ASSA ABLOY
Annual Report 2011

Plain-text annual report

Annual Report 2011 The global leader in door opening solutions Contents The ASSA ABLOY Group Statement by the President and CEO Vision, financial targets and strategy Market presence Product leadership Cost-efficiency Growth and profitability ASSA ABLOY divisions 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 Corporate governance Board of Directors The Executive Team Remuneration guidelines for senior management Sales and income Consolidated income statement and Statement of comprehensive income Comments by division Results by division Financial position Consolidated balance sheet Cash flow Consolidated cash flow statement Changes in consolidated equity Parent company financial statements Notes Comments on five years in summary Five years in summary Quarterly information Definitions of key data Proposed distribution of earnings Audit report The ASSA ABLOY share Information for shareholders Glossary 2 8 10 20 28 34 38 40 42 44 46 50 52 54 61 63 66 70 72 75 76 77 78 79 80 81 82 83 84 86 88 114 115 116 117 118 119 120 124 Annual Report 2011 The global leader in door opening solutions Report on operations The divisions CSR Report of the Board of Directors Financial statements Shareholder information Cover photograph: Camille Smith Camille Smith, who works in accounting at ASSA ABLOY Americas, pictured in front of Yale University – one of ASSA ABLOY’s customers. Online Annual Report ASSA ABLOY’s online Annual Report has many user-friendly functions. The texts can be read out loud and the financial tables can be expanded and downloaded in Excel. All information in the Annual Report can be found easily by menu navigation or by using the Search function. The online Annual Report is available at: www.assaabloy.com/annualreport2011. Locks and locking systems Mobile keys Access control Door closers ASSA ABLOY is the global leader in door opening solutions, dedicated to satisfying end-user needs for security, safety and convenience. ASSA ABLOY is represented on both mature and emerging markets worldwide, with leading positions in much of Europe, North America, Asia, Australia and New Zealand. EUROPE 48 % NORTH AMERICA 28 % Share of Group sales by region 2011 ASIA 16 % SOUTH AMERICA 2 % AFRICA 1 % AUSTRALIA NEW ZEALAND 5 % Schools and offices Museums Homes Hospitals Door closers Electromechanical locks Entrance automation Industrial doors Digital locks ASSA ABLOY is the global leader in door opening solutions, dedicated to satisfying end-user needs for security, safety and convenience. 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. 42Sales of SEK 42 billion Since its formation in 1994, ASSA ABLOY has grown from a regional company into an international group with around 41,000 employees and sales of around SEK 42 billion. In the fast-growing electromechanical security segment, the Group has a leading position in areas such as access control, identification technology, entrance automation and hotel security. Hospitals Industry Arenas Airports Hotels Creating opportunities for growth and profitability Today ASSA ABLOY is the leading global supplier of intelligent lock and security solutions. Its products 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: World-leading 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 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 solutions. The Group’s product leadership 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 collaboration with ASSA ABLOY’s end-users to enhance customer value. Efforts to increase cost-efficiency Efforts to increase cost-efficiency continue in all areas, including common product platforms with fewer components and common product development. Production combines flexible final assembly close to the customer with the transfer of high-volume standard production to external and internal production units in low-cost countries. Increased growth and profitability SALES AND OPERATING INCOME (EBIT) INCREASE IN SALES  Sales Operating income (EBIT) Sales, SEK M 50,000 40,000 30,000 20,000 10,000 0 961 971 981 991 001 011 021 031 04 96 00 04 01 99 97 03 98 02 05 062 07 082,3 092,3 10 112 05 08 11 07 06 10 09 +1,100 % EBIT, SEK M 7,500 6,000 4,500 3,000 INCREASE IN OPERATING INCOME 1,500 0 +4,100 % VISION, FINANCIAL TARGETS AND STRATEGY 1 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. ¹ 1996–2003 have not been adjusted for IFRS. ² Excluding items affecting comparability. ³ Reclassification has been made. ASSA ABLOY ANNUAL REPORT 2011 Statement by the President and CEO Winning strategy on a challenging market 2011 was a successful year for the Group despite very challenging market conditions. I am pleased to note that our strategic direction has led to continued profitable growth. Organic growth was a satisfac- tory 4 percent despite weak demand on mature markets throughout the year. Growth slowed gradually during the year on emerging markets except Asia. Long-term growth is generated by investments in the market organization and new products, and these continued even more intensively during the year. 2011 was also the year the Group made its largest ever structural transaction with the acquisition of Crawford, and the subsequent sales of the divisions that were not a good fit with the business in the long term. A total of 18 companies were acquired during the year, increasing sales by 17 percent. Efforts to increase efficiency continued during the year, and a new restructuring program covering all divisions was launched in late 2011. Strong organic growth, major acquisitions and successful efficiency programs resulted in record sales and earnings and a continued robust financial position. Strategic action plans We operate in an industry that is under consolidation and increased presence on existing and new markets is therefore crucial for the Group’s growth and position as market leader. Organic growth is the single most important driver for growth and requires strong innovative product leadership. In addition, continuous efforts to increase cost-efficiency are required to secure strong value creation. We create the opportunities for future growth with continued high prof- itability by combining enhanced market presence, strong innovative product leadership and cost-efficiency. Market presence Brand consolidation continued during the year and today a full 80 percent of the Group’s products are sold under the ASSA ABLOY brand or the ASSA ABLOY brand combined with the local brand. The remaining 20 percent of products are sold under the global brands Yale, HID, ABLOY and Mul- T-Lock, which complement ASSA ABLOY’s market presence and product range. Brand consolidation and rationalization of the product segment mean that wide and total product programs can be offered to more customers on more mar- kets. This also results in an increased segment focus and lower costs. ASSA ABLOY not only works with direct customers, par- ticularly distributors, wholesalers and locksmiths, but also with installers, architects and end-customers at all stages to generate increased demand for the Group’s products. Specification sales are an important activity in this context, and the number of specification sales representatives in the Group is constantly increasing. Streamlining of the support organization also means that resources can be transferred from pure administration to customer-related tasks. Emerging markets accounted for 25 percent of Group sales during the year, a threefold increase in just seven years. A continuing increased presence on emerging markets is crucial for sales growth, as these markets will experience much higher growth than mature markets in the foresee- able future. 2011 was an intensive year for acquisitions and a total of 18 acquisitions were completed, with annual sales of SEK 6,800 M, equivalent to 18 percent acquired growth. These Important events during the year • • • • • Sales increased with 13 percent to SEK 41,786 M (36,823) Operating income amounted to SEK 6,624 M1 (6,046) Earnings per share after full dilution amounted to SEK 12.301 (10.89) Operating cash flow amounted to SEK 6,080 M (6,285)2 Investments in product development continued at an accelerated level and a number of new products were launched • Largest ever structural transaction through the acquisition of Crawford ¹ Excluding items affecting comparability. 2 Excluding restructuring payments. 2 STATEMENT BY THE PRESIDENT AND CEO ASSA ABLOY ANNUAL REPORT 2011 acquisitions complemented the product range, provided new technology and increased the Group’s geographical market presence. The acquisition of the Swedish company Crawford, the Group’s largest ever structural transaction, accounted for two-thirds of these acquired sales. Other major acquisitions included FlexiForce (Netherlands), Laser- Card (USA), Swesafe (Sweden), Portafeu (France) and Angel Metal (South Korea). Product leadership The largest driver for organic growth is a continuous flow of innovative new products, with enhanced customer value and lower costs. Successful product development is there- fore crucial for the Group’s future. ASSA ABLOY’s vision is to be the most innovative supplier of total door opening solu- tions, and investments in R&D have increased annually in recent years. Today the Group employs over 1,200 develop- ment engineers, an increase of 32 percent over the past five years. uct platforms have led to a sharp increase in new products. Sales of products launched in the past three years exceeded 20 percent for the second consecutive year. The target is to reach 25 percent. Development of Group-wide platforms was successfully carried on by the Group product development function, Shared Technologies, and through collaboration within and between the divisions. Customers are increasingly demanding more advanced lock and door products, and the technical level is constantly rising. Meanwhile sales of electromechanical door opening solutions are growing considerably faster than those of tra- ditional mechanical products and have risen from 20 per- cent to 42 percent of Group sales in ten years. The number of installed doors in the market fitted with some form of elec- tromechanical solution is estimated at 3 to 5 percent. This share may very well rise to 20 percent or more in the future, representing a considerable potential for upgrades as well as new sales of these door opening solutions. The Group-wide product development process based on customer needs and the launch of more Group-wide prod- Particularly exciting product launches during the year included the wireless networked Aperio cylinder, 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 M4 Return on capital employed, % Data per share Earnings per share after tax and dilution (EPS), SEK/share Equity per share after dilution, SEK/share Dividend, SEK/share Number of shares after dilution, thousands 2009 34,9631 –12 3 9 5,413² 15.51, 2 4,779² 6,843 16.2² 2009 9.22² 54.76 3.60 2010 36,823 3 8 –6 6,046 16.4 5,366 6,285 18.5 2011 41,786 4 17 –8 6,624² 15.9² 5,979² 6,080 17.4² Change 13% 10% 11% –3% 2010 2011 Change 10.89 58.64 4.00 12.30² 65.54 4.50³ 13% 372,931 372,736 371,213 ¹ Reclassification has been made for 2009. ² Excluding items affecting comparability. ³ As proposed by the Board of Directors. 4 Excluding restructuring payments. ASSA ABLOY ANNUAL REPORT 2011 STATEMENT BY THE PRESIDENT AND CEO 3 the innovative Codehandle window and patio door lock, the successful pilot installations using mobile keys and NFC technology, in which the key is received wirelessly by the cell phone, and the Group-wide new door closer product range. Major acquisitions also provided the Group with many new products, including entrance automation products. Cost-efficiency ASSA ABLOY works continuously on improvements to the production structure, product costs and the administrative flow to increase cost-efficiency. Production combines flex- ible final assembly close to the customer with the transfer of standard production to low-cost countries. Product devel- opment focuses on common product platforms with fewer components and an effective product development pro- cess. Automated administrative flows, also known as Seam- less Flow, and an optimized IT structure are further key activ- ities for increasing cost-efficiency in the Group. The restructuring programs for the production units have been very successful, resulting in considerable savings and increased efficiency in the Group’s production units. A total of 44 units have been closed and a further seven are set to close under the existing programs. A new restructur- ing program to further improve the efficiency of existing and recently acquired production units in high-cost countries was launched in 2011. This program covers all five divisions and entails the closure of 17 production units and a switch to final assembly in a further number of units, affecting around 2,000 employees in high-cost countries. In product development, the Group works with common product platforms, fewer components and increased pur- chases from low-cost countries. The product development process is constantly being improved and Lean-methods are being implemented to further streamline and shorten the development process. During the year, 300 VA/VE analyses were conducted. These target existing product designs and normally lead to a 25 to 40 percent reduction in product cost. The implementation of Lean-methods continues in the Group’s operations. These lead to more efficient production flows, better material cost control, improved decision-mak- ing procedures, shorter development times, and increased cooperation with the marketing and sales organization. The year saw the implementation of over 600 Lean-projects in production units and 150 projects in office administra- tion in the Americas and EMEA divisions, resulting in large savings. The Group continues its efforts to implement Seamless Flow in administration. This entails a reduction in manual work and an automated flow from the customer through the company’s various processes to the suppliers. Cost reduc- tions and increased efficiency and quality will be immedi- ate as these solutions are implemented. A key component is e-commerce with the customers, which has now reached 20 percent, compared with 10 percent three years ago. The most important activities in IT optimization include a reduction in the number of ERP systems from more than 120 to 6. The number of data centers is to be reduced from 55 to 5 worldwide, while today’s more than 80 networks are to be consolidated into just one. Development of the divisions EMEA division Demand in European markets was weak during the year and strongly impacted by the fiscal problems in many coun- tries and the subsequent budgetary tightening. Organic growth was 0 percent (2). Sales remained unchanged or were slightly positive in the majority of northern and cen- tral European markets. Eastern Europe experienced strong sales growth. The southern European markets, particularly Italy and Spain, experienced negative growth. Exports from the southern European companies to North Africa were also negatively impacted by the political unrest in the region. The wireless networked Aperio cylinder and a brand new Pan-European door closer program were launched during the year. Digital door locks for the residential market were launched on several markets under the Yale brand and were very well received. The division also launched new versions of the innovative electromechanical Cliq Remote cylinder for the commercial market with considerable success. Operating income remained strong due to the restruc- turing and efficiency measures implemented in recent years. PERFORMANCE 2007–2011 SALES AND OPERATING INCOME INCOME BEFORE TAx AND OPERATING CASh FLOW Sales SEK M 42,000 36,000 30,000 24,000 18,000 12,000 6,000 0 Operating income SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  Sales1 Operating income2 ¹ Figures for 2008 and 2009 are affected by reclassification. ² Excluding items affecting comparability, 2008, 2009 and 2011. 07 08 09 10 11 SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 07 08 09 10 11  Income before tax1  Operating cash flow2 ¹ Excluding items affecting comparability, 2008, 2009 and 2011. 2 Excluding restructuring payments. 4 STATEMENT BY THE PRESIDENT AND CEO ASSA ABLOY ANNUAL REPORT 2011 » 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 The year saw the acquisition of Swesafe (Sweden), Portafeu (France), Metalind (Croatia) and a number of small distribu- tors in Europe, Latin America and Africa. Americas division Sales increased somewhat in the first half of the year, but the low level of new construction projects particularly in North America resulted in stable sales for the full year. Organic growth was 2 percent (–2). The commercial and institu- tional segments, which accounts for a large part of the divi- sion’s sales, showed weak but positive growth, mainly driven by renovations and upgrades. The residential segment, which only accounts for a minor part of the division’s sales, experienced good demand during the year due to a num- ber of new product launches. The Latin American markets, apart from Brazil, showed strong growth during the year. The standard of living is constantly rising in these countries, impacting demand positively. In Brazil, however, demand was negatively impacted by the slowing economy, high interest rates and the general downturn particularly in the new construction segment. Many new electromechanical products and total security solutions for each customer segment were launched. Marketing initiatives, innovative new products and effi- ciency measures enabled the division to maintain a strong operating income. The year saw the acquisition of Electronic Security Devices (USA). Asia Pacific division Sales in China grew strongly during the year, particularly in the security door segment. The growth rate slowed towards the end of the year, mainly caused by the credit restrictions imposed by the Chinese government to avoid overheat- ing in the economy. However, the ongoing programs for publicly subsidized housing projects in inland regions had a positive impact on demand. Sales growth in the South Korean business units was strong during the year, and par- ticularly the export sales of the Group companies iRevo and King grew very strongly. Growth in the rest of Asia was very strong. On the Indian and Indonesian markets, which have considerable growth potential, sales grow substantially from a small base. In Australia and New Zealand, the market position remained strong, but sales growth was negative during the year, mainly due to a reduction in government stimulus measures. The division reported 9 percent (14) organic growth for the year. A combination of acquisitions and organic growth has enabled the Group to establish a very strong presence on the Chinese and South Korean markets. In China, sales of security doors in particular have grown very strongly due to the acquisition of Pan Pan. This has led to the establishment of sales channels in new regions in China where growth is expected to be high in the future. In South Korea, acquisi- tions in recent years have also resulted in strong, market leadership. The Group can now offer a wide product range and total door opening solutions in both these markets. The Group is now establishing itself in a similar way on mar- kets in South and South-east Asia through a combination of acquisitions and organic growth. Operating income remained strong despite reduced sales in the profitable markets of Australia and New Zealand and increased sales in emerging markets with lower operat- ing margins. The year saw the acquisition of Angel Metal (South Korea). Global Technologies division Demand for HID Global’s products was strong during the year. New products and active marketing efforts resulted in considerable interest in secure identity solutions in all mar- kets. The traditional product areas in identity and access management showed stable, strong demand. Product development and marketing in recent years in the product area of government ID programs, driving licenses and the like led to a number of major project orders. ASSA ABLOY Hospitality experienced strong full-year growth driven by continued increased demand for renovation and upgrade projects. However, the market for new hotel and cruise ship construction remained at a low level. The division reported 11 percent (10) organic growth for the year. PERFORMANCE 2007–2011 DEvELOPMENT OF EARNINGS PER ShARE SEK 13 12 11 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 10 11 READ MORE ABOUT ASSA ABLOY’S DIVISIONS, PAGE 38–51. ASSA ABLOY ANNUAL REPORT 2011 STATEMENT BY THE PRESIDENT AND CEO 5 ASSA ABLOY’s Executive Team from left: Tzachi Wiesenfeld, Head of EMEA division; Thanasis Molokotos, Head of Americas division; Johan Molin, President and CEO and Head of Global Technologies division; Ulf Södergren, Chief Technology Officer (CTO); HID Global’s acquisition and integration of ActivIdentity (acquired in December 2010) and LaserCard (acquired in January 2011) into its existing operations has provided the unit with a comprehensive set of competencies in secure identity management for government ID programs and a unique technical and knowledge platform for the develop- ment of tomorrow’s Government ID services. ASSA ABLOY Hospitality has worked actively to upgrade customers’ installed locks from magnetic stripe card lock- ing systems to more secure, flexible and user-friendly locks using radio frequency identification (RFID). Demand for the new contactless RFID hotel locks increased sharply during the year, and more than half a million VingCard RFID locks were installed globally. The division’s operating income showed positive growth but profitability was negatively impacted by the dilutive effect of acquisitions and large project orders. Entrance Systems division New sales of automatic doors showed good growth throughout the year, while service sales continued to grow strongly. Demand increased in the retail, logistics and manu- facturing segments, but was more restrained in the health- care segment. Organic growth was 5 percent (–2). The year saw the major acquisitions of Crawford and FlexiForce. Crawford supplies industrial doors, docking solu- tions and garage doors, while FlexiForce supplies compo- nents for industrial and garage doors. At the end of the year an agreement was signed to acquire Albany Door Systems, which will result in a strong position in high-performance doors. The year also saw minor acquisitions in Canada, Aus- tralia and New Zealand, further consolidating the division’s world-leading position in entrance automation. The divi- sion has grown from SEK 3 billion to over SEK 8 billion in just a few years and now has a strong integrated offering within entrance automation. Rationalization of the production structure resulted in a good earnings trend. 6 STATEMENT BY THE PRESIDENT AND CEO ASSA ABLOY ANNUAL REPORT 2011 Jonas Persson, Head of Asia Pacific division; Tim Shea, Head of the ASSA ABLOY Hospitality business unit; Juan Vargues, Head of Entrance Systems division. Denis Hébert, Head of the HID Global business unit; Tomas Eliasson, Chief Financial Officer (CFO). Future development The Group consolidated its market leadership during the year and is well positioned for long-term sustainable growth due to its global presence and the market’s widest product range. Our focus on the profitable commercial segment, the high proportion of aftermarket sales and the increas- ing share of fast-growing electromechanical and electronic products ensure strong growth and earnings. Looking forward into 2012, continued good growth on the emerging markets is expected, but at a lower level than last year. On the mature markets a stable development is expected with an unchanged or slightly positive sales trend. The underlying business cycle continues to be affected by the uncertainty on the financial markets and budget restric- tions in many countries, which primarily impacts the market segments that are dependent on public financing. Major efforts by employees Finally I should like to thank all our employees who con- tributed to the Group’s success 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 established a global leadership position. Despite fantastic growth dur- ing this period, many important markets and product areas remain to be developed. The continued demand for safety and security solutions, as well as population growth and urbanization ensure an underlying structural demand for the Group’s products, which will increase over time. Com- bined with the implemented and planned restructuring measures, this means that we have excellent opportunities for continued growth and good profitability. Stockholm, 9 February 2012 Johan Molin President and CEO ASSA ABLOY ANNUAL REPORT 2011 STATEMENT BY THE PRESIDENT AND CEO 7 Vision • • To be the world-leading, most successful and innovative supplier 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 be an attractive company to work for. Financial targets • 10 percent annual growth through a combination of organic and acquired growth. • An operating margin of 16 to 17 percent. The financial targets are long-term and should be regarded as an average over an economic cycle. 8 STATEMENT BY THE PRESIDENT AND CEO ASSA ABLOY ANNUAL REPORT 2011 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 entrance automation. ASSA ABLOY’s strong development is based on long-term structural growth in demand on mature markets in Europe, North America, Australia and New Zealand, increasing demand on emerging markets in Asia, eastern Europe, Africa and South America, and successes in 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 20–27 Goal Growth and profitability pages 34–37 Cost- efficiency pages 28–33 Market presence pages 10–19 ASSA ABLOY ANNUAL REPORT 2011 STATEMENT BY THE PRESIDENT AND CEO 9 Sustainable door opening solutions from ASSA ABLOY are used throughout 41 Cooper Square, New York City’s first LEED Platinum-certified academic building at The Cooper Union for the Advancement of Science and Art. 10 Market presence assa aBLOY annuaL repOrt 2011 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 annuaL repOrt 2011 Market presence 11 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. the security market Today ASSA ABLOY is the global leader in total door open- ing solutions. As the Group has grown, its product portfolio has expanded and evolved to cover the widely varying needs of airports, schools, hospitals, offices and homes. Growth in the security market is fuelled by several factors. The most salient is the global increase in prosperity and urbanization, which leads to new construction and an increased demand for doors, hardware and access control systems. The gen- eral global trend towards increased security places security thinking high on the agenda, driving the development of more advanced solutions and upgrades of existing security systems. Finally, the increasing demand for solutions offering convenience and simplicity in addition to high security may be mentioned. The total security market consists primarily of security services and electromechanical and mechanical security products. ASSA ABLOY estimates the total security market to be worth over EUR 250 billion. The Group has focused its operations on electromechanical 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. ing doors and windows, as well as new construction. The market is growing 1–2 percent above each country’s GDP, averaged over an economic cycle, and is relatively stable for ASSA ABLOY. The majority of Group sales are for use in exist- ing buildings and therefore less sensitive to cyclical fluctua- tions. The large aftermarket, combined with the spread of ASSA ABLOY’s sales across a large number of countries with different economic cycles, contributes to stable sales and profitability. ASSA ABLOY’s electromechanical security product range includes electronic cylinders, automatic doors, secure iden- tification and various access control products, some of which use radio frequency identification (RFID). Electrome- chanical products generally offer high functionality and high security, making them ideal for commercial applications. Focused product development in this area is constantly expanding the applications for ASSA ABLOY’s electrome- chanical products. Annual growth in the market for elec- tromechanical security products is estimated to be two to three times higher than for mechanical security products. This is partly due to the fact that today only 3 to 5 percent of all doors have electromechanical locks or access control systems, but this percentage is constantly rising. Electro- mechanical products account for over 40 percent of Group sales and this percentage is steadily increasing every year. Mechanical and electromechanical security products The mechanical security product range includes lock cylin- ders, lock cases, door closers, industrial locks, emergency exit devices and window hardware. ASSA ABLOY is also a major manufacturer of steel security doors and door hard- ware. Growth in mechanical security products is mainly driven by renovations and replacements of old locks in exist- customer segments ASSA ABLOY’s main customer segment is the commercial segment comprising institutional and commercial end-cus- tomers, such as schools, hospitals, universities, airports and large office buildings. The commercial segment accounts for around 75 percent of Group sales, while the private residen- tial segment accounts for around 25 percent. » Annual growth in the market for electromechanical security products is estimated to be two to three times higher than for mechanical security products « 12 Market presence assa aBLOY annuaL repOrt 2011 Share of Group sales by region 2011 NORTH AMERICA EUROPE ASIA 28 % +8 % 48 % +32 % 16 % +29 % Share of Group sales in local currencies 2011, % Change relative to the previous year, % SOUTH AMERICA AFRICA 2 % +7 % 1 % +2 % Increased saLes On eMergIng Markets AUSTRALIA AND NEW ZEALAND 5 % –3 % Share of Group sales in local currencies 2011, % Change relative to the previous year, % 2006 2011 Emerging markets, 12% Mature markets, 88% Emerging markets, 25% Mature markets, 75% assa aBLOY annuaL repOrt 2011 Market presence 13 Market presence Major customers – 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. The procurement of these projects is often com- plex and involves many stakeholders on the customer side, such as property and security managers. ASSA ABLOY’s com- mon sales force has developed expertise in understanding the multifaceted needs of end-customers and has contact with many stakeholders in the value chain to develop opti- mal security solutions for the customer. Distribution 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. ASSA ABLOY works actively to train distributors and to develop more standardized solutions for small and medium- sized companies, such as stores and offices. has developed a number of home security concepts to meet consumer needs. In some geographical markets, ASSA ABLOY also works with door and window manufacturers or specialized distribution channels such as DIY stores and locksmiths. distribution channels In today’s market, products mainly reach the end-customer through a variety of distribution channels, particularly lock- smiths, 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. If the demand for both security and evacuation solutions was equally large in Europe and the USA, the total market would roughly double, representing considerable long-term potential for ASSA ABLOY. Consumer market The majority of sales are replacements or upgrades of exist- ing security products. Private customers have a consider- able need for advice and installation assistance. ASSA ABLOY The technological paradigm shift from mechanical to electromechanical locking is considerably larger in the com- mercial segment than in the private residential segment. However, an increasing number of private individuals want » 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 « THE TOTAL SECURITY MARkET ASSA ABLOY’S SALES BY PRODUCT GROUP  ASSA ABLOY’s product areas, 15%  Security guards and other, 27%  Fire alarms, 2%  Doors and windows, 40%  Intrusion protection, 3%  IT security and logical access control, 4%  Alarm centers, 9%  Mechanical locks, lock systems and fittings, 38%  Electromechanical and electronic locks, 22%  Entrance automation, 20%  Security doors and hardware, 20% 14 Market presence assa aBLOY annuaL repOrt 2011 electronic locks for their homes, providing a major growth opportunity for ASSA ABLOY. Through its presence in South Korea, the Group is the world’s leading producer of resi- dential electronic locks, and a number of products were launched in 2011 on markets in the USA, Australia, the UK and Scandinavia. Globally, the lock market is still fragmented. However, the market in each country is relatively consolidated, as com- panies in the industrialized world are generally still family- owned and leaders on their home markets. They are often well-established and have strong ties with local distributors. In less developed countries, however, established lock stan- dards 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 partly operate 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 have equivalent international market penetration to ASSA ABLOY. The Asian market is still very fragmented; even the largest manufactur- ers have modest market shares. » The majority of Group sales are for use in existing buildings and therefore less sensitive to cyclical fluctuations « 67 % 33 % 33% of ASSA ABLOY’s sales consist of new construction. 67% of ASSA ABLOY’s sales consist of renovations, refurbishments, extensions replacements and upgrades. WHAT DRIvES DEMAND? BREAkDOWN BY CUSTOMER SEGMENT  Aftermarket1, 67%  New construction, 33% ¹ The aftermarket consists of renovations, refurbishments, extensions, replacements and upgrades.  Commercial and institutional customers, 75%  Private customers – residential market, 25% assa aBLOY annuaL repOrt 2011 Market presence 15 Market presence Increased Market presence assa aBLOY’s strategy for increasing its market presence has three main approaches: • 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 and create solutions for the customer using different products manufactured under established local brands. Consequently, customers can be offered total door opening solutions, while recognizing the local 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 largest installed lock base. In order to exploit and manage this valuable asset while benefiting from the Group’s size, ASSA ABLOY’s logotype 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 master brand. The master brand is complemented by four global brands, which are all leaders in their respective market segments. These brands are HID in access control, secure card issuance and identification technology, Yale in the residential market, Mul-T-Lock for locksmiths, and ABLOY in high-security locks. The growing visibility of ASSA ABLOY as the master brand for complete security solutions demon- strates the considerable breadth of the Group’s product range as the world’s largest supplier of security solutions. Increasing growth in the core business Growth in the core business is achieved through close collaboration with architects, security consultants, major end-users and distributors. Continued clear market segmentation is also vital for offering relevant solutions to the customer. Total door opening solutions The requirements in different areas vary considerably, since the door opening solution for each door is adapted to the door’s location and application, such as whether it is an entrance door, a computer room door or a conference room door. The door’s functionality must also be adapted on the basis of security and convenience. This may be affected by whether it is an internal or external door, the opening fre- quency, the number of users, and special requirements such as fire safety. Customers are also increasingly demanding that the products can be easily integrated into new or exist- ing security systems and IT networks. » A large aftermarket, combined with global sales across countries with different economic cycles, contributes to stable sales and profitability « 16 Market presence assa aBLOY annuaL repOrt 2011 assa aBLOY’s Brand strategY the assa aBLOY master brand ASSA ABLOY is the Group’s master brand under which the sales departments are united. some product brands 80 % Around 80 percent of products are co-branded with the local brand and the ASSA ABLOY master brand. 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. global brands with a unique market position Complementary global brands, where the products’ leadership and market positioning in their respective segment are unique or overlap with ASSA ABLOY. Tracking flowers around the world with ASSA ABLOY Customer: Challenge: Solution: Flora Holland is one of the world’s largest flower auction houses, with five auction centers across the Netherlands. The auction house rents stacking carts to customers for the transport of flowers and plants around the world. Flora Holland merged with the Aalsmeer Flower Auction in 2009. Since then, there has been a need to develop a single uniform stacking cart system for more than 250,000 carts which are in circulation around the world. ASSA ABLOY Nederland was called in to develop a prototype for a new lock plate for the stacking carts with a profile cylinder and unique key profile that could be tracked using an RFID tag. The auctioneer ordered 145,000 lock plates in total. assa aBLOY annuaL repOrt 2011 Market presence 17 Market presence dIstrIButIOn channeLs fOr the securItY Market 75 % of sales are to the institutional and commercial market. Specification of door opening 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, electromechanical 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 installa- tion of perimeter protection, access control and increasingly also computer security. In today’s security market, manufacturers of security products, such as ASSA ABLOY, mainly reach their end-customers through a variety of distribution channels. A large percentage of ASSA ABLOY’s products are sold in small volumes to a large number of end- customers with very different needs. 25 % of sales are to private customers and the residential market. Electromechanical 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 perimeter protection, access control and increasingly also computer security. FEEDBACk | DEMAND | INCREASED SALES specIfIcatIOn ASSA ABLOY specifies a security solution for major commercial projects jointly with end-customers and other stakeholders. ASSA ABLOY Representative Distributor assa aBLOY specIfIcatIOn dIstrIButOr dIstrIButIOn channeLs Security system integrators, locksmiths and security installers, building and lock wholesalers, retailers, DIY, hardware and security stores, OEMs, door and window manufacturers. Building and lock wholesalers, security consultants and locksmiths have a key role in delivering the products specified for various construction projects. expanding into new markets and segments The Group is expanding into new markets and segments by establishing on new geographical markets, developing the OEM market, exploiting opportunities on the residential market, and introducing new technology. Geographical expansion is mainly achieved through acquisitions. Establishment on markets with rising popu- lations and developing economies enables the Group to build a strong platform for future growth. Emerging markets in Asia, eastern Europe, the Middle East, Africa and South America accounted for 25 percent of total Group sales in 2011, compared with 12 percent five years ago. The Group’s presence on the OEM market for door and window manu- facturers varies between markets, providing considerable potential for increased market penetration. The global door market is worth around EUR 80 billion and is an area with considerable growth potential. Since 2000, Group sales of security doors have risen from SEK 2 billion to over SEK 8 billion and accounted for 20 percent of total Group sales in 2011. The door automation market is another area with very large growth potential. Traditionally ASSA ABLOY has only been active in door automation for people traffic. Through the recent acquisitions within the Entrance Systems division, 18 Market presence assa aBLOY annuaL repOrt 2011 stakehOLders cOdes and securItY standards » 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 « 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 commercial segment, distribu- tors in some markets act as consultants and project manag- ers 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 solu- tions, distributors need increasing skills levels. Locksmiths, who are key distributors of mechanical and electromechani- cal 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. FEEDBACk | DEMAND | INCREASED SALES ASSA ABLOY Representative Installer specIfIcatIOn ASSA ABLOY specifies a security solution for major commercial projects jointly with end-customers and other stakeholders. ASSA ABLOY Representative End- customer InstaLLer specIfIcatIOn end-custOMer end-custOMers Large institutional and commercial customers • Healthcare • Education • Retail • Hospitality • Offices • Industry Small and medium-sized customers • Offices • Stores Residential market • Apartments • Houses ASSA ABLOY Representative Stakeholders stakehOLders cOdes and securItY standards stakehOLders Such as architects, security consul- tants, public authorities responsible for security standards and other stakeholders. 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 products before delivering them to customers. the Group has entered the much larger entrance automa- tion market, which includes industrial doors, systems for loading docks and garage doors. The global entrance auto- mation market is estimated at EUR 15 billion and is still very fragmented. 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 product area is also seeing increased technical stan- dardization in which different components in the security solution can be easily integrated with one another. ASSA ABLOY’s products aim for open standards to facilitate inte- gration with the customer’s other security and administra- tive systems. Interesting new growth areas are created by exploiting the Group’s strength in specific technologies. One example is RFID, which is now adapted to special appli- cations such as contactless hotel locks opened by a card or a mobile phone. assa aBLOY annuaL repOrt 2011 Market presence 19 With its unique cold weather and energy-saving features, a Megadoor door system was the perfect solution for Continental Airlines’ hangar doors at Cleveland Hopkins International Airport. 20 prOduct LeadershIp assa aBLOY annuaL repOrt 2011 Product leadership The Group’s product leadership is achieved through the continu- ous development of products offering enhanced customer value and lower product costs. assa aBLOY annuaL repOrt 2011 prOduct LeadershIp 21 Product leadership Successful product development drives organic growth A constant flow of innovative new products to the market is the single most important source of organic growth. Successful product development is therefore vital for the Group’s future. In 2011 sales of products launched in the past three years exceeded 20 percent of total sales, and the target is 25 per- cent. ASSA ABLOY’s vision is to be the most innovative supplier of total door opening solutions, and investments in R&D have increased substantially in recent years. ASSA ABLOY is creating tomorrow’s secure, convenient and flexible security solutions by developing Group-wide technology platforms. product leadership Successful product development and product leadership are the single most important driver for maintaining the tar- get of 5 percent organic growth per year over an economic cycle. The focus on product leadership has been very con- sistent and can be seen in the number of product develop- ment engineers, which has risen by 32 percent to over 1,200 people in five years. Sales of products launched in the past three years exceeded 20 percent of total sales for the second consecutive year, a sharp increase in just a few years. The tar- get is 25 percent, which is a well-considered level in view of the 10 to 15-year product life cycle. Product leadership is achieved and maintained through the continuous development of products offering enhanced customer value and lower product costs, often in close col- laboration with ASSA ABLOY’s end-users and distributors. The product development process is under constant improvement and renewal. Several customer segments were studied in detail during the year giving rise to inter- esting new product concepts. ASSA ABLOY Future Lab is an internet forum in which the Group can ask customers ques- tions to obtain information on long-term trends and prod- uct initiatives. The implementation of Lean Innovation has shown that development time can be halved and results improved. Using this new approach, the Group has also seen the benefit of continuous parallel technology development. Customers are increasingly demanding more advanced lock and door products and the technical level is constantly ris- ing, with electromechanical door opening solutions grow- ing considerably faster than traditional mechanical prod- ucts. Global common product platforms adapted to the local markets have therefore become increasingly impor- tant. These platforms are developed by the Group product development function, Shared Technologies, and through collaboration within and between divisions. today’s customer base helps 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. Electromechanical products including entrance automation, have risen from 20 percent to 42 per- cent of Group sales in ten years. This does not mean that sales of mechanical products are falling but that electrome- chanical products are growing three to four times faster. An increased share of electromechanical products also means an increase in the sales value per door, as well as in the recur- ring revenue from service and upgrades. The number of installed doors in the market fitted with some form of elec- tromechanical solution is estimated at 3 to 5 percent. This share may very well rise to 20 percent or more in the future, » Successful product development is the single most important source of organic growth « INvESTMENTS IN RESEARCH AND DEvELOPMENT¹ SEK 1,400 1,200 1,000 800 600 400 200 0 07 08 09 10 11 ¹ Reclassification has been made for 2008 and 2009. 22 prOduct LeadershIp assa aBLOY annuaL repOrt 2011 representing a very large potential for upgrades as well as new sales of these door opening solutions. People are assigned access rights to doors or computers. Keys, cards and other ID credentials are assigned codes, and these codes and access rights are managed securely and dis- tributed encrypted. ASSA ABLOY has further consolidated its position in secure identification through acquisitions during the year. Since the acquisition of HID Global ten years ago, ASSA ABLOY has had clear market and product leadership in secure identity solutions, and sales currently total over SEK 4 billion. In North America, products from HID Global are esti- mated to account for 70 percent of the installed lock base, and the position is also strong on other markets. security and convenience Security is not just a question of identification. The mechani- cal 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 facilitate use. The Group’s electromechanical products help to meet all these security requirements. The electro- mechanical segment is growing rapidly and now accounts for 42 percent of Group sales. substantial strengthening of entrance automation offering The Group is a global leader in automatic doors through its Entrance Systems division. Automatic doors have sen- sors and electronics that ensure a convenient and energy- saving door environment in, for example, stores, hotels and hospitals. It is increasingly important to be able to offer a total entrance automation solution comprising both automatic door opening solutions and industrial doors. The service offering can therefore be expanded to include automatic entrances for pedestrian traffic at the front of a commercial building and for goods deliveries at the rear of the build- ing. A number of acquisitions in 2011 have strengthened the product range with solutions for all entrances and doors in which central control systems can minimize drafts and energy losses in buildings. Entrance Systems division’s sales have risen from SEK 3 billion to SEK 8 billion in five years, and the target is SEK 20 billion by 2015. This means that the Group has gained clear product and market leadership in entrance automation. 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. Wireless Aperio technology allows cost-effective con- nection of several doors in an existing access control system. Battery-operated electromechanical cylinders and locks communicate wirelessly with the existing network, avoiding expensive installation costs, new keycards and new access systems. Today many leading manufacturers of access con- trol systems have integrated Aperio technology into their systems. In contrast to Aperio, Smartair is an off-line system. Smartair’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. 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. The Secure Identity Object (SIO) product developed in-house during the year has further increased security in access control. cell phone replaces key In the hotel segment, VingCard has used RFID and the wire- less technology offered by mobile telephony in combina- tion with near field communication (NFC). The hotel guest can use their cell phone 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 hold- ing the phone close to the lock. In 2011 collaboration in NFC technology at Arizona State University was launched with RIM, which manufactures smartphones under the Black- berry brand. This received a very positive response from students. CHANGE IN PRODUCT MIx 2000 sek 14 billion 2011 sek 42 billion Mechanical products, 66% Electromechanical products, 20% Security doors, 14% Mechanical products, 38% Electromechanical products, 22% Entrance automation, 20% Security doors, 20% assa aBLOY annuaL repOrt 2011 prOduct LeadershIp 23 Project specifications and collaboration with architects to create total security solutions are important for driving increased sales for ASSA ABLOY. The Group is carefully following developments in this area through its participation in the NFC Forum and other wire- less technology organizations. 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. More than half a million hotel rooms out of ASSA ABLOY Hospitality’s installed base of over 7 million rooms have been recently fitted with or upgraded to RFID solutions, and interest in the technology just continues to grow. VingCard Orion was also launched during the year and is an energy management system in which temperature control of the hotel room depends on the guest’s presence, but can also be controlled and monitored from reception. total door opening solutions are assa aBLOY’s strength 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. In recent years a number of products have been 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 continues to develop a Group-wide product development process with the aim of halving development time and increasing the number of new products. A clear gateway model with common terminology and interdis- ciplinary collaboration ensures the quality of the product development process. Product management is a very impor- tant factor, and the number of product managers increased sharply during the year. Voice of the Customer is a natural part of the Group’s process for strengthening customer relationships and inte- grating customers into the Group’s product development process, thereby increasing the fitness for purpose of the Group’s product offering. A number of in-depth studies conducted jointly with cus- tomers have resulted in the development of many new con- cepts and products. 24 prOduct LeadershIp assa aBLOY annuaL repOrt 2011 Some ASSA ABLOY products digital door locks for housing in scandinavia The smart digital door lock, Yale Doorman, was launched in Scandinavia in 2011. The lock allows users to lock and unlock their homes using electronic key fobs, a PIN code or remote control. The key fob can be easily blocked if lost and a new one registered by the user. The PIN code allows access at all times without a key. A temporary code can also be communicated by phone to a person who needs to gain access to the home. The lock is self-locking, making the family more secure at home and confident the door is locked when away from home. Yale Doorman is user-friendly owing to the simple key setting and registration process, spoken instructions in all the Scandinavian languages and the illuminated keypad. Mobile access technology Wins sesaMe HID Global’s Secure Identity Objects™ (SIO) technology won the 2011 SESAME award for innovation at CARTES. Deliv- ering enhanced security, portability and flexibility, SIO technology operates within HID’s Trusted Identity Platform® (TIP™) that enables digital credentials to be securely embedded into a variety of trusted devices, including Near Field Communications (NFC) mobile phones and related devices. To accommodate evolving security challenges, SIO tech- nology also provides users with the abil- ity to dynamically increase security lev- els updates to efficiently address future changes in requirements as they occur. state-of-the-art platform delivers high- security access control features HID Global’s new EDGE EVO® and VertX EVO™ controller platform for IP access control solutions is an open and scalable platform that provides organiza- tions with the most extensive access device systems. The platform delivers enhanced security features including superior perfor- mance and future upgrade options, extend- ing the value of an open architecture access control development platform by protect- ing an organization’s hardware investment for end-user installations. EDGE EVO and VertX EVO include a comprehensive Devel- oper Tool Kit that is equipped with OPIN API for both migration from HID Global’s pre- mier EDGE® and VertX® controller technol- ogy as well as new development using the latest platform. assa aBLOY annuaL repOrt 2011 prOduct LeadershIp 25 Some ASSA ABLOY products norton safeZone Norton’s SafeZone door closer/holder is an award winning innovation featuring a built- in motion sensor that detects movement through a doorway. SafeZone enhances the safety and con- venience features of an opening by holding the door open to allow safe passage for slow moving people like the very young, elderly or infirm. It also eases the way for carts, gurneys or other bulky objects that are difficult to navigate through an opening equipped with a standard door closer. Ideal for use in healthcare facilities, schools and retail stores, SafeZone eliminates unnecessary cycles on openings subjected to heavy traffic of people or equipment by holding the door open as long as needed. This reduces damage caused by equipment hit- ting the door. SafeZone also reduces the like- lihood a door will be propped open, resulting in energy savings and increased security. Opening doors with a cell phone The market for mobile access control is grow- ing strongly. ASSA ABLOY Mobile Keys and NFC-enabled phones now make it possible to unlock doors securely using a cell phone. The mobile key is transmitted to the NFC-enabled phone where it is stored in a secure element. When the user holds the phone in front of a lock or reader access rights and identities are transferred to the lock in a similar way to using an access card. Transmitting mobile keys wirelessly to cell phones has had a major influence on the access control industry. A cell phone can now be used to open doors in homes, hotels, universities and commercial buildings. ASSA ABLOY Mobile Keys provide the infrastructure and the technology that allow the transfer of physical keys and access cards to a cell phone. attractive design and customer needs in focus The Crawford 242FG overhead sectional door is a fully glazed door, designed to be used when there is a need for light, exposure, or vision. Typical applica- tions are show-rooms, fire stations, or other appli- cations where optimal daylight inlet and/or expo- sure possibilities are desirable. The panels are fully glazed, which gives the door a modern, attractive and unique appearance. The Crawford 242FG overhead sectional door is designed to meet all operational and safety requirements in the European Directives and the standards issued by the European Standardization Committee, CEN. 26 prOduct LeadershIp assa aBLOY annuaL repOrt 2011 cliq remote is controlled by mobile phone Cliq Remote is a new locking system enabling the user to control a key’s access rights by mobile phone. The keys are programmed remotely via the admin- istration system. Each time a Cliq key is inserted into an updating unit, it connects via the internet to the administration system, downloads new access rights and removes old rights. This allows detailed control of access rights so that an individual can open a certain door for a certain period. The key also energizes the lock cylinder, which therefore does not need its own power supply. The battery lasts for around 30,000 door operations and two years’ use. Information transfer and the key’s access rights are encrypted using the same technology as banks use in digital certificates. The locking system, which was launched in 2010, has attracted great interest and ASSA ABLOY has received a number of large order of the system during 2011. tight-sealing sliding doors improve energy savings for Besam customers Besam has launched greener configurations for their existing sliding door profile packages. The TightSeal features extra brushes and rubber bumpers for a more energy-saving seal and the configuration is available for existing as well as new sliding door systems. Ben- efits include less air leakage and water infiltration, which is especially optimal during non-business hours but also beneficial whenever the door is closed during opening hours. Studies show that reducing air leakage can lead to energy savings of up to 60 percent compared to stan- dard sliding door systems. Depending on the configu- ration, the very attractive payback time for the cus- tomer is between 12 and 24 months. When fitted to the Besam Frame and Slim Thermo, these automatic door systems meet BS EN 12207 (Air Permeability) Class 1 standards for thermal efficiency, an official European regulation that will come in to force in 2013. assa aBLOY annuaL repOrt 2011 prOduct LeadershIp 27 Tamar is the government headquarters in Hong kong that includes The Central Government Complex and Legislative Council. It is the administrative and executive hub of the Hong kong government. The building complex also contains an open space for public as recreational facilities. ASSA ABLOY has supplied a total door- and security solution comprising high security locking and entrance automation while keeping a large degree of flexibility and convenience. Cost- efficiency Efforts to increase cost- efficiency continue in all areas, including common product platforms with fewer components and common product development. Cost-efficiency Successful restructuring programs ASSA ABLOY works continuously on improvements to the production structure, product costs and the administrative flow to increase cost-efficiency. Production combines flexible final assembly close to the customer with the transfer of standard production to low-cost countries. Product development focuses on common product platforms with fewer components and an effective product development process. Automated administrative flows, also known as Seamless Flow, and an optimized IT structure are further key activities for increasing cost-efficiency in the Group. successful improvements to production structure The restructuring programs for the production units have been very successful, resulting in considerable savings and increased efficiency in the Group’s production units. At year- end the three restructuring programs launched between 2006 and 2009 had led to the closure of 44 production units, and the closure of a further seven units is planned before the programs are fully implemented. In addition, the majority of the remaining production units in high-cost countries have switched from full production to mainly final assembly and customization. As a result of this restructur- ing, 5,869 employees have left the Group and a further 457 redundancies are planned. A new restructuring program to further improve the effi- ciency of existing and recently acquired production units in high-cost countries was launched in 2011. This program covers all five divisions and entails the closure of 17 produc- tion units and a switch to final assembly in a further num- ber of units, affecting around 2,000 employees in high-cost countries. Standard production has been increasingly transferred to internal and external production units in low-cost countries. Today 48 percent of products are manufactured in low-cost countries, compared with 33 percent five years ago. This is also reflected in the distribution of the Group’s staff, as 51 percent of total employees are now located in low-cost countries, compared with 34 percent five years ago. The pro- duction process has been improved, while local presence on end-customer markets in both high- and low-cost countries ensures fast delivery and efficient assembly of customized products. Va/Ve Value Analysis/Value Engineering (VA/VE) is a methodology involving both product improvements and cost savings. A total of over 300 studies were conducted during the year involving 1,900 employees. Cost savings for a product are normally between 25 and 40 percent in a study. Since the methodology was introduced in 2007, more than SEK 430 M in savings have been identified and implemented. Implementation of Lean methods The implementation of Lean methods continues in the Group’s operations. These methods lead to more efficient production flows, better material cost control, improved decision-making procedures, shorter development times and increased cooperation with the marketing and sales organization. The year saw the implementation of over 600 Lean projects in production units and 150 projects in office administration in the Americas and EMEA divisions. seamless flow and It Administrative support functions in the Group account for 30 percent of all staff and more than 40 percent of the total personnel cost. This represents around 25 percent of sales. The most important activity for streamlining these func- tions across the business is automated flows. The imple- mentation of automated flows is known as Seamless Flow, and the goal is to reduce or totally eliminate manual work in all processes. Seamless Flow is a process project in which a coordinated and optimized IT structure is fundamental for implementation. CHANGE IN PRODUCTION STRUCTURE SHARE OF PRODUCTION IN LOW-COST COUNTRIES % 100 80 60 40 20 0 07 08 09 10 11 High-cost countries, Full production High-cost countries, Assembly Low-cost countries, Production Acquired production units % 50 45 40 35 30 25 20 07 08 09 10 11 An increasing volume of standard production has been transferred to internal 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 assembly of customized products. The share of the Group’s total purchases of raw materials, components and finished goods from low-cost countries has increased from 33 per- cent to 48 percent over the past five years. 30 cOst-effIcIencY assa aBLOY annuaL repOrt 2011 It OptIMIZatIOn FROM MORE THAN 120 ERP SYSTEMS TO 6 SHARED SERvICE CENTER FROM MORE THAN 55 DATA CENTERS TO 5 FROM MORE THAN 80 NETWORkS TO 1 cOMMOn erp pLatfOrM scaLaBLe It Infrastructure reLIaBLe and secure It enVIrOn- Ment On the customer side, this means e-ordering by both large and small customers. On the supplier side, e-purchasing is to be introduced. Manufacturing, product development, logis- tics and other internal process are to be included in Seam- less Flow. The most important activities in IT optimization include a reduction in the number of ERP systems from more than 120 to 6. The number of data centers is to be reduced from 55 to 5 worldwide, while today’s more than 80 networks are to be consolidated into just one. NUMBER OF SUPPLIERS Number 8,000 7,000 6,000 5,000 4,000 07 08 09 10 11 The implementation of Seamless Flow and the coordination and optimization of the IT structure will also enable the effi- cient coordination of support functions. professional sourcing In the purchasing area, a comprehensive supply management project for raw materials and components is in progress. This is increasingly important as areas of component supply are outsourced to external suppliers in low-cost countries, while the Group is striving to increasingly exploit economies of scale. Increased outsourcing has resulted in material costs ris- ing from 28 percent to 36 percent of sales in five years. This increase is 85 percent in absolute terms. This makes totally new demands on the purchasing organization, which has moved from simple call off to professional sourcing. The divi- sions have appointed specialized purchasing managers for each component category. A number of central purchas- ing centers have been established in the Group to efficiently handle different component categories. Moreover, these activities have resulted in a 20 percent reduction in the num- ber of suppliers over the past five years, despite a 50 percent increase in sales over the same period as a result of organic and acquired growth. Reducing the number of suppliers helps to cut costs and improve quality. By active efforts, ASSA ABLOY has reduced the total number of suppliers by 20 percent over the past five years. assa aBLOY annuaL repOrt 2011 cOst-effIcIencY 31 Customer: Challenge: Solution: Security on track on the Beijing metro line with HID Global The Fangshan line of the Beijing metro is 25 km long with 11 stations and has been operating since December 2010. To ensure the metro is running safely, the physical access system needed to prevent unauthorized access and closely manage access to all stations, electrical substations, parking lots and major facilities at metro line sections. It also needed to safeguard equipment and staff at key locations. HID Global’s VertX V1000 controller and partner soft- ware offered a centralized, web-based access control system to monitor all stations and site equipment in real-time. Each station control center can now also operate independently using an HID V100 reader interface when communication is lost with the host. HID iCLASS R10 readers were installed at the entry points including office, equipment and mechanical rooms. 32 cOst-effIcIencY assa aBLOY annuaL repOrt 2011 Customer: Challenge: Solution: ASSA ABLOY equips state-of-the-art veterinary school The University of Queensland’s School of veterinary Sciences is a 14,000 square meter teaching complex, spanning five buildings and includes a major research facility, a teaching hospital, laboratories, animal-holding facilities and admin- istrative facilities. The veterinary school recently relocated, and the school’s new state-of-the-art location needed a range of locking systems that would secure access to the many buildings and facilities in the complex. ASSA ABLOY Australia was chosen to provide all the locks – a range of mechanical and electronic locks for the veterinary school. The facilities were equipped with Lockwood 3570 and 3580 mechanical and electric mortise locks, 1800 and 4800 series plate furniture, 7,714 door closers and ABLOY Protec keying. assa aBLOY annuaL repOrt 2011 cOst-effIcIencY 33 The National Stadium in Warsaw was built for UEFA EURO 2012. Apart from the football stadium, the development includes restaurants, conference facilities and offices as well as a vIP department and a sports museum. Over 2,000 ASSA ABLOY door closers, 950 ABLOY electromechanical locks, 1,800 HID readers, 1,800 ABLOY Protec cylinders and 50 panic exit devices were used to meet the stadium’s unique security requirements. 34 grOWth and prOfItaBILItY assa aBLOY annuaL repOrt 2011 Growth and profitability ASSA ABLOY creates oppor- tunities for increased growth and profitability through a strong focus on the strategy’s three areas of market pres- ence, product leadership and cost-efficiency. assa aBLOY annuaL repOrt 2011 grOWth and prOfItaBILItY 35 Growth and profitability Successful expansion Today ASSA ABLOY is the global leader in intelligent door opening solutions following 17 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 opening solutions. » Successful expansion through organic growth and acquisitions « growth from sek 3 billion to sek 42 billion in 17 years Since ASSA ABLOY’s formation, Group sales have risen from SEK 3 billion to SEK 42 billion. Today the Group has around 41,000 employees, compared with 4,700 employees in 1994. Operating income (EBIT) excluding items affecting comparability has increased from SEK 156 M in 1994 to SEK 6,624 M in 2011, an increase of over 4,100 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 60 countries and sales worldwide. ASSA ABLOY is focusing on enhancing its presence on emerging markets in Asia, eastern Europe, the Middle East, Africa and South America. Sales on these markets account for 25 percent of total Group sales, while China accounts for over 9 percent of total sales. Today more than one in ten lock purchasers worldwide choose an ASSA ABLOY lock, and the Group continues to grow. Demand for safety and security is constantly increas- ing in the world, and the Group has never had a wider prod- uct range, higher market penetration and so many innova- tive new products. At the start in 1994, the product range largely consisted of mechanical security products such as traditional locks and handles for entrance doors, with market penetration mainly in northern and central Europe. Over the past 17 years, market penetration has become global as a result of acquisitions and organic growth. The product offering has gradually widened from traditional lock products to include security doors, entrance automation and secure identity solutions. Launches of innovative new products continued in 2011, particularly in the fast-growing product segments of electromechanical locks, entrance automation, access control and identification technology. Today the original product areas account for 38 percent of Group sales, due to the widening of the product offering and to the much higher growth rate in the new electromechanical product segments. New technology areas and innovative products are the most important driver for 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 over 1,200 development engineers. ASSA ABLOY has come a long way in 17 years. However, the Group has high targets and expectations for its future development. The demand for secure and safe security solu- tions is constantly increasing and will offer the Group major opportunities. SALES AND OPERATING INCOME (EBIT)  Sales Operating income (EBIT) EBIT, SEK M Sales Operating income (EBIT) 7,500 6,000 4,500 3,000 1,500 0 ¹ 1996–2003 have not been adjusted for IFRS. ² Excluding items affecting comparability. ³ Reclassification has been made. 05 062 07 082,3 092,3 10 112 05 08 11 09 06 10 07 0 961 971 981 991 001 011 021 031 04 96 00 04 02 03 98 01 99 97 4,100 % Operating income (EBIT) has increased by over 4,100 percent in 17 years. Sales, SEK M 50,000 40,000 30,000 20,000 10,000 36 grOWth and prOfItaBILItY assa aBLOY annuaL repOrt 2011 Strategy Market presence Product leadership Cost- efficiency Exploiting the strength of the brand portfolio. Increasing growth in the core business. Expanding into new markets and segments. 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. Common product platforms and fewer components result in cost-efficiency. Production combines flexible final assembly close to the custo- mer with the transfer of high- volume standard production to low-cost countries. Implementation of Lean met- hods continues. Seamless Flow streamlines administration. Targets Growth and profitability 10 percent annual growth through a combination of organic and acquired growth. An operating margin of 16 to 17 percent. The financial targets are long-term and should be regarded as an average over an economic cycle. SALES AND OPERATING INCOME (EBIT) ASSA ABLOY’S DEvELOPMENT AND ACQUISITIONS 2007–2011 2008 – Wireless technology launched The new Aperio wireless technology is launched, making 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 Acquisition of the Ditec Group, a leading company in automatic doors, industrial doors, high-performance doors and gate automation. Other acquisitions: Portsystem 2000 (Sweden), Maiman (USA) and Cerracol (Colombia). 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). 2010 – acquisitions strengthen customer offering in asia Acquisition of Pan Pan, China’s largest manufacturer of high- security steel doors, king Door Closers, South korea’s leading manufacturer of door closers, Paddock, the Uk’s leading manufacturer of multi-point locks, ActivIdentity, a leader in secure identity solutions (USA), Security Metal Products (USA) and LaserCard (USA). Other acquisitions: Interest in Agta Record (Switzerland). 2011 – global leader in entrance automation Acquisition of Crawford and FlexiForce, which strengthen the customer offering in industrial doors, docking solutions and garage doors. An agreement was signed to acquire Albany Door Systems, a global leader in automatic high-performance doors. Other acquisitions: Swesafe (Sweden), Portafeu (France), Metalind (Croatia), Electronic Security Devices (USA), and Angel Metal (South korea). In addition to the acquisitions listed here, ASSA ABLOY has acquired a number of smaller companies. assa aBLOY annuaL repOrt 2011 grOWth and prOfItaBILItY 37 ASSA ABLOY’s ASSA ABLOY is divided into three regional and two global divisions. The regional divisions manu- facture and sell mechanical and electromechanical locks, cylinders and security doors adapted to divisions divisions Americas page 42 shAre of group EMEA page 40 Asia Pacific page 44 sales operating income (eBit) sales operating income (eBit) sales operating income (eBit) 21 % 26 % 30 % 31 % 15 % 13 % Americas division manufactures and sells mechanical and electromechanical locks, cylinders, security doors and door frames in North and South America. EMEA division manufactures and sells mechani- cal, electromechanical and electronic locks, cylinders, security doors and fittings in Europe, the Middle East and Africa. Asia Pacific division manufactures and sells mechanical and electromechanical locks, cylinders, high-security doors and hardware in China, Asia, Australia and New Zealand. division Global Technologies page 46 shAre of group sales operating income (eBit) 14 % 13 % division Entrance Systems page 50 shAre of group sales operating income (eBit) 20 % 17 % Global Technologies is a global leader in elec- tronic security solutions. The division consists of two business units: HID Global which is a global leader in secure identification and access control solutions, and ASSA ABLOY Hospitality which is a global leader in electronic lock sys- tems and safes for hotels and cruise ships. Entrance Systems division is a global leader in entrance automation products, components and service. The product range includes auto- matic swing, sliding and revolving doors, air curtains, gate automation, garage doors, indus- trial doors, docking solutions and hangar doors. The acquisition of Albany Door Systems greatly strengthens the position within high-perfor- mance doors. 38 the divisions AssA ABLoY AnnuAL report 2011 ASSA ABLOY’s divisions the local market’s standards and security requirements. The global divisions manufacture and sell electronic access control, identification products and entrance automation on the global market. Lock and locking systems Electromechanical locks Access control Mobile keys Door closers Entrance automation products and brands The products consist mainly of mechanical and electromechanical locks, cylinders, high- security doors and hardware. Some of the divisions’ largest brands are: eMeA: ABLOY, ASSA, IKON, Mul-T-Lock, TESA, UNION, Yale and Vachette. Americas: Ceco, Corbin Russwin, Curries, Emtek, Medeco, Phillips, SARGENT and La Fonte. Asia pacific: Baodean, Gateman, Guli, King, Pan Pan, Shenfei, Tianming, Wangli, Yale, Lockwood and Interlock. products and brands HID Global is a global leader in secure iden- tity solutions, primarily in identity and access manage ment, and in contactless identification solutions under the HID brand. ASSA ABLOY Hospitality is a global leader in electronic lock systems and safes for hotels and cruise ships under the VingCard Elsafe brand. products and brands The product range includes automatic swing, sliding and revolving doors, air curtains, gate automation, garage doors, industrial doors, docking solutions and hangar doors. The acqui- sition of Albany Door Systems greatly strength- ens the position within high-performance doors. The products are sold under the global lead- ing brands of Besam, Crawford, Megadoor, Albany, FlexiForce, Normstahl, Henderson, Ditec and EM. AssA ABLoY AnnuAL report 2011 the divisions 39 EMEA Product launches and aggressive marketing initiatives consolidated market leadership The European market was weak during the year and sales were largely unchanged on the previous year. However, EMEA consolidated its market-leading position through innovative product launches and powerful marketing initiatives. New products included the wireless networked Aperio cylinder and a brand new Pan-European door closer program. The year saw the acquisition of Swesafe (Sweden), Portafeu (France), Metalind (Croatia) and a number of small distributors in Europe, Latin America and Africa. The division’s profitability remained very strong due to the restructuring and streamlining measures implemented. eMeA in brief The EMEA division manufactures and sells mechanical, electromechanical and electronic locks, cylinders, security doors and fittings in Europe, the Middle East and Africa. EMEA consists of a number of Group companies, which have a good knowledge of their local, often diversified, markets and sell products under some of the industry’s most respected brands, such as ABLOY, ASSA, IKON, Mul-T-Lock, TESA, UNION, Yale and Vachette. report on the year The division’s sales for the year totaled SEK 13,030 M (13,036) with an organic growth of 0 percent. Operating income (EBIT) excluding restructuring costs was SEK 2,203 M (2,174), representing an operating margin of 16.9 percent (16.7). Demand in European markets was weak during the year and strongly impacted by the fiscal problems in many countries and the subsequent budgetary constrains. Sales remained unchanged or slightly positive in the majority of northern and central European markets. Eastern Europe experienced strong sales growth and car lock sales also showed good growth. The southern European markets, par- ticularly Italy and Spain, experienced negative development. Exports from the southern European companies to North Africa were also negatively impacted by the political unrest in the region. Operating income remained strong due to the restructuring and streamlining measures implemented over the past few years. The year saw the acquisition of Swesafe (Sweden), Portafeu (France), Metalind (Croatia) and a number of small distributors in Europe, Latin America and Africa. Market presence The EMEA division operates in a strongly diversified mar- ket with major local differences regarding building regula- tions, security standards and climate. Consequently there is a major difference between the products in demand and sold in each local market. ASSA ABLOY’s regional companies have a good knowledge of local lock standards and long- term relationships with their distributors, making demand stable. In addition, the aftermarket accounts for a significant proportion of sales, since the installed lock base consists of many millions of units that are continually replaced and upgraded. The division’s sales organizations are coordinated under the ASSA ABLOY master brand, and the consolidation of brands and the product offering made considerable progress during the year. Consequently a more complete product program can be offered more simply to more customers, consider- ably strengthening market presence. One example is the important door closer product range, which was launched during the year in all European markets, reducing the num- ber of brands from over 20 to just one brand, ASSA ABLOY. The door closer launch provides all markets with a wider, standardized range of modern door closers and joint central distribution. At the same time the number of product ver- sions and inventories are considerably reduced. This is a pio- neering project that has led to an enhanced customer offer- ing, increased sales and lower costs. Further, segmentation of the sales force between dif- ferent customer groups as well as various types of partner- ship with distributors are key success factors. This results in increasing knowledge of both the customer and the product offering. In central European markets, partnership with the distributors that sell the electromechanical CLIQ cylinder has led to a 25 percent increase in sales per distributor since the program began five years ago. The focus on the specification of total door opening solu- tions continued during the year and the division now has 350 employed specification sales representatives to further strengthen collaboration with architects and security con- sultants. Implemented project specifications rose by more than 5 percent in both number and value. A general trend is also for a constantly increasing value per door in these projects. Accelerated establishment in emerging markets in EMEA is increasingly important for continued growth. This takes place both organically and through acquisitions. The latest acquisition was the Croatian company Metalind, which in addition to the Croatian market has market penetration in the neighboring Balkan countries. product leadership Efficient product development with a clear customer focus is the most important activity for creating organic growth. The use of Group-wide product platforms with fewer com- ponents is constantly increasing, contributing to enhanced customer value and lower costs. Substantially increased investment in R&D in recent years has resulted in the launch of many new electromechanical products that are both 40 eMeA division AssA ABLoY AnnuAL report 2011 » Aggressive marketing initiatives to develop and lead the European lock market « secure and easy to use. These new products include the new wireless networked Aperio cylinder. Aperio is an electromechanical cylinder that can be con- nected wirelessly to a network. The product is also designed so that it can easily be integrated with other access control and security systems. Consequently doors fitted with Ape- rio cylinders can be flexibly connected to, for example, the whole security system of a hospital, an airport, a large office or equivalent without needing to run cables to each door, making the building more secure at a lower cost. During the year the launch of digital door locks under the Yale brand and new versions of the innovative electro- mechanical Cliq Remote cylinder also continued on several EMEA markets. These digital door locks mainly target the residential market and have been very well received. Cliq Remote chiefly targets commercial customers with many remote installations, such as telecoms companies with a large number of base stations. The Group’s new product development process focuses on increased customer value, while improving cost-effi- ciency and maintaining higher quality. The products have been well received by customers and have strengthened ASSA ABLOY’s market-leading position in total security solutions. Cost-efficiency In 2011 the Group launched a new efficiency program for the production structure and one-third of this new program consists of projects in EMEA. As in previous programs, the aim is to improve production efficiency and transfer compo- nent production to low-cost countries, while the remaining production plants in western Europe focus on final assem- bly and product customization. When the program is fully implemented there will be fewer than 30 production and assembly plants in EMEA, of which only a handful will be full production plants, compared with over 60 plants five years ago, of which nearly all were full production plants. This change has resulted in a radical improvement in the divi- sion’s level of costs. Further positive effects are that struc- tural changes always lead to a review and rationalization of the product programs, improved logistics solutions, a review of the supplier base and improved quality. The changes in the production structure, which mainly affect the direct production resources, result in an adjust- ment of the indirect production resources and the number of employees has declined by 33 percent in recent years. In the purchasing area, the share of purchases in low-cost countries has risen to 37 percent, and the short-term target is 40 percent. In addition, purchases are coordinated in the division’s major categories to better exploit economies of scale. Implementation of the common ERP system has begun and the whole division will be converted by the end of 2014. This common system is the foundation for streamlining the Group’s administrative flows referred to as Seamless Flow. Streamlining the administrative flows enables the imple- mentation of electronic order and order management sys- tems for distributors and other customers, shorter lead times, higher quality with the elimination of sources of error, better internal efficiency and an increased service level for customers and distributors. KEY FIGURES seK M 2010 2011 13,036 2 2,174 16.7 income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 1 Excluding items affecting comparability of SEK 587 M in 2011. 2 Excluding restructuring payments. 8,759 5,471 21.6 2,607 9,471 13,030 0 2,203 16.9 8,950 5,564 22.0 2,142 10,071 SALES AND OPERATING INCOME SEK M 14,000 12,000 10,000 8,000 6,000 07 08 09 10 11 SEK M 2,800 2,400 2,000 1,600 1,200  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting comparability in 2008, 2009 and 2011. CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 12,000 10,000 8,000 6,000 4,000 07 08 09 10 11 % 30 25 20 15 10  Capital employed Return on capital employed1 ¹ Excluding items affecting comparability in 2008, 2009 and 2011. SALES BY PRODUCT GROUP Mechanical locks, lock systems and fittings, 62% Electromechanical and electronic locks, 24% Security doors and hardware, 14% MARKET SEGMENTS Commercial segment, 55% Residential segment, 45% AssA ABLoY AnnuAL report 2011 eMeA division 41 Americas Increased market presence and innovation in challenging market conditions Sales increased somewhat in the first half of the year driven by gradual increasing demand in South America and the renovation market. The low level of new construction projects, particularly in North America, resulted in stable sales for the full year. Marketing initiatives continued in the market and included the Mobile Innovation Showrooms and product development. Many new electromechanical products and total opening solutions were launched during the year. Marketing initiatives, the launch of innovative new products and efficiency measures enabled the division to maintain a strong operating income. The year saw the acquisition of the US company Electronic Security Devices. Americas in brief The Americas division manufactures and sells mechanical and electromechanical locks, cylinders, security doors and door frames in North and South America. 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 distributors. The two largest end-user segments are the institutional and commercial seg- ments while the residential segment accounts for only a minor part of sales. Sales in South America and Mexico take place mainly through distributors, wholesalers and DIY stores and are more evenly distributed between the residential and commercial segments in these markets. 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 for the year totaled SEK 8,906 M (9,536) with an organic growth of 2 percent. Operating income (EBIT) amounted to SEK 1,812 M (1,886), representing an operating margin of 20.3 percent (19.8). New construction in the commercial and institutional segments in the USA and Canada has declined substantially in the past few years as a result of the economic slowdown. However, renovations and upgrades have shown more sta- ble development. The division’s sales trend was positive at the beginning of the year due to some recovery in the com- mercial segment, but slowed towards the end of the year. This mainly affected the principal product areas of mechani- cal lock products and security doors, while sales of electro- mechanical products and high-security products experi- enced strong demand throughout the year. Activity in the residential market in the USA and Canada was good during the year due to a number of new product launches. The Latin American markets, apart from Brazil, showed strong growth during the year. The standard of living is con- stantly rising in these countries, impacting demand posi- tively. In Brazil, however, demand was negatively impacted by the slowing economy, high interest rates and the general downturn particularly in the new construction segment. The year saw the acquisition of the US company Elec- tronic Security Devices. Market presence In the North American market there is a clear distinction between products for the residential segment and products for the non-residential segment. The distribution channels are also completely separate. Safety and security require- ments are higher in the non-residential segment than in the residential segment, particularly regarding fire and evacu- ation safety. The division has therefore had a segmented marketing and sales force for a number of years to meet each customer group’s specific requirements, combined with experts in a number of areas such as electronic access control. A number of initiatives were implemented during the year focusing on customer demand for total door opening solutions in electromechanical products, security doors and aesthetic door opening solutions. Growth in these areas in which dedicated sales forces worked closely with customers was strong during the year. The focus on the various mobile events (Mobile Innova- tion Showrooms) continued during the year with a sizable increase in attendance versus the previous year. The Mobile Innovation Showroom allows customers to view and learn more about the latest door opening solutions at local ven- ues. Sponsorship of architectural exhibitions was also suc- cessful and led to more than 150 new enquiries relating to major specification projects. The division’s specification consultants also work closely with architects and security consultants early in the construction process to ensure compliance with build- ing standards and customer requirements. Such activities strengthen relations with architects and increase the likeli- hood of orders when the project is procured. The market for some of the major commercial and institutional segments, such as school construction, has declined by between 25 percent and 40 percent over the past two years, while the division’s specification sales to the same customer group have risen 3 percent during the same period. product leadership Product development continued at a high rate during the year in both the electromechanical and mechanical areas. Sales of products launched in the past three years exceeded 20 percent of sales. Aesthetic and climate-smart solutions are also increasing in importance. In addition to product development, much work was invested in the commercial- ization process, in other words, how new innovations are efficiently brought to market. Key launches of door and hardware opening solutions in the commercial and institutional segments during the 42 AMeriCAs division AssA ABLoY AnnuAL report 2011 » Increased focus on market presence, innovation and cost control in challenging market conditions « year included the SafeZone intelligent door holder/closer and products based on the Group’s Aperio technology. The SafeZone intelligent door holder/closer holds the door open while someone is in the doorway. This is an important func- tion for people with limited mobility who otherwise risk being knocked over by a closing door. Aperio is a technology for wireless networked electronic cylinders. These products were awarded several prestigious prizes for design and func- tion by the design and architecture world. Launches in the residential segment included the Yale Real Living product range, which is designed to integrate with the networked lock and security systems that are increasingly common in the home. Four of the Group’s door companies, Ceco, CURRIES, Graham and Maiman, were certified by the GREENGUARD Environmental Institute during the year. GREENGUARD cer- tifies products that enhance indoor air quality. ASSA ABLOY was also the first door manufacturer in North America to achieve certification of its Trio-E hinged door to the Ameri- can UL Environment (Underwriters Laboratories) standard, UL IRS 102. Cost-efficiency Operational excellence is focusing on increased administra- tive efficiency, efficient production, Lean-methods and coor- dinated purchasing for the production units. The year saw the implementation of 350 Lean-projects throughout the division. Lean-methods are now not only used in the pro- duction process but are being rolled out to all areas. In 2011 nearly one-third of the projects concerned office adminis- tration and this proportion is constantly rising. The implementation of Seamless Flow activities to streamline order management has increased the division’s cost-efficiency and e-commerce is fundamental in this pro- cess. Fully automated e-commerce now exceeds 15 percent of the division’s sales. However, a major part of sales is best suited to semi-automated e-commerce. This applies partic- ularly to large complicated project deliveries in which many products are specially configured. In other areas, such as sales to wholesalers, fully automated e-commerce is more suitable and the share of e-commerce has risen from 10 per- cent to 50 percent in just a few years. This has taken place through a careful analysis of the sales process and utiliza- tion of the existing tools already in place without the need for any major capital expenditure. Apart from continuing to drive e-commerce in sales, it is now also being extended to purchasing operations. Work is in progress in the IT area to implement a com- mon ERP system. Currently 20 percent of the division is covered by this common system, which will be fully imple- mented by 2015. KEY FIGURES seK M 2010 2011 9,536 –2 1,886 19.8 income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 1 Excluding items affecting comparability of SEK 150 M in 2011. 2 Excluding restructuring payments. 8,163 6,039 21.3 2,013 6,969 8,906 2 1,812 20.3 8,468 6,041 22.8 1,731 6,658 SALES AND OPERATING INCOME SEK M 12,000 10,000 8,000 6,000 4,000 SEK M 2,400  Sales1 Operating income2 2,000 1,600 1,200 800 07 08 09 10 11 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting compa- rability in 2008, 2009 and 2011. CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 10,000 8,000 6,000 4,000 07 08 09 10 11 SALES BY PRODUCT GROUP % 25 20 15 10  Capital employed Return on capital employed1 ¹ Excluding items affecting compa- rability in 2008, 2009 and 2011. Mechanical locks, lock systems and fittings, 51% Electromechanical and electronic locks, 10% Security doors and hardware, 39% MARKET SEGMENTS Commercial segment, 85% Residential segment, 15% AssA ABLoY AnnuAL report 2011 AMeriCAs division 43 Asia Pacific Strong sales growth and market leadership in Asia The division grew throughout the year driven by strong growth in China, where demand particularly for security doors was high. Growth was also strong on the markets in South Korea and South Asia. Efforts to develop the specification and project markets and to expand into new emerging markets, includ- ing India, continued intensively. The year saw the acquisition of the South Korean lock company Angel Metal. As a result of organic growth and strategic acquisitions, the Group can now offer a total range of door opening solutions on the Asian markets. Asia pacific in brief The Asia Pacific division manufactures and sells mechanical and electromechanical locks, digital door locks, high-security doors and hardware. China accounts for 50 per- cent, Australia and New Zealand for 30 percent, and the other Asian markets, domi- nated by South Korea, for 20 percent of the division’s sales. In Asia, the division’s largest brands are the Chinese brands Baodean, Guli, Pan Pan, Shenfei Liyi, Doormax, Beijing Tianming, Wangli and Longdian, the South Korean brands Gateman, Angel and King and the global brand Yale. In Australia and New Zealand, the largest brands are Lockwood and Interlock. The Australian and New Zealand markets are mature, with established lock stan- dards. The majority of sales are for renovations and upgrades. The Asian markets do not yet have such established security standards, and the majority of products are sold for new construction. In China, the same types of lock, handle and hardware are often used for both homes and offices. The production units in China also supply ASSA ABLOY’s other divisions. report on the year The division’s sales for the year totaled SEK 6,633 M (6,081), with an organic growth of 9 percent. Operating income (EBIT) was SEK 933 M (843), representing an operating mar- gin of 14.1 percent (13.9). Sales in China continued to grow strongly driven by the underlying urbanization trend, economic growth and increased prosperity. Growth was particularly strong in the security door segment. Towards the end of the year the growth rate slowed caused mainly by the credit restrictions imposed by the Chinese government to avoid overheat- ing in the economy. This had an impact on demand mainly in the residential segment in the coastal regions. However, demand remained strong from institutional customers in healthcare and infrastructure. Many property developers in the coastal regions chose to change direction from hous- ing to commercial projects, which to some extent offset the sales decline in the residential segment. The ongoing pro- grams for publicly subsidized housing projects in the inland regions also had a positive impact on demand and led to a strong increase in Group sales. The South Korean business units experienced strong sales growth during the year. Export sales by the Group com- panies iRevo and King grew very strongly, while the domestic market developed more weakly particularly towards the end of the year. iRevo is the market leader in digital door locks in South Korea and has also successfully established itself in China, Australia, Singapore, the UK and the USA in collabora- tion with Group companies in these markets. Expansion is set to continue in the coming years. Growth was very strong in the rest of Asia. On the Indian and Indonesian markets, which have considerable growth potential, sales increased sharply from a small base. The divi- sion continued its initiatives to develop the sales organiza- tion with focused sales teams and an emphasis on fewer but stronger brands, which has further strengthened the divi- sion’s product offering. In Australia and New Zealand, the market position remained strong but sales growth was negative during the year. In Australia, the reduction in government stimulus packages resulted in reduced demand. In New Zealand, demand slowed due to the strong earthquake in the South Island. The acquisition of the lock company Angel Metal in the second half of the year further strengthened the position on the South Korean market. Market presence The Group has established a very strong presence on the Chinese and South Korean markets through a combination of acquisitions and organic growth. In China, sales of secu- rity doors in particular have grown very strongly as a result of the acquisition of Pan Pan. This has led to the establishment of sales channels in new regions in China where growth is expected to be high in the future. In South Korea, acquisi- tions in recent years have also led to a strong and leading market position. The Group can now offer a wide prod- uct range and total door opening solutions on both these markets. The Group is now establishing itself in a similar way on the markets in South-east and South Asia through a combi- nation of acquisitions and organic growth. Specification of total door opening solutions is very important for sales growth on all markets. The number of specification sales representatives continues to increase and the strategic collaboration with architects and security con- sultants is being strengthened. The local sales organizations are united under the ASSA ABLOY master brand to better meet the demand for total door opening and security solutions. 44 AsiA pACifiC division AssA ABLoY AnnuAL report 2011 » Sales in China continued to grow strongly driven by the underlying urbanization trend, economic growth and increased prosperity « KEY FIGURES seK M 2010 2011 6,081 14 843 13.9 income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 1 Excluding items affecting comparability of SEK 48 M in 2011. 2 Excluding restructuring payments. 4,080 3,202 25.1 917 15,510 6,633 9 933 14.1 4,278 3,410 23.6 912 15,784 product leadership Innovation, continued product development and a widen- ing of existing product ranges are important factors for the division enhancing an already attractive product range and increasing sales. The year saw the launch of a number of new mechanical lock products for doors and windows in Austra- lia and New Zealand. The South Korean company King Door Closers launched an innovative new recessed door closer, while the Chinese company Shenfei launched a range of CE marked door clos- ers for the European market. The Chinese companies Pan Pan and Wangli launched a brand new, simpler door range, which has met with great success in the new social housing construction project. Electromechanical security products are increasing in importance. iRevo successfully launched a number of inno- vative new types of digital door lock during the year, includ- ing a new DIN-compliant lock. Cost-efficiency Most production now takes place in Chinese production units, and continuous efforts are in progress to increase their efficiency. Important areas are projects for semi-auto- mated processes, the implementation of Lean methods and supply management. The production units in Australia and New Zealand focus on customized solutions and final assembly. A large propor- tion of the components and standard products for these markets are manufactured in the division’s Chinese plants. SALES AND OPERATING INCOME SEK M 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 07 08 09 10 11 SEK M 1,000  Sales1 900 800 700 600 500 400 300 Operating income2 ¹ Reclassification has been made for 2008 and 2009. ² Excluding items affecting compa- rability in 2008, 2009 and 2011. Sysselsatt kapital/avkastning på sysselsatt kapital CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 4,500 3,750 3,000 2,250 1,500 750 0 07 08 09 10 11 SALES BY PRODUCT GROUP % 30 25 20 15 10 5 0  Capital employed Return on capital employed1 ¹ Excluding items affecting compa- rability in 2008, 2009 and 2011. Mechanical locks, lock systems and fittings, 46% Electromechanical and electronic locks, 8% Security doors and hardware, 46% MARKET SEGMENTS Commercial segment, 60% Residential segment, 40% AssA ABLoY AnnuAL report 2011 AsiA pACifiC division 45 Global Technologies Strong growth and innovative product launches in HID Global and ASSA ABLOY Hospitality Demand for upgrading and complementing existing systems was strong in all markets, while the market for new installations remained weak. Sales for the year showed strong growth due to a number of inno- vative product launches. HID Global launched new products and services in logical and physical access and in contactless identification, which were well received by the market. The year saw the acquisition of the US company LaserCard. New product launches by ASSA ABLOY Hospitality, particularly in RFID locks, further strengthened the market position. global technologies in brief Global Technologies has a leading position as a supplier of electronic security solutions worldwide. The division consists of two business units, HID Global and ASSA ABLOY Hospitality, with sales mainly to the commercial segment. HID Global is a global leader in secure identity solutions, primarily in identity and access management, and in contactless identification technology solutions under the HID brand. ASSA ABLOY Hospitality is a global leader in electronic lock systems and safes for hotels and cruise ships under the VingCard Elsafe brand. report on the year The division’s sales for the year totaled SEK 5,756 (5,015), with an organic growth of 11 percent. Operating income (EBIT) excluding restructuring costs amounted to SEK 897 M (862), representing an operating margin of 15.6 percent (17.2). hid global in brief HID Global is a global leader in secure identity solutions for physical and logical access control, identity assurance, Physical access control Identification technologies Secure issuance Secure Identity Solutions Mobile access Identity assurance Managed services Government ID secure card issuance and a variety of technology solutions for contactless identification applications. Identity and access management product lines include contactless smart cards, fixed and mobile readers access controllers, identity tokens, and card management systems. The product range also includes card printing and encoding hardware and soft- ware and specialized government ID solutions for identity cards and electronic passports. hid global – main events in 2011 Demand for HID Global’s products was strong during the year. New products and active marketing efforts resulted in considerable interest in secure identity solutions in all mar- kets. The traditional product areas in identity and access management showed stable, strong demand. Product development and marketing in the product area of government ID programs, driving licenses and the like led to a number of major project orders. The acquisition and the integration of ActivIdentity (acquired in December 2010) and LaserCard (acquired in January 2011) into HID Global’s existing operations have provided the unit with a comprehensive set of competen- hid global’s product areas HID Global works with common technology platforms for developing secure identity solutions. Below are some examples of HID Global’s product offering in this area of the security market. physical access control, contactless cards, readers and access controllers secure issuance card printers, encoders and software identity assurance, strong authentication and credential management government id, highly secure media, ePassports, ID cards and readers Managed services, custom card services and remote issuance of identity data Mobile access, digital keys and reader technology for NFC enabled mobile phones identification technologies, technology solutions for contactless identification applications 46 gLoBAL teChnoLogies division AssA ABLoY AnnuAL report 2011 KEY FIGURES seK M 2010 2011 5,015 10 862 17.2 income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 1 Excluding items affecting comparability of SEK 87 M in 2011. 2 Excluding restructuring payments. 5,772 4,265 14.7 868 2,487 5,756 11 897 15.6 6,449 4,846 14.3 933 2,819 SALES AND OPERATING INCOME SEK M 6,000 5,000 4,000 3,000 2,000 07 08 09 10 11 SEK M 1,000  Sales1 Operating income2 800 600 400 200 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting compa- rability in 2008, 2009 and 2011. CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 6,500 5,500 4,500 3,500 2,500 07 08 09 10 11 SALES BY PRODUCT GROUP % 20 15 10 5 0  Capital employed Return on capital employed1 ¹ Excluding items affecting compa- rability in 2008, 2009 and 2011. Access control, 52% Identification technology, 27% Hotel locks, 21% MARKET SEGMENTS Commercial segment, 100% Residential segment, 0% » Global leader in secure identity and hotel security « cies in strong authentication, credential management, and highly secure media for government ID programs together with a unique technical and knowledge platform for the development of tomorrow’s Government ID services. This has resulted in the formation of two new business segments: Identity Assurance and Government ID Solutions. Identity Assurance has is focused on strong authentication and card management and systems for government, financial and commercial customers. Government ID Solutions was formed through the merger of LaserCard with the HID eGov- ernment business for national ID and passport deployments. HID Global also created two further business segments during the year: Mobile Access and Managed Services. Mobile Access offers virtual key issuance, and reader tech- nology for NFC (near field communications) enabled mobile phones. Managed Services is a service offering for custom- ized smart cards and remote issuance of secure identity data. Market presence HID Global continued its long-term investment in market presence with considerable success in products, services and solutions for the institutional and commercial mar- ket segments. Significant progress has been made in brand strategy and the focus on a customer-segmented sales force. The consolidation of HID Global’s brands has been very successful and resulted in the consolidation of 17 brands into a single brand – HID – in just five years. Some previously well-known brands have been retained as product names under the global HID brand. This reinforces global brand loyalty, while providing a complete product and integrated solutions portfolio offer to all customers. The well-established market position in the global uni- versity market was further strengthened through a pilot mobile key program (Mobile Access) at Arizona State Uni- versity in collaboration with Research in Motion and Verizon Wireless. As a result of marketing campaigns targeting govern- ment customers and a focused sales force in Government ID Solutions, HID Global has now supplied to 27 countries’ ePassport programs and 49 national programs for various types of ID cards and driving licenses. In addition, the five largest contactless ID reader manufacturers use HID Glob- al’s components for government projects in 12 countries, including the USA, Canada, France, Germany, Russia and Italy. product leadership HID Global’s product strategy involves creating an eco-sys- tem for secure identity management with solutions for all parts of the value chain. The HID’s Secure Identity Object (SIO) is a key part of this eco-system. SIO is an in-house developed data structure and encryption scheme, which can be applied to all types of SIO ready identity devices, such as smart cards, cell phones, electromechanical locks and SIM cards. The year saw the launch of the new iCLASS SE (SIO enabled) product line, a new secure identity management platform for physical access control. In 2011 the product won prizes for best product at the industry’s two largest global trade fairs. Strategic alliances were established with Sony and NXP as a part of the development strategy. A num- ber of important patents were also granted during the year. AssA ABLoY AnnuAL report 2011 gLoBAL teChnoLogies division 47 Identity Assurance launched a number of new products for US federal agencies’ PIV (Personal Identity Verification) cards. PIV is a common standard for identification of federal employees, which is under implementation in the USA. Cost-efficiency HID Global continued its efforts to reduce inventories thereby optimizing the management of working capital. Good progress was made in implementing the project across all product areas and geographical regions, and activi- ties will continue in 2012. Consolidation of inlay production and card lamination to the production unit in Malaysia was completed in 2011 and efforts to increase efficiency continued successfully in the other production plants worldwide. Major progress was made in the quality assurance area in reducing the cost of poor quality in the operations and improving the delivered quality to customers. This initiative has resulted in an improved Genuine HID “customer experi- ence” as well as lower costs for the business. HID Global also increased its activities in Value Analysis/ Value Engineering (VA/VE). The goal is to reduce product costs while increasing functionality. This has led to signifi- cant cost savings in both the existing product range and the production of new products. AssA ABLoY hospitality in brief ASSA ABLOY Hospitality manufactures and sells electronic locking systems, safes, energy management solutions and minibars for hotels and cruise ships under the VingCard Elsafe brand. VingCard Elsafe is the world’s best-known brand for hotel locking systems and in-room safes and has products installed in over 7 million hotel rooms in more than 42,000 hotels worldwide. AssA ABLoY hospitality – main events in 2011 ASSA ABLOY Hospitality experienced strong full-year growth driven by continued increased demand for renovation and upgrade projects. However, the market for new hotel and cruise ship construction remained at a low level. ASSA ABLOY Hospitality has worked actively to upgrade customers’ installed locks from magnetic stripe card lock- ing systems to more secure, flexible and user-friendly locks using contactless radio frequency identification (RFID). Demand for the new contactless RFID hotel locks rose sharply in 2011 and more than half a million VingCard RFID locks were installed globally. RFID technology offers increased security and when combined with wireless ZigBee technology the system is constantly online. This provides a very reliable and cost-efficient security system, improving efficiency and reducing maintenance costs for hotels. The new VISIONLINE by VingCard system is integrated with the hotel’s other operating systems to add efficient new housekeeping, security, front desk and maintenance functions. The system improves customer service by enabling the front desk to cancel keys and authorize room changes, extension of stay and access to conference rooms without the guest needing to hand in their key. New inte- grated technology has been developed within the VISION- LINE system, such as mobile keys that allow guests to use their cell phone as a key, loyalty cards for regular guests that enable guests to avoid check-in and go straight to their hotel room. VingCard Elsafe has also established itself as an important supplier of energy management solutions for the hotel mar- ket through its Orion range launched in 2010. Using sensors to detect guest presence in the room together with informa- tion from the door lock when the guest enters and leaves the room, Orion can determine guest presence in the room to optimize air conditioning energy usage while ensuring guest comfort. This results in cost savings for the hotel and a more eco-friendly use of hotel rooms. 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 progress 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 technolo- gies such as RFID, NFC in cell phones and ZigBee RF online solutions, which are designed to facilitate gradual upgrade of existing technology to better satisfy customer needs and investment plans. Hospitality succeeded in achieving strong growth during the year by offering value-creating customer solutions. One example of this was the development of a loyalty card con- cept, which enables a number of major global hotel chains to offer their regular guests a RFID loyalty card that can be used as a room key. The booking confirmation and room number are sent to the hotel guest by SMS or email before arrival. The guest can then bypass check-in at the front desk and go straight to their hotel room and enter using their loy- alty card. The many types of RFID readers have been combined into a common electronic platform to reduce cost and streamline production. This new platform, which is suitable for both old and new locks, has moreover provided consid- erably better performance, such as increased reading range, higher reading speed and better reliability. 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. ASSA ABLOY Hospitality has successfully transferred all production and purchasing from high-cost to low-cost countries, primarily China. It is now investing considerable effort in streamlining production and product development in the new production plant in Shanghai, China. As a result, it has succeeded in further improving efficiency in the value chain, while improving product quality and delivery reliabil- ity for customers worldwide. Hospitality continued to implement the global ERP sys- tem, which is scheduled to be fully installed by 2012. This system will improve the efficiency of administrative and global purchasing functions and develop the web-based ordering portal used by business partners network. 48 gLoBAL teChnoLogies division AssA ABLoY AnnuAL report 2011 Customer: Challenge: Solution: Arizona State puts mobile keys to the test Arizona State University (ASU) is committed to the use and management of advanced technology, including solutions that optimize security and convenience for students, faculty and staff. ASU first adopted iCLASS® technology for its campus ID cards in 2004 as part of a major safety and security initiative. In 2011, ASU wanted to evaluate the benefits of moving its student housing keys onto NFC smartphones. In the first university pilot of NFC smartphones carrying digital keys for access control, HID Global deployed iCLASS SE readers and HES electric strikes on secured doors to ASU’s main residence hall. Students and staff participating in the pilot were given NFC smartphones carrying iCLASS SE® technology. To open door locks, pilot participants presented the smartphones to a door reader, which opened once their identity was authenticated. AssA ABLoY AnnuAL report 2011 49 Entrance Systems Acquisitions consolidate Entrance Systems’ leading position in entrance automation New sales of automatic doors showed good growth throughout the year, while service sales continued to grow strongly. Demand increased in the retail, logistics and manufacturing segments, but was more restrained in the healthcare segment. Newly acquired Crawford and FlexiForce saw positive growth in industrial door sales. An agreement to acquire Albany Door Systems was signed at the end of the year, which will provide a strong position in high-performance doors. Rationalization of the production structure resulted in a strong earnings trend. entrance systems in brief The Entrance Systems division is a global leader in entrance automation products, components and service. The product range includes automatic swing, sliding and revolving doors, air curtains, gate automation, garage doors, industrial doors, docking solutions and hangar doors. The acquisition of Albany Door Systems greatly strength- ens the position within high-performance doors. The products are sold through both a direct and an indirect sales channel. In the former, equipment and a comprehensive service offering are sold direct to end- customers, while in the latter products and components are sold to end-customers through distributors. The products are sold under the global leading brands of Besam, Crawford, Albany, FlexiForce, Normstahl, Henderson, Ditec and EM. report on the year The division’s sales for the year totaled SEK 8,278 M (4,072) with an organic growth of 5 percent. Operating income (EBIT) excluding restructuring costs was SEK 1,197 M (627), representing an operating margin of 14.5 percent (15.4). The market recovery began in late 2010 and continued throughout 2011 with stable, strong demand on all markets. Sales of new equipment rose as a result of both product and market initiatives. The retail, logistics and manufacturing segments grew, while growth in the healthcare sector and garage door sales was more restrained. Service sales contin- ued to be a key success factor for achieving profitability and growth. The year saw the major acquisitions of the Swedish com- pany Crawford and the Dutch company FlexiForce. Craw- ford supplies industrial doors, docking solutions and garage doors, while FlexiForce supplies components for industrial and garage doors. In October an agreement was signed to acquire the American company Albany Door Systems, which is a leader in automatic high-performance doors. The year also saw acquisitions in Canada, Australia and New Zealand. The division has established a global leading position in entrance automation through these acquisitions and has grown from SEK 3 billion to over SEK 8 billion in just a few years. It now has a strong integrated offering comprising automatic door solutions for pedestrian traffic, industrial doors, docking solutions, garage doors, gate automation and entrance solutions for industrial, commercial, institutional and private customers, with a strong service offering mainly for the industrial, commercial and institutional segments. Market presence The entrance automation market is in the process of chang- ing from a number of regional markets to a more global market. This makes new demands on global presence and global product platforms for continued growth and profit- ability. The year’s major acquisitions are part of this trend and have further strengthened the division’s market pres- ence in Europe, where Crawford and Normstahl have their main operations, as well as on emerging markets thanks to Crawford’s favorable market position in the Middle East and China. Megadoor has a strong position in North America and FlexiForce has built up a good presence on several emerg- ing markets. Market presence is also increasing on emerging markets in Africa, Latin America and Asia Pacific. Overall, the division now has sales companies in 30 countries and autho- rized distributors in 50 countries. Increased globalization leads to certain customers increasing in size and becoming fully or partly global. The division is therefore working intensively on its Key Account Management concept, in which total door systems and service are sold to selected major customers. The largest opportunities are in the retail, transport, logistics and manu- facturing segments. Entrance Systems is also working continuously to widen the customer offering by selling total automatic door open- ing solutions for pedestrian traffic and industrial doors including a comprehensive service concept. Regular preven- tive service is beneficial to customers and ongoing contact with end-customers provides increased opportunities for additional sales. The division’s service organization is striv- ing to become more efficient, further automate processes and increase the number of customer visits. product leadership The division invested heavily in product leadership in 2011. There was an increased focus on product development in the new parts of the division by setting up new prod- uct organizations and developing common platforms and modular solutions. Several Value Engineering projects were also started during the year to further increase the division’s competitiveness by increasing customer value while reduc- ing product cost. Products launched by Besam during the year included energy-saving door automation solutions such as Besam TightSeal, and security-enhancing solutions for swing doors 50 entrAnCe sYsteMs division AssA ABLoY AnnuAL report 2011 » Entrance automation acquisitions strengthen the customer offering « in stores such as Flush Bolt. The door closer offering was wid- ened and new software was launched in sliding door auto- mation to increase operational reliability. New functions were also developed for revolving doors, including laser sen- sors and air curtains for UniTurn. Crawford launched products including a new low-thresh- old pass door, new controllers, and a glazed sectional door, Crawford 242 Fully Glazed, intended for use in exhibition halls. It also launched a new loading dock, Crawford Step Autodock, which offers more flexible height adjustment when loading and unloading goods. FlexiForce launched SafeStep components for low- threshold doors, which target door manufacturers. The same technology is used in SideStep components for side doors and DoubleStep components for double doors. A new garage door with an extra smooth surface finish, Normstahl Entrematic g60 Satin, was also launched on the market. Ditec Entrematic developed a new product portfolio for remote control of door automation, new safety sensors and new functions for high-performance doors to increase speed, reliability and aesthetics. Product customization to conform to local conditions and market requirements on the Asian and North American markets continued during the year, as well as standardiza- tion work on new functional and safety standards, which strengthened competitiveness on several key markets. Cost-efficiency In December a new synergy- and restructuring program was announced. The aim of this program is mainly to streamline the production structure in the newly acquired units, and to achieve revenue and cost synergies with the division’s existing units. The program which entails the closure of a number of production plants and the transfer of production between existing plants in both high- and low-cost coun- tries. Meanwhile investments are being made in five final assembly plants in strategic locations in Europe. This is done to increase proximity to customers, generate cost-efficiency in logistics, and increase competitiveness with regard to both product cost and lead times. An efficient purchasing organization is an important part of these changes. In parallel coordination of common plat- forms for components is taking place, which is expected to result in cost savings and increased competitiveness. Central functions have also been streamlined, and syn- ergies are being generated at the local level by starting to consolidate legal entities to streamline administration. Extensive work is also in progress in IT, where the division is implementing common business systems, customer man- agement systems and e-commerce solutions. Measures to increase productivity are also in constant progress in the service organization, and the division began implementing PDAs for service engineers in North America. KEY FIGURES seK M 2010 2011 4,072 –2 627 15.4 income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 1 Excluding items affecting comparability of SEK 423 M in 2011. 2 Excluding restructuring payments. 4,365 3,303 14.6 580 2,738 8,278 5 1,197 14.5 10,837 7,153 12.2 1,243 5,605 SALES AND OPERATING INCOME SEK M 8,500 7,500 6,500 5,500 4,500 3,500 2,500 07 08 09 10 11 SEK M 1,200 1,050 900 750 600 450 300  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting compa- rability in 2008, 2009 and 2011. CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 12,000 10,000 8,000 6,000 4,000 2,000 0 07 08 09 10 11 % 20 18 16 14 12 10 8  Capital employed Return on capital employed1 ¹ Excluding items affecting compa- rability in 2008, 2009 and 2011. SALES BY PRODUCT GROUP Products, 62% Service, 38% MARKET SEGMENTS Commercial segment, 93% Residential segment, 7% AssA ABLoY AnnuAL report 2011 entrAnCe sYsteMs division 51 Employees Employees generate the success ASSA ABLOY’s vision and ambition is to be an attractive company to work for. It is also increasingly important to be able to recruit and retain employees with the competence and the experience required to secure the Group’s continued success. Considerable efforts are therefore being made globally and locally to offer stimulating assignments with clear accountability, good development opportunities and a positive, engaging work situation. Common knowledge base A good knowledge of the company in which you work and an understanding of how your own efforts relate and contrib- ute to the overall goals are crucial for motivation and com- mitment. One activity to achieving this is that all employees complete the web-based interactive induction program ’Entrance to ASSA ABLOY’. This program is available in 15 lan- guages and covers the Group’s history, organization, prod- ucts, strategy and Code of Conduct. A new version of the program was launched in 2011. Global employee survey A global employee survey, first carried out in 2006, is con- ducted every 18 to 24 months to give employees a chance to express their views on their work, their workplace and the company, thereby encouraging employee participation and commitment. The survey is followed by activities in areas that show the need for change and improvement. Evaluation and comparison with the results of previ- ous surveys show the impact of the measures taken and the areas that need prioritizing in the ongoing improvement process. The fourth survey will be conducted in spring 2012. In addition to the overall results for the Group and the divisions, the results are broken down into more than 200 different units, enabling more relevant communication, tar- geted measures and the involvement of many employees. management training Every year ASSA ABLOY offers a number of senior manag- ers the opportunity to take part in one of the Group’s two development programs: ASSA ABLOY Management Training (MMT) and ASSA ABLOY “Boosting Market Leadership Pro- gram”. In 2011 57 managers took part. MMT, which is an internal program, provides participants with an increased knowledge of all areas of ASSA ABLOY’s operations, develops their internal network and helps to share best practices and identify new business opportuni- ties. This is of particular importance for ASSA ABLOY in view of its continuing acquisition of new companies, and it is therefore also a tool for successful integration. Since MMT was launched in 1996, 420 managers from 34 countries (including the 2012 program) have taken part. The program comprises three modules over a calendar year and takes place in different global locations where ASSA ABLOY has extensive operations. ASSA ABLOY paves the way for women Agnès Richter, Product Group Manager, ASSA ABLOY France, was one of 20 participants in a June 2011 workshop in Stockholm on the topic of increasing the number of women in senior management positions. ASSA ABLOY strives to promote more women in the Group. The overall goal is to have women in 30 percent of management positions by 2020. ASSA ABLOY’s HR Director Krister Eriksson believes a better balance between men and women at all levels in the organization will contribute to making ASSA ABLOY an even stronger company, both in terms of performance and as an attractive employer. “It will broaden our perspective on various issues, which will help us make better decisions,” Krister says. “Gender diversity should be part of the Group’s DNA.” Studies show that companies with women in senior management positions perform better. ASSA ABLOY’s traditional business and technology has historically attracted mostly men, so it’s certainly a challenge to attract and retain women in the Group. To ensure that ASSA ABLOY reaches the goal of 30 percent women in manage- ment positions by 2020, the divisions will increase the effort to achieve a better bal- ance of managerial positions and there will be a systematic follow up of the progress. The ambition is also to increase the proportion of female participants in leadership programs such as IMD, the international business school ASSA ABLOY cooperates with. “Primarily, we want to promote the women already working for the company,” says Krister. “I think perhaps women need an extra push and support to apply for jobs internally.” It’s a matter of changing the company culture. And we can do it. 52 EmployEEs AssA ABloy AnnuAl rEport 2011 » ASSA ABLOY’s vision is to be an attractive company to work for « The ASSA ABLOY “Boosting Market Leadership Program” was launched in 2011. This is a new tailor-made program developed in collaboration with IMD in Lausanne, Switzer- land, and a continuation of the collaboration that began in 2005 with the ASSA ABLOY Business Leadership Program. The program’s main aim is to support the implementation of ASSA ABLOY’s strategy. In 2012 about 60 senior managers are expected to take part. scholarship program ASSA ABLOY’s Scholarship Program offers employees the opportunity to work for a short period at another Group company in order to share knowledge and experience and learn about other cultures and working practices. This pro- gram is open to all employees. Employee development ASSA ABLOY has a well-established global employee devel- opment process at all levels, the Talent Management Pro- cess. The aim is to support career development in a struc- tured way, to optimize utilization of the Group’s total resources, and to ensure that the necessary competence is available to meet future requirements. 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. All job vacancies are advertised on the Group’s global intranet to encourage and facilitate internal mobility. Gender equality ASSA ABLOY’s ambition is to achieve a better gender balance at all levels in the organization. A separate gender equality policy has been developed to underline this ambition. In order to further drive this agenda a workshop was arranged in Stockholm in June 2011, with participants from all divisions and the Executive Team, to discuss measures and targets. The participants agreed on a target of a total of 30 percent women at levels 2 to 5 in the Group by 2020. It was also decided to increase the focus on this issue in con- nection with the Talent Management Process. Other mea- sures include prioritizing the underrepresented gender in the recruitment process provided they have equal qualifica- tions and aiming for at least one person from the underrep- resented gender among the final candidates. AVERAGE NUMBER OF EMPLOYEES Number 50,000 40,000 30,000 20,000 10,000 0 07 08 09 10 11 NUMBER OF EMPLOYEES BY REGION GENDER DISTRIBUTION Europe, 14,474 North America, 7,423 Central and South America, 911 Africa, 479 Asia, 16,703 Pacific, 1,080 Men, 65% Women, 35% Female managers at different levels in the organization level 2007 2008 2009 2010 2011 percentage of females 2 – reports to CEO 3 – reports to level 2 4 – reports to level 3 5 – reports to level 4 level 2–5 All employees 0 14 19 22 – 39 0 11 17 23 – 40 0 15 18 20 – 39 0 16 18 24 – 37 0 15 19 26 24 35 ASSA ABLOY AB head office is not included. The decrease is due to the acquisitions of Pan Pan and Crawford. AssA ABloy AnnuAl rEport 2011 EmployEEs 53 Sustainable development Climate-smart products increasingly important Sustainability initiatives are based on a knowledge of the environmental impact of operations, the increasing demand for green products and the intention to be a responsible and attractive company. ASSA ABLOY’s sustainability initiatives are integrated throughout the value chain – from sourcing to recycling. The overall sustainability program is based on the Group’s Code of Conduct and an ongoing risk analysis and involves both internal and external stakeholders. Ongoing improvements in manufacturing processes and new products actively help customers to reduce their energy consumption and environmental impact. Climate-smart products account for an ever-increasing share of sales and include the eco-certified Trio-E hinged door, an electronic lock cylin- der with halved energy consumption, and the Orion energy management system from VingCard Elsafe. Sustainability Report 2011 The global leader in door opening solutions The 2011 Sustainability Report will be published in connection with the 2012 Annual General Meeting. 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 22 languages. ASSA ABLOY monitors the imple- mentation of the Code of Conduct and deals immediately with any non-compliance. 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 employ- ees to report infringements. Suppliers are informed of ASSA ABLOY’s Code of Conduct and undertake in writing to comply with it in their collabora- tion with the Group. Group continued work on the sustainability program with increased targets for Group companies, and the number of Group companies integrated into the sustainability program and reporting to the Group increased by 25 percent. During the year ASSA ABLOY increased the accuracy and the level of detail in internal reporting to increase control and ensure continuous progress in the Group. New targets for 2015 have been drawn up for all divisions in the Group. These include chemical handling, energy effi- ciency, health and safety, supplier relations, product devel- opment, employee issues and overall control. The program has made it possible to introduce procedures for quality and environmental management and to establish a structure for ongoing improvements in day-to-day operations, providing a stable basis for a sustainable future for the Group. 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. Appointed coordinators at divisional and Group com- pany level are responsible for the availability and implemen- tation of sustainability and environmental guidelines, pro- grams and tools. HR functions at Group and divisional level monitor social and ethical issues. The divisions and their companies are responsible for compliance with the Group’s Code of Conduct and for reporting back to Head Office. A committee led by ASSA ABLOY’s HR director monitors compliance with the Code of Conduct and includes two employee representatives. Matters dealt with by the com- mittee include whistle-blowing cases In addition to information and guidelines, ASSA ABLOY’s intranet also provides tools to support Group companies in their sustainability initiatives. These tools include a data- base of previous best practice in the Group. This database includes all the facts, reporting and monitoring relating to the sustainability program. Statistics and reports can be extracted from the database to enable Group companies to compare their performance with other ASSA ABLOY Group companies and assess the measures to be taken. Sustainability program The first sustainability program was launched in 2007 and completed in 2010 with all the targets fulfilled. In 2011 the Corporate governance ASSA ABLOY complies with the Swedish Code of Corporate Governance, which forms part of the NASDAQ OMX rules governing the Stockholm Stock Exchange. The principles of the Code are that companies should either comply with the rules or explain any deviation from them. The Code stipu- lates responsibilities and procedures for the Annual General Meeting, ASSA ABLOY’s Board of Directors and the Executive Team. supplier control Auditing and improving the supplier base is a continuous task, and supplier selection is based on standardized crite- ria for both quality and sustainability. Good supplier control and jointly agreed action plans result in increased product quality and sustainable processes. Suppliers are also required to comply with the Code of Conduct. Quality and sustainability audits are carried out before new suppliers are approved, and these audits are pri- oritized for suppliers deemed to be in a risk category. The system used to monitor suppliers’ compliance with the Code of Conduct includes factors such as wages, over- time, noise levels, protective equipment, chemical handling, accident reporting, environmental management systems, and health and safety training. Any supplier failing to comply with these requirements is asked to implement necessary improvements, and the con- tract is terminated if non-compliance continues. 54 sustAinABlE dEvElopmEnt AssA ABloy AnnuAl rEport 2011 sustAinABility integrated in each part of the value chain CUSTOMERS ASSA ABLOY’s ambition is to supply high-quality products that fulfill customer requirements, have a long life and are manufactured with minimal use of resources and environmental impact during their life cycle. INNOVATION New products are evaluated from a life cycle perspective. Many recently developed products save energy as a result of improved insulation and intelligent control of various door opening solutions. SOURCING The Group’s suppliers in risk areas are evaluated from a sustainability perspective. Suppliers failing to comply with the Group’s requirements are encouraged to make improvements or will otherwise be phased out. MANUFACTURING Manufacture of the Group’s products should be carried out safely and with the least possible environmental impact. Hazardous processes are gradually being phased out and replaced by eco-friendly alternatives. SALES ASSA ABLOY respects laws and regulations concerning business ethics in the countries in which it operates and requires all partners to act in the same way. Custo m  Sourcing  Innovation  Manufacturing  Sales  Customers e r s Sale s M a n u f a c t u r i n Code of Conduct and Corporate governance Employees I n n o v a tio n g Sourci n g Supplier selection process The process has three stages: • Supplier self-assessment – the supplier assesses its ability to meet ASSA ABLOY’s requirements. All new suppliers in low-cost countries carry out a self- assessment of their sustainability according to a standard- ized process before they can be considered as potential sup- pliers to the Group. This is followed by an on-site audit. • On-site audit – the sustainability audit assesses how Screening will continue, with annual monitoring of previ- well a potential supplier meets requirements. ously approved suppliers. • Extended sustainability audit – this complements the standard audit. » An important part of ASSA ABLOY’s sustainable development program is ensuring that all suppliers meet the Group’s requirements « After the audit, the supplier is graded green, yellow or red. Green means the supplier is approved; yellow means the supplier needs to improve within a specific time frame; and red means the supplier is not approved. A red or yellow grade can be upgraded through an improvement plan. If no action is taken, the supplier is immediately classed as red. All purchases from the supplier are then stopped until a green grade has been achieved. Audits performed In 2011 ASSA ABLOY performed 493 sustainability audits. At year-end, 461 active suppliers had satisfied the minimum standards for quality and sustainability and were classed as reliable. 19 suppliers were blacklisted. On-site sustainability audits have been extended to a wider geographical area. In 2012 suppliers in all low-cost countries will be included in the annual sustainability audit. ASSA ABLOY’s supplier database The Group’s suppliers are listed, graded and monitored in a supplier database. Both quality and sustainability audit reports are regularly entered in the database. Suppliers are listed with a standardized name, geographical location, type of products and other information so that good suppliers can be used by many Group companies with similar needs. The database also lists non-approved and blacklisted suppliers to ensure that they are not used again. Sustain- ability audit results override quality audit results regarding non-compliance. This means that a supplier rejected for sus- tainability non-compliance is either stopped immediately or must wait until the deficiencies have been addressed for approval. sales of climate-smart products increasing The Group is continuously focusing on energy-efficient products, which account for an ever-increasing share of sales. Demand for sustainable or green products is increas- ing, and it is important for the Group to develop green prod- ucts and get them certified and included in databases used by architects for building specification. The increased use of various certifications for sustainable and green construction means that the characteristics of ASSA ABLOY’s products are becoming more important. NUMBER OF REPORTING UNITS ACCIDENTS PER MILLION hOURS WORkED 300 250 200 150 100 50 0 The number of reporting units in the Group has increased from 204 to 256. 07 08 09 10 11 12 9 6 3 0 07 08 09 10 11 2011 and 2010 relate to comparable units. AssA ABloy AnnuAl rEport 2011 sustAinABlE dEvElopmEnt 55 Sustainable development ASSA ABLOY has a number of climate-smart products, which combined with increased security help the customer to reduce their energy consumption and create a better qual- ity indoor environment. A detailed understanding of the customer’s needs and increased environmental require- ments as well as competence development of the Group’s employees are important aspects for strengthening market position. One example is the Orion energy management system from VingCard Elsafe. This intelligent solution uses informa- tion from the door lock to control the temperature setting depending on the guest’s presence in the room, result- ing in lower heating and cooling costs and increased guest comfort. Several installations have shown that, thanks to the system’s considerable energy savings, the investment is recouped within two years. Customer installations of the Orion system have been found to reduce energy consump- tion by around 20–30 percent, and more in some cases. The system, which was launched in late 2010, was awarded a prize for best climate-smart technology, and sales of the system were very strong in 2011. Another example is that ASSA ABLOY was the first door manufacturer to achieve certification of its hinged door to the American UL Environment (Underwriters Laboratories) standard, UL IRS 102. These standards measure the health and environmental impacts of door manufacture and use. The Trio-E door is the first door to be certified to these sus- tainability standards on the North American market. product development ASSA ABLOY’s ambition to achieve world-class product development involves looking at the environmental impact of every product, and not just focusing on climate-smart products. Group companies use the Group’s product innovation process and environmental checklist for all new product development. The product innovation process has three important elements: • Product management – addressing the strategic aspects of the process. • Voice of the Customer – ensuring the company develops products that customers want. • The Gateway process – ensuring that development proj- ects are structured and efficient. The Group has carried out product life cycle analyses to evaluate the stages in which the largest environmental impact occurs. The amount of materials used accounts for a significant part of a product’s environmental impact, and this is something ASSA ABLOY has successfully addressed in Value Analysis/Value Engineering (VA/VE) in product devel- opment. In the case of electromechanical products, standby power consumption is of major significance for environ- mental impact. A number of new products have therefore been launched with sharply reduced energy consumption in standby mode. ASSA ABLOY can reduce its environmental impact and costs through a reduced and efficient use of chemicals, energy and materials in the production process. The Group’s environmental checklist provides a structured review of materials selection, design and manufacturing processes to reduce the amount of hazardous materials and ensure that processes are sustainable and efficient. One important area is reducing the amount of packaging materials for different customer groups and delivery formats. manufacturing Energy ASSA ABLOY’s ambition is to reduce energy consumption and emissions of harmful greenhouse gases. The Group is therefore implementing a three-stage approach to reduce energy consumption. The first stage is to concentrate manufacture in as few plants as possible in order to maintain full capacity, efficient working practices and high quality. ENERGY USE USE OF ChLORINATED ORGANIC SOLVENTS (PER AND TRI) GWh 700 600 500 400 300 200 100 0 07 08 09 10 11 2011 and 2010 relate to comparable units. Tonnes 100 80 60 40 20 0 07 08 09 10 11 2011 and 2010 relate to comparable units. 56 sustAinABlE dEvElopmEnt AssA ABloy AnnuAl rEport 2011 The second stage is to introduce smart solutions that reduce energy and water consumption in both offices and plants. The third stage is to evaluate alternative energy sources, which combined with innovative product design can make manufacturing processes even more energy-efficient. Water consumption Efforts to improve water efficiency have focused on plants with surface treatment processes, where most of the con- sumption occurs. Technical improvements in the purification and reuse of water in the production process have reduced water con- sumption. In 2011 new very eco-friendly purification tech- nology was installed in one of the Group’s large production plants in Israel. This technology is based on the purification of waste water using electricity instead of chemicals and results in very high water purification, very little waste and a low operating cost. Waste management The Reduce, Reuse, Recycle principle is applied across the organization by reducing the amount of material in prod- ucts, designing products that can be upgraded rather than replaced, and enabling recycling of production waste and the products at the end of their life cycle. The Group has refined the monitoring of waste in various types of materials with the aim of better monitoring and reducing the amount of waste. Hazardous chemicals ASSA ABLOY also works continuously to reduce hazardous substances in the production process and find substitutes for them. Most production plants have, for example, phased out chlorinated organic solvents successfully. Health and safety ASSA ABLOY is committed to providing a safe working envi- ronment and 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 targets intended to lead to ongoing improvements. These targets 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. All units are graded and compared with each other. As a result, special initiatives can be implemented at plants with the greatest need. sales and customers ASSA ABLOY’s communication with its customers is primar- ily through the sales force, and its image as a sustainable company is often based on the customer’s relationship with the sales representatives. ASSA ABLOY’s requirements with regard to the Code of Conduct and business ethics therefore form an important part of the Group’s sales training. Sustainability can provide new business opportunities. 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. These audits are conducted by external auditors in accordance with inter- nationally accepted procedures to obtain an impartial view of the situation at each factory. In 2011 independent audits were conducted at two production plants in China with excellent results. The audits are followed by measures to implement improvements where needed. stakeholders ASSA ABLOY’s stakeholders in the area of sustainable devel- opment include shareholders, investors, customers, suppli- ers, employees, local communities, NGOs and the media. The company’s policy of openness means listening to these stakeholders and taking on board their views. During the year ASSA ABLOY held round-table discus- sions and separate meetings with a number of investors. At ASSA ABLOY’s annual capital market day in 2011 the Group reported on its sustainability program and investors were given an opportunity to ask questions. Requests from inves- tors have generally concerned making more information externally available about sourcing in low-cost countries, such as procedures for establishing new operations, due diligence procedures, suppliers, sourcing volumes, indica- tors for and information on supplier audits, and information on non-approved suppliers. Investors have also requested increased transparency with regard to the targets for each monitored area. These meetings have proved valuable and given the Group important feedback on issues such as sup- pliers, the sustainability agenda and new business opportu- nities for green products. AssA ABloy AnnuAl rEport 2011 sustAinABlE dEvElopmEnt 57 Sustainable development Change from brass to stainless steel for increased durability, reduced environmental impact and increased flexibility towards the customer Problem: Solution: Result: For high durability and esthetical reasons many components of the locks have been processed with brass material. Brass demands an additional surface treatment process in order to protect the surface. The brass material composes of different hazardous substances and the brass plating process itself demands electricity. The additional surface treatment process gives longer lead times, a more complicated production process and limits the flexibility towards the customers. ASSA ABLOY VingCard Elsafe has replaced the brass material with stainless steel, a change with several positive out- comes. The application of stainless steel eliminates the entire extra process of surface treatment to five out of nine components. The impact falls through on 90 percent of the total lock volume of which 75 percent of the stainless steel components remain untreated and only 15 percent are coated to match other components still made in brass and regular electroplating. A more sustainable product in every sense of the word: reduced input of material, reduced electricity consumption by 70 percent and reduced carbon emissions by 70 percent, higher quality and longer durability. In addition to the environmental benefits of eliminating the use of hazardous substances, the accompanying waste and the electricity consumption – there are several additional upsides. From a customer perspective the application of stainless steel results in a more sustainable and durable product and makes the delivery process shorter and more flexible to the customer needs. From an ASSA ABLOY perspective it brings eliminated production processes, reduced resource consumption, reduced costs, shorter lead times within the production process, reduced amount of transportation by more efficient location of suppliers and more secure and high quality deliveries from a smaller amount of suppliers. In summary it creates a more attractive product. SUSTAINABLE DEVELOPMENT PROGRAM IN BRIEF 2007 Sustainability program 2004–2006 Code of Conduct Whistle-blowing Internal audits Due diligence directive Tools for supplier control Employee survey 2008 Sustainability strategy for product development including checklists Employee survey Marketing and sales training Training in supplier control Updated Code of Conduct 2009 Sales companies and offices are included in reported figures Increased monitoring of energy consumption and CO2 Launch of joint recruit- ment and selection guide 2010 Increased audit of suppliers in low-cost countries Targets for 2015 are defined for all moni- tored areas 2011 Increased reporting of environmental data 25 percent more Group companies included in reporting Improved analysis and benchmarking opportuni- ties between Group companies Updated Code of Conduct 58 sustAinABlE dEvElopmEnt AssA ABloy AnnuAl rEport 2011 Customer: Challenge: Solution: Crawford Uk outfits sustainable logistics warehouse Gazeley Ltd’s distribution center in Chatterley Valley, Staffordshire, called Blue Planet, is the first building to achieve an ‘Outstanding’ design rating from BRE Environmental Assessment Method (BREEAM). Gazeley Ltd had stringent specification requirements; the majority of materials used in the building are A or A+ rated in BRE Global’s Green Guide to Specification. McLaren Construction involved Crawford Uk at an early stage of this development as Crawford had demonstrated its ability to meet Gazeley’s requirements. Thirty eight dock levelers were required for the 34,000 square meter warehouse and this also involved supplying and installing dock doors, dock levelers, bay shelters traffic lights, dock lights and level access doors. Some of the results of the sustainability program targets results 2008 results 2009 results 2010 results 2011 trend Energy consumption – 15 percent reduced consumption 2015 compared with 2010, based on normalized values. organic solvents – Phase out all use of perchloroethylene and trichloroethylene.² 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 impact.5 482 GWh 491 GWh 605 GWh 590 GWh¹ 42 tonnes 44 tonnes 32 tonnes 22 tonnes IR: 8.7 ILDR: 166 IR: 8.4 ILDR: 150 IR: 7.8 ILDR: 141 IR: 8.03 ILDR: 1444 63 62 69 75 suppliers – Sustainability appraisals – Code of Conduct requirement for all suppliers. Sustainability audits of suppliers in risk category. 100 sustain- ability audits in China Gender equality – Improve current levels of gender equality at senior levels. Level 2: 0 % Level 3: 11 % Level 4: 17 % Level 5: 23 % 178 sustain- ability audits in China Level 2: 0 % Level 3: 15 % Level 4: 18 % Level 5: 20 % 376 sustain- ability audits in China Level 2: 0 % Level 3: 16 % Level 4: 18 % Level 5: 24 % 493 sustain- ability audits in Asia Level 2: 0 % Level 3: 15 % Level 4: 19 % Level 5: 26 % ¹ For comparable units. Total energy consumption amounted to 632 GWh including units Deterioration Unchanged Improvement acquired during the year and increased reporting. ² Plants with totally closed washing processes will be phased out when the machinery is taken out of service. Read more about the updated target in the 2011 Sustainability Report. 3 For comparable units. The total injury rate (IR) was 8.9 including units acquired during the year and increased reporting. 4 For comparable units. The total injury lost day rate (ILDR) was 161 including units acquired during the year and increased reporting. 5 Number of certificates and corresponding certifiable systems for North American units. The change is due to the closure of plants under the restructuring program and to the addition of a number of new plants with certificates. AssA ABloy AnnuAl rEport 2011 sustAinABlE dEvElopmEnt 59 Report of the Board of Directors and Financial statements Contents Report of the Board of Directors Significant risks and risk management Corporate governance Board of Directors Executive Team Remuneration guidelines for senior management Sales and income Consolidated income statement and Statement of comprehensive income Comments by division Results by division Financial position Consolidated balance sheet Cash flow Consolidated cash flow statement Changes in consolidated equity parent company financial statements 61 63 66 70 72 75 76 77 78 79 80 81 82 83 84 86 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 Operating leasing agreements 7 Expenses by nature 8 Depreciation and amortization 9 Exchange 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 financial assets 20 Inventories 21 Accounts receivables 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 institutions 30 Business combinations 31 Cash flow 32 Employees 33 Financial risk management and financial instruments Comments on five years in summary Five years in summary Quarterly information Definitions of key data terms proposed distribution of earnings Audit report 88 93 94 94 94 94 94 94 94 95 95 95 95 96 98 99 99 100 100 100 100 100 100 101 103 103 103 103 103 103 105 106 108 114 115 116 117 118 119 60 ASSA ABLOY AnnuAL RepORt 2011 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 2011. 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 income Sales for the year totaled SEK 41,786 M (36,823), with organic growth of 4 percent (3) and acquired growth of 17 percent (8). Operating income (EBIT) excluding restructur- ing costs rose 10 percent to SEK 6,624 M (6,046), equivalent to an operating margin of 15.9 percent (16.4). Income before tax excluding restructuring costs totaled SEK 5,979 M (5,366). Operating cash flow excluding restructuring payments remained strong and amounted to SEK 6,080 M (6,285). Earnings per share after full dilution excluding restructuring costs were SEK 12.30 (10.89), an increase of 13 percent. Restructuring A new restructuring program was launched in 2011 com- prising 17 plant and office closures and a switch from full production to final assembly at a further number of produc- tion plants. Around 2,000 employees in high-cost countries are affected. On full implementation the annual cost saving is estimated at SEK 430 M. The total cost of the program is SEK 1,420 M gross. The activities of the previous restructuring programs launched during the period 2006–2009 continued at a high level during the year. At year-end 2011, 5,869 employees had left the Group as a result of the changes in the produc- tion structure since the programs began. A total of 44 plant closures have been implemented and a large number of plants in high-cost countries have switched from produc- tion to final assembly. Around 20 offices have also closed. The Group’s production is increasingly concentrated to its own plants in China, central and eastern Europe and to external suppliers in low-cost countries. Payments related to the restructuring programs totaled SEK 373 M (465) for the full year. At year-end 2011, the remaining provisions for restructuring measures amounted to SEK 1,665 M (924). Acquisitions and divestments In 2011 Cardo’s Entrance Solutions division was acquired, a leading supplier of industrial doors, logistics systems, garage doors, customer service and other services. This acquisition represents a strategically important step in the develop- ment of ASSA ABLOY’s operations in the Entrance Systems division. Overall, this will strengthen ASSA ABLOY’s product offering and create a strong entrance automation supplier with a wide range of products, customer service and other services. The acquisition of Cardo is expected to generate considerable synergies through a combination of the com- panies’ respective offerings. The range includes up and over doors, overhead sectional doors, side sectional doors and the automation for these products. These doors are posi- tioned as exclusive, offering good design, quality and high security. The main brands are Crawford and Normstahl. The acquisition of Cardo is classed as a significant acquisition and the purchase price allocation is presented separately in Note 30. On 31 January 2011, 100 percent of the share capital was acquired in LaserCard Corporation, a leading provider of secure ID solutions to government and commercial custom- ers worldwide. LaserCard has a unique product portfolio of smart cards, services and product solutions for complex ID systems management, which are used by more than 400 customers in 44 countries. On 6 April 2011, 100 percent of the share capital was acquired in FlexiForce, a global leader in components for industrial sectional doors and residential garage doors. FlexiForce specializes in the manufacture and distribution of components for overhead sectional doors and has a strong position in product development and marketing as well as a solid customer base. On 6 April 2011, 100 percent of the share capital was acquired in Swesafe, Sweden’s largest locksmith. This acqui- sition is an important step in the development of the Swed- ish market in the fast-growing electromechanical segment. These acquisitions were EPS-accretive from the acquisition date. A total of 18 acquisitions, including minor acquisitions, were consolidated during the year. The total purchase price of these acquisitions on a debt-free basis, excluding disposal groups, was SEK 7,096 M, and preliminary purchase price allocations indicate that goodwill and other intangible assets with an indefinite useful life amount to SEK 5,985 M. The year saw the disposal of parts of the Cardo Group’s operations acquired during the year. The businesses sold, Cardo Flow Solutions and Lorentzen & Wettre, were not considered to be a good fit with ASSA ABLOY’s operations in the long term. These disposals gave rise to a capital gain of SEK 404 M after disposal and financing costs. Research and development ASSA ABLOY’s expenditure on research and development during the year amounted to SEK 1,202 M (1,015), equiva- lent to 2.9 percent (2.8) 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 stan- dardization should result in lower development costs and a shorter development time for new products. ASSA ABLOY AnnuAL RepORt 2011 RepORt OF the BOARD OF DiReCtORS 61 Report of the Board of Directors Sustainable development Four 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 through the subsidiaries ASSA AB and ASSA OEM AB. These companies operate engineering workshops and associated surface- coating plants, which have an impact on the external envi- ronment through emissions to water and air as well as solid waste. Crawford Entrance Solutions also carries on licens- able and notifiable activities in Gothenburg and Strömstad. The subsidiaries ASSA AB and ASSA OEM AB are actively addressing environmental issues and are certified in accor- dance with ISO 14001. Most units outside Sweden carry on licensable activities and hold equivalent licenses under local legislation. ASSA ABLOY’s units worldwide are working purposefully to reduce greenhouse gas emissions. This applies to units on both mature and emerging markets and to both existing and newly acquired companies. The 2011 Sustainability Report, reporting on the Group’s Significant events after the end of the financial year The acquisition of Albany Door Systems was completed on 11 January 2012 after approval by the authorities con- cerned. Albany Door Systems is one of the global leaders in industrial automatic high-performance doors. The company has around 700 employees. Sales for 2012 are expected to total SEK 1,300 M with an operating margin of around 8 percent. Integration began immediately after completion and is estimated to cost SEK 150 M. The acquisition will be EPS-accretive from the start. A preliminary purchase price allocation for Albany Door Systems cannot be presented at the time of the preparation of these financial statements in view of the short time avail- able after the acquisition date. 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. prioritized environmental activities and providing other information on sustainable development, will be published at the time of the Annual General Meeting in April 2012. Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well. transactions with related parties No transactions that have significantly affected the com- pany’s financial position and performance have taken place between ASSA ABLOY and related parties. 62 RepORt OF the BOARD OF DiReCtORS ASSA ABLOY AnnuAL RepORt 2011 Report of the Board of Directors 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 significant 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 risks associated with the Group’ 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 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 cus- tomer behavior, competitors, brand positioning and envi- ronmental 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. 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 comple- ment 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. The Code is an expression of the Group’s high ambitions with regard to social responsibility, commitment and environmental considerations. Operational risks Operational risks comprise risks directly attributable to busi- ness operations and with a potential impact on the Group’s financial position and performance. They include legal risks, acquisition of new businesses, restructuring measures, avail- ability and price fluctuations of raw materials, and customer dependence. Risks relating to compliance with laws and regulations and to financial reporting and internal control are also included in this category. The table on page 64 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 management, currency risk and other financial risk management. Financial operations are centralized in a Treasury function, which manages most financial transactions as well as financial risks with a Group-wide focus. A financial policy, which is approved by the Board, regulates the allocation of responsibilities and controls of the Group’s financing activities. Group Treasury has the main responsibility for financial risks within the framework StRAtegiC RiSkS OpeRAtiOnAL RiSkS FinAnCiAL RiSkS Changes in the business environment with potentially significant effects on operations and business objectives. Risks directly attributable to business operations with a potential impact on financial position and performance. Financial risks with a potential impact on financial position and performance. • Customer behavior • Competitors • Brand positioning • Environmental risks • Country-specific risks • Legal risks • Acquisition of new businesses • Restructuring measures • Availability and price fluctuations of raw materials • Customer dependence etc. • Financing risks • Currency risks • Interest rate risks • Financial credit risks • Risks associated with pension obligations ASSA ABLOY AnnuAL RepORt 2011 RepORt OF the BOARD OF DiReCtORS 63 Report of the Board of Directors 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 year-end 2011 there are considered to be 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 and anti-bribery legislation have been imple- mented. 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 finan- cial consultants. The Group’s acquisitions in 2011 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 specific restructuring programs, which entail some production units changing direction 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. Credit losses insurance risks Regional committees coordinate these activities with the help of senior coordinators for selected material components. Trade receivables are spread across a large num- ber of customers in many markets. Commercial credit risks are managed locally at company level and monitored at division level. Receivables from each customer are relatively small in relation to total trade receivables. The risk of significant credit losses for the Group is consid- ered to be limited. A Group-wide insurance program is in place, mainly relating to property, business interruption and lia- bility risks. This 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 insurance company. Risks relating to internal control regarding financial reporting The organization is considered to be relatively transparent, with a clear allocation of responsi- bilities. Internal control and other related issues are reported in more detail in the Report of the Board of Directors, section on Corporate governance. 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. A comprehensive systematic risk assessment of financial reporting has been implemented. See also the section ‘Basis of preparation’ in Note 1. Further information on risk management relating to financial reporting can be found in the Report of the Board of Directors, section on Corporate governance. 64 RepORt OF the BOARD OF DiReCtORS ASSA ABLOY AnnuAL RepORt 2011 established in the financial policy. A large number of finan- cial instruments are used in this work. Accounting principles, risk management and risk exposure are described in more detail in Notes 1 and 33, as well as Note 24 regarding post- employment employee benefits. The Group’s financial risks mainly comprise financing risk, currency risk, interest rate risk, credit risk, and risks associated 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. It can be reduced by maintaining an even maturity profile for loans and a high credit rating. The risk is further reduced by substantial unuti- lized confirmed credit facilities. Currency risk Since ASSA ABLOY sells its products in countries world- wide 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 exposure, 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 rationalization of production and purchasing. In accordance with financial policy, the Group only hedged a limited part of current currency flows in 2011. As a result, exchange rate fluctuations had a direct impact on business operations. Exchange rate fluctuations also affect the Group’s debt- equity ratio and equity. The difference between the assets and liabilities of foreign subsidiaries in the respective for- eign currency is affected by exchange rate fluctuations and causes a translation difference which affects the Group’s comprehensive income. A general weakening of the Swed- ish 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 14,207 M (10,564) at year-end 2011 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 variable-rate loans, various interest rate derivatives are used to adjust interest rate sensitivity. At year-end, the average fixed inter- est term, excluding pension liabilities, was 16 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. Trade receivables are spread across a large number of customers, which reduces the credit risk. Credit risks relat- ing to operational business activities are managed locally at company level and monitored 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, borrowings and derivative financial instruments. Counterparty limits are set for each financial counterparty and are continuously monitored. Pension obligations At year-end 2011, ASSA ABLOY had obligations for pen- sions and other post-employment benefits of SEK 5,300 M (4,484). The Group manages pension assets valued at SEK 3,115 M (2,854). Pension provisions in the balance sheet amount to SEK 1,173 M (1,078). Changes in the value of assets and liabilities from year to year are due partly to the development of equity and debt capital markets and partly to the actuarial assumptions made. These assumptions include discount rates, as well as anticipated inflation and salary increases. ASSA ABLOY AnnuAL RepORt 2011 RepORt OF the BOARD OF DiReCtORS 65 Report of the Board of Directors Corporate governance ASSA ABLOY is a Swedish public limited liability company, with registered office in Stockholm, Sweden, whose Series B share is listed on the NASDAQ OMX Stockholm. The corporate governance of ASSA ABLOY is based on the Swedish Companies Act, the rules and regulations of NASDAQ OMX Stockholm and the Swedish Code of Corporate Gover- nance, as well as other applicable external laws, regulations and recommendations and internal rules and regulations. This Corporate Governance Report has been prepared as part of ASSA ABLOY’s application of the Swedish Code of Corporate Governance. ASSA ABLOY reports no deviations from the Swedish Code of Corporate Governance for 2011. 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. Important external rules and regulations • Swedish Companies Act • NASDAQ OMX Stockholm Rule Book for Issuers • Swedish Code of Corporate Governance Important internal rules and regulations • Articles of association • Board of Directors’ rules of procedure • Financial policy, accounting manual, communications policy, and insider policy Internal control procedures • • Code of Conduct and anti-bribery policy 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 Decentralized organization shareholders At year-end ASSA ABLOY had 18,697 shareholders (20,199). The principal shareholders are Investment AB Latour (9.5 percent of the share capital and 29.6 percent of the votes) and Melker Schörling AB (3.9 percent of the share capi- tal and 11.5 percent of the votes). Foreign shareholders accounted for around 64 percent (63) of the share capital and around 44 percent (43) of the votes. The ten largest shareholders accounted for around 38 percent (31) of the share capital and around 58 percent (53) of the votes. For further information on shareholders, see page 121. A shareholders’ agreement exists between Gustaf Douglas, Melker Schörling and related companies and includes, among other things, an agreement on right of first refusal if any party disposes of Series A shares. The Board of Directors of ASSA ABLOY is not aware of any other shareholders’ agreements or other agreements between shareholders in ASSA ABLOY. Share capital and voting rights ASSA ABLOY’s share capital amounted at year-end to SEK 368,250,378 distributed among 19,175,323 Series A shares and 349,075,055 Series B shares. The total number of votes was 540,828,285. Each Series A share carries ten votes and each Series B share one vote. All shares have a par value of SEK 1.00 and give shareholders equal rights to the com- pany’s assets and earnings. Repurchase of own shares Since 2010 the Board of Directors has requested and received a mandate from the Annual General Meeting to buy back and transfer ASSA ABLOY shares. The aim has been to be able to adjust the company’s capital structure, thereby contributing to increased shareholder value, to be able to exploit acquisition opportunities by fully or partly financing company acquisitions with its own shares, and to ensure the company’s undertakings under long-term incentive programs. The 2011 Annual General Meeting authorized the Board of Directors to repurchase, during the period until the next Annual General Meeting, a maximum number of Series B shares so that after each repurchase ASSA ABLOY holds a maximum 10 percent of the total number of shares in the company. ASSA ABLOY holds a total of 400,000 (300,000) Series B shares after repurchase to secure the company’s undertak- ings in connection with the company’s long-term incentive programs (LTI 2010 and LTI 2011). These shares account for 0.1 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 65 M (48). Of the above shares, 100,000 (300,000) Series B shares were repurchased in 2011. These account for 0.03 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 17 M (48). 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 market capitalization amounted to SEK 63,560 M. The Board of Directors’ objective is that, in the long term, the dividend should be equivalent to 33–50 percent of income after standard tax, but always taking into account ASSA ABLOY’s long-term financing requirements. 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 who 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. For certain matters, however, 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 among other things: dividend distribution; adoption of the income statement and balance sheet; discharge of the Board of Directors and the CEO from liability; election of board mem- bers and Chairman of the Board of Directors; appointment of the Nomination Committee and auditors; determination of remuneration guidelines for senior management and fees 66 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2011 for the Board of Directors and auditors. An Extraordinary General Meeting may be held if the Board of Directors con- siders this necessary or if ASSA ABLOY’s auditors or share- holders holding at least 10 percent of the shares so request. members is carried on throughout the year and proposals for new board members are based in each individual case on a profile of requirements established by the Nomination Committee. 2011 Annual General Meeting The Annual General Meeting in April 2011 was attended by shareholders representing 54.5 percent of the share capital and 69.0 percent of the votes. At the Annual General Meeting, Gustaf Douglas, Carl Douglas, Birgitta Klasén, Eva Lindqvist, Johan Molin, Sven- Christer Nilsson, Lars Renström and Ulrik Svensson were re- elected as members of the Board of Directors. Gustaf Douglas was re-elected as Chairman of the Board of Directors. The Annual General Meeting approved a dividend of SEK 4.00 per share, in accordance with the proposal of the Board of Directors and the CEO. In addition, the Annual General Meeting passed resolutions on fees payable to the Board of Directors, remuneration guidelines for senior management, authorization of the Board of Directors regarding repur- chase and transfers of own Series B shares, and the imple- mentation of a long-term incentive program (LTI 2011) for senior management and other key staff in the Group, as well as appointing members of the Nomination Committee prior to the 2012 Annual General Meeting. Nomination Committee The Nomination Committee prior to the 2012 Annual Gen- eral Meeting comprises Mikael Ekdahl (Melker Schörling AB), Gustaf Douglas (Investment AB Latour), Liselott Ledin (Alecta), Marianne Nilsson (Swedbank Robur Fonder) and Per-Erik Mohlin (SEB Fonder/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 in ASSA ABLOY, the Nomination 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 Nomination Committee before the 2012 Annual General Meeting for any other reason. The Nomination Committee has the task of preparing, on behalf of the shareholders, resolutions 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. Shareholders wishing to submit proposals to the Nomi- nation Committee can do so by emailing: nominationcommittee@assaabloy.com. Prior to the 2012 Annual General Meeting, the Nomi- nation Committee has made an assessment of whether the current Board of Directors is appropriately composed and fulfills the demands made on the Board of Directors by the company’s present situation and future direction. The annual evaluation of the Board of Directors was part of the basis for this assessment. The search for suitable board The Nomination Committee’s proposals for changes in the Board of Directors at the 2012 Annual General Meet- ing were published on 21 December 2011. After over 17 years as a member of the Board of Directors of ASSA ABLOY, including the past six years as Chairman, Gustaf Douglas will leave the Board of Directors at the 2012 Annual General Meeting. The Nomination Committee intends to propose Lars Renström as the new Chairman, Carl Douglas as Vice Chairman and Jan Svensson as a new member of the Board of Directors. The Nomination Committee’s other propos- als are published at the latest in conjunction with the formal notification of the Annual General Meeting, which is expected to be issued around 21 March 2012. Board of directors In accordance with the Swedish Companies Act, the Board of Directors is responsible for the organization and admin- istration of the Group and for ensuring satisfactory control of bookkeeping, asset management and other financial circumstances. The Board of Directors decides on the Group’s overall objectives, strategies and policies, as well as on acquisitions, divestments and investments. The Board of Directors 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 financial structure. The Board of Directors’ other duties include among other things: • 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, and • ensuring that necessary ethical guidelines for the com- pany’s conduct are established. The Board of Directors’ rules of procedure and instructions for the division of duties between the Board of Directors and the CEO are updated and approved at least once a year. The Board of Directors has also issued written instructions specifying how financial reporting to the Board of Directors should be carried out. In addition to leading the work of the Board of Directors, the Chairman 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 ownership 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 sig- nificance. The Chairman should ensure that the work of the assa aBLoY annuaL RepoRt 2011 RepoRt of the BoaRd of diRectoRs 67 Report of the Board of Directors Corporate governance Board of Directors is evaluated annually, and that new mem- bers of the Board of Directors receive appropriate training. guidelines to the 2012 Annual General Meeting is set out on page 75. The Board of Directors has at least four scheduled meet- The Remuneration Committee also prepares, negotiates ings and one statutory meeting per year. The scheduled meetings take place in connection with the company’s publication of its year-end or quarterly results. At least once a year the Board of Directors visits one of the Group’s businesses, possibly combined with a board meeting. 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 of Directors has a Remuneration Committee and an Audit Committee. The purpose of these Committees is to deepen and streamline the work of the Board of Direc- tors and to prepare matters in these areas. The Committees have no decision-making powers. The members of the Committees are appointed annually by the Board of Direc- tors at the statutory board meeting. Instructions for the Committees are included in the Board of Directors’ rules of procedure. The Board of Directors’ work in 2011 During the year the Board of Directors held 12 meetings (five scheduled meetings, one statutory meeting and six extraordinary meetings), including four by telephone and two per capsulam. One member was absent at two meet- ings, two members were absent at two meetings and three members were absent at one meeting. All board members were present at the other meetings. At the scheduled board meetings, the CEO has reported on the Group’s per- formance and financial position, including the outlook for the coming quarters. Investments, acquisitions and divest- ments were also considered. All acquisitions and divest- ments with a value (on a debt-free basis) exceeding SEK 100 M are decided by the Board of Directors . This amount presumes that the matter relates to acquisitions or divest- ments within the framework of the strategy agreed by the Board of Directors. More important matters dealt with by the Board of Directors during the year included the completion of the acquisition of Cardo, including the divestments of Cardo Flow Solutions and Lorentzen & Wettre. In addition, the Board of Directors dealt with a further number of acquisi- tions including Albany Door Systems and FlexiForce. During the year the Board of Directors conducted in-depth reviews of the Group’s operations in Entrance Systems and HID Global and visited Crawford and FlexiForce’s operations in the Netherlands. The Board of Directors also decided to adopt an updated anti-bribery policy during the year. Remuneration Committee During 2011 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 of Directors proposes to the Annual General Meeting for resolution. The Board of Directors’ proposal for and evaluates matters regarding salaries, bonus, pension, severance pay and incentive programs for the CEO and other senior executives. The Committee held three meetings in 2011, including one by telephone, at which all members were present. During the year the Remuneration Committee’s work included, among other things, preparing a proposal for the remuneration of the Executive Team, evaluating existing incentive programs, and preparing a proposal for a long- term incentive program for 2012. The meetings of the Remuneration Committee are minuted, the minutes are distributed with material for the Board of Directors and a verbal report is given at board meetings. Audit Committee During 2011 the Audit Committee comprised Ulrik Svens- son (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 in 2011 at which all members, the company’s auditor and representatives of the Executive Team were present. More important matters dealt with by the Audit Committee dur- ing the year included internal control, financial statements and valuation matters, tax matters and legal risk areas. The meetings of the Audit Committee are minuted, the minutes are distributed with material for the Board of Direc- tors and a verbal report is given at board meetings. ASSA ABLOY’s Board of Directors The Board of Directors is elected annually at the Annual General Meeting for the period until the end of the next Annual General Meeting and shall according to the articles of association comprise a minimum six and a maximum ten members elected by the meeting. Two of the members are appointed by the employee organizations in accordance with Swedish law. The employee organizations also appoint two deputies. The Board of Directors currently consists of eight elected members and two employee representatives. 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 of Directors The Annual General Meeting passes a resolution on the remuneration to be paid to board members. The 2011 Annual General Meeting passed a resolution on board fees totaling SEK 4,000,000 (excluding remuneration for 68 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2011 committee work), to be allocated between the members as follows: SEK 1,000,000 to the Chairman and SEK 500,000 to each of the other members not employed by the company. As remuneration for committee work, the Chairman of the Audit Committee is 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 pension benefits or severance pay agreements. The CEO and employee representatives do not receive board fees. For further information on the remuneration of board members in 2011, see Note 32. Independence of the Board of Directors position independent of the company and its management independent of the company’s major shareholders The Board of Directors of ASSA ABLOY meets the requirements for indepen- dence, in accordance with the Swedish Code of Corpo- rate Governance. name Gustaf Douglas Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson Lars Renström Ulrik Svensson Chairman of the Board Board member Board member Board member Board member, President and CEO Board member Board member Board member Yes Yes Yes Yes No Yes Yes Yes The Board of Directors’ composition and shareholdings name position elected Born Remuneration committee audit committee series a shares¹ series B shares¹ Gustaf Douglas Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Chairman of the Board Board member Board member Board member Board member, President and CEO Sven-Christer Nilsson Board member Board member Lars Renström Board member Ulrik Svensson Board member, Seppo Liimatainen employee representative Board member, employee representative Deputy, employee representative Deputy, employee representative Per Edvin Nyström Mats Persson Rune Hjälm 1994 1938 2004 1965 2008 1949 2008 1958 2006 1959 2001 1944 2008 1951 2008 1961 2003 1950 1994 1955 2005 1964 1994 1955 Chairman – – – – Member – – – – – – – 13,865,243 21,300,000 – – – 7,000 – Member 1,000 – – – – Member Chairman – – – – – – – – – – – – 516,282 5,000 10,000 3,000 2,600 – – 7,727 1 Including family and through companies. Shareholdings as of 31 December 2011. This information is updated regularly at www.assaabloy.com assa aBLoY annuaL RepoRt 2011 RepoRt of the BoaRd of diRectoRs 69 No No Yes Yes – Yes Yes No incentive program series B shares – – – – 215,300 – – – – – – – Report of the Board of Directors Corporate governance Board of Directors Board members elected at the 2011 Annual General Meeting Gustaf douglas Chairman of the Board. Board member since 1994. Born 1938. MBA, Harvard Business School 1964. Principal shareholder of Investment AB Latour. Self-employed since 1980. Other appointments: Board member of Stiftelsen Svenska Dagbladet and the Swedish Moderate Party. Shareholdings (including family and through companies): 13,865,243 Series A shares and 21,300,000 Series B shares through Investment AB Latour. 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 and Swegon AB. Shareholdings (including family and through companies): – 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 at Pharmacia 1996–2001. Prior to that CIO at Telia. Held various posts at IBM 1976–1994. Other appointments: Board member of Acando AB and IFS AB. Shareholdings (including family and through companies): 7,000 Series B shares. 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 Telia Sonera AB 2006–2007. Prior to that several senior posts at Telia Sonera AB, including President and Head of Business Operation International Carrier, and various posts in the Ericsson Group 1981–1999. Other appointments: Board member of companies including Tieto Oy, Transmode AB and Episerver AB. Member of the Royal Swedish Academy of Engineering Sciences (IVA). Shareholdings (including family and through companies): 1,000 Series B shares. 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 senior posts mainly in finance and marketing, later divisional head in the Atlas Copco Group 1983–2001. Other appointments: Chairman of Nobia AB. Shareholdings (including family and through companies): 516,282 Series B shares. Incentive 2007 corresponding, on full conversion, to 215,300 Series B shares. sven-christer nilsson Board member since 2001. Born 1944. Bachelor of Science. President and CEO of Telefonaktiebolaget LM Ericsson 1998–1999, various executive positions mainly in marketing and general management in the Ericsson Group 1982–1997. Other appointments: Chairman of The Swedish National Defence Materiel Administration (FMV). Board member of Sprint Nextel Corporation and CEVA, Inc. Shareholdings (including family and through companies): 5,000 Series B shares. Gustaf Douglas Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson 70 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2011 Shareholdings as of 31 December 2011. This information is updated regularly at www.assaabloy.com 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 Business Administration and 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 telecoms ventures 1992–2000. Other appointments: Board member of AarhusKarlshamn AB, Loomis AB, Hexagon 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 EWC, European Works Council in the ASSA ABLOY Group. Shareholdings: – per edvin nyström Deputy board member since 1994. Born 1955. Employee representative, Swedish Metal Workers Union. Shareholdings: 7,727 B-aktier. Lars Renström Ulrik Svensson Seppo Liimatainen Mats Persson Rune Hjälm Per Edvin Nyström assa aBLoY annuaL RepoRt 2011 RepoRt of the BoaRd of diRectoRs 71 Shareholdings as of 31 December 2011. This information is updated regularly at www.assaabloy.com Report of the Board of Directors Corporate governance The Executive Team Johan Molin Tomas Eliasson Denis Hébert Thanasis Molokotos Jonas Persson Tim Shea Ulf Södergren Juan Vargues Tzachi Wiesenfeld tomas eliasson¹ Born 1962. Bachelor of Science in Business Administration and Economics. Executive Vice President. Chief Financial Officer (CFO). Employed since: 2006. Shareholdings: Incentive 2007 corresponding, on full conversion, to 23,600 Series B shares. thanasis Molokotos Born 1958. Master of Science in Engineering. Executive Vice President. Head of Americas division. Employed since: 1996. Shareholdings: 32,635 Series B shares. Incentive 2007 corresponding, on full conversion, to 25,700 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: 3,477 Series B shares. Incentive 2007 corresponding, on full conversion, to 9,400 Series B shares. Juan Vargues Born 1959. Degree in Mechanical Engineering, MBA. Executive Vice President. Head of Entrance Systems division. Employed since: 2002. Shareholdings: 6,124 Series B shares. Incentive 2007 corresponding, on full conversion, to 79,600 Series B shares. The Executive Team Johan Molin Born 1959. Bachelor of Science in Business Administration and Economics. President and CEO. Head of Global Technologies division. Employed since: 2005. Shareholdings: 516,282 Series B shares. Incentive 2007 corresponding, on full conversion, to 215,300 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: 5,802 Series B shares. Incentive 2007 corresponding, on full conversion, to 44,000 Series B shares. Jonas persson Born 1969. Master of Science in Engineering. Executive Vice President. Head of Asia Pacific division. Employed since: 2009. Shareholdings: 10,836 Series B shares. ulf södergren Born 1953. Master of Science in Engineering and Bachelor of Science in Business Administration and Economics. Executive Vice President. Chief Technology Officer (CTO). Employed since: 2000. Shareholdings: 4,358 Series B shares. Incentive 2007 corresponding, on full conversion, to 60,800 Series B shares. tzachi Wiesenfeld Born 1958. Bachelor of Science in Industrial Engineering, MBA. Head of EMEA division. Executive Vice President. Employed since: 2000. Shareholdings: 6,611 Series B shares. Incentive 2007 corresponding, on full conversion, to 23,400 Series B shares. changes in the executive team ¹ Tomas Eliasson, Executive Vice President and Chief Financial Officer, is leaving ASSA ABLOY on 10 February 2012. He is succeeded by Carolina Dybeck Happe as from 1 March 2012. Shareholdings as of 31 December 2011. This information is updated regularly at www.assaabloy.com 72 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2011 the executive team and organization The Executive Team consists of the CEO, the heads of the Group’s divisions, the Chief Financial Officer and the Chief Technology Officer. ASSA ABLOY’s operations are divided into five divisions, where the fundamental principle is that the divisions should be responsible, as far as possible, for business operations, while various functions at headquar- ters are responsible for coordination, monitoring, policies and guidelines at an overall level. The Group’s structure results in a geographical and strategic spread of responsibil- ity 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 ‘Our Road to the Future’, which has been pro- vided to all employees in the Group. Other important guide- lines and policies concern financial control, communication issues, insider issues, the Group’s brands, business ethics and environmental issues. ASSA ABLOY’s financial policy and accounting manual provide the framework for financial control and monitoring. The Group’s communications pol- icy aims to provide essential information at the right time and in compliance with applicable rules and regulations. ASSA ABLOY has adopted an insider policy to complement applicable Swedish insider legislation. This policy applies to all persons reported to the Swedish Financial Supervisory Authority as holding insider position in ASSA ABLOY AB (including subsidiaries) as well as certain other categories of employees. 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 and safety, business ethics, working conditions, human rights and social respon- sibility. Application of the Code of Conduct in the Group’s different units is monitored regularly to ensure compliance and relevance. Further, ASSA ABLOY has adopted an anti- bribery policy that applies to the whole Group. 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. 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 of financial reporting ASSA ABLOY’s process for internal control of financial 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 of Directors’ rules of procedure and instructions to the CEO, the Code of Conduct, financial policy, and an annual financial evaluation plan etc. Regular meetings are held with the Audit Committee. The Group has an internal control function whose primary objective is ensuring reliable financial reporting. 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 was previously reviewed and updated, and compliance is monitored systematically in operations. assa aBLoY annuaL RepoRt 2011 RepoRt of the BoaRd of diRectoRs 73 Risk assessment Risk assessment includes identifying and evaluating the risk of material errors in accounting and financial reporting at Group, division and local levels. A number of previously established documents govern the procedures to be used for accounting, finalizing accounts, financial reporting and review. The entire Group uses a financial reporting system with pre-defined report templates. 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 internal audit function has been established and carries out annual financial evaluations in accordance with the plan annually adopted by the Audit Committee. The results of the financial evaluations for 2011 are submitted to the Audit Committee and the audi- tors. Group-wide internal control guidelines are reviewed annually. These guidelines affect various procedures, such as ordering and purchasing (including payments), finalizing accounts and plants, as well as compliance with various rel- evant policies, legal issues and HR issues. 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 of Directors’ established operating structure. The Group also has estab- lished procedures for external communication of financial information, 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 structure in which sales, earnings, 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 controllers at different levels. Financial reviews take place quarterly at divisional board meetings, monthly in the form of performance reviews and through more informal analysis. Other important Group- wide components of internal control are the annual busi- ness planning process and monthly and quarterly forecasts. The Group-wide internal control guidelines were reviewed during the year in all operating companies through self-assessment and in some cases a second opin- ion 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 2010 Annual General Meeting, Pricewaterhouse- Coopers (PwC) were appointed as the company’s external auditors for a four-year period up to the end of the 2014 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 1966, is responsible for auditing Securitas and Ericsson as well as ASSA ABLOY. 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 International Standards on Auditing, ISA, which is consid- ered good auditing practice in Sweden since 2011. The audit of the financial statements for legal entities outside Sweden is carried out in accordance with statutory require- ments, and other applicable rules in each country. For infor- mation about the fees paid to auditors and other assign- ments carried out in the Group in the past three financial years, see Note 3 and the Annual Report for 2010, Note 3. 74 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2011 Report of the Board of Directors Remuneration guidelines for senior management the Board of directors’ proposal for remuneration guidelines for senior management The Board of Directors of ASSA ABLOY proposes that the 2012 Annual General Meeting adopts the following guide- lines for the remuneration and other employment condi- tions of the President and CEO and the other members of the Executive Team. The proposed guidelines below do not involve any material change, compared with the guidelines adopted by the 2011 Annual General Meeting. The basic principle is that remuneration and other employment con- ditions should be in line with market conditions and com- petitive. ASSA ABLOY takes into account both global remu- neration practice and practice in the home country of each member of the Executive Team. The total remuneration of the Executive Team 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 Note 32. Fixed and variable remuneration The basic salary should be competitive and reflect respon- sibility and performance. The variable part consists of remuneration 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 relation to financial targets and, when applicable, indi- vidual targets. This remuneration should be equivalent to a maximum 75 percent of the basic salary (excluding social security expenses). in relation to a range determined by the Board for the per- formance of earnings per share in 2012. This remuneration model also includes the right, when purchasing a share under certain conditions, to receive a free matching share from the company. This remuneration should, if the share price is unchanged, be equivalent to a maximum 75 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 around SEK 60 M (excluding social security expenses). This calculation is made on the basis of the current mem- bers of the Executive Team. 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 CEO is given notice, the company is liable to pay the equivalent of 24 months’ basic salary and other employ- ment benefits. If one of the other members of the Executive Team is given notice, the company is liable to pay a maxi- mum six months’ basic salary and other employment ben- efits plus an additional 12 months’ basic salary. In addition, the Executive Team should, within the frame- work of the Board of Directors’ proposal for a long-term incentive program, have the opportunity to receive variable remuneration in the form of shares based on the outcome 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. assa aBLoY annuaL RepoRt 2011 RepoRt of the BoaRd of diRectoRs 75 Sales and income • Organic growth was 4 percent (3), while acquired growth was 17 percent (8). • Operating income (EBIT) excluding items affecting comparability rose 10 percent to SEK 6,624 M (6,046), equivalent to an operating margin of 15.9 percent (16.4). • Earnings per share after full dilution excluding items affecting comparability amounted to SEK 12.30 (10.89). sales The Group’s sales rose to SEK 41,786 M (36,823). Exchange rate effects had an impact on sales of SEK –2,309 M (–1,626). change in sales % Organic growth Acquired growth Exchange rate effects total 2010 2011 3 8 –6 5 4 17 –8 13 The total change in sales for 2011 was 13 percent (5). Organic growth was 4 percent (3), while acquired units made a positive contribution of 17 percent (8). sales by product group Mechanical locks, lock systems and fittings accounted for 38 percent (42) of sales. Electromechanical and electronic locks rose to 42 percent (36) of sales, of which entrance automation accounted for 20 percent (11). Security doors and hardware accounted for 20 percent (22) of sales. cost structure Total wage costs, including social security expenses and pen- sion expenses, rose to SEK 11,835 M (10,110), equivalent to 28 percent (27) of sales. The average number of employees in the Group rose to 41,070 (37,279). The Group’s material costs rose to SEK 14,655 M (12,553), equivalent to 35 percent (34) of sales. Other purchasing costs rose to SEK 7,616 M (7,049), equivalent to 18 percent (19) of sales. Depreciation and amortization of non-current assets amounted to SEK 1,022 M (995), equivalent to 2 percent (3) of sales. operating income Operating income (EBIT) excluding restructuring costs rose to SEK 6,624 M (6,046) due to efficiency savings and continued growth in operations. The corresponding operating margin was 15.9 percent (16.4). Exchange rate effects amounted to SEK –430 M (–262). Operating income before depreciation and amortization (EBITDA) excluding restructuring costs rose to SEK 7,646 M (7,041). The corresponding margin was 18.3 percent (19.1). items affecting comparability Operating income for the year was reduced by restructuring costs of SEK 1,420 M (–), of which impairment of assets, mainly machinery and equipment, amounted to SEK 224 M. The remaining amount mainly related to payments in con- nection with staff redundancies. Divestment of Cardo Flow Solutions and Lorentzen & Wettre gave rise to a capital gain of SEK 404 M. income before tax Income before tax excluding restructuring costs totaled SEK 5,979 M (5,366). The exchange rate effect amounted to SEK –399 M (–232). Net financial items amounted to SEK –645 M (–680). This improvement is partly due to lower pension expenses. Profit margin, defined as income before tax in relation to sales, was 14.3 percent (14.6) excluding restructuring costs. The parent company’s income before tax was SEK 2,297 M (954). tax The Group’s tax expense totaled SEK 1,095 M (1,286), equiv- alent to an effective tax rate of 24 percent (24). Non-deduct- ible restructuring costs increased the effective tax rate by one percentage point. earnings per share Earnings per share after full dilution excluding items affect- ing comparability amounted to SEK 12.30 (10.89). SALES AND OPERATING INCOME SEK M 42,000 36,000 30,000 24,000 18,000 12,000 6,000 0 07 08 09 10 11 SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  Sales Operating income1 1 Excluding items affecting comparability 2008, 2009 and 2011. assa aBloY annual report 2011 76 group financial reports Consolidated income statement 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 from continuing operations Net income from discontinued operations net income net income attributable to: Parent company shareholders’ Non-controlling interest earnings per share before dilution, SEK after dilution, SEK after dilution excluding items affecting comparability, SEK statement of comprehensive income, seK M net income other comprehensive income Share of other comprehensive income of associates Cashflow hedges Net investment hedges Exchange rate differences total comprehensive income total comprehensive income attributable to: – Parent company shareholders’ – Non-controlling interest note 2 3 4 5 6–9, 32 10 9, 11 12 13 13 13 2010 36,823 –21,987 14,836 –5,666 –2,039 –1,015 –73 3 6,046 26 –706 5,366 –1,286 4,080 – 4,080 4,050 30 11.07 10.89 10.89 2010 4,080 – – – –1,249 2,831 2,805 26 2011 41,786 –26,829 14,957 –6,408 –2,109 –1,202 –77 43 5,204 59 –704 4,559 –1,095 3,465 404 3,869 3,843 26 10.45 10.33 12.30 2011 3,869 21 –30 –108 327 4,079 4,040 39 SALES BY PRODUCT GROUP, 2011 EARNINGS PER SHARE AFTER TAX AND DILUTION  Mechanical locks, lock systems and fittings, 38% (42)  Electromechanical and electronic locks, 22% (25)  Entrance automation, 20% (11)  Security doors and hardware, 20% (22) SEK 12 10 8 6 4 2 0  Earnings per share after tax and dilution1 07 08 09 10 11 1 Excluding items affecting comparability 2008, 2009 and 2011. assa aBloY annual report 2011 group financial reports 77 Comments by division ASSA ABLOY is organized into five divisions. EMEA (Europe, Middle East and Africa) division, Americas (North and South America) division and Asia Pacific (Asia, Australia and New Zealand) division manufacture and sell mechanical and electromechanical locks, security doors and hardware in their respective geographical markets. Global Technol- ogies division operates worldwide in the product areas of access control systems, secure card issuance, identification technology and hotel locks. Entrance Systems division is a global supplier of automatic doors and service. eMea Sales totaled SEK 13,030 M (13,036), with organic growth of 0 percent (2). Acquired units contributed 5 percent (1) to sales. Operating income excluding restructuring costs amounted to SEK 2,203 M (2,174), with an operating margin (EBIT) of 16.9 percent (16.7). Return on capital employed excluding restructuring costs was 22.0 percent (21.6). Operating cash flow before interest paid amounted to SEK 2,142 M (2,607). Demand on European markets was weak during the year. The launch of new products and continued efficiency sav- ings resulted in a maintained operating margin and a contin- ued strong cash flow. americas Sales totaled SEK 8,906 M (9,536), with organic growth of 2 percent (–2). Acquired units contributed 1 percent (2) to sales. Operating income excluding restructuring costs amounted to SEK 1,812 M (1,886), with an operating margin (EBIT) of 20.3 percent (19.8). Return on capital employed excluding restructuring costs was 22.8 percent (21.3). Operating cash flow before interest paid amounted to SEK 1,731 M (2,013). The commercial segment showed stable demand, driven partly by the renovation market. New electromechanical products were launched during the year. The operating mar- gin remained strong due to continued active marketing and a strong product portfolio. asia pacific Sales totaled SEK 6,633 M (6,081), with organic growth of 9 percent (14). Acquired units contributed 4 percent net (43) to sales. Operating income excluding restructuring costs amounted to SEK 933 M (843), with an operating margin (EBIT) of 14.1 percent (13.9). Return on capital employed excluding restructuring costs was 23.6 percent (25.1). Operating cash flow before interest paid amounted to SEK 912 M (917). Growth in China was strong for the year as a whole, but slowed in the latter part of the year. Demand was robust on the majority of Asian markets, but weaker in Australia. Oper- ating margin and cash flow were maintained at a high level. global technologies Sales totaled SEK 5,756 M (5,015), with organic growth of 11 percent (10). Acquired units contributed 13 percent (1) to sales. Operating income excluding restructuring costs amounted to SEK 897 M (862), with an operating margin (EBIT) of 15.6 percent (17.2). Return on capital employed excluding restructuring costs was 14.3 percent (14.7). Operating cash flow before interest paid amounted to SEK 933 M (868). The division showed strong organic growth for the year. Underlying operating income remained strong, but profit- ability was negatively impacted by the effects of acquisitions. entrance systems Sales totaled SEK 8,278 M (4,072), with organic growth of 5 percent (–2). Acquired units contributed 110 percent (17) to sales. Operating income excluding restructuring costs amounted to SEK 1,197 M (627), with an operating margin (EBIT) of 14.5 percent (15.4). Return on capital employed excluding restructuring costs was 12.2 percent (14.6). Operating cash flow before interest paid amounted to SEK 1,243 M (580). New sales of automatic doors were strong during the year. Major acquisitions considerably strengthened the market position. Sales and operating cash flow doubled compared with the previous year. other The costs of Group-wide functions, such as corporate man- agement, accounting and finance, supply management and Group-wide product development, amounted to SEK 418 M (346). Elimination of sales between the Group’s segments and restructuring costs are included in ‘Other’. EXTERNAL SALES, 2011  EMEA, 30% (34)  Americas, 21% (26)  Asia Pacific, 15% (15)  Global Technologies, 14% (14)  Entrance Systems, 20% (11) 78 group financial reports assa aBloY annual report 2011 Results by division seK M Sales, external Sales, internal sales Organic growth Share of earnings in associates operating income (eBit) exclud- ing items affecting comparability Operating margin (EBIT) exclud- ing items affecting comparability Items affecting comparability 6 operating income (eBit) Operating margin (EBIT) Net financial items Tax on income net income Capital employed –of which goodwill – of which other intangi- ble and tangible assets –of which shares in associates Return on capital employed exclud- ing items affecting comparability Operating income (EBIT) Restructuring costs Depreciation Investments in fixed assets Sales of fixed assets Change in working capital cash flow 5 Adjustment for non-cash items Paid and received interest operating cash flow 5 eMea1 americas2 asia pacific3 global technologies4 entrance systems 2010 2011 12,660 12,762 268 13,036 13,030 376 2% 3 0% 2 2010 9,491 45 9,536 –2% – 2011 8,867 39 8,906 2% – 2010 5,698 384 6,081 14% – 2011 6,243 391 6,633 9% – 2010 4,951 64 5,015 10% – 2011 5,688 67 5,756 11% – 2010 4,024 48 4,072 –2% – 2011 8,226 52 8,278 5% 41 other total 2010 2011 2010 2011 – –916 7 –916 – 36,823 41,786 –817 7 –817 36,823 41,786 – – – – 3% 3 4% 43 2,174 2,203 1,886 1,812 843 933 862 897 627 1,197 –346 –418 6,046 6,624 16.7% – 2,174 16.7% 16.9% –587 1,616 12.4% 19.8% – 1,886 19.8% 20.3% –150 1,662 18.7% 13.9% – 843 13.9% 14.1% –48 885 13.3% 17.2% – 862 17.2% 15.6% –87 810 14.1% 15.4% – 627 15.4% 14.5% –423 774 9.3% – – –346 – – –125 –543 – 16.4% – 6,046 16.4% –680 1,286 4,080 15.9% –1,420 5,204 12.5% –645 –1,095 3,869 8,759 5,471 2,632 37 8,950 5,564 2,590 33 8,163 6,039 1,566 – 8,468 6,041 1,484 – 4,080 3,202 2,306 – 4,278 3,410 2,464 – 5,772 4,265 1,267 – 6,449 4,846 1,258 – 4,365 10,837 7,153 3,303 431 – 2,237 1,178 245 – 136 – –1,041 31,385 37,942 – 22,279 27,014 93 – 8,336 10,126 1,211 37 21.6% 22.0% 21.3% 22.8% 25.1% 23.6% 14.7% 14.3% 14.6% 12.2% – – 18.5% 17.4% 2,174 – 417 –357 40 334 2,607 1,616 587 385 –331 8 –123 2,142 1,886 – 222 –124 10 19 2,013 1,662 150 182 –140 5 –128 1,731 843 – 142 –217 19 130 917 885 48 148 –215 10 35 912 862 – 145 –109 0 –30 868 810 87 169 –98 0 –35 933 627 – 57 –55 8 –58 580 774 423 126 –111 19 12 1,243 –346 – 14 –8 85 –33 –288 45 –455 –543 125 12 –3 10 1 –398 0 –482 6,046 – 995 –870 162 362 6,695 45 –455 6,285 5,204 1,420 1,022 –898 52 –238 6,563 0 –482 6,080 Average number of employees 9,471 10,071 6,969 6,658 15,510 15,784 2,487 2,819 2,738 5,605 104 133 37,279 41,070 1 Europe, Middle East and Africa. 2 North and South America. 3 Asia and Pacific. 4 ASSA ABLOY Hospitality and HID Global. 5 Excluding restructuring payments. 6 Items affecting comparability con- sist of restructuring costs. 7 Of which eliminations SEK 817 M (916). 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 generate their revenue from the manufacture and the sale of mechanical, electromechanical and electronic locks, lock systems and fittings, and security doors and hardware. For further information on sales, see Note 2. OPERATING INCOME, 2011 1.2 AVERAGE NUMBER OF EMPLOYEES, 2011  EMEA, 31% (34)  Americas, 26% (30)  Asia Pacific, 13% (13)  Global Technologies, 13% (13)  Entrance Systems, 17% (10) 1 Operating income excluding items affecting comparability. 2 “Other” is not included in the calculation. See section Com- ments by division for what is included in “Other”.  EMEA, 25% (25)  Americas, 16% (19)  Asia Pacific, 38% (42)  Global Technologies, 7% (7)  Entrance Systems, 14% (7) assa aBloY annual report 2011 group financial reports 79 Financial position • Capital employed amounted to SEK 37,942 M (31,385). • Return on capital employed remained high at 17.4 percent (18.5). • The net debt/equity ratio was 0.60 (0.51). seK M Capital employed – of which goodwill Net debt Equity –of which non-controlling interests 2010 31,385 22,279 10,564 20,821 169 2011 37,942 27,014 14,207 23,735 208 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 37,942 M (31,385). The return on capital employed excluding items affecting comparability was 17.4 percent (18.5). Intangible assets amounted to SEK 31,455 M (25,193). The increase is mainly due to the effects of completed acqui- sitions. During the year, goodwill and other intangible assets with an indefinite useful life have arisen to a preliminary value of SEK 5,985 M. A valuation model based on dis- counted future cash flows is used for impairment testing of goodwill and other intangible assets with an indefinite use- ful life. Tangible assets amounted to SEK 5,684 M (5,422). Capi- tal expenditure on tangible and intangible assets, less sales of tangible and intangible assets, totaled SEK 846 M (708). Depreciation amounted to SEK 1,022 M (995). Accounts receivables totaled SEK 6,924 M (5,596) and inventories totaled SEK 5,704 M (4,825). The average collec- tion period for accounts receivables was 47 days (51). Mate- rial throughput time was 97 days (103). The Group is making systematic efforts to increase capital efficiency. net debt Net debt amounted to SEK 14,207 M (10,564), of which pen- sion commitments and other post-employment benefits accounted for SEK 1,173 M (1,078). Net debt was increased by acquisitions and the dividend to shareholders and reduced by the continued strong posi- tive operating cash flow. The net increase is mainly due to increased acquisition activity. External financing The Group’s long-term loan financing mainly consists of Private Placement Program in the USA totaling USD 500 M (580), GMTN program of SEK 2,658 M (2,705) and a loan from the European Investment Bank of EUR 110 M (0). During the year, long-term bilateral financing totaling EUR 110 M was raised from the European Investment Bank. The other changes in long-term loans are mainly due to some of the original long-term loans now having less than one year to maturity and to a new loan of SEK 500 M with a seven-year term raised under the GMTN program. The Group’s short-term loan financing mainly consists of two Commercial Paper Programs for a maximum USD 1,000 M (1,000) and SEK 5,000 M (5,000) respectively. At year-end, SEK 4,242 M (747) 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 of EUR 1,100 M (1,100), which was wholly unutilized at year-end. The increase in short-term financing is mainly linked to financing the acquisition of Cardo. The interest coverage ratio, defined as income before tax plus net interest, divided by net interest, was 8.8 (10.1). Fixed interest terms fell somewhat during the year, with an average term of 16 months (23) at year-end. Cash and cash equivalents amounted to SEK 1,665 M (1,302) and are invested in banks with high credit ratings. Some of the Group’s main financing agreements contain a customary so called Change of Control clause. This clause means 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. equity The Group’s equity totaled SEK 23,735 M (20,821) at year- end. The return on equity was 16.7 percent (19.1). The equity ratio was 42.9 percent (45.9). The debt/equity ratio, defined as net debt divided by equity, was 0.60 (0.51). NET DEBT CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 15,000 12,000 9,000 6,000 3,000 0 07 08 09 10 11  Net debt Net debt / equity 1.0 0.8 0.6 0.4 0.2 0 SEK M 42,000 36,000 30,000 24,000 18,000 12,000 6,000 0 07 08 09 10 11 % 28 24 20 16 12 8 4 0  Capital employed Return on capital employed1 1 Excluding items affecting comparability 2008, 2009 and 2011. assa aBloY annual report 2011 80 group financial reports Consolidated balance sheet 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 receivables 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 eQutiY anD liaBilities equity Parent company's shareholders Share capital Other contributed capital Reserves Retained earnings Non-controlling 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 liabilites current liabilities Short-term loans Convertible debenture loans Derivative financial instruments Accounts payables Current tax liabilities Short-term provisions Other short-term liabilities Accrued expenses and prepaid income total current liabilities total eQuitY anD liaBilities note 2010 2011 14 15 17 19 18 20 21 33 33 33 23 33 33 18 24 25 33 33 33 33 25 26 27 25,193 5,422 37 856 702 32,210 4,825 5,596 311 581 416 146 2 1,302 13,179 45,389 366 8,921 –484 11,849 20,652 169 20,821 7,235 899 309 1,078 1,793 2,134 13,448 2,481 311 72 3,123 458 771 1,146 2,758 11,120 45,389 31,455 5,684 1,211 164 786 39,301 5,704 6,924 325 620 551 234 50 1,665 16,072 55,373 368 9,227 –287 14,219 23,527 208 23,735 7,422 – 497 1,173 1,315 2,668 13,075 6,531 896 179 3,796 330 2,028 1,642 3,161 18,563 55,373 assa aBloY annual report 2011 group financial reports 81 Cash flow • Operating cash flow remained very strong and amounted to SEK 6,080 M (6,285). • Net capital expenditure totaled SEK 846 M (708). 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 2010 5,729 465 –708 799 6,285 2011 5,347 373 –846 1,206 6,080 investments in subsidiaries The total purchase price for acquisitions of subsidiaries amounted to SEK 13,600 M (4,898), of which the cash flow effect was SEK –12,297 M (–2,594). Acquired cash totaled SEK 411 M (705). change in net debt Net debt was mainly affected by the strong positive operat- ing cash flow, the dividend to shareholders and increased acquisitions. seK M Net debt at 1 January Operating cash flow Restructuring payments Tax paid Acquisitions/Disposals Dividend Share issue Purchase of treasury shares Exchange rate differences and others net debt at 31 December 2010 11,048 –6,285 465 799 3,319 1,317 – 48 –147 10,564 2011 10,564 –6,080 373 1,206 6,511 1,472 –308 17 452 14,207 operating cash flow seK M Operating income (EBIT) Restructuring costs Depreciation Net capital expenditure Change in working capital Paid and received interest Non-cash items operating cash flow1 Operating cash flow/ Income before tax 1 Excluding restructuring payments. ² Excluding restructuring costs. 2010 6,046 – 995 –708 362 –455 45 6,285 2011 5,204 1,420 1,022 –846 –238 –482 0 6,080 1.17 1.022 The Group’s operating cash flow amounted to SEK 6,080 M (6,285), equivalent to 102 percent (117) of income before tax excluding restructuring costs. net capital expenditure Direct net capital expenditure on intangible and tangible assets totaled SEK 846 M (708), equivalent to 83 percent (71) of the depreciation on intangible and tangible assets. The low net capital expenditure is partly due to the Group’s long-term efforts to streamline the production structure. change in working capital seK M Inventories Accounts receivables Accounts payables Other working capital change in working capital 2010 –338 –118 406 412 362 2011 –32 –249 235 –192 –238 The material throughput time was 97 days (103) at year-end. Capital tied up in working capital increased during the year, which had an impact on cash flow of SEK –238 M (362) over- all. However, the increased capital tied up in working capital was reduced due to suppliers’ increased credit periods. INCOME BEFORE TAX AND OPERATING CASH FLOW CAPITAL EXPENDITURE SEK M 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0  Income before tax1  Operating cash flow2 07 08 09 10 11 1 Excluding items affecting comparability 2008, 2009 and 2011. 2 Excluding restructuring payments. SEK M 1,000 800 600 400 200 0 07 08 09 10 11  Net capital expenditure  Depreciation Net capital expenditure % of sales % 2.5 2.0 1.5 1.0 0.5 0 82 group financial reports assa aBloY annual report 2011 Consolidated cash flow statement 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 Long-term loans repaid Share issue Purchase of treasury shares 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 note 8 31 31 14, 15 14, 15 31 31 31 33 2010 6,046 995 – –465 45 6,621 –463 8 –799 5,367 362 5,729 –870 162 –2,594 –34 –691 –4,027 –1,317 139 –1,000 – –48 –371 –2,597 –895 2,235 –895 –38 1,302 2011 5,204 1,022 1,420 –373 0 7,273 –512 30 –1,206 5,585 –238 5,347 –898 52 –12,297 6,690 –904 –7,357 –1,472 1,512 –646 308 –17 2,641 2,326 316 1,302 316 47 1,665 assa aBloY annual report 2011 group financial reports 83 Changes in consolidated equity seK M opening balance 1 January 2010 Net income Other comprehensive income total comprehensive income Dividend for 2009 Stock purchase plans Share issue Purchase of treasury shares Change in non-controlling interest sum of transactions with parent company shareholders’ closing balance 31 December 2010 opening balance 1 January 2011 Net income Other comprehensive income total comprehensive income Dividend for 2010 Stock purchase plans Share issue Purchase of treasury shares sum of transactions with parent company shareholders’ closing balance 31 December 2011 parent company’s shareholders share capital other con- tributed capital 366 8,887 note 23 reserves 760 –1,244 –1,244 23 23 23 23 23 0 34 0 366 34 8,921 –484 366 8,921 –484 197 197 2 306 2 368 306 9,227 –287 retained earnings non controlling interest 9,159 4,050 4,050 –1,317 6 –48 –1,359 11,849 11,849 3,843 3,843 –1,472 16 –17 –1,473 14,219 162 30 –5 26 –19 –19 169 169 26 13 39 208 total 19,334 4,080 –1,249 2,831 –1,317 6 34 –48 –19 –1,344 20,821 20,821 3,869 210 4,079 –1,472 16 308 –17 –1,165 23,735 SHAREHOLDERS’ EQUITY PER SHARE AFTER DILUTION AND RETURN ON SHAREHOLDERS’ EQUITY AFTER TAX DIVIDEND SEK 70 60 50 40 30 20 10 0 % 35 30 25 20 15 10 5 0 07 08 09 10 11  Shareholders’ equity per share after dilution, SEK  Return on shareholders’ equity after tax, % SEK 15 12 9 6 3 0  Dividend per share  Earnings per share after tax and dilution1 07 08 09 10 11 1 Excluding items affecting comparability 2008, 2009 and 2011. 84 group financial reports assa aBloY annual report 2011  Grand Hyatt San Francisco installs solutions from VingCard Elsafe The Grand Hyatt San Francisco, which is part of the Hyatt Hotels Corporation hotel chain. The spectacular Grand Hyatt San Francisco has recently been totally renovated and needed an ultramodern security system and an efficient energy management solution that could be integrated with the hotel’s others systems to achieve maximum efficiency. VingCard’s Signature RFID locks, Elsafe’s Infinity electronic safes and the Orion energy management solution were integrated using the VISIONLINE system, providing the hotel with a total security and energy management system. Customer: Challenge: Solution: assa aBloY annual report 2011 group financial reports 85 Parent company financial statements income statement – Parent company seK m Administrative expenses Research and Development costs Other operating income and expenses operating income statement of comprehensive income – Parent company Balance sheet – Parent company Financial income Financial expenses Group contributions income before tax Tax on income net income seK m net income other comprehensive income Changes in value of financial instruments total comprehensive income seK m assets non-current assets Intangible assets Tangible assets Shares in 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 Unrestricted equity Premium fund Retained earnings Net income total equity Provisions Other provisions total provisions non-current liabilities Long-term loans Convertible debenture loans total non-current liabilities current liabilities Short-term loans Convertible debenture loans Accounts payables 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 2010 –612 –233 1,623 778 1,147 –246 –725 954 3 957 2010 957 – 957 2011 –662 –297 1,808 849 2,394 –714 –232 2,297 –29 2,268 2011 2,268 258 2 526 note 2010 2011 14 15 16 19 22 23 25 33 33 33 33 27 29 28 150 3 19,686 776 20,615 3,476 58 25 0 3,559 24,174 366 8,905 34 2,709 767 12,781 – – 2,702 899 3,601 300 311 20 6,960 16 6 179 7,792 24,174 – 6,136 109 3 31,789 1,141 33,042 2,825 45 27 0 2,897 35,939 368 8,905 340 2,261 2,268 14,142 76 76 2,646 – 2,646 549 896 65 17,413 – 7 145 19,075 35,939 – 10,613 86 Parent comPany financial statements assa aBloy annual rePort 2011 cash flow statement – Parent company change in equity – 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 Loan raised Loan repaid Share issue Purchase of treasury shares 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 2010 778 183 961 –145 1,028 9 1,853 –141 1,712 –11 0 –603 –713 –1,327 –1,317 4,415 –3,435 – –48 –385 0 0 0 0 2011 849 157 1,006 –558 2,280 –1 2,727 –86 2,641 –117 0 –11,825 –951 –12,893 –1,472 13,050 –1,617 308 –17 10,252 0 0 0 0 restricted shareholders’ equity unrestricted shareholders’ equity seK m opening balance 1 January 2010 Net income total comprehensive income Stock purchase plans Purchase of treasury shares Share issue Dividend for 2009 sum of transactions with parent company shareholders’ closing balance 31 December 2010 opening balance 1 January 2011 Net income Hedge accounting Write-up of share in subsidiaries total comprehensive income Stock purchase plans Purchase of treasury shares Share issue Dividend for 2010 sum of transactions with parent company shareholders’ closing balance 31 December 2011 note share capital statutory reserve 366 8,905 23 23 23 23 0 0 366 8,905 366 8,905 2 2 368 8,905 fair value reserve Premium fund retained earnings – – – – – 34 34 34 34 306 340 340 3,878 957 957 6 –48 –1,317 –1,359 3,476 3,476 2,268 –17 275 2,526 16 –17 –1,472 –1,473 4,529 total 13,149 957 957 6 –48 34 –1,317 –1,325 12,781 12,781 2,268 –17 275 2,526 16 –17 308 –1,472 –1,165 14,142 assa aBloy annual rePort 2011 Parent comPany financial statements 87 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 of the Swedish Financial Reporting Board. The accounting princi- ples are based on IFRS as endorsed by 31 December 2011 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 statements, which comprise the information appearing on pages 61–118. 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 in accordance with the cost method, except regarding finan- cial assets and liabilities (including derivatives) measured at fair value through profit and loss. Key estimates and assessments for accounting purposes The preparation of financial statements requires estimates and assessments to be made for accounting purposes. The management also makes assessments when applying the Group’s accounting principles. Estimates and assessments may affect the income statement and balance sheet as well as the supplementary information that appears in the finan- cial statements. Thus changes in estimates and assessments may lead to changes in the financial statements. Estimates and assessments play an important part in the valuation of items such as identifiable assets and liabilities in acquisitions, impairment testing of goodwill and other assets, in determining actuarial assumptions for calculating employee benefits and other types of provisions, as well as in the valuation of deferred taxes. Estimates and assess- ments are continually reassessed and are based on a combi- nation of historical experience and reasonable expectations about the future. The Group considers that estimates and assessments relating to impairment testing of goodwill and other intan- gible assets with indefinite useful life are of material impor- tance to the consolidated financial statements. The Group tests carrying amounts for impairment on an annual basis. The recoverable amounts of cash generating units are deter- mined by calculating their values in use. The calculations are based on certain assumptions about the future which, for the Group, are associated with the risk of material adjust- ments in carrying amounts during the next financial year. Material assumptions and the effects of reasonable changes in them are described in Note 14. New and revised standards applied by the Group None of the standards and interpretations to be applied for the first time for the financial year beginning 1 January 2011 had a significant impact on the consolidated financial statements. New and revised IFRS not yet effective The following new IFRS and revisions to current IFRS have been published but are not yet effective, and have not been applied in the preparation of the financial statements. • • • • • IAS 19 (Revised) Employee Benefits. IFRS 9 Financial instruments. IFRS 10 Consolidated financial statements. IFRS 12 Disclosures of interests in other entities. IFRS 13 Fair value measurement. The above new and revised standards apply from 1 January 2013, with the exception of IFRS 9 which becomes effective on 1 January 2015. All the standards are still subject to the EU’s approval process. Management analyzes the impact of the new and revised standards on the financial statements. The new IFRS 10 and the revised IAS 19 require retroactive application, while the other standards are applied prospec- tively and consequently have no impact on financial state- ments prepared before the respective effective date. The agreed revision of IAS 19 Employee Benefits means that the ‘corridor’ method is no longer applicable. Instead actuarial gains and losses are to be recognized in other com- prehensive income when they arise, and expenses relating to service provided in previous years are to be recognized immediately. In addition, interest expenses and anticipated return on plan assets are replaced by a net interest rate, which is to be equivalent to the discount rate. These changes are being implemented retroactively, which means that com- parative information for the financial year 2012 is to be recal- culated when preparing the financial statements for 2013. In this recalculation, unrecognized expenses relating to service provided in previous years and unrecognized actuarial losses as at 31 December 2011 are accounted for as an adjustment of opening equity after taking into account tax effects. These items total SEK 1,092 M as at the reporting date. The Group’s total pension provision, adjusted for amounts in the ‘corri- dor’, consequently totals SEK 2,265 M (see Note 24). In other respects, none of the new IFRS listed above are considered to have a significant impact on the consolidated financial statements. Consolidated financial statements The consolidated financial statements include 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 compa- nies in which the Parent company otherwise has a control- ling interest, for example by having the right to formulate financial and operating strategies. Companies acquired dur- ing the year are included in the consolidated financial state- ments with effect from the date when a controlling interest was obtained. Companies sold during the year are included in the consolidated financial statements up to the date when a controlling interest ceased. The consolidated financial statements have been pre- pared in accordance with the purchase method, which means that the cost of shares in subsidiaries was eliminated against their equity at the acquisition date. In this context, equity in subsidiaries is determined on the basis of the fair value of assets, liabilities and contingent liabilities at the acquisition date. Consequently only that part of the equity in subsidiaries that has arisen after the acquisition date is included in consolidated equity. The Group determines on an individual basis for each acquisition whether a non-con- trolling interest in the acquired company shall be recog- nized at fair value or at the interest’s proportional share of the acquired company’s net assets. Any negative difference, negative goodwill, is recognized as revenue immediately after determination. Additional purchase considerations for acquisitions completed after 1 January 2010 are classified as financial lia- bilities and revalued through profit or loss in operating income. Substantial additional purchase considerations are discounted to present value. Acquisition-related transaction costs are expensed as incurred. Revaluation of additional purchase considerations for acquisitions completed before 1 January 2010 is recognized as a change in goodwill. 88 Notes AssA ABLoY ANNuAL report 2011 Note 1 cont. Intragroup transactions and balance sheet items and unreal- ized profits on transactions between Group companies are eliminated in the consolidated financial statements. 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. Non-controlling interests Non-controlling interests are based on subsidiaries’ accounts with application of fair value adjustments resulting from a completed acquisition analysis. Non-controlling interests’ share in subsidiaries’ earnings is shown in the income statement, in which net income is attributed to the Parent company’s shareholders and to non-controlling interests. Non-controlling interests’ share in subsidiaries’ equity is shown separately in consolidated equity. Transac- tions with non-controlling interests are shown as transac- tions with the Group’s shareholders. Associates Associates are defined as companies which are not subsid- iaries but in which the Group has a significant, but not a con- trolling, interest. This is usually taken to be companies in which the Group’s shareholding represents between 20 and 50 percent of the voting rights. Interests in associates are accounted for in accordance with the equity method. In the consolidated balance sheet, shareholdings in associates are reported at cost, and the car- rying amount is adjusted for the share of associates’ earnings after the acquisition date. Dividends from associates are reported as a reduction in the carrying amount of the hold- ings. The share of associates’ earnings is reported in the con- solidated income statement in operating income as the holdings are related to business operations. Segment reporting Operating segments are reported in accordance with inter- nal reporting to the chief operating decision 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 reporting and also consti- tute the Group’s segments for external financial reporting. The Group’s business is divided into five divisions. Three divi- sions 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 on the transac- tion date. Foreign exchange gains and losses arising from the settlement of such transactions are normally reported in the income statement, as are those arising from translation of monetary balance sheet items in foreign currencies at the year- end rate. Exceptions are transactions relating to qualifying cash flow hedges, which are reported in comprehensive income. Receivables and liabilities are valued at the year-end rate. In translating the accounts of foreign subsidiaries pre- pared in functional currencies other than the Group’s pre- sentation currency, all balance sheet items except net income are translated at the year-end rate and net income is translated at the average rate. The income statement is translated at the average rate for the period. Foreign exchange differences arising from the translation of foreign subsidiaries are reported as translation differences in com- prehensive income. Country Currency 2010 2011 2010 2011 Average rate Closing rate ARS Argentina AUD Australia BRL Brazil CAD Canada CHF Switzerland CLP Chile CNY China COP Colombia CZK Czech Republic DKK Denmark EUR Euro zone United Kingdom GBP HKD Hong Kong HUF Hungary ILS Israel INR Indien KES Kenya KRW South Korea LTL Lithuania MXN Mexico MYR Malaysia NOK Norway NZD New Zealand PLN Poland RON Romania RUB Russia SGD Singapore THB Thailand USD USA ZAR South Africa 1.85 6.61 4.10 6.98 6.94 0.014 1.07 0.38 1.28 9.57 11.14 0.93 0.035 1.93 0.158 0.091 1.57 6.73 3.88 6.57 7.31 0.013 1.01 0.0038 0.0035 0.37 1.21 9.02 10.38 0.83 0.032 1.81 0.139 0.074 0.0062 0.0059 2.61 0.52 2.12 1.16 5.16 2.19 2.13 0.22 5.16 0.21 6.50 0.90 2.77 0.57 2.24 1.19 5.19 2.38 2.27 0.24 5.29 0.23 7.23 0.98 1.72 6.93 4.05 6.85 7.20 0.015 1.03 0.35 1.21 8.99 10.53 0.88 0.032 1.91 0.152 0.085 1.61 7.03 3.71 6.78 7.36 0.013 1.10 0.0034 0.0036 0.35 1.20 8.96 10.68 0.89 0.029 1.82 0.130 0.081 0.0060 0.0060 2.59 0.49 2.18 1.15 5.35 2.04 2.08 0.22 5.33 0.22 6.92 0.85 2.60 0.55 2.21 1.15 5.21 2.26 2.10 0.23 5.28 0.23 6.84 1.02 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 lim- ited 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 normally upon delivery. If the product requires installation at the customer’s premises, revenue is recognized when installation is completed. Revenue from service contracts is recognized on a continuous basis 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 relating to assets are reported after reducing the carrying amount of the asset by the amount of the grant. Research and development Research costs are expensed as they are incurred. Develop- ment costs are reported in the balance sheet only to the AssA ABLoY ANNuAL report 2011 Notes 89 Note 1 cont. extent that they are expected to generate future economic benefits for the Group and provided such benefits can be reliably measured. Capitalized development expenditure is amortized over the expected useful life. Such intangible assets, which are not yet in use, are tested annually for impairment. Expendi- ture on the development of existing products is expensed as incurred. Borrowing costs Borrowing costs are interest expenses and other expenses directly related to borrowing. Borrowing costs directly relat- ing to acquisition, construction or production of a qualified asset (an asset that necessarily takes a substantial period of time to complete 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 incurred. Tax on income The income statement includes all tax that is to be paid or received for the current year, adjustments relating to tax due for previous years, and changes in deferred tax. Tax sums have been calculated as nominal amounts, in accordance with the tax regulations in each country, and in accordance with tax rates that have either been decided or have been notified and can confidently be expected to be confirmed. For items reported in the income statement, associated tax effects are also reported in the income statement. The tax effects of items reported directly against equity or compre- hensive income are themselves reported against equity or comprehensive income. Deferred tax is accounted for using the liability method. This means that deferred tax is accounted for on all temporary differences between the car- rying amounts of assets and liabilities and their respective tax bases. Deferred tax assets 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 liabil- ities relating to temporary differences resulting from invest- ments in subsidiaries are not reported in the consolidated financial statements, since the Parent company can control the time at which the temporary differences are reversed, and it is not considered likely that such reversal will occur in the foreseeable future. Deferred tax assets 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 trans- actions 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 acquisition date. 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 acqui- sition date, and is reported at cost less accumulated impair- ment losses. Goodwill is allocated to cash generating units (CGU) and is tested annually to identify any impairment loss. Cash generating units are subject to systematic annual impairment testing using a valuation model based on dis- counted future cash flows. Deferred tax assets based on local tax rates are reported in terms of tax-deductible good- will (with corresponding reduction of the goodwill value). Such deferred tax assets are expensed as the tax deduction is utilized. Other acquisition-related intangible assets con- sist chiefly of various types of intellectual property rights, such as brands, technology and customer relationships. Identifiable acquisition-related intellectual property rights are initially recognized at fair value at the acquisition date and subsequently at cost less accumulated amortization and impairment losses. Amortization is on a straight-line basis over the estimated useful life. Acquisition-related intangible assets with an indefinite useful life are tested for impairment annually 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 associ- ated 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 estimated useful life, usually between three and five years. Its carrying amount is cost less accumulated amortization and impair- ment losses. Tangible assets Tangible assets are reported at cost less accumulated depre- ciation and impairment losses. Cost includes expenditure that can be directly attributed to the acquisition of the asset. Subsequent expenditure is capitalized if it is probable that economic benefits associated with the asset 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 estimated residual value. No depreciation is applied to land. For other assets, cost is depreciated over the estimated useful life, which for the Group results in the following average depre- ciation periods: • Office buildings 50 years. • Industrial buildings 25 years. • Plant and machinery 7–10 years. • Equipment and tools 3–6 years. The residual value and useful life of assets are reviewed at each financial year-end and adjusted when necessary. Profit or loss on the disposal of tangible assets 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 operating leasing. The lease payments are expensed at a constant rate over the period of the contract and are reported as operating expenses. Impairment Assets with an 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 an impairment loss has been established, the value of the asset is reduced to its recoverable amount. The recov- 90 Notes AssA ABLoY ANNuAL report 2011 Note 1 cont. erable amount is the higher of the asset’s fair value less sell- ing expenses, 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 receivables Accounts receivables 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 receivables, short-term investments and derivatives and are classified in the following categories; financial assets valued at fair value through the income statement, available-for- sale assets, loan receivables and accounts receivables. Man- agement determines the classification of its financial assets at initial recognition. Financial assets valued 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 sell- ing in the short term or if so designated by management. Derivatives are also classified as held-for-trading unless they are designated as hedges. Assets in this category are classi- fied as current assets. Available-for-sale financial assets Available-for-sale financial assets are non-derivative assets that have been identified as available for sale or assets that have not been classified in any other category. They are included in Non-current assets, unless management intends to sell the asset within 12 months of the end of the reporting period. Changes in fair value are reported in Other compre- hensive income. Loan receivables and accounts receivables Accounts receivables and short-term investments are non- derivative financial assets with fixed or determinable pay- ments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non-current assets. Financial liabilities Financial liabilities include additional purchase consider- ations, loan liabilities, accounts payables and derivative instruments. Reporting depends on how the liability is classified. Financial liabilities valued at fair value through the income statement This category includes derivatives with negative fair value that are not used for hedging, additional purchase consider- ations and financial liabilities held for trading. Liabilities are measured at fair value on a continuous basis and changes in value are reported in the income statement as a financial item. Loan liabilities Loan liabilities are valued initially at fair value after transac- tion 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 negative surplus values as well as direct issue expenses are allocated over the loan period. Long-term loan liabilities have an antic- ipated term to maturity exceeding one year, while current loan liabilities have a term to maturity of less than one year. Accounts payables Trade payables are valued at fair value and thereafter at amortized cost using the effective interest method. Recognition and measurement of financial assets and liabilities Regular purchases and sales of financial assets are recognized on the trade date, the date on which the Group commits to purchase or sell the asset. Investments are initially recog- nized at fair value plus transaction costs for all financial assets not carried at fair value through the income statement, where the transaction cost is reported in the income state- ment. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using various valua- tion techniques. These include the use of available informa- tion on recent arm’s-length transactions, reference to other instruments that are substantially the same and discounted cash-flow analysis. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset is derec- ognized when the right to receive cash flows from the asset expires or is transferred to another party through the transfer of all the risks and benefits associated with the asset to the other party. A financial liability is derecognized when the obligation is fulfilled, cancelled or expires, see above. Derivative instruments and hedging Derivatives are recognized in 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). For fair value hedges, changes in value of both the hedged item and the hedging instrument are reported in the income statement (financial items) in the period in which they arise. Changes in fair value of derivatives not des- ignated as hedging instruments are reported on a continu- ous basis in the income statement (financial items). For net investment hedges, the part of changes in fair value classi- fied as effective is recognized in other comprehensive income. The ineffective part of the profit or loss is recog- nized immediately in the income for the period as financial items. Accumulated profit or loss in other comprehensive income is recognized in the income for the period when for- eign operations, or part thereof, are sold. Changes in fair value for derivatives not designated as hedging instruments are reported on a continuous basis in the income statement (financial items). AssA ABLoY ANNuAL report 2011 Notes 91 Note 1 cont. When the transaction is entered into, the Group documents the relationship between the hedging instrument and the hedged item, as well as the Group’s risk management objec- tives and risk management strategy as regards the hedging. The Group also documents its assessment, both when hedg- ing is entered into and on a regular basis, of whether the derivative instruments used in hedge transactions are effec- tive in counteracting changes in fair value that relate to the hedged items. The fair value of currency derivatives is calcu- lated at net present value based on prevailing forward con- tract prices on the reporting date, while interest rate swaps are valued using estimates of future discounted cash flows. Provisions A provision is recognized when the Group has a legal or con- structive obligation resulting from a past event and it is probable that an outflow of resources will be required to settle the obligation, and that a reliable estimate can be made of the amount. Provisions are reported at a value rep- resenting the probable outflow of resources that will be needed to settle the obligation. The amount of a provision is discounted to present value where the effect of time value is material. Employee benefits Both defined contribution and defined benefit pension plans exist in the Group. Comprehensive defined benefit plans are found chiefly in the USA, the UK and Germany. Post-employment medical benefits also exist, mainly in the USA, which are reported in the same way as defined benefit pension plans. Calculations relating to the Group’s defined benefit plans are performed by independent actuaries and are based on a number of actuarial assumptions such as dis- count rate, future inflation and salary increases. Obligations are valued on the reporting date 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 higher of 10 percent of the present value of the obligation or the fair value of plan assets) are spread over the expected average remaining working lives of the employees. Pension expenses for defined benefit plans are spread over the employee’s ser- vice period. The Group’s payments relating to defined con- tribution pension plans are reported as an expense 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 pension costs is calculated on the difference between pension expense in accordance with IAS 19 and pension expense determined in accordance with local regulations. Equity-based incentive programs Equity-based remuneration refers to remuneration to employees, including senior executives, in accordance with ASSA ABLOY’s long-term incentive program presented for the first time at the 2010 Annual General Meeting. A com- pany must report the personnel costs relating to equity- based incentive programs based on a measure of the value to the company of the services provided by the employees during the programs. Since the value of the employees’ ser- vices cannot be reliably calculated, the cost of the program is based on the value of the assigned share instrument. Since the long-term incentive program in its entirety is equity reg- ulated, an amount equivalent to the personnel cost is reported in the balance sheet as equity in retained earnings. The personnel cost is also reported in the income state- ment, where it is allocated to the respective function. Long-term incentive program ASSA ABLOY has equity-based remuneration plans where settlement will be in the form of shares. For the long-term incentive program, personnel costs during the vesting period are reported based on the shares’ fair value on the assignment date, that is, when the company and the employees entered into an agreement on the terms and conditions for the program. The long-term incentive pro- gram comprises two parts: a matching part where the employee receives one share for every share the latter invests during the term of the program and a performance- based part where the outcome is based on the company’s financial results (EPS target) during the period. The program requires that the employee continues to invest in the long- term incentive program and that the latter remains employed in the ASSA ABLOY Group. Fair value is based on the share price on the assignment date, a reduction in fair value relating to the anticipated divi- dend has not been made as the participants are compen- sated for this. The employees pay a price equivalent to the share price on the investment date. The vesting terms are not stock market based and affect the number of shares that ASSA ABLOY will give to the employee when matching. If an employee stops investing in the program, all remaining per- sonnel costs are immediately recognized in the income statement. Personnel costs for shares relating to the perfor- mance-based program are calculated on each accounting date based on an assessment of the probability of the per- formance targets being achieved. The costs are calculated based on the number of shares that ASSA ABLOY expects to need to issue at the end of the vesting period. When match- ing shares, social security contributions must be paid in some countries to the value of the employee’s benefit. This value is based on fair value on each accounting date and reported as a provision for social security contributions. Earnings per share Earnings per share before dilution is calculated by dividing the net income attributable to the Parent company’s share- holders by the weighted average number of outstanding shares (less shares in treasury shares). Earnings per share after dilution is calculated by dividing the net income attrib- utable to the Parent company’s shareholders by the sum of the weighted average number of ordinary shares and poten- tial ordinary shares that may give rise to a dilutive effect. The dilutive effect of potential ordinary shares is only reported if their conversion to ordinary shares would lead to a reduc- tion in earnings per share after dilution. 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 provides Group-wide functions. The Parent company’s revenue consists of intra- group franchise and royalty revenues. The significant bal- ance 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 of the Swedish Financial Reporting Board. RFR 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 92 Notes AssA ABLoY ANNuAL report 2011 Note 1 cont. Act and with regard to the relationship between accounting and taxation. The recommendation states what exceptions from, and additions to, IFRS should be made. Revenue The Parent company’s revenue consists of intra-group fran- chise 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. Pension obligations Pension obligations for the Parent company are accounted for in accordance with FAR RedR 4 and 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 assets. They are amortized over 4–5 years. Tangible assets Tangible assets owned by the Parent company is reported at cost less accumulated depreciation and any impairment losses in the same way as for the Group. They are depreci- ated over their estimated useful life, which is 5–10 years for equipment and 4 years for IT equipment. Leasing In the Parent company all lease agreements are treated as rental agreements (operating leases) regardless of whether they are financial or operating leases. Shares in subsidiaries Shares in subsidiaries are reported at cost less impairment losses. When there is an indication that the value of shares and interests in subsidiaries or associates has fallen, the recoverable amount is calculated. If this is lower than the carrying amount, an impairment loss is recognized. Impair- ment losses are reported in Earnings from participations in subsidiaries, which is included in Financial items in the income statement. Financial instruments Derivative instruments are recorded at fair value. Changes in the fair values of derivative instruments are reported in the income statement with the exception of exchange rate changes relating 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 parent company reports Group contributions in accor- dance with RFR 2. Group contributions received and paid are recognized as financial income and financial expenses respectively in the income statement. The tax effect of group contributions is recognized in accordance with IAS 12 in the income statement. Contingent liabilities The Parent company has guarantees on behalf of its subsid- iaries. Such an obligation is classified as a financial guarantee in accordance with IFRS. For these guarantees, the Parent company applies the allowed exception in RFR 2, reporting these guarantees as a contingent liability. Note 2 sales Sales to customer, by country seK M USA China France Sweden Germany United Kingdom Australia Netherlands Canada Finland Norway Italy Denmark Spain South Korea Belgium Mexico Austria Switzerland Asia (excluding China, South Korea, Singapore, India and Thailand) Czech Republic Poland South Africa Brazil New Zealand Africa (excluding South Africa) United Arab Emirates Saudi Arabia Romania Hong Kong India Russia Israel Portugal Central America (excluding Mexico) Turkey Singapore Baltic countries Colombia Chile Thailand South America (excluding Brazil, Chile and Colombia) Middle East (excluding Saudi Arabia, United Arab Emirates and Israel) Ireland Greece Other countries total Sales by product group seK M Mechanical locks, lock systems and fittings Electromechanical locks, access control and identification technology Entrance automation Security doors and hardware total Group 2010 9,955 3,182 2,487 1,805 1,725 1,742 1,841 1,105 1,274 837 774 925 705 885 694 457 678 286 417 310 352 147 372 321 278 250 127 273 85 215 189 160 211 203 193 135 129 111 125 105 100 110 2011 9,772 3,861 2,979 2,652 2,192 1,977 1,793 1,462 1,273 1,068 1,049 903 852 820 793 726 614 526 522 468 396 308 297 284 284 284 281 277 236 230 214 199 195 195 191 176 159 154 136 125 116 114 103 70 73 302 36,823 102 91 55 385 41,786 Group 2010 2011 15,591 15,877 8,990 4,110 8,132 36,823 9,044 8,444 8,421 41,786 AssA ABLoY ANNuAL report 2011 Notes 93 Note 3 Auditors’ fees Note 6 operational leasing agreements seK M Audit assignment PwC Other Audit related services in addition to audit assignment PwC Other tax advice PwC Other other services PwC Other total Group parent company Group parent company 2010 2011 2010 2011 seK M 2010 2011 2010 2011 28 6 1 – 6 2 8 2 53 30 11 1 – 8 2 19 3 74 3 – 1 – 1 – 1 0 6 3 – 1 – 1 – 15 – 20 Leasing fees paid during the year total Nominal value of agreed future leasing fees: Due for payment in (2011) 2012 Due for payment in (2012) 2013 Due for payment in (2013) 2014 Due for payment in (2014) 2015 Due for payment in (2015) 2016 Due for payment in (2016) 2017 or later total 343 343 463 463 310 423 237 331 177 235 99 66 177 128 99 988 126 1 420 13 13 14 15 15 15 16 16 91 16 16 15 15 15 15 16 16 92 Note 4 other operating income and expenses Group seK M 2010 2011 Rent received Net income from sales of fixed assets Government grants Business-related taxes Disposal of subsidiaries Transaction expenses acquisitions Write-down of tangible asset Insurance compensation, net Exchange rate differences Other, net total 12 92 9 –20 –3 –61 –144 66 –26 2 –73 12 –3 6 –20 0 –22 –37 0 –15 2 –77 Parent company Other operating income in the Parent company consist mainly of franchise and royalty revenues from subsidiaries. Note 5 share of earnings in associates seK M Agta Record AG Saudi Crawford Doors Factory Ltd Låsgruppen Wilhelm Nielsen AS Other total Group 2010 2011 – – 3 – 3 37 4 2 0 43 The share of earnings in Agta Record AG has been estimated on the basis of the associated company’s latest available financial report, which is the published Interim Report for the first half of 2011. Note 7 expenses by nature In the income statement costs are broken down by function. Cost of goods sold, Selling expenses, Administrative expenses and Research and development costs amount to SEK 36,548 M (30,707). 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 2010 10,110 12,553 995 7,049 – 30,707 2011 11,835 14,655 1,022 7,616 1,420 36,548 Note 8 Depreciation and amortization seK M 2010 2011 2010 2011 Group parent company Intangible assets Machinery Equipment Buildings Land improvements total 163 442 237 152 1 995 183 452 228 157 2 1 022 182 – 1 – – 183 156 – 1 – – 157 Note 9 exchange rate differences in income statement parent company Group seK M 2010 2011 2010 2011 Exchange rate differences reported in operating income Exchange rate differences reported in financial expenses (Note 11) total –26 –15 5 –21 7 –8 0 94 94 0 9 9 94 Notes AssA ABLoY ANNuAL report 2011 Note 13 earnings per share 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) Stock purchase plan Weighted average number of shares for calculations (thousands) earnings per share after dilution (seK per share) Group 2010 2011 4,050 3,843 365,744 367,833 11.07 10.45 Group 2010 2011 4,050 3,843 10 11 4,060 3,854 365,744 367,833 7,001 65 4,680 114 372,810 372,627 10.89 10.33 Earnings per share after dilution and excluding items affecting comparability Group seK M Earnings attributable to the Parent company's shareholders Interest expenses for convertible debenture loans, after tax Items affecting comparability, after tax Net profit for calculating earnings per share after dilution Weighted average number of shares issued (thousands) Assumed conversion of convertible debentures (thousands) Stock purchase plan Weighted average number of shares for calculations (thousands) earnings per share after dilution and excluding items affecting comparability (seK per share) 2010 2011 4,050 3,843 10 – 11 736¹ 4,060 4,590 365,744 367,833 7,001 65 4,680 114 372,810 372,627 10.89 12.30 ¹ Items affecting comparability for 2011 consist of restructuring costs and net income from discontinued operations. Note 10 Financial income seK M 2010 2011 2010 2011 Group parent company Earnings from partici- pations in subsidiaries Earnings from partici- pations in associates Intra-group interest income Other financial income External interest income and similar items total – – – 2 24 26 – – – 1,028 2,256 – 24 119 114 23 0 – 36 59 0 1,147 0 2,394 Note 11 Financial expenses seK M 2010 2011 2010 2011 Group parent company Intra-group interest expenses Interest expenses, con- vertible debenture loans Interest expenses, other liabilities Interest expenses, interest rate swaps Interest expenses, foreign exchange forwards Exchange rate differences 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 – – –87 –429 –13 –14 –13 –14 –519 –562 –164 –226 –50 –38 5 1 5 –8 –41 7 –1 –18 –1 1 – – 94 – – – – – 9 – – – 0 –96 –706 – –68 –704 –44 –32 –246 –22 –32 –714 Note 12 tax on income Group parent company seK M 2010 2011 2010 2011 Current tax Tax attributable to prior years Foreign withholding tax Deferred tax total –971 –1,048 –289 – –26 –142 – 95 –1,286 –1,095 0 3 – – 3 –30 5 –4 – –29 Explanations for the difference between nominal Swedish tax rate and effective tax rate based on income before tax: percent 2010 2011 2010 2011 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 Non-deductible restruc- turing costs Other effective tax rate in income statement 26 4 –6 –1 –3 – 4 24 26 4 –5 0 –2 1 0 24 26 – –26 – – – – 0 26 – –25 – – – – 1 AssA ABLoY ANNuAL report 2011 Notes 95 Note 14 Intangible assets 2011, seK M opening accumulated acquisition value Purchases Acquisitions of subsidiaries Adjustments for acquisitions in the prior year Exchange rate differences Closing accumulated acquisition value opening accumulated amortization/impairment Impairment Amortization Exchange rate differences Closing accumulated amortization/impairment Carrying amount 2010, seK M opening accumulated acquisition value Purchases Acquisitions of subsidiaries Adjustments for acquisitions in the prior year Sales/disposals Exchange rate differences Closing accumulated acquisition value opening accumulated amortization/impairment Amortization Exchange rate differences Closing accumulated amortization/impairment Carrying amount Group Intangible assets 3,789 112 1,590 – 30 5,521 –875 – –183 –21 –1,079 4,442 Group Intangible assets 2,778 112 1,117 2 –12 –208 3,789 –787 –163 75 –875 2,914 Goodwill 22,343 – 4,584 –34 187 27,080 –64 –2 – – –66 27,014 Goodwill 20,397 – 2,988 97 – –1,139 22,343 –64 – – –64 22,279 parent company Intangible assets 945 115 – – – 1,060 –795 – –156 – –951 109 parent company Intangible assets 934 11 – – – – 945 –613 –182 – –795 150 total 26,132 112 6,174 –34 215 32,599 –939 – –183 –21 –1,143 31,455 total 23,175 112 4,105 99 –12 –1,347 26,132 –851 –163 75 –939 25,193 Intangible assets consist mainly of brands and licenses. The carrying amount of intangible assets with an indefinite use- ful life amounts to SEK 3,412 M (1,950). Useful life has been defined as indefinite where the time which in turn are based on financial budgets for a three-year period approved by management. Cash flows beyond the three-year period are extrapolated using estimated growth rates according to the information below. period during which an asset is deemed to contribute eco- nomic benefits cannot be determined. Amortization and impairment of intangible assets are mainly recognized as cost of goods sold in the income statement. Impairment testing of goodwill and intangible assets with indefinite useful life Goodwill and intangible assets with an indefinite useful life are allocated to the Group’s Cash Generating Units (CGUs), which consist of the Group’s five divisions. For each cash-generating unit, the Group annually tests goodwill and intangible assets with an indefinite useful life for impairment, in accordance with the accounting principle described in Note 1. Recoverable amounts for Cash Generat- ing Units have been determined by calculating value in use. These calculations are based on estimated future cash flows, Material 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. Management has determined the budgeted operating mar- gin based on previous results and expectations of future market development. A growth rate of 3 percent (3) has been used for all CGUs to extrapolate cash flows beyond the budget period. This growth rate is considered to be a con- servative estimate. Further, an average discount rate in local currency after tax has been used in the calculations. The dif- ference in value compared with using a discount rate before tax is not deemed to be material. 96 Notes AssA ABLoY ANNuAL report 2011 Note 14 cont. 2011 Overall, the discount rate used 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 an indefinite useful life were allocated to the Cash Generating Units as summarized in the following table: seK M Goodwill Intangible assets with indefinite useful life total eMeA 5,564 241 5,805 Americas Asia pacific Global technologies entrance systems 6,041 245 6,286 3,410 1,022 4,432 4,846 346 5,192 7,153 1,558 8,711 total 27,014 3,412 30,426 2010 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 allocated to the Cash Generating Units as summarized in the following table: seK M Goodwill Intangible assets with indefinite useful life total eMeA 5,471 233 5,704 Americas Asia pacific Global technologies entrance systems 6,039 233 6,272 3,202 974 4,176 4,265 342 4,607 3,303 168 3,471 total 22,279 1,950 24,229 sensitivity analysis A sensitivity analysis has been carried out for each cash- generating unit. The results of this analysis are summarized below. 2011 If the estimated operating margin after the end of the bud- get period had been one percentage point lower than the management’s estimate, the total recoverable amount would be 5 percent lower (EMEA 5 percent, Americas 5 per- cent, Asia Pacific 6 percent, Global Technologies 5 percent, and Entrance Systems 6 percent). 2010 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 5 percent lower (EMEA 5 percent, Americas 5 percent, Asia Pacific 6 percent, Global Technologies 5 percent and Entrance Systems 6 percent). If the estimated growth rate used to extrapolate cash flows beyond the budget period had been one percentage point lower than the basic assumption of 3 percent, the total recoverable amount would be 13 percent lower (EMEA 13 percent, Americas 13 percent, Asia Pacific 11 percent, Global Technologies 11 percent, and Entrance Systems 13 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 Technol- ogies 11 percent and Entrance Systems 13 percent). If the estimated weighted capital cost used for the Group’s discounted cash flows had been one percentage point higher than the basic assumption of 9.0 to 10.0 per- cent, the 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). 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 per- cent, the total recoverable amount would be 14 percent lower (EMEA 14 percent, Americas 14 percent, Asia Pacific 13 percent, Global Technologies 13 percent and Entrance Sys- tems 14 percent). These calculations are hypothetical and should not be viewed as an indication that these factors are any more or less likely to change. The sensitivity analysis should therefore be interpreted with caution. 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 None of the hypothetical cases above would lead to an impairment of goodwill in an individual Cash Generating Unit. impairment of goodwill in an individual Cash Generating Unit. AssA ABLoY ANNuAL report 2011 Notes 97 Note 15 tangible assets 2011, seK M Buildings Group parent company Machinery equipment total equipment 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 Reclassifications Exchange rate differences Closing accumulated depreciation/impairment Construction in progress Carrying amount 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 Reclassifications Exchange rate differences Closing accumulated depreciation/impairment Construction in progress Carrying amount Land and land improve- ments 820 7 51 –1 0 –38 839 –139 0 0 –2 0 –1 –142 Land and land improve- ments 829 6 91 –25 5 –86 820 –30 0 –119 –1 –1 12 –139 3,706 61 338 –23 56 –18 4,121 –1,728 11 –104 –157 0 –14 –1,992 3,794 72 212 –84 31 –319 3,706 –1,816 51 –12 –152 1 200 –1,728 6,272 232 142 –210 148 44 6,629 –4,436 173 –99 –452 –11 –27 2,244 166 69 –167 –21 22 2,314 –1,698 153 –9 –228 12 –15 13,042 467 600 –401 184 11 13,903 –8,002 337 –212 –840 0 –56 –4,852 –1,786 –8,773 6,784 327 179 –444 112 –686 6,272 –4,971 422 –13 –442 2 566 2,347 178 27 –158 47 –197 2,244 –1,776 142 – –237 –1 174 13,754 583 509 –711 195 –1,288 13,042 –8,594 615 –144 –832 1 952 –4,436 –1,698 –8,002 1,978 681 1,836 546 382 5,422 2,128 697 1,777 528 555 5,684 2010, seK M Buildings Group parent company Machinery equipment total equipment 17 1 – – – – 18 –14 – – –1 – – –15 – 3 16 1 – – – – 17 –13 – – –1 – – –14 – 3 98 Notes AssA ABLoY ANNuAL report 2011 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 Holding B.V. Pan Pan DOOR Co LTD 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 Cardo AB ASSA ABLOY Portugal, Unipessoal, Lda (Portugal) ASSA ABLOY Entrance Systems Italy S.p.A. ASSA ABLOY Holding Italia S.p.A. total 1 The Group’s holdings amount to 100 percent. ² The Group’s holdings amount to 70 percent. Note 17 shares in associates 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 52153924, Raamsdonksveer 210800004058002, Dashiqiao 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 556026-8517, Malmö PT500243700, Alfragide IT06698790968, Milano IT01254420597, Rome 70 15,000 1,000 400 60,000 1,000 1,000 1,000 1,000 800,000 150,000 60,500 2 180 – 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 27,000,000 1 12,000 650,000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 362 100 98¹ 100 100 100 100 100 90¹ 100 100 100 100 100 100 100 100 71¹ 100 100 100 100 100 100 100 100 100 197 22 181 528 60 220 0 189 0 4,257 538 376 1,086 771 567 1,964 0 47 26 3,077 1 293 901 184 2,237 0 13 17 242 48 765 142 105 14 0 303 72 11,373 0 63 911 31,789 2011 Company name Country of registration Agta Record AG Talleres Agui S.A Låsgruppen Wilhelm Nielsen AS Saudi Crawford Doors Ltd Ditec Istanbul Otomatik Gecis Sistemleri Ltd Other total Switzerland Spain Norway Saudi Arabia Turkey Group Number of shares % of share capital Book value, seK M 5,077,964 4,800 305 800 350 38 40 50 40 35 1,171 17 15 6 1 1 1,211 The share of capital in Agta Record AG has been estimated on the basis of the associated company’s latest available financial report, which is the published Interim Report for the first half of 2011. For the period January to June, the company’s revenue totaled SEK 1,019 M and income after tax was SEK 41 M. The company’s assets totaled SEK 2,007 M and total liabilities amounted to SEK 720 M. 2010 Company name Talleres Agui S.A Låsgruppen Wilhelm Nielsen AS Mab Iberica SA Other total AssA ABLoY ANNuAL report 2011 Country of registration Number of shares % of share capital Book value, seK M Group Spain Norway Spain 4,800 305 700 40 50 24 17 16 0 4 37 Notes 99 Note 18 Deferred tax seK M Deferred tax receivables Tax-deductible goodwill Pensions Tax losses and other tax credits Other deferred tax receivables Deferred tax receivables Deferred tax liabilities Deferred tax receivables, net Change in deferred tax Opening balance Acquisitions of subsidiaries, net Reported in income statement Exchange rate differences Closing balance Accounts receivables per currency Group 2010 2011 262 127 232 81 702 309 393 751 –239 –26 –93 393 235 115 366 70 786 497 289 393 –205 95 6 289 EUR USD GBP AUD CNY SEK Other currencies total Current year change in provision for bad debts Opening balance Acquisition and disposals Receivables written off Reversal of unused amounts Provision for bad debt Exchange rate differences Closing balance 2010 1,747 1,477 270 308 399 248 1,147 5,596 2011 2,374 1,675 319 282 545 443 1,286 6,924 2010 2011 392 39 –81 –5 148 –28 465 465 77 –80 –77 150 2 537 The group has tax losses carried forward and other tax cred- its of SEK 3,500 M (2,400) for which deferred tax assets have not been recognized, as it is uncertain whether the allow- ance can be set against taxable income in future taxation. Note 19 other financial assets seK M 2010 2011 2010 2011 Group parent company Participations in associ- ates in 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 – 762 62 32 856 – 52 44 68 164 – 1,141 750 26 – 776 – – – 1,141 Group 2010 1,417 1,214 1,984 210 4,825 2011 1,663 1,459 2,348 234 5,704 Write-downs of inventory amounted to SEK 43 M (142). Note 21 Accounts receivables seK M Accounts receivables Provision for bad debts total Maturity analysis Accounts receivables not due Accounts receivables past due not impaired: < 3 months 3–12 months > 12 months Impaired accounts receivables: < 3 months 3–12 months > 12 months Group 2010 6,061 –465 5,596 2011 7,461 –537 6,924 4,163 5,075 1,375 284 239 1,898 –87 –142 –236 –465 1,675 371 240 2,386 –84 –174 –279 –537 total 5,596 6,924 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 premium fund, 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 – 346,743 259 365,918 259 365,918 259 19,175 347,002 366,177 366,177 191,753 347,002 538,755 19,175 – 347,002 2,073 366,177 2,073 366,177 2,073 19,175 349,075 368,250 368,250 191,753 349,075 540,828 Opening balance at 1 January 2010 Share issue Closing balance at 31 December 2010 Number of votes, thousands Opening balance at 1 January 2011 Share issue Closing balance at 31 December 2011 Number of votes, thousands All shares have a par value of SEK 1.00 and give shareholders equal rights to the company’s assets and earnings. All shares are entitled to dividends subsequently determined. Each Series A share carries ten votes and each Series B share one vote. All issued shares are fully paid. The weighted average number of shares was 367,833 thousand (365,744) during the year. The weighted average number of shares after full conversion of outstanding con- vertible bonds and the effects of the long-term incentive program was 372,627 thousand (372,810) during the year. The total number of treasury shares as at 31 December 2011 amounted to 400,000. A total of 100,000 shares were repurchased in 2011. Dividend per share The dividend paid during the financial year totaled SEK 1,472 M (1,317), equivalent to SEK 4.00 (3.60) per share. A dividend for 2011 of SEK 4.50 per share, a total of SEK 1,657 M, will be proposed at the Annual General Meeting on Wednesday, 25 April 2012. 100 Notes AssA ABLoY ANNuAL report 2011 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 ben- efit plans in a number of countries, those in the USA, the UK and Germany being the most significant ones. These are also obligations related to post-employment medical benefits also exist in the USA. Amounts recognized in the income statement pension costs, SeK M 2010 2011 Defined benefit pension plan (A) Defined contribution pension plan Post-employment medical benefit plan (A) total 177 169 33 379 80 295 27 402 Amounts recognized in the balance sheet pension provisions, SeK M 2010 2011 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 566 436 76 1,078 –26 1,052 A) Specification of amounts recognized in the income statement pension costs, SeK M Current service cost Interest on obligation Expected return on plan assets Net actuarial losses (gains), net Write-down pension receivables ¹ Past service cost Losses (gains) on curtailments/settlements total –of which, included in: Operating income Net financial items total post-employment medical benefits 2010 2011 6 24 – –1 – 4 – 33 10 23 33 6 21 – 0 – 0 – 27 6 21 27 Defined benefit pension plans total 2010 46 218 –167 67 15 0 –2 177 44 133 177 2011 48 204 –176 28 –15 1 –10 80 39 41 80 2010 52 242 –167 66 15 4 –2 210 54 156 210 652 441 80 1,173 –23 1,150 2011 54 225 –176 28 –15 1 –10 107 45 62 107 1 In accordance with limitation rule for the valuation of pension plan surplus, IAS 19 paragraph 58. Actuarial gains/losses arising from changes in the actuarial assumptions for defined-benefit pension plans are recog- nized to the extent that their accumulated amount exceeds a ‘corridor’, which is equivalent to 10 percent of the higher of the pension obligation’s present value and the fair value of the plan assets. The surplus/deficit outside this ‘corridor’ is recognized over the expected average remaining service period as from the year after the actuarial gain/loss arose. Amortization of actuarial gains/losses that arose in 2011 thus begins in 2012 to the extent amortization is applicable under current rules and regulations. The actual return on plan assets for defined-benefit plans amounted to SEK 32 M (299) in 2011. Partly funded or unfunded pension plans are reported as provisions for pensions. B) Specification of amounts recognized in the balance sheet Specification of defined benefits, SeK M Present value of funded obligations (C) Fair value of plan assets (D) Net value of funded plans Present value of unfunded obligations (C) Unrecognized actuarial gains (losses) Unrecognized past service cost Provisions for defined contribution pension plans total post-employment medical benefits 2010 2011 – – – 438 –2 0 436 – – – 472 –30 –1 441 Defined benefit pension plans total 2010 3,305 –2,854 451 741 –623 –3 566 2011 4,046 –3,115 931 782 –1,033 –28 652 2010 3,305 –2,854 451 1,179 –625 –3 1,002 76 1,078 2011 4,046 –3,115 931 1,254 –1,063 –29 1,093 80 1,173 ASSA ABLOY AnnuAL repOrt 2011 nOteS 101 Note 24 cont. C) Movement in obligations post-employment medical benefits Defined benefit pension plans total 2010 2011 402 6 24 52 – – – –32 –14 438 438 6 21 22 – – – –26 11 472 2010 4,294 46 218 –26 15 –15 – –188 –298 4,046 2011 4,046 48 204 327 –15 20 329 –192 61 4,828 seK M opening obligations Current service cost Interest on obligation Actuarial losses (gains) Write-down of pension receivables Curtailments /settlements Acqusitions/disposals 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 Acqusitions/disposals 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, seK M Effect on the aggregate of the current service cost and interest cost Effect on the defined benefit obligation G) Key actuarial assumptions 2010 4,696 52 242 26 15 –15 – –220 –312 4,484 2011 4,484 54 225 349 –15 20 329 –218 72 5,300 Defined benefit pension plans 2010 2,817 167 132 – – –61 –201 2,854 2010 1,439 1,065 350 2,854 2011 2,854 176 –144 –5 227 –94 101 3,115 2011 1,547 1,187 381 3,115 +1% 3 52 –1% –3 –44 Key actuarial assumptions (weighted average), % 2010 2011 Discount rate Expected return on plan assets 1 Expected future salary increases Expected future pension increases Expected future medical benefit increases Expected inflation As at 31 December Present value of obligation (+) Fair value of plan assets (–) obligation, net 5.1 6.3 2.3 2.4 10.0 2.7 3.9 6.1 2.4 1.8 9.2 2.5 2007 4,384 –3,177 1,207 2008 3,963 –2,604 1,359 2009 4,696 –2,817 1,879 2010 4,484 –2,854 1,630 2011 5,300 –3,115 2,185 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 reflects risk premiums and indexes of interest-bearing investments on the market. 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 UFR 3 this is a defined benefit plan that covers many employers. For the 2011 financial year the company has not had access to infor- mation making it possible to report this plan as a defined benefit plan. Pension plans in accordance with ITP that are guaranteed through insurance with Alecta are therefore reported as defined contribution plans. The year’s contribu- tion that are contracted to Alecta amounts to SEK 28 M (14), of which SEK 6 M (6) relates to the Parent company. Alecta’s surplus may be distributed to the policy-holders and/or the persons insured. At the end of 2011 Alecta’s surplus expressed as collective consolidation level amounted to 113 percent (146). Collective consolidation level consists of the market value of Alecta’s assets as a percentage of its insurance commitments calculated according to Alecta’s actuarial calculation assumptions, which do not comply with IAS19. 102 Notes AssA ABLoY ANNuAL report 2011 Note 25 other provisions seK M opening balance at 1 January 2010 Provisions for the year Reclassification Reversal of non-utilized amounts Utilized during the year Exchange rate differences Closing balance at 31 December 2010 restruc- turing reserve 1,577 – – –49 –465 –139 Group other total 978 944 286 –18 –517 –33 2,555 944 286 –67 –982 –172 Note 28 Contingent liabilities Group parent company seK M 2010 2011 2010 2011 Guarantees Guarantees on behalf of subsidiaries total 49 – 49 74 – – – 74 6,136 10,613 6,136 10,613 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. 924 1,640 2,564 Group Group Maturity profile-guarantees, seK M 2010 2011 seK M opening balance at 1 January 2011 Provisions for the year Additional purchase price sub- sidiaries Reversal of non-utilized amounts Utilized during the year Exchange rate differences Closing balance at 31 December 2011 Balance sheet breakdown: Other long-term provisions Other short-term provisions total restruc- turing reserve 924 1,224 1 –91 –403 10 other total 1,640 403 65 –194 –246 10 2,564 1,627 66 –285 –649 20 1,665 1,678 3,343 Group 2010 1,793 771 2,564 2011 1,315 2,028 3,343 The restructuring reserve relates to the ongoing restructur- ing programs launched in 2008, 2009 and 2011. The closing balance is expected to be chiefly utilized in the next three years and mainly relates to severance payments. The long- term part of the restructuring reserve totaled SEK 717 M. For further information on the restructuring programs, see the Report of the Board of Directors. Other provisions relate to estimated deferred purchase considerations, taxes and legal obligations including future environment-related measures. parent company Other provisions in the parent company relate to estimated deferred purchase considerations. Note 26 other short-term liabilities seK M VAT and excise duty Employee withholding tax Advances received Social security contributions and other taxes Short-term deferred considerations Other short-term liabilities total Group 2010 2011 238 65 261 54 48 480 1,146 397 25 573 81 134 432 1,642 Note 27 Accrued expenses and prepaid income Group parent company seK M 2010 2011 2010 2011 Personnel-related expenses Customer-related expenses Prepaid income Accrued interest expenses Other total 1,434 1,630 87 91 411 68 85 760 2,758 611 126 131 663 3,161 – – 42 50 179 – – 40 14 145 <1 year >1<2 year >2<5 year >5 year total 8 10 13 18 49 25 10 30 9 74 Note 29 Assets pledged against liabilities to credit institutes Group parent company seK M 2010 2011 2010 2011 Real Estate mortgages Other mortgages total 225 45 270 305 134 439 – – – – – – Note 30 Business combinations seK M Cash paid Paid part prior year Unpaid part of purchase prices total purchase price 2010 2,959 – 1,939 4,898 2011 12,599 555 446 13,600 Fair value of acquired net assets –1,910 –2,736 Disposed acquired net assets Goodwill – 2,988 –6,280 4,584 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 Non-controlling interest Acquired net assets at fair value Purchase prices settled in cash Cash and cash equivalents in acquired subsidiaries Change in Group cash and cash equiva- lents resulting from acquisitions Net sales from times of acquisition EBIT from times of acquisition Net income from times of acquisition 1,117 620 437 504 705 –390 –1,081 –2 1,910 1,590 843 803 1,371 411 –244 –2,038 0 2,736 2,959 12,599 –705 –411 2,254 12,188 2,142 323 195 5,143 644 5,588 The net sales of acquired entities for 2011 totaled SEK 6,601 M (2,880) and net income amounted to SEK 5,676 M (163). Net income includes payment for divested opera- tions acquired during the year. Acquisition-related costs totaled SEK 22 M (61) in 2011 and have been reported as other operating expenses in the income statement. AssA ABLoY ANNuAL report 2011 Notes 103 Note 30 cont. The acquisition of Cardo is classified as a single material acquisition and the purchase price allocation is therefore presented separately below. Other major acquisitions in 2011 included Lasercard (USA), FlexiForce (Netherlands) and Swesafe (Sweden). The major acquisitions in 2010 were Pan Pan (China), ActivIdentity (USA), Paddock (United King- dom) and King Door Closers (South Korea). Preliminary acquisition analyses have been prepared for all acquisitions in 2011. Contingent considerations for acquisitions in 2010 and 2011 are recognized in the balance sheet as other non-current liabilities and other current lia- bilities respectively, and are discounted in the case of major acquisitions. In 2011 there was no material revaluation of additional purchase considerations in the income state- ment. See below for further information on contingent con- siderations for the acquisition of Pan Pan. 2011 LaserCard On 31 January 2011 the Group acquired 100 percent of the share capital in LaserCard Corporation, a leading provider of secure ID solutions to government and commercial custom- ers worldwide. LaserCard has a unique product portfolio of smart cards, services and product solutions for complex ID systems management, which are used by more than 400 customers in 44 countries. The company’s strength lies in its knowledge and management of various types of secure identities and technologies, such as personal identification, border controls, secure government services, and access to buildings. Its product portfolio complements ASSA ABLOY’s HID Global business unit. LaserCard is headquartered in Cali- fornia, USA. Intangible assets in the form of brand and cus- tomer relationships has been disclosed. Residual goodwill is mainly attributable to synergies and other intangible assets that do not fulfill the criteria for separate recognition. FlexiForce On 6 April 2011 the Group acquired 100 percent of the share capital in FlexiForce, a global leader in components for industrial sectional doors and residential garage doors. Flexi- Force specializes in the manufacture and distribution of components for overhead sectional doors and has a strong position in product development and marketing as well as a solid customer base. FlexiForce adds a new and very important distribution channel for reaching industrial door manufacturers. The company is headquartered in the Netherlands. The purchase price allocation is preliminary. Swesafe On 6 April 2011 the Group acquired 100 percent of the share capital in Swesafe, Sweden’s largest locksmith. This acquisition is an important step in the development of the Swedish market in the fast-growing electromechanical seg- ment. Ownership of the largest locksmith in Sweden means that locksmiths and systems integrators will become more project oriented and focused on electronic products and the service offering. In addition, it will provide a further understanding of end-customer needs. Goodwill is mainly attributable to synergies and other intangible assets that do not fulfill the criteria for separate recognition. Cardo Entrance Solutions Cardo’s Entrance Solutions division is a leading supplier of industrial doors, logistics systems, garage doors, customer service and other services. The acquisition of Cardo Entrance Solutions represents a strategically important step in the development of ASSA ABLOY’s operations in the Entrance Systems division. Overall, this will strengthen the Group’s product offering and create a strong entrance automation supplier with a wide range of products, customer service and other services. The acquisition of Cardo is expected to generate considerable synergies largely through a combina- tion of the companies’ respective offerings. Cardo Entrance Solutions was created in 2010 through the coordination of two previous divisions, Door & Logistic Solutions and Residential Garage Doors. Under the Crawford and Megadoor brands, it offers total industrial door, docking and service solutions for service-intensive customers in transport, logistics and trade. The division also offers stan- dardized and customized garage doors for the consumer market. The range includes up and over doors, overhead sec- tional doors, side sectional doors and the automation for these products. These doors are positioned as exclusive, offering good design, quality and high security. The main brands are Crawford and Normstahl. Intangible assets in the form of brand and customer rela- tionships has been disclosed. Residual goodwill is mainly attributable to synergies and other intangible assets that do not fulfill the criteria for separate reporting. The table below shows the purchase price allocation for Cardo Entrance Solutions as at 18 March 2011, excluding disposal groups held for sale, in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations. This acquisition analysis is preliminary pending final mea- surement of the fair value of acquired identifiable intangible assets. seK M Cash paid Less: Discontined operations 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 Non-controlling interest Acquired net assets at fair value Purchase prices settled in cash Purchase prices discontinued operations Cash and cash equivalents in acquired subsidiaries Change in Group cash and cash equiva- lents resulting from acquisitions Net sales from times of acquisition EBIT from times of acquisition Net income from times of acquisition 2011 11,340 –6,280 5,060 –1,932 3,128 1,474 555 517 921 176 –111 –1,600 – 1,932 11,340 –6,690 –176 4,474 3,709 455 5,699 2010 Pan Pan On 1 January 2010 the Group acquired 70 per cent of Pan Pan, China´s largest manufacturer of high security steel doors. Through the acquisition of Pan Pan the ASSA ABLOY Group further strengthen its market leading position in China. Pan Pan manufactures high security doors in the form of fire, anti theft, armored, corrosion proof and standard 104 Notes AssA ABLoY ANNuAL report 2011 Note 30 cont. high security doors. The company has an extensive well established distribution network across China and comple- ments well ASSA ABLOY’s other door companies on the Chinese market. The acquisition is an important step in the strategy of expansion into the fast growing emerging mar- kets. The Company manufactures in six locations in China and is headquartered in Yingkou, north of Beijing. The brand and customer relationships have been separately recog- nized and remaining goodwill is chiefly related to synergies and other intangible assets not qualified for separate recog- nition. The reciprocal right to buy / sell the remaining 30 per- cent stake to the counterparty is reported as a deferred con- sideration, which means that the company results and finan- cial position are consolidated at 100 percent from the date of acquisition. Deferred consideration is discounted to pres- ent value and the discounting effects are reported as finan- cial items. The bulk of the purchase price has not been paid and the amount due is dependent on the earnings perfor- mance of the Company during the period 2010–2012. King Door Closers On 1 May 2010 the Group acquired 100 percent of the share capital of King Door Closers, South Korea´s leading door closer company. The acquisition is another important step for the Group in it’s strive to enlarge its presence within the emerging markets. King adds apart from market leadership in South Korea also important export customers mainly in other parts of the Middle east and the Asian region. King has a comprehensive range of basic and certified commercial and residential door closers as well as a complete range of floor springs. King is based in Seoul, South Korea. The brand has been separately recognized and remaining goodwill is chiefly related to synergies and other intangible assets not qualified for separate recognition. Paddock On 1 August 2010 the Group acquired 100 percent of the share capital of Paddock, the UK´s leading multipoint lock manufacturer. The strategically important acquisition enhances ASSA ABLOYs leading position in the fast growing multipoint lock segment. The acquisition is part of the strat- egy to expand the presence in the mature markets by adding complementary lock products to the current portfolio. The company has an extensive distribution network across the UK, which complements well ASSA ABLOY’s existing Yale multipoint lock business. The Company is based in Walsall, north of Birmingham. The brand has been separately recog- nized and remaining goodwill is chiefly related to synergies and other intangible assets not qualified for separate recog- nition. ActivIdentity On 17 December 2010 the Group acquired 100 percent of the share capital of ActivIdentity, a global leader in strong authentication and credential management. ActivIdentity is an ideal fit with HID Global, finally enabling a unique solu- tion to convergence between the logical and physical access domains via a single credential. ActivIdentity’s market lead- ership in credential management systems, broad portfolio of complementary strong authentication products and Pro- fessional Services capabilities complements ASSA ABLOY’s HID Global Business Unit. ActivIdentity is headquartered in California, USA. Disposals of subsidiaries In 2011 Cardo Flow Solutions and Lorentzen & Wettre, which were part of Cardo Entrance Solutions acquired dur- ing the year, were divested. These disposals have been reported in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. In 2010 small busi- nesses were divested in Switzerland and Russia. Cash flow effects and the result from disposals are shown in the table below: seK M Disposed net assets Fixed assets Inventories Receivables Cash and cash equivalents Assets in disposal group held for sale Liabilities Liabilities in disposal group held for sale 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 income after tax from discontinued operations during the holding period Other result from disposals 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 receivables increase/ decrease (–/+) Accounts payables increase/ decrease (+/–) Other working capital increase/ decrease (–/+) Change in working capital Investments in subsidiaries Total purchase price Less, paid part of purchase prices prior year relating to actual year acqusitions 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 Disposal of subsidiaries Purchase prices received Less, disposed cash and cash equivalents Disposal of subsidiaries other investments Investments in/sales of other shares Investments in/sales of other financial assets other investments Group 2010 2011 – – –8 –34 – 9 – –33 – –34 –34 – 31 –3 – – – – –7,539 – 1,161 –6,378 6,690 – 6,690 92 – 404 Group 2010 2011 –84 54 75 45 –338 –118 406 412 362 3 40 –43 0 –32 –249 235 –192 –238 –4,898 –13,600 – 705 1,939 555 411 446 –340 –2,594 –109 –12,297 – –34 –34 –721 30 –691 6,690 6,690 –876 –28 –904 AssA ABLoY ANNuAL report 2011 Notes 105 Note 32 employees Salaries, wages, other remuneration and social security costs seK M Salaries, wages and other remuneration – which of bonus Social security costs – of which pensions total Group 2010 8,322 46 1,788 379 10,110 2011 9,704 48 2,131 402 11,835 Fees to Board members in 2011 (including committe work), SEK thousands Name and post Gustaf Douglas, Chairman 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 1,000 500 500 500 – 500 500 500 – 4,000 remuneration Committe Audit Committee social security costs 100 – – – – 50 – – – 150 – – 100 – – – 100 200 – 400 112 157 188 157 – 56 189 220 – 1,079 parent company 2010 2011 103 8 66 19 169 115 8 59 21 174 total 1,212 657 788 657 – 606 789 920 – 5,629 Remuneration and other benefits of the Executive Team in 2011 seK thousands Fixed salary Variable salary benefits other benefits pension costs stockrelated Johan Molin Other members of the Executive Team (8) total remuneration and benefits total costs1 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 11,582 31,594 43,176 51,342 3,969 9,136 13,105 15,736 8,250 15,102 23,352 27,405 2,587 4,880 7,467 8,921 117 2,956 3,073 3,249 paid to the Executive Team during 2010 totaled SEK 74 M and social security costs SEK 43 M, of which SEK 29 M were pension costs. Salaries and remuneration for the Board of Directors and the parent company’s Executive Team Salaries and other remuneration for the Board of Directors and the parent company’s Executive Team totaled SEK 37 M (37). Social security expenses amounted to SEK 20 M (35), of which SEK 7 M (8) were pension costs. Long-term incentive programs At the 2010 Annual General Meeting, it was decided to launch a long-term incentive program (LTI 2010) for senior executives and other key staff in the Group. The aim of LTI 2010 is to create the prerequisites for retaining and recruit- ing competent staff for the Group, providing competitive remuneration and uniting the interests of shareholders, senior executives and key staff. At the 2011 Annual General Meeting, it was decided to launch a further long-term incentive program for senior executives and other key staff in the Group. This new long- term incentive program is called LTI 2011 and has been drawn up with similar terms to LTI 2010. For each Series B share acquired by the CEO within the framework of LTI 2010 and LTI 2011, the company awards one matching stock option and four performance-based stock options. For each Series B share acquired by other members of the Executive Team, the company awards one matching stock option and three performance-based stock options. For other participants, the company awards one matching stock option and one performance-based stock option. In accordance with the terms of the incentive pro- grams, employees have acquired a total of 174,632 shares in ASSA ABLOY AB, of which 87,068 shares were acquired in 2011 within the framework of LTI 2011. Each matching stock option entitles the holder to receive one Series B share, free of charge, in the company after three years, provided that the holder is still employed in the Group when the interim report for Q1 2014 (Q1 2013 for LTI 2010) is published, and has maintained the shares acquired within the framework of the long-term incentive programs. Each performance-based stock option entitles the holder to receive one Series B share, free of charge, in the company three years after allocation, provided that the above condi- tions have been fulfilled. In addition, the maximum level in a range determined by the Board of Directors for the perfor- mance of the company’s earnings per share in 2011 must have been fulfilled (earnings per share in 2010 for LTI 2010). This condition has been fulfilled. Outstanding matching and performance-based stock options for LTI 2011 total 240,595. The total number of out- standing matching and performance-based stock options for LTI 2010 and LTI 2011 amounted to 443,680 on the reporting date. Fair value is based on the share price on the assignment date. The present value calculation is based on data from an external party. Fair value is adjusted for participants who do not retain their holding of shares for the duration of the pro- gram. In the case of performance-based shares, the com- pany assesses the probability of the performance targets being met when calculating the compensation expense. 106 Notes AssA ABLoY ANNuAL report 2011 Note 32 cont. The fair value of ASSA ABLOY’s Series B share on the allot- ment date of 25 May 2011 was SEK 173.29. The fair value of the Series B share on the allotment date for LTI 2010 of 28 July 2010 was SEK 161.79. value and therefore do not result in any personnel cost for the Group. For further information on other equity-based incentive programs, see the section on the ASSA ABLOY share (page 122). In 2011 the total cost of the Group’s long-term incentive programs amounted to SEK 16 M, of which SEK 7 M relates to LTI 2011 and SEK 9 M to LTI 2010. In 2010 the cost of LTI 2010 amounted to SEK 6 M. Other equity-based incentive programs ASSA ABLOY has issued a number of convertible debentures to employees in the Group, of which one (Incentive 2007) is still active but matures in 2012. These were issued at market Notice and severance pay If the CEO is given notice, the company is liable to pay the equivalent of 24 months’ basic salary and other employ- ment benefits. If one of the other members of the Executive Team is given notice, the company is liable to pay a maxi- mum six months’ basic salary and other employment bene- fits plus an additional 12 months’ basic salary. Average number of employees per country, with breakdown into women and men Group 2010 of which women of which men 5,806 1,799 707 465 371 339 523 583 326 102 180 181 225 156 134 151 191 287 124 96 183 108 129 112 63 86 26 30 42 139 13,664 8,644 3,943 1,175 837 679 675 512 527 547 409 745 632 598 437 254 319 204 165 224 308 241 269 216 191 117 129 86 88 62 382 23,615 2011 of which women of which men 6,083 1,855 703 517 475 466 550 527 340 167 165 202 209 183 255 139 227 260 131 104 187 102 112 108 85 88 42 30 53 173 14,538 8,698 4,006 1,497 1,340 978 853 586 601 615 782 745 600 555 550 414 411 312 212 317 330 231 251 231 208 221 120 148 96 68 556 26,532 total 14,781 5,861 2,200 1,857 1,453 1,319 1,139 1,128 955 949 910 802 764 733 669 550 539 472 448 434 418 353 343 316 306 208 190 126 121 729 41,070 parent company 2010 of which women of which men 27 27 77 77 2010 of which women of which men 2 – – 2 6 9 3 15 2011 of which women of which men 26 26 98 98 2011 of which women of which men 2 – – 2 6 9 3 15 total 124 124 total 8 9 3 17 total 14,449 5,742 1,882 1,301 1,049 1,014 1,035 1,110 873 511 925 813 823 593 388 470 395 452 348 404 424 377 345 303 181 215 112 118 104 523 37,279 total 104 104 total 8 9 3 17 China USA France Sweden Germany United Kingdom Czech Republic Mexico Finland Netherlands South America Italy Australia Spain South Korea Norway Romania Malaysia Denmark Canada South Africa Israel Switzerland New Zealand Belgium Ireland Austria Portugal Hong Kong Other total Sweden total Gender-split in senior management Board of Directors 1 Executive Team –of which Parent company's Executive Team total 1 Excluding employee representatives. AssA ABLoY ANNuAL report 2011 Notes 107 Note 33 Financial risk management and financial instruments Financial risk management ASSA ABLOY is exposed to a variety of financial risks due to its international business operations. ASSA ABLOY’s units have carried out financial risk management in accordance with the Group’s financial policy. The principles for financial risk management are described below. capital to shareholders, issuing new shares or selling assets to reduce debt. The capital requirement is assessed on the basis of factors such as the net debt/equity ratio. Net debt is defined as interest-bearing liabilities, includ- ing negative market values of derivatives, plus pension provi- sions, less cash and cash equivalents, other interest-bearing investments and positive market values of derivatives. The table ’Net debt and equity’ shows the position as at 31 December. Organization and activities ASSA ABLOY’s financial policy, which is determined by the Board of Directors, provides a framework of guidelines and regulations for the management of financial risks and finan- cial activities. ASSA ABLOY’s financial activities are coordinated cen- trally and the majority of financial transactions are con- ducted by the subsidiary ASSA ABLOY Financial Services AB, which is the Group’s internal bank. External financial transac- tions are conducted by Treasury. Treasury achieves signifi- cant economies of scale when negotiating borrowing agree- ments, using interest rate derivatives and managing cur- rency flows. Net debt and equity seK M Long-term interest-bearing receivables Short-term interest-bearing investments incl. positive market values of derivatives Cash and bank balances Pension provisions Long-term interest-bearing liabilities Short-term interest-bearing liabilities incl. negative market values of derivatives total equity Net debt/equity ratio, times Group 2010 –62 –170 –1,280 1,078 8,134 2,864 10,564 20,821 0.51 2011 –44 –284 –1,665 1,173 7,422 7,605 14,207 23,735 0.60 Capital structure The objective of the Group’s capital structure is to safeguard its ability to continue as a going concern, and to generate good returns for shareholders and benefit for other stake- holders. Maintaining an optimal capital structure enables the Group to keep capital costs as low as possible. The Group can adjust the capital structure based on the requirements that arise by varying the dividend paid to shareholders, returning Another important variable in the assessment of the Group’s capital structure is the credit rating assigned by credit rating agencies to the Group’s debt. It is essential to maintain a good credit rating in order to have access to both long-term and short-term financing from the capital markets when needed. 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 <1 year >1<2 year >2<5 year >5 year <1 year >1<2 year >2<5 year >5 year 31 December 2010 31 December 2011 Long-term bank loans Long-term capital market loans Convertible loans 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 receivables Additional purchase considerations Accounts receivables Accounts payables Net total Committed credit facilities Credit facilities maturing < 1 year Adjusted maturity profile¹ –37 –303 –324 –1,133 –1,402 –23 –3,222 1,304 6 –48 5,596 –3,123 513 24,330 –5,142 19,701 –255 –1,382 –905 – – 37 –2,505 – 47 –29 – – –2,487 – – –2,487 –81 –3,277 – – – 73 –3,285 – 24 –1,932 – – –5,193 –19,189 – –24,382 –120 –3,258 – – – 11 –3,367 – – – – – –3,367 – – –3,367 1 For maturity structure of guarantees, see Note 28. –7 –284 –903 –1,213 –5,396 20 –7,781 1,949 44 –134 6,924 –3,796 –2,794 10,306 –455 7,057 –49 –648 – – – 29 –669 – – –2,288 – – –2,957 – – –2,957 –341 –3,804 – – – 65 –4,080 – – –166 – – –4,246 –9,851 – –14,097 –1,070 –2,734 – – – –2 –3,806 – – – – – –3,806 – – –3,806 108 Notes AssA ABLoY ANNuAL report 2011 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 Multi–Currency RCF Bank loan EIB Global MTN Program Other long-term loans total long-term loans/facilities US Private Placement Program Global MTN Program Incentive Program Global CP Program Swedish CP Program Other bank loans Overdraft facility total short-term loans/facilities total loans/facilities Maturity Dec 2013 May 2015 Dec 2016 Apr 2017 May 2017 Dec 2018 May 2020 Jun 2014 Jul 2018 2 Mar 2014 Jun 2014 Jun 2016 Jun 2016 Jun 2018 May 2012 Feb 2012 May 2012 Jun 2012 Amount, seK M 363 554 523 346 346 844 484 9,851 985 13,433 253 27,982 554 896 6,920 5,000 806 1,098 15,273 43,255 Carrying amount, seK M Currency Amount 2010 Amount 2011 of which parent company, seK M USD USD USD USD USD USD USD EUR EUR EUR EUR NOK NOK SEK USD SEK SEK EUR USD EUR SEK 52 80 76 50 50 122 70 1,100 0 45 150 250 100 0 80 300 250 100 0 0 747 52 80 76 50 50 122 70 1,100 110 45 150 250 100 500 80 300 250 100 220 10 2,650 363 622 1 523 346 346 844 484 0 985 403 1,343 2951 115 500 253 7,422 562 1 300 250 896 1,518 89 2,635 806 370 7,426 14,848 –1,665 Cash and bank balances Short-term interest-bearing investments Long-term interest-bearing investments Market value of derivatives Pensions Net debt 1 The loans are subject to hedge acconting . 2 The loan amortizes starting November 2016. In the table the average date of maturity of the loan has been stated. –44 –55 1,173 14,207 –50 403 1,343 295 115 500 2,656 300 250 896 1,446 4,102 –4 –23 4,075 Rating Agency short- term outlook Long-term Standard & Poor’s Moody’s A2 P2 Stable Stable A – n/a Credit outlook Negative However, when the acquisition of Cardo was announced Standard & Poor’s placed the rating on negative credit watch. This was removed in April and replaced by negative outlook. Moody’s rating remains unchanged since the previous year. 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 external financing. ASSA ABLOY manages financing risk at Group level. Treasury is responsi- ble for external borrowing and external financial invest- ments. ASSA ABLOY strives to have access on every occasion to both short-term and long-term loan facilities. In accor- dance with financial policy, the available facilities should include a reserve (facilities available but not utilized) equivalent to 10 percent of the Group’s total annual sales. Maturity profile The table ‘Maturity profile’ on page 108 shows the maturi- ties for ASSA ABLOY’s financial instruments including con- firmed credit facilities. These maturities are not concen- trated to a particular date in the immediate future, particu- larly taking into account the credit facility of EUR 1,100 M maturing in 2014, which was wholly unutilized at year-end. The bridging facilities raised in connection with the acquisi- tion of Cardo have been repaid in full, partly though revenue from the disposals made and partly by raising new long-term and short-term loans. Moreover, financial assets are also taken into account when assessing the maturity profile. The table shows undiscounted future cash flows relating to the Group’s financial instruments at the reporting date, and these amounts are therefore not found in the balance sheet. AssA ABLoY ANNuAL report 2011 Notes 109 Note 33 cont. Interest-bearing liabilities The Group’s long-term financing mainly consists of Private Placement Program in the USA totaling USD 500 M (580), GMTN program of SEK 2,656 M (2,705) and a loan from the European Investment Bank of EUR 110 M (0). During the year, long-term bilateral financing totaling EUR 110 M was raised from the European Investment Bank. The other changes in long-term loans are mainly due to some of the original long-term loans now having less than one year to maturity and to a new loan of SEK 500 M with a seven-year term raised under the GMTN program. The Group’s short-term loan financing mainly consists of two Commercial Paper Programs for a maximum USD 1,000 M (1,000) and SEK 5,000 M (5,000) respectively. At year-end, SEK 4,242 M (747) 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 of EUR 1,100 M (1,100), which was wholly unutilized at year-end. The increase in short-term financing is mainly linked to financing the acquisition of Cardo. At year-end, the average time to maturity, excluding the pension provision, was 31 months (39). Some of the Group’s main financing agreements contain a customary so called Change of Control clause. This clause means that lenders have the right in certain circumstances to demand the rene- gotiation of conditions or to terminate the agreement should control of the company change. Convertible debentures Incentive 2006 matured in 2011 and the debentures were converted in full. Conversion was managed by an external party and began in 2010. A further 2,073,184 Series B shares were issued in 2011. A total of 2,332,344 Series B shares were issued in connection with Incentive 2006. Incentive 2007 has a variable interest rate equivalent to 0.9* EURIBOR + 35 basis points. Any conversion of Incentive 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 Series 1, EUR 20.50 for Series 2, EUR 23.00 for Series 3 and EUR 25.40 for Series 4 will add 4,679,610 Series B shares. The dilutive effect of full conversion amounts to 1.3 percent of share capital and 0.9 percent of the total number of votes. At year-end 2011, Incentive 2007 amounted to EUR 100 M. Currency composition The currency composition of ASSA ABLOY’s borrowing depends on the currency composition of the Group’s assets and other liabilities. Currency swaps are used to achieve the desired currency composition. See the table ’Net debt by  currency’ on page 111. Cash and cash equivalents and other interest-bearing receivables Short-term interest-bearing investments amounted to SEK 50 M (24) at year-end. In addition, ASSA ABLOY has long- term interest-bearing receivables of SEK 44 M (62) and financial derivatives with a positive market value of SEK 234 M (146) which, in addition to cash and cash equivalents, are included in the definition of net financial debt. Cash and cash equivalents are mainly invested in bank accounts or interest-bearing instruments with high liquidity from issuers with a credit rating of at least A-, according to Standard & Poor’s or similar rating agency. The average term for cash and cash equivalents was 1 day (3.3) at year-end 2011. The parent company’s cash and cash equivalents are held in a sub-account to the Group account. Group parent company seK M Cash and bank balances Short-term investments with maturity less than 3 months Cash and cash equivalents Short-term investments with maturity more than 3 months Long-term interest- bearing receivables Positive market value of derivatives total 2010 1,280 2011 1,665 22 – 1,302 1,665 2 62 50 44 146 1,512 234 1,993 2010 2011 0 – 0 14 26 – 40 4 – 4 23 – – 27 110 Notes AssA ABLoY ANNuAL report 2011 Note 33 cont. Net debt by currency seK M USD EUR SEK AUD NOK KRW CNY GBP Other total 31 December 2010 31 December 2011 Net debt excluding currency swaps Net debt including currency swaps Net debt excluding currency swaps Net debt including currency swaps 4,094 3,603 2,500 –10 467 337 –225 –83 –119 10,564 4,813 2,265 2,594 577 221 337 –225 –314 296 10,564 5,937 4,510 3,913 –4 453 265 –604 –121 –142 14,207 5,465 2,399 5,791 661 306 265 –604 –424 348 14,207 Interest rate risks in interest-bearing assets Treasury manages interest rate risk in interest-bearing assets. Derivative instruments such as interest rate swaps and FRAs (Forward Rate Agreements) may be used to man- age interest rate risk. These investments are mostly short- term. The term for the majority of these investments is three months or less. The fixed interest term for these short-term investments was 1 day (1.2) at year-end 2011. A downward change in the yield curve of one percentage point would reduce the Group’s interest income by around SEK 8 M (9) and consolidated equity by SEK 6 M (7). Interest rate risks in borrowing Changes in interest rates have a direct impact on ASSA ABLOY’s net interest. Treasury is responsible for identifying and managing the Group’s interest rate exposure. It analyzes the Group’s interest rate exposure and calculates the impact on income of changes in interest rates on a rolling 12-month basis. The Group strives for a mix of fixed rate and variable rate borrowings and uses interest rate swaps to continu- ously adjust the fixed interest term. The financial policy stip- ulates 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 16 months (23). An upward change in the yield curve of one percentage point would increase the Group’s interest expense by around SEK 93 M (58) and reduce consolidated equity by SEK 71 M (44). Currency risk Currency risk affects ASSA ABLOY mainly through translation of capital employed and net debt, translation of the income of foreign subsidiaries, and the impact on income of flows of goods between countries with different currencies. Transaction exposure Currency risk in the form of transaction exposure, or exports and imports of goods respectively, is relatively 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, current currency flows are not normally hedged. Transaction flows relating to major currencies (import + and export –) Currency, seK M AUD CAD CNY CZK EUR GBP NOK SEK USD Currency exposure 2010 400 433 –710 –144 836 160 –195 –802 198 2011 410 439 –754 –203 742 357 –237 –756 –185 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 (SEK) in relation to the major currencies, while all other vari- ables remain constant. Impact on income before tax of a 10 percent weakening of SEK Currency, seK M 2010 2011 AUD CAD CNY DKK EUR GBP NOK USD 39 18 46 11 143 23 32 206 38 16 53 12 151 18 23 201 AssA ABLoY ANNuAL report 2011 Notes 111 Note 33 cont. Translation exposure in the balance sheet The impact of translation of equity is limited by the fact that a large part of financing is in local currency. The capital structure in each country is optimized based on local legislation. As far as possible, gearing per currency should generally aim to be the same as for the Group as a whole to limit the impact of fluctuations in individual currencies. Treasury uses currency derivatives to achieve appropriate financing and to eliminate undesirable currency exposure. The table ‘Net debt by currency’ on page 111 shows the use of currency forward contracts in relation to financing in major currencies. These forward contracts are used to neu- tralize the exposure arising between external debt and internal requirements. Financial credit risk Financial risk management exposes ASSA ABLOY to certain counterparty risks. Such exposure may arise from the invest- ment of surplus cash as well as from investment in debt instruments and derivative instruments. ASSA ABLOY’s policy is to minimize the potential credit risk relating to surplus cash by using cash flow from subsid- iaries to repay the Group’s loans. This is primarily achieved through cash pools put in place by Treasury. Around 85 per- cent (86) of the Group’s sales were settled through cash pools in 2011. However, the Group can in the short term invest surplus cash in banks to match borrowing and cash flow. Derivative instruments are allocated between banks based on risk levels defined in the financial policy in order to limit counterparty risk. Treasury only enters into derivative contracts with banks that have a good credit rating. ISDA agreements (full netting of transactions in case of counterparty default) have been entered into in the case of interest rate and currency derivatives. Commercial credit risk The Group’s accounts receivables are distributed across a large number of customers who are spread globally. The concentration of credit risk associated with accounts receiv- ables is therefore limited. The fair value of accounts receiv- ables corresponds to the carrying amount. Credit risks relat- ing to operating activities are managed locally at company level and monitored at division level. Commodity risk The Group is exposed to price risks relating to purchases of certain commodities (primarily metals) used in production. Forward contracts are not used to hedge commodity pur- chases. 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 instruments is limited to reducing exposure to financial risks. The positive and negative fair values in the table ’Out- standing derivative financial instruments’ on page 113 show the fair values of outstanding instruments 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 contracts. For accounting purposes, financial instruments are classi- fied into measurement categories in accordance with IAS 39. The table ’Financial instruments’ on page 113 provides an overview of financial assets and liabilities, measurement category, and carrying amount and fair value per item. When calculating fair value only general changes in mar- ket rates are taken into account and not credit spread move- ments for the individual company. 112 Notes AssA ABLoY ANNuAL report 2011 Note 33 cont. Outstanding derivative financial instruments at 31 December Instrument, SeK M Foreign exchange forwards, funding Interest rate swaps Forward Rate Agreements total 31 December 2010 31 December 2011 positive fair value negative fair value nominal value positive fair value negative fair value nominal value 41 105 – 146 –62 –10 – –72 4,974 2,760 – 7,734 106 112 16 234 –126 –37 –16 –179 9,936 14,845 502 25,283 Financial instruments: carrying amounts and fair values by measurement category 2010 2011 IAS 39 category* Carrying amount Fair value Carrying amount Fair value 3 1 1 5 2 1 1 2 4 4 2 4 2 4 2 762 94 5,596 96 50 146 2 1,302 1,477 5,758 7,235 1,210 – 2,481 72 3,123 1,920 762 94 5,596 96 50 146 2 1,302 1,477 5,939 7,416 1,210 – 2,481 72 3,123 1,920 52 112 6,924 95 139 234 50 1,665 917 6,500 7,422 896 562 5,969 179 3,796 2,531 52 112 6,924 95 139 234 50 1,665 917 6,907 7,829 896 562 5,969 179 3,796 2,531 SeK M Financial assets Other shares and interests Other financial assets Accounts 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 Current liabilities – hedge accounting Current liabilities – not hedge accounting Derivative instruments – held for trading Accounts payables Additional purchase considerations * Applicable IAS 39 categories: 1 = Loan receivables 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 Other shares and interests Financial liabilities Long-term loans – hedge accounting Short-term loans – hedge accounting Derivative instruments Deferred considerations¹ 2010 2011 Carrying amounts Quoted prices Observ- able data non- observ- able data Carrying amounts Quoted prices Observ- able data non- observ- able data 50 762 – 762 50 – 1,477 – 72 1,920 – – – – 1,477 – 72 – – – – – – 1,920 139 – 917 562 179 2,531 – – – – – – 139 – 917 562 179 – – – – – – 2,531 1 Deferred considerations often depend on the earnings trend of an acquired business over a certain period. Measurement of the additional purchase consideration is based on the management’s best judgment. Discounting to present value takes place in the case of major acquisitions. ASSA ABLOY AnnuAL repOrt 2011 nOteS 113 Comments on five years in summary 2010 Organic growth was 3 percent, with Asia and South America reporting strong growth and North America showing good and increasing growth. Europe began the year well but growth gradually slowed. Continued investments in the marketing organization and the launch of new products strengthened the Group’s market leadership. Acquired growth was 8 percent. Operating income rose 12 percent and cash flow devel- oped well during the year. A total of 13 acquisitions were completed during the year, including Pan Pan (China), King Door Closers, South Korea, ActivIdentity (USA) and Paddock (UK). These acquisi- tions increase annual sales by SEK 2,880 M. An agreement was signed to acquire a majority share holding in Cardo, a leading Swedish industrial door company. 2011 2011 was a successful year for ASSA ABLOY despite challeng- ing market conditions and some slowdown in the second half of the year on mature markets. Organic growth was 4 percent, driven by continued investments in new products and the marketing organization. The year saw high acquisi- tion activity in general, with 18 completed acquisitions, increasing sales by 17 percent. The acquisition of Crawford was the Group’s largest ever structural transaction. The year also saw two major disposals of acquired busi- nesses, which were not considered to be a good fit with ASSA ABLOY in the long term. A new restructuring program was launched during the year to further increase the Group’s cost-efficiency. The pre- vious programs have proved to be very successful, resulting in major savings and further increased efficiency in the pro- duction units. Continued streamlining, a strengthened market position and the launch of innovative new products consolidated ASSA ABLOY’s leading position and the Group is well posi- tioned for long-term sustainable growth. Operating income excluding restructuring costs increased 10 percent and cash flow remained strong. Earn- ings per share after full dilution excluding items affecting comparability increased 13 percent. 2007 The year saw strong growth for ASSA ABLOY, combined with continued very satisfactory growth in earnings. All five divi- sions 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 (South 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. At 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 towards 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 towards the end of the year. The new products launched were well received by customers and strengthened ASSA ABLOY’s market-lead- ing position in total 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. 114 Notes AssA ABLoY ANNuAL report 2011 Five years in summary Amounts in seK M unless stated otherwise 2007 2008 2009 2010 2011 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 flow3 Capital employed and financing Capital employed – of which goodwill – of which other intangible and tangible assets – of which shares in associates Net debt Non-controlling interest Shareholders' equity, excluding non-controlling 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 net after tax Number of shares, thousands Number of shares after dilution, thousands Average number of employees 33,550 7 5 6,366 –909 5,458 4,609 3,368 3,871 –2,127 –1,568 176 4,808 28,621 17,270 6,782 39 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 34,8294 0 4 6,4471 –921 5,5261 3,499 2,438 4,369 –2,648 –1,311 410 4,769 32,850 20,669 7,945 38 14,013 163 18,674 6.60 9.211 55.91 3.60 88.50 34,9634 –12 3 6,4261 –1,014 5,4131 3,740 2,659 5,924 –1,835 –3,741 348 6,843 30,382 20,333 7,541 39 11,048 162 19,172 7.18 9.221 54.76 3.60 137.80 36,823 3 8 7,041 –995 6,046 5,366 4,080 5,729 –4,027 –2,597 –895 6,285 31,385 22,279 8,336 37 10,564 169 20,652 11.07 10.89 58.64 4.00 189.50 18.51.4 15.91.4 10.0 13.3 18.41.4 15.51.4 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 19.1 16.4 14.6 18.5 18.5 19.1 45.9 0.51 10.1 9.9 366,177 372,736 37,279 41,786 4 17 7,6461 –1,022 6,6241 4,559 3,869 5,347 –7,357 2,326 316 6,080 37,942 27,014 10,126 1,211 14,207 208 23,527 10.45 12.301 65.54 4.502 172.60 18.31 15.91 10.9 13.6 17.4 16.7 42.9 0.60 8.8 10.5 368,250 371,213 41,070 ¹ Excluding items affecting comparability in 2008, 2009 and 2011. ² For 2011, as proposed by the Board. ³ Excluding restructuring payments 4 Reclassification has been made for 2008 and 2009. Reclassification has not been made for 2007. 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. Operating income is not affected. RETURN ON CAPITAL EMPLOYED¹ OPERATING MARGIN (EBIT)¹ AVERAGE NUMBER OF EMPLOYEES % 20 15 10 5 0 07 08 09 10 11 % 20 15 10 5 0 07 08 09 10 11 Number 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1 Excluding items affecting compara- bility 2008, 2009 and 2011. AssA ABLoY ANNuAL report 2011 07 08 09 10 11 Notes 115 Quarterly information tHe Group IN suMMArY Amounts in seK M unless stated otherwise Sales Organic growth Gross income excluding items affecting comparability Gross income/ Sales operating income before depreciation (eBItDA) excluding restructuring costs Gross margin (EBITDA) Depreciation operating income (eBIt) excluding Items affecting comparability Operating margin (EBIT) Items affecting comparability1 operating income (eBIt) Net financial items Income before tax (eBt) Profit margin (EBT) Tax Net income Allocation of net income: Parent company shareholders’ Non-controlling interests operAtING CAsH FLoW Operating income (EBIT) Restructuring costs Depreciation Net capital expenditure Change in working capital Paid and received interest Non-cash items operating cashflow 2 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 Purchase of treasury shares Share issue Exchange rate differences and other 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 total Q 1 2010 8,345 –3% Q 2 2010 9,356 2% Q 3 2010 9,474 6% Q 4 2010 Full year 2010 9,648 36,823 3% 6% Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 Full year 2011 8,699 10,502 10,841 11,744 41,786 4% 5% 6% 2% 4% 3,361 40.3% 3,761 40.2% 3,846 40.6% 3,869 14,836 40.3% 40.1% 3,560 40.9% 4,050 38.6% 4,208 38.8% 4,469 16,287 39.0% 38.0% 1,536 18.4% –241 1,295 15.5% – 1,295 –137 1,158 13.9% –278 880 1,780 19.0% –265 1,515 16.2% – 1,515 –152 1,363 14.6% –333 1,031 1,875 19.8% –245 1,630 17.2% – 1,630 –190 1,440 15.2% –341 1,099 1,851 19.2% –244 1,606 16.6% – 1,606 –201 1,405 14.6% –334 1,071 7,041 19.1% –995 6,046 16.4% – 6,046 –680 5,366 14.6% –1,286 4,080 1,630 18.7% –253 1,377 15.8% – 1,377 –162 1,215 14.0% –268 943 1,863 17.7% –248 1,615 15.4% – 1,615 –156 1,460 13.9% –321 1,156 2,002 18.5% –251 1,751 16.2% – 1,751 –169 1,582 14.6% –348 1,653 2,151 18.3% –270 7,646 18.3% –1,022 1,881 16.0% –1,420 461 –158 303 2.6% –158 118 6,624 15.9% –1,420 5,204 –645 4,559 10.9% –1,095 3,869 876 4 1,019 11 1,090 9 1,064 7 4,050 30 941 2 1,143 13 1,644 8 114 4 3,843 26 Q 1 2010 Q 2 2010 Q 3 2010 Q 4 2010 1,295 – 241 –50 –475 –77 –64 870 0.75 1,515 – 265 –270 79 –170 21 1,440 1.06 1,630 – 245 –153 167 –29 30 1,890 1.31 1,606 – 244 –235 591 –179 58 2,085 1.48 Q 1 2010 Q 2 2010 Q 3 2010 Q 4 2010 Full year 2010 6,046 – 995 –708 362 –455 45 6,285 1.17 Full year 2010 Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 1,377 – 253 –161 –963 –74 16 448 0.37 1,615 – 248 –223 –181 –152 4 1,311 0.90 1,751 – 251 –216 –125 –121 –12 1,528 0.97 461 1,420 270 –245 1,031 –135 –8 2,794 1.622 Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 Full year 2011 5,204 1,420 1,022 –846 –238 –482 0 6,080 1.023 Full year 2011 –870 112 261 768 – – – 150 11,048 11,469 12,608 10,864 –2,085 101 203 1,458 – – – 23 11,469 12,608 10,864 10,564 0.51 –1,440 182 241 373 1,317 48 – 418 –1,890 71 94 720 – – – –739 0.57 0.62 0.55 –448 48 235 3,319 11,606 – 1,317 – 48 – – –419 –147 11,048 10,564 21,586 23,403 16,159 10,564 –6,080 –6,285 373 465 1,206 799 6,511 1,472 17 –308 452 10,564 21,586 23,403 16,159 14,207 14,207 0.60 –1,528 75 190 –6,415 – – –308 742 –1,311 67 363 996 1,472 17 – 213 –2,794 183 418 324 – – – –84 0.51 1.03 1.10 0.69 0.60 Q 1 2010 –64 Q 2 2010 –60 Q 3 2010 –56 Q 4 2010 –62 Q 1 2011 –64 Q 2 2011 –58 Q 3 2011 –49 Q 4 2011 –44 –699 –1,216 1,114 –205 –1,271 1,150 10,561 10,265 –252 –1,225 1,056 9,481 –170 –1,280 1,078 8,134 1,773 2,864 11,469 12,608 10,864 10,564 1,860 2,729 –378 –1,298 1,179 7,479 –315 –1,299 1,214 6,582 –488 –1,582 1,233 6,535 –284 –1,665 1,173 7,422 7,605 14,668 17,279 10,510 21,586 23,403 16,159 14,207 116 QuArterLY INForMAtIoN AssA ABLoY ANNuAL report 2011 CApItAL eMpLoYeD AND FINANCING Capital employed – of which goodwill – of which other intangible and tangible assets – of which shares in associates Assets and liabilities in disposal groups held for sale Net debt Non-controlling interests Shareholders' equity, excluding non-controlling 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 1 Shareholders' equity per share after dilution NuMBer oF sHAres Number of shares before dilution, thousands Weighted average number of shares after dilution, thousands Q 1 2010 Q 2 2010 Q 3 2010 Q 4 2010 31,523 33,051 30,495 31,385 22,480 23,659 22,085 22,279 7,797 38 8,160 37 7,450 37 8,336 37 Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 36,267 38,232 39,667 37,942 25,343 25,663 27,138 27,014 8,496 10,129 10,043 10,126 1,211 1,111 1,234 1,121 – – – 11,469 12,608 10,864 10,564 169 157 167 174 – 6,299 6,379 – 21,586 23,403 16,159 14,207 208 301 201 198 – 19,887 20,269 19,474 20,652 20,783 20,907 23,308 23,527 Q 1 2010 Q 2 2010 Q 3 2010 Q 4 2010 Full year 2010 Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 Full year 2011 2.39 2.36 2.79 2.74 2.98 2.93 2.91 2.86 11.07 10.89 2.57 2.53 3.08 3.07 4.40 4.42 0.40 0.30 10.45 10.33 2.36 2.74 2.93 2.86 10.89 2.52 3.05 3.30 3.43 12.30 56.94 57.89 55.65 58.65 58.64 58.34 59.35 65.91 65.79 65.54 Mar 2010 Jun 2010 sep 2010 Dec 2010 Full year 2010 Mar 2011 Jun 2011 sep 2011 Dec 2011 Full year 2011 365,918 365,918 365,918 366,177 366,177 367,732 368,250 368,250 368,250 368,250 372,931 372,882 372,827 372,810 372,810 373,038 373,000 372,946 372,627 372,627 Definitions of key data terms 1 Items affecting comparability consist of restructuring costs and net income from discontinued operations in 2011. 2 Excluding restructuring payments. 3 Operating income before tax excluding items affecting comparability. 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 detailed information. Net capital expenditure Investments in fixed assets less disposals of fixed assets. Depreciation Depreciation/amortization of tangible and intangible 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 non-controlling interests, plus interest expenses after tax for convertible debenture loans, as a percentage of average shareholders’ equity (excluding non- controlling interests) after dilution. return on capital employed Income before tax plus net interest as a percentage of average capital employed. earnings per share after tax and before dilution Net income excluding non-controlling interests divided by weighted average number of shares before dilution. earnings per share after tax and dilution Net income excluding non-controlling interests, plus inter- est expenses after tax for convertible debenture loans, divided by weighted average number of shares after dilution. shareholders’ equity per share after dilution Equity excluding non-controlling interests, plus convertible debenture loan, divided by number of shares after dilution. AssA ABLoY ANNuAL report 2011 QuArterLY INForMAtIoN 117 Proposed distribution of earnings The following earnings are at the disposal of the Annual General Meeting: Premium fund: SEK 340 M Retained earnings brought forward: SEK 2,261 M Net income for the year: SEK 2,268 M TOTAL: SEK 4,869 M The Board of Directors and the President and CEO propose that a dividend of SEK 4.50 per share, a total of SEK 1,657 M, be distributed to shareholders and that the remainder, SEK 3,212 M, be carried forward to the new financial year. The dividend amount is calculated on the number of outstanding shares as per 9 February 2012. Monday, 30 April 2012 has been proposed as the record date for dividends. If the Annual General Meeting confirms this pro- posal, dividends are expected to be distributed by Euroclear Sweden AB on Monday, 4 May 2012. 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 finan- cial 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 view of the development of the Group’s and the Parent company’s business operations, financial position and results, and describes material risks and uncertainties to which the Parent company and the other companies in the Group are exposed. Stockholm, 9 February 2012 Gustaf Douglas Chairman of the Board Carl Douglas Board member Birgitta Klasén Board member Sven-Christer Nilsson Board member Eva Lindqvist Board member Lars Renström Board member Johan Molin President and CEO Ulrik Svensson Board member Seppo Liimatainen Employee representative Mats Persson Employee representative Our audit report was issued on 9 February 2012 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant 118 proposeD DIstrIButIoN oF eArNINGs AssA ABLoY ANNuAL report 2011 Audit report to the annual meeting of the shareholders of AssA ABLoY AB, corporate identity number 556059-3575 report on the annual accounts and consolidated accounts We have audited the annual accounts and consolidated accounts of ASSA ABLOY AB for the year 2011. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 61–118. Responsibilities of the Board of Directors and the President and CEO for the annual accounts and consolidated accounts The Board of Directors and the President and CEO are respon- sible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the President and CEO determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from mate- rial misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Stan- dards on Auditing and generally accepted auditing stan- dards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s prepa- ration and fair presentation of the annual accounts and con- solidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the pur- pose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluat- ing the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the President and CEO, as well as evaluating the overall presentation of the annual accounts and consoli- dated accounts. We believe that the audit evidence we have obtained is suf- ficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2011 and of its financial perfor- mance and cash flows for the year then ended in accordance with the Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2011 and of their financial performance and cash flows in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. A corpo- rate governance report has been prepared. The statutory administration report and the corporate governance report are consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group. report on other legal and regulatory requirements In addition to our audit of the annual accounts and consoli- dated accounts, we have examined the proposed appropria- tions of the company’s profit or loss and the administration of the Board of Directors and the President and CEO of ASSA ABLOY AB for the year 2011. Responsibilities of the Board of Directors and the President and CEO The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss, and the Board of Directors and the President and CEO are responsible for administration under the Companies Act. Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors’ pro- posed appropriations of the company’s profit or loss, we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Com- panies Act. As a basis for our opinion concerning discharge from lia- bility, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the President and CEO is liable to the company. We also examined whether any member of the Board of Directors or the President and CEO has, in any other way, acted in contra- vention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the mem- bers of the Board of Directors and the President and CEO be discharged from liability for the financial year. Stockholm 9 February 2012 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant AssA ABLoY ANNuAL report 2011 AuDIt report 119 The ASSA ABLOY share share price trend in 2011 In 2011 OMX Stockholm fell 17 percent, while ASSA ABLOY’s Series B share performed better than the index, falling 9 per- cent from SEK 189.50 to SEK 172.60. Market capitalization amounted to SEK 63,560 M (69,391) at year-end. The highest closing price during the year was SEK 194.90 recorded on 11 January, while the lowest closing price was SEK 133.50 recorded on 19 August. Listing and trading ASSA ABLOY’s Series B share has been listed on NASDAQ OMX Stockholm, Large Cap since 8 November 1994. Total turnover of the Series B share on all markets amounted to 918 million (910) shares in 2011, a turnover rate of 249 per- cent (249). Turnover of the Series B share on NASDAQ OMX Stockholm amounted to 391 million (464) shares, equiva- lent to a turnover rate of 106 percent (127). The average turnover rate remained unchanged at 96 percent (95) on NASDAQ OMX Stockholm and was 101 percent (99) on the Large Cap list. be traded on markets other than the stock exchanges where it is listed, trading has become more fragmented, while the total turnover of many shares has increased. The ASSA ABLOY share is now not only traded on NASDAQ OMX Stock- holm, but was traded on more than ten different markets in 2011. Increasingly fragmented trading means that an ever- increasing share of trading in most Swedish shares takes place outside NASDAQ OMX Stockholm. Trading on NAS- DAQ OMX Stockholm accounted for 43 percent of turnover of the share in 2011, compared with 51 percent in 2010 and 65 percent in 2009. ownership structure The number of shareholders at year-end was 18,697 (20,199) and the ten largest shareholders accounted for around 38 percent (31) of the share capital and 58 percent (53) of the votes. Shareholders with more than 50,000 shares, a total of 361 shareholders, accounted for 97 percent (95) of the share capital and 97 percent (96) of the votes. Investors outside Sweden accounted for around 64 (63) The implementation of the EU’s Markets in Financial Instruments Directive (MiFID) in late 2007 has changed the structure of equity trading in Europe. Now that a share can percent of the share capital and around 44 percent (43) of the votes, and were mainly in the USA and the United King- dom. SHARE PRICE TREND AND TURNOVER 2002–2011 DIVIDEND PER SHARE 2002–2011 SEK 300 240 180 120 60 0 No. of shares traded, thousands 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 SEK 5 4 3 2 1 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 02 03 04 05 06 07 08 09 10 11 Series B share OMX Stockholm No. of shares traded, thousands (incl. after hours) 2011 proposed dividend Data per share seK/share 1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 3.53 1.25 1.3 32.2 99.50 159.50 76.50 35.85 Earnings after tax and dilution ² Dividend Dividend yield, % 5 Dividend, % 2, 6 Share price at year-end Highest share price Lowest share price Equity² Number of shares, thousands 7 1 Adjustments made for new issues. 2 2002–2003 have not been adjusted for IFRS. 3 Excluding items affecting comparability 2006, 2008, 2009 and 2011. 4 Proposed dividend. 3.31 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 7.993 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 9.213 3.60 4.1 52.3 88.50 126.00 69.75 55.91 9.223 3.60 2.6 47.8 137.80 142.50 71.50 54.76 10.89 12.303 4.504 2.6 36.6 172.60 194.90 133.50 65.48 4.00 2.1 37.0 189.50 199.20 126.60 58.64 370,935 370,935 378,718 378,718 376,033 380,713 380,713 372,931 372,736 371,213 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. 120 tHe AssA ABLoY sHAre AssA ABLoY ANNuAL report 2011 ASSA ABLOY’s ten largest shareholders Based on the share register at 31 December 2011. shareholders series A shares series B shares Investment AB Latour Melker Schörling AB Capital Group Funds Harris Associates Alecta Swedbank Robur Funds SEB Funds & SEB Trygg Liv Norska staten Folksam-Group AMF Funds Other shareholders total number 13,865,243 5,310,080 19,175,323 21,300,000 9,162,136 34,151,600 18,245,322 8,390,000 7,533,035 6,928,260 6,468,627 5,359,412 5,265,000 226,271,663 349,075,055 Source: SIS Ägarservice AB and Euroclear Sweden AB. total number of shares 35,165,243 14,472,216 34,151,600 18,245,322 8,390,000 7,533,035 6,928,260 6,468,627 5,359,412 5,265,000 226,271,663 368,250,378 share capital, % Votes, % 9.5 4.0 9.3 5.0 2.3 2.0 1.9 1.8 1.5 1.4 61.3 100.0 29.6 11.6 6.3 3.4 1.6 1.4 1.3 1.2 1.0 1.0 41.6 100.0 OWNERSHIP STRUCTURE (SHARE CAPITAL) OWNERSHIP STRUCTURE (VOTES) Investment AB Latour, 9,5 % Capital Group Funds, 9,3 % Harris Associates, 5,0% Melker Schörling AB, 4,0 % Alecta, 2,3 % Swedbank Robur Funds, 2,0 % SEB Fonder & SEB Trygg Liv, 1,9 % Norska staten, 1,8% Folksam-Group, 1,5 % AMF Funds, 1,4 % Other shareholders, 61,3 % Investment AB Latour, 29,6% Melker Schörling AB, 11,6% Capital Group Funds, 6,3% Harris Associates, 3,4% Alecta, 1,6% Swedbank Robur Funds, 1,4% SEB Fonder & SEB Trygg Liv, 1,3% Norska staten, 1,2% Folksam-Group, 1,0% AMF Funds, 1,0% Other shareholders, 41,6% Share capital ASSA ABLOY’s share capital at 31 December 2011 amounted to SEK 368,250,378, distributed among 19,175,323 Series A shares and 349,075,055 Series B shares. All shares have a par value of SEK 1.00 and provide the holders with equal rights to the company’s assets and earnings. Each Series A share carries ten votes and each Series B share one vote. Year 1989 1994 1994 1994 1996 1996 1997 1998 1999 1999 1999 1999 1999 2000 2000 2000 2001 2002 2002 2010 2011 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 Converted debentures 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 19,175,323 19,175,323 series C shares 20,000 1,428,550 1,714,260 series B shares 2,000,000 50,417,555 60,501,066 60,501,066 66,541,706 66,885,571 67,179,562 268,718,248 295,564,487 295,970,830 301,598,383 313,512,880 333,277,912 334,576,089 344,576,089 346,742,711 347,001,871 349,075,055 353,560,643 share capital, seK 2,000,000 2,000,000 53,592,110 64,310,532 64,310,532 70,732,118 71,075,983 71,369,974 285,479,896 314,002,299 314,408,642 320,036,195 332,688,203 352,453,235 353,751,412 363,751,412 365,918,034 366,177,194 368,250,378 371,212,727 AssA ABLoY ANNuAL report 2011 tHe AssA ABLoY sHAre 121 The ASSA ABLOY share share capital and voting rights The share capital amounted at year-end to SEK 368,250,378 distributed among a total of 368,250,378 shares, comprising 19,175,323 Series A shares and 349,075,055 Series B shares. All shares have a par value of SEK 1.00 and give shareholders equal rights to the company’s assets and earnings. The total number of votes amounts to 540,828,285. Each Series A share carries ten votes and each Series B share one vote. Repurchase of own shares Since 2010 the Board of Directors has requested and received a mandate from the Annual General Meeting to buy back and transfer ASSA ABLOY shares. The aim has been to be able to adjust the company’s capital structure, thereby contributing to increased shareholder value, to be able to exploit acquisition opportunities by fully or partly financing company acquisitions with its own shares, and to ensure the company’s undertakings under long-term incentive pro- grams. The 2011 Annual General Meeting authorized the Board of Directors to repurchase, during the period until the next Annual General Meeting, a maximum number of Series B shares so that after each repurchase ASSA ABLOY holds a maximum 10 percent of the total number of shares in the company. ASSA ABLOY holds a total of 400,000 (300,000) Series B shares after repurchase to ensure the company’s undertak- ings in connection with the company’s long-term incentive programs (LTI 2010 and LTI 2011). These shares account for 0.1 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 65 M (48). Of the above shares, 100,000 (300,000) Series B shares were repurchased in 2011. These account for 0.03 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 17 M (48). 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 income 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 SEK 4.50 per share (4.00) be paid to shareholders for the 2011 financial year, equivalent to a dividend yield on the Series B share of 2.6 percent (2.1). Incentive programs Long-term incentive programs At the 2010 Annual General Meeting, it was decided to launch a long-term incentive program (LTI 2010) for senior executives and other key staff in the Group. For each Series B share acquired by the CEO within the framework of LTI 2010, the company awards one matching stock option and four performance-based stock options. For each Series B share acquired by other members of the Exec- utive Team, the company awards one matching stock option and three performance-based stock options. For other par- ticipants, the company awards one matching stock option and one performance-based stock option. Each matching stock option entitles the holder to receive one Series B share, free of charge, in the company after three years, provided that the holder is still employed in the Group when the interim report for Q1 2013 is published, and has main- tained the shares acquired within the framework of LTI 2010. Each performance-based stock option entitles the holder to receive one Series B share, free of charge, in the company three years after allotment, provided that the above condi- tions have been fulfilled. In addition, the maximum level in a range determined by the Board of Directors for the perfor- mance of the company’s earnings per share in 2010 must has been fulfilled. This condition has been fulfilled. At the 2011 Annual General Meeting, it was decided to launch a new long-term incentive program (LTI 2011) for senior executives and other key staff in the Group. For each Series B share acquired by the CEO within the framework of LTI 2011, the company awards one matching stock option and four performance-based stock options. For each Series B share acquired by other members of the Exec- utive Team, the company awards one matching stock option and three performance-based stock options. For other par- ticipants, the company awards one matching stock option and one performance-based stock option. Each matching stock option entitles the holder to receive one Series B share, free of charge, in the company after three years, provided that the holder is still employed in the Group when the interim report for Q1 2014 is published, and has maintained the shares acquired within the framework of LTI 2011. Each performance-based stock option entitles the holder to receive one Series B share, free of charge, in the company three years after allotment, provided that the above condi- tions have been fulfilled. In addition, the maximum level in a range determined by the Board of Directors for the perfor- mance of the company’s earnings per share in 2011 must has been fulfilled. This condition has been fulfilled. Other equity-based incentive programs ASSA ABLOY has issued a number of convertible debentures to employees in the Group. In 2006 it was decided to launch an incentive program for senior executives and other key staff in the Group, Incentive 2006. Incentive 2006 matured in 2011 and the debentures were converted in full. Conversion was managed by an exter- nal party and began in 2010. A further 2,073,184 Series B shares were issued in 2011. A total of 2,332,344 Series B shares were issued in connection with Incentive 2006. In 2007 it was decided to launch a new incentive pro- gram, Incentive 2007. Any conversion of Incentive 2007 can take place in a 30-day period in May and June 2012. Full con- version at a conversion rate 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 will add 4,679,610 Series B shares. The dilutive effect of full conversion of Incentive 2007 amounts to 1.3 percent of share capital and 0.9 percent of the total number of votes. At year-end 2011 Incentive 2007 amounted to EUR 100 M. Around 1,400 employees in some 15 countries are par- ticipating in Incentive 2007. 122 tHe AssA ABLoY sHAre AssA ABLoY ANNuAL report 2011 Analysts who follow ASSA ABLOY Company Name telephone email ABG Sundal Collier Bank of America Merrill Lynch Barclays Capital Carnegie Cheuvreux Credit Suisse Danske Bank Deutsche Bank DnBNOR Dresdner Kleinwort Enskilda Securities Erik Penser Bankaktiebolag Exane BNP Paribas Goldman Sachs Goldman Sachs Handelsbanken Capital Markets Handelsbanken Capital Markets ICAP Securities Ltd JP Morgan Morgan Stanley Nordea Nordea Pareto Securities Redburn Partners Société Générale Swedbank Markets The Royal Bank of Scotland The Royal Bank of Scotland UBS Anders Idborg Ben Maslen Allan Smylie Kenneth Toll Johansson Andreas Dahl Andre Kukhnin Oscar Stjerngren Johan Wettergren Lars Brorson Colin Grant Julian Beer Max Frydén Jonathan Mounsey Sam Edmunds Aaron Ibbotson Peder Frölén Jon Hyltner Nick Wilson Nico Dil Guillermo Peigneux Ann-Sofie Nordh Johan Trocmé David Jacobsson James Moore Sébastien Grunter Niclas Höglund Daniel Cunliffe Klas Bergelind Fredric Stahl +46 8 566 286 74 +44 20 7996 4783 +44 20 7773 4873 +46 8 588 68 911 +46 8 723 51 63 +44 20 7888 0350 +46 8 568 80 606 +46 8 463 55 18 +44 20 7621 6149 +44 20 7475 9161 +46 8 522 296 52 +46 8 463 84 63 +44 207 039 9529 +44 20 7552 1289 +44 20 7774 6661 +46 8 701 12 51 +46 8 701 12 75 +44 20 7532 4683 +44 20 7325 4292 +34 9141 81398 +46 8 534 91 452 +46 8 5349 13 99 +46 8 402 52 72 +44 20 7000 2135 +33 1 4213 4722 +46 8 5859 1800 +44 20 7678 9158 +44 20 7678 6001 +46 8 493 73 09 anders.idborg@abgsc.se ben.maslen@baml.com allan.smylie@barcap.com kentol@carnegie.se adahl@cheuvreux.com andre.kukhnin@credit-suisse.com oscar.stjerngren@danskebank.se johan.wettergren@db.com lars.brorson@dnbnor.no colin.grant@dkib.com julian.beer@enskilda.se max.fryden@penser.se jonathan.mounsey@exanebnpparibas.com samson.edmunds@gs.com aaron.ibbotson@gs.com pefr15@handelsbanken.se johy01@handelsbanken.se nicholas.wilson@icap.com nico.dil@jpmorgan.com guillermo.peigneux@morganstanley.com ann-sofie.nordh@nordea.com johan.trocme@nordea.com david.jacobsson@paretoohman.se james.moore@redburn.com sebastien.grunter@sgcib.com niclas.hoglund@swedbank.se daniel.cunliffe@rbs.com klas.bergelind@rbs.com fredric.stahl@ubs.com AssA ABLoY ANNuAL report 2011 tHe AssA ABLoY sHAre 123 Information for shareholders 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 Wednesday, 25 April 2012. Share- holders wishing to attend the Annual General Meeting should: • Be registered in the share register kept by Euroclear Sweden AB by Thursday, 19 April 2012. • Notify ASSA ABLOY AB of their intention to attend by Thursday, 19 April 2012. Dividend Monday, 30 April 2012 has been proposed as the record date for dividends. If the Annual General Meeting approves the proposal, dividends are expected to be distributed by Euroclear Sweden AB on Friday, 4 May 2012. Further information Niklas Ribbing, Head of Investor Relations Telephone: +46 (0) 8 506 485 79 niklas.ribbing@assaabloy.com Registration in the share register In addition to notification of intention to attend, shareholders whose shares are nominee registered must be temporarily registered in their own name in the share register (so called voting right registration) to be able to attend the Annual General Meeting. In order for registration to be completed by Thursday, 19 April 2012, the shareholder should contact his/her bank or nominee well in advance of this date. 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: 24 April 2012 Second quarter: 27 July 2012 Third quarter: 29 October 2012 Fourth quarter and Year-end report: February 2013 Annual Report 2012: March 2013 online Annual report ASSA ABLOY’s online Annual Report has many user-friendly functions. The texts can be read out loud and the financial tables can be expanded and downloaded in Excel. All infor- mation in the Annual Report can be found easily by menu navigation or by using the Search function. The online Annual Report is available at: www.assaabloy.com/annualreport2011 Notification of intention to attend • Website www.assaabloy.com • Address ASSA ABLOY AB ”årsstämman”, Box 7842, SE-103 98 Stockholm • Telefon +46 (0) 8 506 485 14 The notification should state: • Name • Personal or corporate identity number • Address and daytime telephone number • Number of shares • Any assistants attending A shareholder who is to be represented by a proxy should submit a completed proxy form with the notification of intention to attend the Annual General Meeting. Proxy forms are available at: www.assaabloy.com. Nomination Committee The Nomination Committee has the task of preparing deci- sions 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 Commit- tee prior to the 2012 Annual General Meeting comprises Mikael Ekdahl (Melker Schörling AB), Gustaf Douglas (Invest- ment AB Latour), Liselott Ledin (Alecta), Marianne Nilsson (Swedbank Robur Fonder) and Per-Erik Mohlin (SEB Fonder/ SEB Trygg Liv). Mikael Ekdahl is Chairman of the Nomination Committee. 124 INForMAtIoN For sHAreHoLDers AssA ABLoY ANNuAL report 2011 Glossary Aperio Aperio is a new technology enabling mechanical locks to be wirelessly connected to an existing access control system. Aperio locks can be installed in new or existing access control systems and opened using the same credentials as for that system. Lean Lean production philosophy is about using 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. Striving for continuous improvement is an integral part of Lean philosophy. ElectroLynx ElectroLynx is an ASSA ABLOY solution that simplifies the installation of electrical devices in doors. It consists of a wir - ing system and simple, snap-together connectors that can be used with all electrical products from ASSA ABLOY and installed inside doors if required. This solution means that installers do not need to solder and connect individual wires. Gateway process ASSA ABLOY’s product development is based on a struc- tured Gateway process, which means all projects must pass through six different stages from concept to installed product. High Definition Printing (HDP) Fargo HDP (High Definition Printing) is a process used in the production of tamper-resistant and very durable ID cards. HDP produces high-quality images, which are sandwiched between Fargo’s HDP film and the card and are destroyed automatically if anyone attempts to tamper with the card. NFC Near field communication (NFC) is a short-range wireless connectivity standard that uses magnetic field induction to enable communication between devices when they touch or are held in close proximity. OEM An Original Equipment Manufacturer is a company that manufactures the final product for sale on the open market. Usually the OEM does not sell the product direct to the customer but through dealers. The product may consist of the company’s own components or a combination of own and purchased components. RFID Radio frequency identification is a technology for reading and storing information remotely using small radio trans- mitter-receivers and RFID tags. An RFID tag can be small enough to fit into an ordinary retail price tag, or be placed in a glass capsule and injected under a pet’s skin for identifica- tion purposes. One use of RFID technology is in keycards. Hi-O Hi-O (Highly Intelligent Opening) is a standardized new technology for security and control of door environments, which allows interconnectivity – communication between all components in a door opening solution. ZigBee ZigBee is a standard for wireless control and monitoring of equipment in homes, commercial properties, industry and wherever necessary. The technology is energy-efficient and the wireless platform facilitates retrofitting. Inlay An RFID inlay is one of the components in a contactless card or similar document. It consists of a circuit board connected to an antenna mounted on plastic film. Production: ASSA ABLOY in cooperation with Hallvarsson & Halvarsson. Photo: Russell Corriveau, DSS Training Development Manager, ASSA ABLOY Americas, Peter Hoelstad, Gerard Jörén, Getty Images, Photo Copyright Arizona Board of Regents. All Rights Reserved. Used With Permission, www.polen.travel and ASSA ABLOYs photographic library, among others. Printing: Elanders AB, Falköping in March 2012. 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 Sweden Visiting address: Klarabergsviadukten 90 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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