ASSA ABLOY
Annual Report 2009

Plain-text annual report

Annual Report 2009 The global leader in door opening solutions Contents ASSA ABLOY in brief Vision, financial targets and strategy Statement by the President and CEO Market presence Product leadership Cost-efficiency Growth and profitability EMEA division Americas division Asia Pacific division Global Technologies division Entrance Systems division Employees Sustainable development Report of the Board of Directors Significant risks and risk management Sales and earnings Income statement – Group and Statement of comprehensive income Comments by division Results by division Financial position Balance sheet – Group Cash flow Cash flow statement – Group Changes in equity – Group Parent company financial statements Notes Comments on five years in summary Five years in summary Quarterly information Definitions of key data terms Proposed distribution of earnings Audit report Corporate governance report Board of Directors The Executive Team The ASSA ABLOY share Information for shareholders Glossary Report on operations Divisions CSR Financial reports Corporate governance report Shareholder information 1 4 8 18 26 30 34 36 38 40 44 46 48 54 57 60 61 62 63 64 65 66 67 68 70 72 100 101 102 103 104 105 106 110 112 116 120 Cover photograph: ASSA ABLOY’s Hi-O solution at the Gothenburg Opera House The Gothenburg Opera House was the first ASSA ABLOY customer to have a Hi-O door installed. Hi-O stands for Highly Intelligent Opening and is a new technology based on an established open standard for managing electrome- chanical door products. Detailed information on the door’s status is centrally logged. Simple installation and the facility to connect the whole door environment to the building’s IP network provide better security and simpler mainte- nance procedures. Annual Report online ASSA ABLOY's Annual Report online has many user-friendly features. You can get texts read aloud to you and financial tables can be expanded and downloaded in Excel. All information in the Report can be found easily through the navigation menu or by using the search function. The Annual Report is available online at: www.assaabloy.com/annualreport2009 ASSA ABLOY in brief ASSA ABLOY’s divisions ASSA ABLOY is the global leader in door opening solutions, dedicated to satisfying end-user needs for security, safety and convenience. Division ASSA ABLOY is represented all over the world, on both mature and emerging markets, with leading positions in much of Europe and North America and in Australia. In the fast-growing electromechanical security segment, the Group has a leading position in areas such as access control, identification technology, door automation and hotel security. Since its founding in 1994, ASSA ABLOY has grown from a regional company to an inter- national group with 29,000 employees and sales of around SEK 35 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. 2009 in brief • • • • • Sales increased by 0 percent to SEK 34,963³ M (34,829³). Operating income (EBIT) amounted to SEK 5,413¹ M (5,526¹). Earnings per share after full dilution amounted to SEK 9.22¹ (9.21¹). Operating cash flow tially to SEK 6,843 M (4,769). The two successful restructuring pro- grams launched in 2006 and 2008 were followed by a new program launched in Q4 2009. This program entails the 4 increased substan- closure of eleven production units and the conversion of four units to final assembly at a total cost of SEK 930 M. These programs secure continued efficiencies in the Group. Substantial investments were made in product development, which will make a positive contribution to sales. Eight companies were acquired during the year, bringing in annual sales of around SEK 1,175 M. • • Americas The division manufactures and sells locks, cylinders, elec- tromechanical products, security doors and fittings on the American continents. Most sales take place in the USA, Canada and Mexico. South America is growing in signifi- cance, with Brazil as the most important market. Some of the division’s leading brands are Ceco, Corbin Russwin, Curries, Emtek, Medeco, Phillips, SARGENT and La Fonte. The division has 6,900 employees and divisional manage- ment is based in New Haven, Connecticut, USA. Americas’ share of Group total Sales Operating income (EBIT) 28% 33% Division Global Technologies Key data Sales, SEK M of which: Organic growth, % Acquired growth, % Exchange-rate 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 Earnings per share after tax and dilution, SEK/share Equity per share after dilution, SEK /share Dividend, SEK/share Number of shares after dilution, thousands 2007³ 33,550 7 5 –4 5,458 16.3 4,609 4,808 18.4 2007 9.02 46.76 3.60 2008³ 34,829 0 4 0 5,526¹ 15.9¹ 4,756¹ 4,769 17.2¹ 2009³ 34,963 –12 3 9 5,413¹ 15.5¹ 4,779¹ 6,843 16.2¹ Change +0% Division Entrance Systems –2% +0% +43% Omsättning och rörelseresultat 2008 2009 Change Sales and Operating income +0% 9.21¹ 55.91 3.60 9.22¹ 54.76 3.60² 380,713 380,713 372,931 1 Excluding items affecting comparability. 2As proposed by the Board of Directors 3Figures for 2008 and 2009 are affected by reclassification. For more information see Note 34. Figures for 2007 are not affected by reclassification. 4Excluding payments related to restructuring. R D I C ECOL A B E L 123 O N 341 R P R I N TED M A T T E Sales SEK M 36,000 30,000 24,000 18,000 12,000 6,000 0 Operating income SEK M 6,000  Sales1 Operating income2 5,000 4,000 3,000 2,000 1,000 0 05 06 07 08 09 ¹ Figures for 2008 and 2009 are affected by reclassification. For more information see Note 34. ² Excluding items affecting com- parability, 2006, 2008 and 2009. 1 Exklusive jämförelsestörande poster 2006, 2008 och 2009. 2 Omklassificering har skett av 2008 Division Division Division EMEA Division Asia Pacific The division manufactures and sells locks, cylinders, electro- mechanical products, security doors and fittings in Europe, the Middle East and Africa (EMEA). Most sales take place in Western Europe, but emerging markets in Eastern Europe and the Middle East are gaining in importance. Some of the division’s leading brands are ABLOY, ASSA, IKON, TESA, Yale, Mul-T-Lock and Vachette. The division has 10,100 employ- ees and divisional management is based in London, United Kingdom. The division manufactures and sells locks, cylinders, elec- tromechanical products, security doors and fittings in Asia and Oceania. Australia and New Zealand account for around half of the division’s sales, while China and the rest of Asia accounts for the other half. China is also an important coun- try of production. Some of the division’s leading brands are Baodean, Beijing Tianming, Guli, Interlock, iRevo, Lockwood, Shenfei and Wangli. The division has 7,600 employees and divisional management is based in Hong Kong, China. EMEA’s share of Group total Asia Pacific’s share of Group total Sales Operating income (EBIT) 38% 36% Sales 10% Operating income (EBIT) 8% This global division manufactures and sells products for electronic access management, secure card issuance, identification technology and electronic lock products for hotels. The division consists of two business units, HID Global and ASSA ABLOY Hospitality, which sell their pro- ducts worldwide. Leading brands are HID, Fargo, Elsafe and VingCard. The division has 2,400 employees and divisional management is based in Stockholm, Sweden. This global division manufactures and sells automatic entrance solutions and service. The products are sold under the brand names Besam, Ditec Entrematic and EM Entre- matic. The division has sales and its own service operations worldwide. Entrance Systems has 2,300 employees and divi- sional management is based in Landskrona, Sweden. Global Technologies’ share of Group total Sales Operating income (EBIT) 13% 13% Entrance Systems’ share of Group total Sales Operating income (EBIT) 11% 10% Operativt kassaflöde och resultat före skatt Vinst per aktie efter skatt och utspädning Income before tax and Operating cash flow Earnings per share¹ after tax and full dilution SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  Income before tax1  Operating cash flow 05 06 07 08 09 ¹ Excluding items affecting 1 Exklusive omstrukturering comparability, 2006, 2008 2006 och jämförelsestörande and 2009. poster 2008. SEK 10 8 6 4 2 0 05 06 07 08 09 ¹ Excluding items affecting 1 Exklusive omstrukturering comparability, 2006, 2008 2006 och jämförelsestörande and 2009. poster 2008. creating opportunities for growth and profitability today ASSA ABLOY is the leading global supplier of lock and security solutions. products from ASSA ABLOY account for more than one in ten of all lock and security installations worldwide. the strategy to further strengthen the group’s position is divided into three areas: A world-leading market presence is achieved by exploiting the strength of the brand portfolio, increasing growth in the core business and expanding into new markets and segments. ASSA ABLOY has many of the industry’s strongest brands. the sales teams on the local markets are united under the ASSA ABLOY master brand to better meet the rising demand for more complete security solu- tions. collaboration with architects, security consultants and major end-users on the specification and project market is being intensified. the group is expanding into new geographical markets through the development of distribution chan- nels, with customized product offerings and through acquisitions. the group’s product leadership is achieved through the continuous development of products offering enhanced customer value and lower product costs. A key activity for achieving this is the use of common product platforms with fewer components. new products are also being developed in close collabo- ration with ASSA ABLOY’s end-users and distributors to enhance customer value. the product development process has been streamlined by implementing a clearly defined common development process and by separating the mainte- nance and improvement of existing products from new development. efforts to increase cost-efficiency continue in all areas, including common product platforms with fewer components and common product development. in production, flexible final assembly close to the customer is combined with the transfer of high-volume standard production to external and internal production units in low-cost countries. the implementation of Lean methods continues, and is leading to more efficient production flows, better control of material costs, improved decision-making procedures, shorter development times and increased cooperation between marketing and sales teams. ASSA ABLOY creates opportunities for increased growth and profit- ability through a strong focus on the strategy’s three areas of market presence, product leadership and cost-efficiency. ASSA ABLOY AnnuAL repOrt 2009 ViSiOn, FinAnciAL tArgetS And StrAtegY 1 Vision • • to be the world-leading, most successful and most innovative provider of total door opening solutions, to lead in innovation and offer well-designed, convenient, safe and secure solutions that create added value for our customers, and • to offer an attractive company to our employees. Financial targets • 10 percent annual growth through a combination of organic and acquired growth. • An operating margin of 16–17 percent. the financial targets are long-term goals and should be considered as an average over a business cycle. 2 ViSiOn, FinAnciAL tArgetS And StrAtegY ASSA ABLOY AnnuAL repOrt 2009 Strategy the group’s overall focus is to spearhead the trend towards higher security with a product-driven offering centered on the customer. the primary product areas are the traditional segments of mechanical locks and security doors, as well as the fast-growing segments of electromechanical and electronic locks, access control, identification technology and automatic doors. ASSA ABLOY’s strong development is based on long-term structural growth in demand on the group’s key markets in europe and north America, an increasing demand on new markets, and successes in the fast-growing product segments. the strategic action plans have been divided into three focus areas: market presence, product leadership and cost-efficiency. Strategy product leadership pages 18–25 goal growth and profitability pages 30–33 cost- efficiency pages 26–29 Market presence pages 8–17 ASSA ABLOY AnnuAL repOrt 2009 ViSiOn, FinAnciAL tArgetS And StrAtegY 3 Statement by the president and ceO A challenging year with very good results Although the general economic climate in 2009 was the most challenging in the group’s history, i can proudly report that we succeeded in strengthening our market position and maintained high earnings and margins. cash flow reached an all-time high and our financial position was robust. this was the result of strong measures at all levels in the group. Meanwhile investments in product development and mar- ket presence continued at a high level. As a result of this we finished the year as an even stronger and more efficient company. Acquisition activity was resumed in the latter part of the year and a total of eight acquisitions were completed. Sales for 2009 increased to SeK 34,963 M (34,829). Operating income ex cluding restructuring and non- recurring costs fell by 2 percent to SeK 5,413 M (5,526), equivalent to an operating margin of 15.5 percent (15.9). Strategic action plans ASSA ABLOY’s strategic action plan is divided into the areas market presence, product leadership and cost-efficiency. We operate in an industry that is under consolidation, and increased presence on existing and new markets is therefore crucial for the Group’s position as market leader. Organic growth is the single most important driving force and requires a strong product leadership. At the same time con- tinuous efforts to increase cost-efficiency are required to create value. We create the opportunities for future growth and continued high profitability by combining enhanced market presence, strong product leadership and cost- efficiency. Market presence The Group’s sales force has in recent years been united under the ASSA ABLOY master brand to allow more effi- cient market development. About 70 percent of the Group’s products are sold ‘double-branded’, with the local brand and the ASSA ABLOY master brand in combination. The remaining 30 percent of products are sold under their own global brands. Clear market segmentation of the sales organization is fundamental for continued growth in the core business. The successful expansion of the marketing and sales organiza- tion continued, with increased focus on specifiers, architects and the fast-growing area of electromechanical door open- ing solutions. The Group is deliberately focusing on increasing its presence on the emerging markets in Asia, Eastern Europe, the Middle East, Africa and South America. These markets accounted for nearly 17 percent of total Group sales in 2009, compared with 9 percent five years ago. The 18 percent mark was passed towards the end of the year as Asian mar- kets showed good growth again, while North American sales continued to decline and European sales were stable. Acquisitions are an important part of the Group’s devel- opment, complementing the product range, providing new technology and increasing the Group’s geographical market presence. As a result of the financial crisis and the uncertain eco- nomic situation in early 2009, acquisition activities were stopped and only running projects were completed. As the year progressed with a stabilizing sales trend on a number of important markets and a strengthened balance sheet, acqui- sition activities were resumed. A total of eight acquisitions with annualized sales of around SEK 1,175 M were completed. Major acquisitions included Maiman, USA, Ditec, Italy, Portsystem 2000, Sweden and Cerracol, South America. Product leadership Successful product development is the single most impor- tant source for organic growth. ASSA ABLOY’s overall target is to continuously develop products with increased cus- tomer benefits and lower costs. A key activity for achieving this is by using common prod- uct platforms with fewer components. New products are also developed in close collaboration with ASSA ABLOY’s end-users and distributors to generate customer value. The product development process has been streamlined by implementing a clearly defined common development process and by separating the maintenance and improve- ment of existing products from new product development. Customers are increasingly demanding more advanced lock and door products and the technical level is con- stantly rising. Meanwhile electromechanical door opening solutions are growing considerably faster than traditional mechanical products. Global common product platforms, which are adapted to the local markets, have therefore become increasingly important. These platforms are developed by the Group product development function, Shared Technologies, and through collaboration within and between divisions. Cost-efficiency Cost-efficiency affects the production structure, product costs and administrative flow in the Group. The process of change in the production structure began with the restructuring programs launched in 2006 and 2008. These have been very successful, resulting in large savings and increased efficiency in the Group’s production units. At year-end these programs had resulted in the clo- sure of 36 production units, while an additional large num- ber of units had switched to mainly final assembly. As a result of this restructuring 4,631 employees have left the Group. Another four units are set to close in 2010 on the comple- tion of these programs. One consequence is that an increas- ing volume of standard production has been transferred to internal and external suppliers in low-cost countries. The production process has been improved, while local 4 StAteMent BY the preSident And ceO ASSA ABLOY AnnuAL repOrt 2009 » Future shareholder value is based on organic and acquired growth as well as continued rationalization and synergies in the Group « – Johan Molin, President and CEO presence on end-customer markets ensures fast delivery and efficient assembly of customized products. The year saw two minor acquisitions in the Czech Republic and South Africa. These two restructuring programs were followed by a new program launched in Q4 2009. In this program 11 pro- duction units will be closed and four will be converted to assembly. In addition, 11 primarily administrative units will close. The total cost is SEK 930 M and the program will result in a reduction of 1,200 employees in high-cost countries. In parallel with the reorganization of production in high- cost countries, it is very satisfying to see that ASSA ABLOY has maintained a rapid expansion of the production base in low-cost countries. More than 40 percent of the Group’s total employees are now employed in low-cost countries. In product development, the Group works with common product platforms with fewer components and common product development. With regard to the Group’s administrative flow, efforts are now focused on automated and standardized solutions, also known as Seamless Flows. Manual work is to be reduced, and in many cases eliminated, creating a seamless flow from the customer through the company’s various processes to the suppliers. Cost reductions and increased efficiency and quality will be immediate as these solutions are implemented. Development of the divisions EMEA division The EMEA division began the year with a weak sales trend, due to the downturn in the housing market and the com- mercial construction market. The situation stabilized in the second half of the year and several markets returned to positive growth at the end of the year. The division reported organic growth of –12 percent (–2). EMEA worked actively to increase the division’s market presence through development of the specification and project market, expansion into new markets and segments, and acquisition growth. Specification of total door opening solutions is increas- ingly important for sales, and the number of specification sales representatives has therefore been increased substan- tially and the close collaboration with architects and secu- rity consultants further strengthened. The 2006 and 2008 restructuring programs are now near- ing completion and the new program launched in 2009 is mainly related to EMEA. Their successful results were clearly seen in the strong operating income and operating margin for the year despite the 12 percent organic sales decline. Americas division The Americas division reported organic growth of –19 per- cent (4) for the year. Demand in the non-residential and the residential segment was strongly down throughout the year, with a particularly sharp fall in the demand for security doors. However, most of the Latin American markets per- formed better during the year, especially Brazil. Structural and capacity adjustments helped maintain the operating margin at a very strong level. Americas continued to focus on the commercial mar- ket during the year through increased efforts by its own specification consultants and a common, segmented sales organization. By focusing on the early design phases in new construction and renovation projects in the non-residential market segment the division was able to influence current and future construction projects. This was very success- ful and led to increased market shares and stronger mar- ket positions. A number of new products, mainly electro- mechanical and environmentally sensitive solutions, were launched. Structural measures and Lean methods continued suc- cessfully. The year saw the acquisition of the North American door manufacturer Maiman and the South American com- pany Cerracol, the market leader on the Central American lock market. Asia Pacific division The Asia Pacific division reported organic growth of –1 per- cent (0) for the year. The initial negative sales trend reversed in the second half and the year finished with positive growth on all markets. Growth in China was particularly strong. Export sales to the Group’s units in North America and West- ern Europe also improved towards the end of the year. The operating margin improved thanks to efficiency pro- grams which continued at a good pace. Asia Pacific is working actively on a number of initia- tives to increase the division’s market presence. Some of the key initiatives are development of the specification and project market, expansion into new markets and segments, and acquisitions. No acquisitions were completed during the year, but an agreement was signed to acquire Pan Pan, China’s largest manufacturer of security doors. ASSA ABLOY AnnuAL repOrt 2009 StAteMent BY the preSident And ceO 5 Statement by the president and ceO The year saw two major acquisitions, Ditec, Italy, and Port- system 2000, Sweden, and two minor acquisitions in the USA and New Zealand. Future development The Group is well positioned for long-term sustainable growth due to our position as market leader with a global presence. Our focus on the non-residential segment, the high proportion of aftermarket sales and the increasing share of fast-growing electromechanical and electronic products contributes to stability in growth and earnings. Market situation The global economy weakened gradually in 2008 and accel- erated in 2009. Towards the end of the year the market situ- ation stabilized in Europe, Asia returned to growth, while North America remained weak. In 2010 the organic growth is expected to be about 0 percent. This is mainly because the turnaround on the US market is expected to take at least another six months. Our focus will therefore be on selective growth initiatives where we see market opportunities and continued cost control where the market is weak. Major efforts by employees Finally I should like to thank all our employees who contrib- uted to the Group’s successes during the year, and I look forward to our continued joint efforts to make ASSA ABLOY even more successful. Since its formation in 1994, ASSA ABLOY has gone through several distinct stages of development and estab- lished a global leadership position. Much has been accom- plished, but many key markets and product areas remain to be consolidated. We have never had a better product range, higher market penetration or more innovative new products than today. The continued demand for safety and security, along with continued population growth and urbanization, ensures that there is an underlying structural demand for the Group’s products, which will increase over time. Combined with the restructuring measures currently under implemen- tation, this means that we have excellent long-term oppor- tunities for continued growth and good profitability. Stockholm, 12 February 2010 Johan Molin President and CEO Global Technologies division The Global Technologies division reported organic growth of –12 percent (0) for the year, but the operating margin increased as a result of implemented restructuring mea- sures. The HID Global business unit was impacted by the downturn on the North American market, but growth stabi- lized towards the end of the year. The ASSA ABLOY Hospital- ity business unit reported negative growth throughout the year, driven by a substantial downturn in the hotel industry affecting both new construction and major renovations. HID Global continued its long-term investments in mar- ket presence and sales despite the adverse business climate in 2009. One important priority for HID Global is the global launch of ‘HID on the Desktop’, a series of logical access solu- tions that help to increase utilization of existing investments in physical access. In recent years demand for Hospitality’s RFID technol- ogy has increased and this now accounts for a significant percentage of the electronic locks produced. RFID technol- ogy offers higher security and when combined with ZigBee wireless technology provides a very reliable and cost-effi- cient security system, improving efficiency and reducing maintenance costs for hotels. Nearly 50,000 rooms are now equipped with VingCard’s VisiOnline wireless system. Entrance Systems division The Entrance Systems division reported organic growth of –3 percent (3), but the operating margin improved as a result of implemented restructuring measures and stan- dardization of the product range. The sales trend was very stable during the year. New product sales fell, but were mostly offset by positive service sales-growth. During the year Entrance Systems continued to expand its customer offering by selling total automatic entrance solutions, including a comprehensive service concept. Regular preventive maintenance is beneficial for custom- ers, and ongoing contact with these end-customers also enhances opportunities for additional sales. Great impor- tance is attached to the sales training of service engineers to take advantage of their daily contact with customers. In the service organization the division worked on increasing efficiency, further automating processes and increasing the number of customer visits. Several important projects to transfer component pur- chases and production capacity to low-cost countries were completed during the year and new projects were initiated to further reduce product costs. God utveckling av vinst per aktie Good development of earnings per share SEK 10 9 8 7 6 5 4 3 2 1 0 96 97 98 99 00 01 02 03 04 05 06 07 08 09 6 StAteMent BY the preSident And ceO ASSA ABLOY AnnuAL repOrt 2009 ASSA ABLOY’s Executive Team Seated, left to right: tomas eliasson, chief Financial Officer (cFO); thanasis Molokotos, head of Americas division; Johan Molin, president and ceO and head of global technologies division; tzachi Wiesenfeld, head of eMeA division. Standing, left to right: Juan Vargues, head of entrance Systems division; Jonas persson, head of Asia pacific division; ulf Södergren, chief technology Officer (ctO); denis hébert, head of the hid global business unit; tim Shea, head of the ASSA ABLOY hospitality business unit. A world-leading market presence is achieved by exploiting the strength of the brand portfolio, increasing growth in the core business and expanding into new markets and segments. Market presence Market presence three main approaches to enhancing market presence A world-leading market presence is achieved by exploiting the strength of the brand portfolio, increasing growth in the core business and expanding into new markets and segments. » ASSA ABLOY has its own operations in 50 countries and sales all over the world « THE MARKET The security market Today ASSA ABLOY is the world-leading supplier of total door opening solutions. As the Group has grown, its prod- uct portfolio has expanded and evolved to cover the widely varying needs of, for example, airports, schools, hospitals, offices and homes. Growth in the security market is mainly fueled by increasing prosperity, urbanization and a general trend toward higher security. The underlying trends and growing uncertainty in the world put security high on the agenda, driving the development of increasingly advanced solutions and upgrades of existing security systems. The total security market consists primarily of security services and electronic and mechanical security products. ASSA ABLOY estimates the total security market to be worth around EUR 200 billion. The Group has focused its opera- tions on electronic and mechanical security products as well as security doors. The segment in which the Group is active accounts for around 15 percent of the total market. ASSA ABLOY has a global market share of over 10 percent of that segment but with large variations between different markets. Mechanical and electronic security products In addition to locks, the mechanical security product range mainly includes door closers, emergency exit devices and window hardware. ASSA ABLOY is also a major manufac- turer of security doors and door hardware. Development in mechanical security products is mainly driven by reno- vations and replacements of old locks in existing windows and doors, as well as new construction. The market is grow- ing in pace with each country’s GDP, averaged over an eco- nomic cycle, and is relatively stable for ASSA ABLOY. This is due to the fact that the large aftermarket makes this market less sensitive to cyclical fluctuations, and to the fact that ASSA ABLOY’s operations are spread across a large number of countries with different economic cycles. ASSA ABLOY’s range of electronic security products includes electronic cylinders, automatic doors, secure identifica- tion and various access control products, some of which use radio-frequency identification (RFID). Electronic products generally offer high functionality and high security, mak- ing them ideal for commercial applications. Focused prod- uct development in this area is constantly expanding the applications for ASSA ABLOY’s electromechanical products. Annual growth in the market for electronic security prod- ucts is estimated to be two to three times as great as for mechanical security products. This is partly due to the fact that today only 3–4 percent of all doors are electromechani- cal, but the percentage is steadily rising. Electronic products account for around one-third of Group sales, and that share is increasing every year. Customer segments ASSA ABLOY’s main customer segment is the non-residential segment comprising institutional and commercial custom- ers, which accounts for around 75 percent of sales, while the residential segment accounts for about 25 percent. Major customers – the institutional and commercial market This segment consists of institutional and commercial cus- tomers such as universities, hospitals, offices, airports and shopping malls, through which a large number of people pass daily. ASSA ABLOY usually has primary contact with the customer’s head of security, a person well acquainted with security needs who actively participates in the planning of security solutions. Such projects often have long lead times and are based principally on customized solutions. Distri- bution and installation are largely handled by installers and locksmiths. Small and medium-sized customers This segment is characterized by the customer’s need for professional advice and installation, which is primarily met by specialized distributors and installers such as locksmiths. 10 MArket preSence ASSA ABLOY AnnuAL repOrt 2009 Sales by region 2009 35 % –15 % Share of Group sales in local currencies 2009, % change relative to the previous year, % 46 % –7 % 10 % +7 % 2 % –10 % Increased sales on emerging markets 2 % +5 % 5 % –7 % 2004 2009 Emerging markets, 9% Mature markets, 91% ASSA ABLOY AnnuAL repOrt 2009 Emerging markets, 17% Mature markets, 83% MArket preSence 11 Market presence ASSA ABLOY works actively to train distributors and to develop more standardized solutions for small and medium- sized companies such as stores and offices. tions were equally large in Europe and in the USA the total market would roughly double. This represents considerable potential for ASSA ABLOY. The consumer market The majority of sales are replacements or upgrades of exist- ing security products. Private customers have a great need for advice and installation assistance. ASSA ABLOY has devel- oped a number of home security concepts to meet con- sumer needs. In some geographical markets, ASSA ABLOY also works with door and window manufacturers or special- ized distribution channels such as DIY stores and locksmiths. Distribution channels Today’s market is characterized by products mainly reaching the end-customer through a variety of distribution chan- nels, notably locksmiths, building and lock wholesalers, door and window manufacturers and security system integrators. Differences between markets North Americans spend more than twice as much on emer- gency exit devices as Europeans. Conversely, northern Euro- peans spend three to four times as much on high-security locks for their homes as North Americans. Automatic doors are also much more common in Europe than in the USA. Electromechanical products are considerably more preva- lent in the non-residential segment than in the residential segment. If the demands for security and evacuation solu- Globally, the lock market is still fragmented. However, the market in each country is relatively consolidated, as compa- nies in the industrialized world are often still family-owned and leaders on their home markets. They are well-estab- lished and have strong ties with local distributors. In less- developed countries, however, established lock standards and brands are less common. Competition Although some consolidation has taken place over the past ten years, the security industry is still fragmented in a global perspective. Some countries have one strong manufacturer with a large share of the local market. These companies often focus on their domestic market and have limited inter- national operations. ASSA ABLOY is the global market leader; its main com- petitors are four other major players, which operate in part in ASSA ABLOY’s segment: Ingersoll-Rand, Stanley Black & Decker, Dorma, and Kaba. Two of these are based in the USA and two in Europe. All these competitors are strongest on their home markets as well as having a presence on some other markets, although none of them has international market penetration comparable with ASSA ABLOY’s. The Asian market is still very fragmented; even the largest manu- facturers have modest market shares. » North Americans spend more than twice as much on emergency exit devices as Europeans. Conversely, northern Europeans spend three to four times as much on high-security locks for their homes as North Americans. Automatic doors are also much more common in Europe than in the USA. « Hela säkerhetsmarknaden Omsättning per produktgrupp The total security market ASSA ABLOY’s sales by product group  ASSA ABLOY’s product areas, 15%  Security guards & other, 27%  Fire alarms, 2%  Doors and windows, 40%  Intrusion protection, 3%  IT security & logical access control, 4%  Alarm centers, 9%  Mechanical locks, lock systems and accessories, 45%  Electromechanical and electronic locks, 35%  Security doors and fittings, 20% 12 MArket preSence 96 97 98 99 00 01 02 03 04 05 06 07 08 ASSA ABLOY AnnuAL repOrt 2009 of ASSA ABLOY’s sales consist of renovations, refurbishments, extensions, replacements and upgrades. 67 % 33 % of ASSA ABLOY’s sales consist of new construction. ENHANCED MARKET PRESENCE ASSA ABLOY’s strategy for enhancing its market presence has three main aspects: • • • Exploiting the strength of the brand portfolio. Increasing growth in the core business. Expanding into new markets and segments. Exploiting the strength of the brand portfolio Common sales force In order to compete effectively in a global market, the sales force operates as an integrated organization under the ASSA ABLOY master brand. The sales staff represent ASSA ABLOY but retain their link to the established local brands. Consequently, customers can be offered total door opening solutions while still recognizing the old brands. ASSA ABLOY’s brand strategy As a result of its many acquisitions, ASSA ABLOY owns a variety of well-known brands and has the world’s larg- est installed lock base. In order to exploit and manage this valuable asset while benefiting from the Group’s size, ASSA ABLOY’s logo is combined with the individual product brands. This approach preserves the link to the installed lock base, while increasing the visibility of the ASSA ABLOY mas- ter brand. The master brand is complemented by a number of global brands, which are all leaders in their respective mar- ket segments. These brands are HID in access control, secure card issuance and identification technology, Yale in the resi- dential market, Besam in automatic doors, and Mul-T-Lock and ABLOY in high-security locks. The growing visibility of ASSA ABLOY as the master brand for complete security solu- tions demonstrates the great breadth of the Group’s prod- uct range as the world’s largest supplier of security solutions. Increasing growth in the core business Growth in the core business is promoted through close collaboration with architects, security consultants, major end-users and distributors. Continued clear market seg- mentation is also vital for offering relevant solutions to the customer. Complete security solutions The requirements in different areas vary greatly, since the security solution for each door is adapted to the door’s loca- tion and application, for example an entrance door or a door to a computer room or a conference room. The door’s func- tionality must also be adapted on the basis of security and convenience. This may be affected by whether it is an inter- nal or external door, the frequency of opening, the number of users, and special requirements such as fire safety. Cus- tomers are also increasingly demanding that the products can be easily integrated into new or existing security sys- tems and IT networks. Vad driver efterfrågan? Fördelning kundsegment What drives demand? Breakdown by customer segment  Aftermarket1, 67%  New construction, 33% ¹ the aftermarket consists of renovation, rebuilding, extensions, replacements and upgrades.  Commercial and institutional customers, 75%  Residential market – private customers, 25% ASSA ABLOY AnnuAL repOrt 2009 MArket preSence 13 Market presence Specification of security solutions increasingly important Bringing new and innovative solutions to market requires close collaboration not only with distributors, but also with architects, security consultants and major end-users. This collaboration stimulates demand from distributors and cus- tomers. Building and lock wholesalers, security consultants and locksmiths have a key role in delivering the products specified for various construction projects. ASSA ABLOY has developed close collaboration with architects and security consultants to specify appropriate products and achieve a well-functioning security solution. Many door and window manufacturers install lock cases and fittings in their prod- ucts before delivering them to customers. In contrast, electronic security products mainly reach the end-user via security installers and specialized distributors. These products are also sold through security integrators who often offer a total solution for the installation of peri- meter protection, access control and increasingly also com- puter security. Increased focus on distributors ASSA ABLOY works closely with its distribution channels to offer end-customers the right products, correct installation and consequently a well-functioning security solution. Dis- tributors also have a key role in providing service and sup- port after installation. This role may vary between different customer segments. In the non-residential segment, distrib- utors in some markets act as consultants and project man- agers to create good security solutions. They understand the customer’s needs and ensure that products comply with local regulations. As technology moves towards more complex security solutions, distributors need increasing skills levels. Lock- smiths, who are key distributors of mechanical and elec- tromechanical security products on many markets, are an example of specialized security distributors. They buy direct from the manufacturer or via wholesalers and provide advice, products, installation and service. Some locksmiths have an increased focus on electronics, while IT integrators are increasingly also offering physical security solutions. 75 % of sales are to the institutional and commercial market. 25 % of sales are to private customers and the residential market. Distribution channels for the security market In today’s security mar- ket, manufacturers of security products, such as ASSA ABLOY, mainly reach their end-customers through a variety of distribu- tion channels. Many of the Group’s products are sold in small volumes to a large number of end-customers with very different needs. Specification of security solutions Security system integrators Locksmiths and security installers ASSA ABLOY Wholesalers – building and lock suppliers retailers – DIY, hardware and security stores OeMs, door and window manufacturers Increased demand LArGe InStItutIOnAL AnD cOMMercIAL cuStOMerS • Healthcare • Education • Retail • Hospitality • Offices • Industrial SMALL AnD MeDIuM-SIZeD cuStOMerS • Offices • Stores reSIDentIAL cuStOMerS • Apartments • Houses 14 MArket preSence ASSA ABLOY AnnuAL repOrt 2009 The ASSA ABLOY master brand Examples of product brands ASSA ABLOY is the Group’s master brand, under which the sales departments unite. Well-known product brands benefit from the large installed lock base and are adapted to comply with local regulations and safety standards. The product brands are combined with the ASSA ABLOY master brand. Two focused brands for specific segments Global brands with a unique market position Besam is a world-leading supplier of automatic entrance solutions. VingCard is the world’s best-known brand for lock systems in the hospitality and cruise ship market. Complementary global brands, where the products’ leading position and market positioning in their specific segment are unique or overlap with ASSA ABLOY. ASSA ABLOY AnnuAL repOrt 2009 MArket preSence 15 Market presence 70 % About 70 percent of the Group’s products are sold with the local brand and the ASSA ABLOY master brand in combination. Expanding into new markets and segments The Group is expanding into new markets and segments by establishing ASSA ABLOY in new geographical markets, developing the OEM market, exploiting opportunities on the residential market, and introducing new technology. Geographical expansion is achieved principally through acquisitions. By establishing ASSA ABLOY on markets with ris- ing populations and developing economies, the Group can build a strong platform for future growth. The emerging mar- kets in Asia, Eastern Europe, the Middle East, Africa and South America accounted for nearly 17 percent of the Group’s total sales in 2009, compared with 9 percent five years before, and the figure passed 18 percent towards the end of 2009. The Group’s presence on the OEM market for door and window manufacturers varies between markets. There is considerable potential here for improved market penetration. Efforts to develop channels and products for the residen- tial market continue, with digital door locks a high-priority product area. The increased demand for electromechanical products is one of the clearest trends in the security market. This prod- uct area is also seeing increased technical standardization in which different components in the security solution can be easily integrated with one other. ASSA ABLOY’s products aim for open standards to facilitate integration with the cus- tomer’s other security and administrative systems. Interest- ing new growth areas are created by exploiting the Group’s strength in specific technologies. One example is RFID, which is now adapted to special applications such as con- tactless hotel locks opened by a card. » The common sales organization operates under the ASSA ABLOY master brand, but also acts as representatives of the local product brands recognized by the customer« ASSA ABLOY’s total sales by region  Europe, 46%  North America, 35%  Australia and New Zealand, 5%  Asia, 10%  Central and South America, 2%  Africa, 2%  ASSA ABLOYs produktområden, 15%  Bevakning & övrigt, 27%  Brandlarm, 2%  Dörrar & fönster, 40%  Intrångsskydd, 3%  IT-säkerhet & logisk behörighetskontroll, 4%  Larmcentraler, 9% 16 MArket preSence ASSA ABLOY AnnuAL repOrt 2009 ASSA ABLOY part of chinese building history A graceful and sturdy ‘sculpture-style’ structure, the new home of state broadcaster china central television (cctV) is considered a breakthrough in architectural design. the 550,000 square meter headquarters building will contain more than 12,000 doors, and be the largest application of American AnSI (American national Standards Institute) standards. to meet the requirements of standards, ASSA ABLOY has delivered a complete solution with locks, door closers, exit devices and electric strikes. Irene Yip, ASSA ABLOY Hong Kong’s General Manager, says it took a combination of close cooperation and commit- ment throughout the Group to secure the deal. ‘From the outset of this project, we worked closely with the jury and architect to specify the customer’s requirements. We were able to secure the project by offering user-friendly, systematic solutions, quality products and technical know- how.’ Irene says. the cctV headquarters is attracting widespread interest for its innovative design, best described as a continuous loop of five vertical and horizontal sections, rather than a tradi- tional television tower. Olympiastadion Berlin Olympiastadion Berlin attracts thousands of visitors every year and is the largest arena in Germany. When the multi- functional venue needed a highly flexible and comprehen- sive security concept, Verso cLIQ was the answer. “Verso cLIQ provides us with the excellent level of security we desire,” says Sylvan Bandke, technical Man- ager at Olympiastadion. “the security system combines highly developed microelectronics with intelligent data encryption. this includes advantages such as the ability to re program locking cylinders quickly, which reduces the security risk associated with lost keys.” the stadium hosts many events with a high volume of visitors and it is important that the security system has pro- grammable locking cylinders. the stadium can provide indi- vidual event organizers and their subcontractors with flex- ibility in managing access authorizations. the cLIQ cylinders could also be customized to fit doors in the old parts of the building. there is no need for struc- tural alterations or expensive cabling to the door because the keys supply the energy to operate the system and com- municate with the cylinder. ASSA ABLOY AnnuAL repOrt 2009 MArket preSence 17 Product leadership The Group’s product leadership is achieved through the continuous development of products offering enhanced customer value and lower product costs. product leadership Successful product development drives organic growth ASSA ABLOY’s vision is to be the most innovative supplier of total door opening solutions. Over the past few years investments in research and development have increased substantially. Successful product development is the single most important source of organic growth. ASSA ABLOY is creating tomorrow’s security solutions by exploiting the skills and expertise of its divisions and by developing common tech- nology platforms. Secure, convenient and flexible solutions for the door environment provide the basis for future growth. Product leadership Successful product development is the single most impor- tant source of organic growth. ASSA ABLOY’s overall goal is the continuous development of products offering enhanced customer value and lower product costs. A crucial activity for achieving this is using common product platforms with fewer components. New products are also developed in close collaboration with ASSA ABLOY’s end-users and dis- tributors to enhance customer value. The product devel- opment process has been streamlined by implementing a clearly defined common development process and by sepa- rating the maintenance and improvement of existing prod- ucts from new development. Customers are increasingly demanding more advanced lock and door products and the technical level is constantly rising, with electromechanical door opening solutions growing considerably faster than traditional mechanical products. Global common product platforms, which are then adapted to the local markets, have therefore become increasingly important. These platforms are developed by the Group product development function, Shared Technologies, and through collaboration within and between divisions. Today’s customer base helps to develop tomorrow’s security solutions ASSA ABLOY has the largest base of installed locks and lock systems in the world and its products are well adapted to comply with local and regional standards. The Group builds on this installed lock base to develop tomorrow’s solutions, in which electronic codes supplement or replace mechani- cal identification. People are assigned access rights to doors or computers. Keys, cards and other ID credentials are assigned codes, Vinst per aktie efter skatt och utspädning Investments in Research and Development¹ SEK 1,000 800 600 400 200 0 05 06 07 08 09 ¹ Figures for 2008 and 2009 are affected by reclassification. For more information see note 34. which are managed securely and distributed encrypted. As a result of acquisitions in recent years in new technolo- gies and the development of skills and expertise in the Group, ASSA ABLOY is well equipped to meet tomorrow’s challenges. Security and convenience Security depends on far more than identification alone. The mechanical and electromechanical products that prevent intrusion and permit rapid evacuation are just as important to the final solution. A well-specified security solution also takes into account the design of the products and ensures that they simplify use. The Group’s electro mechanical products help to meet all these security requirements. The electromechanical segment is growing rapidly and now accounts for more than one-third of Group sales. ASSA ABLOY’s Hi-O communication platform allows the interconnection of electromechanical products and the connection of the whole door environment to the Internet. This enables the security supervisor to check the status of the door online, enhancing security and facilitating mainte- nance. In 2009 the Group continued to install Hi-O systems and integrate them with many of the market’s leading secu- rity systems. The software is under constant development to facilitate integration and also allow remote programming, diagnostics and troubleshooting. During the year the Group took part in PSIA, a forum for the development of a common standard for the integration of various security systems. RFID enhances security and is user-friendly Radio-frequency identification (RFID) and wireless commu- nication allow the Group to create new security applications while offering services that are user-friendly. During the year ASSA ABLOY launched Aperio, a wireless technology that allows cost-effective connection of several doors to an existing access control system. Battery-operated electromechanical cylinders and locks communicate wire- lessly with the existing network, avoiding expensive instal- lation costs, new keycards and new access systems. Aperio received several prizes for innovation during the year. In contrast to Aperio, Smartair is an off-line system. Smart air’s update-on-card facility increases security and convenience through validation; access is updated on the keycard for a specific period. If the card is not updated in one of the special readers or printers that come with the system, the person is not granted access. Lost cards can easily be blocked and are of no use to unauthorized people. 20 PROducT LEAdERSHIP ASSA ABLOY AnnuAL repOrt 2009 » Successful product development is the single most important source of organic growth « RFID technology is also the basis for the rapid expansion of logical access control, in which computers are provided with ASSA ABLOY’s software that prevents start-up if the user fails to present the right access card. Hotel guests avoid waiting in line For hotels, VingCard has used RFID and the wireless technology offered by mobile telephony in combination with Near Field Communication (NFC). Hotel guests can use their cell phones to book and pay online. The cell phone serves as a code carrier, and guests can also use their cell phones to unlock the door of their hotel room by holding the phone close to the lock. This innovative application won several awards in 2009. Using wireless technology from ASSA ABLOY, many hotels have connected their rooms online, providing guests with enhanced security and comfort, such as arranging room changes without visiting the lobby. The Group is carefully fol- lowing developments in this area through its participation in the NFC Forum and other wireless technology organizations. Total door opening solutions are ASSA ABLOY’s strength ASSA ABLOY’s business is not based solely on innovations; the Group’s strength is the variety of traditional and new products that can be combined to create a large number of different door environments. ASSA ABLOY has products for different climates, different types of buildings and differing security and safety requirements. By combining hundreds of thousands of components to meet the needs of consumers, architects and installers, the Group creates products with the right quality, design and price, which are ideal for both new buildings and renovations. The changing product mix During the year a number of products were launched with the aim of reducing energy consumption in buildings. By using doors with improved insulation together with new sealing products, loss of heat to a cooler environment can be reduced, while in hot climates air-conditioning costs can be cut. In addition, the use of recycled materials in doors is increasingly possible and desirable. A common process with increased customer focus and better product planning ASSA ABLOY is building a Group-wide product develop- ment process, aimed at halving product development time while increasing the number of new products. A clear Gate- way process with common terminology and interdisciplin- ary collaboration speeds up and improves the quality of the product development process. In 2008 the Group introduced ‘Voice of the Customer’, a strategy to strengthen customer relationships and inte- grate customers into the product innovation process, which together with the new product innovation process increases the fitness for purpose of the Group’s product offerings. The Group also focused on improving the product innovation process by providing in-house training for over one hundred people to spread this process across the organization. In 2009 more than 1,500 employees received training in the innovation process, and a number of in-depth stud- ies together with customers have resulted in many new concepts and products under development. Work on Value Analysis / Value Engineering of the existing product range intensified, and the number of implemented cost savings increased by 60 percent compared with the previous year. A total of 50 projects to increase the skills of hundreds of employees were implemented during the year. 2000 SEK 14 billion 2009 SEK 35 billion Mechanical products, 66 % Electronic products, 20 % Security doors, 14 % Mechanical products, 45 % Electronic products, 35 % Security doors, 20 % ASSA ABLOY AnnuAL repOrt 2009 PROducT LEAdERSHIP 21 product leadership Checking-in with your cell phone Self-powered door closer Increased demand for convenient security Signature rFID from Vingcard is the latest contactless electronic lock product for hotels. the technology enables hotel guests to check-in with an nFc-compatible cell phone, using the phone to open their hotel-room door and other doors in the hotel. no keycards are needed. Guests receive their reservation confirmation, room number and an encrypted room key by text message (SMS) before they arrive. they avoid check-in lines at the front desk and can go straight to their room, where they just open the door using their nFc-compatible cell phone as a room key. they can also pay and check- out online. trinity door closer from norton Door control can adjust the doors closing ability after the desired needs. With intelligent self-adjusting technology and no need for batteries or electric- ity to power control electronics, the trinity system is gaining attention from customers seeking a green solution as well as one that requires almost no routine maintenance checks. Any movement of the door of 10 per cent or more is enough to generate a suf- ficient amount of power for a com- plete closing cycle. even if the door is untouched for months and powers down fully, a single attempt to open it will immediately bring it to life. the demand for intelligent products that communi- cate with a building’s security systems is growing. One example is Aperio, which was developed to upgrade doors that lock with keys to ones that are wirelessly connected to an existing electronic access control sys- tem. Another trend is the increasing demand for easily accessible security, especially in private homes; con- sumers want door solutions that are both secure and convenient. One example is the new code Handle elec- tromechanical lock, which opens the lock with a digital code instead of a traditional mechanical key. code Han- dle was launched in 2009 and is already a bestseller on the do-it-yourself market. High-capacity 3-wing revolving door Secure instant issuance of cards ASSA ABLOY Entrance Systems’ newest revolv- ing door was launched in the fall of 2009. the Besam rD3L is designed to meet european market demands for automatic revolving door entrances that can handle high traffic volumes efficiently and conveniently. the rD3L creates an impressive entrance that is ‘always open’ because of its 3-wing configuration. Its compartments can accommodate large numbers of pedestrians with or without shop- ping trolleys. the rD3L also features state-of-the-art safety sensors and monitoring capabilities, as well as a unique drive mechanism that contributes to lower maintenance costs for the customer. revolving doors save energy for heating or cooling regardless of where they are installed as they allow eight times less air exchange than a swing door. With HId Global’s innovative Fargo HdPii card printer and encoder, banks and retail- ers can instantly issue high quality person- alized credit, debit, prepaid, and gift cards. The HdPii provides a practical and affordable way to instantly deliver activated cards to customers, significantly reducing the time to the first transaction use and ensuring activa- tion at the time of issuance. the technology is more convenient for customers, who no longer have to wait for their credit and the risk of loss or theft during the mailing pro- cess is eliminated. the printing technology gives increased durability and fraud protec- tion. Special features such as lockable secu- rity and encryption make the HdPii compli- ant with Financial card Association security requirements. Increased demand for digital residential locks Digital locks that combine con- venience and design with high security are a new way for people to secure their homes. there is growing interest worldwide in intelligent, convenient solutions that use digital keys, a card, a pin code or a fingerprint to lock and unlock doors. the ASSA ABLOY Group company irevo developed the market for digital locks in korea and is the market leader. Almost half of all homes in Seoul have digital biometric locks. In the fall of 2009 digital code-locks from ASSA ABLOY were launched on the uS market. product leadership A total security solution from ASSA ABLOY includes many different types of products. there may be automatic doors and access control at the main entrance, access systems on each office floor, and security doors, high-security cylinders, mechanical cylinders, handles, hinges and internal doors in the offices. Access cards may also be used to log on to computers and network and to make secure electronic payments. these are examples of ASSA ABLOY products that together create a total security solution. Magnetic lock Electronic strike Access control Handles Electromechanical cylinders Automatic door closer Electronic lock-case Exit device Electronic hardware ASSA ABLOY’s Hi-O communication platform allows the intelligent door to be connected to a network over which each individual component around the door can commu- nicate interactively with other systems, such as security or maintenance systems. The advantages are secure informa- tion about each component, simple installation using stan- dardized connections, and remote configuration over the network, which can also be connected to the Internet. In the end of 2009 the ASSA ABLOY Group has 67 Hi-O certified products. 24 PROducT LEAdERSHIP ASSA ABLOY AnnuAL repOrt 2009 Access control Access control Access to computers via access cards Payment with access card Access control Turnstile Printer for secure issuance of access cards Revolving door ASSA ABLOY AnnuAL repOrt 2009 PROducT LEAdERSHIP 25 Cost- efficiency Cost- efficiency efforts to increase cost-efficiency continue in all areas and include both common product platforms with fewer components and common product development. cost-efficiency the share of purchases from low-cost countries has doubled Efforts to increase cost-efficiency continue in the production structure, in product costs and in the administrative flow in the Group. All areas are affected, including common product platforms with fewer components, and common product development. In production, flexible final assembly close to the customer is combined with the transfer of high-volume standard production to internal and external production units in low-cost countries. Cost-efficiency ASSA ABLOY focuses on cost-efficiency in the production structure, in product costs and in the administrative flow in the Group. In product development, the Group works on common product platforms with fewer components and on common product development, as discussed in the section ‘Product leadership’. The production value-chain is constantly under review and the capacity for flexible final assembly close to the cus- tomer is combined with the transfer of high-volume stan- dard production to internal and external production units in low-cost countries. percent of the Group’s total employees are now employed in low-cost countries. Lean methods Work to implement Lean methods in the Group’s operations continues. Lean methods lead to more efficient production flows, better control of material costs, improved decision- making procedures, shorter development times and incre- ased cooperation with the marketing and sales teams. Many of the companies in the Group have followed these principles for several years and have achieved enhanced efficiency. Successful restructuring programs The process of change in the production structure began with the restructuring programs launched in 2006 and 2008. These have been very successful, resulting in large savings and increased efficiency in the Group’s production units. At year-end these programs had resulted in the clo- sure of 36 production units, while an additional large num- ber of units had switched to mainly final assembly. As a result of this restructuring 4,631 employees have left the Group. Another four units are set to close in 2010 as these programs are completed. One consequence is that an increasing vol- ume of standard production has been transferred to inter- nal and external units in low-cost countries. The production process has been improved, while local presence on end- customer markets ensures fast delivery and efficient assem- bly of customized products. These two restructuring programs were followed by a new program launched in Q4 2009. This program will entail the closure of 11 production units and the conversion of four units to final assembly. In addition, 11 primarily admin- istrative units will close. The total cost is SEK 930 M and the program will result in a reduction of 1,200 employees in high-cost countries. In parallel with the reorganization of production in high- Vinst per aktie efter skatt och utspädning cost countries, the Group has maintained rapid expansion of the production base in low-cost countries. More than 40 Seamless Flows in administration Automation of flows throughout the business is the most important activity in driving administrative efficiency. Manual work is to be reduced or completely eliminated in all processes. On the customer side, this means electronic order handling for both large and small customers. On the supplier side, electronic handling of purchasing will be intro- duced. Manufacture, product development, logistics and other internal processes will be included. The generic name for such activities is Seamless Flows. As Seamless Flows and the coordination of IT tools are brought in, it will also be pos- sible to coordinate support functions effectively. Efficient sourcing In purchasing, a comprehensive supply management proj- ect covering both raw materials and components has been initiated. This will be increasingly important as areas of com- ponent supply are outsourced to external suppliers in low- cost countries and will result in better exploitation of econ- omies of scale in the Group. The share of the Group’s total purchases of raw materials, components and finished goods that comes from low-cost countries has increased from 23 percent to 41 percent over the past five years. The divisions have appointed specialized purchasing managers for each component category. As a result the number of suppliers has fallen by 6 percent. Vinst per aktie efter skatt och utspädning Change in production structure Share of production in low-cost countries % 100 80 60 40 20 0 05 06 07 08 09 High-cost countries, Full production High-cost countries, Assembly Low-cost countries, production Acquired production units % 45 40 35 30 25 20 05 06 07 08 09 28 cOSt-eFFIcIencY ASSA ABLOY AnnuAL repOrt 2009 First-class hotel security VingCard just right for Hilton Family hotel – Guests at the first-class doubletree dallas/Richardson Hotel in Texas now benefit from higher levels of comfort and security, thanks to a major overhaul of the hotel completed in July 2009. As part of the total renovation of the 300-room property, a member of the Hilton Family of Hotels, Vingcard installed its wireless VisiOnline rF-online system together with its Signature rFID contactless radio-frequency identification electronic locks throughout the premises. the rF-online-based system means that room doors can be remotely monitored from the hotel’s front desk. In addi- tion to dramatically improved security for hotel guests, the system also enhances staff efficiency by providing SMS and e-mail maintenance alerts with significant improvement to the hotel´s bottom line As part of the upgrade, the doubletree Hotel also chose Signature rFID contactless electronic door locks by Ving- card which, allow more security and intuitive ease of use for guests. A further benefit of this system is its compatibi- lity with nFc cell phones, which makes the system ready to implement a solution for guests to skip the check-in line and simply use their nFc phones to unlock the guestroom door. One good turn deserves another When IkeA chose the Besam rD3L high-capacity revolving door for the entrances to its anchor store in the new port Łódź Shopping center in poland, contractors working on other parts of the 120,000-square-meter retail and indoor recreational facility took note. IKEA’s two primary demands were easy access and safety during high-volume use, and the rD3L delivers both with style. Besam’s newest revolving door range is designed with large, comfortable compartments that can safely and easily accommodate continuous pedestrian traffic flow and shop- ping carts. IkeA port Łódź opened in november 2009, with the remainder of the shopping center set to welcome visi- tors in the spring of 2010. The Rd3L’s state-of-the-art electronics and safety sensors, combined with Besam Poland’s ability to deliver on time and provide world-class service and maintenance after installa- tion, resulted in the door being chosen for a total of eight of the new shopping center’s entrances. In addition to the revolving doors, Besam poland supplied uniSlide Frame sliding-door systems and door closers for various locations in the center. Further more, the relationships built on the construction site created oppor- tunities for ASSA ABLOY poland to win contracts for a variety of door hardware, including Yale panic bars and locks. ASSA ABLOY AnnuAL repOrt 2009 cOSt-eFFIcIencY 29 Growth and profitability ASSA ABLOY creates opportunities for increased growth and profitability through a strong focus on the strategy’s three areas of market presence, product leadership and cost-efficiency. Growth and profitability Successful expansion for 15 years today ASSA ABLOY is the global leader in intelligent door solutions and celebrates 15 years of successful expansion. Since its formation in 1994, the Group has expanded successfully through a combination of organic growth and acquisitions, transforming the company from a traditional lock company into a modern, multinational security company in intelligent door solutions. today ASSA ABLOY is the global market leader in this sector. 3 – 35Growth from 3 to SEK 35 billion in 15 years. From regional lock company to international security group Since ASSA ABLOY’s formation, Group sales have risen from SEK 3 billion to SEK 35 billion. Today the Group has around 29,000 employees, compared with 4,700 employees in 1994. Operating income, excluding items affecting compa- rability, has increased from SEK 212 M in 1994 to SEK 5,413 M in 2009, an increase of 2,453 percent. ASSA ABLOY was founded when Securitas in Sweden and Metra in Finland merged their lock businesses. The company had operations in Sweden, Finland, Norway, Denmark and Germany at that time. Today the Group has its own operations in 50 countries and sales throughout the world. ASSA ABLOY is focusing on enhancing its presence on emerging markets in Asia, East- ern Europe, the Middle East, Africa and South America. Sales on these markets will account for nearly 20 percent of total Group sales, and following the announced acquisition of Pan Pan, China is expected to account for nearly 10 percent of sales. One in ten lock purchasers in the world today chooses an ASSA ABLOY lock, and the Group continues to grow. Demand for safety and security is constantly increasing in the world and the Group has never had a wider product range, higher market penetration and so many innovative new products. At the start in 1994, the product range largely con- sisted of mechanical security products such as traditional locks and handles for entrance doors. In 2009, ASSA ABLOY launched more products than ever before in the Group’s history, particularly in the fast-growing product segments of electromechanical and electronic locks, access control, identification technology and automatic doors. New technology areas and innovative products are the most important sources of organic growth and the Group therefore invests heavily in R&D. Investments in product development have increased by between 10 and 20 percent per year in recent years and today the Group employs nearly 1,000 development engineers. The ASSA ABLOY Group has come a long way in 15 years. However, the goals and expectations for the Group’s future development are high. The demand for secure and safe security solutions is constantly increasing and will offer the Group major opportunities. Rörelseresultat* (EBIT) MSEK Sales and Operating Income (EBIT) Sales, SEK M  Sales Operating Income (EBIT) EBIT, SEK M 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 963 32 GROWTH And PROFITABILITY 8000 7000 6000 5000 4000 3000 2000 1000 0 973 983 993 003 013 023 033 04 05 062 07 081,2 091,2 Sales have risen by more than 2,400 percent in 15 years. ¹ Figures affected by reclassification. For more information see note 34. ² excluding items affecting comparability. ³ 1996–2003 have not been adjusted for IFrS. ASSA ABLOY AnnuAL repOrt 2009 Market presence exploiting the strength of the brand portfolio. Increasing growth in the core business. expanding into new markets and segments. ASSA ABLOY’s first 15 years 1994 the ASSA ABLOY Group is founded in 1994 through the merger of ASSA (Sweden) and Abloy (Finland). the new company is listed on the Stockholm Stock exchange on 8 november 1994. Abloy brings the IkOn, ABLOY, trioVing, Vingcard and cardkey brands and ASSA the Arrow, ruko, SOLID and FAS brands. Strategy product leadership Developing products offering enhanced customer value and lower product costs. common product platforms with fewer components. close collaboration with ASSA ABLOY’s end-users and distributors. targets Growth and profitability 10 percent annual growth through a combination of organic and acquired growth. An operating margin of 16–17 percent. the financial targets are long- term and should be regarded as an average over a business cycle. cost- efficiency common product platforms and fewer components result in cost-efficiency. In production, flexible final assembly near the customer is combined with the transfer of high-volume standard produc- tion to low-cost countries. Seamless Flows streamline administration. Implementation of Lean methods continues. 1996 – Acquisitions lead the way the Group expands its product portfolio through the acquisition of the American company eSSeX, with its Sargent, Mckinney, curries and Graham brands. Other acquisitions: nt Møller undall, Låsgruppen and Grorud (norway), Secureware (Singapore) and Ambouw (netherlands). 1997 – Expansion in France the French lock group Vachette is acquired, with its units Vachette, JpM, Laperche and Bezault (France) and Litto (Belgium). Other acquisitions: elsafe (norway), FAB (czech republic) and Abloy Security (Singapore). 1998 – Expansion in the USA ASSA ABLOY expands in north America with the acquisition of Medeco. the Group opens an office in china. Other acquisitions: urBIS (romania), Wilhelm Dörrenhaus (Germany), ASSA-Solid (poland), Scovill (Mexico), Securitron Magnalock and new england Lock & Hardware (uSA), Abloy canada (canada) and precise Security Supplies (Hong Kong). 1999 – Higher security the Group acquires the lock manufacturer Mul-t-Lock (Israel). the acquisition of the German company effeff gives ASSA ABLOY a good position on the electromechanical lock market. Other acquisitions: Lockwood (Australia), Stremler (France), AZBe (Spain), Björkboda lås (Finland), timelox and AkI Låsgrossisten (Sweden), Fichet (France), Arrow Lock (canada) and Sloth & co (Denmark). 2000 – Twice the size ASSA ABLOY acquires Yale Intruder Security and becomes the world’s leading lock group almost overnight. The acquisition of HId corporation in the uSA expands the Group’s product offering with electronic identification products. the cLIQ technology is launched. Other acquisitions: ASSA ABLOY Hungary (Hungary), c.E.M. and nuova Feb (Italy). 2001 – Global integration ASSA ABLOY takes part in the Volvo Ocean race to help integrate over 100 companies worldwide. Joint venture with uDp brings in the companies ceco, Dominion, Fleming and trussbilt (uSA). Other acquisitions: phillips (Mexico), rIS (czech republic), MAB (Italy), Viro (South Africa), Interlock (new Zealand), Indala (uSA) and teSA (Spain). 2002 – New opportunities in door automation the Group acquires the Swedish company Besam, with its door automation products. ASSA ABLOY finishes in second place in the Volvo Ocean race. Other acquisitions: cOSAS electronica and uBA Almadis (Argentina), radicovic (Slovenia), union Locks (kenya), poli (chile), VeMA (netherlands) and InItIAL, since renamed Abloy France (France). 2003 – Stronger position in Europe the acquisitions of nemef (netherlands) and corbin (Italy) strengthen the Group’s position on these markets. Other acquisitions: Interlock and Sokymat (Switzerland), Metget (Sweden) and AcG’s identification technology business. 2004 – Hi-O launched The launch of Hi-O technology introduces a new concept for electronic door solutions, in which connected units exchange encrypted information, simplifying both installation and service. Other acquisitions: Security Merchants Group (Australia and new Zealand), joint venture with Brighthandle (Sweden), and BeSt Metaline (South korea). Divestment of Folger Adam Security and trussbilt Detention. 2005 – Increased presence in China ASSA ABLOY enters a joint venture with the chinese company Wangli, a leading supplier of high-security locks and doors. Other acquisitions: Doorman Services (uk) and Security World (South Africa). 2006 – Secure ID cards ASSA ABLOY acquires Fargo electronics, which develops systems for secure issuance of credit, bank, debit and ID cards. Other acquisitions: Adams rite (uSA) and Baron Metal Industries (canada). 2007 – Expansion in Asia A new brand strategy is launched, with ASSA ABLOY as the master brand. the Group acquires irevo in South korea, a major player in digital door locks. Other acquisitions: Aontec (Irish republic), Baodean (china), powershield (uk), pyropanel (Australia), pemko Manufacturing company and La Force Associates (uSA), Alba (Israel), esety (Italy), Integrated engineering (netherlands) and portronik (canada). 2008 – Wireless technology launched the new Aperio wireless technology is launched. this technology makes it easy for customers to upgrade their access control systems. Other acquisitions: Beijing tianming and Shenfei (china), Gardesa and Valli&Valli (Italy), copiax (Sweden), cheil (South korea) and rockwood (uSA). 2009 – Strong results despite weak market Agreement to acquire pan pan, china’s largest manufacturer of high-security steel doors. Other acquisitions: Ditec Group (Italy), portsystem 2000 (Sweden), Maiman (uSA) and cerracol (colombia). In addition to the acquisitions listed here, ASSA ABLOY has acquired some 50 smaller companies over the years. ASSA ABLOY AnnuAL repOrt 2009 GROWTH And PROFITABILITY 33 emeA Aggressive marketing efforts emeA continued its aggressive marketing efforts to develop and lead the european lock market. the divi- sion made substantial investments in innovative new products, and several pan-european product plat- forms were launched in 2009, which will continue in 2010. the european lock market was weak during the year due to the financial crisis and considerable inventory reductions by distributors. efficiency pro- grams and capacity adjustments offset the major part of the earnings impact of the market downturn. EMEA in brief The EMEA division manufactures and sells mechanical, electromechanical and electronic locks, cylinders, security doors and accessories in Europe, the Middle East and Africa. EMEA consists of a number of companies which have good knowledge of their local, often highly diversified, markets and which sell products under some of the most respected brands in the industry, such as ABLOY, ASSA, IKON, TESA, Yale, Mul -T- Lock and Vachette. Report on the year The division’s sales during the year totaled SEK 13,601 M (13,927), which was a reduction of 2 percent. Operating income (EBIT) excluding restructuring and non-recurring costs fell by 10 percent to SEK 2,056 M (2,289), which repre- sents an operating margin of 15.1 percent (16.4). Market presence EMEA is working actively to increase the division’s market presence through development of the specification and project market, expansion into new markets and segments, and growth through acquisitions. The sales force on the local markets is being united under the ASSA ABLOY master brand. Specification of total door opening solutions is increas- ingly important for sales, and the number of specification sales representatives has therefore been increased substan- tially in EMEA and the close collaboration with architects and security consultants further strengthened. Efforts to fur- ther strengthen the sales organization in the highly diversi- fied European market continue through an increased focus on specification sales representatives and the structuring of the sales organization into different market segments. The financial crisis led to a downturn on the housing mar- Many sales organizations in EMEA have been coordinated ket and the commercial construction market. This applied particularly to regions such as Spain, Italy and Eastern Europe and to some extent France. The German and Scandi- navian markets showed a stable trend, albeit at a relatively low sales level. The negative impact on operating income of lower sales was largely offset by savings resulting from efficiency programs in production and the division’s other efforts to increase efficiency. Local differences between markets EMEA’s companies operate in a highly diversified market with significant local differences. Building regulations, secu- rity standards and climates vary greatly between the coun- tries of northern Europe and southern Europe, and to some extent the Middle East and Africa. Consequently there are great differences between the products in demand and sold on each local market. ASSA ABLOY’s regional compa- nies have good local knowledge of lock standards and long- term relationships with their distributors, making demand stable. In addition, the aftermarket contributes a significant proportion of sales, since the installed lock base consists of many millions of units that are continually replaced and upgraded. under the ASSA ABLOY master brand to better meet the increased demand for more complete security solutions. The united sales organization has resulted in a joint image to the customer and a considerably wider product portfolio based on the Group’s total offering. Product leadership Effective product development with a strong customer focus is the strongest driver of organic growth. The use of Group-wide product platforms with fewer components is constantly increasing, contributing to enhanced customer value and lower costs. Substantially increased investment in product development in recent years has resulted in the launch of many new electromechanical and electronic prod- ucts that are both secure and easy to use. These include cyl- inders and lock cases with Aperio technology, and the Code Handle electronic lock. The Group’s new product-develop- ment process focuses on increased customer value while improving cost-efficiency and maintaining higher quality. The products have been well received by customers and have consolidated ASSA ABLOY’s market-leading position in total security solutions. 34 emeA DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 Key figures SEK M 2008 2009 13,927 3 2,289 16.4 Income statement Sales² total growth, % Operating income (eBit)¹ Operating margin (eBit)¹, % Capital employed Capital employed – of which goodwill return on capital employed¹, % Cash flow Cash flow Average number of employees ¹ excluding items affecting comparability. ² reclassification has been made for 2008 and 2009. For more information see note 34. Omsättning och rörelseresultat 12,306 5,766 19.9 2,421 11,903 13,601 –2 2,056 15.1 9,814 5,540 16.9 2,850 10,138 Sales and Operating income¹ SEK M 14,000 12,000 10,000  Sales2 Operating income SEK M 2,800 2,400 2,000 8,000 ¹ excluding items affecting compa- rability 2006, 2008 and 2009. ² reclassification has been made 1 Exklusive omstrukturering for 2008 and 2009. For more 2006 och jämförelsestörande information see note 34. poster 2008. 6,000 Sysselsatt kapital/avkastning på sysselsatt kapital 1,200 1,600 07 08 09 05 06 Capital employed and Return on capital employed¹ SEK M 12,000 10,000 8,000 6,000 4,000 05 06 07 08 09 % 30 25 20 15 10  Capital employed Return on capital employed 1 Exklusive omstrukturering ¹ excluding items affecting compa- 2006 och jämförelsestörande rability 2006, 2008 and 2009. poster 2008. Sales by product group mechanical locks, lock systems and accessories, 66 % electromechanical and electronic locks, 19 % Security doors and fittings, 15 % Säkerhetsdörrar och beslag Elekromekaniska och elektroniska Mekaniska lås, låssystem och tillbehör Cost-efficiency The Group’s efficiency programs intensified in 2009. The aim of these programs is to improve production efficiency and relocate component production to low-cost countries. In 2009 the Group continued to outsource the production of components and basic products, mainly to preferred suppli- ers in low-cost countries. The production of some important components is now concentrated in specialized EMEA pro- duction plants, such as cylinders in the Czech Republic and lock cases in Romania. In order to maintain high standards of service and proximity to customers, Western European production facilities will focus on final assembly and product customization. An important initiative in EMEA is the coordination of purchases for the different production units by specialized purchasing managers for each component category. This has led to an increased percentage of purchases in low-cost countries and better exploitation of economies of scale in the division. Administrative services such as wage administration and accounts are being coordinated on a regional basis to improve efficiency. Joint administration has already been successfully implemented in Germany and all regions will be similarly organized in the coming years. » EMEA continued its aggressive marketing efforts to develop and lead the European lock market « Market segments non-residential, 55 % residential, 45 % Bostadsmarknaden Institutionella marknaden ASSA ABLOY AnnuAL repOrt 2009 emeA DiviSiOn 35 Americas market presence and innovation Americas continued its focus during the year on the non-residential market through increased efforts by its own specification consultants. many new electromechanical products and environmentally sensitive solutions were launched. However, the financial crisis had a significant negative impact on both the resi- dential and the non-residential segment of the uS construction market, which led to a substantial mar- ket downturn. in order to meet these challenges, Americas increased its focus on Lean methods and rationalized its production capacity. these measures enabled the division to maintain a very good operating income and cash flow. Americas in brief The Americas division manufactures and sells mechanical and electromechanical locks, cylinders and security doors on the American continents. The majority of the division’s sales are in North America where ASSA ABLOY has an exten- sive sales organization and sells its products through distrib- utors. Sales in South America and Mexico take place through distributors, wholesalers and DIY stores. The Americas divi- sion operates in both the non-residential and the residen- tial segment. The non-residential segment accounts for the clear majority of the division’s sales. Some of the division’s leading brands are Ceco, Corbin Russwin, Curries, Emtek, Medeco, Phillips, SARGENT and La Fonte. Report on the year The division’s sales during the year totaled SEK 9,880 M (10,456), which was a reduction of 6 percent. Operating income (EBIT) excluding restructuring costs fell by 8 percent to SEK 1,925 M (2,101), which represents an operating mar- gin of 19.5 percent (20.1). Different products for different market segments In the North American market there is a clear distinction between products intended for the residential segment and products for the non-residential segment. As a result, very few of the division’s products are suitable for both seg- ments, and the distribution channels are also totally distinct. Security doors, door frames and locks are major compo- nents of the solutions offered to non-residential customers. Impact of market downturn in the non-residential segment The non-residential segment accounts for a large percent- age of the division’s sales in the USA and Canada. Institu- tional customers predominate in this segment. The market downturn in the non-residential segment had a negative impact on the division’s sales, but despite lower volumes the division succeeded in maintaining very good margins thanks to active marketing efforts and efficient production. The Americas division works vigorously to generate demand in many non-residential sectors, including public buildings, hospitals, school and college campuses, airports, transport terminals, sports and shopping centers, manufacturing plants and commercial offices. Since security and safety standards for these environ- ments are often highly complex, they require more lock and door functionality than typical residential applications. Fire and life-safety building codes call for ever-rising levels of product functionality, complexity and durability. It is increasingly essential that security solutions should consider the door environment as a whole. A complete security solu- tion from ASSA ABLOY is often a combination of doors, door frames, locks, door moldings, door closers or exit devices, access-control products and high-security key systems. A challenging year for the residential segment The residential segment, which constitutes only a minor part of the division’s sales, continued on a negative trend due to the prolonged and severe downturn in the US housing mar- ket. Substantial efforts to cut costs, combined with aggres- sive new product launches, made positive contributions to managing the weak market conditions. Latin America The Latin American markets performed well during the year, especially Brazil. The increasing standard of living in these emerging economies has increased the need for higher security levels. Each country requires unique security solu- tions to meet local standards. Market presence The Americas division continues to focus on specifying secu- rity solutions and increasing its knowledge of end-users’ needs. New marketing tools such as a Mobile Innovation Showroom allow customers to view and learn about the latest door opening solutions at convenient local venues. The division also works closely with architects and security consultants early in the construction process. ASSA ABLOY’s specification consultants share their expertise to ensure that security solutions are code-compliant and meet the functional and security needs of the end-user. Such activities strengthen relations with architects and increase the likelihood of orders when the project is procured. Focusing on market development in new construction and retrofit projects in the non-residential segment has enabled the division to influence current and future building projects. Product leadership Integration of electronics into traditional mechanical door and security products is a high priority for Americas division. Product development continues to focus on aesthetic prod- uct design and specific end-user solutions. 36 AmeriCAS DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 Key figures SEK M 2008 2009 10,456 2 2,101 20.1 Income statement Sales² total growth, % Operating income (eBit)¹ Operating margin (eBit)¹, % Capital employed Capital employed – of which goodwill return on capital employed¹, % Cash flow Cash flow Average number of employees ¹ excluding items affecting comparability. ² reclassification has been made for 2008 and 2009. For more information see note 34. Omsättning och rörelseresultat 9,639 6,236 24.5 2,097 8,573 9,880 –6 1,925 19.5 8,687 6,003 20.5 2,677 6,897 Sales and Operating income¹ SEK M 12,000 10,000 8,000  Sales2 Operating income1 SEK M 2,400 2,000 1,600 6,000 ¹ excluding items affecting compa- rability 2006, 2008 and 2009. ² reclassification has been made 1 Exklusive omstrukturering for 2008 and 2009. For more 2006 och jämförelsestörande information see note 34. poster 2008. 4,000 Sysselsatt kapital/avkastning på sysselsatt kapital 08 09 1,200 800 05 07 06 Capital employed and Return on capital employed¹ % 25 20 15 10  Capital employed Return on capital employed 1 Exklusive omstrukturering ¹ excluding items affecting compa- 2006 och jämförelsestörande rability 2006, 2008 and 2009. poster 2008. SEK M 10,000 8,000 6,000 4,000 05 06 07 08 09 Sales by product group mechanical locks, lock systems and accessories, 51 % electromechanical and electronic locks, 9 % Security doors and fittings, 40 % Säkerhetsdörrar och beslag Elekromekaniska och elektroniska Mekaniska lås, låssystem och tillbehör In 2009 the division launched aesthetic and environmen- tally sensitive access control solutions, including stand- alone access control solutions using innovative technolo- gies from other ASSA ABLOY companies. Some of these door and hardware solutions were winners of the prestigious GOOD DESIGN® Awards, providing international recogni- tion for new, advanced, visionary and innovative products with imaginative, original and groundbreaking design. Cost-efficiency The Americas division strives for operational excellence to further improve performance in a number of areas. Some of the areas targeted are Shared Services, production effi- ciency, Lean methods and coordinated purchasing for the production units. Lean activities in both manufacturing and administration are an important part of Americas’ operations and culture and drive continuous improvement across the entire divi- sion. Outsourcing of some components and improved auto- mation processes complement the division’s cost-efficiency strategy. Lean methods lead to more efficient production flows, better control of material costs, improved decision-making procedures, shorter time-to-market and closer cooperation with marketing and sales teams. They have contributed to an increased operating margin in 2009. Work on developing Lean methods will continue in 2010. Americas division continues to coordinate administra- tive services among its companies. In addition to financial services and human resources, legal and IT services have been consolidated across most companies in the division, leading to increased efficiency and quality. » Increased focus on Lean activities, market presence and innovation in tough market conditions « Market segments non-residential, 90 % residential, 10 % Bostadsmarknaden Institutionella marknaden ASSA ABLOY AnnuAL repOrt 2009 AmeriCAS DiviSiOn 37 Asia pacific Strengthens the leading position in Asia ASSA ABLOY has a leading position on the Chinese market and is continuing to grow through the announced acquisition of pan pan. As a result of organic growth and strategic acquisitions, the Group offers a complete range of door opening solutions on the Asian markets. in the first part of the year, the markets were negatively impacted by the downturn in the housing market and the commercial con- struction market. Later in the year, growth in Asia accelerated again and Asia pacific strengthened its market-leading position. Asia Pacific in brief The Asia Pacific division manufactures and sells mechanical and electromechanical locks, high-security doors and fittings. The division is divided into five geographical sub-regions – North Asia, China, South Asia, Australia and New Zealand – plus a common group for high-security doors. Australia and New Zealand account for around half of the division’s sales, while China and the rest of Asia account for the other half. In Asia the division’s major brands are Yale, Guli, Wangli and Baodean. The markets in Australia and New Zealand are more mature, with established lock standards and strong brands such as Lockwood and Interlock. The production units in China supply significant volumes to ASSA ABLOY’s other regions. Report on the year The division’s sales during the year totaled SEK 3,789 M (3,321), which was an increase of 14 percent. Operating income (EBIT) excluding restructuring costs rose by 29 per- cent to SEK 459 M (357), which represents an operating margin of 12.1 percent (10.8). Growth in China The Chinese lock market is growing thanks to rapid urban- ization. Migration from the country to the cities and the modernization of both residential and commercial build- ings are creating increased demand for security. The mar- ket is fragmented, with many local security companies, but ASSA ABLOY has a leading position as the largest security- door and lock manufacturer in China. In China the same types of lock, handle and fittings are often used in both homes and offices. Sales comprise both products manufactured in the region and premium prod- ucts imported from Europe and North America. There are few national or regional standards govern- ing how locks, doors and fittings should be designed and fit together. ASSA ABLOY is working with Chinese regula- tory authorities to develop and improve these security standards. In the first part of the year, the markets in Asia were nega- tively impacted by the downturn in the housing market and the commercial construction market. The latter part of the year saw the return of positive organic growth in Asia, with particularly strong growth in the Door Group. Other Asian markets There is still considerable growth potential in the large, frag- mented markets in the rest of Asia. These markets are gener- ally underdeveloped, with low security standards, and are therefore mainly driven by the price of the lock or security solution. Asia Pacific is continuing its strong efforts to develop the sales organization into focused sales teams and to con- centrate on fewer but stronger brands, which has further strengthened the division’s product offering. In South Korea the Group company iRevo is the market leader in digital door locks. This type of door lock has been very successful on the residential market in both South Korea and China. During the year, iRevo began to assemble digital door locks in Shanghai to meet the high Chinese demand in this segment. Stable market in Australia and New Zealand In Australia and New Zealand ASSA ABLOY is the market leader on both the housing and the commercial market with its established Lockwood and Interlock brands. In 2009 a substantial downturn in the housing and the commercial markets resulted in reduced sales. In the latter part of the year the market began to grow again, albeit at a somewhat lower rate than in previous years. Market presence Asia Pacific is working actively on a number of initiatives to increase the division’s market presence. Some of the most important initiatives are the development of the specifica- tion and project market, expansion into new markets and segments, and acquisitions. Asia Pacific has established a Door Group comprising the Specification of total door opening solutions is increas- companies Wangli, Beijing Tianming and Pyropanel. These companies are working together to develop new products, technologies and sales channels and to reduce the costs of adapting products to different national and security stan- dards. The investment in the new Door Group is expected to lead to higher growth due to the increased focus across the region on higher security requirements for doors, including fire safety requirements. ingly important for sales and the number of specification sales representatives has therefore been increased sub- stantially in Asia Pacific and the close collaboration with architects and security consultants further strengthened. In order to actively counter the market downturn, the division continued to focus on the new sales organization, which is structured into market segments and specification develop- ment, with account managers for major national customers. 38 ASiA pACiFiC DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 » ASSA ABLOY has a leading position on the Chinese market « Key figures SEK M 2008 2009 3,321 19 357 10.8 Income statement Sales² total growth, % Operating income (eBit)¹ Operating margin (eBit)¹, % Capital employed Capital employed – of which goodwill return on capital employed¹, % Cash flow Cash flow Average number of employees ¹ excluding items affecting comparability. ² reclassification has been made for 2008 and 2009. For more information see note 34. Omsättning och rörelseresultat 2,768 1,628 13.2 460 7,065 3,789 14 459 12.1 2,768 1,536 16.1 610 7,560 The local sales organizations are united under the ASSA ABLOY master brand in order to better meet the demand for total door and security solutions. This initiative will continue in 2010. Acquisitions remain an important strategy for increas- ing market presence in Asia Pacific, and during 2009 the acquisition of Pan Pan was announced, which is China’s larg- est manufacturer of high-security steel doors. The company has production in six locations in China. Pan Pan manufac- tures high-security doors, including fire, corrosion-proof, armored and standard high-security doors. The company has an annual capacity to produce 2.4 million doors. It has an extensive and well-established distribution network across China and is a good fit with ASSA ABLOY’s other door com- panies on the Chinese market. Today ASSA ABLOY is the largest lock company in China and with the announced acquisition of Pan Pan the Group has more than 12,000 employees in the local market, making it the leader in door opening solutions, with a full product range covering many different segments and well- known brands. This has been achieved through a healthy combination of acquired and organic growth. Product leadership Innovation and continued product development are impor- tant factors enabling the division to maintain an attractive product range and increase sales. Electromechanical secu- rity products are increasingly important and there is con- siderable growth potential for electronic cylinders in the non-residential segment. Electromechanical security solu- tions for the residential segment have been launched under the iRevo brand and have attracted much attention on the market. Cost-efficiency The Group’s efficiency programs intensified in 2009. The aim of these efficiency programs is to improve production efficiency and relocate component production to low- cost countries, mainly China. The division has continued to invest in production facilities in China, mainly to meet rising demand on the local market but also to increase intra-Group deliveries to Europe and North America. The remaining production plants in Australia and New Zealand now focus on customized solutions and final assem- bly. A large proportion of the components and standard products will be made by the division’s Chinese plants. Pro- ductivity in these plants is constantly improving as a result of the continued implementation of Lean methods and invest- ments in semi-automated processes and sustainability. Sales and Operating income¹ SEK M 3,500 3,000 2,500 2,000 1,500 1,000 500 05 06 07 08 09 SEK M 450 400 350 300 250 200 150  Sales2 Operating income ¹ excluding items affecting compa- rability 2006, 2008 and 2009. ² reclassification has been made 1 Exklusive omstrukturering for 2008 and 2009. For more 2006 och jämförelsestörande information see note 34. poster 2008. Sysselsatt kapital/avkastning på sysselsatt kapital Capital employed and Return on capital employed¹ SEK M 3,000 2,500 2,000 1,500 1,000 500 0 05 06 07 08 09 % 30 25 20 15 10 5 0  Capital employed Return on capital employed ¹ excluding items affecting compa- rability 2006, 2008 and 2009. Sales by product group mechanical locks, lock systems and accessories, 61 % electromechanical and electronic locks, 14 % Security doors and fittings, 25 % Säkerhetsdörrar och beslag Elekromekaniska och elektroniska Mekaniska lås, låssystem och tillbehör Market segments non-residential, 60 % residential, 40 % Bostadsmarknaden Institutionella marknaden ASSA ABLOY AnnuAL repOrt 2009 ASiA pACiFiC DiviSiOn 39 Global technologies enhanced product offering Aggressive investments in new products and market segmentation had a positive impact on sales dur- ing a year of weak market development. the global economic downturn had a negative impact on new commercial construction, especially in north America. european sales were stable, although at lower levels, and the Asian market returned to growth in late 2009. in order to counter the downturn on mature markets, HiD Global and ASSA ABLOY Hospitality made major marketing efforts but also increased Lean activities and adjustments to production capacity, making it possible to maintain good operating income and cash flow levels. Global Technologies in brief Global Technologies division has a leading position as a sup- plier of electronic security solutions worldwide. The division consists of two business units, HID Global and ASSA ABLOY Hospitality, with sales mainly to the non-residential seg- ment. HID Global is a global leader in secure identity solu- tions, primarily in identity and access management and in contactless identification technology solutions. ASSA ABLOY Hospitality is the market leader in electronic lock systems and safes for hotels and cruise ships worldwide. Report on the year The division’s sales during the year totaled SEK 4,766 M (4,866), which was a reduction of 2 percent. Operating income (EBIT) excluding restructuring costs rose by 5 per- cent to SEK 766 M (729), which represents an operating margin of 16.1 percent (15.0). HID Global HID Global is the global leader in physical access control and offers a variety of technology-based solutions for secure identification. Identity and access-management product lines include contactless smart cards, readers and control- lers for physical and logical access control under the HID and OMNIKEY brands. In the field of secure smart card issuance and card personalization services, the Group company Fargo offers a number of card printers and encoders. HID Global – main events in 2009 New products, together with active efforts to improve the efficiency and the organization of the business unit, enabled HID Global to maintain good margins even though the market downturn had a negative impact on sales. Sales of embedded card readers in equipment such as Dell’s laptop computers continued to show positive growth. The tech- nology combines physical and logical access in one system, enabling the same contactless smart cards to be used for both buildings and computers. Fargo’s networked printer business performed well during the year. The reorganiza- tion of HID Identification Solutions (previously ITG) is near- ing completion with the establishment of targeted busi- ness segment for sales, marketing, engineering and support function. Identity and access management 2. Physical access control 1. Secure issuance 3. Logical access control Secure identity 7. Industry and logistics 4. Contactless payment 6. Animal ID 5. eGovernment Identification solutions HID Global’s product areas HID Global works with a common technology platform for secure identification using smart cards, RFID and encryption. Below are some examples of HID Global’s product offering in this area of the security market. identity and access management 1. Secure issuance Printing and issuance of identification cards 2. Physical access control Contactless cards and card readers 3. Logical access control Card readers and software for secure log-on identification solutions 4. Contactless payment Contactless payment cards and reader modules 5. eGovernment Identification technologies for identity cards, ePassports, and readers 6. Animal ID Contactless tags and readers for identifying livestock 7. Industry and logistics Contactless tags and readers for inventory control and logistics 40 GLOBAL teCHnOLOGieS DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 » Global leader in access management and hotel security « Market presence HID Global continued its long-term investments in market presence and sales despite the adverse business climate in 2009. One important priority for HID Global is the global launch of ‘HID on the Desktop’, a series of logical access solu- tions that help to increase utilization of existing investments in physical access. With ‘HID on the Desktop’, the same smart card is used to gain access to the office or university and to log on to the computer. The products have been well received by the market and the roll-out will continue in 2010. The business unit also works closely with architects and security consultants on project specification early in the construction process. During the year, HID Global organized a number of round-table activities to which external security consultants and ASSA ABLOY’s other divisions were invited to discuss new applications and solutions, new technology trends and how the new technology and security solutions can be used. This creates closer collaboration with specifiers and security consultants in the market. Product leadership HID Global increasingly supplies reader technology to all the Group’s divisions. Reader technology is being inte- grated into ordinary mechanical door opening solutions. This results in increased growth for both HID Global and the other divisions, as it considerably raises the technology level of traditional products, offering customers higher security and better functionality. One of HID Global’s key priorities is therefore drawing up a development strategy for a global solutions platform. HID Global has more than 20 ongoing development projects within the ASSA ABLOY Group. Cost-efficiency One important project in 2009 was to reduce inventories in the business unit. The project was implemented across all product and geographical areas and resulted in a reduction in capital employed and an improved cash flow. HID Global also increased its activities in Value Analysis/ Value Engineering (VA/VE). The goal is to reduce product costs without impairing functionality. This has led to signifi- cant cost savings in both the existing product range and the production of new products. Key figures SEK M 2008 2009 4,866 –1 729 15.0 Income statement Sales² total growth, % Operating income (eBit)¹ Operating margin (eBit)¹, % Capital employed Capital employed – of which goodwill return on capital employed¹, % Cash flow Cash flow Average number of employees ¹ excluding items affecting comparability. Omsättning och rörelseresultat ² reclassification has been made for 2008 and 2009. For more information see note 34. 6,112 4,275 12.7 672 2,811 4,766 –2 766 16.1 5,464 4,030 12.9 1,005 2,416 Sales and Operating income¹ SEK M 5,000 4,000 SEK M 1,000  Sales2 Operating income 800 600 3,000 ¹ excluding items affecting compa- rability 2006, 2008 and 2009. ² reclassification has been made 1 Exklusive omstrukturering for 2008 and 2009. For more 2006 och jämförelsestörande information see note 34. poster 2008. 2,000 Sysselsatt kapital/avkastning på sysselsatt kapital 08 09 400 05 07 06 Capital employed and Return on capital employed¹ SEK M 6,000 5,000 4,000 3,000 2,000 05 06 07 08 09 Sales by product group % 20 15 10 5 0  Capital employed Return on capital employed 1 Exklusive omstrukturering ¹ excluding items affecting compa- 2006 och jämförelsestörande rability 2006, 2008 and 2009. poster 2008. identity and access, 56 % identification solutions, 18 % Hotel locks, 26 % ASSA ABLOY Hospitality ASSA ABLOY Identification Technologies (ITG) HID Global Market segments non-residential, 100 % residential, 0 % Bostadsmarknaden Institutionella marknaden ASSA ABLOY AnnuAL repOrt 2009 GLOBAL teCHnOLOGieS DiviSiOn 41 ASSA ABLOY Hospitality ASSA ABLOY Hospitality produces electronic lock systems and safes for hotels and cruise ships. The business unit includes leading global brands such as VingCard Elsafe and TimeLox. VingCard Elsafe, the world’s best-known brand for hotel locking systems, has products installed in over 6.5 mil- lion hotel rooms in more than 39,000 hotels worldwide. ASSA ABLOY Hospitality – main events in 2009 The new radio-frequency identification (RFID) hotel lock was well received by the market and made a positive contri- bution to sales in a market with lower volumes. ASSA ABLOY Hospitality also felt the downturn in the new-construction sector, particularly on the hotel and casino market. The re- location of production from Western Europe to a new pro- duction plant in China and increased production efficiency had a positive impact on the operating margin. In recent years demand for VingCard’s RFID technol- ogy has increased and this now accounts for more than 50 percent of the electronic locks produced by VingCard. RFID technology offers higher security and, when combined with ZigBee wireless technology, provides a very reliable and cost-efficient security system, improving efficiency and reducing maintenance costs for hotels. More than 35,000 rooms are now equipped with VingCard’s VisiOnline wire- less system. The new VisiOnline system is integrated with the hotel’s other operating systems to add efficient new housekeep- ing, security and maintenance functions. The VisiOnline sys- tem improves customer service by enabling the front desk to authorize room changes, extensions of stay and access to conference rooms without the guest needing to hand in their key. New integrated technology to further develop the VisiOnline system will be launched in early 2010. Market presence It is strategically important for ASSA ABLOY Hospitality to expand its customer base beyond the traditional hotel and cruise sectors. Marketing efforts are therefore being made in other segments, such as retirement and student accom- modation, where security and accessibility requirements can be met by the products and technologies offered by ASSA ABLOY Hospitality. Future initiatives are in hand to offer integrated security solutions with other ASSA ABLOY companies. Product leadership One strategic priority for increased growth in ASSA ABLOY Hospitality is offering upgrades for previously installed prod- ucts. Important components in achieving this are technologies such as RFID, NFC (Near Field Communication) and ZigBee RF online solutions. ASSA ABLOY Hospitality’s online products are designed to facilitate gradual upgrading of existing technology over several years to better meet customers’ needs and investment plans. For example, ASSA ABLOY Hospitality has installed its products in 10,000 rooms at the Venetian Palazzo in Las Vegas, where 3,500 rooms now use VisiOnline technology and the rest use off-line technology. Cost-efficiency Major efforts are also being made to increase efficiency in the business unit through relocation of production to low- cost countries and outsourcing of component production to high-quality suppliers in low-cost countries . In 2009 ASSA ABLOY Hospitality completed the relocation of all pro- duction from Western Europe to the new production plant in China. In 2010 Hospitality is set to implement a global ERP sys- tem, which will improve the efficiency of administrative and global purchasing functions and develop the web-based ordering portal used by all Hospitality’s business partners. 42 GLOBAL teCHnOLOGieS DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 the home of Australian cricket goes for a fast, seamless upgrade of its access control system the melbourne Cricket Ground (mCG),built in 1853, is not only one of the most famous arenas in the sport; it also rates as one of the world’s most well known stadiums, ranking alongside Lord’s Cricket Ground, Wembley Stadium and Yankee Stadium. Because of its popularity as a sporting and exhibition venue, the ground is under 24-hour guard, yet its security and access systems were seen as old fashioned and out of date. the exist- ing software and hardware solutions were complex, the cabling was poorly documented; and the whole system required sub- stantial training for all its users. time for an upgrade – but a clever one, for the ground is in constant use, every day of the year. the solution needed to be very easy to learn and reliable; the installation would have to be quick and seamless. HiD was chosen to provide an open, ip-based solution that would allow an easy upgrade path for the mCG at any stage in the future. HiD’s proposal featured the Opin™ plat- form on vertX™ hardware, which meant that existing secu- rity cables could be utilized along with much of the existing it infrastructure. the overall proposal proved to be a very simple and effec- tive solution from a user’s point of view while maintaining all of the power and functionality expected in a world-class control platform. entrance Systems Acquisitions strengthen the customer offering ASSA ABLOY entrance Systems strengthened its product and service offering through complementary acquisitions in 2009. the italian company Ditec, which offers products in the fast-growing and profitable entrance solutions segment, was acquired in the fall. in the established operations, new products con- tributed to a strong performance during a year of weak market development due to the global down- turn in the construction segment. expanded service continued to be a key component of the division’s market offering. Entrance Systems in brief Entrance Systems division is the world-leading supplier of automatic entrance solutions. The product range, sold under the Besam brand, include automatic swing-, sliding and revolving doors, air curtains and a comprehensive ser- vice and maintenance program. A significant part of sales goes direct to major end-customers in the healthcare, com- mercial and transport sectors. Pedestrian door, gate, garage door and industrial door automation is sold under the Ditec Entrematic brand. The products are distributed through distributors and installa- tion companies and installed in both commercial and pri- vate applications. The division’s third brand, EM Entrematic, markets auto- mated pedestrian door products and targets major distribu- tors particularly in Europe. Report on the year The division’s sales during the year totaled SEK 3,733 M (3,173), which was an increase of 18 percent. Operating income (EBIT) excluding restructuring costs rose by 30 per- cent to SEK 587 M (453), which represents an operating margin of 15.7 percent (14.3). Demand on the division’s principal markets slowed dur- ing the year, mainly due to lower investments in the impor- tant retailing sector. However, this was offset by increased sales in other segments such as healthcare and transport. Asia showed strong growth during the year. The division also made major investments in new products and increased marketing activities. Automatic entrance solutions for non-residential customers Automatic entrance solutions and service offerings are mainly sold in the non-residential segment, which com- prises end-users in both the private and public sectors. Typi- cal customers are retailers, hospitals, homes for the elderly, hotels, airports, transport terminals, office buildings, public buildings and schools. It is increasingly important to offer automatic entrance solutions in the form of complete pack- ages in order to satisfy end-user needs. A total solution from Entrance Systems usually consists of a combination of auto- matic sliding, swing and revolving doors with safety and con- venience sensors and a preventive maintenance program. The division’s product range, global resources and know- convenient, reliable and aesthetic entrance solutions that are sustainable and can be complemented by a customized service offering. EMEA The weakening market conditions in EMEA resulted in nega- tive growth during the year, but the division nevertheless continued to increase its market shares in many key mar- kets. Marketing activities were implemented to mitigate this negative growth, including new product launches and the development of new service concepts. The EM Entrematic brand continued to show strong growth and increased its activities in a number of new markets. North America Sales in the North American market were weak in 2009 and negatively impacted by the widespread market downturn in the retail segment in particular. The customer service offering performed strongly and Besam won a number of major service contracts in the USA and Canada. The product launches in 2008 had a full impact in 2009 and resulted in increased market shares. Asia, Australia and New Zealand Sales in Asia remained strong during the year, with positive growth in China and South East Asia. The acquisition of Cheil in South Korea has significantly strengthened the position in the region. The markets in Australia and New Zealand slowed, but the division consolidated its market position through organic growth and a complementary acquisi- tion in New Zealand, which resulted in a stronger service offering. Market presence Entrance Systems is continuously working to expand its cus- tomer offering by selling total automatic entrance solutions, including a comprehensive service concept. Regular preven- tive maintenance is beneficial for customers, and ongoing contact with these end-customers also enhances opportu- nities for additional sales. Great importance is attached to the sales training of service engineers to take advantage of their daily contact with customers. The division is also work- ing on increasing efficiency in the service organization, on further automating processes and increasing the number of customer visits. ledge of the end-customer’s local needs make Entrance Systems an ideal partner for creating a wide range of safe, The acquisition of Ditec has added a further range of products to the customer offering. Ditec is a global leader in 44 entrAnCe SYStemS DiviSiOn ASSA ABLOY AnnuAL repOrt 2009 Key figures SEK M 2008 2009 3,173 6 453 14.3 Income statement Sales² total growth, % Operating income (eBit)¹ Operating margin (eBit)¹, % Capital employed Capital employed – of which goodwill return on capital employed¹, % Cash flow Cash flow Average number of employees ¹ excluding items affecting comparability. ² reclassification has been made for 2008 and 2009. For more information see note 34. Omsättning och rörelseresultat 3,425 2,763 13.8 399 2,260 3,733 18 587 15.7 4,116 3,223 15.2 680 2,253 Sales and Operating income¹ SEK M 4,000 3,500 3,000 2,500 SEK M 600  Sales2 Operating income 540 480 420 2,000 ¹ excluding items affecting compa- rability 2006, 2008 and 2009. ² reclassification has been made 1 Exklusive omstrukturering for 2008 and 2009. For more 2006 och jämförelsestörande information see note 34. poster 2008. 1,500 Sysselsatt kapital/avkastning på sysselsatt kapital 08 09 300 360 07 06 05 Capital employed and Return on capital employed¹ % 18 16 14 12 10 8  Capital employed Return on capital employed 1 Exklusive omstrukturering ¹ excluding items affecting compa- 2006 och jämförelsestörande rability 2006, 2008 and 2009. poster 2008. SEK M 4,500 4,000 3,500 3,000 2,500 2,000 05 06 07 08 09 Sales by product group Automatic doors, 63% Service, 37% service Auto Market segments non-residential, 100 % residential, 0 % Bostadsmarknaden Institutionella marknaden » Acquisitions in door automation are strengthening the customer offering « entrance automation covering pedestrian doors, industrial doors, high-speed doors and gate automation. This acquisi- tion is an important step in the division’s growth strategy in the fast-growing and profitable entrance automation seg- ment. It also strengthens the division’s indirect sales channel to both the mature markets in Europe and North America and the expanding entrance automation business in emerg- ing markets. Entrance Systems also acquired the Swedish company Portsystem 2000, which specializes in end-customer solu- tions for industrial doors and docking systems. The com- pany offers an attractive fit with Besam’s model of supplying major logistics and retail companies with customization and service in application areas such as automatic doors, indus- trial doors and docking stations. The division launched an eCommerce solution during the year to further strengthen the relationship with its dis- tributors and increase transaction efficiency. These services will be further expanded in 2010. Product leadership The division continued to invest in product development and initiated a number of important projects in 2009. The new Besam SW100 low-energy automatic door was launched in Europe during the year. The new Besam RD3L large revolving door was launched in the second half of the year and was well received by the market. These products have a number of competitive advantages, including low operating costs. SMART Reset, Ditec’s High Speed Industrial Rolling door has a self-repairing curtain and is suitable for high-traffic areas. SMART Reset handles high wind loads, is compact and therefore fits into limited spaces. Several product launches are set to take place in 2010 in the key product areas of sliding doors, revolving doors and garage and gate automation. Product customization to meet local conditions and requirements in Asia and North America continued, strengthening competitiveness in several key markets. Cost-efficiency The division’s efficiency programs intensified in 2009. The aim of these efficiency programs is to improve production efficiency and transfer component production to low-cost countries. Several important projects to relocate compo- nent purchases and production capacity to low-cost coun- tries were completed during the year and new projects were initiated to further reduce product costs. Measures to increase sales and productivity continue in the service organization. The project to provide service engineers in several countries with hand-held computers to improve their efficiency continued during the year produc- ing good results and leading to reduced service administra- tion costs. Owing to the weaker market trend in mature markets during the year, Entrance Systems successfully adjusted costs to the lower volumes. This had a positive impact on the operating margin in 2009. ASSA ABLOY AnnuAL repOrt 2009 entrAnCe SYStemS DiviSiOn 45 employees employees generate success It is ASSA ABLOY’s employees that generate its success. Considerable efforts are therefore made to develop and retain the Group’s employees. ASSA ABLOY aims to be an attractive employer by offering challenging jobs, good development opportunities and a positive and engaging work situation. Common knowledge-base All employees must complete the interactive web-based orientation program ‘Entrance to ASSA ABLOY’. It is avail- able in 15 languages and informs employees about the organization’s history, products, strategy and Code of Con- duct. In 2009 more than 22,000 employees took part in the program. Global employee survey A global employee survey, first carried out in 2006, is con- ducted every 18 to 24 months to find out the employees’ opinions on their work, their workplace and the company. Evaluation and comparison with the results of previ- ous surveys show the effect of the measures taken and are important tools in the improvement process. Around 18,000 employees took part in the latest survey in 2008. This survey showed a major or minor improvement in all areas compared with 2006, confirming that the follow-up activi- ties had been effective. The results from more than 150 units are reported and communicated to all employees. The next employee survey, the third, will be conducted in April 2010. Management training Every year ASSA ABLOY offers a number of senior managers the opportunity to take part in the Group’s two develop- ment programs, ASSA ABLOY Management Training (MMT) and the ASSA ABLOY Business Leadership Program. In 2009 84 managers took part in these programs. MMT, which is an internal program, gives participants a deeper knowledge of all aspects of ASSA ABLOY’s business and the opportunity to build and expand their internal con- tact network, to share and benefit from good practice and to identify new business opportunities. Since the first pro- Omsättning och rörelseresultat gram in 1996, 360 managers from 33 countries (including the 2010 program) have taken part. The program comprises three or four modules over a 12-month period. The ASSA ABLOY Business Leadership Program was launched in 2005 and is done in collaboration with the Institute for Management Development (IMD) in Lausanne, Switzerland. In 2009 two programs were run with a total of 57 managers. A total of over 200 managers have taken part in the program. Scholarship Program ASSA ABLOY’s Scholarship Program offers employees the opportunity to work at another Group company for a short period. This program is open to all employees. It gives parti- cipants the opportunity to learn about the methods, proce- dures and products of another Group company and to bring these experiences back to their own workplace. Employee development ASSA ABLOY has a global employee development process in place, the Talent Management Process. The goal is to enhance career opportunities in a structured way, while achieving better utilization of the Group’s total resources. This process includes employees at all levels. Recruitment A basic principle of ASSA ABLOY’s recruitment policy is to give priority to internal candidates provided they have equal qualifications to external applicants. To encourage and facili- tate internal mobility, all job vacancies are also advertised on the Group’s global intranet. In 2009 a Group-wide guide to recruitment and selection was launched to ensure a uniform approach and the quality of the recruitment process. Average number of employees Number of employees by region Number 35,000 32,000 29,000 26,000 23,000 20,000 05 06 07 08 09 1 Exklusive omstrukturering 2006 och jämförelsestörande poster 2008. europe, 11,477 north America, 7,595 Central and South America, 535 Africa, 515 Asia, 8,096 Australia and new Zealand, 1,157 Pacific Asia Africa Central and South America North America Europe 46 empLOYeeS ASSA ABLOY AnnuAL repOrt 2009 An unforgettable experience three participants in the ASSA ABLOY Scholarship pro- gram for 2009 share their experiences. Dean Norton, product Development technician, ASSA ABLOY Australia Eight weeks spent at ASSA in Eskilstuna, Sweden ‘I helped with testing, developing test jigs, and machine maintenance in the test lab. the whole expe- rience allowed me to develop my ability to adapt to new situations and improved my communication and people skills.’ Thomas Schultz, Advertising and pr manager at ASSA ABLOY Sicherheitstechnik, Germany Two months spent at Security Merchants Ltd in Auckland, New Zealand, and ASSA ABLOY Australia in Melbourne. ‘During my stay, we had a lot of discussions and work- shops that were beneficial for both sides. Having improved my english language skills, I am now able to communicate more effectively with other pr and advertising colleagues throughout the Group.’ Roland Martin, Operations Analyst, ASSA ABLOY emeA Three months spent at ASSA ABLOY South Africa ‘the benefits far outweigh the challenges if you make the most of each opportunity. I worked with a team of engineers, applying Overall equipment effectiveness principles in the zinc furniture die-casting facility. We made substantial gains at the facility, improving out- put by 10 per cent.’ Jobseekers targeted on Facebook and twitter Social networking on the Internet is a natural part of everyday life and has changed the way people search for jobs and interesting employers. When Americas Division wanted to get into social recruitment it approached its recruitment partner monster.com. ‘As we’re breaking new ground there are no given rules. monster’s system has enabled us to upload the jobs we already market on monster.com to our own Facebook and twitter pages – ASSA ABLOY Americas Jobs,’ says margaret Wirtes, director of the strategic Human resources project at ASSA ABLOY Americas. ‘this has allowed us to market ourselves to all the active and passive jobseekers who twitter and social- network on these sites daily – potentially millions of people.’ In addition, all the jobseekers who do not normally visit the company’s website get a chance to learn more about ASSA ABLOY Americas, Wirtes says. ‘Apart from the latest jobs we’ve added lots of videos, links, images and news to our profile pages.’ Be a fan or follow ASSA ABLOY Americas at www.facebook.com/assaabloyamericasjobs and www.twitter.com/assaabloyameric You can also be a fan or follow the ASSA ABLOY Group at www.facebook.com/assaabloygroup and www.twitter.com/assaabloygroup. Distribution, men and women men, 61% Women, 39% » ASSA ABLOY’s vision: to offer an attractive company for our employees « ASSA ABLOY AnnuAL repOrt 2009 empLOYeeS 47 Sustainable development A natural part of the business ASSA ABLOY’s work on sustainability is integrated throughout the value chain – from sourcing to recycling. Sustainability initiatives are based on an ongoing risk analysis as well as on the Group’s Code of Conduct and engage both internal and external stakeholders. Sustainability Report 2009 The global leader in door opening solutions Code of Conduct The Code of Conduct establishes the principles that ASSA ABLOY applies in relation to its employees, suppliers and other stakeholders. The Code is based on international standards, is consistent across the global organization and is available in 17 languages. ASSA ABLOY monitors the imple- mentation of the Code of Conduct and deals immediately with any non-conformances. The Code of Conduct is available to all employees, who are required to read and abide by it and related policies. Whistle-blowing procedures are in place to enable individu- als to report violations. The 2009 Sustainability Report will be published at the time of the 2010 Annual General Meeting. In 2009, 22,000 employees went through a mandatory orientation program which includes chapters targeted to increased awareness and understanding of the importance of the Code of Conduct. ASSA ABLOY’s way of working Social responsibility and sustainable development are based on ASSA ABLOY’s Code of Conduct. The Board of Direc- tors has the overall responsibility, while the Executive Team handles operational management of sustainability and the Group’s strategies. Coordinators appointed at divisional and company level are responsible for ensuring that policies, programs and tools relating to sustainability and environmental issues exist and are implemented, while the Human Resources departments at Group and divisional level oversee social and ethical issues. The divisions and their companies are responsible for compliance with the Group’s Code of Con- duct and for reporting back to Head Office. A committee chaired by ASSA ABLOY’s Director of Human Resources and including two employee representa- tives manages compliance with the Code of Conduct and handles any whistle-blowing cases. As well as information and guidelines, ASSA ABLOY’s intranet also provides tools to support the Group compa- nies in their sustainable development work. One such tool is a database detailing previous examples of good practice in the Group and containing all available facts, reports and follow-up actions concerning the sustainability program. Statistics and reports can be extracted from the database to enable Group companies to compare their performance with other ASSA ABLOY companies and assess what mea- sures should be undertaken. The sustainability program In 2007 ASSA ABLOY launched a three-year program devel- oped by the Group’s Sustainability Council together with representatives from all divisions. The program, which ended early in 2010, was based on the Group’s risk assess- ment procedures, practical sustainability issues and measur- able results. The program set out 20 objectives in the areas of chemi- cals handling, energy efficiency, health and safety, relation- ships with suppliers, product development, employee issues, and governance, along with clear timeframes and cost/benefit analyses. The program has made it possible to introduce proce- dures for quality and environmental management and to establish a structure for ongoing improvement in day-to-day operations. These now provide a firm platform for building a sustainable future for the Group. Corporate Governance ASSA ABLOY follows the Swedish Code of Corporate Gov- ernance, which forms part of the NASDAQ OMX rules gov- erning the Stockholm Stock Exchange. The principles of the Code are that companies should either comply with the rules or explain any deviation from it. The Code lays down responsibilities and ways of working for the Annual General Meeting, ASSA ABLOY’s Board of Directors and the Execu- tive Team. Control of suppliers Auditing and improving the ASSA ABLOY supplier base is a continuous task, and supplier selection is based on stan- dardized criteria for both quality and sustainability. Suppliers too are required to adhere to the Code of Con- duct. Quality and sustainability audits are carried out before new suppliers are accepted, and these audits are prioritized for any deemed to be in a risk category. The system used to evaluate suppliers’ compliance with the Code of Conduct includes criteria on wages, overtime, noise levels, protective equipment, chemical handling, acci- dent recording, environmental management systems and health and safety training. Any supplier failing to comply is asked to implement nec- essary improvements, and contracts are terminated if non- compliance continues. 48 SuStAInABLe DeveLOpment ASSA ABLOY AnnuAL repOrt 2009 Sustainability work Sourcing Innovation Manufacturing Sales Customers Code of Conduct and Corporate Governance Employees The supplier selection process The process has three steps: • Supplier self-assessment – the supplier assesses its ability to meet ASSA ABLOY’s standards. On-site audit – the sustainability screening audit evalu- ates how well a potential supplier meets requirements. Extended sustainability audit – this complements the standard audit. • • » An important part of ASSA ABLOY’s work on sustainable development is to ensure that all suppliers meet the Group’s requirements « After the audit, suppliers are given green, yellow or red sta- tus. Green means the supplier is approved; yellow means the supplier needs to improve within a specific timeframe; red means the supplier is not approved. A red or yellow grade can be upgraded through an improvement plan. If the supplier takes no steps to improve, it is immediately graded red and all purchasing is halted until the supplier achieves green status. Audits performed ASSA ABLOY performed 192 quality audits and 188 sustain- ability audits in 2009. At the end of the year, 178 active sup- pliers had passed the minimum standards for quality and sustainability and were classed as reliable. Another 37 sup- pliers were rejected and 29 were blacklisted. • • Screening will continue and yearly follow-ups on previ- ously approved suppliers will be performed. Random, un announced inspections will be more frequent. ASSA ABLOY’s supplier database The Group’s suppliers are listed, graded and tracked in a sup- plier database. Audit reports – for both quality and sustain- ability – are added regularly. The database also lists non-approved and blacklisted suppliers to ensure they are not used again. Sustainabil- ity audit results override quality audit results regarding non-compliance. This means that a supplier rejected for sustainability non-compliance is either banned outright or must wait for acceptance until the problems have been addressed. Product development ASSA ABLOY’s ambition to achieve world-class innovation involves looking at the environmental impact of every prod- uct, not just those for specifically Green solutions. Group companies use the Group’s Product Innovation Process and environmental checklist for all new product development. The Product Innovation Process has three major elements: • Product Management – addressing the strategic aspects of the process. Voice of the Customer – ensuring the company develops what the customers want. The Gateway process – ensuring that development pro- jects are carried out in a structured and efficient way. Vinst per aktie efter skatt och utspädning Vinst per aktie efter skatt och utspädning Number of reporting units Use of chlorinated solvents (PER and TRI) 200 150 100 50 0 05 06 07 08 09 the number of reporting units in the Group has increased by 122 percent to 180. tonne 100 80 60 40 20 0 05 06 07 08 09 2009 and 2008 relate to comparable units. ASSA ABLOY AnnuAL repOrt 2009 SuStAInABLe DeveLOpment 49 Sustainable development ASSA ABLOY implements its sustainability strategy and low- ers its costs by minimizing the chemicals, energy and mat- erials used in manufacturing. The Group’s environmental checklist helps to eliminate unnecessary functions, reduce the amounts of hazardous materials used and ensure that processes are sustainable and efficient. Manufacturing Energy ASSA ABLOY’s ambition is to reduce energy consumption and emissions of harmful greenhouse gases. The Group is therefore implementing a three-step approach to reduce energy consumption. Health and Safety ASSA ABLOY is committed to providing a safe working envi- ronment and to eliminating risks that can cause accidents or impair the health and wellbeing of employees. The aim is to create a culture where everybody contributes to improved health and safety. ASSA ABLOY has defined a number of objectives directed to continuous improvement. These objectives are based on a zero vision for work-related accidents. Health and Safety audits are included in the internal audits, and risk assessment is carried out routinely. Inci- dent reporting and analysis are used to identify preventive measures. The first step is to concentrate manufacture in as few plants as possible in order to maintain full capacity, efficient working practices and high quality. All units are benchmarked against each other so that special attention can be given to the plants with the great- est need. The second step is to introduce smart solutions that reduce energy and water consumption in both offices and factories. The third step is to evaluate alternative energy sources which in combination with innovative product design can make manufacturing processes even more energy-efficient. Water consumption Work to improve water efficiency has focused on plants with plating operations, where most of the consumption arises. Technical improvements in the purification and reuse of water in production reduced water consumption in 2009. Waste management The principle of Reduce, Reuse, Recycle is followed across the organization, reducing the amount of material in the products, designing products that can be upgraded rather than exchanged, and enabling recycling of material from process scrap and at the end of the products’ life cycle. Hazardous chemicals ASSA ABLOY also works continuously to reduce hazardous substances in production and find replacements for them. For example, most production plants have phased out chlorinated solvents successfully. Sales and customers ASSA ABLOY’s primary communication with its customers is through the sales force, and its image as a sustainable com- pany is often based on customers’ relationship with the sales people. For this reason the requirements of ASSA ABLOY’s Code of Conduct and business ethics form an important part of the Group’s sales training. Sustainability can provide new business opportunities. Research shows that 10 percent of all commercial construc- tion projects in the Western world may be Green in 2010. For the USA alone, the estimated value of related security products is USD 1.2 billion in 2010, and double that in 2013. A responsible employer Factory Compliance Audits covering areas such as working conditions, human rights, human resources issues, the work environment, workplace culture and skills development are conducted regularly at ASSA ABLOY’s factories. The Audits are conducted by external auditors in line with internationally accepted procedures so as to obtain an independent view of the situation at each factory. The Audits are followed by actions to implement improvements where needed. Vinst per aktie efter skatt och utspädning Vinst per aktie efter skatt och utspädning Energy use Accidents per million hours worked GWh 600 500 400 300 200 100 0 05 06 07 08 09 2009 and 2008 relate to comparable units. % 15 12 9 6 3 0 05 06 07 08 09 50 SuStAInABLe DeveLOpment ASSA ABLOY AnnuAL repOrt 2009 Stakeholders In the area of sustainable development, ASSA ABLOY’s stake- holders include shareholders, investors, customers, suppli- ers, employees, local communities, non-governmental orga- nizations (NGOs) and the media. ASSA ABLOY’s open-door policy means listening to these stakeholders and gaining benefit from their views. During 2009 ASSA ABLOY held round-table discussions and separate meetings with a number of investors. Requests from investors have generally concerned making more infor- mation about low-cost countries externally available, such as measures when establishing new operations; due dili- gence procedures; suppliers; sourcing volumes; indicators for supplier audits; reports about supplier audits, and infor- mation about rejected suppliers. The meetings have proved valuable and given the Group important feedback on sub- jects such as suppliers, the sustainability agenda and new business opportunities for Green products. Some of the results from the sustainability program Objective Result 2007 Result 2008 Result 2009 Trend Energy conservation – in manufacturing: A reduction of 15 percent by 2012 compared to the result in 2006, based on normalized values. Organic solvents – Phase out all use of perchloroethylene and trichloroethylene². Health and Safety Zero-vision and targets for improvement: – IR, injury rate = number of injuries per million hours worked – ILDR, injury lost-day rate = number of days lost due to injuries per million hours worked ISO 14001 – Compliance at all factories with significant environmental impact4. Suppliers – Sustainability assessments; acceptance of the Code of Conduct a documented requirement for all suppliers; sustainability audits for all suppliers in the risk category. Gender equality – Improve current levels of gender equality at senior levels. 536 GWh 482 GWh 444 GWh¹ 93 tonnes 42 tonnes 23 tonnes³ IR 9.5 ILDR 179 IR 8.7 ILDR 166 IR 8.4 ILDR 150 68 63 625 120 sustainability audits in China 100 sustainability audits in China 178 sustainability audits in China Level 2: 0% Level 3: 14% Level 4: 19% Level 5: 22% Level 2: 0% Level 3: 11% Level 4: 17% Level 5: 23% Level 2: 0% Level 3: 15% Level 4: 18% Level 5: 20% ¹ For comparable units. Total energy consumption amounted to 491 GWh, including units acquired during the year and increased reporting. ² Plants with completely closed washing processes will be phased out when the machines are taken out of service. Deterioration Read more about the updated objective in the 2009 Sustainability Report. Unchanged Improvement ³ For comparable units. Total discharge amounted to 43 tonnes, including units acquired during the year and increased reporting. 4 Number of certificates plus the corresponding number of certifiable systems for North American units. The change is due in part to the closing of plants in the restructuring program and in part to the addition of a number of new plants with certificates. 5 The reduction is due to the continuing restructuring program. The sustainable development program in brief 2004 Code of Conduct Whistle-blowing 2005 Internal audits training and best- practice sharing Criteria for investments if > SeK 1 m Due diligence directive 2006 Supplier audits tool employee survey 2007 Sustainability program 2008 Sustainability strategy for product development, with checklists 2009 Sales companies and offices included in reported figures employee survey marketing and sales training Supplier audit training Code of Conduct updated Increased monitoring of energy consumption and CO2 emissions Common recruitment and selection guide issued ASSA ABLOY AnnuAL repOrt 2009 SuStAInABLe DeveLOpment 51 Sustainable development ensuring compliance by independent audits In 2009 the independent company Hifab Interna- tional, together with local partners, carried out audits concerning the environment and social responsibility at ASSA ABLOY’s factories in roodepoort, South Africa and in mexico City. the audits were conducted in line with inter- nationally accepted and established procedures: an opening meeting with management and key staff; factory inspection; management interviews; docu- mentation reviews; interviews with a selected num- ber of workers at the factory; and a closing meeting with management. the audit team that visited ASSA ABLOY mexico reported: “there have been a lot of improvements made at ASSA ABLOY mexico in recent years. Of course there is always room for further improve- ment, but this factory has a committed management team and that is a fundamental and crucial point for success.” Lyna may, Hr manager at ASSA ABLOY South Africa, said: “One of the things we learnt from the audit was that what the management takes for granted is not necessarily what the employees are thinking. the social compliance audit has shown us where we can improve and that these improvements will benefit the entire organization.” Smart thinking at entrance Systems’ production plant ASSA ABLOY entrance Systems’ production plant at monroe, north Carolina, uSA found that a low-cost way of reducing energy use was by installing clear plastic barrier strips on all dock door openings. this reduces the loss of cool air during the heat of the day, meaning that the air-conditioning system has to work less hard. In addition, installing mesh grilles on the dock doors enabled the doors to be opened and the plant cooled by air from outside during the early part of the day without compromising security. Com- paring energy usage figures for the third quarters of 2009 and 2008 shows an average daily reduction of 425 kWh. the redesign of packaging material for the Besam powerSwing resulted in 100 percent recyclable mat- erial being used for the operator part of the product, and a 50 percent reduction in the amount of foam in the header part. the company is also participating in a recycling program for wooden pallets. energy-saving door solutions When ASSA ABLOY Americas division started to create its Green door solutions it already had a number of energy-efficient products in its product portfolio that could be certified under LeeD (the Leadership in energy and environmental Design Green Building rating System, developed by the uS Green Building Council). Some were originally developed for cold weather in Alaska and have a high level of thermal resistance. Stacey Callahan, Director of marketing and Innovation for the Door Group in the Americas Division in the uSA, says: “using these products saves energy in any building; they are just as useful in a warm climate where you want to keep the heat out and the cool air-conditioning in.” Callahan says the division is continuing to develop Green and energy-efficient prod- ucts. maiman’s thermal Fused Flush doors are made from 75 percent recycled mate- rial. Ceco’s metal doors are constructed using a high percentage of scrap steel and other re cycled material. the trIO steel-stiffened hollow metal door from Ceco Door and Curries is filled with polyurethane foam, which expands to fill the core, eliminating air pockets that could allow thermal leakage. the trinity door-closer from norton Door Control needs no batteries or power wiring. Any movement of the door of 10 percent or more is enough to generate the necessary power for closing. 52 SuStAInABLe DeveLOpment ASSA ABLOY AnnuAL repOrt 2009 report of the Board of Directors and financial reports Contents report of the Board of Directors Significant risks and risk management Sales and earnings Income statement – Group and Statement of comprehensive income Comments by division results by division Financial position Balance sheet – Group Cash flow Cash flow statement – Group Changes in equity – Group parent company financial statements 54 57 60 61 62 63 64 65 66 67 68 70 notes 1 Significant accounting and valuation principles 2 Sales 3 Auditors’ fees 4 Other operating income and expenses 5 Share of earnings in associates 6 Operational leasing agreements 7 expenses by nature 8 Depreciation and amortization 9 exchange rate differences in the income statement 10 Financial income 11 Financial expenses 12 tax on income 13 earnings per share 14 Intangible assets 15 tangible assets 16 Shares in subsidiaries 17 Shares in associates 18 Deferred tax 19 Other long-term financial assets 20 Inventories 21 Accounts receivable 22 parent company’s equity 23 Share capital, number of shares and dividend per share 24 post-employment employee benefits 25 Other provisions 26 Other short-term liabilities 27 Accrued expenses and prepaid income 28 Contingent liabilities 29 Assets pledged against liabilities to credit institutes 30 Business combinations 31 Cash flow 32 employees 33 Financial risk management and financial instruments 34 Income statement – reclassification Comments on five year in summary Five years in summary Quarterly information Definitions of key data terms proposed disposition of earnings Audit report 72 77 78 78 78 78 78 78 78 78 79 79 79 80 82 83 83 84 84 84 84 85 85 86 88 88 88 88 88 89 90 91 93 98 100 101 102 103 104 105 ASSA ABLOY AnnuAL repOrt 2009 53 report of the Board of Directors The Annual Report of ASSA ABLOY AB (publ.), corporate identity number 556059-3575, contains the consolidated financial statements for the financial year 1 January–31 December 2009. ASSA ABLOY is the global leader in door opening solutions, dedicated to satisfying end-user needs for security, safety and convenience. Significant events Sales and earnings Sales were maintained at a high level during the year and amounted to SEK 34,963 M (34,829), with organic growth of –12 percent (0) and acquired growth of 3 percent (4). Oper- ating income (EBIT) excluding restructuring and non-recur- ring costs fell by 2 percent to SEK 5,413 M (5,526), equiva- lent to an operating margin of 15.5 percent (15.9). Income before tax excluding restructuring and non-recurring costs totaled SEK 4,779 M (4,756). Restructuring costs of SEK 1,039 M (1,180) had a nega- tive impact on operating income for the year. Operating cash flow excluding restructuring payments was very strong and rose to SEK 6,843 M (4,769), an increase of 43 percent. Earnings per share after full dilution excluding restructuring and non-recurring costs were SEK 9.22 (9.21). Restructuring The restructuring programs launched in 2006 and 2008 continued at a high level during the year. More than 4,600 employees have left the Group as a result of the changes in the production structure since the start of the program. A number of plant closures and a switch to final assembly in high-cost countries have been implemented. A third restructuring program was launched in Q4 2009. This program comprises some 30 projects, is estimated to cost SEK 930 M and affects 1,200 employees. Over 20 pro- duction plants and offices will close. In addition, administra- tive support functions will be consolidated. Payback time for the full program is estimated at 3 years and the total cost was expensed in Q4 2009. Restructuring measures during Q1 affected the earnings by an additional SEK 109 M. Payments related to the restructuring programs totaled SEK 676 M (485) for the full year. Acquisitions and divestments In September Entrance Systems Division acquired the Ditec Group, a leading player in automatic doors, industrial and high-speed doors, and gate automation. The company, head- quartered outside Milan, Italy, has annual sales of around SEK 800 M. In December the division also acquired the Swedish company Portsystem 2000, specialized in end-customer solutions for industrial doors and docking systems. The com- pany has annual sales of around SEK 125 M. Both acquisitions were EPS-accretive from the acquisition date. In February Americas Division acquired Maiman, an established and respected player in wood and laminate doors. The company is located in Missouri, USA and has annual sales of around SEK 100 M. The acquisition was EPS- accretive from the acquisition date. In December the divi- sion also acquired the remaining 70 percent of shares in Cer- racol. The company, headquartered in Bogota, Colombia, is the market leader on the Central American lock market, with forecast sales for 2010 of around SEK 140 M. The acquisition was EPS-accretive from the acquisition date. Including smaller acquisitions, a total of eight acquisi- tions were consolidated during the year. The total purchase price for these acquisitions was SEK 1,107 M and preliminary acquisition analyses indicate that goodwill and other intan- gible assets with an indefinite useful life amount to around SEK 800 M. In 2009 an agreement was signed to acquire Pan Pan, China’s largest manufacturer of high-security steel doors. ASSA ABLOY has received anti-trust clearance. A business license is required from the local Chinese authorities before Pan Pan can be consolidated into the Group. This license is expected in Q1 2010. Three businesses in New Zealand, Sweden and Switzer- land were sold during the year. The impact on the Group’s financial position and performance was not significant. Research and development ASSA ABLOY’s expenditure on research and development during the year amounted to SEK 920 M (901), which is equivalent to 2.6 percent (2.6) of sales. ASSA ABLOY has a central function, Shared Technologies, with responsibility for the standardization of electronics in the Group’s common platforms. The objective is that this standardization should result in lower development costs and a shorter development time for new products. Sustainable development Two of ASSA ABLOY’s subsidiaries in Sweden carry on licens- able activities in accordance with the Swedish Environmen- tal Code. The Group’s licensable and notifiable activities have an impact on the external environment mainly through the subsidiaries ASSA AB and ASSA OEM AB. These compa- nies operate machine shops, foundries and associated sur- face-coating plants, which have an impact on the external environment through emissions to water and air as well as solid waste. The subsidiaries ASSA AB and ASSA OEM AB are actively addressing environmental issues and are certified in accor- dance with ISO14001. Most units outside Sweden carry on licensable activities and hold equivalent licenses under local legislation. 54 repOrt OF the BOArD OF DIreCtOrS ASSA ABLOY AnnuAL repOrt 2009 ASSA ABLOY’s units all over the world are working purpose- fully to reduce greenhouse gas emissions. This applies to units on both mature and new markets and to both existing and newly acquired companies. The 2009 Sustainability Report, reporting on the Group’s prioritized environmental activities and providing other infor- mation about sustainable development, will be published at the time of the Annual General Meeting in April 2010. Outlook Long-term outlook 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 accel- erate growth and increase profitability. Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well. Outlook for 2010 The organic growth is expected to be about 0 percent. Shareholders and share capital At year-end, ASSA ABLOY had 22,014 shareholders (22,921). The principal shareholders are Investment AB Latour and SäkI (9.6 percent of the share capital and 29.7 percent of the votes) and Melker Schörling AB (4.0 percent of the share capital and 11.6 percent of the votes). Investors outside Sweden accounted for 53 percent (50) of the share capital and 36 percent (34) of the votes. The ten largest sharehold- ers accounted for 37 percent (41) of the share capital and 57 percent (60) of the votes. A shareholders’ agreement, which includes preemption rights for sale of Series A shares by any party, exists between Gustaf Douglas, Melker Schörling and affiliated companies. Apart from this, the Board of Directors of ASSA ABLOY is not aware of any shareholders’ agreements or other arrange- ments between shareholders of ASSA ABLOY. ASSA ABLOY’s 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. Each Series A share carries ten votes and each Series B share one vote. All shares give the shareholders equal rights to the company’s assets and earnings. The Board’s proposed remuneration guidelines for senior management The Board of ASSA ABLOY proposes that the 2010 Annual General Meeting adopts the following guidelines for the remuneration and other employment conditions of the President and CEO and the other members of the Executive Team. Apart from the changes resulting from the Board’s proposal for a long-term incentive program, the proposed guidelines below do not involve any material change, com- pared with the guidelines adopted by the 2009 Annual Gen- eral Meeting. The basic principle is that remuneration and other employment conditions should be in line with market conditions and competitive. ASSA ABLOY takes into account both global remuneration practice and practice in the home country of each member of the Executive Team. The total remuneration of senior management should consist of basic salary, variable components in the form of annual and long- term variable remuneration, other benefits and pension. The total remuneration of the Executive Team, including previous commitments not yet due for payment, is reported in the Annual Report 2009, Note 32. Fixed and variable remuneration The basic salary should be competitive and reflect responsi- bility and performance. The variable part consists of remu- neration paid partly in cash and partly in the form of shares. The Executive Team should have the opportunity to receive variable cash remuneration based on the outcome in rela- tion to financial targets and, when applicable, individual tar- gets. This remuneration should be equivalent to a maximum 75 percent of basic salary (excluding social security expenses). In addition, the Executive Team should, within the frame- work of the Board’s proposal for a Long-Term Incentive pro- gram, have the opportunity to receive variable remunera- tion in the form of shares based on an interval defined by the Board regarding the development of earnings per share dur- ing 2010. This remuneration model also includes the right, when purchasing a share under certain conditions, to receive a free matching share from the company. This remu- neration should, if the share price is unchanged, be equiva- lent to a maximum 50 percent of basic salary (excluding social security expenses). The cost of variable remuneration for the Executive Team as above, assuming maximum outcome, amounts to a total of SEK 44 M (excluding social security expenses). This calcu- lation is made on the basis of the current members of the Executive Team. ASSA ABLOY AnnuAL repOrt 2009 repOrt OF the BOArD OF DIreCtOrS 55 report of the Board of Directors Deviations from guidelines The Board should have the right to deviate from these guidelines if there are particular reasons for doing so in an individual case. Transactions with related parties No transactions that have significantly affected the compa- ny’s financial position and performance have taken place between ASSA ABLOY and related parties. Other benefits and pension Other benefits, such as company car, extra health insurance or occupational healthcare, should be payable to the extent this is considered to be in line with market conditions in the market concerned. All members of the Executive Team should be covered by defined-contribution pension plans, for which pension premiums are allocated from the execu- tive’s total remuneration and paid by the company during the period of employment. Notice and severance pay If the company gives notice of termination of contract, the CEO is entitled to 24 months’ basic salary and other employ- ment benefits, while the other members of the Executive Team are entitled to a maximum 6 months’ basic salary and other employment benefits plus an additional 12 months’ basic salary. 56 repOrt OF the BOArD OF DIreCtOrS ASSA ABLOY AnnuAL repOrt 2009 Significant risks and risk management Risk management Uncertainty about future developments and the course of events is a natural risk for any business. Risk-taking in itself provides opportunities for continued economic growth, but naturally the risks may also have a negative impact on busi- ness operations and company goals. It is therefore essential to have a systematic and efficient risk assessment process and an effective risk management program in general. The purpose of risk management at ASSA ABLOY is not to avoid risks, but to take a controlled approach to identifying, man- aging and minimizing the effects of these risks. This work is based on an assessment of the probability of the risks and their potential impact on the Group. ASSA ABLOY is an international group with a wide geo- graphical spread, involving exposure to various forms of strategic, operational and financial risks. Strategic risks refer to changes in the business environment with potentially sig- nificant effects on ASSA ABLOY’s operations and business objectives. Operational risks comprise risks directly attribut- able to business operations, entailing a potential impact on the Group’s financial position and performance. Financial risks mainly comprise financing risk, currency risk, interest rate risk, credit risk, and risk associated with the Group’s pension obligations. ASSA ABLOY’s Board of Directors has overall responsibil- ity for risk management within the Group and determines the Group’s strategic focus based on recommendations from the Executive Team. In view of the decentralized struc- ture of the Group, and to keep risk analysis and risk manage- ment as close as possible to the actual risks, a large propor- tion of operational risk management takes place at division and business-unit level. Strategic risks The main risks of this nature encountered by ASSA ABLOY include various forms of business environment risks with an impact on the security market in general, mainly changes in customer behavior, competitors, brand posi- tioning and environmental risks. In addition, there are country-specific risks. ASSA ABLOY has global market penetration, with sales and production in a large number of countries. The empha- sis is on Western Europe and North America, but the propor- tion of sales in Asia and in Central and Eastern Europe has increased in recent years. The Group is therefore exposed to both general business environment risks and country- specific risks, including political decisions and comprehensive changes in the regulatory framework. Changes in customer behavior in general and the actions of competitors affect demand for different products and their profitability. Customers and suppliers, including the Group’s relation- ships with them, are subject to continuous local review. The Group has a central business intelligence function primarily focused on industry-specific factors. As regards competitors, risk analyses are carried out both centrally and locally. The Group owns a number of the strongest brands in the industry, including several global brands that complement the ASSA ABLOY master brand. Local product brands are gradually being linked increasingly to the master brand. Generally speaking, ASSA ABLOY’s good reputation is one of the Group’s strengths and serves as a foundation for market leadership. Activities to maintain and further strengthen ASSA ABLOY’s good reputation are constantly ongoing. These include ensuring compliance with ASSA ABLOY’s Code of Conduct, which expresses the Group’s high aspirations relating to social responsibility, commitment and respect for the environment. Operational risks Operational risks comprise risks directly attributable to busi- ness operations and with a potential impact on the Group’s earnings and financial position. Operational risks include legal risks, acquisition of new businesses, restructuring mea- sures, availability and price fluctuations of raw materials, customer dependence and more. Risks relating to compli- ance with laws and regulations and to financial reporting and internal control also fall into this category. The table on page 58 describes in more detail the man- agement of these risks. Financial risks Group Treasury at ASSA ABLOY is responsible for the Group’s short- and long-term financing, financial cash man- agement, currency risk and other financial risk management. Financial operations are centralized in a Treasury function which manages most financial operations as well as finan- cial risks with a Group-wide focus. Strategic risks Operational risks Financial risks Changes in the business envi- Förändringar i omvärlden med ronment with potentially signif- potentiellt betydande effekter icant effects on operations and på verksamhet och affärsmål. business objectives. • Kundbeteende • Customer behavior • Konkurrenter • Competitors • Varumärkespositionering • Brand positioning • Miljörisker • Environmental risks • Landspecifika risker med mera • Country-specific risks etc. Risks directly attributable to business operations with a potential impact on financial position and performance. • Legal risks • Acquisition of new businesses • Structural measures • Availability and price fluctua- tions of raw materials • Customer dependence etc. Financial risks with a potential impact on financial position and performance. • Financing risks • Currency risks • Interest rate risks • Financial credit risks • Risks associated with pension obligations ASSA ABLOY AnnuAL repOrt 2009 SIGnIFICAnt rISkS AnD rISk mAnAGement 57 Significant risks and risk management Operational risks Risk management Comments Legal risks The Group continuously monitors anticipated and implemented changes in legislation in the coun- tries in which it operates. At the end of 2009 it was assessed that there are no outstanding legal disputes that may lead to significant costs for the Group. A Group-wide legal policy has been implemented, specifying the legal framework in which business operations may be conducted. Ongoing and potential disputes and other legal matters are reported regularly to the Group’s cen- tral legal function. Guidelines on compliance with current competi- tion legislation have been implemented. Legal risks associated with property and liability issues are continually evaluated together with insurance company representatives. Acquisition of new businesses Acquisitions are carried out by a number of peo- ple with considerable acquisition experience and with the support of for example legal and financial consultants. The Group’s acquisitions in 2009 are reported in the Report of the Board of Directors and in Note 30, Business combinations. Acquisitions are carried out according to a uni- form and predefined Group-wide process. This consists of four documented phases: strategy, evaluation, implementation and integration. Restructuring measures The Group is implementing spe- cific restructuring programs, which entail some production units changing focus mainly to final assembly while certain units are closed. The restructuring programs are carried on as a series of projects with stipulated activities and schedules. The scope, costs and savings of the restructuring programs are presented in more detail in the Report of the Board of Directors. The various projects are systematically monitored on a regular basis. Price fluctuations and availability of raw materials Raw materials are purchased and handled primar- ily at division and business-unit level. For further information about procurement of materials, see Note 7. Regional committees coordinate these activities with the help of senior coordinators for selected material components. Credit losses Insurance risks Accounts receivable are spread across a large number of customers in many markets. Commercial credit risks are managed locally at company level and reviewed at division level. Receivables from each customer are relatively small in relation to total accounts receivable. The risk of significant credit losses for the Group is considered to be limited. A Group-wide insurance program is in place, mainly relating to property, business interruption, and liability risks. The insurance program covers all business units. The Group’s insurance cover is considered to be generally adequate, providing a reasonable balance between assessed risk exposure and insurance costs. The Group’s exposure to the risk areas listed above is regulated by means of its own captive reinsurance company. Risks relating to internal control regarding financial reporting The organization is considered to be relatively transparent, with a clear allocation of responsibili- ties. Internal control and other related issues are reported in more detail in the Corporate governance report. Instructions about the allocation of responsibili- ties, authorization and other internal control procedures are laid down in an internal control manual. Compliance with internal control is evaluated annually for all operating companies in the form of self assessment and via the Group’s Manage- ment Assurance function. Risks relating to financial reporting A well-established Controller organization at both division and Group level analyzes and monitors financial reporting quality. See also the section ‘Basis of preparation’ in Note 1. A comprehensive systematic risk assessment of financial reporting is carried out regularly. Further information about risk management relat- ing to financial reporting can be found in the Corporate governance report. 58 SIGnIFICAnt rISkS AnD rISk mAnAGement ASSA ABLOY AnnuAL repOrt 2009 A financial policy, which is updated annually and approved by the Board, regulates the allocation of responsibilities and control of the Group’s financing activities. Group Treasury has the main responsibility for financial risks within the framework established in the financial policy. A large num- ber of financial instruments are used in this work. Account- ing principles, risk management and risk exposure are described in more detail in Notes 1 and 33, as well as Note 24 regarding pension obligations. The Group’s financial risks mainly comprise financing risk, currency risk, interest rate risk, credit risk, and risks asso- ciated with the Group’s pension obligations. Financing risk Financing risk refers to the risk that financing the Group’s capital requirements and refinancing outstanding loans become more difficult or more expensive. Financing risk can be reduced by maintaining an even maturity profile for loans and by maintaining a high credit rating. The risk is further reduced by substantial unused confirmed credit facilities. Currency risk Since ASSA ABLOY sells its products in countries worldwide and has companies in over 60 countries, the Group is exposed to the effects of exchange rate fluctuations. Such changes affect Group earnings when the income statements of foreign subsidiaries are translated to Swedish kronor (translation exposure), and when products are exported and sold in countries outside the country of production (transaction exposure). Translation exposure is primarily related to earnings in USD and EUR. This type of exposure is not hedged. Currency risk in the form of transaction expo- sure, i.e. the relative values of exports and imports of goods, is fairly limited in the Group, though it is expected to increase over time due to efficiency measures in production and purchasing. In accordance with financial policy, the Group only hedged a limited part of current currency flows in 2009. As a result exchange rate fluctuations had a direct impact on business operations. Exchange rate fluctuations also affect the Group’s liabili- ties and equity. The difference between the assets and liabil- ities of foreign subsidiaries in the respective foreign cur- rency is affected by exchange rate fluctuations and causes a translation difference which affects the Group’s compre- hensive income. A general weakening of the Swedish krona leads to an increase in net debt, but at the same time increases Group equity. At year-end, the largest foreign net assets were denominated in USD and EUR. Interest rate risk With respect to interest rate risks, interest rate changes have a direct impact on ASSA ABLOY’s net interest expense. The net interest expense is also impacted by the size of the Group’s net debt and its currency composition. Net debt was SEK 11,048 M (14,013) at the end of 2009 and was mainly denominated in SEK, USD and EUR. Group Treasury analyzes the Group’s interest rate exposure and calculates the impact on income of interest rate changes on a rolling 12-month basis. In addition to raising fixed-rate and vari- able-rate loans, various interest rate derivatives are used to adjust interest rate sensitivity. At year-end, the average fixed interest term, excluding pension liabilities, was around 26 months (23). Credit risk Credit risk arises in ordinary business operations and as a result of the financial transactions carried out by Group Trea- sury. Accounts receivable are spread across a large number of customers, which reduces the credit risk. Credit risks relating to operational business activities are managed locally at company level and reviewed at division level. Financial risk management exposes ASSA ABLOY to cer- tain counterparty risks. Such exposure may arise, for exam- ple, as a result of the placement of surplus cash, borrowing and derivative financial instruments. Counterparty limits are set for each financial counterparty and continuously moni- tored. Pension obligations At the end of 2009, ASSA ABLOY had obligations for pen- sions and other post-employment benefits of SEK 4,696 M (3,963). The Group manages pension assets valued at SEK 2,817 M (2,604). Pension provisions in the balance sheet amount to SEK 1,118 M (1,182). Changes in the value of assets and liabilities from year to year are due partly to trends on equity and debt capital markets, and partly to the actuarial assumptions made. These assumptions include dis- count rates, as well as anticipated inflation and salary increases. ASSA ABLOY AnnuAL repOrt 2009 SIGnIFICAnt rISkS AnD rISk mAnAGement 59 Sales and earnings • • • Organic growth for comparable units was –12 percent (0), while acquired growth was 3 percent (4). Operating income (EBIT) excluding restructuring costs and non-recurring costs fell by 2 percent to SEK 5,413 M (5,526), equivalent to an operating margin of 15.5 percent (15.9). Earnings per share after full dilution excluding restructuring costs and non-recurring costs amounted to SEK 9.22 (9.21). Sales The Group’s sales increased to SEK 34,963 M (34,829). Exchange-rate effects had a positive impact of SEK 3,491 M (16). Restructuring costs of SEK 1,039 M (1,180) had a nega- tive impact on operating income for the year. Including these items, operating income (EBIT) amounted to SEK 4,374 M (4,269) and the corresponding margin was 12.5 per- cent (12.3). Change in sales % Organic growth Acquired growth Exchange-rate effects Total 2008 2009 0 4 0 4 –12 3 9 0 Restructuring costs Total restructuring costs amounted to SEK 1,039 M (1,180), of which impairment of assets, mainly machinery and equip- ment, accounted for SEK 124 M (141). The remaining portion mainly relates to payments in connection with staff redundancies. The total change in sales for 2009 was 0 percent (4). Organic growth for comparable units accounted for –12 percent (0), while acquired units made a positive contribution of 3 percent (4). Sales by product group Mechanical locks, lock systems and accessories accounted for 45 percent (46) of sales. Sales of electromechanical and elec- tronic locks rose to 35 percent (34), while security doors and fittings accounted for 20 percent (20) of sales. Cost structure Total wage costs, including social security expenses and pension expenses, amounted to SEK 10,133 M (10,016), cor- responding to 29 percent (29) of sales. The average number of employees was 29,375 (32,723). The average number of employees in the Parent company was 94 (101). The Group’s material costs were relatively unchanged and totaled SEK 11,346 M (11,329), corresponding to 32 percent (32) of sales. Other purchasing costs totaled SEK 6,985 M (7,083), cor- responding to 20 percent (20) of sales. Income before tax Income before tax excluding restructuring costs and non- recurring costs totaled SEK 4,779 M (4,756). The exchange- rate effect amounted to SEK 598 M (–14). Net financial items amounted to SEK –634 M (–770). This reduction was mainly attributable to lower interest rates and net debt than in 2008. Profit margin – defined as income before tax in rela- tion to sales – was 13.7 percent (13.7) excluding restructur- ing costs and non-recurring costs. The Parent company’s income before tax was SEK 1,694 M (1,589). Tax The Group’s tax expense totaled SEK 1,081 M (1,061), corre- sponding to an effective tax rate of 29 percent (30). The year’s restructuring program had an impact of 2 per- centage points (3) on the effective tax rate for the year, due to the fact that deferred tax was not factored into certain restructuring costs. The effective tax rate, excluding restruc- turing effects, was 27 percent (27) of income before tax. Depreciation and amortization of non-current assets amounted to SEK 1,014 M (921), corresponding to 3 per- cent (3) of sales. Earnings per share Earnings per share after full dilution excluding restructuring costs and non-recurring costs amounted to SEK 9.22 (9.21). Operating income Operating income (EBIT) excluding restructuring costs and non-recurring costs amounted to SEK 5,413 M (5,526) after positive exchange-rate effects of SEK 643 M (5). The corre- sponding operating margin was 15.5 percent (15.9). Operating income before depreciation and amortization (EBITDA) excluding restructuring costs and non-recurring costs amounted to SEK 6,426 M (6,447). The corresponding margin was 18.4 percent (18.5). Omsättning och rörelseresultat Sales and operating income SEK M 36,000 30,000 24,000 18,000 12,000 6,000 0 05 06 07 08 09 SEK M 6,000 5,000 4,000 3,000 2,000 1,000 0  Sales Operating income1 1 Excluding items affecting 1 Excluding items affecting compa rability 2006, comparability 2006, 2008 2008 and 2009. and 2009. 60 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 income statement – Group and Statement of comprehensive income Income statement, 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 Net income attributable to: Parent company shareholders Minority interest Earnings per share Note 2, 34 34 34 3, 34 34 4 5 6–9, 32 10 9, 11 12 before dilution, SEK after dilution, SEK after dilution and excluding items affecting comparability, SEK 13 13 13 Statement of comprehensive income, SEK M Profit for the year Other comprehensive income Exchange rate differences on translating foreign operations Total comprehensive income Total comprehensive income attributable to: Parent company shareholders Minority interest 1 Reclassification has been performed, see Note 34. 20081 34,829 –21,843 12,986 –5,718 –2,067 –901 –43 12 4,269 47 –817 3,499 –1,061 2,438 2,413 25 6.60 6.55 9.21 2008 2,438 2,131 4,569 4,525 44 2009 34,963 –21,780 13,183 –5,836 –1,915 –920 –150 12 4,374 130 –764 3,740 –1,081 2,659 2,626 32 7.18 7.06 9.22 2009 2,659 –826 1,833 1,814 19 Sales by product group, 2009 Omsättning per produktgrupp, 2009 Vinst per aktie efter skatt och utspädning Earnings per share after tax and dilution  Mechanical locks, lock systems and assessories, 45% (46)  Electromechanical and electronic locks, 35% (34)  Security doors and fittings, 20% (20) SEK 10 8 6 4 2 0  Earnings per share after tax and dilution1 05 06 07 08 09 1 Excluding items affecting compa rability 2006, 2008 and 2009. ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 61 96 97 98 99 00 01 02 03 04 05 06 07 08 comments by division ASSA ABLOY is organized into five divisions. The three divisions EMEA (Europe, Middle East and Africa), Americas (North and South America) and Asia Pacific (Asia, Australia and New Zealand) manufacture and sell mechanical and electromechanical locks, security doors and fittings in their respective geographical markets. Global Technologies division operates worldwide in the product areas of access control systems, secure issuance of cards, identification technology and hotel locks. Entrance Systems division is a global supplier of automatic doors and service. EMEA Sales totaled SEK 13,601 M (13,927), with organic growth of –12 percent (–2). Acquired units contributed 3 percent (4) to sales. Operating income excluding restructuring costs and non-recurring costs amounted to SEK 2,056 M (2,289), with an operating margin (EBIT) of 15.1 percent (16.4). Return on capital employed excluding restructuring costs and non-recurring costs was 16.9 percent (19.9). Operating cash flow before interest paid amounted to SEK 2,850 M (2,421). The downturn in the housing and commercial construc- tion markets in important market regions led to a decline in the division’s sales. Initiatives to further increase efficiency and savings from ongoing restructuring programs largely offset the negative impact on the operating margin of reduced sales. Americas Sales totaled SEK 9,880 M (10,456), with organic growth of –19 percent (4). Acquired units contributed 2 percent (2) to sales. Operating income excluding restructuring costs amounted to SEK 1,925 M (2,101), with an operat- ing margin (EBIT) of 19.5 percent (20.1). Return on capital employed excluding restructuring costs was 20.5 percent (24.5). Operating cash flow before interest paid amounted to SEK 2,677 M (2,097). The market downturn in the North American market had a negative impact on sales volumes during the year. The operating margin could, however, be maintained at a high level thanks to continued active marketing and efficient production. Asia Pacific Sales totaled 3,789 SEK M (3,321), with organic growth of –1 percent (0). Acquired units contributed 5 percent net (20) to sales. Operating income excluding restructuring costs amounted to SEK 459 M (357), with an operating margin (EBIT) of 12.1 percent (10.8). Return on capital employed excluding restructuring costs was 16.1 percent (13.2). Operating cash flow before interest paid amounted to SEK 610 M (460). Sales by comparable units were stable for the full year. Market trends were, however, negative in the first part of the year, but there was a return to positive growth figures later in the year. The operating margin and operating cash flow strengthened compared with the previous year. Global Technologies Sales totaled SEK 4,766 M (4,866), with organic growth of –12 percent (0). No acquisitions were made during the year. Operating income excluding restructuring costs amounted to SEK 766 M (729), with an operating margin (EBIT) of 16.1 percent (15.0). Return on capital employed excluding restructuring costs was 12.9 percent (12.7). Operating cash flow before interest paid amounted to SEK 1,005 M (627). The HID Global business unit and the ASSA ABLOY Hos- pitality business unit both showed negative organic growth, but continued to show strong margins thanks to active efforts to improve efficiency. Entrance Systems Sales totaled SEK 3,733 M (3,173), with organic growth of –3 percent (3). Acquired units contributed 12 percent (3) to sales. Operating income excluding restructuring costs amounted to SEK 587 M (453), with an operating margin (EBIT) of 15.7 percent (14.3). Return on capital employed excluding restructuring costs was 15.2 percent (13.8). Operating cash flow before interest paid amounted to SEK 680 M (399). Demand from the retailing sector in the division’s larg- est markets weakened during the year. However, increased demand from healthcare and from growth markets largely compensated for this trend. Operating margin and cash flow showed very positive development. Other The costs of Group-wide functions, such as Group manage- ment, accounting and finance, supply management and central product development, amounted to SEK 380 M (404). Elimination of sales between the Group’s segments is included in ‘Other’. External sales 2009 Omsättning , 2009  EMEA, 38% (39)  Americas, 28% (30)  Asia Pacific, 10% (9)  Global Technologies, 13% (14)  Entrance Systems, 11% (9) 62 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 96 97 98 99 00 01 02 03 04 05 06 07 08 results by division EMEA1 Americas2 Asia Pacific3 20087 2009 20087 2009 20087 2009 Global Technologies4 2009 20087 Entrance Systems Other Total 20087 2009 20087 2009 20087 2009 SEK M Sales, external Sales, internal 13,517 410 13,275 327 10,415 41 Sales Organic growth Share of earnings in associates 13,927 13,601 10,456 4% –12% 9 4 –2% 3 9,831 49 9,880 –19% 8 3,031 290 3,321 0% – 3,507 282 3,789 –1% – 4,730 136 4,866 0% – 4,664 102 4,766 –12% – 3,134 39 3,173 3% – 3,685 47 3,733 –3% – – –915 –915 – – 34,829 34,963 – –807 –807 34,829 34,963 –12% 12 0% 12 – – Operating income (EBIT) excluding items affecting comparability Operating margin (EBIT) excluding items affecting comparability Items affecting comparability6 Operating income (EBIT) Operating margin (EBIT) Net financial items Tax on income Net income Capital employed – of which goodwill – of which other intangible and tangible assets – of which shares in associates Return on capital employed exclu- ding items affecting comparability 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 2,289 2,056 2,101 1,925 357 459 729 766 453 587 –404 –380 5,526 5,413 16.4% –863 1,426 10.2% 15.1% –789 1,267 9.3% 20.1% –77 2,024 19.4% 19.5% – 1,925 19.5% 10.8% –65 293 8.8% 12.1% –2 457 12.1% 15.0% –149 580 11.9% 16.1% –167 599 12.6% 14.3% –103 350 11.0% 15.7% –81 506 13.6% – – – – –404 – –380 – 15.9% –1,257 4,269 12.3% –770 –1,061 15.5% –1,039 4,374 12.5% –634 –1,081 2,438 2,659 12,306 5,766 3,450 31 9,814 5,540 3,097 39 9,639 6,236 1,944 2 8,687 6,003 1,757 – 2,768 1,628 2,768 1,536 914 5 933 – 6,112 4,275 1,282 – 5,464 4,030 1,138 – 207 – 485 – 3,425 2,763 4,116 3,223 –1,400 – –467 – 32,850 20,669 30,382 20,333 19.9% 16.9% 24.5% 20.5% 13.2% 16.1% 12.7% 12.9% 13.8% 15.2% 1,426 786 455 –403 75 82 1,267 789 473 –358 77 602 2,024 77 205 –235 21 5 1,925 – 236 –138 4 649 2,421 2,850 2,097 2,677 293 65 80 –107 9 120 460 457 2 99 –90 10 132 610 580 149 136 –152 23 –64 672 599 167 156 –190 63 211 1,005 350 103 37 –37 6 –60 399 506 81 38 –41 8 88 680 148 – – –404 – 8 –29 – –88 130 – 7,945 38 7,541 39 – 17.2% 16.2% –380 – 11 –9 – –222 4,269 1,180 921 –962 133 –5 4,374 1,039 1,014 –825 161 1,460 5,536 7,222 –49 –718 127 –507 –49 –718 127 –507 4,769 6,843 Average number of employees 11,903 10,138 8,573 6,897 7,065 7,560 2,811 2,416 2,260 2,253 111 112 32,723 29,375 1 Europe, Middle East and Africa. 2 North and South America. 3 Asia, Australia and New Zealand. 4 ASSA ABLOY Hospitality and HID Global. 5 Excluding restructuring payments. 6 Items affecting comparability consist of restructuring costs for 2008 and 2009. In 2008 items affecting com- parability also includes non-recur- ring costs related to EMEA and tota- led SEK 77M. 7 Reclassification has been made for 2008. For further information see Note 34. The segments have been determined on the basis of report- ing to the CEO, who monitors the overall performance and makes decisions on resource allocation. The breakdown of sales is based on customer sales in the respective country. Sales between segments are carried out at arm’s length. The different segments obtain their revenue from the manufacture and the sale of mechanical, electromechanical and electronic locks, lock systems and accessories, and secu- rity doors and fittings. For further information on sales, please see Note 2. Operating income, 20091,2 Rörelseresultat, 2009 Average number of employees, 2009 Medelantal anställda, 2009  EMEA, 36% (38)  Americas, 33% (36)  Asia Pacific, 8% (6)  Global Technologies, 13% (12)  Entrance Systems, 10% (8) 1 Operating income excluding items affecting compa rability. 2 ”Other” is not included in the calculation. See section Com- ments by division for what is 1 Rörelseresultat exklusive included in ”Other”. jämförelsestörande poster. 2 “Övrigt” ingår ej i beräkningen. Se sidan 62 för vad som ingår i övrigt.  EMEA, 35% (36)  Americas, 23% (26)  Asia Pacific, 26% (22)  Global Technologies, 8% (9)  Entrance Systems, 8% (7) ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 63 96 97 98 99 00 01 02 03 04 05 06 07 08 96 97 98 99 00 01 02 03 04 05 06 07 08 Financial position • • • Capital employed amounted to SEK 30,382 M (32,850). A strong positive operating cash flow reduced net debt to SEK 11,048 M (14,013). The net debt / equity ratio was 0.57 (0.74). SEK M Capital employed – of which goodwill Net debt Equity – of which minority interests 2008 32,850 20,669 14,013 18,838 163 2009 30,382 20,333 11,048 19,334 162 Capital employed The Group’s capital employed – defined as total assets less interest-bearing assets and non-interest-bearing liabilities including deferred tax liabilities – amounted to SEK 30,382 M (32,850). The return on capital employed excluding items affecting comparability was 16.2 percent (17.2). Intangible assets amounted to SEK 22,324 M (22,662). The reduction is mainly due to negative exchange-rate effects exceeding the effects of acquisitions made. During the year, goodwill and other intangible assets with an indefi- nite useful life have arisen to a preliminary value of SEK 800 M. A valuation model based on discounted future cash flows is used for impairment testing of goodwill and other intangible assets with an indefinite useful life. Tangible assets amounted to SEK 5,550 M (5,952). Capi- tal expenditure on tangible and intangible assets, less sales of tangible and intangible assets, totaled SEK 664 M (829). Depreciation amounted to SEK 1,014 M (921). Accounts receivable totaled SEK 5,618 M (6,372) and inventories totaled SEK 4,349 M (5,383). The average col- lection period for accounts receivable was 55 days (52). Material throughput time was 97 days (105). The Group is making systematic efforts to increase capital efficiency. Net debt Net debt amounted to SEK 11,048 M (14,013), of which pension commitments and other remuneration on termi- nation of employment accounted for SEK 1,118 M (1,182). Net debt was increased by acquisitions and the dividend to shareholders and reduced by the continued strong positive operating cash flow. The net reduction is mainly due to a continued good earnings trend and a substantial release of working capital. External financing The Group’s long-term loan financing mainly consists of Private Placement Programs in the USA totaling USD 630 M (630), GMTN-programs of SEK 3,292 M (0), Incentive Pro- grams of EUR 138 M (138) and a bilateral bank loan of SEK 1,000 M (1,000). During the year, long-term financing totaling SEK 3,384 M was raised in the form of borrowing on the capital market as follows: • Three bonds in SEK totaling SEK 850 M with a maturity of 2 to 3 years. One bond in NOK of NOK 350 M with a maturity of 7 years. Two Private Placements in EUR of EUR 45 M and EUR 150 M, both with a maturity of 5 years. • • These replace long-term financing of SEK 2,601 M which matured during the year, but have also replaced some short-term financing in order to extend the maturity profile. The Group’s short-term loan financing mainly consists of two Commercial Paper Programs for a maximum of USD 1,000 M (1,000) and SEK 5,000 M (5,000) respectively. At year-end, SEK 632 M (3,215) of the Commercial Paper Programs had been utilized. In addition, substantial credit facilities are available, mainly in the form of a Multi-Cur- rency Revolving Credit Facility for a maximum of EUR 1,100 M (1,100), which was not utilized at year-end. The interest coverage ratio, defined as income before tax plus net interest, divided by net interest, was 7.2 (5.7). Fixed interest terms were largely unchanged during the year, with average terms of 25 months (23) at year-end. Cash and cash equivalents amounted to SEK 2,235 M (1,931) and are invested in banks with high credit ratings. Some of the Group’s main financing agreements contain a customary Change of Control clause. The effect of this clause is that lenders have the right in certain circumstances to demand the renegotiation of conditions or to terminate the agreement should control of the company change. The bonds issued during the year have been recognized in the Parent company balance sheet. Equity The Group’s equity totaled SEK 19,334 M (18,838) at year- end. The return on shareholders’ equity amounted to 12.7 percent (12.8). The equity ratio was 45.4 percent (41.9). The debt / equity ratio, defined as net debt divided by equity, was 0.57 (0.74). Nettoskuldsättning Net debt Sysselsatta kapital & Avkastning på sysselsatt kapital Capital employed and Return on capital employed SEK M 15,000 12,000 9,000 6,000 3,000 0  Net debt Net debt / equity SEK M 1.0 0.8 0.6 0.4 0.2 0 SEK M 36,000 30,000 24,000 18,000 12,000 6,000 0 05 06 07 08 09 05 06 07 08 09 % 24 20 16 12 8 4 0  Capital employed � Return on capital employed1 1 Excluding items affecting 1 Excluding items affecting comparability 2006, 2008 comparability 2006, 2008 and 2009. and 2009. 64 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 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 Exchange rate differences Retained earnings Minority interest 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 2008 2009 14 15 17 19 18 20 21 33 33 33 23 33 33 18 24 25 33 33 33 33 25 26 27 22,662 5,952 38 317 757 29,726 5,383 6,372 249 479 485 277 58 1,931 15,234 44,960 366 8,887 1,572 7,850 18,675 163 18,838 6,248 1,518 56 1,182 1,453 151 22,324 5,550 39 334 814 29,061 4,349 5,618 231 541 399 100 84 2,235 13,557 42,618 366 8,887 760 9,159 19,172 162 19,334 9,263 1,429 63 1,118 1,829 176 10,608 13,878 6,400 1,096 92 2,909 377 787 729 3,124 15,514 44,960 1,869 – 32 2,682 324 726 895 2,878 9,406 42,618 ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 65 cash flow • • Operating cash flow amounted to SEK 6,843 M (4,769). Change in working capital amounted to SEK 1,460 M (–5). Operating cash flow SEK M Operating income (EBIT) Restructuring costs Depreciation Net capital expenditure Change in working capital Interest paid and received Adjustments for non-cash items Operating cash flow1 Operating cash flow/ Income before tax 1 Excluding restructuring payments. 2 Excluding restructuring costs. 2008 4,269 1,180 921 –829 –5 –718 –49 4,769 1.022 2009 4,374 1,039 1,014 –664 1,460 –507 127 6,843 1.432 The Group’s operating cash flow amounted to SEK 6,843 M (4,769), equivalent to 143 percent (102) of income before tax excluding restructuring costs. The Parent company’s cash flow amounted to SEK –1 M (1). Net capital expenditure Direct net capital expenditure on intangible and tangible assets totaled SEK 664 M (829), equivalent to 65 percent (90) of depreciation of intangible and tangible assets. The low net capital expenditure is partly due to the Group’s long-term efforts to streamline the production structure. The material throughput time was 97 days (105) at year-end. Capital tied up in inventories and accounts receivable fell substantially during the year, increasing cash flow by a total of SEK 1,793 M (–106). The reduced capital tied up in accounts receivable is attributable to weaker sales during the year. Relationship between cash flow from operating activities and operating cash flow SEK M Cash flow from operating activities Restructuring payments Net capital expenditure Reversal of tax paid Operating cash flow 2008 4,369 485 –829 742 4,769 2009 5,924 676 –664 907 6,843 Acquisitions of subsidiaries The total purchase price for acquisitions of subsidiaries amounted to SEK 1,107 M (2,030). Acquired cash totaled SEK 50 M (58). Change in net debt Net debt was mainly affected by the strong positive operat- ing cash flow, the dividend to shareholders, acquisitions and exchange-rate effects. Change in working capital SEK M Inventories Accounts receivable Accounts payable Other working capital Change in working capital 2008 –144 38 –59 160 –5 2009 987 806 –232 –102 1,460 SEK M Net debt at 1 January Operating cash flow Restructuring payments Tax paid Acquisitions/Disposals Dividend Exchange-rate differences Net debt at 31 December 2008 12,953 –4,769 485 742 1,819 1,317 1,466 14,013 2009 14,013 –6,843 676 907 1,171 1,317 –193 11,048 Operativt kassaflöde och resultat före skatt Income before tax and Operating cash flow Investeringar Capital expenditure SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  Income before tax1  Operating cash flow 05 06 07 08 09 1 Excluding items affecting 1 Excluding items affecting comparability comparability 2006, 2008 2006, 2008 and 2009. and 2009. SEK M 1,000 800 600 400 200 0 05 06 07 08 09  Net capital expenditure  Depreciation Net capital expenditure % of sales % 2.5 2.0 1.5 1.0 0.5 0.0 66 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 cash flow statement – Group Note 8 31 31 14, 15 14, 15 31 31 31 SEK M OPERATING ACTIVITIES Operating income Depreciation Reversal of restructuring costs Restructuring payments Non-cash items Cash flow before interest and tax Interest paid Interest 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 Disposals of subsidiaries Other investments Cash flow from investing activities FINANCING ACTIVITES Dividends Long-term loans raised Repayment of originally long-term loans Net cash effect of changes in other borrowings Cash flow from financing activities CASH FLOW CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January Cash flow Effect of exchange rate differences Cash and cash equivalents at 31 December 33 2008 4,269 921 1,180 – 485 – 49 5,836 –732 14 –742 4,376 –5 4,369 –962 133 –1,831 – 12 –2,648 –1,317 1,000 – –994 –1,311 410 1,338 410 183 1,931 2009 4,374 1,014 1,039 –676 127 5,878 –596 89 –907 4,464 1,460 5,924 –825 161 –1,077 –71 –23 –1,835 –1,317 3,384 –2,601 –3,207 – 3,741 348 1,931 348 –44 2,235 ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 67 changes in equity – Group SEK M Opening balance 1 January 2008 Total comprehensive income Dividend for 2007 Minority interest, net Closing balance 31 December 2008 Opening balance 1 January 2009 Total comprehensive income Dividend for 2008 Minority interest, net Closing balance 31 December 2009 23 23 23 23 23 Parent company's shareholders Note 23 Share capital Other contri- buted capital 366 8,887 Exchange rate differences –540 2,112 Retained earnings Minority interests 6,754 2,413 –1,317 366 8,887 1,572 7,850 366 8,887 1,572 –812 7,850 2,626 –1,317 366 8,887 760 9,159 Total 15,668 4,569 –1,317 –82 18,838 18,838 1,833 –1,317 –20 19,334 201 44 –82 163 163 19 –20 162 Shareholders’ equity per share after dilution and Eget kapital per aktie efter utspädning Return on shareholders’ equity after tax Dividend Utdelning SEK 60 50 40 30 20 10 0 05 06 07 08 09  Shareholders’ equity per share after dilution, SEK  Return on shareholders’ equity after tax, % % 30 25 20 15 10 5 0 SEK 10 8 6 4 2 0  Dividend per share  Earnings per share after tax and dilution1 05 06 07 08 09 1 Excluding items affec- ting comparability 2006, 2008 and 2009. 68 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 Smilow cancer Hospital the Smilow cancer Hospital at Yale-new Haven located in new Haven, connecticut, uSA opened with a simple mis- sion – bring together the very best medical professionals and researchers to develop new methods to prevent, diag- nose and treat cancer – all while attending to the needs of patients within a holistic, nurturing environment. While designing the facility, architects, health care and design professionals collaborated to create a setting where patients can best focus on their treatment and path to well- ness and healing. throughout the fourteen-story building, aesthetically focused touches blend with the functional needs of the space. Special features include a roof-top healing garden complete with trees and a small stream. throughout the garden, benches invite patients to sit and enjoy the views of the city and the coastline. Additionally, the hospital’s two-story glass lobby welcomes patients and visitors with a granite waterfall. the building’s calming environment is enhanced by the sense of safety and security the hospital achieved with local solutions provider ASSA ABLOY Door Security Solutions. A complete door opening package including frames, doors and hardware from curries, McKinney, rixson, rockwood and Sargent was supplied. electromechanical exit devices help ease the opening and closing of some doors, while others are equipped with pivots and door pulls to fulfill the design intent of providing patients with a beautiful worry-free environment in which to heal. ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 69 parent company financial statements Income statement – Parent company SEK M Administrative expenses Research and Development costs Other operating income and expenses Balance sheet – Parent company Operating income Financial income Financial expenses Income before tax Tax on income 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 EQUITY AND LIABILITIES Equity Restricted equity Share capital Statutory reserve Fair value reserve Unrestricted equity Retained earnings Net income Total equity Provisions Other provisions Total provisions 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 Assets pledged Contingent liabilities Note 3, 6, 8, 9 6, 8, 9 4 9, 32 10 9, 11 12 2008 –554 –229 1,775 992 1,443 –846 1,589 –435 1,154 2009 –610 –222 1,398 566 1,365 –237 1,694 –158 1,536 Note 2008 2009 14 15 16 19 22 23 25 33 33 33 33 27 29 28 506 4 16,061 2,624 79 19,274 15,268 36 24 1 15,329 34,603 366 8,905 408 2,943 1,154 13,776 58 58 1,000 1,517 2,624 4 5,145 2,224 1,096 18 12,123 31 16 116 15,624 34,603 None 8,501 321 3 19,115 – 34 19,473 4,118 28 30 0 4,176 23,649 366 8,905 – 2,343 1,536 13,150 5 5 4,291 1,429 – – 5,720 681 – 20 3,906 16 6 145 4,774 23,649 None 7,472 70 FinAnciAL repOrtS ASSA ABLOY AnnuAL repOrt 2009 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 and received Cash flow before changes in working capital Changes in working capital Cash flow from operating activities INVESTING ACTIVITIES Investment in tangible and intangible assets Sales of tangible and intangible assets Investments in subsidiaries Other investments Cash flow from investing activities FINANCING ACTIVITIES Dividends Loans raised Loans repaid 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 8 2008 992 188 1,180 160 555 20 1,915 –819 1,096 0 0 –1,560 0 –1,560 –1,317 2,450 –668 465 1 0 1 1 2009 566 183 749 45 898 –29 1,663 –4 1,659 –1 4 –1,439 23 –1,413 –1,317 5,859 –4,789 –247 –1 1 –1 0 Change in equity – Parent company SEK M Opening balance 1 January 2008 Changes in value of financial instruments Group contributions Tax effect of Group contributions Net income from the income statement Dividend for 2007 Closing balance 31 December 2008 Opening balance 1 January 2009 Changes in value of financial instruments Group contributions Tax effect of Group contributions Net income from the income statement Dividend for 2008 Closing balance 31 December 2009 Restricted shareholders’ equity Share capital 366 Statutory reserve 8,905 Fair value reserve 142 266 366 8,905 408 366 8,905 408 –408 366 8,905 – Unrestricted shareholders’ equity Retained earnings 5,340 –1,500 420 1,154 –1,317 4,097 4,097 –594 157 1,536 –1,317 3,879 Total 14,753 266 –1,500 420 1,154 –1,317 13,776 13,776 –408 –594 157 1,536 –1,317 13,150 Note 23 23 23 23 ASSA ABLOY AnnuAL repOrt 2009 FinAnciAL repOrtS 71 notes Note 1 Significant accounting and valuation principles The Group ASSA ABLOY applies International Financial Reporting Stan- dards (IFRS) as endorsed by the European Union (EU), the Swedish Annual Accounts Act and standard RFR 1.2 of the Swedish Financial Reporting Board. The accounting prin- ciples are based on IFRS as endorsed by 31 December 2009 and have been applied to all years presented, unless stated otherwise. This Note describes the most significant account- ing principles that have been applied in the preparation of the financial reports, which comprise the information appearing on pages 54–104. Basis of preparation ASSA ABLOY’s consolidated financial statements have been prepared in accordance with IFRS as endorsed by the EU. The consolidated financial statements have been prepared under the historical cost convention, except regarding financial assets and liabilities (including derivatives) at fair value through profit and loss. The preparation of financial statements is based on esti- mates and assumptions made for accounting purposes. The management also makes judgments about the application of the Group’s accounting principles. Estimates and assump- tions may affect the income statement and balance sheet as well as the supplementary information that appears in the financial reports. Thus changes in estimates and assump- tions may lead to changes in the financial statements. For example, estimates and assumptions play an im- portant 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. Esti- mates 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 in - tangible 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 calcu- lations 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 14. • • • IAS 1 Presentation of financial statements. The revised standard requires ’non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. Comparative infor- mation has been re-presented so that it is in conformity with the revised standard. As the change in accounting policy only impacts the presentation, there is no impact on earnings per share. IFRS 8 Operating segments. Operating segments are reported in accordance with management reporting, as presented to the chief operating decision maker. IFRS 8 has not affected the division of segments, and the Group presents the same segments as before. The new standard affects disclosures by segment. IAS 23 Borrowing costs. Borrowing costs directly related to acquisition, construction or production of a qualified asset (an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capi- talized as part of the cost of that asset, in the case first time of capitalisation was on the 1 st of January 2009 or later. Comparative information has therefore not been restated. The new standard had an insignificant effect on the Group when it started to be applied. 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. • IFRS 3 Business combinations (revised), effective from 1 July 2009. IAS 27 Consolidated and Separate Financial Statements, effective from 1 July 2009. IFRIC 17, Distribution of Non -Cash Assets to owners, effective from 1 July 2009. IFRS 2 Group cash-settled and share based payment tran- sactions (revised) effective from 1 July 2009, not yet endorsed by EU. IAS 32 Classification of Right Issues (amendment) effec- tive from 1 February 2009. IASB’s yearly (annual) improvement project, effective from 1 January 2010, not yet endorsed by EU. IFRS 9 Financial instruments, effective from 1 January 2013, not yet endorsed by EU. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, effective from 1 July 2010, not yet endorsed by EU. IAS 24 Related party disclosures, effective from 1 January 2011, not yet endorsed by EU. IFRIC 14 Prepayments of a Minimum Funding require- ments, effective from 1 January 2011, not yet endorsed by EU. • • • • • • • • • New and changed standards that are applied by the Group The Group has applied the following new and changed IFRS from the 1 of January 2009. • IFRS 7 Financial instruments – Disclosures (amendment). The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measure- ments by level in a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share. Management analyzes the impact of the new and amended standards on the financial reports. The amendments to IFRS 3 and IAS 27 are considered most relevant to the Group. These changes may have some impact on the Group’s finan- cial reports. The changes will not affect the financial reports prepared prior to the effective dates. The amendments to IAS 27 will have an impact on the accounting for minority interest in future transactions. IFRS 3 will affect the account- ing of future business combinations regarding transaction costs, contingent consideration and business combinations 72 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 1 cont. Associates Associates are defined as companies which are not sub- sidiaries 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 and 50 percent of the voting rights. Participations in associates are accounted for in accor- dance with the equity method. In the consolidated bal- ance sheet, 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. Partici- pations in the income of associates are reported in the con- solidated income statement as part of operating income as the investments are related to business operations. Segment reporting Operating segments are reported in accordance with management reporting reported to chief operating deci- sion maker. Chief operating decision maker is the function that is responsible for allocation of resources and assessing performance of the operating segments. The divisions form the operational structure for internal control and report- ing and also constitute the Group’s segments for external financial reporting. The Group’s business is divided into five divisions. Three divisions are based on products sold in local markets in the respective division: EMEA, Americas and Asia Pacific. Global Technologies’ and Entrance Systems’ products are sold worldwide. 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 aris- ing from the settlement of such transactions are normally reported in the income statement, as are those arising from translation of monetary balances in foreign currencies at the closing-day rate. Exceptions are transactions relating to qualifying cash flow hedges, which are reported in compre- hensive income. Receivables and liabilities are valued at the closing-day rate. In translating the accounts of foreign subsidiaries prepared in functional currencies other than the Group’s presentation 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 statement is translated at the average rate for the period. Exchange-rate differences arising from the translation of foreign subsidiar- ies are reported as translation differences in comprehensive income. The rates for currencies used in the Group, relative to the Group’s presentation currency (SEK), were as follows – the weighted average for the year, and the closing-day rate. achieved in stages. Transaction costs related to ongoing acquisitions have been reported as assets up to the 31 of December 2009. 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 state- ments. Reclassification The Group has made a reclassification that affects direct distribution costs and depreciation on capitalized product development expenditure. The reason is to give a true and fair view of the allocation between direct and indirect costs as well as for product development expenses. In order to maintain comparability, the financial statements for 2008 and 2009 have been adjusted. The reclassification involves the transfer of direct distribution costs from Selling expenses and Administrative expenses, and where appropriate from Sales, to Cost of goods sold. In addition, depreciation on product development has been moved from Cost of goods sold to Selling expenses and Administrative expenses. Both these adjustments affect Gross income. The effect is shown in Note 34. Operating income is not affected. Consolidated financial statements The consolidated financial statements cover ASSA ABLOY AB (the Parent company) and companies in which the Parent company held, directly or indirectly, more than 50 percent of the voting rights at the end of the period, as well as companies in which the Parent company exercises control by some other means, 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 control was obtained. Companies sold during the year are included in the consolidated financial statements up to the date when control ceased. The consolidated financial statements have been pre- 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 liabilities at the date of acquisition. Thus only that part of subsidiaries’ equity that has arisen after the acquisition is included in the Group’s equity. A positive difference between the cost of acquisition and the fair value of the Group’s share of acquired net assets is reported as goodwill. A negative difference, negative goodwill, is recognized immediately in the income statement. Intra-group trans actions 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 completed acquisition analysis. Minority participations in subsidiaries’ income are reported in the income statement with net income divided between the Parent company’s shareholders and minority interests. 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. ASSA ABLOY AnnuAL repOrt 2009 nOteS 73 note 1 cont. Country Argentina Australia Brazil Canada Switzerland Chile China Czech Republic Denmark Estonia Euro zone United Kingdom Hong Kong Hungary Israel Kenya Korea Lithuania Mexico Malaysia Norway New Zealand Poland Russia Singapore Slovenia Slovakia Thailand USA South Africa Average rate Closing-day rate Cur- rency 2008 2009 2008 2009 ARS AUD BRL CAD CHF CLP CNY CZK DKK EEK EUR GBP HKD HUF ILS KES 2.08 5.55 3.62 6.20 6.11 0.012 0.94 0.38 1.29 0.62 9.65 12.11 0.85 0.039 1.83 0.095 KRW 0.0060 2.80 0.59 1.98 1.17 4.66 2.74 0.26 4.65 0.039 0.31 0.20 6.59 0.81 LTL MXN MYR NOK NZD PLN RUB SGD SIT SKK THB USD ZAR 2.06 5.98 3.80 6.68 7.05 0.014 1.12 0.40 1.43 0.68 10.63 11.85 0.99 0.038 1.95 0.099 0.0060 3.08 0.56 2.17 1.21 4.80 2.46 0.24 5.25 – – 0.22 7.63 0.92 2.25 5.38 3.26 6.30 7.37 0.012 1.14 0.41 1.47 0.70 10.96 11.27 1.00 0.041 2.02 0.099 0.0062 3.17 0.57 2.22 1.11 4.53 2.64 0.26 5.39 0.038 0.36 0.22 7.78 0.82 1.88 6.42 4.13 6.86 6.94 0.014 1.05 0.39 1.39 0.66 10.32 11.44 0.93 0.038 1.89 0.095 0.0062 2.99 0.55 2.10 1.24 5.15 2.50 0.24 5.12 – – 0.22 7.19 0.97 Revenue Revenue comprises the fair value of goods sold, excluding VAT and discounts and after eliminating intra-group sales. The Group’s sales revenue arises principally from sales of products. Service related to products sold makes up a very limited fraction of revenue. Revenue from sales of the Group’s products is recognized when all significant risks and rewards associated with ownership are transferred to the purchaser in accordance with applicable conditions of sale, which is nor- mally 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. In the case of installations over a longer period of time, the percentage of completion method is used. 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. Research and development Research costs are expensed as they are incurred. The costs of development work are reported in the balance sheet only to the extent that they are expected to generate future economic benefits for the Group and provided such benefits can be reliably measured. Development costs so reported are amortized over the expected useful life. Development costs recorded as assets but not yet in use are subject to annual impairment testing. Costs for develop- ment of existing products are expensed as they are incurred. Borrowing costs Borrowing cost are interest expenses and other expenses directly related to borrowing. Borrowing costs directly related to acquisition, construction or production of a qualified asset (an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of the cost of that asset. Other borrowing costs are recognized as expenses in the period in which they are incured. Tax on income The income statement includes all tax that is to be paid or received for the current year, adjustments relating to tax due for previous years, and changes in deferred tax. Tax sums have been calculated as nominal amounts in accordance with the tax regulations in each country and in accordance with tax rates that have either been decided or have been notified and can confidently be expected to be confirmed. For items reported in the income statement, associated tax effects are also reported in the income statement. The tax effects of items reported directly against equity or com- prehensive income are themselves reported against equity or comprehensive income. Deferred tax is accounted for under the liability method. This means that deferred tax is accounted for on all temp orary differences between the carry ing amounts of assets and liabilities and their respec- tive tax bases. Deferred tax receivables relating to tax losses carried forward or other future tax allowances are reported to the extent that it is probable that the allowance can be set against taxable income in future taxation. Deferred tax liabilities relating to temporary differences resulting from investments in subsidiaries are not reported in the consoli- dated financial statements since the Parent company can control the time at which the temporary differences are can- celled 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 equivalents ‘Cash and cash equivalents’ 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 impair- ment losses. Goodwill is allocated to Cash Generating Units (CGU) and each year is systematically tested for impairment 74 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 1 cont. using a valuation model based on discounted future cash flows. Deferred tax receivables based on local tax rates are reported in terms of tax-deductible goodwill (with corres- ponding 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, technology and customer relationships. Identifiable acquisition-related intangible assets are initially recognized at fair value at the date of acquisition and subsequently at cost less accumulated amortization and impairment losses. Amortization is on a straight-line basis over estimated useful life. Acquisition- related intangible assets with indefinite useful life are tested for impairment every year in the same way as goodwill. Other intangible assets An intangible asset that is not acquisition-related is reported only if it is likely that the future economic benefits associated with the asset will flow to the Group and if the cost of the asset can be measured reliably. Such an asset is initially recognized at cost and is amortized over its esti- mated useful life, usually between three and five years. Its carrying amount is cost less accumulated amortization and impairment losses. Tangible assets Tangible assets are reported at cost less accumulated depre- ciation and impairment losses. Cost includes expenditure that can be directly attributed to the acquisition of the asset. Subsequent expenditure is added to the carrying amount if it is probable that economic benefits associated with it will flow to the Group and if the cost can be reliably measured. Expenditure on repairs and maintenance is expensed as it is incurred. 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 leasing payments are expensed at a constant rate over the period of the contract and are reported as operating costs. Impairment Assets with indefinite useful life are not amortized but are tested for impairment on an annual basis. For impairment testing purposes assets are grouped at the lowest organiza- tional 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 indicate that the carrying amount may not be recoverable. When impairment has been established, the value of the asset is reduced to its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell, and its value in use. Inventories Inventories are valued in accordance with the ‘first in, first out’ principle at the lower of cost and net realizable value at year-end. Deductions are made for internal profits arising from deliveries between Group companies. Work in prog- ress and finished goods include both direct costs incurred and a fair allocation of indirect manufacturing costs. Accounts receivable Accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effec- tive interest method. A provision is recognized when there is objective evidence that the Group will not be able to collect recorded amounts. The year’s change in such a provision is reported in the income statement. Financial assets Financial assets include cash and cash equivalents, accounts receivable, short-term assets and derivatives and are clas- sified in following categories: financial assets at fair value through the income statement, loan claims, and accounts receivable. Management determines the classification of its investments at initial recognition. Financial assets at fair value through the income statement This category has two sub-categories: financial assets held-for-trading and those designated at fair value through income statement at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorized as held-for-trading unless they are designated as hedges. Assets in this category are classified as current assets. Loan claims and accounts receivable Accounts receivable and short-term assets are non-deriv- ative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non- current assets. Financial liabilities Financial liabilities include loan debts, accounts payable and derivative instruments. Reporting depends on how the liability is classified. Loan debts Loan debts are valued initially at fair value after transaction costs, and thereafter at amortized cost. The amortized cost is determined based on the effective interest rate when the loan was raised. Accordingly, surplus values and undervalues as well as direct issue expenses are allocated over the loan period. Long-term loan debts have an anticipated term to maturity exceeding one year, while current loan debts have a term to maturity of less than one year. ASSA ABLOY AnnuAL repOrt 2009 nOteS 75 note 1 cont. Accounts payable Accounts payable are valued at fair value and thereafter at amortized cost using the effective interest method. 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 time value of money is material. Recognition and measurement of financial assets Regular purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to pur- chase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not car- ried at fair value through income statement where transac- tion cost are reported in the income statement. The fair val- ues of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Group estab- lishes fair value by using valuation techniques. These include the use of recent arm’s-length transactions, reference to other instruments that are substantially the same and dis- counted cash-flow analysis. The Group assesses at each clos- ing day whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset is derecognized from the balance sheet when the rights to receive cash flows from the investments have expired or have been transferred to an external party. A financial liabil- ity is removed from the balance sheet when the debt is paid in full, or ceases to apply, or is transferred through all risks and benefits being assigned to an external party. Derivative instruments and hedging Derivatives are recognized on the balance sheet at transac- tion date and are measured at fair value, both initially and on subsequent revaluations. The method of reporting profit or loss depends on whether the derivative is classified as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified within the Group as either fair value hedges of recognized assets or liabilities or a firm commitment (fair value hedge). Changes in fair value of both the hedged item as the hedging instrument are reported in the income statement (financial items) in the period in which they arise. Changes in fair value for derivatives not designated as hedging instru- ments are reported continuously in the income statement, (financial items). When the transaction is entered into, the Group docu- ments the relationship between the hedging instrument and the hedged item, as well as the Group’s risk manage- ment objectives and risk management strategy as regards the hedging. The Group also documents its assessment, both when hedging is entered into and on a regular basis, of whether the derivative instruments used in hedge trans- actions are effective in counteracting changes in fair value that relate to the hedged items. The Group holds a limited number of financial instruments qualifying for hedge accounting. Information about the fair values of the various derivative financial instruments used for hedge accounting can be found in Note 33. Fair value for currency derivatives is calculated at net present value based on prevailing forward contract prices on the balance sheet day while interest rate swaps are val- ued using estimates of future discounted cash flows. 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 pen- sion plans. Calculations related to the Group’s defined benefit plans are performed by independent actuaries and are based on a number of actuarial assumptions such as discount rate, future inflation and salary increases. Obligations are valued on the closing day at their discounted value. For funded plans, obligations are reduced by the fair value of the plan assets. Unrecognized actuarial gains and losses lying outside the so-called corridor (exceeding the highest 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. Swedish Group companies apply UFR 4 which means that tax on pen- sion costs is calculated on the difference between pension cost in accordance with IAS 19 and pension cost determined in accordance with local regulations. Share-based incentive programs Current share-based incentive programs were issued at market value and therefore involve no personnel costs for the Group. Dividend Dividend is reported as a liability once the Annual General Meeting has approved the dividend. The Parent company The Group’s Parent company, ASSA ABLOY AB, is responsible for the management of the Group and handles common Group functions. The Parent company’s revenue consists of intra-group franchise and royalty revenues, and its main balance sheet items consist of shares in subsidiaries, intra- group receivables and liabilities, and external borrowing. The Parent company has prepared its annual accounts in accordance with the Swedish Annual Accounts Act (1995:1554) and standard RFR 2.2 of the Swedish Financial Reporting Board. RFR 2.2 requires the Parent company, in its annual accounts, to apply all the International Financial Reporting Standards (IFRS) endorsed by the EU in so far as this is possible within the framework of the Annual Accounts Act and with regard to the relationship between accounting and taxation. RFR 2.2 states what exceptions from, and addi- tions to, IFRS should be made. Provisions A provision is recognized when the Group has a legal or con- structive obligation resulting from a past event and it is prob- able 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 re presenting the 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 with external business. 76 nOteS ASSA ABLOY AnnuAL repOrt 2009 as a financial guarantee. For these agreements the Parent company applies the rule in RFR 2.2 p.72 and reports these guarantees as a contingent liability. Note 2 Sales Sales to customer, by country Group SEK M USA France Germany United Kingdom China Sweden Australia Netherlands Canada Spain Italy Finland Denmark Norway Mexico Korea Belgium South Africa Switzerland Czech Republic Middle East (excluding Saudi Arabia and United Arab Emirates) Austria Africa (excluding South Africa) New Zealand Asia (excluding China, Korea, Singapore, India and Thailand) Brazil Saudi Arabia Portugal Central America (excluding Mexico) Poland South America (excluding Brazil and Chile) Singapore Russia United Arab Emirates India Baltic countries Turkey Thailand Chile Greece Ireland Romania Other countries Total Sales by product group SEK M Mechanical locks, lock systems and accessories Electromechanical locks, access con- trol, automatic doors and identifica- tion technology Security doors and fittings Total 2008¹ 10,990 2,586 1,725 1,957 1,193 1,535 1,538 1,263 1,147 1,188 668 883 807 830 633 439 438 302 331 442 327 276 256 290 257 215 245 168 191 170 144 143 210 105 84 139 57 75 80 74 80 60 288 34,829 2009 10,666 2,675 1,789 1,753 1,696 1,563 1,555 1,259 1,146 988 869 863 837 794 571 492 480 375 356 354 311 288 276 271 262 226 211 183 171 154 132 131 128 128 107 104 95 90 88 87 74 67 298 34,963 Group 2008¹ 2009 16,173 15,830 11,733 6,923 34,829 12,139 6,994 34,963 ¹Reclassification has been made. For further information see Note 34. Pension obligations Pension obligations for the Parent company are accounted for in accordance with FAR SRS Red 4. The pension obliga- tions are covered by taking out insurance with an insurance company. Dividend Dividend revenue is recognized when the right to receive payment is judged to be firm. Research and development costs Research and development costs are expensed as they are incurred. Intangible assets Intangible assets comprise patented technology and other intangible rights. Intangible assets are amortized over 4–5 years. 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. Tangible assets are depreciated over estimated useful life which is 5–10 years for equipment and for IT equipment 4 years. Leasing In the Parent company all leasing agreements is treated as rental agreements (operational leases) regardless of wheather they are financial or operational leases. Shares in subsidiaries Shares in subsidiaries are reported at cost less impairment losses. When there is an indication that the value of shares in subsidiaries or associated companies is reduced, a calcula- tion is performed of the value in use. If this value is lower that the reported value a write-down is done. Write-downs are reported in result from shares in subsidiaries that are included in financial items in the profit and loss. 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 exception of exchange rate differences related to a monetary item that forms part of a net investment in a foreign operation which are reported in the fair value reserve. Group contributions The company reports Group contributions in accordance with UFR 2 (the Swedish Financial Reporting Board). Group contributions are reported according to their financial implications. This means that Group contributions that are paid with the aim of minimizing the Group’s total tax charge are reported directly against equity after deduction for their actual tax effects. Group contributions compa- rable to dividends are reported as such, which means that received Group contributions and their actual tax effects are reported in the income statement and paid Group con- tributions and their actual tax effects are reported directly against equity. Contingent liabilities The Parent company has guarantees on behalf of its sub- sidiaries. Such a guarantee is according to IFRS classified ASSA ABLOY AnnuAL repOrt 2009 nOteS 77 Note 3 Auditors’ fees Note 7 Expenses by nature Group Parent company SEK M 2008 2009 2008 2009 Audit PricewaterhouseCoopers Other Assignments other than audit PricewaterhouseCoopers Other Total 26 6 10 5 47 28 6 12 5 51 3 – 2 1 6 4 – 1 0 5 Note 4 Other operating income and expenses In the income statement costs are broken down by func- tion. Cost of goods sold, Selling expenses, Administrative expenses and Research and development costs amount to SEK 30,451 M (30,529). Below, these same costs are broken down by nature: SEK M Remuneration of employees (Note 32) Direct material costs Depreciation (Note 8, 14, 15) Other purchase expenses Restructuring costs Total Group 2008 10,016 11,329 921 7,083 1,180 30,529 2009 10,133 11,346 1,014 6,985 973 30,451 SEK M Rent received Net income from sales of fixed assets Government grants Business-related taxes Disposal of subsidiaries Exchange rate differences Other, net Total Group 2008 14 56 10 –38 – 6 –91 –43 2009 17 3 2 –29 –68 –17 –58 –150 Note 8 Depreciation and amortization Group Parent company SEK M 2008 2009 2008 2009 Intangible rights Machinery Equipment Buildings Land improvements Total 124 424 240 134 1 921 162 455 237 159 1 1,014 186 – 2 – – 188 181 – 2 – – 183 Parent company Other operating income in the Parent company consists mainly of franchise and royalty revenues from subsidiaries. Note 5 Share of earnings in associates SEK M Låsgruppen Wilhelm Nielsen AS Cerraduras de Colombia Cerracol S.A Total Group 2008 2009 3 9 12 4 8 12 Note 6 Operational leasing agreements Group Parent company Note 9 Exchange rate differences in the income statement SEK M 2008 2009 2008 2009 Group Parent company Exchange rate differences reported in operating income Exchange rate differences reported in financial expenses (Note 11) Total 6 –17 4 –10 4 10 –38 –55 –3 1 121 111 SEK M 2008 2009 2008 2009 Note 10 Financial income Leasing fees paid during the year Total Nominal value of agreed future leasing fees: Due for payment in (2009) 2010 Due for payment in (2010) 2011 Due for payment in (2011) 2012 Due for payment in (2012) 2013 Due for payment in (2013) 2014 Due for payment in (2014) 2015 or later Total 279 279 304 304 253 200 156 111 90 112 922 297 231 169 127 97 131 1,052 13 13 13 13 14 14 12 12 78 14 14 14 14 15 15 15 15 88 SEK M 2008 2009 2008 2009 Group Parent company Earnings from participa- tions in subsidiaries – of which dividends from subsidiaries – of which impairment of shares in subsidiaries Intra-group interest income Other financial income External interest income and similar items Total – – – – – – – – – 73 486 555 –69 956 – 898 898 – 375 73 47 47 57 130 1 1,443 19 1,365 78 nOteS ASSA ABLOY AnnuAL repOrt 2009 Note 11 Financial expenses Note 13 Earnings per share Group Parent company Earnings per share before dilution SEK M Earnings attributable 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 SEK M Earnings attributable 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 calculations (thousands) Earnings per share after dilution (SEK per share) Group 2008 2009 2,413 2,626 365,918 365,918 6.60 7.18 Group 2008 2009 2,413 2,626 81 32 2,494 2,658 365,918 365,918 14,795 10,616 380,713 376,534 6.55 7.06 Earnings per share after dilution and excluding items affecting comparability SEK M Earnings attributable to the Parent company's shareholders Interest expenses for convertible debenture loans, after tax Items affecting comparability, after tax1 Net profit for calculating earnings per share after dilution Weighted average number of shares issued (thousands) Asssumed conversion of convertible debentures (thousands) Weighted average number of shares for calculations (thousands) Earnings per share after dilution and excluding items affecting compara- bility (SEK per share) Group 2008 2009 2,413 2,626 81 1,014 3,508 32 815 3,473 365,918 365,918 14,795 10,616 380,713 376,534 9.21 9.22 1 Items affecting comparability for 2009 consist of restructuring cost. Items affecting comparability for 2008 consist of restructuring costs and non-recur- ring costs. Non-recurring costs for 2008 totaled SEK 77 M. SEK M 2008 2009 2008 2009 Intra-group interest expenses Interest expenses, con- vertible debenture loans Interest expenses, other liabilities Interest expenses, interest rate swaps Interest expenses, for- eign exchange forwards Exchange-rate differ- ences on financial instruments Fair value adjustments on derivatives, hedge accounting Fair value adjustments on derivatives, non- hedge accounting Fair value adjustments on borrowings, hedge accounting Fair value adjustments on shares and participations Other financial expenses Total – – –578 –125 –110 –43 –110 –43 –665 –640 –125 –156 24 42 –31 –39 – – – – –17 –38 –3 121 148 –60 – –11 –148 – –7 –817 –7 60 –22 –17 –764 –22 – – –8 –846 – – – –22 –12 –237 Note 12 Tax on income SEK M Current tax Tax attributable to prior years Deferred tax Total Group 2008 2009 –1,047 –1,095 14 –28 3 11 –1,061 –1,081 Parent company 2008 –419 –16 – –435 2009 –158 – – –158 Explanation for the difference between nominal Swedish tax rate and effective tax rate based on income before tax: Percent 2008 2009 2008 2009 Group Parent company Swedish rate of tax on income Effect of foreign tax rates Non-taxable income/ non-deductible expenses, net Deductible goodwill Utilized loss carry- forward not recognized in prior period Restructuring costs Other Effective tax rate in income statement 28 4 –3 –1 –1 3 – 30 26 3 –4 –1 –1 2 4 28 – –1 – – – – 29 27 26 – –17 – – – – 9 ASSA ABLOY AnnuAL repOrt 2009 nOteS 79 Note 14 Intangible assets 2009, SEK M Opening accumulated acquisition value Purchases Acquisitions of subsidiaries Divestments of subsidiaries Adjustments for acquisitions in the prior year Sales/disposals Reclassifications Exchange rate differences Closing accumulated acquisition value Opening accumulated amortization/impairment Impairment Amortization for the year Exchange rate differences Closing accumulated amortization/impairment Carrying amount 2008, SEK M Opening accumulated acquisition value Purchases Acquisitions of subsidiaries Adjustments for acquisitions in the prior year Sales/disposals Reclassifications Exchange rate differences Closing accumulated acquisition value Opening accumulated amortization/impairment Sales/disposals Reclassifications Impairment Amortization for the year Exchange rate differences Closing accumulated amortization/impairment Carrying amount Intangible rights consist mainly of licenses and brands. The carrying value of intangible rights with indefinite life amounts to SEK 1,214 M (1,138). Useful life is taken as indefinite where the time period during which it is judged that an asset will contribute eco- nomic benefits cannot be defined. Amortization and impairment of intangible assets have mainly been reported as cost of goods sold in the income statement. • Group Intangible rights Goodwill 20,669 – 637 –19 –16 – – –874 20,397 – –64 – – –64 20,333 2,665 118 163 –37 –8 – 9 –132 2,778 –672 – –162 47 –787 1,991 Group Intangible rights Goodwill 17,271 – 1,208 –13 –4 – 2,207 20,669 – – – – – – – 20,669 1,866 114 251 – –7 78 363 2,665 –429 7 –34 – –124 –92 –672 1,993 Total 23,334 118 800 –56 –24 – 9 –1,006 23,175 –672 –64 –162 47 –851 22,324 Total 19,137 114 1,459 –13 –11 78 2,570 23,334 –429 7 –34 – –124 –92 –672 22,662 Parent company Intangible rights 938 – – – – –4 – – 934 –432 – –181 – –613 321 Parent company Intangible rights 938 – – – – – – 938 –246 – – – –186 – –432 506 covering a three-year period. Cash flows beyond three years are extrapolated using estimated growth rates according to the principles below. Main assumptions used to calculate values in use: • • Budgeted operating margin. Growth rate for extrapolating cash flows beyond the budget period. Discount rate after tax used for estimated future cash flows. Impairment testing of goodwill and intangible assets with indefinite useful life Goodwill and intangible assets with indefinite useful life are assigned to the Group’s Cash Generating Units (CGU) which contains of the Group’s five divisions. For each Cash Generating Unit, The Group assesses each year whether any impairment of goodwill and intangible assets with indefinite useful life is needed, in accordance with the accounting principles described in Note 1. Recover- able amounts for Cash Generating Units have been estab- lished by calculation of value in use. These calculations are based on estimated future cash flows, which in turn are based on financial budgets approved by management and Management has established the budgeted operating mar- gin on a basis of previous results and its expectations about future market development. For extrapolating cash flows beyond the budget period, a growth rate of 3 percent (3) is used for all CGU. The growth rate is thought to be a conserva- tive estimate. In addition, an average discount rate in local currency after tax is used for the Group. 80 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 14 cont. 2009 Overall, the discount rate employed varied between 9.0 and 10.0 percent (EMEA 9.0 percent, Americas 9.0 percent, Asia Pacific 10.0 percent, Global Technologies 10.0 percent and Entrance Systems 9.0 percent). Goodwill and intangible assets with indefinite useful life were assigned to the Group’s Cash Generating Units as summarized in the following table: SEK M Goodwill Intangible assets with indefinite useful life Total EMEA 5,540 221 5,761 Americas Asia Pacific Global Technologies Entrance Systems 6,003 243 6,246 1,536 212 1,748 4,030 349 4,379 3,223 190 3,413 Total 20,333 1,214 21,547 2008 Overall, the discount rate employed varied between 9.0 and 10.0 percent (EMEA 9.0 percent, Americas 9.0 percent, Asia Pacific 10.0 percent, Global Technologies 10.0 percent and Entrance Systems 9.0 percent). Goodwill and intangible assets with indefinite useful life were assigned to the Group’s Cash Generating Units as summarized in the following table: SEK M Goodwill Intangible assets with indefinite useful life Total EMEA 5,766 233 5,999 Americas Asia Pacific Global Technologies Entrance Systems 6,236 256 6,492 1,628 247 1,875 4,275 377 4,652 2,763 25 2,788 Total 20,669 1,138 21,807 Sensitivity analysis A sensitivity analysis has been carried out for each Cash Generating Unit. The results of the analysis can be summa- rized as follows. 2009 If the estimated operating margin after the end of the bud- get period had been one percentage point lower than the management’s estimate, total recoverable amount would be 6 percent lower (EMEA 6 percent, Americas 5 percent, Asia Pacific 7 percent, Global Technologies 6 percent and Entrance Systems 5 percent). If the estimated growth rate to extrapolate cash flows beyond the budget period had been one percentage point lower than the basic assumption of 3 percent, total recover- able amount would be 13 percent lower ( EMEA 13 percent, Americas 13 percent, Asia Pacific 11 percent, Global Tech- nologies 11 percent and Entrance Systems 13 percent). If the estimated weighted cost of capital used for the Group’s discounted cash flow had been one percentage point higher than the starting assumption of 9.0 to 10.0 percent, total recoverable amount would be 14 percent lower (EMEA 14 percent, Americas 14 percent, Asia Pacific 13 percent, Global Technologies 12 percent and Entrance Systems 14 percent). 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 interpreted with caution. None of the hypothetical cases above would lead to an impairment of goodwill in a particular Cash Generating Unit. 2008 If the estimated operating margin after the end of the bud- get period had been one percentage point lower than the management’s estimate, total recoverable amount would be 6 percent lower (EMEA 6 percent, Americas 5 percent, Asia Pacific 8 percent, Global Technologies 6 percent and Entrance Systems 6 percent). If the estimated growth rate to extrapolate cash flows beyond the budget period had been one percentage point lower than the basic assumption of 3 percent, total recover- able amount would be 13 percent lower ( EMEA 13 percent, Americas 13 percent, Asia Pacific 11 percent, Global Tech- nologies 11 percent and Entrance Systems 13 percent). If the estimated weighted cost of capital used for the Group’s discounted cash flow had been one percentage point higher than the starting assumption of 9.0 to 10.0 percent, total recoverable amount would be 14 percent lower (EMEA 14 percent, Americas 14 percent, Asia Pacific 13 percent, Global Technologies 13 percent and Entrance Systems 14 percent). 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 interpreted with caution. None of the hypothetical cases above would lead to an impairment of goodwill in a particular Cash Generating Unit. ASSA ABLOY AnnuAL repOrt 2009 nOteS 81 Note 15 Tangible assets 2009, SEK M Opening accumulated acquisition value Purchases Acquisitions of subsidiaries Divestments of subsidiaries Sales/disposals Reclassifications Exchange rate differences Closing accumulated acquisition value Opening accumulated depreciation/ impairment Sales/disposals Impairment Depreciation for the year Exchange rate differences Closing accumulated depreciation/ impairment Construction in progress Carrying amount Group Parent company Land and land improve- ments Buildings Machinery Equipment Total Equipment 3,849 40 80 – –19 26 –182 3,794 –1,740 6 –18 –159 95 –1,816 834 1 20 – –2 8 –32 829 –32 0 – –1 3 –30 7,064 345 82 – –354 143 –496 2,366 152 32 –1 –125 39 –116 14,113 538 214 –1 –500 216 –826 6,784 2,347 13,754 –5,123 257 –62 –455 412 –1,728 103 –8 –237 94 –4,971 –1,776 – 8,623 366 –88 –852 604 –8,594 389 5,550 1,978 799 1,813 571 15 1 – – – – – 16 –11 – – –2 – –13 – 3 The tax value of the Group’s Swedish buildings was SEK 122 M (120). The tax value of the Group’s Swedish land was SEK 14 M (14). 2008, SEK M Opening accumulated acquisition value Purchases Acquisitions of subsidiaries Sales/disposals Reclassifications Exchange rate differences Closing accumulated acquisition value Opening accumulated depreciation/ impairment Sales/disposals Impairment Depreciation for the year Reclassifications Exchange rate differences Closing accumulated depreciation/ impairment Construction in progress Carrying amount Group Parent company Land and land improve- ments Buildings Machinery Equipment Total Equipment 3,133 144 87 –57 35 507 3,849 –1,352 42 –18 –134 – –278 –1,740 736 8 2 –1 1 88 834 –25 1 – –1 – –7 –32 5,959 318 96 –489 39 1,141 1,966 194 17 –170 –17 376 11,794 664 202 –717 58 2,112 7,064 2,366 14,113 –4,125 456 –62 –424 – –968 –1,354 147 – –239 34 –316 –6,857 646 –80 –798 34 –1,568 –5,123 –1,728 –8,623 2,109 802 1,941 638 462 5,952 16 0 – –1 – – 15 –10 1 – –2 – – –11 – 4 82 nOteS ASSA ABLOY AnnuAL repOrt 2009 Note 16 Shares in subsidiaries Company name ASSA Sverige AB Timelox AB ASSA ABLOY Entrance Systems AB ASSA ABLOY Kredit AB ASSA ABLOY Försäkrings 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 Norge A/S ASSA ABLOY Danmark A/S ASSA ABLOY Deutschland GmbH ASSA ABLOY Nederland BV Nemef BV Integrated Engineering B.V. ASSA ABLOY France SAS Interlock Holding AG HID Global Switzerland S.A. ASSA ABLOY Holding GmbH ASSA ABLOY Ltd ITG (UK) Ltd HID Global Ireland Teoranta Mul-T-Lock Ltd ASSA ABLOY Holdings (SA) Ltd ASSA ABLOY Inc Fleming Door Products, Ltd ABLOY Holdings Ltd AAC Acquisition Inc. ASSA ABLOY Australia Pacific Pty Ltd ASSA ABLOY South Asia Pte Ltd Grupo Industrial Phillips, S.A de C.V. Cerraduras de Colombia S.A. ASSA ABLOY Innovation AB ASSA ABLOY Hospitality AB ASSA ABLOY North America AB WHAIG Limited ASSA ABLOY Asia Pacific Ltd Total ¹ The Group’s holdings amount to 100 percent. Note 17 Shares in associates 2009 Company name Talleres Agui S.A Låsgruppen Wilhelm Nielsen AS Mab Iberica SA Other Total 2008 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, Eskilstuna 556214-7735, Landskrona 556204-8511, Landskrona 556047-9148, Stockholm 516406-0740, Stockholm 556645-4087, Stockholm 556645-0275, Stockholm 556602-4500, Stockholm 556608-2979, Stockholm 1094741-7, Joensuu 979207476, Moss CVR 10050316, Herlev HR B 66227, Berlin 23028070, Geertruidenberg 08023138, Apeldoorn 33216643, Amsterdam 412140907, R.C.S. Versailles CH-020.3.913.588-8, Zürich CH-232-0730018-2, Granges FN 273601f, A-6175, Kematen 2096505, Willenhall 5099094, Haverhill 364896, Galway 520036583, Yavne 1948/030356/06, Roodepoort 039347-83, Oregon 147126, Ontario 1148165260, St Laurent, Quebec 002098175, Ontario ACN 095354582, Oakleigh, Victoria 199804395K, Singapore GIP980312169, Mexico Public Deed 2798, Bogota 556192-3201, Stockholm 556180-7156, Göteborg 556671-9851, Stockholm EC21330, Bermuda 53451, Hong Kong 70 15,000 1,000 400 60,000 1,000 1,000 1,000 1,000 800,000 150,000 60,500 2 3,515 4,000 500 15,184,271 211,000 2,500 1 1,330,000 1 501,000 13,787,856 100,220 100 25,846,600 1 1 48,190,000 4,300,000 27,036,635 2,201,670 2,500 1,000 1,000 100,100 1,000,000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 98¹ 100 100 100 100 100 90¹ 100 100 100 100 100 100 100 100 71¹ 100 100 100 100 100 197 22 181 528 60 220 0 189 0 4,257 538 376 1,064 87 928 9 1,964 0 47 15 3,077 1 293 901 184 2,259 0 13 17 242 48 765 139 105 14 0 303 72 19,115 Country of registration Spain Norway Spain Country of registration Spain Norway Colombia Italy Number of shares 4,800 305 700 Number of shares 4,800 305 182,682 1 Group % of share capital Book value, SEK M 40 50 24 19 16 3 1 39 Group % of share capital Book value, SEK M 40 50 29 25 16 11 2 4 5 38 ASSA ABLOY AnnuAL repOrt 2009 nOteS 83 Note 21 Accounts receivable Group 2008 2009 Note 18 Deferred tax 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 Exchange rate differences At 31 December 430 106 221 757 56 701 762 –46 –28 13 701 351 151 312 814 63 751 701 –20 11 59 751 The group has additional tax losses carried forward of some SEK 1,500 M (1,500) for which deferred tax assets have not been recognized. Note 19 Other long-term financial assets SEK M 2008 2009 2008 2009 Group Parent company Other shares and participations Interest-bearing long-term receivables Other long-term receivables Total Note 20 Inventories SEK M Materials and supplies Work in progress Finished goods Advances paid Total 37 42 256 244 24 317 48 334 28 51 – 79 7 27 – 34 Group 2008 1,458 1,630 2,213 82 5,383 2009 1,179 1,274 1,811 85 4,349 Write-downs of inventory amounted to SEK 191 M (201). SEK M Accounts receivable Provision for bad debts Total Maturity analysis Accounts receivable not due Accounts receivable past due not impaired: < 3 months 3–12 months > 12 months Impaired accounts receivable: < 3 months 3–12 months > 12 months Provision for bad debts Total Accounts receivable per currency EUR USD GBP AUD CNY SEK Other currencies Total Current year's change in provision for bad debts Opening balance Disposals Receivables written off Reversal of unused amounts Provision for bad debt Exchange rate differences Closing balance Group 2008 6,776 –404 6,372 2009 6,010 –392 5,618 4,408 4,119 1,448 224 62 1,734 288 179 167 634 –404 6,372 2008 2,343 2,023 269 250 241 202 1,044 6,372 2008 294 0 –78 –39 184 43 404 1,107 205 39 1,351 245 126 169 540 –392 5,618 2009 2,152 1,382 249 290 302 212 1,031 5,618 2009 404 –1 –127 –30 166 –20 392 84 nOteS ASSA ABLOY AnnuAL repOrt 2009 Note 22 Parent company’s equity The Parent company’s equity is split between restricted and unrestricted equity. Restricted equity consists of share capi- tal and the statutory reserve. Restricted funds must not be reduced by issue of dividends. Unrestricted equity consists of 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. Note 23 Share capital, number of shares and dividend per share Number of shares (thousands) Series A Series B Total Share capital, SEK T 19,175 346,743 365,918 365,918 19,175 346,743 365,918 365,918 191,753 346,743 538,496 19,175 346,743 365,918 365,918 19,175 346,743 365,918 365,918 191,753 346,743 538,496 Opening balance at 1 January 2008 Closing balance at 31 December 2008 Number of votes, thousands Opening balance at 1 January 2009 Closing balance at 31 December 2009 Number of votes, thousands All shares have a par value of SEK 1.00 and provide the hold- ers with equal rights to the Company’s assets and earnings. All shares are entitled to dividends subsequently issued. Each Series A share carries ten votes and each Series B share one vote. All issued shares are fully paid. 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 376,534 thou- sand (380,713). Dividend per share The dividend paid out during the financial year amounted to a total sum of SEK 1,317 M (1,317), corresponding to SEK 3.60 (3.60) per share. At the Annual General Meeting on 22 April 2010, a dividend of SEK 3.60 per share for year 2009 – a total sum of SEK 1,317 M – will be proposed. ASSA ABLOY AnnuAL repOrt 2009 nOteS 85 Note 24 Post-employment employee benefits Post-employment employee benefits include pensions and medical benefits. Pension plans are classified as either defined benefit plans or defined contribution plans. Pension obligations 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, the UK and Germany 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 costs, SEK M 2008 2009 Defined benefit pension charges (A) Defined contribution pension charges Post-employment medical benefit charges (A) Total 56 328 29 413 126 283 25 434 Amounts recognized in the balance sheet Pension provisions, SEK M 2008 2009 Provisions for defined benefit pension plans (B) Provisions for post-employment medical benefits (B) Provisions for defined contribution pension plans Pension provisions Financial assets Pension provisions, net 638 485 59 1,182 –23 1,159 598 447 73 1,118 –26 1,092 A) Specification of amounts recognized in the income statement Post-employment medical benefits Defined benefit pension plans Total Pension costs, SEK M 2008 2009 Current service cost Interest on obligation Expected return on plan assets Net actuarial losses (gains), net Past service cost Losses (gains) on curtailments/settlements Total -of which, included in: Operating income Net financial items Total 6 23 – 0 0 – 29 6 23 29 5 29 – –9 0 – 25 5 20 25 2008 50 219 –216 1 2 0 56 53 3 56 2009 50 223 –158 15 0 –4 126 46 80 126 2008 56 242 –216 1 2 0 85 59 26 85 2009 55 252 –158 6 0 –4 151 51 100 151 Actuarial gains/losses resulting from changes in the actu- arial 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 obligations’ 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 2009 will start in 2010 to the extent that amortizations are applicable according to the current framework. The actual return on plan assets regarding defined ben- efit plans was in 2009 SEK –321 M (–594) in 2009. Partly funded or unfunded pension plans are reported as provisions for pensions. B) Specification of amounts recognized in the balance sheet Post-employment medical benefits Defined benefit pension plans Total Specification of pension provisions, SEK M 2008 2009 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 Provisions for defined contribution pension plans Total – – – 361 122 2 485 – – – 402 45 0 447 2008 2,867 –2,604 263 736 –356 –5 638 2009 3,499 –2,817 682 795 –879 0 598 2008 2,867 –2,604 263 1,097 –234 –3 1,123 59 1,182 2009 3,499 –2,817 682 1,197 –834 0 1,045 73 1,118 86 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 24 cont. C) Movement in pension obligations SEK M Opening obligations Current service cost Interest on obligation Actuarial losses (gains) Curtailments /settlements Payments Exchange rate 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 Net payments Exchange rate differences Closing fair value of plan assets (E) E) Plan assets allocation Plan assets Shares Interest-bearing investments Other assets Total F) Sensitivity analysis on medical benefits The effect of a 1percent change in the assumed medical cost trend rate Effect on the aggregate of the current service cost and interest cost Effect on the defined benefit obligation Key actuarial assumptions (yearly, weighted average), % Discount rate Expected return on plan assets 1 Future salary increases Future pension increases Future medical benefit increases Expected inflation As at 31 December Present value of obligation (+) Fair value of plan assets (–) Obligation, net Post-employment medical benefits Defined benefit pension plans Total 2008 391 6 23 –106 6 –25 66 361 2009 361 5 29 63 –4 –39 –13 402 2008 3,993 50 219 –574 –1 –184 99 3,602 2009 3,602 50 223 730 –11 –194 –106 4,294 2008 4,384 56 242 –680 5 –209 165 3,963 2009 3,963 55 252 793 –15 –233 –119 4,696 Defined benefit pension plans 2008 3,177 216 –811 – –43 65 2,604 2008 1,413 907 284 2,604 +1% 3 38 2008 6.9 6.7 2.2 2.7 9.5 2.8 2008 3,963 –2,604 1,359 2009 2,604 158 178 –14 –35 –74 2,817 2009 1,571 857 389 2,817 –1% –3 –32 2009 5.4 7.3 2.3 2.9 10.0 3.0 2009 4,696 –2,817 1,879 2005 4,892 –3,009 1,883 2006 4,487 –3,133 1,354 2007 4,384 –3,177 1,207 1 The expected return on plan assets is determined by considering the expected returns available on assets underlying the current investment policy. Plan assets chiefly consist of equity instruments and interest-bearing investments. The expected return primarily reflects established risk premiums and index for interest-bearing investments. 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 UFR3 this is a defined benefit plan that covers many employers. For the 2009 financial year the company has not had access to informa- tion making it possible to report this plan as a defined benefit plan. Pension plans in accordance with ITP that are guaran- teed through insurance with Alecta are therefore reported as defined contribution plans. The year’s contribution that are contracted to Alecta amount to SEK 10 M (7), 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 2009 Alecta’s surplus expressed as col- lective consolidation level amounted to 141 (112) percent. Collective consolidation level consists of the market value of Alecta’s assets as a percentage of its insurance commitments calculated according to Alecta’s actuarial calculation assump- tions, which do not comply with IAS19. ASSA ABLOY AnnuAL repOrt 2009 nOteS 87 Note 25 Other provisions Note 26 Other short-term liabilities SEK M Opening balance at 1 January 2008 Provisions for the year Additional purchase price subsidiaries Utilized during the year Exchange rate differences Closing balance at 31 December 2008 SEK M Opening balance at 1 January 2009 Provisions for the year Reversal of non-utilized amounts Additional purchase price subsidiaries Utilized during the year Exchange rate differences Closing balance at 31 December 2009 Restruc- turing reserve 828 1,038 – –485 137 Group Other Total 512 11 267 –114 46 1,340 1,049 267 –599 183 SEK M VAT and excise duty Employee withholding tax Advances received Social security contributions and other taxes Other short-term liabilities Total Group 2008 2009 244 72 93 38 282 729 283 69 95 55 393 895 1,518 722 2,240 Note 27 Accrued expenses and prepaid income Restruc- turing reserve 1,518 908 –92 – –676 –81 Other Total SEK M 722 346 –51 139 –170 –8 2,240 1,254 –143 139 –846 –89 Personnel-related expenses Customer-related expenses Prepaid income Accrued interest expenses Other Total Group Parent company 2008 2009 2008 2009 1,441 1,642 444 79 125 1,035 3,124 430 61 92 653 2,878 57 – – 55 4 116 85 – – 47 13 145 1,577 978 2,555 Group Note 28 Contingent liabilities Balance sheet breakdown: Other long-term provisions Other short-term provisions Total 2008 1,453 787 2,240 2009 1,829 726 2,555 The restructuring reserves is concerned chiefly with the ongoing restructuring programs initiated in 2006, 2008 and 2009. The closing balance of the provision is expected to be utilized during the coming three-year period and is mainly related to severance payments. The long-term part of the restructuring provision totaled SEK 862 M. Detailed infor- mation about the restructuring programs appears in the Report of the Board of Directors. Other provisions related to estimates of deferred considerations related to acquisitions and legal obligations including future environment-related interventions. Parent company Other provisions in the Parent company refers to estimates of deferred considerations related to acquisitions. Group Parent company SEK M 2008 2009 2008 2009 Guarantees Guarantees on behalf of subsidiaries Total 36 – 36 52 – 52 – – 8,501 8,501 7,472 7,472 In addition to the guarantees shown in the table above the Group has a large number of small performance guarantees issued by banks in the ordinary course of business. No mate- rial obligations are expected as a result of these guarantees. Maturity profile-guarantees, SEK M <1 year >1<2 year >2<5 year >5 year Total Group 2009 21 9 7 15 52 The maturity profile is not significantly changed between 2008 and 2009. Note 29 Assets pledged against liabilities to credit institutes SEK M Real-estate mortgages Other mortgages Total Group 2008 41 30 71 2009 71 42 113 Parent company 2008 None None None 2009 None None None 88 nOteS ASSA ABLOY AnnuAL repOrt 2009 2008 Rockwood On 24 June 2008 the Group acquired 100 percent of the share capital of Rockwood Manufacturing Company, a lead- ing US producer of standard and decorative specialty door hardware. The acquisition brings into ASSA ABLOY a well rec- ognized producer of door components. With the acquisition of Rockwood ASSA ABLOY takes another step in its strategy to provide total door solutions on the non-residential market in the USA. The company has its headquarters and manu- facturing facility in Rockwood, Pennsylvania. The brand has been separately recognized and remaining goodwill is chiefly related to synergies and other intangible assets not qualify- ing for separate recognition. Gardesa On 9 July 2008 the Group acquired 100 percent of the share capital of Gardesa, a leading Italian manufacturer of high-security steel doors. Gardesa is a valuable addition to ASSA ABLOY, bringing a leading brand, a very exciting prod- uct range, advanced technology and very attractive Italian design. The majority of the products are sold through the company’s distribution network in Italy while 25 percent are sold through distributors to other markets in Europe, Africa and Asia. Gardesa is located near Piacenza in Italy. The brand has been separately recognized and remaining goodwill is chiefly related to synergies and other intangible assets not qualifying for separate recognition. Valli&Valli On 3 July 2008 the Group acquired 100 percent of the share capital of Valli&Valli, a leading Italian manufacturer of design handles. The acquisition brings into ASSA ABLOY an exciting product range and a well known brand used by designers and architects worldwide. The acquisition will strengthen ASSA ABLOY’s leading position on the Italian market and it will also reinforce the Group’s specification efforts in many other countries. The company is based near Milan in Italy. The brand has been separately recognized and remaining goodwill is chiefly related to synergies and other intangible assets not qualifying for separate recognition. Shenfei On 19 December 2008 the Group acquired 100 percent of the share capital of Shenfei, a leading Chinese manufacturer of door closers. The acquisition is an important step in the growth strategy on emerging markets and adds market presence as well as complementing ASSA ABLOY’s product portfolio. Shenfei complements the Group’s port folio of locks and door opening solutions and adds a valuable dis- tribution network in China. Shenfei is located in Wen Zou, south of Shanghai. Goodwill is chiefly related to synergies and other intangible assets not qualifying for separate rec- ognition. Note 30 Business combinations SEK M Cash paid, including direct acquisition costs Unpaid part of purchase prices Total purchase price Fair value of acquired net assets Goodwill Acquired assets and liabilities in accor- dance with purchase price allocations Intangible assets Other tangible assets Inventories Receivables Cash and cash equivalents Interest-bearing liabilities Other liabilities Minority interest Acquired net assets at fair value Fair value adjustments, intangible assets Fair value adjustments, other assets and liabilities Acquired net assets at book value Purchase prices settled in cash, including direct acquisition costs Cash and cash equivalents in acquired subsidiaries Change in Group cash and cash equivalents resulting from acquisition Net sales from times of acquisition EBIT from times of acquisition Net income from times of acquisition 2008 1,710 320 2,030 –822 1,208 251 202 339 223 58 –40 –275 64 822 –233 165 754 1,710 –58 1,652 691 82 9 2009 968 139 1,107 –470 637 163 244 149 294 50 –195 –248 13 470 –163 45 352 968 –50 918 415 44 27 Total net sales in 2009 of acquired entities amounted to SEK 1,175 M (1,732) and net income amounted to SEK 33 M (29). No individually material acquisition was performed in 2009 or 2008. During 2009 the holding in iRevo was increased and at the end of the year it totaled around 99 percent of the shares. The largest and most notable aquisi- tions during 2009 include Ditec, Maiman, Portsystem and Cerracol for which preliminary purchase price allocations have been made. Rockwood, Gardea, Valli & Valli and Shenfei were the largest acquisitions during 2008. 2009 Ditec On 8 September 2009 the Group acquired the Italian com- pany Ditec Group, a global leader in automatic doors, indus- trial and high-speed doors and gate automation. At year end the participating interest amounted to 100 percent of the share capital. With the acquisition ASSA ABLOY becomes a world-leader in entrance automation by complementing the existing product portfolio. The acquisition of Ditec is an important step in ASSA ABLOYs growth strategy into the fast growing and profitable market segment of door automat- ics. The Company has its headquarters in Caronno, close to Milan, Italy. The brand has been separately recognized and remaining goodwill is chiefly related to synergies and other intangible assets not qualifying for separate recognition. Pan Pan In 2009 an agreement was signed to acquire Pan Pan, China’s largest manufacturer of high-security steel doors. ASSA ABLOY has received anti-trust clearance. A business license is required from the local Chinese authorities before Pan Pan can be consolidated into the Group. This license is expected in the first quarter of 2010. ASSA ABLOY AnnuAL repOrt 2009 nOteS 89 note 30 cont. Disposals of subsidiaries During 2009 smaller businesses were disposed in New Zea- land, Switzerland and Sweden. The cash flow effect and net earnings from the disposals are shown in the table below: SEK M Disposed net assets Fixed assets Inventories Receivables Cash and cash equivalents Liabilities Disposed net assets to carrying amount Purchase prices received Less, cash and cash equivalents in disposed subsidiaries Change in cash and cash equivalents for the Group Net earnings of disposals Group 2008 2009 – – – – – – – – – – –59 –14 –14 –71 24 –134 0 –71 –71 –73 Note 31 Cash flow SEK M Adjustments for non-cash items Profit on sales of fixed assets Change of pension obligations Other Adjustments for non-cash items Change in working capital Inventory increase/decrease (–/+) Accounts receivable increase/decrease (–/+) Accounts payable increase/decrease (+/–) Other working capital increase/decrease (–/+) Change in working capital Group 2008 2009 –31 –3 –15 –49 –144 38 –59 160 –5 3 51 73 127 987 806 –232 –102 1,460 Investments in subsidiaries Total purchase price Less, acquired cash and cash equivalents Less, unpaid parts of purchase prices Plus, paid parts of purchase prices relating to prior years Investments in subsidiaries –2,030 58 320 –1,107 50 139 –179 –1,831 –159 –1,077 Disposal of subsidiaries Purchase prices received Less, cash and cash equivalents in disposed subsidiaries Disposal of subsidiaries Other investments Investments in/ sales of other shares Investments in/ sales of other financial assets Other investments – – – 1 11 12 0 –71 –71 1 –24 –23 90 nOteS ASSA ABLOY AnnuAL repOrt 2009 Note 32 Employees Salaries, wages and other remuneration SEK M USA France Germany Sweden United Kingdom China Finland Australia Spain Norway Netherlands Switzerland Italy Denmark Canada Czech Republic Israel Mexico Belgium New Zealand South America South Africa Korea Austria Ireland Singapore Romania Portugal Malaysia Poland Other Total SEK M Sweden Other Total Social security costs SEK M Social security costs -of which pensions Total 2008 2009 Group Salaries, wages and other remuneration of which, performance-rela- ted salary paid to managing direc- tors Salaries, wages and other remuneration of which, performance-rela- ted salary paid to managing direc- tors 2,733 430 568 590 503 166 339 303 288 311 245 230 154 230 194 133 118 151 45 85 76 67 39 52 41 27 48 10 21 15 112 8,324 11 4 2 5 3 0 0 0 2 1 2 1 0 0 2 – 0 0 0 0 0 – 0 1 0 1 – 0 0 0 0 35 2,534 604 568 566 425 333 331 328 278 275 248 248 236 224 161 110 109 93 88 79 75 67 53 50 44 31 29 21 17 13 61 8,299 11 2 2 12 1 2 0 0 0 0 1 1 – 0 1 – 0 1 0 0 0 – – 0 – 0 – 0 0 0 1 35 Parent company 2008 2009 Salaries, wages and other remuneration of which, performance-rela- ted salary paid to managing direc- tors Salaries, wages and other remuneration of which, performance-rela- ted salary paid to managing direc- tors 102 0 102 Group 2008 1,692 413 1,692 3 – 3 2009 1,834 434 1,834 109 – 109 Parent company 2008 55 20 55 8 – 8 2009 53 21 53 Total 1,102 450 591 723 591 – 657 723 854 – 5,692 Fees to board members in 2009 (including committee work), SEK thousands Name and post Gustaf Douglas, Chairman Jorma Halonen, Member Carl Douglas, Member Birgitta Klasén, Member Eva Lindqvist, Member Johan Molin, President and CEO Sven-Christer Nilsson, Member Lars Renström, Member Ulrik Svensson, Member Employee representatives (2) Total Board 900 450 450 450 450 – 450 450 450 – 4,050 Remuneration Committee Audit Committee 100 – – – – – 50 – – – 150 – – – 100 – – – 100 200 – 400 Social security costs 102 – 141 173 141 – 157 173 204 – 1,092 ASSA ABLOY AnnuAL repOrt 2009 nOteS 91 note 32 cont. Remuneration and other benefits of the Executive Team in 2009, SEK thousands Johan Molin Other members of the executive team (9) Total remuneration and benefits Total costs1 Fixed salary Variable salary Other benefits Pension costs 10,500 36,411 46,911 56,709 7,875 24,709 32,584 39,165 100 2,515 2,615 2,862 3,675 9,501 13,176 15,947 1 Total costs for the Executive team include social fees on salaries and benefits, special pension tax and additional costs for other benefits. Salaries and other benefits paid to the Executive Team during 2008 totaled SEK 55 M and social security costs totaled SEK 26 M, of which SEK 14 M were pension costs. Absence for illness, % Total absence for illness – long-term 1 – men – women – aged 29 or younger – aged 30–49 – aged 50 or older 1 Parent company 2008 2009 1.8 – 2.0 1.2 0.6 1.0 – 2.3 – 2.8 1.1 0.4 0.8 – 1 Information not displayed since it could be linked to specific individuals. Salaries and remuneration to the Board of Directors and the Parent company’s Executive Team Salaries and other remuneration to the Board of Directors and the Parent company´s Executive team totaled SEK 42 M (31). Social security costs amounted to SEK 24 M (19), of which SEK 11 M (10) are pension costs. Severance pay If the CEO is given notice, the company is liable to pay the equivalent of 24 months’ salary and other employment benefits. If one of the other senior executives is given notice, the company is liable to pay a maximum 6 months’ basic salary and other employment benefits plus an additional 12 months’ basic salary. Average number of employees per country, with breakdown into women and men 2008 2009 Group Total whereof women whereof men Total whereof women whereof men 1,433 1,073 667 414 1,315 224 620 2,124 1,242 407 604 760 1,085 484 460 534 581 6,961 1,721 659 527 5,962 266 954 336 1,310 32,723 536 420 245 141 525 83 91 907 485 159 202 224 578 234 131 206 107 2,246 1,042 172 369 2,939 50 283 116 583 13,074 897 653 422 273 790 141 529 1,217 757 248 402 536 507 250 329 328 474 4,715 679 487 158 3,023 216 671 220 727 19,649 1,371 921 514 401 1,066 206 518 1,882 1,129 358 589 673 980 368 401 467 386 6,000 1,210 535 419 6,855 211 833 325 756 29,375 487 338 157 150 358 79 108 699 433 140 171 190 494 174 109 193 101 2,094 702 139 283 3,264 42 230 99 297 11,531 884 583 357 251 708 127 410 1,183 696 218 418 483 486 194 292 274 285 3,906 508 396 136 3,591 169 603 226 459 17,843 2008 2009 Parent company Total whereof women whereof men Total whereof women whereof men 101 101 32 32 69 69 94 94 26 26 68 68 2008 2009 Total whereof women whereof men Total whereof women whereof men 9 10 4 19 2 – – 2 7 10 4 17 9 10 4 19 2 – – 2 7 10 4 17 Sweden Finland Norway Denmark United Kingdom Belgium Netherlands France Germany Switzerland Italy Spain Czech Republic Romania Israel South Africa Canada USA Mexico South America Malaysia China Korea Australia New Zealand Other Total Sweden Total Gender-split in senior management Board of Directors 2 Executive Team – whereof Parent company's Executive Team Total 2 Excluding employee representatives 92 nOteS ASSA ABLOY AnnuAL repOrt 2009 Note 33 Financial risk management and financial instruments Financial risk management ASSA ABLOY is exposed to a variety of financial risks through its international business operations. ASSA ABLOY’s units have carried out financial risk management in accordance with the ASSA ABLOY Group’s Treasury Policy. The Group’s financial risk management principles are described below. Organization and activities ASSA ABLOY’s Treasury Policy, which is reviewed annually by the Board of Directors, constitutes a framework of guide- lines and regulations for the management of financial risks and financial activities. ASSA ABLOY’s financial activities are coordinated centrally and the majority of financial transactions are conducted by the subsidiary ASSA ABLOY Financial Services AB, which is the Group’s internal bank. External financial transactions are conducted by Treasury, which also handles transactions involving foreign currencies and interest rates. Treasury achieves significant economies of scale when nego- tiating borrowing agreements, using interest rate deriva- tives and handling foreign exchange flows. Capital structure The Group’s objective regarding capital structure is to safe- guard the Group’s ability to continue as a going concern, in order to provide good returns for shareholders and benefits for other stakeholders. Maintaining an optimal capital struc- ture enables the Group to keep the cost of capital as low as possible. In order to adjust the capital structure in response to need, the Group can vary the amount paid as dividend to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. The Group monitors capital based on factors such as the net debt/equity ratio. Net debt is defined as interest-bearing liabilities, includ- ing negative market values for derivatives, plus pension provisions, less cash and cash equivalents, other interest- bearing investments and positive market values for deriva- tives. The table ‘Net debt and equity’ shows the position at 31 December. Net debt and equity SEK M Long-term interest-bearing receivables Short-term interest-bearing investments incl. derivatives Cash and bank balances Pension provisions Long-term interest-bearing liabilities Current interest-bearing liabilities incl. derivatives Total Equity Net debt/equity Group 2008 –256 –688 –1,579 1,182 7,766 7,589 14,013 18,838 0.74 2009 –244 –840 –1,579 1,118 10,692 1,901 11,048 19,334 0.57 Another important variable in the assessment of the Group’s capital structure is the credit rating that credit ratings agencies assign to the Group’s liabilities. In order to have access to both long-term and short-term financing from the capital markets when needed, it is essential to maintain a good credit rating. ASSA ABLOY maintains both long-term and short-term credit ratings from Standard & Poor’s and a short-term rating from Moody’s. Maturity profile – financial instruments SEK M Long-term bank loans Long-term capital market loans Convertible loans Other long-term liabilities Short-term bank loans Commercial papers and short- term capital market loans Derivatives Total by period Cash and cash equivalents incl. interest-bearing receivables Long-term interest-bearing investments Accounts receivable Accounts payable Net total Confirmed credit facilities Adjusted maturity profile < 1 year –43 –252 –1,164 – –1,728 –4,820 94 –7,913 1,989 6,372 –2,909 –2,461 12,055 9,594 31 December 2008 31 December 2009 > 1 < 2 years –36 –252 –50 –27 – – 42 > 2 < 5 years –1,036 –2 148 –1,577 –148 – – 72 > 5 years < 1 year – –4,317 – –74 – – 22 –20 –325 –14 –14 –1,259 –632 38 > 1 < 2 years –1,020 –986 –409 –116 – – 81 > 2 < 5 years – –4,301 –1,037 –192 – – 63 > 5 years – –4,178 – –88 – – – –323 –4,837 –4,369 –2,226 –2,450 –5,467 –4,266 198 27 31 –125 –4,810 –4,338 –12,055 –125 –4,810 –16,393 2,319 5,618 –2,682 3,029 11,355 14,384 194 22 28 –2,256 –5,445 –11,355 –4,238 –2,256 –16,800 –4,238 ASSA ABLOY AnnuAL repOrt 2009 nOteS 93 note 33 cont. External financing/net debt Credit lines/facilities US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program Multi–Currency RCF Bank loan Incentive Program Incentive Program Global MTN Program Other long-term loans Total long-term loans Swedish CP Program Bank loan Other bank loans Overdraft facility Total short-term loans Total credit lines/facilities Cash and bank balances Short-term interest-bearing investments Long-term interest-bearing investments Market value derivatives Pensions Net debt 1 Loans subject to hedge accounting. Amount, SEK M Carrying amount, Maturity SEK M Currency Amount 2008 Amount 2009 of which Parent com- pany, SEK M USD USD USD USD USD USD USD USD USD EUR SEK EUR EUR SEK SEK SEK EUR EUR NOK 50 80 53 80 76 50 50 122 70 1,100 1,000 100 38 – – – – – – 50 80 53 80 76 50 50 122 70 1,100 1,000 100 38 300 300 250 45 150 350 EUR/SEK EUR 0/2,637 66 0/632 66 360 Dec 2011 575 May 2012 Dec 2013 378 575 May 2015 Dec 2016 543 360 Apr 2017 360 May 2017 877 Dec 2018 503 May 2020 Jun 2014 Oct 2011 Jun 2012 Jun 2011 Apr 2011 Feb 2012 May 2012 Mar 2014 Jun 2014 Jun 2016 11,355 1,000 1,032 396 15,483 355 34,152 5,000 681 306 1,227 7,214 41,366 Feb 2010 359 6211 377 6211 542 359 359 876 503 0 1,000 1,032 396 300 300 250 464 1,548 430 355 10,692 629 681 306 253 1,869 12,561 –1,579 –740 –244 –68 1,118 11,048 1,000 1,032 396 300 300 250 464 1,548 430 5,720 681 681 6,401 0 –27 6,374 Rating Agency Short-term Outlook Long-term Outlook Standard & Poor’s A2 P2 Moody’s Stable Stable A – n/a Negative Ratings from both agencies remain unchanged since last year. The outlook for the long-term rating from Standard & Poor’s was changed from stable to negative in January 2009. Financing risk and maturity profile Financing risk is defined as the risk of being unable to meet payment obligations as a result of inadequate liquidity or difficulties in obtaining credit from external sources. ASSA ABLOY manages liquidity risk on a consolidated basis. Treasury 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. According to the Treasury Policy, the available facilities should include a reserve (facilities confirmed but not used) equivalent to 10 percent of the Group’s total annual sales. Maturity profile The table ‘Maturity profile’ on page 93 shows that debt maturities are not concentrated in the short term, especially in view of the credit facility of EUR 1,100 M maturing in 2014, which was unutilized at year-end. Moreover, financial assets should also be taken into account when evaluating the maturity profile. The table shows undiscounted future cash flows related to the Group’s financial instruments at the balance sheet date, and consequently these amounts are not found in the balance sheet. Interest-bearing liabilities The Group’s long-term loan financing mainly consists of Private Placement Programs in the USA totaling USD 630 M (630), GMTN-program of SEK 3,292 M (0), Incentive Pro- grams of EUR 138 M (138) and a bilateral bank loan of SEK 1,000 M (1,000). During the year, long-term financing total- ing SEK 3,384 M was raised in the form of borrowing on the capital market as follows: • Three bonds in SEK totaling SEK 850 M with a maturity of 2 to 3 years. One bond in NOK of NOK 350 M with a maturity of 7 years. Two Private Placements in EUR of EUR 45 M and EUR 150 M respectively both with a maturity of 5 years. • • These replaced long-term financing of SEK 2,601 M which matured during the year, but also replaced some short-term financing in order to extend the maturity profile. The Group’s short-term loan financing mainly consists of two Commercial Paper Programs for a maximum of USD 1,000 M (1,000) and SEK 5,000 M (5,000) respectively. At year-end, SEK 632 M (3,215) of the Commercial Paper Programs had been utilized. In addition, substantial credit facilities are available, mainly in the form of a Multi-Currency Revolving Credit Facility for a maximum of EUR 1,100 M 94 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 33 cont. (1,100), which was not utilized at all at year-end. According to the Group’s policy, the average remaining time to matu- rity for interest-bearing liabilities should not be less than 18 months. At year-end, the average time to maturity, exclud- ing the pension provision, was 46 months (41). Some of the Group’s main financing agreements contain a customary Change of Control clause. The effect of this clause is that lenders have the right in certain circumstances to demand renegotiation of conditions or to terminate the agreement should control of the company change. The bonds issued during the year have been recognized in the Parent com- pany balance sheet. Convertible debenture loans Incentive 2004 matured during the year without conversion. 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 December 2010 and June 2011. Full conversion at a conversion rate of EUR 14.60 for Bond 1, EUR 15.90 for Bond 2, EUR 17.30 for Bond 3 and EUR 18.60 for Bond 4 will add 2,332,350 shares. The dilution effect of full conversion amounts to 0.6 percent of share capital and 0.4 percent of the total number of votes. Incentive 2007 has a variable interest rate equivalent to 0.9* EURIBOR + 35 basis points. Any conversion of Incen- tive 2007 will take place in a 30-day period in May and June 2012. Full conversion at a conversion rate of EUR 18.00 for Bond 1, EUR 20.50 for Bond 2, EUR 23.00 for Bond 3 and EUR 25.40 for Bond 4 will add 4,679,610 shares. The dilution effect of full conversion amounts to 1.2 percent of share capital and 0.8 percent of the total number of votes. Full conversion of the two programs will add a total of 7,011,960 shares and result in a dilution effect amounting to 1.9 percent of share capital and 1.3 percent of the total number of votes. Incentive 2006 amounts to EUR 38 M and Incentive 2007 to EUR 100 M. Currency composition The currency composition of ASSA ABLOY’s borrowing depends on the currency composition of the Group’s assets. ASSA ABLOY uses currency swaps to achieve the desired currency composition. See the table ‘Net debt by currency’ below. Cash and cash equivalents and other interest-bearing receivables Short-term interest-bearing investments amounted to SEK 656 M (410) at year-end. In addition, ASSA ABLOY has long-term interest-bearing receivables of 244 SEK M (256) and financial derivatives with a positive market value of SEK 100 M (277) which, in addition to cash and cash equivalents, are included in the definition of net financial debt. Cash and Net debt by currency cash equivalents are mainly invested in interest-bearing instruments with high liquidity from issuers with a credit rating of at least A-, according to Standard & Poor’s or similar agency. The average term for cash and cash equivalents was 7.5 days (2.2) at the end of 2009. The Parent company’s cash and cash equivalents are held in a sub-account to the Group cash pool. SEK M 2008 2009 2008 2009 Group Parent company Cash and bank balances Short-term invest- ments with maturity less than 3 months Cash and cash equivalents Short-term invest- ments with maturity more than 3 months Long-term interest- bearing receivables Positive market value derivatives Total 1,579 1,579 352 656 1,931 2,235 58 84 256 244 277 2,522 100 2,663 1 – 1 – 51 – 52 0 – 0 – 27 – 27 Interest rate risk in cash and cash equivalents Treasury manages interest rate risk in cash and cash equiva- lents. Derivative instruments such as interest rate swaps and FRAs (Forward Rate Agreements) may be used to manage interest rate risk. The investments are primarily short-term and the majority of these investments have a maturity of three months or less. The fixed interest term for these short- term investments was 11 days (2.2) at the end of 2009. A downward change of one percentage point in the yield curve would reduce the Group’s interest income by around SEK 23 M (20) and the Group’s equity by SEK 16 M (15). Interest rate risk on borrowing Changes in interest rates have a direct effect on ASSA ABLOY’s net interest. Treasury is responsible for iden- tifying and managing the Group’s interest rate exposure. It analyzes the Group’s interest rate exposure and calculates the impact on net income of changes in interest rates on a rolling 12-month basis. The Group seeks to have a mixture of fixed rate and variable rate debt and uses interest rate swaps when it seems necessary. The Treasury Policy stipu- lates that the average fixed interest term should normally be 24 months. At year-end, the average fixed interest term on gross debt, excluding pension obligations, was around 26 months (23). An upward change of one percentage point in the yield curve would increase the Group’s interest expense by around SEK 75 M (91) and reduce the Group’s equity by SEK 54 M (67). SEK M USD EUR SEK AUD NOK KRW CNY GBP Other Total ASSA ABLOY AnnuAL repOrt 2009 31 Dec 2008 31 Dec 2009 Net debt excl. currency swaps Net debt incl. currency swaps Net debt excl. currency swaps Net debt incl. currency swaps 4,713 4,621 4,920 –94 76 487 –473 18 –255 14,013 5,662 4,021 2,048 576 –150 487 –473 936 906 14,013 4,429 3,998 2,525 –15 530 347 –560 –35 –172 11,048 4,650 3,296 2,215 676 390 347 –560 –629 662 11,048 nOteS 95 note 33 cont. Currency risk Currency risk affects ASSA ABLOY mainly through translation of capital employed and net debt, through translation of income in foreign subsidiaries, and through the effects on income of flows of goods between countries with different currencies. Financial credit risk Financial risk management exposes ASSA ABLOY to certain counterparty risks. Such exposure may arise from the place- ment of surplus cash as well as from the use of debt securi- ties and derivative financial instruments. ASSA ABLOY’s policy is to minimize the potential credit risk from surplus cash by using cash from subsidiaries to amortize the Group’s debt. This objective is achieved pri- marily by cash pools put in place by Treasury. Around 84 percent (78) of the Group’s sales were settled through cash pools in 2009. The Group may nevertheless deposit surplus funds on a short-term basis with banks in order to match debt maturities and cash flow. Derivative financial instruments are allocated to banks according to risk limits set in the Treasury policy in order to limit counterparty risk. Treasury enters into derivative con- tracts exclusively with banks that have a good rating. ISDA agreements (full netting of transactions in case of counterparty default) have been set up in the case of inter- est rate and currency derivatives. Commercial credit risk The Group’s accounts receivable are distributed across a large number of customers who are spread internationally. The concentration of credit risk associated with accounts receivable is therefore limited. The fair value of accounts receivable corresponds to the carrying amount. Credit risk from operating activities is monitored by local management at company level and reviewed by the respective division. Commodity risk The Group is exposed to price risk related to purchases of certain commodities (primarily metals) used in production. The Group’s policy is to not enter into financial commodity hedge contracts. Fair value of financial instruments Derivative financial instruments such as currency and inter- est rate forwards are used to the extent necessary. The use of derivative financial instruments is solely to reduce exposure to financial risks. The positive and negative fair values in the table ‘Out- standing derivative financial instruments’ on page 97 show the fair values of instruments outstanding at year-end, based on available fair values, and are the same as the carrying amounts in the balance sheet. The nominal value represents the gross value of the contract. For accounting purposes, financial instruments are classi- fied into measurement categories in accordance with IAS 39. The table ‘Financial instruments’ on page 97 provides an over- view of financial assets and liabilities, measurement category, and carrying amount and fair value per item. When calculating fair value only general changes in market interest rates are taken into account and not credit spread movements for the company itself. Transaction exposure Currency risk in the form of transaction exposure, or the rel- ative values of exports and imports of goods, is limited in the Group. The main principle is to allow currency fluctuations to have an impact on the business as quickly as possible. As a result of this strategy, only limited portions of current cur- rency flows are normally hedged. Transaction flows relating to major currencies (import + and export –) Currency exposure Currency, SEK M AUD CAD CHF EUR GBP NOK SEK USD 2008 357 413 –218 385 286 –220 –678 –329 2009 286 434 –234 185 225 –136 –602 –414 Translation exposure of income The table below shows the impact on the Group’s income before tax of a 10 percent weakening of the Swedish krona in relation to the major currencies, while all other variables remain constant. Impact on income before tax of a 10 percent weakening of the SEK Currency, SEK M AUD CNY DKK EUR GBP NOK USD 2008 21 14 14 145 13 25 238 2009 26 22 15 131 14 27 227 Translation exposure in the balance sheet The effect arising on translation of equity is limited by the fact that financing is largely carried out in local currency. The capital structure in each country is optimized based on local legislation. So far as this constraint allows, gear- ing per currency should reflect the overall gearing for the whole Group to limit the effect of movements in individual currencies. Treasury uses currency derivatives to supply the appropriate funding and to eliminate undesirable currency exposure. The table ‘Net debt by currency’ on page 95 shows the use of currency forward contracts in association with fund- ing, for the major currencies. The forward contracts are used to neutralize the exposure arising between external debt and internal needs. 96 nOteS ASSA ABLOY AnnuAL repOrt 2009 note 33 cont. Outstanding derivative financial instruments at 31 December 31 December 2008 31 December 2009 Positive fair value Negative fair value Nominal value Positive fair value Negative fair value Nominal value 124 153 – 277 –72 –20 – –92 4,312 2,411 6,723 5 95 – 100 –13 –17 –2 –32 3,629 2,326 1,000 6 ,955 2008 2009 IAS 39 category* Carrying amount Fair value Carrying amount Fair value 1 1 1 5 2 1 1 2 4 4 4 4 2 4 4 317 6,372 479 153 124 277 58 1,931 1,245 5,003 6,248 2,614 151 6,400 92 2,909 729 317 6,372 479 153 124 277 58 1,931 1,433 5,433 6,866 2,614 151 6,400 92 2,909 729 334 5,618 541 95 5 100 84 2,235 1,242 8,021 9,263 1,429 176 1,869 32 2,682 895 334 5,618 541 95 5 100 84 2,235 1,242 8,134 9,376 1,429 176 1,869 32 2,682 895 Instrument, SEK M Foreign exchange forwards, funding Interest rate swaps Forward Rate Agreements Total Financial instruments: carrying amounts and fair values by measurement category SEK M Financial assets Other long-term financial assets Accounts receivable Other current receivables Derivative instruments – hedge accounting Derivative instruments – held for trading Derivative instruments, total Short-term investments Cash and cash equivalents Financial liabilities Long-term loans – hedge accounting Long-term loans – not hedge accounting Long-term loans, total Convertible debenture loans Other long-term liabilities Current liabilities – not hedge accounting Derivative instruments – held for trading Accounts payable Other current liabilities * Applicable IAS 39 categories: 1 = Loans and other receivables. 2 = Financial instruments at fair value through profit or loss. 3 = Available-for-sale financial assets. 4 = Financial liabilities at amortized cost. 5 = Derivative hedge accounting. Financial instruments: measured at fair value SEK M Financial assets Derivative instruments Financial liabilities Long-term loans – hedge accounting Derivative instruments 2008 2009 Carrying amounts Quoted prices Observ- able data Non- observ- able data Carrying amounts Quoted prices Observ- able data Non- observ- able data 124 1,245 92 – – – 124 1,245 92 – – – 5 1,242 32 – – – 5 1,242 32 – – – ASSA ABLOY AnnuAL repOrt 2009 nOteS 97 Note 34 Income statement – reclassification Income statement before and after reclassification 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 and expense Income before tax Tax on income Net income 2008 2009 Before reclassi fication Reclassi- fication After reclassification Before reclassification Reclassi- fication After reclassification 34,918 –21,532 13,386 –6,129 –2,067 –890 –43 12 4,269 –770 3,499 –1,061 2,438 –89 –311 –400 411 0 –11 0 0 0 0 0 0 0 34,829 –21,843 12,986 –5,718 –2,067 –901 –43 12 4,269 –770 3,499 –1,061 2,438 35,049 –21,489 13,560 –6,242 –1,915 –891 –150 12 4,374 –634 3,740 –1,081 2,659 –86 –291 –377 406 0 –29 0 0 0 0 0 0 0 34,963 –21,780 13,183 –5,836 –1,915 –920 –150 12 4,374 –634 3,740 –1,081 2,659 The Group has made a reclassification that affects direct distribution costs and depreciation on capitalized product develop- ment expenditure. The reason is to give a true and fair view of the allocation between direct and indirect costs as well as of product development expenses. In order to maintain comparability, the financial statements for 2008 and 2009 have been adjusted. The reclassification involves the transfer of direct distribution costs from Selling expenses and Administrative expenses, and where appropriate from Sales, to Cost of goods sold. In addition, depreciation on product development has been moved from Cost of goods sold to Selling expenses and Administrative expenses. Both these adjustments affect Gross income. Operating income is not affected. 98 nOteS ASSA ABLOY AnnuAL repOrt 2009 VingCard secures customer satisfaction at Five-Star hotel in thailand the installation of VingCard’s contactless electronic door locks Signature rFID at Grand Millennium Sukhumvit Bangkok is geared to meet the sophisticated needs and requirements of business travelers. the radio Frequency Identification (rFID) locks allow for contactless guest room entry and are compatible with next- generation nFC cell phones. “We needed locks with the strength and efficiency to keep up with the demands of the property, and Signature rFID presented our hotel with the perfect solution,” said Mr tang Kwok Seng, Group Director of engineering, Millennium & Copthorne International. “the ability to receive important information from each keycard has not only increased the productivity and efficiency of our staff, but it keeps our guests very happy because the contact less lock is more intuitive to use and enhances the overall guest experience.” ASSA ABLOY AnnuAL repOrt 2009 nOteS 99 Comments on five years in summary 2005 Sales were relatively weak at the start of the year but then steadily improved, which resulted in good organic growth for the full year. The Group’s performance was founded on strong demand on the important US market. A number of small companies were acquired, mainly in the Asia Pacific and Global Technologies divisions. The Leverage & Growth program was concluded at year- end. This program contributed to increasing the Group’s efficiency and productivity. The operating margin and oper- ating cash flow both improved during the year. Johan Molin succeeded Bo Dankis as President and CEO. ASSA ABLOY strengthened its position by focusing on customer value in both traditional businesses and segments with rather higher market growth, such as electromechani- cal locks, automatic doors, access control systems and iden- tification technology. 2006 This was a very good year for ASSA ABLOY, with the highest organic growth in the company’s history and a substantial improvement in profitability. ASSA ABLOY’s robust perfor- mance was based on strong economic growth in the Group’s most important markets in Europe and North America, as well as success in fast-growing segments such as elec- tromechanical locks, access control, automatic doors and identification technology. The acquisition rate increased and acquisitions included Fargo Electronics, a global leader in the fast-growing segment of secure card issuance. A three-year restructuring program to realize synergies and increase efficiency in the Group’s manufacturing units was launched during the year. This program means that a major part of production will switch focus from full produc- tion to concentrate on final assembly. Some production will be relocated to low-cost countries, resulting in the closure of a number of production units. Total restructuring costs amounted to SEK 1,274 M and the program is predicted to produce annual savings of SEK 600 M when fully implemented in 2009. Sales volume growth, acquisitions and the restructuring measures implemented contributed to the strong increase in operating income. 2007 The year saw strong growth for ASSA ABLOY, combined with continued very satisfactory growth in earnings. All five divisions showed growth, increased profitability and an improved return. ASSA ABLOY’s strong performance was based on long-term structural growth in demand in the Group’s most important markets in Europe and North America, increasing demand in new markets, and successes in fast-growing segments such as electromechanical locks, access control, secure smart-card issuance, automatic doors and identification technology. The acquisition rate remained high during the year and major acquisitions included Bao- dean (China), iRevo (Korea), Aontec (Irish Republic), Power- shield (Northern Ireland), Pemko (North America) and Pyropanel (Australia). The successful implementation of the three-year restruc- turing program for the Group’s manufacturing units contin- ued during the year. All 50 projects are proceeding accord- ing to plan and more than 1,300 employees out of a planned total of 2,000 have now left the Group. By year-end 2007, cost savings were running at over 60 percent of the final tar- get of achieving annual savings of SEK 600 M in 2009. Sales volume growth, acquisitions, price management and the restructuring measures implemented, as well as continuous improvements in production, administration and market development, contributed to the strong finan- cial performance. 2008 2008 was a record year for ASSA ABLOY, with increased sales and profit due to focused efforts to increase demand mainly on the commercial and institutional markets. The Group increased its investments in product development and more products than ever were launched on the market. The economic situation weakened toward the end of the year as the financial crisis had a negative impact on investments in new construction. 2009 The financial crisis led to a downturn in both the housing and commercial construction markets worldwide, which was unprecedented in the Group’s history. ASSA ABLOY was nevertheless able to maintain good profitability and strengthen its market position even under very trying mar- ket conditions. Efficient product development with a strong customer focus, a stronger market presence and continued cost cutting contributed substantially to the good perfor- mance. Cash flow and working capital utilization showed positive development during the year. Cost adjustments in the form of staff redundancies and the relocation of components and basic products to low- cost countries continued at a high rate during the year. A third restructuring program was launched toward the end of the year. The new products launched were well received by customers and strengthened ASSA ABLOY’s market-leading position in lock and door opening solutions. Eight acquisitions were made during the year, consolidat- ing the Group’s position in industrial and automatic doors and increasing annual sales by around SEK 1,200 M. 100 Five YeArS in SummArY ASSA ABLOY AnnuAL repOrt 2009 Five years in summary Amounts in SEK M unless stated otherwise 2005 2006 2007 2008 2009 Sales and income Sales Organic growth, % Acquired growth, % Operating income before depreciation/amortization (EBITDA) Depreciation 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, other intangible and tangible assets – of which, shares in associates – of which, goodwill Net debt Minority interest Shareholders' equity, excluding minority interest 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 Price of Series B share at year-end Key data Operating margin (EBITDA), % Operating margin (EBIT), % Profit margin (EBT), % Return on capital employed, % Return on capital employed excluding items affecting comparability, % 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 27,802 5 1 4,960 –882 4,078 3,556 2,613 3,153 –1,052 –2,027 73 3,702 26,653 6,064 37 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 31,137 9 3 5,6691 –898 4,7711 2,626 1,756 2,968 –3,871 1,203 300 3,528 27,205 6,263 33 16,683 13,560 60 13,585 4.77 7.991 39.13 3.25 149.00 18.21 15.3 1 8.4 12.1 17.1 11.5 38.4 0.99 5.1 43.6 365,918 376,033 31,243 33,550 7 5 6,366 –909 5,458 4,609 3,368 3,871 –2,127 –1,568 176 4,808 28,621 6,782 39 17,270 12,953 201 15,467 9.18 9.02 46.76 3.60 129.75 19.0 16.3 13.7 18.4 18.4 21.0 41.5 0.83 7.4 55.0 365,918 380,713 32,267 34,8293 0 4 6,4471 –921 5,5261 3,499 2,438 4,369 –2,648 –1,311 410 4,769 32,850 7,945 38 20,669 14,013 163 18,674 6.60 9.211 55.91 3.60 88.50 34,9633 –12 3 6,4261 –1,014 5,4131 3,740 2,659 5,924 –1,835 –3,741 348 6,843 30,382 7,541 39 20,333 11,048 162 19,172 7.18 9.221 54.76 3.602 137.80 18.51.3 15.91.3 10.0 13.3 18.41.3 15.51.3 10.7 13.1 17.2 12.8 41.9 0.74 5.7 81.0 365,918 380,713 32,723 16.2 12.7 45.4 0.57 7.2 31.9 365,918 372,931 29,375 1 Excluding items affecting comparability in 2006, 2008 and 2009. 2 For 2009, as proposed by the Board. 3 Reclassification has been made for 2008 and 2009. For more information see Note 34. Reclassification has not been made for 2005–2007. Avkastning på sysselsatt kapital Return on Capital employed¹ Rörelsemarginal Operating margin (EBIT)¹ Antal anställda Average number of employees % 20 15 10 5 0 05 06 07 08 09 % 20 15 10 5 0 05 06 07 08 09 Number 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 05 06 07 08 09 Five YeArS in SummArY 101 1 Excluding items affecting compara- bility 2006, 2008 and 2009. ASSA ABLOY AnnuAL repOrt 2009 Quarterly information THE GROUP IN SUMMARY (Amounts in SEK M unless stated otherwise) Sales4 Organic growth Gross income excluding items affecting comparability4 Gross income/Sales 4 Operating income before depreciation (EBITDA) excluding restructuring costs Gross margin (EBITDA)4 Depreciation Operating income (EBIT) excluding Items affecting comparability Operating margin (EBIT)4 Items affecting comparability3 Operating income (EBIT) Net financial items Income before tax (EBT) Profit margin (EBT)4 Tax Net income Allocation of net income Parent company shareholders 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 flow 1 Operating cash flow/ Income before tax CHANGE IN NET DEBT Net debt at start of period Operating cash flow Restructuring payments Tax paid Acquisitions/Disposals Dividend Exchange rate differences Net debt at end of period Net debt/Equity ratio NET DEBT Long-term interest-bearing receivables Short-term interest-bearing investments including derivatives Cash and bank balances Pension obligations Long-term interest-bearing liabilities Short-term interest-bearing liabilities including derivatives Q1 2008 8,181 0% Q2 2008 8,503 5% Q3 2008 8,701 1% Q4 2008 9,444 –4% Full year 2008 34,829 0% 3,287 40.2% 3,447 40.5% 3,491 40.1% 3,792 40.2% 14,017 40.2% 1,476 18.0% –232 1,244 15.2% – 1,244 –189 1,055 12.9% –283 772 772 0 Q1 2008 1,244 – 232 –164 –581 –162 14 1,599 18.8% –222 1,378 16.2% – 1,378 –190 1,188 13.9% –323 865 857 8 Q2 2008 1,378 – 222 –173 –113 –206 –26 1,669 19.2% –234 1,435 16.5% –247 1,188 –207 980 11.2% –271 709 700 8 Q3 2008 1,188 247 234 –199 –111 –134 –36 1,703 18.0% –233 1,469 15.6% –1,010 460 –184 276 2.9% –184 6,447 18.5% –921 5,526 15.9% –1,257 4,269 –770 3,499 10.0% –1,061 92 2,438 84 9 Q4 2008 460 933 233 –293 801 –217 –1 2,413 25 Full year 2008 4,269 1,180 921 –829 –5 –718 –49 Q1 2009 8,859 –12% 3,550 40.1% 1,594 18.0% –266 1,328 15.0% –109 1,219 –205 1,015 11.4% –296 718 716 3 Q1 2009 1,219 109 266 –187 –316 –193 –60 Q2 2009 8,899 –14% 3,502 39.4% 1,601 18.0% –261 1,340 15.1% – 1,340 –165 1,176 13.2% –323 852 843 9 Q2 2009 1,340 – 261 –186 346 –157 –20 Q3 2009 8,405 –13% 3,370 40.1% 1,584 18.8% –237 1,346 16.0% – 1,346 –159 1,187 14.1% –300 888 876 12 Q3 2009 1,346 – 237 –99 612 –38 67 Q4 2009 8,799 –8% Full year 2009 34,963 –12% 3,603 41.0% 14,025 40.1% 1,648 18.7% –249 1,398 15.9% –930 468 –106 362 4.1% –162 6,426 18.4% –1,014 5,413 15.5% –1,039 4,374 –634 3,740 10.7% –1,081 200 2,659 192 9 Q4 2009 468 930 249 –191 818 –119 140 2,626 32 Full year 2009 4,374 1,039 1,014 –664 1,460 –507 127 583 1,081 1,189 1,916 4,769 838 1,584 2,125 2,296 6,843 0.55 0.91 0.972 1.492 1.022 0.752 1.35 1.79 1.782 1.432 Full year 2009 14,013 –6,843 676 907 1,171 1,317 –193 11,048 0.57 Q1 2008 12,953 –583 111 127 126 – –320 12,414 0.79 Q1 2008 –102 –332 –953 1,151 7,707 Q2 2008 Q3 2008 12,414 13,549 –1,189 –1,081 126 97 81 251 717 473 – 1,317 726 78 13,549 0.87 14,010 0.80 Q2 2008 –83 –191 –1,221 1,150 7,683 Q3 2008 –89 –133 –1,534 1,131 7,539 Q4 2008 14,010 –1,916 152 283 503 – 981 14,013 0.74 Q4 2008 –256 –688 –1,579 1,182 7,766 Full year 2008 12,953 –4,769 485 742 1,819 1,317 1,466 14,013 0.74 Q1 2009 14,013 –838 144 298 263 – 437 14,317 0.71 Q2 2009 14,317 –1,584 224 397 66 1,317 –498 14,239 0.74 Q3 2009 14,239 –2,125 147 2 511 – –341 12,432 0.67 Q4 2009 12,432 –2,296 161 210 331 – 210 11,048 0.57 Q1 2009 –269 Q2 2009 –256 Q3 2009 –236 Q4 2009 –244 –2,632 –1,280 1,222 8,659 –2,250 –1,800 1,200 11,227 –1,989 –1,303 1,093 10,471 –840 –1,579 1,118 10,692 4,943 6,212 7,096 7,589 8,617 6,117 4,395 1,901 Total 12,414 13,549 14,010 14,013 14,317 14,239 12,432 11,048 102 QuArterLY inFOrmAtiOn ASSA ABLOY AnnuAL repOrt 2009 CAPITAL EMPLOYED AND FINANCING Capital employed – of which, other intangible and tangible assets – of which, shares in associates – 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 Earnings per share after tax and dilution excluding items affecting comparability Shareholders' equity per share after dilution NUMBER OF SHARES Number of shares before dilution, thousands Number of shares after dilution, thousands Weighted average number of shares after dilution, thousands Q 1 2008 Q 2 2008 Q 3 2008 Q 4 2008 Q 1 2009 Q 2 2009 Q 3 2009 Q 4 2009 28,116 29,045 31,538 32,850 34,540 33,494 31,108 30,382 6,480 39 16,508 12,414 181 6,572 40 17,068 13,549 188 7,116 43 18,851 14,010 211 7,945 38 20,669 14,013 163 8,214 55 21,443 14,317 163 7,972 54 20,857 14,239 152 7,379 52 19,992 12,432 149 7,541 39 20,333 11,048 162 15,521 15,308 17,317 18,674 20,060 19,110 18,526 19,172 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Full year 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2.11 2.08 2.34 2.30 1.91 1.89 0.23 0.29 6.60 6.55 1.96 1.92 2.30 2.25 2.39 2.36 0.52 0.54 Full year 2009 7.18 7.06 2.08 2.30 2.38 2.45 9.21 2.20 2.25 2.36 2.41 9.22 46.64 46.13 51.61 55.91 55.91 59.55 54.28 53.47 55.29 54.76 Mar 2008 Jun 2008 Sep 2008 Dec 2008 Full year 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009 Full year 2009 365,918 365,918 365,918 365,918 365,918 365,918 365,918 365,918 365,918 365,918 380,713 380,713 380,713 380,713 380,713 380,713 379,687 372,931 372,931 372,931 380,713 380,713 380,713 380,713 380,713 380,713 380,197 377,748 376,534 376,534 1 Excluding restructuring payments. 2 Income before tax excluding items affecting comparability. 3 Items affecting comparability consist of restructuring costs for 2008 and 2009. For 2008 items affecting comparability also consist of non-recurring costs totaling SEK 77 M. 4 Reclassification has been made. For further information see Note 34. Definitions of key data terms Organic growth Change in sales for comparable units after adjustments for acquisitions and exchange-rate effects. Operating 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 in operating cash flow for information regard- ing detailed items. 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. 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 per- centage of average shareholders’ equity (excluding minor- ity 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 deben- ture loan, divided by number of shares after dilution. ASSA ABLOY AnnuAL repOrt 2009 QuArterLY inFOrmAtiOn 103 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 1,536 M Retained earnings brought forward: SEK 2,343 M TOTAL: SEK 3,879 M The Board of Directors and the President and CEO propose that a dividend of SEK 3.60 per share, a maximum total of SEK 1,317 M, be distributed to shareholders and that the remainder, SEK 2,562 M, be carried forward to the new financial year. Tuesday 27 April 2010 has been proposed as the record date for dividends. If the Annual General Meeting confirms this proposal, dividends are expected to be distributed by Euroclear Sweden AB on Friday 30 April 2010. The Board of Directors and the President and CEO declare that the consolidated accounts have been prepared in accordance with International Financial Reporting Standards, IFRS, as adopted by the EU and give a true and fair view of the Group’s financial position and results. The Parent company’s annual accounts have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent company’s financial position and results. The Report of the Board of Directors for the Group and the Parent company gives a true and fair review of the development of the Group’s and the Parent company’s business operations, position and results, and describes significant risks and uncertainties to which the Parent company and the companies that make up the Group are exposed. Stockholm, 11 February 2010 Carl Douglas Board member Eva Lindqvist Board member Gustaf Douglas Chairman Birgitta Klasén Board member Jorma Halonen Board member Johan Molin President and CEO Sven-Christer Nilsson Board member Lars Renström Board member Ulrik Svensson Board member Seppo Liimatainen Employee representative Mats Persson Employee representative Our audit report was issued on 11 February 2010 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant Auditor in Charge Bo Karlsson Authorized Public Accountant 104 prOpOSed diSpOSitiOn OF eArningS ASSA ABLOY AnnuAL repOrt 2009 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 2009. (The company’s annual accounts are presented on pages 54–104 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 applica- tion of the Annual Accounts Act when preparing the annual accounts and the application of International Financial Reporting Standards, IFRS, as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the admin- istration 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 reason- able assurance that the annual accounts and the consoli- dated 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 Direc- tors and the President and CEO when preparing the annual accounts and consolidated accounts as well as evaluat- ing the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the President and CEO. We also examined whether any Board member or the President and CEO has, in any other way, acted in contraven- tion 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 Stan- dards, IFRS, 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 administra- tion report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the Annual General Meeting of share- holders 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, 11 February 2010 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant Auditor in Charge Bo Karlsson Authorized Public Accountant ASSA ABLOY AnnuAL repOrt 2009 Audit repOrt 105 Corporate governance report ASSA ABLOY is a Swedish public limited liability company with registered office in Stockholm, Sweden. The Group’s corporate governance is based on, among equivalent to 33–50 percent of earnings after standard tax, but always taking into account ASSA ABLOY’s long-term financing requirements. other things, its articles of association, the Swedish Com- panies Act and the rules and regulations of NASDAQ OMX Stockholm. ASSA ABLOY applies the Swedish Code of Cor- porate Governance and is considered, at the end of 2009, to be in compliance with all of its provisions. The Corporate Governance Report describes how corpo- rate governance has been conducted at ASSA ABLOY during the 2009 financial year. This report has not been examined by the company’s auditors. ASSA ABLOY’s objective is that its activities should gen- erate good long-term returns for its shareholders and other stakeholders. An effective scheme of corporate governance for ASSA ABLOY can be summarized in a number of interact- ing components, which are described below. orting Financial rep Share- holders General Meeting Nomination Committee E x t e r n a l a u d i t Board of Directors Audit Committee Remuneration Committee CEO and Executive Team Management philosophy Guidelines and policies Internal control and risk management End Decentralized organization Shareholders At year-end, ASSA ABLOY had 22,014 shareholders. The principal shareholders are Investment AB Latour and SäkI (9.6 percent of the share capital and 29.7 percent of the votes) and Melker Schörling AB (4.0 percent of the share capital and 11.6 percent of the votes). Foreign shareholders accounted for 53 percent of the share capital and 36 per- cent of the votes. The ten largest shareholders accounted for 37 percent of the share capital and 57 percent of the votes. Share capital and voting rights ASSA ABLOY’s share capital amounted at year-end to SEK 365,918,034 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 shareholders equal rights to the company’s assets and earnings. Share and dividend policy ASSA ABLOY’s Series B share is listed on the NASDAQ OMX Stockholm Large Cap list. At year-end, ASSA ABLOY’s mar- ket capitalization amounted to SEK 50,423 M. The Board’s objective is that, in the long term, the dividend should be General Meeting Shareholders’ rights to decide on the affairs of ASSA ABLOY are exercised at the General Meeting. Shareholders who are registered in the share register on the record day and have duly notified their intention to attend are entitled to take part in the General Meeting, either in person or via a proxy. Resolutions at the General Meeting are normally passed by simple majority. However, on certain matters the Swedish Companies Act prescribes that a proposal should be supported by a higher majority. Individual shareholders who wish to have an issue raised at the General Meeting can apply to ASSA ABLOY’s Board of Directors at a special address published on the company’s website well before the Meeting. The Annual General Meeting should be held within six months of the end of the company’s financial year. Matters considered at the Annual General Meeting include: a divi- dend; adoption of the income statement and balance sheet; discharge of the Board of Directors and the CEO from liabil- ity; election of board members and Chairman of the Board; appointment of the Nomination Committee and auditors; determination of remuneration guidelines for senior man- agement and fees for the Board of Directors and auditors. An Extraordinary General Meeting may be held if the Board of Directors considers this necessary or if ASSA ABLOY’s auditors or shareholders holding at least 10 percent of the shares so request. 2009 Annual General Meeting The Annual General Meeting in April 2009 was attended by shareholders representing 55 percent of the company’s share capital and 70 percent of the votes. At the Annual General Meeting, Gustaf Douglas, Carl Douglas, Birgitta Klasén, Eva Lindqvist, Johan Molin, Sven- Christer Nilsson, Jorma Halonen, Lars Renström and Ulrik Svensson were re-elected as members of the Board. Gustaf Douglas was re-elected as Chairman of the Board. The Meeting approved a dividend of SEK 3.60 per share, in accordance with the proposal of the Board and the CEO. In addition, the Meeting passed a resolution on remunera- tion guidelines for senior management and fees payable to the Board, and appointed members of the Nomination Committee prior to the 2010 Annual General Meeting. Nomination Committee The Nomination Committee prior to the 2010 Annual Gen- eral Meeting comprises Mikael Ekdahl (Melker Schörling AB), Gustaf Douglas (Investment AB Latour and SäkI), Mag- nus Landare (Alecta), Marianne Nilsson (Swedbank Robur) and Per-Erik Mohlin (SEB Funds/SEB Trygg Liv). Mikael Ekdahl is Chairman of the Nomination Committee. If a shareholder represented by one of the members of the Nomination Committee ceases to be among the major shareholders 106 COrpOrAte gOvernAnCe repOrt ASSA ABLOY AnnuAL repOrt 2009 in ASSA ABLOY, the Committee has the right to appoint another representative of one of the major shareholders to replace such a member. The same applies if a member of the Nomination Committee ceases to be employed by such a shareholder or leaves the Committee before the 2010 Annual General Meeting for any other reason. During the year the Nomination Committee appointed Magnus Landare to replace Staffan Grefbäck and Per-Erik Mohlin to replace Mats Tunér. The Nomination Committee has the task of preparing, on behalf of the shareholders, decisions on the election of the Chairman and other members of the Board of Directors, the appointment of the auditor, the election of the Chair- man of the Annual General Meeting, the appointment of the Nomination Committee prior to the Annual General Meet- ing, and fees and associated matters. The Board’s rules of procedure and instructions for the divi- sion of duties between the Board and the CEO are updated and approved at least once a year. The Board has also issued written instructions specifying how financial reporting to the Board should be carried out. In addition to leading the work of the Board, the Chair- man should continuously monitor the Group’s operations and development through contact with the CEO. The Chairman should consult the CEO on strategic issues and represent the company in matters concerning the owner- ship structure. The Chairman should also, when necessary, take part in particularly important external discussions and, in consultation with the CEO, in other matters of particular significance. The Chairman should ensure that the work of the Board is evaluated annually, and that new members of the Board receive appropriate training. Prior to the 2010 Annual General Meeting, the Nomina- The Board has at least four scheduled meetings and one tion Committee has made an assessment of whether the current Board is appropriately composed and fulfills the demands made on the Board by the company’s present situation and future direction. The annual evaluation of the Board was part of the basis for this assessment. The search for suitable board members is carried out throughout the year and proposals for new board members are based in each individual case on a profile of requirements estab- lished by the Nomination Committee. Shareholders who wish to submit proposals to the Nomination Committee can do so by emailing nomination- committee@assaabloy.com. The Nomination Committee’s proposals are published at the latest in conjunction with the formal notification of the Annual General Meeting, which is expected to be issued around 22 March 2010. Board of Directors In accordance with the Swedish Companies Act, the Board of Directors is responsible for the organization and adminis- tration of the Group and for ensuring satisfactory control of bookkeeping, asset management and other financial circum- stances. The Board decides on the Group’s overall objectives, strategies and policies, as well as on acquisitions, divestments and investments. The Board approves the Annual Report and Interim Reports, proposes a dividend and remuneration guidelines for senior management to the Annual General Meeting, and makes decisions concerning the Group’s finan- cial structure. The Board’s other duties include: • continuously evaluating the company’s operational management, including the work of the CEO, ensuring that there are effective systems in place for monitoring and control of the company’s operations, ensuring that the company’s information provision is transparent, accurate, relevant and reliable, ensuring that there is satisfactory control of the compa- ny’s compliance with laws and other regulations apply- ing to the company’s operations, ensuring that necessary ethical guidelines for the com- pany’s conduct are established. • • • • meeting following election per year. The scheduled meet- ings take place in connection with the company’s publica- tion of its year-end or quarterly results. At least once a year the Board visits, and makes an in-depth review of one of the Group’s businesses. In addition, extra board meetings are held when necessary. All meetings follow an approved agenda. Prior to each meeting, a draft agenda including documentation relating to each point is sent to all board members. The Board has a Remuneration Committee and an Audit Committee. The purpose of these Committees is to deepen and streamline the work of the Board and to prepare mat- ters in these areas. The Committees themselves have no decision-making powers. The members of the Committees are appointed annually by the Board at the board meeting following election. Instructions for the Committees are included in the Board’s working procedures. The Board’s work during 2009 During the year the Board held eight meetings, including two by telephone. All board members were present at these meetings. At the scheduled board meetings, the President and CEO reported on the Group’s performance and financial position, including the outlook for the coming quarters. Investments, acquisitions and divestments were also con- sidered. All acquisitions and divestments with a value (on a debt-free basis) exceeding SEK 100 M are decided by the Board. This amount presumes that the matter relates to acquisitions or divestments within the framework of the strategy agreed by the Board. More important matters dealt with by the Board during the year included the acquisition of Ditec and Pan Pan. Fur- ther, revised policies on insider issues, external information provision and pension financing were adopted. During the year the Board also conducted an in-depth review of EMEA’s operations and visited the American operations in New Haven. ASSA ABLOY AnnuAL repOrt 2009 COrpOrAte gOvernAnCe repOrt 107 Corporate governance report Remuneration Committee During 2009 the Remuneration Committee comprised Gustaf Douglas (Chairman) and Sven-Christer Nilsson. The Remuneration Committee’s task is to draw up remuneration guidelines for senior management, which the Board proposes to the Annual General Meeting for resolu- tion. The Board’s proposal for guidelines prior to the 2010 Annual General Meeting can be seen on pages 55–56. The Remuneration Committee also addresses matters regard- ing salaries, bonus, pension, severance pay and incentive programs for the CEO and other senior management. The Committee held three meetings during the year at which all members were present. The Remuneration Com- mittee has during the year 2009, among other things, pre- pared the proposal for a long-term incentive programme. The meetings of the Remuneration Committee are min- uted; the minutes are sent out with material for the Board and a verbal report is given at board meetings. Audit Committee During 2009 the Audit Committee comprised Ulrik Svensson (Chairman), Birgitta Klasén and Lars Renström. The duties of the Audit Committee include the continu- ous quality assurance of ASSA ABLOY’s financial reporting. Regular communication is maintained with the company’s auditor on matters including the focus and scope of the audit. The Audit Committee is also responsible for evaluat- ing the audit assignment and informing the Board of Direc- tors and the Nomination Committee of the results, as well as continuously monitoring the current risk status of legal risks in the operations. The Audit Committee held four meetings during the year, including one by telephone, at which all members, the company’s auditor and representatives of senior manage- ment were present. The meetings of the Audit Committee are minuted; the minutes are sent out with material for the Board and a ver- bal report is given at board meetings. More important matters dealt with by the Audit Committee during the year included drawing up a new policy and new guidelines for management of the funds allocated to meet the Group’s pension liability. The Audit Committee also carried out a review of Management Assurance procedures, and prepared a decision on the appointment of auditor prior to the 2010 Annual General Meeting. ASSA ABLOY’s Board of Directors The Board consists of 11 members. Nine members are elected by the Annual General Meeting for a period of one year and two of the members are appointed by the employee organizations in accordance with Swedish law. The employee organizations also appoint two deputies. With the exception of the CEO, none of the board members are members of the Executive Team. The CEO has no sig- nificant shareholdings or partnerships in companies with significant business relationships with ASSA ABLOY. Remuneration of the Board The Annual General Meeting passes a resolution on the remuneration to be paid to board members. The 2009 Annual General Meeting passed a resolution on Board fees totaling SEK 4,050,000 (excluding remuneration for com- mittee work), to be allocated between the members as follows: SEK 900,000 to the Chairman and SEK 450,000 to each of the other members not employed by the company. As remuneration for committee work, the Chairman of the Audit Committee was to receive SEK 200,000, the Chairman of the Remuneration Committee SEK 100,000, members of the Audit Committee SEK 100,000 and members of the Remuneration Committee SEK 50,000. The Chairman and other board members have no pen- sion benefits or severance payment agreements. The CEO and employee representatives do not receive Board fees. For further information about the remuneration of board members in 2009, see Note 32. 108 COrpOrAte gOvernAnCe repOrt ASSA ABLOY AnnuAL repOrt 2009 Independence of the Board The Board of Directors of ASSA ABLOY meets the requirements for indepen- dence, in accordance with the rules and regulations of NASDAQ OMX Stockholm and the Swedish Code of Corporate Governance. Name Gustaf Douglas Carl Douglas Jorma Halonen Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson Lars Renström Ulrik Svensson Position Chairman Board member Board member Board member Board member Board member, President and CEO Board member Board member Board member The Board’s composition and shareholdings Position Elected Name Gustaf Douglas Carl Douglas Jorma Halonen Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson Lars Renström Ulrik Svensson Seppo Liimatainen Mats Persson Rune Hjälm Per Edvin Nyström Chairman Board member Board member Board member Board member Board member, President and CEO Board member Board member Board member Board member, employee representative Board member, employee representative Deputy, employee representative Deputy, employee representative Born 1938 1965 1948 1949 1958 1959 1944 1951 1961 1950 1994 2004 2008 2008 2008 2006 2001 2008 2008 2003 1994 1955 2005 1964 1994 1955 Independent of the company and its management Independent of the company’s major shareholders Yes Yes Yes Yes Yes No Yes Yes Yes Remuneration Committee Audit Committee Series A shares¹ Series B shares¹ Chairman – – – – – Member – – – – – – – 13,865,243 21,300,000 – – – 1,700 – – 5,000 – Member – – – 500,000 – – – Member Chairman – – – – – – – – – – – 3,500 10,000 3,000 2,600 – – 7,727 No No Yes Yes Yes – Yes Yes No Incentive program Series B shares – – – – – 440,000 – – – – – – – ¹ Including family and through companies. ASSA ABLOY AnnuAL repOrt 2009 COrpOrAte gOvernAnCe repOrt 109 Board of Directors Board members elected at the 2009 Annual General Meeting Gustaf Douglas Chairman of the Board Board member since 1994 Born 1938 MBA, Harvard Business School Principal shareholder of Investment AB Latour and SäkI AB. Self-employed since 1980. Other appointments: Chairman of SäkI AB. Board member of Stiftelsen Svenska Dagbladet and the Swedish Conservative Party. 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 2,300,000 Series B shares through SäkI AB. Carl Douglas Board member since 2004 Born 1965 Bachelor of Arts Self-employed Other appointments: Vice Chairman of Securitas AB. Board member of Investment AB Latour, Niscayah Group AB, Swegon AB and Säkl AB. Shareholdings (including family and through companies):— Jorma Halonen Board member since 2008 Born 1948 Bachelor of Science in Business Administration and Economics Executive Vice President of AB Volvo and Deputy CEO of the Volvo Group 2004–2008. President and CEO of Volvo Truck Corporation 2001–2004. Prior to that, a number of senior posts at Scania, such as President of Saab-Scania in Finland 1990–1996, Vice President 1996–1998 and President 1998– 2001 of Scania Latin America. Prior to that, senior posts in the telecommunication and computer industry 1972–1990. Other appointments: Chairman of the Board of Niscayah Group AB, TMD Friction and CPS Color. Board member of SEMCON AB, NICDP (Advisory Board to the Saudi Arabian Government), Permira Nordic Advisory Board and Elektrobit. Shareholdings (including family and through companies): 1,700 Series B shares. Birgitta Klasén Board member since 2008 Born 1949 Master of Science in Engineering Independent IT consultant (Senior IT Advisor). Chief Information Officer (CIO) and Head of Information Management at EADS (European Aeronautics Defence and Space Company) 2004–2005. CIO and Senior Vice President of Pharmacia 1996–2001 and prior to that, CIO at Telia. Held various posts at IBM 1976–1994. Other appointments: Board member of Acando AB, BISNODE AB and IFS AB. Shareholdings (including family and through companies): 5,000 Series B shares. Gustaf Douglas Carl Douglas Jorma Halonen Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson Eva Lindqvist Board member since 2008 Born 1958 Master of Science in Engineering and Bachelor of Science in Business Administration and Economics Senior Vice President of Mobile Business at TeliaSonera AB 2006–2007. Prior to that several senior posts at TeliaSonera AB, such as President and Head of Business Operation International Carrier, and various posts in the Ericsson Group 1981–1999. Other appointments: Chairman of the Board Xelerated AB and Admeta AB, as well as Board member of companies including Schibstedt, Niscayah Group AB, Transmode AB and Nordia Innovation AB. Member of the Royal Swedish Academy of Engineering Sciences (IVA). Shareholdings (including family and through companies): — Johan Molin Board member since 2006 Born 1959 Bachelor of Science in Business Administration and Economics President and CEO of ASSA ABLOY AB 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 AB Electrolux. Shareholdings (including family and through companies): 500,000 Series B shares as well as Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 440,000 Series B shares. Sven-Christer Nilsson Board member since 2001 Born 1944 Bachelor of Science, Lund University President and CEO of Telefonaktiebolaget LM Ericsson 1998– 1999, various executive positions mainly in marketing and management in the Ericsson Group 1982–1997. Other appointments: Chairman of the National Swedish Public Service Broadcasting Foundation and The Swedish National Defence Materiel Administration. Board member of Sprint Nextel Corporation, CEVA, Inc. and Tilgin AB. Shareholdings (including family and through companies): 3,500 Series B shares. 110 COrpOrAte gOvernAnCe repOrt ASSA ABLOY AnnuAL repOrt 2009 Lars Renström Board member since 2008 Born 1951 Master of Science in Engineering and Bachelor of Science in Business Administration and Economics President and CEO of Alfa Laval AB since 2004. President and CEO of Seco Tools AB 2000–2004. President and Head of Division of Atlas Copco Rock Drilling Tools 1997–2000. Prior to that a number of senior posts at ABB and Ericsson. Other appointments: Board member of Alfa Laval AB and TeliaSonera AB. Shareholdings (including family and through companies): 10,000 Series B shares. Ulrik Svensson Board member since 2008 Born 1961 Bachelor of Science in Economics CEO of Melker Schörling AB. CFO of Swiss International Airlines Ltd. 2003–2006. CFO of Esselte AB 2000–2003 and controller/CFO of the Stenbeck Group’s foreign telecom ventures 1992–2000. Other appointments: Board member of AAK AB, Loomis AB, Niscayah Group AB, Hexpol AB and Flughafen Zürich AG. Shareholdings (including family and through companies): 3,000 Series B shares. Board members appointed by employee organizations Seppo Liimatainen Board member since 2003 Born 1950 Employee representative, Federation of Salaried Employees in Industry and Services. Shareholdings: 2,600 Series B shares. Mats Persson Board member since 1994 Born 1955 Employee representative, Swedish Metal Workers Union. Shareholdings: — Rune Hjälm Deputy board member since 2005 Born 1964 Employee representative, Swedish Metal Workers Union. Chairman of ASSA ABLOY European Works Council (EWC). Shareholdings: — Per Edvin Nyström Deputy board member since 1994 Born 1955 Employee representative, Swedish Metal Workers Union. Shareholdings: 7,727 Series B shares. Lars Renström Ulrik Svensson Seppo Liimatainen Mats Persson Rune Hjälm Per Edvin Nyström ASSA ABLOY AnnuAL repOrt 2009 COrpOrAte gOvernAnCe repOrt 111 the executive team Johan Molin Tomas Eliasson Denis Hébert Thanasis Molokotos Jonas Persson Tim Shea Ulf Södergren Juan Vargues Tzachi Wiesenfeld Tomas Eliasson Born 1962 Bachelor of Science in Business Administration and Economics Executive Vice President Chief Financial Officer (CFO) Employed since: 2006 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 108,600 Series B shares. Thanasis Molokotos Born 1958 Master of Science in Engineering Executive Vice President Head of Americas division Employed since: 1996 Shareholdings: 25,000 Series B shares. Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 74,300 Series B shares. Tim Shea Born 1959 Degree in Mechanical Engineering, MBA Executive Vice President Head of Global Technologies business unit ASSA ABLOY Hospitality Employed since: 2004 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 27,700 Series B shares. Juan Vargues Born 1959 Degree in Mechanical Engineering, MBA Executive Vice President Head of Entrance Systems division Employed since: 2002 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 182,900 Series B shares. The Executive Team Johan Molin Born 1959 Bachelor of Science in Business Administration and Economics President and CEO and Head of Global Technologies division Employed since: 2005 Shareholdings: 500,000 Series B shares. Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 440,000 Series B shares. Denis Hébert Born 1956 Bachelor of Commerce, MBA Executive Vice President Head of Global Technologies business unit HID Global Employed since: 2002 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 56,200 Series B shares. Jonas Persson Born 1969 Master of Science in Engineering Executive Vice President Head of Asia Pacific division Employed since: 2009 Shareholdings: – Ulf Södergren Born 1953 Master of Science in Engineering, Bachelor of Science in Business Administration and Economics Executive Vice President Chief Technology Officer (CTO) Employed since: 2000 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 139,800 Series B shares. Tzachi Wiesenfeld Born 1958 Bachelor of Science in Industrial Engineering, MBA Executive Vice President Head of EMEA division Employed since: 2000 Shareholdings: Incentive 2006 and Incentive 2007 corresponding, on full conversion, to 144,900 Series B shares. 112 COrpOrAte gOvernAnCe repOrt ASSA ABLOY AnnuAL repOrt 2009 The Executive Team and organization The Executive Team (Group Management) consists of the CEO, the heads of the Group’s divisions, the Chief Financial Officer, the Director of Technology and Product Development, and the Director for Market and Business Development. ASSA ABLOY’s operations are divided into five divisions, where the fundamental principle is that these divisions should be responsible, as far as possible, for busi- ness operations, while various functions at headquarters are responsible for coordination, monitoring, policies and guidelines at an overall level. The Group’s structure results in a geographical and strategic spread of responsibility ensuring short decision-making paths. The Group’s man- agement philosophy is based on trust and respect for local cultures and conditions. Guidelines and policies The Group’s most important guidelines and policies define the product areas in which the Group should operate and describe the principles for market development, growth, product development, organization, cost-efficiency and staff development. These principles are described in the publication ‘Strategy to Action’, which has been provided to all employees in the Group. Other important guidelines and policies concern financial control, communication mat- ters, the Group’s brands, business ethics and environmental issues. Common financial, accounting and investment policies provide the framework for financial control and monitoring. ASSA ABLOY’s communication policy aims to provide essential information at the right time and in com- pliance with stock market rules, as well as ensuring compli- ance with other legal requirements. Brand guidelines aim to protect and develop the major assets that the Group’s brands represent. ASSA ABLOY has adopted a Code of Conduct that applies to the whole Group. The Code, which is based on a set of internationally accepted conventions, defines the values and guidelines that should apply within the Group with regard to the environment, health, safety, business ethics, working conditions, human rights and social responsibility. Application of the Code of Conduct in the Group’s differ- ent units is monitored regularly to ensure compliance and relevance. Decentralized organization ASSA ABLOY’s operations are decentralized. Decentraliza- tion is a deliberate strategic choice based on the local nature of the lock industry and a conviction of the benefits of a divisional control model. Another contributory factor is that the Group has been built up over a relatively short period through a large number of acquisitions. ASSA ABLOY’s operating structure is designed to create maximum transparency, to facilitate financial and opera- tional monitoring, and to promote the flow of information and communication across the Group. The Group consists of five divisions, which are divided into around 30 business units. These consist in turn of a large number of sales and production units, depending on the structure of the busi- ness unit concerned. Apart from monitoring by unit, moni- toring of products and markets is also carried out. Internal control regarding financial reporting ASSA ABLOY’s process for internal control regarding finan- cial reporting is designed to provide reasonable assurance of reliable financial reporting, which is in compliance with generally accepted accounting principles, applicable laws and regulations, and other requirements for listed compa- nies. The process is based on the internal control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). It can be divided into a number of sub-components, as defined in the above frame- work, and is described in more detail below. Control environment The Board of Directors is responsible for effective internal control and has therefore established fundamental docu- ments of significance for financial reporting. These docu- ments include the Board’s rules of procedure and instruc- tions to the CEO, the Code of Conduct, financial policy, and an annual financial evaluation plan. Regular meetings are held with the Audit Committee. The Group has established a Management Assurance function, with the primary goal of providing reliable financial reporting. This function is man- aged by the Group Controller and reports to the Executive Team and the Audit Committee. ASSA ABLOY’s effective decentralized organizational structure makes a substantial contribution to a good control environment. All units in the Group apply uniform accounting and reporting instructions. Minimum levels for internal control of financial reporting have been established and are monitored annually for all operating companies. The Code of Conduct has been reviewed and updated, and compliance will be systematically monitored in the opera- tions during 2010. Risk assessment Risk assessment includes identifying and evaluating the risk of material error in financial reporting and accounting at Group, division and local levels. A number of previously established documents govern the procedures to be used for accounting, finalizing accounts, reporting and review. The entire Group uses a financial reporting system with pre- defined report templates. A systematic comprehensive risk assessment of financial reporting has been implemented and is updated regularly. Control activities The Group’s controller and accounting organization at both central and division level plays a significant role in ensuring reliable financial information. It is responsible for complete, accurate and timely financial reporting. A global financial Management Assurance function has been established and carries out annual financial evaluations in accordance with the plan annually adopted by the Audit Committee. ASSA ABLOY AnnuAL repOrt 2009 COrpOrAte gOvernAnCe repOrt 113 Corporate governance report A systematic review of the opinions and observations of the external auditors is carried out annually in accordance with established procedures. Group-wide internal control guidelines are reviewed annually. These guidelines affect various processes, such as orders and purchasing (including payments), procedures for finalizing accounts and facilities, as well as compliance with various relevant policies. Information and communication Reporting and accounting manuals as well as other finan- cial reporting guidelines are available to all employees concerned on the Group’s intranet. A regular review and analysis of financial outcomes is carried out at both business unit and division level and as part of the Board’s established operating structure. The Group also has established pro- cedures for external communication of financial informa- tion, in accordance with the rules and regulations for listed companies. Review process The Board of Directors and the Audit Committee evaluate and review the Annual Report and Interim Reports prior to publication. The Audit Committee monitors the financial reporting and other related issues, and regularly discusses these issues with the external auditors. All business units report their financial results monthly in accordance with the Group’s accounting principles. This reporting serves as the basis for quarterly reports and a monthly operating review. Operating reviews conform to a long-established structure – LockPack – in which sales, earn- ings, cash flow, capital employed and other important key figures and trends for the Group are compiled and form the basis for analysis and actions by management and control- lers at different levels. Financial reviews take place quarterly at divisional board meetings, monthly in the form of per- formance reviews and through more informal analysis. Par- ticular attention is paid to the sales trend, and monitoring takes the form of daily sales reporting by all the units in the Group. Other important Group-wide components of inter- nal control are the annual business planning and budgeting process and quarterly detailed forecasts of all the financial parameters for the current calendar year. Group-wide internal control guidelines were reviewed during the year in all operating companies through self- assessment and a second opinion from external auditors. These self-assessments are then reviewed at division and Group level to further improve the reliability of the financial reporting. 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 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: Securitas, SäkI, Bonnier and Skandinaviska Enskilda Banken. PwC submits the audit report for ASSA ABLOY AB, the Group and a large majority of the subsidiaries worldwide. The audit of ASSA ABLOY AB also includes the administra- tion by the Board of Directors and the CEO. The company’s auditor attends all Audit Committee meetings as well as the February board meeting, at which he reports his observations and recommendations concerning the Group audit for the year. The external audit is carried out in accordance with good auditing practice in Sweden. The audit of the financial statements for legal entities outside Sweden is carried out in accordance with statutory requirements and other appli- cable rules in each country. For information about the fees paid to auditors and other assignments carried out in the Group during the last three financial years, see Note 3 and the Annual Report for 2008 page 61, Note 3. 114 COrpOrAte gOvernAnCe repOrt ASSA ABLOY AnnuAL repOrt 2009 Add e-passports to the list of ‘e-ssentials’ An e-passport may look like a traditional printed travel doc- ument, but electronics in HID global’s e-passport inlays con- tain encrypted data that authenticates the document and the identity of the passport holder. An e-passport, or electronic passport, is essentially the same as a regular passport with the addition of a small, con- tactless integrated circuit and antenna embedded in the cover or secure page. the chip stores the usual information found on the photo page of the passport, with special secu- rity features to protect the digital data. HID global’s Identification Solutions (IDS) egovernment business segments is recognized as a driving force in the development of credentials that are more secure, more effi- cient to use and more interoperable between systems and countries. the electronics inside e-passports need to be able to withstand the pressures applied, as well as the flexing that occurs with frequent travelers’ use. using proven secure, tamper resistant design and ceFLeX™ material, HID’s inlays are highly durable and help the chip and antenna to with- stand daily mechanical wear. Coupled with HID global’s reader technology, e-pass- ports and e-IDs ultimately make travel and identity verifi- cation easier. As of today, more than 20 countries are using e-passports enabled by HID technology. ASSA ABLOY AnnuAL repOrt 2009 COrpOrAte gOvernAnCe repOrt 115 the ASSA ABLOY share Share price trend in 2009 In 2009 ASSA ABLOY’s Series B share rose 56 percent to SEK 137.80 (88.50), equivalent to a market capitalization of SEK 50,423 M (32,383). During the same period, the NASDAQ OMX Stockholm rose 47 percent. The highest closing price of the share was SEK 142.50, recorded on 14 December, and the lowest closing price was SEK 71.50, recorded on 5 March. Listing and trading ASSA ABLOY’s Series B share is listed on NASDAQ OMX Stockholm, Large Cap. The share has been listed since 8 November 1994. Total turnover of the ASSA ABLOY share on NASDAQ OMX Stockholm amounted to 518 million (788) shares, which is equivalent to an average turnover of 2.1 million shares (3.1) per day. The turnover rate of the share was around 149 percent, compared with a turnover rate of 119 percent (152) on the NASDAQ OMX Stockholm and 126 percent (165) on the Large Cap list. Assa Abloy The implementation of the EU Markets in Financial Instruments Directive (MiFID) has changed the structure of equity trading in Europe. Now that a share can be traded on markets other than the stock exchange where it is listed, trading has become more fragmented, while the total turn- over of many shares has increased. The ASSA ABLOY share is now not only traded on the NASDAQ OMX Stockholm, but also on several other mar- kets. However, the Stockholm Stock Exchange accounts for the majority of trading, where 70 percent of the shares were traded in 2009. Ownership structure The number of shareholders at year-end was 22,014 (22,921) and the ten largest shareholders accounted for 37 percent (41) of the share capital and 57 percent (60) of the votes. Shareholders with more than 50,000 shares, a total of 381 shareholders, accounted for 94 percent (93) of the share capital and 96 percent (95) of the votes. Invest- ors outside Sweden accounted for 53 (50) percent of the share capital and 36 percent (34) of the votes, and were mainly in the USA and the UK. Share price trend and turnover 1999–2009 Dividend per share 1999–2009 Vinst per aktie efter skatt och utspädning 200 180 160 140 120 100 80 60 40 SEK 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 120,000 100,000 80,000 60,000 40,000 20,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 © NASDAQ OMX 99 01 03 05 07 09 1 Exklusive omstrukturering 2006 och jämförelsestörande poster 2008. Series B share OMX Stockholm no. of shares traded, thousands (incl. after hours) 2009 proposed dividend Data per share B−Aktien OMX Stockholm_PI SEK/share1 Earnings after tax and dilution 8 Dividend Dividend yield, % 5 Dividend, % 6, 8 Share price at year-end Highest share price Lowest share price Equity8 Number of shares, thousands 7 2000 Omsatt antal aktie 1000−tal 2001 2002 2003 2004 2005 2006 2007 2008 2009 2.73 0.90 0.5 30.9 184.50 206.70 110.50 30.58³ 2.982 1.00 0.7 30.5 151.00 186.00 94.50 35.80 3.53 1.25 1.3 32.2 99.50 159.50 76.50 35.85 3.312 1.25 1.5 33.9 85.50 110.00 67.00 31.23 6.33 2.60 2.3 42.0 113.50 113.50 84.00 34.74 6.97 3.25 2.6 47.6 125.00 126.00 89.25 42.85 7.992 3.25 2.2 64.0 149.00 151.00 109.00 39.13 9.02 3.60 2.8 40.5 129.75 164.00 124.50 46.76 9.212 3.60 4.1 52.3 88.50 126.00 69.75 55.91 9.222 3.604 2.6 47.8 137.80 142.50 71.50 54.76 356,712 361,730 370,935 370,935 378,718 378,718 376,033 380,713 380,713 372,931 1 Adjustments made for new issues. 2 Excluding restructuring costs 2006 and items affecting comparability 2008 and 2009. 3 Key data adjusted following change in accounting principle. 4 Proposed dividend. 5 Dividend as percentage of share price at year-end. 6 Dividend as percentage of adjusted earnings in line with dividend policy. 7 After full dilution. 8 1999–2003 have not been adjusted for IFRS. 116 tHe ASSA ABLOY SHAre ASSA ABLOY AnnuAL repOrt 2009 ASSA ABLOY’s ten largest shareholders Based on the share register at 31 December 2009. Shareholders Investment AB Latour Harris Associates Funds Melker Schörling AB Alecta Oppenheimer Funds Swedbank Robur Funds SEB Funds Capital Group Funds SäkI AMF Insurance & Funds Other shareholders Total number Series A shares Series B shares 6,746,425 5,310,080 7,118,818 19,000,000 17,583,900 9,162,136 14,465,000 11,677,086 11,543,488 11,427,256 11,180,000 2,300,000 8,523,783 229,880,062 Total number of shares 25,746,425 17,583,900 14,472,216 14,465,000 11,677,086 11,543,488 11,427,256 11,180,000 9,418,818 8,523,783 229,880,062 Share capital, % Votes, % 7.0 4.8 4.0 4.0 3.2 3.2 3.1 3.1 2.6 2.3 62.7 16.1 3.3 11.6 2.7 2.2 2.1 2.1 2.1 13.6 1.6 42.6 19,175,323 346,742,711 365,918,034 100.0 100.0 Source: SIS Ägarservice AB and Euroclear Sweden AB. Ownership structure (share capital) Ownership structure (votes) Hela säkerhetsmarknaden Hela säkerhetsmarknaden övriga Investment AB Latour, 7.0 % Harris Associates Funds, 4.8 % Melker Schörling AB, 4.0 % Alecta, 4.0 % Oppenheimer Funds, 3.2 % Swedbank robur Funds, 3.2 % SeB Funds, 3.1 % Capital group Funds, 3.1 % Other shareholders, 67.5 % sebfond Investment AB Latour, 16.1% capital group SäkI, 13.6% Melker Schörling AB, 11.6% Harris Associates Funds, 3.3% Alecta, 2.7% Oppenheimer Funds, 2.2% Swedbank robur Funds, 2.1% SeB Funds, 2.1% Other shareholders, 46.3% oppenheim swedbank alecta melker harris Share capital ASSA ABLOY’s share capital at 31 December 2009 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 give the shareholders equal rights to the company’s assets and earnings. Each Series A share carries 10 votes and each Series B share one vote. Latour Year 1989 1994 1994 1994 1996 1996 1997 1998 1999 1999 1999 1999 1999 2000 2000 2000 2001 2002 2002 Transaction Split 100:1 Bonus issue Non-cash issue New share issue Conversion of Series C shares into Series A shares New share issue Converted debentures Converted debentures before split Bonus issue Split 4:1 New share issue Converted debentures after split and new issues Converted debentures New share issue Non-cash issue Converted debentures New share issue Converted debentures Number of shares after dilution Series A shares 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 Series C shares 20,000 1,428,550 1,714,260 Series B shares Share capital, SEK 2,000,000 50,417,555 60,501,066 60,501,066 66,541,706 66,885,571 67,179,562 268,718,248 295,564,487 295,970,830 301,598,383 313,512,880 333,277,912 334,576,089 344,576,089 346,742,711 353,754,671 2,000,000 2,000,000 53,592,110 64,310,532 64,310,532 70,732,118 71,075,983 71,369,974 285,479,896 314,002,299 314,408,642 320,036,195 332,688,203 352,453,235 353,751,412 363,751,412 365,918,034 372,929,994 ASSA ABLOY AnnuAL repOrt 2009 tHe ASSA ABLOY SHAre 117 övriga säkl  ASSA ABLOYs sebfond produktområden, 15%  Bevakning & övrigt, 27% swedbank oppenheim  Brandlarm, 2%  Dörrar & fönster, 40%  Intrångsskydd, 3% alecta  IT-säkerhet & logisk behörighetskontroll, 4% melker  Larmcentraler, 9% harris Latour  ASSA ABLOYs produktområden, 15%  Bevakning & övrigt, 27%  Brandlarm, 2%  Dörrar & fönster, 40%  Intrångsskydd, 3%  IT-säkerhet & logisk behörighetskontroll, 4%  Larmcentraler, 9% the ASSA ABLOY share Share capital and voting rights Share capital at year-end amounted to SEK 365,918,034 distributed among a total 365,918,034 shares, comprising 19,175,323 Series A shares and 346,742,711 Series B shares. All shares have a par value of SEK 1.00 and give the shareholders equal rights to the company’s assets and earnings. The total number of voting rights amounts to 538,495,941; each Series A share carries ten votes and each Series B share one vote. Dividend and dividend policy The objective of the dividend policy is that, in the long term, the dividend should be equivalent to 33–50 percent of earnings after standard tax, but always taking into account ASSA ABLOY’s long-term financing requirements. The Board of Directors and the CEO propose that a divi- dend of 3.60 SEK per share (3.60), a maximum total amount of SEK 1,317 M, be paid to shareholders for the 2009 finan- cial year, equivalent to a dividend yield on Series B shares of 2.6 percent (4.1). Incentive programs ASSA ABLOY has issued several convertible debentures to employees in the Group. In 2004, a convertible debenture amounting to EUR 100 M was issued. This program expired in June 2009 and no conversion took place. In 2006, it was decided to launch an incentive program for senior managers, Incentive 2006. This 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 of EUR 14.60 for Series 1, EUR 15.90 for Series 2, EUR 17.30 for Series 3 and EUR 18.60 for Series 4, an additional 2,332,350 shares would be created. In 2007, it was decided to launch a new incentive pro- gram, Incentive 2007. This 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. Any conversion of Incentive 2007 will take place in a 30-day period in May and June 2012. On full conversion, at a conversion price of EUR 18.00 for Series 1, EUR 20.50 for Series 2, EUR 23.00 for Series 3 and EUR 25.40 for series 4, an additional 4,679,610 shares would be created. Full conversion of Incentive 2006 and 2007 would create an additional 7,011,960 shares, which would have a dilutive effect of 1.9 percent on the share capital and 1.3 percent on the total number of votes. Around 2,000 employees in some 15 countries are par- ticipating in the current incentive programs. Analysts who follow ASSA ABLOY Company Name ABG Sundal Collier Carnegie Cheuvreux Credit Suisse Danske Bank Deutsche Bank DnBNor Dresdner Kleinwort Enskilda Securities Goldman Sachs Handelsbanken Capital Markets HQ Bank HSBC ICAP Securities Ltd JP Morgan Merrill Lynch Nordea Nordea Redburn Partners Société Générale Swedbank Markets The Royal Bank of Scotland UBS Öhman Christer Fredriksson Kenneth Toll Johansson Andreas Dahl Andre Kukhnin Anders Idborg Johan Wettergren Erik Bergöö Colin Grant Julian Beer Tim Rothery Peder Frölén Patric Lindqvist Matt Williams Nick Wilson Nico Dil Ben Maslen Ann-Sofie Nordh Johan Trocmé James Moore Roderick Bridge Niclas Höglund Klas Bergelind Fredric Stahl Oscar Stjerngren Telephone +46 8 566 286 26 +46 8 588 68 911 +46 8 723 51 63 +44 20 7888 0350 +46 8 568 80 570 +46 8 463 55 18 +47 229 48 843 +44 20 7475 9161 +46 8 522 296 52 +44 20 7774 6987 +46 8 701 12 51 +46 8 696 20 84 +44 20 7991 6750 +44 20 7532 4683 +44 20 7325 4292 +44 20 7996 4783 +46 8 534 91 452 +46 8 5349 13 99 +44 20 7000 2135 +44 20 7762 5086 +46 8 5859 1800 +44 20 7678 6001 +44 20 7568 9016 +46 8 402 50 65 Email christer.fredriksson@abgsc.se kentol@carnegie.se adahl@cheuvreux.com andre.kukhnin@credit-suisse.com anders.idborg@danskebank.se johan.wettergren@db.com erik.bergoo@dnbnor.no colin.grant@dkib.com julian.beer@enskilda.se tim.rothery@gs.com pefr15@handelsbanken.se patric.lindqvist@hq.se matt.j.williams@hsbcib.com nicholas.wilson@icap.com nico.dil@jpmorgan.com ben_maslen@ml.com ann-sofie.nordh@nordea.com johan.trocme@nordea.com james.moore@redburn.com roderick.bridge@sgcib.com niclas.hoglund@swedbank.se klas.bergelind@rbs.com fredric.stahl@ubs.com oscar.stjerngren@ohman.se 118 tHe ASSA ABLOY SHAre ASSA ABLOY AnnuAL repOrt 2009 Antibacterial door handles break down harmful bacteria In collaboration with polygiene, ASSA has developed a door handle that effectively breaks down bacteria. It fea- tures Addion, an antibacterial surface coating with a wear- resistant metallic surface, which breaks down bacteria sig- nificantly faster than other surface coatings such as nickel, chrome, brass and stainless steel. the past ten years have seen a dramatic rise in bacteria that cannot be treated with regular antibiotics. Studies show that multiresistant bacteria are primarily spread via hands and contact surfaces.¹ that’s why ASSA and polygiene (of the perstorp group) developed an antibacterial surface coating with enough wear resistance that it can be used in environments with large flows of people, and environments in which bacteria are spread extensively. Another environment where it is desirable to reduce the spread of bacteria is in schools and childcare. Working actively with this can cut down on sick leave, which will benefit society as a whole. the St. petri School in Malmö, Sweden, has already chosen Addion handles. ‘When we totally renovated the school, we discussed several handle solutions,’ says superintendent per-Åke Brodin at the St. petri School in Malmö. ‘We opted for ASSA’s antibacterial door handles. We replaced all han- dles in the school, and that reduced the spread of infec- tion in the flu season, keeping our sick-leave figures low.’ Addion’s antibacterial properties combined with its superb wear resistance contribute to long-lasting protec- tion against the spread of bacteria. ASSA ABLOY AnnuAL repOrt 2009 tHe ASSA ABLOY SHAre 119 ¹Importance of the environment in meticillin-resistant Staphylococcus aureus acquisition: the case for the hospital cleaning, Dr Stephanie j Dancer MD. the Lancet Infectious Diseases 2008;8:101–113. Information for shareholders Dividend tuesday, 27 April 2010 is proposed as the record date for dividends. If the Annual general Meeting approves the pro- posal of the Board of Directors, dividends are expected to be distributed by euroclear Sweden AB on Friday, 30 April 2010. Further information Niklas Ribbing, Head of Investor Relations Telephone +46 (0) 8 506 485 79 niklas.ribbing@assaabloy.com Reports can be ordered from ASSA ABLOY AB • • • • Website www.assaabloy.com telephone +46 (0) 8 506 485 00 +46 (0) 8 506 485 85 Fax ASSA ABLOY AB post Box 70340 Se-107 23 Stockholm, Sweden Financial reporting First quarter: 21 April 2010 Second quarter: 28 July 2010 third quarter: 27 October 2010 Fourth quarter and Year-end report: February 2011 Annual report 2010: March 2011 Annual Report online ASSA ABLOY’s Annual Report online has many user-friendly features. You can get texts to read aloud to you, and finan- cial tables can be expanded and downloaded in Excel. All information in the Report can be found easily through the navigation menu or by using the search function. The Annual Report is available online at: www.assaabloy.com/annualreport2009 Annual General Meeting The Annual General Meeting of ASSA ABLOY will be held at Moderna Museet (Museum of Modern Art), Skeppsholmen, Stockholm at 15.00 on Thursday, 22 April 2010. Sharehold- ers wishing to attend the Annual General Meeting should: Be registered in the share register kept by Euroclear • Sweden AB by Friday, 16 April 2010. Notify ASSA ABLOY AB of their intention to attend by Friday, 16 April 2010 at 16.00. • Registration in the share register Shareholders whose shares are nominee registered through a bank or other nominee must request that their shares be temporarily registered in their own name in the share regis- ter kept by euroclear Sweden AB by Friday, 16 April 2010, in order to have the right to attend the Annual general Meet- ing. Shareholders must notify the nominee of this well before that date. Notification of intention to attend • • Website www.assaabloy.com Address ASSA ABLOY AB ”årsstämman”, Box 7842, Se-103 98 Stockholm • • telephone +46 (0) 8 506 485 14 +46 (0) 8 506 485 18 Fax (mark notification “ASSA ABLOY”) The notification should state: • • • • • name personal or corporate identity number Address and daytime telephone number number of shares held Any accompanying advisers A shareholder who is to be represented by a proxy should submit a completed form of proxy together with the noti- fication of intention to attend the Annual General Meeting. Forms for proxies are available at www.assaabloy.com. Nomination Committee the nomination Committee has the task of preparing decisions on the election of the Chairman and other members of the Board of Directors, the appointment of the auditor, the election of the Chairman of the Annual general Meeting, and fees and associated matters. the nomination Committee prior to the 2010 Annual general Meeting comprises Mikael ekdahl (Melker Schörling AB), gustaf Douglas (Investment AB Latour and Säkl), Magnus Landare (Alecta), per-erik Mohlin (SeB Funds/SeB trygg Liv) and Marianne nilsson (Swedbank robur). Mikael ekdahl is Chairman of the nomination Committee. 120 InFOrMAtIOn FOr SHAreHOLDerS ASSA ABLOY AnnuAL repOrt 2009 Glossary Aperio Aperio is a new technology that enables mechanical locks to be wirelessly linked to an existing access control system. Aperio locks can be installed in a new or existing access con- trol system and users can use the same credentials they have for that system. Lean The Lean Production philosophy is to use as few resources as possible. The focus is on just-in-time production, which means that materials, parts and products are in the right place at the right time. The Lean philosophy includes striving for continuous improvement. ElectroLynx ElectroLynx is an ASSA ABLOY solution that simplifies the process of introducing electrical hardware into a door. It has a wiring scheme and simple, snap-together connectors that can be used with all electrical ASSA ABLOY products and can be installed inside doors as desired. The solution means that installers themselves do not need to solder and connect individual wires. Gateway process The ASSA ABLOY Product Innovation Process is based on a structured Gateway approach, meaning that all projects have to pass six gates on their way from idea to installed products. NFC Near Field Communication (NFC) is a short-range wireless connectivity standard that uses magnetic field induction to enable communication between devices when they are touched together or brought within a few centimeters of each other. OEM Original Equipment Manufacturer, a company that makes the final product that can be sold on the open market. Usu- ally the OEM company does not sell the product directly to the public but goes through dealers. The product may con- sist of proprietary components or a combination of purcha- sed and proprietary. High Definition Printing (HDP) Fargo HDP – High Definition Printing – is a process used in the production of tamper-evident and highly wear-resistant ID cards. HDP produces high-quality images that are sand- wiched between Fargo’s HDP film and the card, and that essentially destroy themselves if there is any attempt to alter the card. RFID Radio Frequency Identification is a technology for reading and storing information remotely using small radio trans- mitter/receivers and memories called tags. A tag can be small enough to fit in a price tag on goods in a store, or placed in a glass capsule and injected under a pet’s skin with ID information. One current use of RFID is in keycards. Hi-O Highly Intelligent Opening is a standardized new technology for security and control of door environments. Hi-O allows interconnectivity – communication between all compo- nents in a door solution. ZigBee ZigBee is a standard for wireless control of equipment in homes, commercial properties, industry and other places where there is a need for it. The technique consumes little energy and the wireless platform makes it easy to install retrospectively. Inlay An RFID inlay is one of the components in a contact-free card or similar document. It consists of a circuit board con- nected to an antenna mounted on plastic film. Production: ASSA ABLOY, Hallvarsson & Halvarsson. Photos: Magnus Mårding, front page, page 18–19, 26–27, Getty Images, Reiher/Seidel/www.stadion-deluxe.de Rithuset, ASSA ABLOYs own photographic library, among others. Translation: Textforum. English editing: Marcom International. Printing: Elanders AB, Falköping, March 2010. ASSA ABLOY is the global leader in door opening solutions, dedicated to satisfying end-user needs for security, safety and convenience www.assaabloy.com ASSA ABLOY AB P.O. Box 70 340 SE-107 23 Stockholm Klarabergsviadukten 90 SE-111 64 Stockholm Tel +46 (0) 8 506 485 00 Fax +46 (0) 8 506 485 85 » Future shareholder value is based on organic and acquired growth as well as continued rationalization and synergies in the Group « – Johan Molin, President and CEO 

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