) included
review and coordination of the external audit and evalua-
tion of the Group’s internal control. Control Self Assess-
ments are used as a method for central recording of inter-
nal control combined with support for the subsidiaries’
own procedures. Internal audit is carried out with central
resources and within the divisions, where the more expe-
rienced of the financial staff carry out internal audits in
units other than those they are employed in. The MASA
unit reports to the Board’s Audit Committee.

Financial objectives
ASSA ABLOY’s primary financial objective is that return on
capital employed (ROCE) should exceed 20 percent. ASSA
ABLOY has the following further objectives:
• Sales should increase organically by an average of about

5 percent a year over a business cycle.

• The operating margin (EBIT) should be improved to

16–17 percent. This should be achieved through conti-
nued growth, a modern product portfolio and realizing
synergies in the Group.

Risks and risk management
As an international Group with a wide geographic spread,
ASSA ABLOY is exposed to a number of business and finan-
cial risks. The business risks can be divided into strategic,
operational and legal risks. The financial risks are related to
such factors as 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 55–57.

Risk management in ASSA ABLOY aims to identify, con-
trol and reduce risks. This work begins with an assessment
of the probability of risks occurring and their potential
effect on the Group. In the decentralized spirit that marks
ASSA ABLOY, and to keep risk analysis and risk manage-
ment 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. Custo-
mers, suppliers and employees are also covered by the
Group’s Code of Conduct. Competitors are subjected to
both central and local risk analysis.

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

In recent years low-price competition, mainly from Asia,

ing cash flow should be maintained.

• Capital efficiency should be continuously improved.

From left: Juan Vargues, Joseph J. Grillo,
Martin Brandt, Tzachi Wiesenfeld, Johan
Molin, Åke Sund, Tomas Eliasson, Ulf
Södergren, Thanasis Molokotos.

Given the potential to improve the utilization of current
production capacity, capital expenditure can be main-
tained at today’s level, below current depreciation.

has increased in some segments. Quality features, total
solutions and breadth of product range have become natu-
ral responses to reduce such risks.

As regards risks related to acquisitions, the Group follows

a standardized, predefined process, as described above.

Corporate governance reportre-
port

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
matters. This is managed and coordinated by the Group’s
central 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 repre-
sentatives. At present there are no legal disputes that it is
believed could lead to significant costs.

Åke Sund
Born 1957
Graduate Diploma in Marketing
Executive Vice President
Head of Market and Business Development
Employed since 1994
Shareholdings: Incentive 2004 convertibles corresponding
to 93,400 Series B shares and Incentive 2006 convertibles
corresponding to 79,000 Series B shares

Ulf Södergren
Born 1953
Master of Science, Bachelor of Economics
Chief Technology Officer (CTO)
Employed since 2000
Shareholdings: Incentive 2004 convertibles corresponding
to 77,800 Series B shares and Incentive 2006 convertibles
corresponding to 79,000 Series B shares

Juan Vargues
Born 1959
Graduate in Mechanical Engineering, Master of Business
Administration
Executive Vice President
Head of Entrance Systems division
Employed since 2002
Shareholdings: Incentive 2004 convertibles corresponding
to 47,000 Series B shares and Incentive 2006 convertibles
corresponding to 103,300 Series B shares

Tzachi Wiesenfeld
Born 1958
Bachelor of Science in Industrial Engineering, Master of
Business Administration
Executive Vice President
Head of EMEA division
Employed since 2000
Shareholdings: Incentive 2004 convertibles corresponding
to 38,900 Series B shares and Incentive 2006 convertibles
corresponding to 121,500 Series B shares

The Executive Team
Johan Molin
Born 1959
Bachelor of Science in Economics
President and CEO
Employed since 2005
Shareholdings: 500,000 Series B shares and Incentive 2006
convertibles corresponding to 224,700 Series B shares

Martin Brandt
Born 1960
Degree in Business Administration and Mechanical
Engineering
Executive Vice President
Head of Asia Pacific division
Employed since 1996
Shareholdings: Incentive 2006 convertibles corresponding
to 60,700 Series B shares

Tomas Eliasson
Born 1962
Bachelor of Science in Economics
Executive Vice President
Chief Financial Officer (CFO)
Employed since 2006
Shareholdings: Incentive 2006 convertibles corresponding
to 85,000 Series B shares

Joseph J. Grillo
Born 1957
Bachelor of Finance and Economics
Executive Vice President
Head of Global Technologies division
Employed since 2001
Shareholdings: Incentive 2004 convertibles corresponding
to 132,300 Series B shares and Incentive 2006 convertibles
corresponding to 30,400 Series B shares

Thanasis Molokotos
Born 1958
Master of Science
Executive Vice President
Head of Americas division
Employed since 1996
Shareholdings: 25,000 Series B shares, Incentive 2004
convertibles corresponding to 31,100 Series B shares and
Incentive 2006 convertibles corresponding to 48,600
Series B shares

ASSA ABLOY
Annual Report 2006

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 per-
cent). The variable salary is capped at a maximum of three-
quarters of fixed salary.

For other members of the Executive Team, variable salary
is based primarily on improvement in operating income (for
their own area of responsibility) compared with the pre-
vious year (50 percent), and also on organic growth (25 per-
cent) and a personal target (25 percent). In this case variable
salary is capped at two-thirds of fixed salary.

Some of the Executive Team 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 earn-
ings per share increase by 12 percent compared with the
previous year and organic growth reaches 7 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 some other

pays pension contributions amounting to 35 percent of
fixed salary to the CEO and pension contributions amoun-
ting to about 60 percent of fixed salary to some other mem-
bers of the Executive Team. Provided that certain assump-
tions about the return on pension capital are met, this
means that pensions will amount to about 65 percent 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.

For the CEO, a period of 24 months’ notice has been
agreed if the company terminates the contract. No sever-
ance payment agreement applies. Others in the Executive
Team are entitled to six months’ notice and receive a sever-
ance payment of 100 percent of their fixed salary for a max-
imum of 12 months, which is reduced by any income from
employment that may arise.

During the year Geoff Norcott ceased to be employed

as Executive Vice President and Head of Asia Pacific divi-
sion. His contract specified a 12-month period of notice,
and he has a severance payment agreement of 100 percent
of fixed salary for 12 months, reduced by any income from
employment that may arise. Göran Jansson also ceased to
be employed as Deputy CEO and Chief Financial Officer
during the year. He has a severance payment agreement of
100 percent of fixed salary for 12 months, reduced by any
income from employment that may arise.

members of the Executive Team are through participation
in the ITP plan or equivalent. Some members of the Execu-
tive Team, but not the CEO, have the right and obligation to
retire with a pension on reaching the age of 60. ASSA ABLOY

External audit
At the 2006 Annual General Meeting Pricewaterhouse-
Coopers (PwC) were appointed as the company’s external
Auditors for a four-year period up to the 2010 Annual

Remuneration and other benefits to the Executive Team in 2006
SEK thousands

Fixed salary

Variable salary

Other benefits

Pension costs

Johan Molin
Other members of the Executive Team (8)1

7,000
21,750

5,250
16,409

100
1,397

Total remuneration and benefits
Total costs2
35,108
1 During the year Geoff Norcott and Göran Jansson left and Martin Brandt, Tomas Eliasson, Ulf Södergren and Tzachi Wiesenfeld joined the Executive Team.

21,659

28,750

25,903

1,497

1,647

The costs tabled above cover the parts of the year during which each person belonged to the Executive Team.
2 Total costs include social fees on salaries and benefits, special pension tax and additional costs for other benefits.

2,450
7,124

9,574

11,557

Corporate governance reportre-
port

General Meeting, with Authorized Public Accountant Peter
Nyllinge as the Auditor in Charge. PwC have been the
Group’s Auditors since the Group was formed in 1994.
Peter Nyllinge, born in 1966, is responsible for auditing the
following companies besides ASSA ABLOY: Bonnier AB
(publ) and Skandinaviska Enskilda Banken AB (publ).

PwC 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 admi-
nistration 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 recommenda-
tions concerning the Group’s annual audit.

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
auditing practice as defined by the International Federa-
tion of Accountants (IFAC) for the issue of audit reports for
the legal entities. For information about the fees paid for
audit and other assignments in the Group during the last
three financial years, see Note 3 on page 63 of this Report
and Note 3 on page 71 of the 2005 Annual Report.

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 working procedures 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, pro-
cesses for setting the remuneration of the company mana-
gement, and information about corporate governance.

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 Chair-
man of the Board nor any other Board member should be
Chairman 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
nomination process, that the membership of the Nomina-
tion 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
members 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
omitted that could affect the picture of the company
created by the Annual Report.”

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

Other requirements of the Code
In all other respects ASSA ABLOY believes that it was meet-
ing the requirements of the Code at the end of 2006.

ASSA ABLOY
Annual Report 2006

Sales and earnings

Operating income
Operating income (EBIT) excluding restructuring costs
amounted to SEK 4,771 M (4,078) after negative currency
effects of SEK 27 M. The corresponding operating margin
was 15.3 percent (14.7).

Operating income before depreciation (EBITDA) and
excluding restructuring costs amounted to SEK 5,669 M
(4,960). The corresponding margin was 18.2 percent
(17.8).

Restructuring costs
Restructuring costs totaled SEK 1,474 M (–). The costs of
the restructuring program amounted to SEK 1,274 M and
the costs of closing car-lock manufacturing in the UK
amounted to SEK 200 M.

Income before tax
Income before tax totaled SEK 2,626 M (3,556). This repre-
sents a reduction of 26 percent compared with the pre-
vious year, with negative currency effects of SEK 23 M.
Financial items amounted to SEK –671 M (–522) and the
increase is chiefly due to increased net debt. Profit margin –
defined as income before tax in relation to sales – amounted
to 8.4 percent (12.8).

The Parent company’s income before tax amounted to

SEK 1,047 M (728).

Tax
The Group’s tax charge totaled SEK 870 M (943), which
corresponds to an effective tax rate of 33 percent (27). The
increase in effective tax rate is temporary and is due to the
fact that deferred tax on some restructuring items has not
been considered.

Earnings per share
Earnings per share excluding restructuring items amoun-
ted to SEK 7.99 (6.97), which represents an increase of 15
percent.

• Organic growth for comparable units was 9 percent (5).

Acquired growth totaled 3 percent (1).

• Operating income (EBIT) excluding restructuring costs
increased by 17 percent to SEK 4,771 M (4,078), repre-
senting an operating margin of 15.3 percent (14.7).

• Earnings per share excluding restructuring items

increased by 15 percent to SEK 7.99 (6.97).

Sales
The Group’s sales increased to SEK 31,137 M (27,802).
Exchange-rate effects affected sales negatively by SEK 109
M compared with 2005.

Changes in sales

Organic growth
Acquired growth
Currency effects

Total

2006

2005

9
3
0

5
1
3

In local currencies, sales increased by 12 percent, of which
organic growth by comparable units accounted for 9 per-
cent (5). Acquired units made a positive contribution of 3
percent (1).

Sales by product group

Mechanical locks,
lock systems and accessories
Electromechanical and electronic locks
Security doors and fittings

2006

2005

51
31
18

53
29
18

Mechanical locks, lock systems and accessories accounted
for 51 percent (53) of sales. Sales of electromechanical and
electronic locks rose to 31 percent (29), while sales of
security doors and fittings accounted for 18 percent (18).

Cost structure
Total remuneration costs including social costs and pen-
sion costs amounted to SEK 9,374 M (9,260), which repre-
sents 30 percent (33) of sales. The average number of
employees was 31,243 (29,578).

The average number of employees in the Parent com-

pany was 96 (74).

The Group’s material costs totaled SEK 9,561 M (8,059),

which represents 31 percent (29) of sales. The rise was
mainly due to the increased costs of raw materials.

Other purchasing costs totaled SEK 6,532 M (5,557),

which represents 21 percent (20) of sales.

Depreciation and write-down of fixed assets amounted
to SEK 1,039 M (884), which represents 3 percent (3) of sales.

Income statement – Group

SEK M

Sales
Cost of goods sold

Gross income

Selling expenses
Administrative expenses
Research and development 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

4
5

6–10

11
10, 12

14
14

2006

31,137
–19,936

11,201

–5,337
–1,847
–719
–9
8

3,297

30
–701

2,626

–870

1,756

1,746
10

4.77
4.72

2005

27,802
–16,508

11,294

–4,883
–1,781
–588
28
8

4,078

51
–573

3,556

–943

2,613

2,608
5

7.13
6.97

ASSA ABLOY
Annual Report 2006

Comments by division

ASSA ABLOY is organized into three geographical divisions
and two product divisions. 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 two product
divisions are Global Technologies (ASSA ABLOY Hospita-
lity, ASSA ABLOY Identification Technologies (ITG) and HID
Global) and Entrance Systems, both of which serve a global
market. Functions common to the whole Group appear in
the column headed ‘Other’ in the table.

EMEA
Sales totaled SEK 12,509 M (11,649), with organic growth
of 8 percent (3). Operating income excluding restructuring
costs amounted to SEK 1,972 M (1,707), with an operating
margin (EBIT) of 15.8 percent (14.7). Return on capital
employed excluding restructuring items amounted to 19.1
percent (16.6). Operating cash flow before interest paid
amounted to SEK 1,899 M (1,901).

EMEA’s strong organic growth is due to generally impro-
ved demand in Europe which led to particularly good sales
performance in the Nordic region and eastern Europe as
well as the Middle East and Africa. Increased sales volumes
and the restructuring measures taken in the division have
had a positive effect on profitability.

Americas
Sales totaled SEK 10,142 M (8,806), with organic growth of
10 percent (5). Acquired units contributed 5 percent of
sales. Operating income excluding restructuring costs
amounted to SEK 1,945 M (1,615), with an operating
margin (EBIT) of 19.2 percent (18.3). Return on capital
employed excluding restructuring items amounted to 22.3
percent (19.6). Operating cash flow before interest paid
amounted to SEK 1,724 M (1,755).

Americas’ excellent performance is due to markedly
improved demand in North America generally and especi-
ally strong in the important commercial segment. Business
in this segment generated strong organic growth and
improved profit margins. Other units including acquired
units also produced good results in terms of both sales and
profitability.

Asia Pacific
Sales totaled SEK 2,309 M (2,209), with organic growth of 4
percent (2). Acquired units contributed 3 percent of sales.
Operating income excluding restructuring costs amoun-
ted to SEK 213 M (245), with an operating margin (EBIT) of
9.2 percent (11.1). Return on capital employed excluding

restructuring items amounted to 10.8 percent (12.9). Ope-
rating cash flow before interest paid amounted to SEK 112
M (259).

Sales performance in Asia was strong during the year
due to very good results in China in terms of both exports
and local sales. The commercial segment in Australia and
New Zealand performed well but low demand in the resi-
dential segment is a burden on the division. The division’s
margins were hit by high material costs.

Global Technologies
Sales totaled SEK 4,220 M (3,387), with organic growth of
12 percent (12). Acquired units contributed 13 percent of
sales. Operating income excluding restructuring costs
amounted to SEK 612 M (476), with an operating margin
(EBIT) of 14.5 percent (14.1). Return on capital employed
excluding restructuring items amounted to 15.5 percent
(17.3). Operating cash flow before interest paid amounted
to SEK 426 M (341).

Global Technologies is performing well, with strong

organic growth and an improved operating margin.
Demand for the division’s products is very good. New app-
lications for access control, hotel locks and secure identifi-
cation based on RFID technology are the drivers of sales
growth. The acquisition of Fargo Electronics contributed to
increases in both growth and profitability.

Entrance Systems
Sales totaled SEK 2,715 M (2,373), with organic growth of
11 percent (8). Acquired units contributed 3 percent of
sales. Operating income excluding restructuring costs
amounted to SEK 368 M (335), with an operating margin
(EBIT) of 13.6 percent (14.1). Return on capital employed
excluding restructuring items amounted to 11.5 percent
(11.1). Operating cash flow before interest paid amounted
to SEK 332 M (307).

Entrance Systems achieved strong sales growth in both

automatic doors and service during the year. Organic
growth was particularly strong in the USA and Asia. The divi-
sion has also gained market shares in Europe. Profitability
weakened slightly, partly as a result of high material costs.

Other
Costs for common Group functions such as Group man-
agement, accounting & finance, purchasing and Shared
Technology amounted to SEK 339 M (300). The increase is
mainly due to investments in common product develop-
ment through Shared Technology.

Results by division

SEK M

Sales, external
Sales, internal

Sales
Organic growth

EMEA1

Americas2

2006

2005

2006

2005

Asia Pacific3
2005

2006

Global
Technologies4
2005
2006

Entrance
Systems

Other

Total

2006

2005

2006

2005

2006

2005

12,165 11,369 10,104
38

280

344

12,509 11,649 10,142
10%

8,775
31

8,806
5%

2,082
227

2,309
4%

2,019
190

2,209
2%

4,108
112

4,220
12%

3,297
90

3,387
12%

2,678
37

2,715
11%

2,341
32

2,373
8%

–758

31,137 27,802

–622

–622 31,137 27,802
5%

Share of earnings in associates

–

Operating income (EBIT) excl.
restructuring costs
Operating margin (EBIT)

Restructuring costs

Operating income (EBIT)

Net financial items
Tax on income

Net income

Capital employed
– of which goodwill
Return on capital employed excl.
restructuring items

Assets
– of which, shares in associates
Liabilities

Operating income (EBIT)
Restructuring costs
Depreciation
Investments in fixed assets
Sales of fixed assets
Change in working capital
Cash flow5

Adjustment for non-cash items
Paid and received interest
Operating cash flow5

1,972
15.8%

–1,059

1,707
14.7%

1,945
19.2%

1,615
18.3%

–

–169

–

913

1,707

1,776

1,615

213
9.2%

–93

120

245
11.1%

–

245

612
14.5%

–152

460

476
14.1%

–

476

368
13.6%

–1

367

335
14.1%

–

–339

–300

4,771
15.3%

4,078
14.7%

–

–1,474

–

335

–339

–300

3,297

4,078

9,183 10,151
4,709
4,631

8,545
5,076

8,726
5,276

1,974
955

1,985
995

4,911
3,568

2,871
2,309

3,121
2,453

3,309
2,427

–529
–

–389 27,205 26,653
– 16,683 15,716

19.1%

16.6%

22.3%

19.6%

10.8%

12.9%

15.5%

17.3%

11.5%

11.1%

17.1%

15.9%

–671
–870

–522
–943

1,756

2,613

13,182 13,360
34
3,209

31
3,999

9,689 10,657
2
1,931

2
1,148

2,410
–
436

2,432
–
447

6,333
–
1,423

3,839
–
968

3,665
–
543

5,265
–

–1,862 35,557 33,692
37
1,956 14,363 10,767 21,912 19,279

277
–

–

913
1,059
468
–388
137
–290

1,707
–
499
–390
55
30

1,776
169
231
–206
7
–253

1,615
–
230
–126
12
24

1,899

1,901

1,724

1,755

120
93
64
–113
4
–56

112

245
–
66
–111
71
–12

259

460
152
87
–130
3
–146

426

476
–
46
–116
1
–66

341

367
1
39
–32
2
–45

332

335
–
32
–71
45
–34

307

–339
–
9
–24
1
86

–300
–
9
–57
20
–52

3,297
1,474
898
–894
155
–704

4,078
–
882
–871
204
–110

4,226

4,183

10
–708

–26
–455

10
–708

–26
–455

3,528

3,702

Acquisitions of shares in companies
Average number of employees

–84

–30
12,283 12,405

–800
9,641

–
9,251

–
5,099

–158
4,352

–2,222
2,183

–72
1,767

–16
1,926

–123
1,714

–
111

–3,122

–1
–384
89 31,243 29,578

1 Europe, Middle East and Africa.
2 North and South America.
3 Asia, Australia and New Zealand.
4 ASSA ABLOY Hospitality, ASSA ABLOY Identification Technologies (ITG) and HID Global.
5 Excluding restructuring payments.

ASSA ABLOY
Annual Report 2006

Financial position

• Capital employed amounted to SEK 27,205 M (26,653).
• Net debt rose to SEK 13,560 M (12,240).
• Net debt / equity ratio was 0.99 (0.85).

SEK M

Capital employed
– of which, goodwill
Net debt
Minority interests
Shareholders’ equity

2006

27,205
16,683
13,560
60
13,585

2005

26,653
15,716
12,240
71
14,342

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 27,205
M (26,653). The return on capital employed excluding
restructuring items was 17.1 percent (15.9).

Intangible assets amounted to SEK 17,825 M (16,078).

The change is explained mainly by acquisitions made.
During the year goodwill and other intangible assets with
indefinite useful life amounted to more than SEK 2,700 M.
A valuation model based on discounted future cash flow is
used for impairment testing of goodwill and other intan-
gible assets with indefinite useful life. No impairment was
recognized this year.

Tangible assets amounted to SEK 5,121 M (5,702).
Investments in tangible and intangible assets, less sales of
tangible and intangible assets, totaled SEK 739 M (667).
Depreciation according to plan amounted to SEK 898 M
(882).

Accounts receivable totaled 5,081 M (4,818) and inven-
tories totaled SEK 4,026 M (3,679). The average collection
period for accounts receivable was 54 days (53). Material
throughput time averaged 109 days (108). The Group has
been making systematic efforts to increase capital effi-
ciency.

Net debt
Net debt amounted to SEK 13,560 M (12,240), of which
provisions for pensions accounted for SEK 1,297 M (1,634).
Net debt was increased by the dividend to shareholders and
acquisitions and reduced by the strong operating cash flow.

External financing
The Group’s long-term loan financing consists mainly of a
Private Placement program in the USA amounting to USD
630 M (330). The Group’s short-term loan financing con-
sists mainly of a global Commercial Paper program for a
maximum of USD 1,000 M (1,000).

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 4,331 M (2,625) and the global Commercial Paper pro-
gram for SEK 4,658 M (1,302).

The interest coverage ratio, defined as income before
tax excluding restructuring costs, plus net interest, divided
by net interest, was 7.4 (8.2). The interest coverage ratio
including restructuring costs was 5.1 (8.2). Periods for
fixed-interest-rate borrowings lengthened during the year,
averaging 26 months at year-end.

Cash and cash equivalents amounted to SEK 1,154 M
(958). Cash and cash equivalents are invested in banks with
high credit ratings.

Equity
Equity in the Group totaled SEK 13,645 M (14,413) at year-
end. The return on shareholders’ equity amounted to 11.5
percent (18.1). The equity ratio was 38.4 percent (42.8).
The net debt / equity ratio, defined as net debt divided by
shareholders’ equity, was 0.99 (0.85).

Balance sheet – Group

SEK M

ASSETS
Non-current assets
Intangible assets
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
Derivative financial instruments
Short-term investments
Cash and cash equivalents

Total current assets

TOTAL ASSETS

EQUITY AND LIABILITIES
Equity
Parent company’s shareholders
Share capital
Other contributed capital
Reserves
Retained earnings

Minority interests

Total equity

Non-current liabilities
Long-term loans
Convertible debenture loans
Deferred tax liabilities
Pension provisions
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
Current tax liabilities
Short-term provisions
Other short-term liabilities
Accrued expenses and prepaid income

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Note

2006

2005

15
16
18
20
19

21
22

25
25
19
29
30

25
25
23

30
31
32

17,825
5,121
33
241
1,089

24,309

4,026
5,081
227
405
314
40
1
1,154

11,248

35,557

366
8,887
–253
4,585

13,585
60

13,645

6,010
1,252
106
1,297
751
116

9,532

6,281
–
42
2,143
210
692
681
2,331

16,078
5,702
37
171
1,349

23,337

3,679
4,818
129
344
365
43
19
958

10,355

33,692

366
8,887
1,061
4,028

14,342
71

14,413

2,783
943
153
1,634
88
156

5,757

6,966
943
54
1,949
196
344
657
2,413

12,380

35,557

13,522

33,692

ASSA ABLOY
Annual Report 2006

Cash flow

• Operating cash flow amounted to SEK 3,528 M (3,702).
• Net capital expenditure amounted to SEK 739 M (667).

Relationship between cash flow from operating
activities and operating cash flow

Operating cash flow

SEK M

Operating income (EBIT)
Restructuring costs
Depreciation / amortization
Net capital expenditure
Change in working capital
Paid and received interest
Adjustment for non-cash items
Operating cash flow1

Operating cash flow /
Income before tax2

1 Excluding restructuring payments.
2 Income before tax excluding restructuring costs.

SEK M

Cash flow from operating activities
Net capital expenditure
Tax paid

Operating cash flow

2006

3,310
–739
957

3,528

2005

3,450
–667
919

3,702

Acquisitions of subsidiaries
Total outlay on acquisition of subsidiaries amounted to SEK
3,553 M (422). Acquired net debt totaled SEK –339 M (–10).

2006

3,297
1,474
898
–739
–704
–708
10

3,528

2005

4,078
–
882
–667
–110
–455
–26

3,702

0.86

1.04

Change in net debt
Net debt was affected mainly by the strong operating cash
flow, the dividend 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

2006

12,240
–
–3,528
342
957
3,132
1,189
–772

13,560

2005

12,208
77
–3,702
298
919
413
951
1,076

12,240

The Group’s operating cash flow amounted to SEK 3,528 M
(3,702), equivalent to 86 percent (104) of income before
tax excluding restructuring costs.

The Parent company’s cash flow amounted to SEK –66 M

(829).

Net capital expenditure
Direct net capital expenditure on tangible and intangible
fixed assets totaled SEK 739 M (667), equivalent to 82 per-
cent (76) 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
expenditure.

Change in working capital

SEK M

Inventories
Accounts receivable
Accounts payable
Other working capital

Change in working capital

2006

–526
–487
223
86

–704

2005

–108
–95
215
–122

–110

Efforts to reduce the Group’s average material throughput
times in its inventories are continuing. During the year
rising material prices and increased volumes have
increased the capital tied up in inventories, which bur-
dened cash flow by SEK –526 M (–108). The average mate-
rial throughput time is now 109 days (108). The increased
capital tied up in accounts receivable is chiefly due to
stronger sales.

Cash flow statement – Group

SEK M

OPERATING ACTIVITIES
Operating income
Depreciation
Reversal of restructuring costs
Non-cash items

Cash flow before interest and tax

Paid and received interest
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
Disposal of associates
Other investments

Cash flow from investing activities

FINANCING ACTIVITIES
Dividends
Net cash effect of changes in borrowings

Cash flow from financing activities

CASH FLOW

CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 1 January
Cash flow
Effect of translation differences

Cash and cash equivalents at 31 December

Note

37
37
37
37
37

2006

3,297
898
1,474
10

5,679

–708
–957

4,014

–704

3,310

–894
155
–3,122
1
–11

–3,871

–1,189
2,050

861

2005

4,078
882
–
–26

4,934

–455
–919

3,560

–110

3,450

–805
138
–384
2
–3

–1,052

–951
–1,374

–2,325

300

958
300
–104

1,154

1,017
73
–132

958

ASSA ABLOY
Annual Report 2006

Changes in equity – Group

SEK M
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

Opening balance 1 January 2006

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 2005
Acquisitions of shares of subsidiaries
Closing balance 31 December 2006

Note
27

Parent company’s shareholders

Share
capital
366

Other
contributed
capital
8,887

Reserves
–479

Retained
earnings
2,452

Minority
interests
27

366

8,887

4
–475

1,539
–3
1,536

1,536

–81
2,371

2,608
2,608

–951

366

8,887

1,061

4,028

8,887

1,061

4,028

–1,313
–1
–1,314

–1,314

1,746
1,746

–1,189

366

8,887

–253

4,585

5
8

36
71

–7

10
3

–14
60

Total
11,253

–77
11,176

1,542
–3
1,539

2,613
4,152

–951
36
14,413

14,413

–1,320
–1
–1,321

1,756
435

–1,189
–14
13,645

Parent Company Financial Statements

Income statement
Parent Company

Balance sheet
Parent Company

SEK M

Administrative expenses
Research and development costs
Other operating income and expenses

Operating income

Financial income
Financial expenses

Income before tax

Tax on income
Tax effect of Group contributions

Net income

SEK M

ASSETS
Non-current assets
Intangible assets
Tangible assets
Shares in subsidiaries
Receivables from subsidiaries
Other long-term financial assets

Total non-current assets

Current assets
Receivables from subsidiaries
Other short-term receivables
Prepaid expenses and accrued income
Cash and cash equivalents

Total current assets

TOTAL ASSETS

Assets pledged

EQUITY AND LIABILITIES
Equity
Restricted equity
Share capital
Statutory reserve
Fair value reserve
Unrestricted equity
Retained earnings
Net income

Total equity

Non-current liabilities
Long-term loans
Convertible debenture loans
Long-term loans to subsidiaries
Other long-term liabilities

Total non-current liabilities

Current liabilities
Short-term loans
Convertible debenture loans
Accounts payable
Short-term liabilities to subsidiaries
Current tax liabilities
Other short-term liabilities
Accrued expenses and prepaid income

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Contingent liabilities

Note

3, 6, 8, 9

11
10, 12

13
13

2006

–478
–52
945

415

1,260
–628

1,047

3
–156

894

2005

–313
–21
749

415

867
–554

728

–13
–

715

Note

2006

2005

15
16
17

25
25

407
7
12,474
2,259
174

15,321

15,518
17
27
767

16,329

31,650

None

366
8,905
43

4,033
894

14,241

1,500
1,252
2,259
205

5,216

536
–
32
11,501
3
6
115

12,193

31,650

9,911

36
10
12,202
2,216
67

14,531

18,758
15
41
833

19,647

34,178

None

366
8,905
–

4,892
715

14,878

–
943
2,216
–

3,159

3,842
943
19
11,241
13
5
78

16,141

34,178

10,088

ASSA ABLOY
Annual Report 2006

Cash flow statement
Parent Company

SEK M

OPERATING ACTIVITIES
Operating income
Depreciation
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
Sales of shares in subsidiaries
Other investments

Cash flow from investing activities

FINANCING ACTIVITIES
Dividends
Net cash effect of changes in borrowings
Cash flow from financing activities

CASH FLOW

CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 1 January
Cash flow
Cash and cash equivalents at 31 December

Note

2006

415
33
448

–28
1,695
3

2,118

–62

2,056

–405
3
–1,435
87
–56

–1,806

–1,189
873
–316

–66

833
–66
767

2005

415
6
421

18
13,802
–1

14,240

–133

14,107

–45
18
–142
222
–

–951
–12,380
–13,331

829

4
829
833

Changes in equity
Parent Company

SEK M
Opening balance 1 January 2005
Group contributions net
Net income from income statement
Total income and expenses

Dividend for 2004
Transfer of premium reserve
Closing balance 31 December 2005

Opening balance 1 January 2006
Effect of changed accounting principle, financial instruments
Adjusted opening balance 1 January 2006

Changes in value of financial instruments
Group contributions net
Tax effect of Group contributions
Net income from the income statement
Total income and expenses

Dividend for 2005
Closing balance 31 December 2006

Note
26

Restricted shareholders’ equity
Statutory
Share-
reserve
capital
645
366

Fair value
reserve
–

366

8,260
8,905

8,905

–

–
156
156

–113

27
27

366

8,905

Unrestricted shareholders’ equity

Premium
reserve
8,260

–8,260

Retained
reserve
5,883
–40
715
675

Total
15,154
–40
715
675

–951

5,607

14,878

5,607
15
5,622

–556
156
894
494

14,878
171
15,049

–113
–556
156
894
381

–1,189
4,927

–1,189
14,241

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
guidelines 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 curren-
cies 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 2007 by
1 percent is calculated to have a negative impact of about
SEK 300 M on Group sales and of about SEK 25 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.

The Group limits its transaction exposure through a
currency basket option with the aims of facilitating cont-
ract management and reducing administrative costs.

Forecast transaction flows by major currency for 2007
(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

EUR
GBP
CHF
USD

Currency exposure
SEK M

546
351
–306
–244

Translation exposure
The effect arising on translation of capital employed is limi-
ted 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 app-
ropriate funding and eliminate currency exposure.

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

Net debt by currency (in millions)

Currency
exposure

Forward
contracts

External
borrowing

Currency

USD
EUR
SEK
GBP
Other (SEK)

816
388
1,321
61
1,406

77
124
569
–61
–1,406

Total internal bank (SEK)

12,663

SEK

External loans
Overdrafts
Cash and cash equivalents
Long-term interest-bearing receivables
Pension provisions
Accrued financial items

Net debt

893
512
1,890
–
–

12,663

395
482
–1,154
–126
1,297
3

13,560

Interest rate risk
Interest rate fluctuations have a direct impact on ASSA
ABLOY’s net interest expense. The internal bank is respon-
sible for identifying and managing the Group’s interest rate
exposure. At year-end, the average interest rate duration,
excluding pension obligations, was about 26 months.

Effective interest rate by currency, 31 December 2006

Currency

USD
EUR
SEK1

Average for the Group
1 The SEK figure includes the effects of interest rate swaps

Interest rate

5.3%
3.7%
3.4%

4.8%

External funding and interest rate swaps
The table ‘External funding / net debt’ overleaf 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 Private Placement program in USD to
floating rates.

Sensitivity analysis
A rise/fall of 1 percentage point in market rates is calcula-
ted to have a negative/positive impact in the form of
higher/lower interest expense of SEK 88 M / SEK 89 M for
the year 2007.

ASSA ABLOY
Annual Report 2006

Liquidity risk
Financing and liquidity risks are defined as the risks of being
unable to meet payment obligations as a result of inade-
quate liquidity or difficulties in obtaining credit from exter-
nal sources. The internal bank is responsible for external
borrowing and external investments. ASSA ABLOY strives
to have access, on every occasion, to both short-term and
long-term loan facilities. The available facilities should
include a reserve (facilities confirmed but not used) equi-
valent 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 pen-
sion liabilities, was 47 months.

Ratings

Agency

Standard & Poor’s
Moody’s

Short term

Long term Outlook

A2
P2

A –
n/a

Stable
Stable

Ratings from both agencies remain unchanged from the
previous year.

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

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 per-

Amount
SEK

End of
facility

Book value

SEK Currency

Amount

Market value
SEK

Interest
rate swap

Average interest
rate duration

External funding / net debt
(in millions)

Credit facilities

Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Private Placement Program
Floating Rate Notes
Incentive Program
Incentive Program
Other long-term interest-bearing loans

Total long-term loans

confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed
confirmed

Global CP Program
Swedish CP Program
Bank loan
Other short-term interest-bearing loans
Overdrafts etc

confirmed
confirmed
committed

Total short-term loans

Multi-Currency RF

Total credit facilities

Cash and cash equivalents
Other long-term interest-bearing
investments
Pension provisions

Net debt
1 Hedge accounting

344
550
361
550
519
344
344
838
481
1,500
905
347
180

7,262

6,873
5,000
536
215
901

13,525

Dec 2011
May 2012
Dec 2013
May 2015
Dec 2016
Apr 2017
May 2017
Dec 2018
May 2020
Nov 2009
Jun 2009
Jun 2011
–

–
–
Feb 2007

–

USD
USD
USD
USD
USD
USD
USD
USD
USD
SEK
EUR
EUR

50
80
53
80
76
50
50
122
70
1,500
100
38
180

EUR/USD
SEK
EUR

315/263
390
58

344
550
361
550
519
344
344
838
481
1,500
905
347
180

7,262

4,658
390
536
215
482

6,281

committed

9,049

Dec 2010

EUR

1,000

29,836

13,543

–1,154

–126
1,297

13,560

No
Yes1
No
Yes1
No
No
No
No
No
No
No
No

Fixed quarterly
Fixed six-monthly
7 years
Fixed six-monthly
10 years
Fixed quarterly
10.4 years
12 years
13.4 years
Fixed quarterly
Fixed quarterly
Fixed quarterly

No
No
No

27 days
9 days
1 month

344
538
356
538
507
343
335
815
468
1,499
904
347
180

7,174

4,657
390
536
215
482

6,280

13,454

–1,154

–126
1,437

13,611

Financial risk management

Financial instruments and accounting principles
Derivative financial instruments such as currency and inte-
rest-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
nominal value represents the gross value of the contract.

cent of commercial sales were settled through cash pools in
2006. 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
exclusively 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 derivatives.
Trade receivables are spread over a large number of

individual customers, thus minimizing credit risk.

Commodity risk
The Group is exposed to price risk related to purchases of
certain commodities (primarily metals) used as raw mat-
erials in its business. The Group’s policy is to not enter into
commodity hedge contracts.

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
2006

Negative
market value
2006

Nominal
value 2006

Positive
market value
2005

Negative
market value
2005

Nominal
value 2005

24
4
10
2

–20
–4
–
–18

–42

6,226
68
691
2,130

9,115

27
7
7
2

–40
–6
–
–8

–54

8,417
621
572
3,326

12,936

ASSA ABLOY
Annual Report 2006

Notes

Note 1 Significant accounting and valuation principles

•
•

The Group
ASSA ABLOY applies International Financial Reporting
Standards (IFRS) as endorsed by the European Union (EU),
the Swedish Annual Accounts Act and standard RR 30:05 of
the Financial Accounting Standards Council. The accoun-
ting principles are based on IFRS as endorsed by 31 Decem-
ber 2006 and have been applied to all years presented,
unless stated otherwise. This Note describes the most signi-
ficant accounting principles that have been applied in the
preparation of the financial reports, which comprise the
information appearing on pages 32–82.

Basis of preparation
ASSA ABLOY’s consolidated financial statements have been
prepared in accordance with IFRS.

The preparation of financial statements is based on esti-

mates and assumptions made for accounting purposes.
The management also makes judgements about the appli-
cation of the Group’s accounting principles. Estimates and
assumptions 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 state-
ments.

IFRS 7 Financial Instruments: Disclosures (2007)
IFRIC 11 IFRS 2 – Group and Treasury Share Transactions
(2008)1
IFRIC 12 Service Concession Arrangements (2008)1
IFRS 8 Operating Segments (2009)1

•
•
1 Not endorsed by the EU at 31 December 2006.

IFRS 7 and IFRS 8 may have impact on disclosures related to
financial instruments and segment reporting. In other
respects, it is currently assessed that none of the new and
amended standards listed above will have a significant
impact on the Group’s financial statements.

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 con-
trol by some other means, for example by having the power
to govern financial and operating policies. Companies
acquired during the year are included in the consolidated
financial statements with effect from the date when con-
trol was obtained. Companies sold during the year are
included in the consolidated financial statements up to the
date when control ceased.

For example, estimates and assumptions play an

The consolidated financial statements have been pre-

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 assump-
tions for calculating employee benefits and other types of
provisions as well as the valuation of deferred taxes. Estima-
tes and assumptions are continually reassessed and are
based on a combination of historical experience and reason-
able expectations about the future.

The Group considers that estimates and assumptions
relating to impairment testing of goodwill and other intan-
gible assets with indefinite useful life are of significant
importance to the consolidated 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 cal-
culations are based on certain assumptions about the
future which, for the Group, are associated with risks of
material adjustments in reported amounts during the next
financial year. Major assumptions and the effects of likely
changes to them are described in Note 15.

New and amended standards not yet effective
The following new IFRS and amendments to current IFRS
have been published but are not yet effective, and have not
been applied in the preparation of the financial reports.
The first financial year to which each IFRS shall be applied is
noted in parentheses.
•

IFRIC 7 Applying the Restatement Approach under IAS
29, Financial Reporting in Hyperinflationary Economies
(2007)
IFRIC 8 Scope of IFRS 2 (2007)
IFRIC 9 Reassessment of Embedded Derivatives, 1 (2007)
IFRIC 10 Interim Reporting and Impairment, (2007)1
IAS 1 (Amendment) Presentation of Financial State-
ments: Capital Disclosures (2007)

•
•
•
•

pared 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 subsidiaries is determined on the
basis of the fair value of assets, liabilities and contingent lia-
bilities at the date of acquisition. Thus only that part of sub-
sidiaries’ equity that has arisen after the acquisition is inclu-
ded 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. A nega-
tive difference, negative goodwill, is recognized immedia-
tely in the income statement.

Intra-group transactions and balance sheet items and
unrealized profits on transactions between Group compa-
nies are eliminated in the Group financial statements.

Minority interests
Minority interests are based on subsidiaries’ accounts with
application of fair-value adjustments resulting from com-
pleted acquisition analysis. Minority participations in subsi-
diaries’ income are reported in the income statement with
net income divided between the Parent company’s share-
holders and minority interests. Minority participations in
subsidiaries’ equity are reported as a separate item in the
Group’s equity. Transactions with minority shareholders
are accounted for as third-party transactions.

Associates
Associates are defined as companies which are not subsidi-
aries but in which the Group has a significant, but not a
controlling, interest. This is usually taken to be companies
where the Group’s shareholding 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,

Notes

shareholdings in associates are reported at cost, adjusted
for participation in income after the date of acquisition.
Dividends from associates 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 five divisions. Three divisions are based on products
sold in local markets in the respective division: EMEA, Amer-
icas and Asia Pacific. The products of Global Technologies
and Entrance Systems are sold worldwide. The divisions
reflect a partition of the Group’s operations according to
major risks and returns. The divisions form the operational
structure for internal control and reporting and also consti-
tute 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 monetary balances in foreign curren-
cies at the closing-day rate. Exceptions are transactions
relating to qualifying cash flow hedges or net investment
hedges, which are reported in equity. Receivables and liabi-
lities are valued at the closing-day rate.

In translating the accounts of foreign subsidiaries, pre-
pared in functional currencies other than the Group’s pre-
sentation currency, all balance sheet items except net
income are translated at the closing-day rate and net
income is translated at the average rate. The income state-
ment 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.

The rates for currencies used in the Group relative to
the Group’s presentation currency (SEK) – the weighted
average for the year, and the closing-day rate – are shown
in the table to the right.

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 frac-
tion of revenue. Revenue from sales of the Group’s products is
recognized when all significant risks and rewards associated
with ownership are transferred to the purchaser in accor-
dance with applicable conditions of sale, which is normally
upon delivery. If the product requires installation at the
customer’s premises, revenue is recognized when installation
is completed. Revenue from service contracts is recognized
through distribution over the contract period.

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 transactions 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.

Country

Currency

Average rate
2006

2005

Closing-day rate
2005

2006

ARS
Argentina
AUD
Australia
BRL
Brazil
CAD
Canada
CHF
Switzerland
CLP
Chile
China
CNY
Czech Republic CZK
DKK
Denmark
EEK
Estonia
EUR
Euro zone
United Kingdom GBP
HKD
Hongkong
HUF
Hungary
ILS
Israel
KES
Kenya
KRW
South Korea
LTL
Lithuania
MXN
Mexico
MYR
Malaysia
NOK
Norway
NZD
New Zealand
PLN
Poland
RUR
Russia
SGD
Singapore
SIT
Slovenia
SKK
Slovakia
THB
Thailand
USD
USA
ZAR
South Africa

2.24
5.44
3.22
5.92
5.63
0.013
0.88
0.33
1.21
0.58
9.05
13.49
0.88
0.036
1.63
0.099

2.40
5.57
3.38
6.52
5.88
0.014
0.93
0.33
1.24
0.59
9.26
13.57
0.95
0.035
1.66
0.102

2.54
5.68
3.09
6.17
6.00
0.013
0.91
0.31
1.25
0.59
9.28
13.54
0.96
0.037
1.66
0.099

2.62
5.83
3.42
6.84
6.06
0.015
0.98
0.32
1.26
0.60
9.43
13.73
1.03
0.037
1.74
0.110
0.00772 0.00729 0.00739 0.00791
2.73
0.75
2.10
1.18
5.43
2.44
0.28
4.78
0.039
0.25
0.19
7.95
1.26

2.69
0.68
1.97
1.16
5.25
2.31
0.26
4.48
0.039
0.24
0.18
7.45
1.18

2.68
0.68
2.01
1.15
4.82
2.38
0.27
4.64
0.039
0.25
0.19
7.38
1.10

2.62
0.63
1.95
1.09
4.85
2.36
0.26
4.48
0.038
0.26
0.19
6.87
0.99

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. Deve-
lopment costs recorded as assets but not yet in use are sub-
ject to annual impairment testing. Costs for development
of existing products are expensed as they are incurred.

ASSA ABLOY
Annual Report 2006

Note 1
Significant accounting and
valuation principles, cont.

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 accor-
dance with the tax regulations in each country and in accor-
dance with tax rates that have either been decided or have
been notified and can confidently be expected to be confir-
med. For items reported in the income statement, associa-
ted 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 accoun-
ted for under the liability 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. Defer-
red tax liabilities relating to temporary differences resulting
from investments in subsidiaries are not reported in the
consolidated financial statements since the Parent com-
pany can control the time at which the temporary differen-
ces are cancelled and it is not considered likely that such
cancellation will occur in the foreseeable 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 indirect method. The reported cash flow includes only
transactions involving cash payments. ‘Cash and cash equi-
valents’ covers cash and bank balances and short-term
financial investments with durations of less than three
months from the date of acquisition.

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-Genera-
ting Units (CGU) and each year is systematically 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 customer relationships. Identifiable acquisi-
tion-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 use-
ful 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 repor-
ted only if it is likely that the future economic benefits asso-
ciated with the asset will flow to the Group and if the cost
of acquisition can be measured reliably. Such an asset is ini-
tially recognized at cost and is amortized over its estimated
useful life, usually between three and five years. Its carrying
amount is cost less accumulated amortization and impair-
ment losses.

Tangible assets
Tangible assets are reported at cost less accumulated
depreciation and impairment losses. Cost includes expen-
diture 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. Depreciable amount is the cost
of an asset less its residual value. 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.

An asset’s residual value and useful life are reviewed at each
financial year-end and adjusted when needed. 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.

Leasing
The Group’s leasing is chiefly operational leasing. The leas-
ing 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 purposes assets are grouped at the lowest organi-
zational level where there are separate identifiable cash
flows, so called Cash-Generating Units (CGU).

For assets that are depreciated/amortized, impairment

testing is carried out when events or circumstances indi-
cate 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 recover-
able 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 pro-
gress 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
corresponds to amortized cost less any provision for bad

61 Notes

debts. A provision 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.
Subsequent measurement of financial instruments
depends on the classification at initial recognition, which
in turn depends on the original purpose of acquiring the
instrument. Financial instruments are divided into the fol-
lowing 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 deriva-
tives that are not part of hedge relationships qualifying for
hedge accounting. See also the section below regarding
hedge accounting.

‘Loans and other receivables’ are non-derivative finan-
cial 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 recei-
vables are carried at amortized cost using the effective
interest method. The category covers non-current receiva-
bles, 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 maturity. After initial recognition, these
investments are carried at amortized cost using the effec-
tive interest method. The Group normally holds no, or very
limited, amounts as held-to-maturity investments.

‘Available-for-sale financial assets’ includes non-deriva-
tive 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 that are neither recorded at fair
value through profit and loss nor included in a hedge re-
lationship qualifying 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 cur-
rent liabilities, and accounts payable.

Acquisitions and disposals of financial instruments are
recognized on trade-date, i.e. when the Group is commit-
ted to the purchase 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 securi-
ties, fair value is determined by using an appropriate method
of valuation, for example using available information on
comparable arm’s length transactions, comparison with
similar instruments, and analysis of discounted cash flows.
The current and non-current distinction is applied con-

sistently to all financial instruments. When settlement or
disposal is expected to occur more than 12 months after
closing day, a financial asset is reported as a non-current
asset. But when settlement or disposal is expected to occur
within 12 months of closing day, financial assets are repor-
ted as current assets. Financial liabilities with maturity later
than 12 months after closing day are reported as non-cur-
rent 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 lia-
bility is derecognized when the obligation is discharged or
cancelled or when it expires.

Hedge accounting
Hedge accounting is applied only to transactions that are
designated to hedge a specific risk and that qualify for
hedge accounting. 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. Both the liability (the hedged item)
and the derivative (the hedging instrument) are recogni-
zed 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.
Gain or loss from revaluation of a hedging instrument of
a cash-flow hedge qualifying for hedge accounting is repor-
ted in equity in the period in which it arises and is transfer-
red to the income statement in the period that the hedged
cash flow is recognized. The 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
constructive 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. The amount of a provision
is discounted to present value where the effect of the time
value of money is material.

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. Obliga-
tions are valued on the closing day at their discounted
value. For funded plans, obligations are reduced by the fair

ASSA ABLOY
Annual Report 2006

Note 1
Significant accounting and
valuation principles, cont.

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. 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.

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

Revenue
The Parent company’s revenue consists of intra-group
franchise and royalty 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 exter-
nal business.

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

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.

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

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

The Parent company
The Group’s Parent company, ASSA ABLOY AB, is respon-
sible for the management of the Group and handles com-
mon Group functions. The Parent company’s revenue con-
sists of intra-group franchise and royalty revenue, and its
main balance sheet items consist of shares in subsidiaries,
intra-group receivables and liabilities, and external bor-
rowing.

The Parent company has prepared its annual accounts

in accordance with the Swedish Annual Accounts Act
(1995:1554) and standard RR 32:05 of the Swedish Finan-
cial Accounting Standards Council. RR 32:05 requires the
Parent company, in its annual accounts, to apply all the
International Financial Reporting Standards (IFRS) endor-
sed by the EU in so far as this is possible within the frame-
work of the Annual Accounts Act and with regard to the
relationship between accounting and taxation. RR 32:05
states what exceptions from, and additions to, IFRS should
be made.

From 1 January 2006 the parent company is applying

Chapter 4, 14§, sections a–e, of the Swedish Annual
Accounts Act regarding the valuation of financial instru-
ments. This has caused a change in accounting principle
regarding accounting for exchange differences arising on
monetary items that form part of net investments in
foreign entities. Under the new principle, such items pre-
viously accounted for at cost are translated at closing-day
rate. The effect of this change in accounting principle on
1 January 2006 was recognized as an increase in equity of
SEK 156 M. The effect of the revaluation of other financial
instruments was recognized as an increase of equity of
SEK 15 M. In other respects, the accounting principles for
the Parent company described below have been applied
consistently to all periods presented in the Parent
company’s financial statements.

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

Liabilities to subsidiaries
Liabilities to subsidiaries are initially recognized at fair
value and thereafter reported at amortized cost.

Financial instruments
Derivative financial instruments are recorded at fair
value. Changes in the fair values of derivative financial
instruments are reported in the income statement with
the following exceptions, for which changes in fair values
are reported in the fair value reserve:
•

changes to the fair value of a hedging instrument quali-
fying for hedge accounting, and

• exchange rate differences related to a monetary item that
forms part of a net investment in a foreign operation.

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 finan-
cial 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 compara-
ble 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 con-
tributions and their actual tax effects are reported directly
against equity.

63 Notes

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

Group

Note 6 Operational leasing agreements

Note 5 Share of earnings in associates

SEK M
Låsgruppen Wilhelm Nielsen AS
Cerraduras de Colombia Cerracol S.A
Total

Group

2006
3
5
8

2005
4
4
8

Group

Parent
company

SEK M

2006

2005

2006

2005

Leasing fees paid during
the year:

230

200

SEK M

2006

2005

2006

2005

Group

Parent
company

Nominal value of agreed
future leasing fees:

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)
Due for payment in
2012 (2011) or later
Total

207

167

138

100

153
844

183

139

57
591

11
64

10
58

Note 7 Expenses by nature
In the income statement costs are broken down by func-
tion. Cost of goods sold, Selling expenses, Administrative
expenses and Research & Development costs amount to
SEK 27,839 M (23,760). Below, these same costs are bro-
ken down by nature:

SEK M

Remuneration of employees (Note 9)
Direct material costs
Depreciation and write-downs
(Notes 8, 15, 16)
Restructuring costs excluding
write-downs
Other expenses

Group

2006

9,374
9,561

1,039

1,333
6,532

2005

9,260
8,059

884

–
5,557

Total

27,839

23,760

Note 8 Depreciation and amortization

SEK M

Intangible rights
Machinery
Equipment
Buildings
Land and land
improvements

Total

Group

Parent
company

2006

2005

2006

2005

61
459
246
129

898

18
497
244
122

882

31
–
2
–

–

4
–
2
–

–

Sales to customers, by country

SEK M

USA
France
United Kingdom
Germany
Sweden
Australia
Spain
Netherlands
Canada
Finland
Norway
Mexico
Denmark
China
Asia (excluding China)
Italy
Middle East
Belgium
Czech Republic
South America
Switzerland
New Zealand
South Africa
Austria
Russia
Central America (excluding Mexico)
Baltic countries
Poland
Portugal
Romania
Other countries

2006

10,421
2,431
2,107
1,610
1,435
1,310
1,168
1,119
1,038
800
702
696
629
597
547
455
431
405
369
343
303
291
279
251
180
167
134
118
116
59
626

2005

9,278
2,294
2,010
1,466
1,286
1,186
1,029
1,070
744
765
662
570
534
429
533
457
347
362
326
263
280
327
238
195
128
130
108
96
111
54
524

Total

31,137

27,802

Note 3 Auditors’ fees

SEK M
Audit
Pricewaterhouse-
Coopers
Other
Assignments other
than audit
Pricewaterhouse-
Coopers
Other
Total

Group

Parent
company

2006

2005

2006

2005

19
5

17
4
44

26
4

4
44

3
–

1
–
4

3
–

–
2
5

Note 4 Other operating income and expenses

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

2006

2005

19
6
4
21
–32
–27

–9

23
8
6
12
–42
21

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

ASSA ABLOY
Annual Report 2006

Note 9 Employee benefits

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

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
2006

2.5
–
2.9
1.9
0.7
2.9
1.7

1.5
–
0.4
2.7
1.4
1.8
0.3

Note 10 Exchange-rate differences in the

income statement

SEK M

2006

2005

2006

2005

Group

Parent
company

Exchange-rate differen-
ces reported in
operating income
Exchange-rate differen-
ces reported in financial
expenses (Note 12)

Total

–9

–

–4

–13

–7

–4

–24

–

Note 11 Financial income

SEK M

2006

2005

2006

2005

Group

Parent
company

Group

2006

2005

598 (9)
314 (0)
275 (1)
152 (1)
558 (2)
70 (0)
217 (1)
608 (1)
553 (4)
226 (3)
58 (0)
262 (1)
72 (0)
37 (–)
81 (–)
76 (–)
122 (1)
2,511 (9)
165 (0)
59 (0)
103 (1)
266 (0)
88 (–)
147 (2)

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)
135 (0)
2,395 (21)
161 (1)
52 (0)
111 (1)
288 (0)
130 (–)
134 (2)

7,618 (36) 7,474 (43)

Parent company
2006

2005

109 (6)
7 (–)

116 (6)

72 (2)
9 (–)

81 (2)

Earnings from participa-
tions in subsidiaries (A)
Intra-group interest
income
External interest income
and similar items
Total

–

30
30

–

533

725

51
51

2
1,260

375

491

1
867

(A) Earnings from participations in subsidiaries

Group

2006

2005

1,756 (413) 1,786 (384)

Parent company
2005

2006

64 (29)

46 (22)

SEK M
Dividends from
subsidiaries
Write-downs of shares
in subsidiaries
Earnings from sales of
shares in subsidiaries

Total

Parent
company

2006

2005

1,695 13,588

–1,078 –13,210

–84

533

–3

375

SEK M

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

SEK M

Sweden
Other

Total

Social costs (of which pensions)

SEK M

Total

SEK M

Total

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 16 M (13). Social costs
for the Directors and the CEO amounted to SEK 8 M (14), of
which SEK 2 M (9) consisted of pension costs. Detailed
information about remuneration and social costs applying
to the Directors and senior management appears in the
Corporate Governance report (page 42).

Severance pay agreement
For the CEO, a period of 24 months’ notice has been agreed
if the company terminates the contract. No severance pay-
ment agreement applies.

Write-downs of shares in subsidiaries of SEK 1,078 M
(13,210) were mainly due to dividends received from
subsidiaries.

Note 12 Financial expenses

SEK M

2006

2005

2006

2005

Group

Parent
company

Intra-group interest
expenses
Interest expenses, con-
vertible debenture loans
Interest expenses, other
liabilities
Exchange-rate differen-
ces, net (Note 10)
Changes in value of deri-
vative financial instru-
ments
Other financial expenses

–

–400

–348

–61

–46

–61

–46

–608

–499

–157

–183

–4

–7

–24

–15
–13

15
–36

37
–23

–
–20

Total

–701

–573

–628

–554

65 Notes

Note 13 Tax on income

Note 14 Earnings per share

Group

2005

Parent company
2005

2006

Earnings per share before dilution

SEK M

Current tax paid
Tax attributable to
prior years
Deferred tax

2006

–887

–818

–153

–13

5
12

8
–132

–
–

Total

–870

–943

–153

–13

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

Percent

2006

2005

2006

2005

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
Other

Effective tax rate in
income statement

28
5

–2
2
–1
1

28
3

–6
2
–1
1

28
–

–13
–
–
–

28
–

–15
–
–11
–

Note 15 Intangible assets

2006 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

Earnings assigned to the Parent
company’s shareholders
Weighted average number of shares
issued (thousands)

Earnings per share before dilution
(SEK per share)

Earnings per share after dilution

Earnings assigned to the Parent company’s
shareholders
Interest expenses for convertible debenture
loans, after tax
Net profit for calculating earnings per share
after dilution
Weighted average number of shares issued
(thousands)
Assumed conversion of convertible
debentures (thousands)
Weighted average number of shares for
calculation (thousands)

Earnings per share after dilution
(SEK per share)

Group

Intangible
rights

666
84
828
–9
–
–95

1,474

–305
4
–
–
–61
30

–332

Goodwill

15,716
–
2,263
–9
–
–1,287

16,683

–
–
–
–
–
–

–

Total

16,382
84
3,091
–18
–
–1,382

18,157

–305
4
–
–
–61
30

–332

Book value

16,683

1,142

17,825

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

Group

Intangible
rights

473
86
75
–20
8
44

666

–252
1
1
–1
–18
–36

–305
361

Goodwill

13,917
18
249
–
–3
1,535

15,716

–
–
–
–
–
–

–
15,716

Total

14,390
104
324
–20
5
1,579

16,382

–252
1
1
–1
–18
–35

–304
16,078

Group

2006

2005

1,746

2,608

365,918

4.77

7.13

Group

2006

2005

1,746

2,608

1,790

2,641

365,918 365,918

13,296 12,800

379,214 378,718

4.72

6.97

Parent
company

Intangible
rights

41
402
–
–
–
–

443

–5
–
–
–
–31
–

–36

407

Parent
company

Intangible
rights

9
40
–
–18
10
–

–1
–
–
–
–4

–5
36

ASSA ABLOY
Annual Report 2006

Note 15
Intangible assets, cont.

Intangible rights consist mainly of brands and licenses with finite useful life. The book value of intangible rights with indefi-
nite life amounts to SEK 587 M (126).

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 (29).

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:

2006 SEK M

Goodwill
Intangible rights with indefinite useful life

Total

2005 SEK M

Goodwill
Intangible rights with indefinite useful life

Total

Architectural
Hardware
Group

3,012
–

3,012

HID Global

2,977
333

3,310

Entrance
Systems

2,741
19

2,760

Architectural
Hardware
Group

Entrance
Systems

ASSA ABLOY
Identification
Technologies

3,442
–

3,442

2,446
19

2,465

2,136
–

2,136

Other

7,953
235

8,188

Other

7,692
107

7,799

Total

16,683
587

17,270

Total

15,716
126

15,842

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 calculation of value in use. These calculations are based on estimated future cash flows, which in turn are based on finan-
cial budgets approved by the management and covering a three-year period. Cash flows beyond three years are extrapola-
ted using estimated growth rates according to the principles below.

The main assumptions used to calculate values in use are:
• Budgeted operating margin.
• Growth rate for extrapolating cash flows beyond the three-year budget 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 market development. For extrapolating cash flows beyond the budget period, a growth rate of 3 percent is used for
all Cash-Generating Units. This growth rate is thought to be a conservative estimate. An average discount rate after tax in
local currency is then used in the calculations. For a small number of Cash-Generating Units this discount rate has been
adjusted to reflect the specific risks faced by these Units. Overall, the discount rate employed varies between 7.0 and 9.0
percent (HID Global 9.0 percent, Architectural Hardware Group 7.5 percent, Entrance Systems 7.0 percent).

The restructuring currently in progress in the Group is leading to significantly greater harmonization of product develop-
ment, purchasing, manufacturing and selling between the business units. As one effect of this, the Group’s five divisions will
constitute Cash-Generating Units from 2007.

Sensitivity analysis
A sensitivity analysis has been carried out for each Cash-Generating 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 amount, and likewise the recoverable amount for HID Global, Architectural Hardware Group and
Entrance Systems, 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 amount, and likewise the recoverable amount for HID Global, Architectural
Hardware Group and Entrance Systems, would be 6 percent 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 7.0 to 9.0 percent, total recoverable amount, and likewise the recoverable amount for HID
Global, Architectural Hardware Group and Entrance Systems, 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.

67 Notes

Note 16 Tangible assets

2006 SEK M

Opening accumulated acquisition value
Purchases
Acquisitions of subsidiaries
Sales/disposals
Reclassifications
Translation differences

Closing accumulated acquisition value

Opening accumulated
depreciation/impairment
Sales/disposals
Impairment
Depreciation for the year
Translation differences

Closing accumulated
depreciation/impairment

Construction in progress

Book value

Group

Parent
Company

Buildings

Land and land
improvements

Machinery

Equipment

Total

Equipment

3,150
74
24
–85
23
–204

2,982

–1,212
13
–34
–129
80

–1,282

761
2
–
–14
–
–49

700

–24
–
–
–3
3

–24

5,745
316
51
–157
50
–430

5,575

–3,676
134
–70
–460
283

1,688
213
45
–110
44
–116

1,764

–1,084
91
–37
–246
87

11,344
605
120
–366
117
–799

11,021

–5,996
238
–141
–838
453

–3,789

–1,189

–6,284

1,700

676

1,786

575

383

5,120

19
2
–
–4
–
–

–9
1
–
–2
–

–10

The tax value of the Group’s Swedish buildings was SEK 82 M (83).
The tax value of the Group’s Swedish land was SEK 12 M (11).

2005 SEK M

Opening accumulated acquisition value
Purchases
Acquisitions of subsidiaries
Sales/disposals
Reclassifications
Translation differences
Closing accumulated acquisition value

Opening accumulated
depreciation/impairment
Sales/disposals
Reclassifications
Impairment
Depreciation for the year
Translation differences
Closing accumulated
depreciation/impairment

Construction in progress
Book value

Group

Parent
Company

Buildings

Land and land
improvements

Machinery

Equipment

Total Equipment

2,892
88
–
–125
9
286
3,150

–1,051
57
–4
–
–122
–92

–1,212

695
1
–
–9
7
67
761

–16
0
–4
–
–1
–3

–24

4,910
341
31
–106
66
503
5,745

–3,006
66
2
–
–497
–241

1,402
234
20
–99
5
126
1,688

–846
63
5
–1
–244
–61

9,899
664
51
–339
87
982

11,344

–4,919
186
–1
–1
–864
–397

–3,676

–1,084

–5,996

1,938

737

2,069

604

354
5,702

18
5
–
–4
–
–
19

–9
2
–
–
–2
–

–9

ASSA ABLOY
Annual Report 2006

Note 17 Shares in subsidiaries

Company name

ASSA ABLOY EMEA AB
Timelox AB
ASSA ABLOY Entrance Systems AB
Sokymat S.A.
ASSA ABLOY Kredit AB
ASSA ABLOY Identification Technology Group AB
ASSA ABLOY Svensk Fastighets AB
ASSA ABLOY Asia Holding AB
ASSA ABLOY IP AB
ASSA ABLOY OY
ASSA ABLOY Norway a.s.
ASSA ABLOY Denmark A/S
ASSA ABLOY Deutschland GmbH
LIPS Nederland BV
Vema Security 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
ASSA ABLOY Australia Pacific Pty Ltd
ASSA ABLOY South Asia Pte Ltd
Grupo Industrial Phillips, S.A de C.V.
ASSA ABLOY Innovation AB
ASSA ABLOY Hospitality AB
WHAIG Limited
Fleming Door Products, Ltd
AAC Acquisition Inc.
ASSA ABLOY Holding GmbH
ITG (UK) Ltd
ASSA ABLOY Asia Pacific Ltd

Total

Note 18 Shares in associates

2006 Company name

Talleres Agui S.A.
Låsgruppen Wilhelm Nielsen AS
Cerraduras de Colombia Cerracol S.A
Renato Fattorini SRL
Other

Total

2005 Company name

Talleres Agui S.A.
Låsgruppen Wilhelm Nielsen AS
Cerraduras de Colombia Cerracol S.A
Renato Fattorini SRL
Other

Total

Corporate identity number,
Registered office

Number
of shares

% of share
capital

Book value,
SEK M

Parent company

556061-8455 Stockholm
556214-7735 Landskrona
556204-8511 Landskrona
CH-232-0730018-2 Granges
556047-9148 Stockholm
556645-4087 Stockholm
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
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
ACN 095354582 Oakleigh, Victoria
199804395K Singapore
GIP980312169 Mexico
556192-3201 Stockholm
556180-7156 Göteborg
EC21330 Bermuda
147126 Ontario
002098175 Ontario
FN 273601f, A-6175 Kematen
5099094 Haverhill
53451 Hong Kong

70
15,000
1,000
2,500
400
1,000
1,000
1,000
1,000
800,000
150,000
60,500
2
3,515
230
4,000
12,499,999
10,736
1,330,000
13,787,856
100,220
100
100
1
48,190,000
3,400,000
27,036,635
2,500
1,000
100,100
25,846,590
1
1
1
1,000,000

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
98
100
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

14
22
6
47
529
0
0
131
0
631
538
376
1,064
57
31
928
1,582
0
1,705
901
184
0
2,259
13
242
43
765
1
14
303
0
0
15
1
72

12,474

Country of
registration

Spain
Norway
Colombia
Italy

Country of
registration

Spain
Norway
Colombia
Italy

Number of
shares

% of
share capital

Book value
SEK M

4,800
305
182,682
–
–

40
50
29
25
–

17
12
2
2
0

Number of
shares

% of
share capital

Book value
SEK M

4,800
305
182,682
–
–

40
50
29
25
–

17
15
2
2
1

69 Notes

Note 19 Deferred tax on income

Note 23 Derivative financial instruments

Group

2006

2005

SEK M

Deferred tax receivables
Tax-deductible goodwill
Pensions
Other deferred tax receivables
Deferred tax receivables
Deferred tax liabilities
Deferred tax receivables, net

Change in deferred tax during the year
At 1 January
Acquisitions of subsidiaries
Reported in income statement
Reported against equity
Exchange rate differences

At 31 December

533
250
306
1,089
106
983

1,196
–174
12
–
–51

983

696
220
433
1,349
153
1,196

1,243
38
–132
2
45

1,196

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

Note 20 Other long-term financial assets

SEK M

2006

2005

2006

2005

Group

Parent
company

Other shares and
participations
Interest-bearing long-
term receivables
Other long-term
receivables

Total

128

241

171

118

174

–

Other shares and participations are valued at cost. Interest-
bearing long-term receivables and Other long-term receiv-
ables are valued at amortized cost.

Note 21 Inventories

SEK M

Materials and supplies
Work in progress
Finished goods
Paid in advance

Total

Group

2006

1,171
1,207
1,575
73

4,026

2005

1,040
1,149
1,439
51

3,679

SEK 211 M (265) of the inventory value on 31 December 2006
was reported at net realizable value. Direct material costs
during the year amounted to SEK 9,561 M (8,059), of which
SEK 185 M (123) represented write-downs of inventory.

Note 22 Accounts receivable

SEK M

Accounts receivable
Provision for bad debt

Total

Group

2006

5,359
–278

5,081

2005

5,102
–284

4,818

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

Derivatives, positive values (assets)
Interest rate swaps – cash flow hedging
Interest rate swaps – fair value hedging
Interest rate swaps – held for trading
Currency basket options
Currency contracts – held for trading

Derivatives, positive values (assets)

Derivatives, negative values (liabilities)
Interest rate swaps – fair value hedging
Interest rate swaps – held for trading
Currency contracts – held for trading
Derivatives, negative values (liabilities)

Group

2006

2005

–
–
2
10
28

–18
–
–24
–42

1
1
–
7
34

–7
–1
–46
–54

Derivative financial instruments,
net (liability)

–2

–11

Note 24 Cash and cash equivalents

Group

Parent
company

SEK M

2006

2005

2006

2005

Cash and bank balances
Short-term investments
(duration<3 months)

Total

1,115

916

1,154

958

766

767

223

610

833

Short-term interest-bearing investments amounted to
SEK 40 M (52) at year-end, of which SEK 1 M (19) were non-
realizable receivables with a term to maturity of over three
months. These items are not classified as cash and cash
equivalents and are not included in the table above.

Note 25 Borrowings

Group

Parent
company

SEK M

2006

2005

2006

2005

Long-term loans (A)
Convertible debenture
loans, long-term part (A, B)
Long-term loans, total (A)
Convertible debenture
loans, short-term part (B)
Short-term loans (C)
Short-term loans, total
Total

6,010

2,783

1,500

1,252
7,262

943
3,726

–
6,281
6,281

943
6,966
7,909
13,543 11,635

1,252
2,752

–
536
536
3,288

–

943
943

943
3,842
4,785
5,728

Also see the section ‘Financial risk management’ on pages
55–57.

(A) Long-term loans
The Parent company’s long-term loans mature within five
years. The maturities for the Group’s long-term loans,
including the long-term part of convertible debenture
loans, are as follows:

SEK M

Between two and five years
Over five years
Book values

Fair value of long-term loans

Securities pledged against long-term loans:
Real estate mortgages
Chattel mortgages

Total

Group

2006

3,276
3,986
7,262

7,174

47
0

2005

943
2,783
3,726

3,735

70
0

ASSA ABLOY
Annual Report 2006

Note 25
Borrowings, cont.

(B) Convertible debenture loans

Note 26 Parent company’s equity

SEK M

Incentive 2001
Incentive 2004
Incentive 2006

Book value

Group

2006

2005

–
905
347

943
943
–

1,252

1,886

Fair value of convertible debenture loans

1,251

1,886

Incentive 2001 ended on 20 November 2006. No conver-
sion took place.

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.

Incentive 2006 has a variable interest rate equivalent to
0.9*EURIBOR + 45 basis points. Any conversion of Incentive
2006 will take place in a 180-day period between January
and June 2011. Full conversion at a conversion rate of EUR
14.60 for Bond 1, of EUR 15.90 for Bond 2, of EUR 17.30 for
Bond 3 and of EUR 18.60 for Bond 4 will add 2,332,350
shares. The dilution effects with full conversion will
amount to 0.6 percent of share capital and 0.4 percent of
the total number of votes.

Incentive 2006 has been issued at the nominal value of

the convertible bond. The valuation has been based on
Black & Scholes and has been performed by an external
party.

Full conversion of both programs will add a total of
10,114,505 shares and result in dilution effects amounting
to 2.7 percent of share capital and 1.8 percent of the total
number of votes. Incentive 2004 has a value of EUR 100 M
and Incentive 2006 has a value of EUR 38 M.

SEK M

Corporate credit line
Other short-term loans

Book value

Fair value of short-term loans

Group

2006

482
5,799

6,281

6,280

2005

272
6,694

6,966

6,977

Check credits granted to the Group totaled SEK 1,226 M
(1,223), of which SEK 482 M (272) was utilized.

The Parent company’s equity is split between restricted and
unrestricted equity. Restricted equity consists of share capital,
the statutory reserve and the fair value reserve. Restricted
funds must not be reduced by issue of dividends. Unrestric-
ted equity consists of the premium reserve, retained
earnings and the year’s net income.

The statutory reserve contains premiums (amounts
received from share issues that exceed the nominal value
of the shares) relating to shares issued up to 2005.

The premium reserve contains premiums (amounts
received from share issues that exceed the nominal value
of the shares) relating to shares issued from 2006 onwards.
Up to and including 2005 the premium reserve was
classified as restricted equity and contained 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 pre-
mium reserve on 31 December 2005 has been moved to
the statutory reserve. From 1 January 2006 the premium
reserve forms part of unrestricted equity.

Note 27 Share capital, number of shares and

dividend per share

Number of shares (thousands)

Series A

Series B

Total

Share
capital
SEK T

19,175

346,743

365,918

19,175

346,743

365,918

191,753

346,743

538,496

19,175

346,743

365,918

19,175

346,743

365,918

191,753

346,743

538,496

Opening balance
at 1 January 2005

Closing balance at
31 December
2005

Number of votes,
thousands

Opening balance
at 1 January 2006

Closing balance at
31 December
2006

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 outstand-
ing convertible bonds, similarly rounded, was 379,214
thousand (378,718).

Dividend per share
The dividend paid out during the financial year amounted
to a total sum of SEK 1,189 M (951), corresponding to SEK
3.25 (2.60) per share. At the Annual General Meeting on
26 April 2007, a dividend of SEK 3.25 per share for the year
2006 – a total sum of SEK 1,189 M – will be proposed.

71 Notes

Note 28 Reserves

Note 29 Post-employment employee benefits

Group SEK M

Opening balance at 1 January
2005
Effect of changed accounting
principle, IAS 39
Adjusted opening balance at
1 January 2005
Currency translation differences
Cash flow hedging instruments,
fair value
Closing balance at
31 December 2005

Opening balance at 1 January
2006
Currency translation differences
Cash flow hedging instruments,
fair value

Closing balance at
31 December 2006

Translation
reserve

Hedging-
reserve

–479

–

–479
1,539

–

4
–

Total

–479

–475
1,539

–

–3

1,060

1 1,061

1,060
–1,313

1
1,061
– –1,313

–

–1

–253

–

–253

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 trans-
lation 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 differen-
ces arising from the revaluation of liabilities originating
from instruments used to hedge net investment in foreign
operations are also carried to the translation reserve. If a
foreign operation is sold, currency translation differences
are transferred to the income statement.

Post-employment benefits include pensions and medical
benefits. Pension plans are classified as either defined
benefit plans or defined contribution plans. Pension obli-
gations reported in the balance sheet are mainly due to
defined benefit pension plans. ASSA ABLOY has defined
benefit plans in a number of countries, those in the USA
and the UK being the most significant ones. There are also
obligations related to post-retirement medical benefits in
the USA.

Amounts recognized in the income statement

Pension cost SEK M

2006

2005

Defined benefit pension charges (A)
Defined contribution pension charges
Post-employment medical benefit charges
(A)

Total

84
299

413

138
215

384

Amounts recognized in the balance sheet
Pension provisions SEK M

2006

2005

Provisions for defined benefit
pension plans (B)
Provisions for post-employment
medical benefits (B)
Provisions for defined contribution
pension plans
Pension provisions
Financial assets
(defined contribution plans)
Pension provisions, net

808

406

83
1,297

–21
1,276

1,099

461

74
1,634

–22
1,612

A) Specification of amounts recognized in the income statement

Pension cost SEK M
Current service cost
Interest on obligation
Expected return on plan assets
Net actuarial losses (gains)
Past service cost
Losses (gains) on curtailments/settlements

Total
of which, included in
Operating income
Net financial items

Total

Post-employment
medical benefits

Defined benefit
pension plans

Total

2006
7
23
–
–
–
–

7
23

2005
7
23
–
–
1
–

8
23

2006
73
204
–202
1
2
6

82
2

2005
102
204
–183
1
–3
17

138

117
21

138

2006
80
227
–202
1
2
6

114

89
25

114

2005
109
227
–183
1
–2
17

169

125
44

169

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 corridor is recognized as income/expense
over the expected average remaining service period, starting in the year after the actuarial gain or loss arose. Amortization
of actuarial gains/losses that arose in 2006 will start in 2007.

The actual return on plan assets regarding defined benefit plans was SEK 267 M (282) in 2006.
There are no defined benefit plans with surpluses within the Group. Partly funded or unfunded pension plans are

reported as provisions for pensions.

ASSA ABLOY
Annual Report 2006

Note 29
Post-employment
employee benefits, cont.

B) Specification of amounts recognized in the balance sheet

Specification of pension provisions SEK M
Present value of funded obligations (C)
Fair value of plan assets (D)
Net value of funded plans
Present value of unfunded obligations (C)
Unrecognized actuarial gains (losses), net
Unrecognized past service cost

Total

C) Movement in pension obligations

SEK M

Opening obligation
Current service cost
Interest on obligation
Actuarial losses (gains)
Curtailments / settlements
Payments
Currency translation differences

Closing obligation

D) Movement in fair value of plan assets

SEK M

Opening fair value of plan assets
Expected return on plan assets
Actuarial gains (losses)
Curtailments / settlements
Payments
Currency translation differences

Closing fair value of plan assets (E)

E) Plan asset allocation
Plan assets

Shares in ASSA ABLOY AB
Other shares
Debt instruments
Other assets

Total

Post-employment
medical benefits

Defined benefit
pension plans

Total

2006
–
–
–
406
2
–2

406

2005
–
–
–
475
–14
1

462

2006
3,823
–3,133
690
258
–140
–

808

2005
4,166
–3,009
1,157
251
–312
2

1,098

2006
3,823
–3,133
690
664
–138
–2

1,214

2005
4,166
–3,009
1,157
726
–326
3

1,560

Post-employment
medical benefits

2006

2005

475
7
23
–16
–
–25
–58

406

396
7
23
21
–
–51
79

475

Defined benefit
pension plans

Total

2006

4,417
73
204
–120
–68
–144
–281

4,081

2005

3,564
102
204
293
–16
–139
409

4,417

2006

4,892
80
227
–136
–68
–169
–339

4,487

2005

3,960
109
227
314
–16
–190
488

4,892

Defined benefit
pension plans

2006

3,009
202
65
–72
186
–257

3,133

2006

–
2,355
620
158

3,133

2006

5.2%
7.2%
2.1%
2.7%
12.0%
2.8%

2005
4,892
–3,009

1,883

2005

2,243
183
99
–24
162
346

3,009

2005

90
2,377
331
211

3,009

2005

4.7%
7.3%
3.0%
2.3%
15.0%
2.3%

2004
3,960
–2,243

1,717

Key actuarial assumptions (yearly, weighted average)

Discount rate
Expected return on plan assets
Future salary increases
Future pension increases
Future medical benefit increases
Future inflation

As at 31 December
Present value of obligation (+)
Fair value of plan assets (–)

Obligation, net

2006
4,487
–3,133

1,354

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 Emer-
ging Issues Task Force, this is a defined benefit plan that covers many employers. For the 2006 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 accor-
dance with ITP that are guaranteed through insurance with Alecta are therefore reported as defined contribution plans.
The year’s contributions that are contracted to Alecta amount to SEK 11 M (10), of which SEK 4 M (3) relates to the Parent
company. Alecta’s surplus may be distributed to the policy-holders and/or the persons insured. At the end of 2006 Alecta’s
surplus expressed as collective consolidation level amounted to 143.1 percent (128.5). Collective consolidation level con-
sists 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.

73 Notes

Note 30 Other provisions

SEK M

Opening balance at 1 January
Utilized during the year
Currency translation
differences
Closing balance at
31 December 2005

Opening balance at 1 January
Reclassification
Provisions for the year
Acquisitions of subsidiaries
Utilized during the year
Currency translation
differences

Closing balance at
31 December 2006

Balance-sheet breakdown:

Other long-term provisions
Other short-term provisions

Total

Restruc-
turing
reserve

Group

Other

586
–298

344

344
–
1,265
–
–342

–10

93
–5

–

88
91
27
6
–22

–4

Total

679
–303

432

432
91
1,292
6
–364

–14

1,257

186

1,443

Group

2006

2005

Goodwill

751
692

1,443

88
344

432

Note 34 Net debt

SEK M

Long-term interest-bearing receivables
Short-term interest-bearing investments
incl. derivatives
Cash and bank balances
Pension provision
Long-term interest-bearing liabilities
Short-term interest-bearing liabilities
incl. derivatives

Total

Group

2006

–127

–80
–1,115
1,297
7,262

2005

–62

–104
–916
1,634
3,726

6,323

7,963

13,560

12,240

Note 35 Acquisitions

2006 SEK M

Fargo

Other

Total

Cash paid, including direct
acquisition costs
Unpaid parts of purchase prices

Total purchase price
Fair value of acquired net assets

2,486
–

2,486
–939

1,547

Acquired assets and liabilities in accordance
with purchase price allocations
Intangible assets
Tangible assets
Inventories
Receivables
Cash and cash equivalents
Interest-bearing liabilities
Other liabilities

708
30
46
83
313
–
–241

Acquired net assets at fair value

939

1,000
67

1,067
–351

716

120
100
139
160
56
–39
–185

351

3,486
67

3,553
–1,290

2,263

828
130
185
243
369
–39
–426

1,290

Fair value adjustments, intangible
assets
Fair value adjustments, deferred
taxes etc

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 from times of
acquisition
EBIT from times of acquisition
Net income from times of
acquisition

–708

–118

–826

288

519

277

332

796

2,486

1,000

3,486

–313

–56

–369

2,173

944

3,117

306
58

–3

687
84

993
142

Acquired entities had total net sales of SEK 1,580 M in
2006. Fargo Electronics was the largest acquisition in 2006,
while Adams Rite and Baron are the most important
among the other acquisitions.

Fargo Electronics
On 3 August 2006 the Group acquired 100 percent of the
share capital of Fargo Electronics, a world-leading company
in systems for secure issuance of ID cards including card
printers, peripheral equipment and software. The acquisi-
tion will make possible a unique offering of products and
services for secure issuance of identity and authorization
cards. Fargo is the only manufacturer to offer three com-
pletely different printing technologies – High-Definition
Printing™ (reverse image), Direct-to-Card printing (dye-
sublimation) and CardJet Printing™ technology (inkjet) –
to meet the requirements of customers on different mar-
kets. Fargo has a comprehensive patent portfolio that pro-
tects these different technologies. Intangible assets in the
form of technology, brands and customer relationships

The restructuring reserve is concerned chiefly with future
restructuring measures and is expected to be utilized during
the next three years. Other provisions relate to legal obliga-
tions including future environment-related requirements.

Note 31 Other short-term liabilities

SEK M

VAT and excise duty
Employee withholding tax
Advances received
Social security contributions and
other taxes
Other short-term liabilities

Total

Group

2006

2005

204
69
54

30
324

681

145
70
60

55
327

657

Note 32 Accrued expenses and prepaid income

Group

Parent
company

SEK M

2006

2005

2006

2005

Personnel-related
expenses
Customer-related
expenses
Prepaid income
Accrued interest
expenses
Other

1,072

1,023

349
95

67
748

362
94

118
816

–
–

24
20

115

–
–

36
11

Total

2,331

2,413

Note 33 Contingent liabilities

Group

Parent
company

SEK M

2006

2005

2006

2005

Guarantees
Guarantees on behalf of
subsidiaries
Other

Total

837
15

929

120

924

135

125

9,776
–

9,963
–

1,050

9,911 10,088

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 contingent liabilities.

ASSA ABLOY
Annual Report 2006

Note 35
Acquisitions, cont.

have been reported separately. Remaining goodwill lies
mainly in synergies and intangible assets that do not meet
the criteria for separate reporting.

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

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 automatic doors. The com-
pany has a strong position in the customer specification
segment serving architects and construction companies.
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 acquisi-
tion has strengthened ASSA ABLOY’s automatic-door busi-
ness. 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 com-
prehensive distribution network in China and holds a
leading position in its segment. Wangli’s business is loca-
ted 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.

Adams Rite
On 24 March 2006 the Group acquired 100 percent of the
share capital of Adams Rite, a leading American manufac-
turer of locks and fittings for aluminum doors. The acquisi-
tion brings ASSA ABLOY complementary products and new
distribution channels. Adams Rite designs and manufactu-
res mechanical and electromechanical security products.
The company has a strong brand and product range in alu-
minum doors, which are sold through distribution chan-
nels that complement ASSA ABLOY’s existing channels. The
company’s head office is in Pomona, California, where most
of its operations also take place, with a focus on assembly.
In the UK the company is the leading distributor of mecha-
nical and electromechanical security products for com-
mercial aluminum doors. The brand has been reported
separately, while remaining goodwill lies mainly in syner-
gies and intangible assets that do not meet the criteria for
separate reporting.

Baron
On 31 March 2006 the Group acquired 100 percent of the
share capital of Baron Metal Industries Inc, Canada’s
leading manufacturer of steel doors and door frames. The
acquisition gives ASSA ABLOY a broader range of steel
doors and frames. The company has its head office and fac-
tory in Woodbridge, Toronto. The brand has been reported
separately, while remaining goodwill lies mainly in syner-
gies and intangible assets that do not meet the criteria for
separate reporting.

2005 SEK M

Cash paid, including direct acquisition costs
Unpaid parts of purchase prices

Total purchase price
Fair value of acquired net assets

Goodwill

Acquired assets and liabilities in accordance
with purchase price allocations:

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 price settled in cash
Cash and cash equivalents in acquired subsidiaries

Change in Group cash and cash equivalents resulting
from acquisitions

Net sales from times of acquisition
EBIT from times of acquisition
Net income from times of acquisition

Total

393
29

422
–173

249

75
51
82
135
28
–18
–132
–48

173
143

393
–28

365

449
18
5

75 Notes

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

Average number of employees by country and by gender

Women

Men

Total

Group

Total

Parent company

Sweden
Other

Total

Gender-split in senior management

Group

Board of Directors’1
Executive Team

Total

1 Excluding employee representatives.

2006

584
435
268
126
664
83
99
913
484
188
134
239
558
414
113
364
95
2,481
1,808
159
1,635
290
158
461

2005

585
423
205
128
745
65
103
922
465
207
158
267
505
420
105
370
77
2,178
1,791
366
1,366
333
140
272

2006

975
676
405
179
1,004
137
513
1,394
818
261
201
540
345
539
301
383
453
4,110
1,077
533
2,200
724
199
522

2005

923
686
466
144
1,010
136
521
1,386
802
268
212
577
372
507
267
404
322
3,919
1,150
325
1,659
583
300
443

2006

1 559
1,111
673
305
1,668
220
612
2,307
1,302
449
335
779
903
953
414
747
548
6,591
2,885
692
3,835
1,014
357
984

2005

1 508
1,108
672
271
1,755
201
624
2,308
1,268
475
370
844
877
927
372
774
399
6,097
2,941
691
3,025
916
440
715

12,753

12,196

18,489

17,382

31,243

29,578

Women

Men

Total

2006

2005

2006

2005

2006

2005

32
5

30
5

51
8

32
7

83
13

62
12

Women

Men

Total

2006

2005

2006

2005

2006

2005

1
–

7
9

7
7

8
9

8
7

ASSA ABLOY
Annual Report 2006

Note 37 Cash flow

SEK M

Adjustments for non-cash items
Profit on sales of equipment
Change of pension provision
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 analysis:
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
Investments in associates

Investments in associates

Other investments
Investments in / sales of other shares
Investments in / sales of other financial
assets

Other investments

Group

2006

2005

7
2
1

–758
50

–708

–14
–4
–8

–26

–475
20

–455

–526

–108

–487
223

–704

–894
155

–739

–3,091
–130
–185
–199
–34
–14
223
131
85
–339

–3,553
369
67

–5

–3,122

–4

–7

–11

–95
215

–122

–110

–805
138

–667

–324
–51
–82
–79
–56
48
60
42
30
–10

–422
28
29

–19

–384

–13

–3

ASSA ABLOY
Annual Report 2006

Five years in summary

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. 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 Tech-
nologies) was implemented. The Executive Team was redu-
ced from 17 people to seven. A two-year action program
entitled Leverage & Growth was launched towards the end
of the year. The aims of the program 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 Glo-
bal Technologies divisions. Negative exchange-rate effects
continued to decrease reported sales and earnings. The
operating margin rose in response to better sales volumes
and savings from the ongoing action program, while higher
costs for important metals were neutralized by higher sell-
ing prices and changes in the purchasing structure. Opera-
ting cash flow was strong as usual.

During the year ASSA ABLOY refined the Group’s strategy

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

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 foun-
ded on good demand on the important US market. A num-
ber 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. Operating margin
and operating 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 seg-
ments of rather higher market growth such as electro-
mechanical locks, automatic doors, access control systems
and identification technology.

2006
This was a very good year for ASSA ABLOY, with the highest
organic growth in the company’s history and a strong
improvement in profitability. ASSA ABLOY’s strong perfor-
mance was based on good economic growth in the
Group’s most important markets in Europe and North
America together with success in fast-growing segments
such as electromechanical locks, access control, automatic
doors and identification technology. The pace of acquisi-
tion increased with, for example, the acquisition of Fargo
Electronics, a world leader in the fast-growing segment of
secure issuance of cards.

A three-year restructuring program intended to realize
synergies and increase efficiency in the Group’s manufactur-
ing units was launched during the year. The program means
that large parts of production will change their function
from full production to focus mainly on final assembly. Parts
of production will be transferred to low-cost countries,
which will mean the closing of a number of production units.
Total costs of the restructuring program are SEK 1,474 M,
and it is predicted to produce SEK 600 M of annual savings
when the full effect is felt in 2009.

Sales volume growth, acquisitions and the restructuring

measures carried out have contributed to the strong
increase in operating income. During the year the Group has
made a number of price increases to compensate for the
substantial rise in raw-material costs, which have thus had
only a modest negative impact on the operating margin.

Five years in summary

(Amounts in SEK M unless stated otherwise)

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)
Shareholders’ equity per share after dilution
Dividend per share (for 2006, 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 capital employed excl. restructuring items, %
Return on shareholders’ equity, %
Equity ratio, %
Net debt / equity ratio, times
Interest coverage ratio, times
Interest on convertible debenture loan after tax
Number of shares, thousands
Number of shares after dilution, thousands
Average number of employees

2002-2003
have not been
adjusted for IFRS
2002

2003

20041

2005

2006

25,397
2
15
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
3.53
35.85
1.25
99.50

17.9
10.4
7.9
9.9
9.9
9.9
38.2
1.13
3.9
27.2
365,918
370,935
28,754

24,080
0
5
4,249
1,856
1,073
583
9

3,180
–1,827
–1,772
–419
3,265

22,984
14,766
12,290
16
10,678

3.302
3.312
31.23
1.25
85.50

17.6
9.9 2
7.9 2
9.6 2
9.6 2
9.9 2
35.9
1.15
4.7
17.8
365,918
370,935

25,526
5
5
4,606
923
3,683
3,199
2,356

27,802
5
1
4,960
882
4,078
3,556
2,613

3,339
–1,505
–1,734
100
3,4393

3,450
–1,052
–2,325
73
3,7023

23,461
13,917
12,208
27
11,226

6.42
6.33
34.74
2.60
113.50

18.0
14.4
12.5
15.3
15.3
20.0
37.4
1.09
7.6
24.0
365,918
378,718

26,653
15,716
12,240
71
14,342

7.13
6.97
42.85
3.25
125.00

17.8
14.7
12.8
15.9
15.9
18.1
42.8
0.85
8.2
33.1
365,918
378,718
29,578

28,708

29,160

31,137
9
3
5,6693
898
4,7713
2,626
1,756

3,310
–3,871
861
300
3,5283

27,205
16,683
13,560
60
13,585

4.77
7.993
39.13
3.25
149.00

18.23
15.33
8.4
12.1
17.1
11.5
38.4
0.99
5.1
43.6
365,918
376,033
31,243

1 2004 has been adjusted for IFRS – see information about main effects on pages 85–89 of the 2005 Annual Report.
2 Excluding non-recurring items.
3 Excluding restructuring items.

ASSA ABLOY
Annual Report 2006

Quarterly information

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

Sales
Organic growth
Gross income excl. restructuring costs
Gross income / Sales
Operating income before depreciation
(EBITDA) excl. restructuring costs
Gross margin (EBITDA)
Depreciation
Operating income (EBIT) excl.
restructuring costs
Operating margin (EBIT)
Restructuring costs
Operating income (EBIT)
Net financial items
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)
Restructuring costs
Depreciation
Net operating capital expenditure
Change in working capital
Paid and received interest
Non-cash items
Operating cash flow1
Operating cash flow / income before tax2

Q 1
2005

6,269
2%
2,544
40.6%

1,102
17.6%
–212

890
14.2%
–
890
–126
764
12.2%
–205
559

Q 2
2005

6,984
6%
2,860
41.0%

1,243
17.8%
–221

1,022
14.6%
–
1,022
–122
900
12.9%
–243
657

Q 3
2005

7,019
5%
2,851
40.6%

1,317
18.8%
–214

1,103
15.7%
–
1,103
–134
969
13.8%
–263
706

Q 4
2005

Full
year
2005

7,530 27,802
5%
3,039 11,294
40.6%
40.4%

1,298
17.2%
–235

1,063
14.1%
–
1,063
–140
923
12.3%
–232
691

4,960
17.8%
–882

4,078
14.7%
–
4,078
–522
3,556
12.8%
–943
2,613

Q 1
2006

7,653
12%
3,114
40.7%

1,332
17.4%
–222

1,110
14.5%
–
1,110
–145
965
12.6%
–261
704

Q 2
2006

7,689
7%
3,140
40.8%

1,378
17.9%
–227

1,151
15.0%
–520
631
–156
475
6.2%
–178
297

Q 3
2006

7,736
8%
3,118
40.3%

1,464
18.9%
–229

1,235
16.0%
–437
798
–181
617
8.0%
–251
366

Q 4
2006

Full
year
2006

8,059 31,137
9%
3,303 12,676
40.7%
41.0%

1,494
18.5%
–220

1,274
15.8%
–517
757
–188
569
7.1%
–181
388

5,669
18.2%
–898

4,771
15.3%
–1,474
3,297
–671
2,626
8.4%
–870
1,756

558
1

654
3

705
1

691
0

2,608
5

703
1

294
3

364
2

385
3

1,746
10

Q 1
2005
890
–
212
–140
–333
–83
3
549
0.72

Q 2
2005
1,022
–
221
–161
–201
–80
12
813
0.90

Q 3
2005
1,103
–
214
–135
102
–87
–7
1,190
1.23

Q 4
2005
1,063
–
235
–231
322
–205
–34
1,150
1.25

Full
year
2005
4,078
–
882
–667
–110
–455
–26
3,702
1.04

Q 1
2006
1,110
–
222
–180
–492
–114
41
587
0.61

Q 2
2006
631
520
227
–180
–163
–176
–26
833
0.84

Q 3
2006
798
437
229
–151
–241
–131
–22
919
0.87

Q 4
2006
757
517
220
–228
192
–287
17
1,189
1.09

Full
year
2006
3,297
1,474
898
–739
–704
–708
10
3,528
0.86

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

NET DEBT
Long-term interest-bearing receivables
Short-term interest-bearing investments
incl. derivatives
Cash and bank balances
Pension obligations
Long-term interest-bearing liabilities
Short-term interest-bearing liabilities incl.
derivatives
Total

1 Excluding restructuring payments.
2 Income before tax excluding restructuring costs.

Q 1
2006

Q 2
2005

Q 2
2006

Q 4
2005

Q 3
2006

Q 3
2005

Q 1
2005

Q 4
2006

Full
year
2005

Full
year
2006
12,208 12,499 13,860 12,769 12,208 12,240 12,506 13,127 14,785 12,240
–
–3,528
342
957
3,132
1,189
–772
12,499 13,860 12,769 12,240 12,240 12,506 13,127 14,785 13,560 13,560
0.99

–
–1,150
141
257
113
–
110

–
–1,190
42
122
66
–
–131

77
–3,702
298
919
413
951
1,076

–
–1,189
78
229
8
–
–351

–
–833
52
341
255
1,189
–383

–
–919
51
187
2187
–
152

–
–813
59
373
123
951
668

77
–549
56
167
111
–
429

–
–587
161
200
682
–
–190

0.84

0.85

0.95

1.07

0.98

1.03

1.07

0.99

Q1
2005
–37

–171
–896
1,739
6,138

Q2
2005
–40

–249
–881
1,860
8,068

Q3
2005
–36

–147
–945
1,601
7,908

Q4
2005
–62

–104
–916
1,634
3,726

5,726

7,963
12,499 13,860 12,769 12,240

5,102

4,388

Q1
2006
–61

–87
–958
1,657
4,541

Q2
2006
–65

–179
–833
1,337
3,830

Q3
2006
–73

–181
–841
1,329
3,901

Q4
2006
–127

–80
–1,115
1,297
7,262

7,414

9,037 10,650
6,323
12,506 13,127 14,785 13,560

Quarterly information and Definitions

CAPITAL EMPLOYED AND FINANCING
Capital employed
– of which, goodwill
Net debt
Minority interests
Shareholders’ equity
(excl. minority interests)

DATA PER SHARE
SEK
Earnings per share after tax and before
dilution
Earnings per share after tax and dilution
Earnings per share after tax and dilution
excl. restructuring costs
Shareholders’ equity per share after
dilution

NUMBER OF SHARES
Number of shares before dilution,
thousands3
Number of shares after dilution,
thousands3

3 Weighted average.

Q 3
2005

Q 1
2005

Q 2
2005

Q 4
2005
24,675 26,759 26,292 26,653
14,562 15,631 15,519 15,716
12,499 13,860 12,769 12,240
71

Q 1
2006

Q 3
2006

Q 2
2006

Q 4
2006
27,368 26,497 28,645 27,205
15,966 15,572 17,237 16,683
12,506 13,127 14,785 13,560
60

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

14,793 13,311 13,796 13,585

Q 1
2005

1.52
1.49

Q 2
2005

1.79
1.75

Q 3
2005

1.93
1.89

Q 4
2005

1.89
1.84

Full
year
2005

7.13
6.97

Q 1
2006

1.92
1.88

Q 2
2006

0.80
0.80

Q 3
2006

1.00
0.99

Q 4
2006

1.05
1.05

Full
year
2006

4.77
4.72

1.49

1.75

1.89

1.84

6.97

1.88

1.95

2.02

2.14

7.99

36.90

38.84

40.44

42.85

44.03

40.93

42.00

39.13

Mar
2005

Jun
2005

Sep
2005

Dec
2005

Full
year
2005

Mar
2006

Jun
2006

Sep
2006

Dec
2006

Full
year
2006

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

378,718 378,718 378,718 378,718 378,718 378,718 379,154 381,050 378,050 379,214

Definitions of key data terms

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

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 debenture loans, as a
percentage of average shareholders’ equity (excluding
minority interests) after dilution.

Return on capital employed:
Income before tax plus net interest as a percentage of aver-
age 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 debenture loans, divided
by weighted average number of shares after dilution.

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

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 the table on page 80 opposite for the items included in
operating cash flow.

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

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

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

ASSA ABLOY
Annual Report 2006

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 894 M
Retained earnings brought forward: SEK 4,033 M
TOTAL: SEK 4,927 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 3,738 M,
be carried forward to the new financial year.

Wednesday 2 May 2007 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 Monday 7 May 2007.

Stockholm, 13 February 2007

Gustaf Douglas
Chairman

Melker Schörling
Vice Chairman

Carl-Henric Svanberg
Vice Chairman

Johan Molin

President and CEO

Carl Douglas

Per-Olof Eriksson

Lotta Lundén

Sven-Christer Nilsson

Seppo Liimatainen

Employee representative

Mats Persson

Employee representative

Our audit report was issued on 13 February 2007

PricewaterhouseCoopers AB

Peter Nyllinge
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 administration of the
Board of Directors and the President and CEO of ASSA ABLOY AB for the year 2006. (The company’s annual accounts are
presented on pages 30–82 of the printed version of this document.) The Board of Directors and the President and CEO are
responsible for these accounts and the administration 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 adop-
ted 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 assessing 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 Presi-
dent and CEO when preparing the annual accounts and consolidated accounts as well as evaluating the overall presenta-
tion 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 February 13, 2007

PricewaterhouseCoopers AB

Peter Nyllinge
Authorized Public Accountant

84 ASSA ABLOY

Annual Report 2006

The ASSA ABLOY share

Share price movement in 2006
The closing price of ASSA ABLOY’s Series B share at the end
of 2006 was SEK 149.00 (125.00), corresponding to a mar-
ket capitalization of SEK 54,521 M (45,740). The price of
the ASSA ABLOY share thus rose by 19 percent compared
with its closing price at the end of 2005. During the same
period, the all-share index of the Stockholm Stock
Exchange (OMXS) rose by 24 percent. The highest closing
price for the share was SEK 151.00, recorded on 24 April,
and the lowest was SEK 109.00, recorded on 17 July.

Listing and trading
ASSA ABLOY’s Series B share is listed in the Stockholm
Stock Exchange’s Large Cap list for major companies. The
share has been listed on the Stockholm Stock Exchange
since 8 November 1994.

During 2006 a total of 816 million shares (648) were
traded, which is an average of 3.3 million shares (2.6) per
trading day and represents about 229 percent (180) of the
listed shares.

Ownership structure
The number of shareholders at year-end was 26,118
(31,702). Investors outside Sweden accounted for 53 per-
cent (41) of the capital and 36 percent (28) of the votes.
The ten largest shareholders accounted for some 32

percent (37) of the share capital and 54 percent (57) of the
votes. Shareholders with more than 50,000 shares rep-
resented about 2 percent of the total number of share-
holders and accounted for 92 percent of the capital and
95 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 (3.25) – a maximum total amount of SEK 1,189 M
– be paid as a dividend to shareholders for the 2006 finan-
cial year, corresponding to a direct return of 2.2 percent
(2.6) on the Series B share. The aim is that, in the long term,
the dividend should correspond to 33–50 percent of ASSA
ABLOY’s earnings after standard tax of 28 percent, but
always taking into account ASSA ABLOY’s long-term finan-
cial requirements.

Share price movement and trading 1997–2006

Dividend per share 1997–2006

SEK

200
180
160
140
120

100

3.5

2.8

2.1

1.4

0.7

0.0

120,000

90,000

60,000

30,000

Series B share

OMX Stockholm_PI

Shares traded, thousands
(incl. off-floor trading)

Utdelning per aktie, SEK
Dividend per share, SEK
(2006 föreslagen utdelning)
(2006 proposed dividend)

Data per share

SEK/share 1

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

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
Number of shares (thousands) 7

1.23
0.43
0.8
31.6
51.24
52.95
28.69
8.64

7.999
3.254
2.2
64.0
125.00 149.00
126.00 151.00
89.25 109.00
39.13
42.85
295,448 295,448 324,200 356,712 361,730 370,935 370,935 378,718 378,718 376,033

2.003
0.74
0.6
32.6
119.50
140.00
73.21
16.953

3.312
1.25
1.5
33.9
85.50
110.00
67.00
31.23

2.982
1.00
0.7
30.5
151.00
186.00
94.50
35.80

2.73
0.90
0.5
30.9
184.50
206.70
110.50
30.583

6.33
2.60
2.3
42.0
113.50
113.50
84.00
34.74

3.53
1.25
1.3
32.2
99.50
159.50
76.50
35.85

1.76
0.60
0.8
33.5
75.65
92.73
48.07
9.93

6.97
3.25
2.6
47.6

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 1997–2003 have not been adjusted for IFRS.
9 Excluding restructuring costs.

ASSA ABLOY’s 10 largest shareholders

Based on the share register at 31 December 2006.

Owner

Investment AB Latour
SäkI
Melker Schörling AB
Swedbank Robur
Fidelity funds
Harbor Funds Inc
SHB/SPP funds
Wärtsilä Corporation
SEB funds
Alecta
Other owners

Total numbers

Source: SIS Ägarservice AB and VPC AB.

A shares

6,746,425
7,118,818
5,310,080

B shares

Capital, %

Voting rights, %

19,000,000
2,000,000
9,062,136
18,982,858
14,253,042
7,904,700
7,457,231
7,270,350
6,943,074
5,836,195
248,033,125

7.0%
2.5%
3.9%
5.2%
3.9%
2.2%
2.0%
2.0%
1.9%
1.6%
67.8%

16.1%
13.6%
11.5%
3.5%
2.6%
1.5%
1.4%
1.4%
1.3%
1.1%
46.1%

19,175,323

346,742,711

100.0%

Ownership structure (by share capital)

Ownership structure (by votes)

Latour, 7.0%

Säkl, 2.5%

Melker Schörling,
3.9%

Swedbank
Robur, 5.2%

Fidelity
funds, 3.9%

Harbor Funds
Inc, 2.2%

Other Swedish
individuals, 3.8%

Other Swedish
shareholders, 15.5%

Other foreign
shareholders,
31.9%

Latour, 16.1%

Säkl, 13.6%

Melker Schörling,
11.5%

Swedbank
Robur, 3.5%

Fidelity
funds, 2.6%

Harbor Funds Inc, 1.5%

Other Swedish
individuals, 5.6%

Other Swedish
shareholders,
22.9%

Other foreign
shareholders,
46.8%

Share capital

ASSA ABLOY’s share capital at 31 December 2006 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.

Year

Transaction

A shares

C shares

B shares

1989
1994 100:1 split
1994 Bonus issue
1994 Non-cash issue
1996 New share issue
1996 Conversion of C shares into A shares
1997 New share issue
1998 Converted debentures
1999 Converted debentures before split
1999 Bonus issue
1999 4:1 split
1999 New share issue
1999 Converted debentures after split and new issues
2000 Converted debentures
2000 New share issue
2000 Non-cash issue
2001 Converted debentures
2002 New share issue
2002 Converted debentures

Number of shares after dilution

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

1,746,005
2,095,206
3,809,466
4,190,412
4,190,412
4,190,412

16,761,648
18,437,812
18,437,812
18,437,812
19,175,323
19,175,323
19,175,323
19,175,323
19,175,323
19,175,323

20,000

1,428,550
1,714,260

2,000,000

50,417,555
60,501,066
60,501,066
66,541,706
66,885,571
67,179,562

Share capital,
SEK1

2,000,000
2,000,000

53,592,110
64,310,532
64,310,532
70,732,118
71,075,983
71,369,974

268,718,248 285,479,896
295,564,487 314,002,299
295,970,830 314,408,642
301,598,383 320,036,195
313,512,880 332,688,203
333,277,912 352,453,235
334,576,089 353,751,412
344,576,089 363,751,412
346,742,711 365,918,034
356,857,216 376,032,539

86 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 expired in 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 expired in
2002.

In 2001 a convertible debenture amounting to EUR
100 M was issued. The program expired in November 2006
and no conversion took place.

In 2004 it was decided to launch an incentive program,

Incentive 2004. The program amounts to a total of EUR
100 M and is based on four series of convertible bonds, each
series having a par 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 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 crea-
ted. Any conversion of Incentive 2004 will take place in a
90-day period between March and June 2009.

In 2006 it was decided to launch an incentive program

for senior managers, Incentive 2006. The program
amounts to a total of EUR 38.4 M and is based on four series
of convertible bonds, each series having a par value of
EUR 9.6 M. Any conversion of Incentive 2006 will take place
in a 180-day period between December 2010 and June
2011. On full conversion, at a conversion price for Series 1
of EUR 14.60, Series 2 of EUR 15.90, Series 3 of EUR 17.30
and Series 4 of EUR 18.60, an additional 2,332,350 shares
would be created.

Full conversion of both Incentive 2004 and Incentive
2006 would create an additional 10,114,505 shares and
produce dilution effects amounting to 2.7 percent of the
share capital and 1.8 percent of the total number of votes.
Over 2,000 employees in about 15 countries are partici-

pating in the current incentive programs.

Financial analysts who follow ASSA ABLOY

Company

Name

Telephone number

E-mail

ABG Sundal Collier

Bear Stearns International

Carnegie

Cheuvreux

Credit Suisse

Danske Bank

Deutsche Bank

Anders Jegers

Daniel Cunliffe

Anders Idborg

Lars Norrby

+44 20 7905 5631

+44 20 7516 6628

+46 8 676 86 88

+46 8 723 51 76

anders.jegers@abgsc.com

dcunliffe@bear.com

andidb@carnegie.se

lnorrby@cheuvreux.com

Patrick Marshall

+44 20 7888 0289

patrick.marshall@credit-suisse.com

Henrik Breum

+45 33 44 09 04

hbre@danskebank.com

Johan Wettergren

+46 8 463 55 18

johan.wettergren@db.com

Dresdner Kleinwort Wasserstein

Colin Grant

Goldman Sachs

Handelsbanken Capital Markets

HQ Bank

HSBC

JP Morgan

Kaupthing Bank

Lehman Brothers

Merrill Lynch

Morgan Stanley

SEB Enskilda

Société Générale

S&P Equity Research

Swedbank Markets

UBS

James Moore

Peder Frölén

Patric Lindqvist

Colin Gibson

Nick Paton

+44 20 7475 9161

+44 20 7774 1515

+46 8 701 12 51

+46 8 696 20 84

+44 20 7991 6592

+44 20 7325 5044

colin.grant@dkib.com

james.moore@gs.com

pefr15@handelsbanken.se

patric.lindqvist@hq.se

colin.gibson@hsbcib.com

nicholas.j.paton@jpmorgan.com

John Hernander

+46 8 791 48 56

john.hernander@kaupthing.com

Brian Hall

Ben Maslen

+44 20 7102 4726

+44 20 7996 4783

brhall@lehman.com

ben_maslen@ml.com

Gustaf Lindskog

+44 20 7425 2057

gustaf.lindskog@morganstanley.com

Julian Beer

Gaël de Bray

Lars Glemstedt

Niclas Höglund

Olof Cederlund

+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

julian.beer@enskilda.se

gael.de-bray@sgcib.com

lars_glemstedt@sandp.com

niclas.hoglund@swedbank.se

olof.cederholm@ubs.com

ASSA ABLOY
Annual Report 2006

Information for shareholders

Annual General Meeting
The Annual General Meeting of ASSA ABLOY will be held at
the Modern Museum (Moderna Museet), Skeppsholmen,
Stockholm at 15.00 on Thursday 26 April 2007. Sharehold-
ers wishing to attend the Annual General Meeting should:
• be registered in the share register kept by VPC AB no

later than Friday 20 April 2007

• notify ASSA ABLOY AB of their intention to attend by

16.00 on Friday 20 April 2007.

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 Friday
20 April 2007 at the latest, that their holdings be tempora-
rily 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
20 April 2007 via:
• Website www.assaabloy.com
• E-post
• Post

E-mail 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 corpo-
rate 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 simi-

lar authority). Documents must not be more than one year
old. To ensure admission to the Annual General Meeting,
forms of proxy and proofs of registration should reach the
company at the above address by 20 April 2007 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, questions of
remuneration and associated matters. The members of the
Nomination Committee prior to the 2007 Annual General
Meeting are Melker Schörling (Melker Schörling AB), Chair-
man , Gustaf Douglas (Investment AB Latour and SäkI),
Staffan Grefbäck (Alecta) and Marianne Nilsson (Swedbank
Robur).

Dividend
Wednesday 2 May 2007 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
Monday 7 May 2007.

www.assaabloy.com

Reports can be ordered from:
• Website
• Telephone +46 8 506 485 00
+46 8 506 485 85
• Fax
ASSA ABLOY AB
• Post
Box 70340
SE-107 23 Stockholm, Sweden

Future financial reports
First quarter: 25 April 2007
Second quarter: 9 August 2007
Third quarter: 8 November 2007
Fourth quarter and Year-end Report: February 2008
2006 Annual Report: March 2008

Production: ASSA ABLOY in partnership with n3prenör. English editing: Marcom International.
Photography: Getty Images, Craig Bartlett, Fronter Chan, Ulf Huett, Peter Westerup and others. Printing: Ljungbergs tryckeri AB, Klippan.

ASSA ABLOY is the global
leader in door opening solutions,
dedicated to satisfying
end-user needs for security,
safety and convenience.