ASSA ABLOY
Annual Report 2012

Plain-text annual report

Annual Report 2012 The global leader in door opening solutions Annual Report 2012 The global leader in door opening solutions Report on operations Divisions Cover image ASSA ABLOY’s door closers help create a total door opening solution and can be used in homes as well as public buildings, elderly homes, offices, factories and pre-schools. 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’s divisions EMEA division Americas division Asia Pacific division Global Technologies division Entrance Systems division CSR Sustainable development Report of the Board of Directors Financial statements 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 Shareholder information The ASSA ABLOY share Information for shareholders 2 8 10 22 30 36 40 42 44 46 48 52 54 63 65 68 72 74 77 78 79 80 81 82 83 84 85 86 88 90 116 117 118 119 120 121 122 125 Lock and lock 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. SHARE OF GROUP SALES BY REGION 2012 NORTH AMERICA 29 % EUROPE 47 % SOUTH AMERICA 2 % 1 % AFRICA ASIA 16 % 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. Since its formation in 1994, ASSA ABLOY has grown from a regional company into an international group with around 43,000 employees and sales of around SEK 47 billion. 47SEK 47 billion in sales 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 Railway Stations and Airports Hotels Strategies for growth, profitability and value creation ASSA ABLOY is the global leader in door opening solutions. Its products account for more than one in ten of all lock and security installations worldwide. The Group’s strategies are based on three cornerstones: Market presence A global 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. 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. 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) +1,200 % EBIT, SEK M 7,500 6,000 4,500 3,000 INCREASE IN OPERATING INCOME 0 961 971 981 991 001 011 021 031 04 05 062 07 082, 3 092, 3 10 112 12 96 04 12 97 02 09 07 01 00 10 06 11 08 05 99 98 03 ¹ 1996–2003 have not been adjusted for IFRS. ² Excluding items affecting comparability. ³ Reclassification has been made. 1,500 0 +4,700 % ASSA ABLOY’s strategic focus on market presence, product leadership and cost-efficiency has been very successful. The Group’s earnings trend has created major value for customers, shareholders and em ploy ees. Sales, SEK M 50,000 40,000 30,000 20,000 10,000 ASSA ABLOY AnnuAL RepORt 2012 1 Statement by the President and CEO Winning strategy on a challenging market Once again we can look back on a very good year for ASSA ABLOY, despite tough market conditions in a global recession. Sales rose 12 percent to SEK 46,619 M and organic growth was 2 percent. Operating income increased 13 percent to SEK 7,501 M and the margin strengthened further to 16.1 percent. Our performance in 2012 confirms once again the long-term strength of the Group’s strategies and action programs. during five years of financial crisis, ASSA ABLOY has increased sales by 34 percent and opera- ting income by 36 percent, with a continued strong cash flow and good financial stability. Excellent per- formance in recent years has consolidated ASSA ABLOY’s position as the largest global supplier of door opening solutions, providing a sound basis for continued profitable growth and value creation. Following five years of serious financial disruption, macro economic turbulence and considerable uncer- tainty in the global economy, there is reason to comment on the Group’s performance in a longer perspective and ask the question: How has ASSA ABLOY weathered the financial crisis? But let us begin with a slightly more detailed review of the past year for our divisions. Divisions EMEA division The European market remained divided into two, with overall weak demand. We saw stable growth, which weakened at the end of the year, in northern and eastern Europe, while sales fell in southern Europe in the wake of the financial crisis, austerity poli- cies and a deep recession. EMEA division (Europe, the Middle East and Africa) reported stable organic growth of 1 percent, outperforming the total market. Operating Important events during the year • • • • • Sales increased by 12 percent to SEK 46,619 M (41,786). Operating income amounted to SEK 7,501 M (6,624¹). Earnings per share after full dilution amounted to SEK 13.84 (12.30¹). Operating cash flow amounted to SEK 7,044 M (6,080²). Investments in product development continued at an accelerated level and a number of new products were launched. ¹ Excluding items affecting comparability. 2 Excluding restructuring payments. 2 StAtement BY the pReSiDent AnD CeO ASSA ABLOY AnnuAL RepORt 2012 income and operating margin remained satisfactory, due to several years of tough cost-efficiency programs and successful marketing of new products and services. Americas division On the American markets we saw a cautious market upturn in North America, mainly in the residential segment. Renovations and upgrades in the commercial and institutional segments also showed positive growth. The Latin American markets contin- ued to show stable growth. Americas division reported 4 percent organic growth and further strengthened its good operating income and very good operating mar- gin. Several years of considerable investments in market presence and new products resulted in a strengthened market position. Asia Pacific division In the Asia Pacific region, sales growth remained strong in China and Southeast Asia. In South Korea, the market was weak, while the consid- erable export trade in digital door locks grew strongly. Negative growth in Australia continued but improved at the end of the year. Asia is an im port ant growth driver for the Group and has been the focus of several years of intensive marketing initiatives and acquisitions. ASSA ABLOY continued to be the clear market leader and gain market shares on the fast-growing Chinese market. Asia Pacific division reported 3 percent organic growth with somewhat lower operating income and maintained good operating margin. Global Technologies division Demand for digital iden- tification systems continued to grow strongly, as did demand for access control, logical access and secure smart card issuance. Government ID and project orders experienced negative growth in the wake of austerity measures. ASSA ABLOY strengthened its position on these fast-growing future markets, as a result of market- ing and innovation initiatives in recent years. Growth was also strong on the hotel market, particularly in the renovation segment. Global Technologies division reported 6 percent organic growth and substantially improved its operating income and margin. Entrance Systems division The global market for entrance automation, doors and entrance solutions, mainly in the commercial and institutional segments, weakened in Europe during the year in the wake of the recession. Demand was stable in North and South America, while it grew in Asia, particularly in the indus- trial segment. The market has good underlying growth potential in the long term, and ASSA ABLOY has rapidly built a global leading position. Entrance Systems division reported acquired growth of 37 percent for the year, while organic growth was –2 percent. Operating income increased substantially, while the operating margin declined somewhat. Group-wide programs are delivering Our Group-wide initiatives continued successfully dur- ing the year. The number of specification sales represen- tatives increased on most markets, which means that we are increasingly relevant to the customer as a spe- cialist and adviser in total door opening solutions. The expansion rate on emerging markets was again high, with 5 percent organic growth. The innovation flow was strong and the share of products launched in the past 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 M3 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 1 Excluding items affecting comparability. 2 As proposed by the Board of directors. 3 Excluding restructuring payments. 2010 36,823 3 8 –6 6,046 16.4 5,366 6,285 18.5 2010 10.89 58.64 4.00 372,736 2011 41,786 4 17 –8 6,6241 15.91 5,9791 6,080 17.41 2011 12.301 65.54 4.50 371,213 2012 46, 619 2 9 1 7,501 16.1 6,731 7,044 18.2 2012 13.84 71.82 5.102 369,592 Change 12% 13% 13% 16% Change 13% ASSA ABLOY AnnuAL RepORt 2012 StAtement BY the pReSiDent AnD CeO 3 Important events during the year Sales increased by 12 percent to SEK 46,619 M (41,786). Operating income amounted to SEK 7,501 M (6,624¹). Earnings per share after full dilution amounted to SEK 13.84 (12.30¹). Operating cash flow amounted to SEK 7,044 M (6,080²). Investments in product development continued at an accelerated level and a number of new products were launched. • • • • • ¹ Excluding items affecting comparability. 2 Excluding restructuring payments. Statement by the President and CEO three years rose to 25 percent. A total of 13 acquisitions improved our market positions, and complemented our product offering and technologies. The review shows that the Group is well on track to meet the operating margin target of 16 to 17 percent. The outcome was 16.1 percent. Operating income increased by 13 percent to SEK 7,501 M. This indicates considerable strength in the Group’s earning capacity, even under the difficult conditions that confronted us during this year’s downturn and the five-year financial crisis. increased strength during the financial crisis Global crises are often critical strength tests for busi- nesses and watersheds for development trends. The financial crisis and double-dip recession since 2008 can therefore be an appropriate starting point for an account of ASSA ABLOY’s strategies, processes and activities for value creation in a longer perspective. What have we achieved during this challenging period? Since 2008 the Group has increased sales by 34 percent to SEK 46,619 M, and operating income by ASSA ABLOY’s Executive Team from left to right: Ulf Södergren, Chief Technology Officer (CTO); Tzachi Wiesenfeld, Head of EMEA division; Denis Hébert, Head of HID Global business unit; Juan Vargues, Head of Entrance Systems division; Johan Molin, President and CEO and Head of Global Technologies division; Thanasis Molokotos, Head of Americas division; Carolina Dybeck Happe, Chief Financial Officer (CFO); Jonas Persson, Head of Asia Pacific division; and Tim Shea, Head of ASSA ABLOY Hospitality business unit. peRFORmAnCe 2008–2012 SALES ANd OPERATING INCOME INCOME BEFORE TAX ANd OPERATING CASH FLOW Sales SEK M 50,000 40,000 30,000 20,000 10,000 0 Operating income SEK M 7,500 6,000 4,500 3,000 1,500 0  Sales1 Operating income2 ¹ Reclassification has been made for 2008 and 2009. ² Excluding items affecting comparability, 2008, 2009 and 2011. 08 09 10 11 12 SEK M 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 08 09 10 11 12  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 2012 36  percent to SEK 7,501 M, with a stable, high operat- ing margin. Cash flow has increased markedly, as has the equity ratio, with reduced net indebtedness. Sharehold- ers have seen the share price triple. A good indicator of value creation is that equity per share has increased by around 30 percent. At least as important is the operational shift, which highlights our strengths for the future. ASSA ABLOY has tripled its sales on emerging markets to a growing share of 25 percent. We have accelerated product develop- ment, and the share of products launched in the past DEVELOPMENT OF EARNINGS PER SHARE SEK 14 12 10 8 6 4 2 0 Earnings per share has increased by 1,372 percent since 1996. 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 three years have reached the target of 25 percent of sales. We are the market leader overall and in the indus- try’s digital revolution. Our sales have 46 percent elec- tronic content, a doubling in five years. We have shifted from 25 percent low-cost content to more than 50 per- cent, and replaced over 50 old plants with considerably fewer upgraded and new plants. Sustainability efforts have been integrated into the Group’s strategies and business processes. Over the past seven years, sustainability methods have been integrated into sales, logistics, manufacturing, product development and supply management. Our commit- ment and efforts meet market demand: a more sustain- able product is more competitive, more cost-efficient and creates added value for customers and other stake- holders. Last year ASSA ABLOY updated its sustainabil- ity program on the basis of the Group’s risk assessment process, with targets up to 2015. The 2012 results show that the Group is well on the way to achieving its more stringent targets. All in all, ASSA ABLOY has emerged considerably strengthened from the crisis. Going forward, we have a more competitive product offering, improved market positions and a better cost situation than before the crisis. What is the basis of this transformation? I often say that locks and door opening solutions is a good business to be in. We have three fundamental and mutually reinforcing global drivers supporting us: • Security and convenience are human needs, which are high on the agenda as prosperity increases. • We have a strong growth trend, with urbanization in countries with a predominant share of the global population. • We have new digital technologies, which drive the replacement, upgrade and renovation of door open- ing solutions. On the basis of these drivers, the ASSA ABLOY Group is developing its three strategic action areas, which provide us with the necessary foundation for organic growth. Increased market presence An essential task since the mid-2000s has been the development of an offensive brand structure that cre- ates synergies for our global and local market leader- ship. Today 75 percent of products are sold under the ASSA ABLOY brand or co-branded with a strong local brand. The other 25 percent of products are sold under global brands, such as Yale, HID, ABLOY and Mul-T-Lock, as well as non-ASSA ABLOY associated brands, such as Entrematic, Flexiforce and Helton. Attitude surveys clearly show that we are well on the way to loading our ASSA ABLOY AnnuAL RepORt 2012 StAtement BY the pReSIdent And CeO 5 Statement by the President and CEO brands with our vision of being the global leader in total door opening solutions, with strong local competence and presence. Brand consolidation has gone hand in hand with the rationalization and development of products and solu- tions, in which segmentation and lower costs have been a guiding principle. By segmenting market and custom er development, and focusing on specification sales to direct and indirect customers, such as installers and architects, we gain a superior knowledge of customer needs, can act as a partner in better total door opening solutions, and generate increased demand. The share of customer-facing or ‘demand-generating’ staff has increased considerably in recent years. Emerging markets have been a key priority. Their share of sales has tripled to a total share of over 25 per- cent in seven years, and I venture to have confidence in the potential for up to a 50 percent share. We have become China’s largest lock and door company, with a small but fast-growing market share. However, we also see substantial future demand in other Asian, South American and eastern European countries in pace with increasing prosperity and urbanization. Complementary acquisitions have built new market positions and contributed key products and technology. The 100 acquisitions in the past seven years are proof of this and have generated additional sales of nearly SEK 20 billion. Our largest ever structural transaction was the acquisition of Crawford two years ago. This transformed our Entrance Systems division into a global leader in entrance automation, creating considerable revenue and cost synergies with the rest of the Group. Following its rapid expansion in recent years, Entrance Systems is now entering a new phase, with a new organization and good growth and profit conditions. product leadership A continuous flow of innovative products, with en- hanced customer value and lower costs, creates prod- uct leadership, the foundation for long-term successful organic growth. The Group has implemented a signif- icant reorientation from a relatively fragile base over the past seven years. R&D investments have increased by 129 percent since 2005, and the number of develop- ment engineers has risen by over 30 percent to around 1,350. Our ambition is to be the industry’s most innova- tive supplier, and products launched in the past three years have reached the target of 25 percent. Product leadership is focused on customer needs for security, reliability, functionality, design, life cycle costs and so on. A strong driver is the demand for elec- tromechanical locks and entrance automation, which today account for 46 percent of our sales, double the share in the mid-2000s. A large part of our substantially increased investments have focused on these new tech- nologies and developed today’s product and market leadership. This provides competitiveness for continued rapid growth, in which sales value per electromechanical door is increasing, as well as the recurring revenue from service and upgrades. The focus on product development has resulted in a renewal of the Group’s working methods, with a com- mon structured innovation process. In the Group func- tion Shared Technologies and in collaborations in and between divisions, we have developed common product platforms, which have considerably reduced the num- ber of components, increased the development rate and reduced costs. Ideas and competence are spread more rapidly through the development of R&D competence centers. Customers are involved earlier and deeper in the product development process. Cost-efficiency In the mid-2000s, ASSA ABLOY had an over-dimensioned production structure, with a large number of small local and regional plants. Rationalization of production has substantially improved cost-efficiency. The policy is to locate flexible final assembly close to customers and standard production in low-cost countries. Since 2006, 53 plants have been closed and nearly 15 more plants are in the process of being closed. A total of 56 plants have been converted to assembly. Nearly 30 offices have also been closed. Today around 55 percent of products are manufactured in low-cost countries, compared with 26 percent in 2005. Meanwhile the Group has increased the share of purchases from high-quality suppliers with a good cost profile. As a result of purchasing competence programs, specific category managers, better agreements and price management, the number of suppliers has fallen 25 per- cent in seven years, while the value of directly purchased materials has increased by nearly 130 percent. An important change since the mid-2000s is the implementation of a number of processes to increase efficiency in various dimensions of the operations. Value Analysis and Value Engineering (VA/VE) have enabled us to reduce the cost of existing products by between 25 and 40 percent through measures in the development, design and production of existing products. To date, savings exceed SEK 500 M. Lean processes have led to more efficient production flows, better materials cost control, improved administration and decision-making 6 StAtement BY the pReSiDent AnD CeO ASSA ABLOY AnnuAL RepORt 2012 procedures, shorter development times, and increased cooperation between various parts of the Group. Seam- less Flow is automating administrative processes across the whole value chain, resulting in major savings. By 2017 the number of different business systems is to be reduced from 120 to 6, while the number of data cen- ters is to be reduced from 55 to 5, and 80 different data networks are to be consolidated into 1 in the Group’s Shared Service Center. Outlook In these circumstances I should like to thank all our employees for their excellent efforts during a very demanding period for the Group. We can be pleased with the strength we have developed over the past years and the very good outcome for 2012. We now face exciting challenges. Many indicators suggest that the world economy will remain weak for the foreseeable future, due primarily to the budget cut- backs that many countries are making. It is therefore of the utmost importance that ASSA ABLOY continues its expansion on the new markets, which are expected to go on growing well, while at the same time maintaining its investments in new products and market presence. Going forward, I see excellent opportunities for ASSA ABLOY. As I have already said: Locks and door opening solutions is a good business to be in. Increased prosperity and urbanization are driving ever-increasing security and safety needs. If we venture to have confi- dence in a return to the same growth figures as we had before the financial crisis, ASSA ABLOY is today better prepared than ever before to further increase its rate of value creation. Stockholm, 7 February 2013 Johan Molin President and CEO ASSA ABLOY AnnuAL RepORt 2012 StAtement BY the pReSiDent AnD CeO 7 Vision Financial targets • • 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. • 10 percent annual growth through a com- bination 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. Strategy The Group’s overall focus is to spearhead the trend towards increased 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 22–29 Goal Growth and profitability pages 36–39 Cost- efficiency pages 30–35 Market presence pages 10–21 Market presence Market presence + Global leader in door opening solutions + 25 percent of sales are on emerging markets, a triple increase in seven years + The industry’s leading brands + Electromechanical solutions account for 46 percent of sales Market presence Market expansion for profitable growth ASSA ABLOY’s world-leading market presence is based on three strategies: • Exploiting the strength of the brand portfolio, • Increasing growth in the core business and • Expanding into new markets and segments. These market strategies have been successful through a combination of organic and acquired growth focused on profitable, expanding markets and segments. Drivers The need for security in workplaces and homes is growing in pace with increased welfare and technological development . Demand is driven by: Increased prosperity and urbanization, particularly in emerging markets, lead to new construction and increased demand for doors, locks and access control systems. The need for increased secu- rity drives more advanced solutions and upgrades of existing security systems. Technological development meets the demand for solu- tions offering increased convenience and user-friend- liness in addition to high security. ASSA ABLOY is focusing its operations on electromechanical and mechanical security products as well as entrance automation and security doors for the global market. The Group has a global market share of over 10 percent but with large variations between different markets. CUSTOMERS DID YOU KNOW THAT? The institutional and commercial market accounts for 75% of sales. Private customers and the residential market account for 25% of sales. ASSA ABLOY has a large number of end-customers with very varied requirements. Products and solutions are distributed to the customer in cooperation with a number of different players and through a variety of distribution channels (see illustration on pages 14–15). Institutional and commercial market – complex, demanding projects The most demanding and dynamic customer segment is institutional and commercial customers, which account for around 75 percent of sales. This segment includes universities, hospitals, offices, airports and shopping malls used by a large number of people daily. The driver for electromechanical and advanced solutions is strong. The procurement of these projects is often complex and involves many stakeholders on the customer side, such as property and security managers. ASSA ABLOY’s common sales force has developed expertise in under- standing the multifaceted needs of end-customers and has contact with many stakeholders in the value chain to develop optimal solutions for the customer. Distribu- tion and installation are largely handled by installers and locksmiths. 12 MaRkET pRESEnCE aSSa aBLOY annUaL REpORT 2012 Share of Group sales by region 2012 NOrTh AMEriCA AND CENTrAL AMEriCA WESTErN AND EASTErN EurOPE ASiA AND MiDDLE EAST 29 % +12% 47% +11% 16 % +9 % Share of Group sales in local currency 2012, % Change relative to the previous year, % SOuTh AMEriCA AFriCA 2 % +9 % SALES ON EMErGiNG MArKETS1 1% +16 % AuSTrALiA AND NEW ZEALAND 5 % +1 % SEK M 12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 2010 2011 2012 1 Emerging markets comprise Africa, Asia, the Middle East, South America and eastern Europe. Small and medium-sized customers – professional advice and installation assistance This segment consists of institutional, commercial and residential customers, who generally need professional advice and installation, which is primarily met by spe- cialized distributors and installers, such as locksmiths. ASSA ABLOY is working actively to train distributors and to develop more standardized solutions for small and medium-sized companies, such as stores and offices. Consumer market – replacement and upgrade with advice and installation The majority of sales are replacements or upgrades of existing security products. However, an increasing num- ber of private individuals want electronic locks, providing major growth potential for ASSA ABLOY. Private custom- ers have a considerable need for advice and installation assistance. The Group has therefore 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 distribu- tion channels such as DIY stores and locksmiths. aSSa aBLOY annUaL REpORT 2012 MaRkET pRESEnCE 13 Market presence DISTRIBUTIOn ASSA ABLOY reaches its end-cus- tomers through a variety of distri- bution channels at various stages in the supply chain depending on customer needs, the product and solution, and national and local requirements and standards. The Group has a competitive edge due to its well-developed cooperation with all distribution players, and seeks to offer its competence as early as possible in the planning and specification of door opening solutions. Distributors – a close partner ASSA ABLOY works closely with its distribution chan- nels to offer end-customers the right products, correct installation, and consequently a well-functioning secu- rity solution. Distributors also have a key role in provid- ing service and support after installation. This role may vary between different customer segments. In the commercial segment, distributors in some markets act as consultants and project managers to cre- ate good security solutions. They have a good knowl- edge of the customer’s needs and ensure that the prod- ucts comply with local regulations. Electromechanical security products mainly reach the end-user via security installers and specialized dis- tributors. These products are also sold through security systems integrators who offer a total solution for the installation of perimeter protection, access control and increasingly also computer security. ASSA ABLOY collaborates with architects and installers. Distribution channels for the security market Electronic security products mainly reach the end-user via security installers and specialized distributors. These products are also sold through integrators who often offer a total solution for the installation of perimeter protection, access control and increasingly also computer security. SpECIFICaTIOn ASSA ABLOY specifies a security solution for major com- mercial projects jointly with end-customers and other stakeholders. ASSA ABLOY representative Distributor ASSA ABLOY SpECIFICaTIOn DISTRIBUTORS DISTRIBUTIOn CHannELS Security systems 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 lock- smiths have a key role in delivering the products specified for various construction projects. 14 MaRkET pRESEnCE aSSa aBLOY annUaL REpORT 2012 STakEHOLDERS CODES anD SECURITY STanDaRDS Specification of door opening solutions – competence increasingly important In order to market innovative new solutions, ASSA ABLOY collaborates with architects, security consultants and major end-users to specify appropriate products and achieve a well-functioning security solution. Build- ing and lock wholesalers, security consultants and lock- smiths have a key role in supplying the products speci- fied for various construction projects. Many door and window manufacturers install lockcases and hardware in their products before delivering them to customers. The trend towards more complex security solutions is increasing the competence required by distributors. To support the customer in choosing a security solu- tion, ASSA ABLOY has special specification teams that can offer total security solutions under the ASSA ABLOY brand to major end-customers. These specification teams also collaborate with other key groups early on in the order chain, such as building consultants, architects and building standards authorities to create demand for innovative competence. The service offering includes telephone support, technical drawings, product configu- ration and e-commerce. ASSA ABLOY develops the competence of locksmiths, a key distributor of mechanical and electromechani- cal security products on many markets. They buy direct from ASSA ABLOY or via wholesalers and provide advice, delivery, installation and service. Some locksmiths have an increased focus on electronics, while IT integrators are increasingly offering physical security solutions. 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 InSTaLLERS SpECIFICaTIOn EnD-CUSTOMERS ASSA ABLOY representative Stakeholders STakEHOLDERS CODES anD SECURITY STanDaRDS EnD-CUSTOMERS Large institutional and commercial customers • Healthcare • Education • Retail • Hospitality • Offices • Industry Small and medium-sized customers • Offices • Stores Residential market • Apartments • Houses STakEHOLDERS Such as architects, security consult- ants, 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 hardware in their products before delivering them to customers. aSSa aBLOY annUaL REpORT 2012 MaRkET pRESEnCE 15 Fragmented competition – continued consolidation The global door opening solutions market remains frag- mented, despite consolidation over the past 10 years. However, the market in each country is relatively con- solidated. Companies 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 standards and brands are less common. ASSA ABLOY is the global market leader and has five main competitors, which partly operate in its segment: Ingersoll-Rand (USA), Stanley Black & Decker (USA), Dorma (Germany), Kaba (Switzerland) and Hörmann (Germany). After the market leader ASSA ABLOY, these five are strong local players on their home markets and also have an international presence. The Asian market is still very fragmented; even the largest manufacturers have modest market shares. Asia, the Middle East, eastern Europe, South America and Africa are emerging markets with considerably higher growth. Market presence MaRkETS DID YOU KNOW THAT? 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 majority of Group sales are for use in existing build- ings and therefore less sensi- tive to cyclical fluctuations. The global market for door opening solutions is disparate and fragmented. ASSA ABLOY is the industry’s most global player, with sales in more than 70 countries. The mature markets of North America and Europe account for three quarters of Group sales, and demand is growing slightly faster than national GDP. Asia, the Middle East, russia, South America and Africa are emerging markets with considerably higher growth. Major differences – advantage for global aSSa aBLOY The difference in demand between continents and countries is significant due to different regulations, standards and requirements. As the most globally established player, this gives ASSA ABLOY competitive advantages. There is also a trend among multinationals towards a more consistent security approach in some customer segments. North Americans spend more than twice as much on emergency exit devices as Europeans, while north- ern Europeans spend three to four times as much on high-security locks for their homes as North Americans. Entrance automation is also considerably more wide- spread in Europe than in the USA. The same size market for security and emergency exit solutions in Europe and the USA would roughly double the total market. Electromechanical solutions are considerably more widespread in the commercial segment than in the resi- dential segment. However, an increasing number of pri- vate individuals want electronic locks for their homes, providing a major growth opportunity for ASSA ABLOY. SALES BY PrODuCT GrOuP  Mechanical locks, lock systems and fittings, 36%  Entrance automation, 24%  Electromechanical and electronic locks, 22%  Security doors and hardware, 18% 16 MaRkET pRESEnCE aSSa aBLOY annUaL REpORT 2012 renovations, refurbishments, extensions, replacements and upgrades account for 67 percent of ASSA ABLOY’s sales. New construction accounts for 33 percent of ASSA ABLOY’s sales. 67% 33 % Stability and profitability Due to its unique global market penetration and the world’s largest installed base of door opening solu- tions, two-thirds of ASSA ABLOY’s sales are to the aftermarket, which consists of renovations, refur- bishments, extensions, replacements and upgrades. Demand in the aftermarket is more stable than in new construction, and the Group is therefore less sensitive to cyclical fluctuations. The Group’s strategies also prioritize commercial and institutional customers with a higher demand for electronic products and complex solutions, and therefore higher profitability. STABiLiTY iN ThE AFTErMArKET ASSA ABLOY supplies total solution to Cisco  Aftermarket1, 67%  New construction, 33% ¹ The aftermarket consists of renovations, refur- bishments, extensions, replacements and upgrades. Customer: BrEAKDOWN BY CuSTOMEr SEGMENT Solution:  Commercial and institutional customers, 75%  Private customers – residential market, 25% Cisco is the world’s largest supplier of network equipment and systems. ASSA ABLOY Australia and ASSA ABLOY Singapore have supplied all the locks, hardware and fittings for over 300 doors in Cisco’s new Singapore office, a project completed in November 2012. The ability to deliver a total solution was a contributory factor in ASSA ABLOY’s appointment as supplier of all the hardware for over 300 doors, of which 55 are connected to an access control system . The products used included electric mortice locks for doors connected to the access control system and Synergy mechani- cal mortice locks for doors not connected to this system, as well as master key cylinders and Besam swing door operators . ASSA ABLOY has now implemented 16 successful projects for Cisco in Asia and the Pacific region. aSSa aBLOY annUaL REpORT 2012 MaRkET pRESEnCE 17 Market presence MaRkET STRaTEGIES DID YOU KNOW THAT? A large aftermarket, combi- ned with global sales across countries with different eco- nomic cycles, contributes to stable sales and profitability. DID YOU KNOW THAT? A large percentage of ASSA ABLOY’s products are sold in small volumes to a large number of end-cus- tomers with very different needs. The common sales organiza- tion operates under the ASSA ABLOY master brand, while acting as representat- ives of the local product brands already recognized by the customer. ASSA ABLOY’s world-leading market presence is a strategic cornerstone in the Group’s ambition for profitable growth. Market strategy is based on long-term structural demand growth on mature markets in Europe and North America, and fast-growing demand on emerging markets. in order to increase its market pres- ence, ASSA ABLOY is exploiting the strength of the brand portfolio, increasing growth in the core busi- ness, and expanding into new mar- kets and segments. Increasing growth in the core business by segmentation Over the past seven years ASSA ABLOY has made a significant strategic shift to an increasingly market- oriented organization in close collaboration with architects, security consultants, major end-users and distributors. The main growth potential is found in existing market channels and an increased share of distributors’ sales. One important initiative is the focus on increased customer relevance through market segmentation. Sales teams are focusing on different customer seg- ments to gain the industry’s best understanding of customer needs, build relationships and generate demand, thereby becoming the end-user’s door opening solution expert. Segmentation aims at total door opening solutions customized to the doors’ applications, security and convenience aspects, spe- cial requirements for compliance with standards and regulations, and the need for integration with new or existing security systems and IT networks. This focus includes investments in employees with a clear, direct demand-generating responsibil- ity. In the Americas division, for example, the share of customer-facing staff rose from 35 percent in 2004 to 56 percent in 2012. In the EMEA division, the share of customer-facing staff has risen from 42 percent to 48 percent in three years. This trend is ongoing. The spectacular opening of Friends Arena Sweden’s new national arena, Friends Arena, opened in autumn 2012 and can accommodate 65,000 concertgoers. Apart from concerts, the arena will host various sports events such as foot- ball and speedway. ASSA ABLOY has supplied cylin- ders, lockcases, handles, door closers, emergency exit devices, access control, card readers and indus- trial doors for the arena. 18 MaRkET pRESEnCE aSSa aBLOY annUaL REpORT 2012 75 % Around 75 percent of prod- ucts are co-branded with the local brand and the ASSA ABLOY master brand. ASSA ABLOY’s brand strategy The aSSa aBLOY master brand product brands, (examples) Well-known product brands benefit from the large installed base and are adapted to comply with local regulations and safety stan- dards. The product brands are combined with the ASSA ABLOY master brand. Global brands with a unique market position products brands, non endorsed by aSSa aBLOY, (examples) Exploiting the strength of the brand portfolio and the sales force ASSA ABLOY has grown as a result of its many acquisi- tions and today the brand portfolio consists of leading brands. In order to exploit this valuable brand asset while benefiting from the Group’s size, ASSA ABLOY’s logo- type is combined with the individual product brands. The latter are well known and rooted in local regulations and security standards. The Group thus capitalizes on its large global installed base, while increasing the vis- ibility of the ASSA ABLOY master brand, which unites the Group’s sales departments and represents competence in total door opening solutions. Around 75 percent of Group sales are co-branded with the master brand and local brands. The ASSA ABLOY master brand is complemented by four global brands, which are all leaders in their respec- tive market segments: HID in access control, secure card issuance and identification technology, Yale in the resi- dential market, Mul-T-Lock for locksmiths, and ABLOY in high-security locks. The Group also has non endorsed product brands that are not directly associated with ASSA ABLOY, such as Entrematic, Flexiforce and Helton. These brands have a leading position and a unique mar- ket positioning, which is therefore important to exploit. In order to compete effectively on a global market, the sales force operates as an integrated organization and representatives of the ASSA ABLOY master brand. They create solutions for the customer using various products manufactured under established local brands. Consequently, customers can be offered total door opening solutions, while recognizing the local brands. aSSa aBLOY annUaL REpORT 2012 MaRkET pRESEnCE 19 Market presence The Group sees good expansion opportunities in new markets and segments Geographical expansion OEM market Geographical expansion is mainly achieved through acquisitions of leading local companies with well-known brands, in order to build a strong platform on emerging markets in Asia, eastern Europe, the Middle East, Africa and South America. These markets have increased their share of Group sales from 12 percent seven years ago to 25 percent in 2012. The OEM market for door and window manu- facturers has considerable potential. The aim is to build a global presence through acquisitions and organic growth. Since 2000, Group sales of security doors have increased from SEK 2 billion to over SEK 8 billion, and accounted for 18 per- cent of total Group sales in 2012. Residential market Efforts to develop channels and products for the global residential market under the Yale brand are ongoing. The Group’s leading competence and market presence in digital door locks in China and South Korea are also creating a significant basis for global expansion in this future technology. Increased demand for electromechanical products The increased demand for electromechanical products is a clear trend. increased technical standardization is driving integration of various components in the security solution. ASSA ABLOY’s products aim at open standards to facilitate integration with the customer’s other security and administrative systems. The Group’s strength in specific technologies is creating interesting new growth areas. One example is rFiD, which enables hotel locks to be opened by a card or cell phone. 20 MaRkET pRESEnCE aSSa aBLOY annUaL REpORT 2012 Well-functioning doors at Copenhagen airport Customer: Challenge: Solution: Copenhagen’s international airport, Kastrup, has 60 airlines in operation and over 62,000 passengers per day. In 2011, 22.7 million people passed through the airport, making Kastrup the largest Nordic airport. The airport has a maximum capacity of 83 take-offs and landings per hour and can accommodate 108 planes. Kastrup employs 2,060 people and a total of 22,000 people work at and around the airport. 500 companies operate in the area, including logistics compa- nies, restaurants and cafes. The 22.7 million people that pass through the airport each year want to make their way easily to get to their departures on time or to meet arriving friends and relatives. It must be easy for airlines to move planes in and out of the hangars, and the planes must be kept secure even when they are not in the air. The airport’s emergency services must be able to rely on the doors opening rapidly and at the right time. All the airport’s operators must be able to move goods and staff in and out through the buildings efficiently in terms of time and energy. ASSA ABLOY Entrance Systems has in total over 1,200 pedestrian entrance solutions, over 500 door and docking solu- tions as well as many hangar doors and high-speed doors installed at Kastrup. These doors are branded Besam, Craw- ford, Albany and Megadoor. ASSA ABLOY Entrance Systems and Kastrup Airport have now signed as a service frame agreement on all pedestrian doors/automatic entrance doors. Together with the service performed by ASSA ABLOY Entrance Systems already on a majority of the industrial, high-speed and hangar doors, ASSA ABLOY Entrance Systems makes life easier for the compa- nies and passengers at Copenhagen Airport Kastrup. Entrance automation Entrance automation is a fast-growing market in which ASSA ABLOY has gained global market leadership through acquisitions, innovation and organic growth. The total market is estimated at Eur 20 billion with a growth rate above GDP and is still very fragmented. The largest potential is in retail, transport, logistics and manufacturing in the wake of increased globalization. ASSA ABLOY has a unique offering of total automatic door opening solutions and a comprehensive service concept. aSSa aBLOY annUaL REpORT 2012 MaRkET pRESEnCE 21 Product leadership + The most innovative supplier of total door opening solutions + Products launched in the past three years exceeded 25 percent of total sales + Electromechanical products and entrance automation have increased from 20 percent to 46 percent of sales in 10 years + Clear leadership in secure identity solutions and entrance automation Product leadership Successful product development provides basis for organic growth A constant flow of innovative new products to the market is the single most important driver of organic growth. Successful product development is therefore vital for the Group’s future. In 2012 sales of products launched in the past three years exceeded 25 percent, which means that a first milestone has been reached. PRODUCT LEADERSHIP DID YOU KNOW THAT? Group sales of electromechani- cal products including entrance automation have increased from 20 percent to 46 percent of sales in 10 years. ASSA ABLOY’s vision is to be the most innovative supplier of total door opening solutions, and R&D investments have increased substan- tially in recent years. ASSA ABLOY aims to double the innovation rate by means of a Group-wide structu- red innovation process. Successful product development and leadership is the single most important driver for maintaining the target of 5 percent organic growth per year over an economic cycle. The focus on product leader- ship has been very consistent and is reflected in the number of product development engineers, which has risen by more then 30 percent to over 1,350 Docking solution from Entrance Systems. 24 PRODUCT LEADERSHIP people in seven years. Sales of products launched in the past three years have reached the Group’s target of 25 percent, a sharp increase in just a few years. This 25 per- cent target is a well-considered level in view of the 10 to 15-year product life cycle. Today’s customer base helps develop tomorrow’s security solutions ASSA ABLOY has the world’s largest base of installed locks and lock systems, 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 mechanical identification, such as metal keys. Electromechanical products including entrance automa- tion have increased from 20 to 46 percent of Group sales in ten years. This does not mean that sales of mechanical prod- ucts are falling, but that electromechanical 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 recurring rev- enue from service and upgrades. The number of installed doors in the market fitted with some form of electro- mechanical solution is estimated at 3 to 5 percent. This share may very well rise to 20 percent or more in the future, representing a very large potential for upgrades as well as new sales of these door opening solutions. The implementation of Lean-Innovation has shown that development time can be halved, while results are improved. With this new approach, the Group has also seen the benefit of continuous parallel technology development. The growing need for sustainable solutions is embed- ded in the Group’s development processes. Product specifications and customer solutions may be based on life cycle costs, a reduction in energy consumption in buildings and other climate impact, as well as concrete savings in materials consumption. ASSA ABLOY ANNUAL REPORT 2012 TECHNICAL DEVELOPMENT MECHANICAL PRODUCTS the basic technical solution is simple: a lock- case in a wall or a door contains a bolt, which is advanced or retracted by a key. the pin-tumbler lock was invented by Linus Yale in the middle of the 1800’s. It consists of an outer casing and a plug with drilled channels in which spring- loaded pins are lifted to the right height with the correct key that opens the lock. the wafer- tumbler lock contains circular wafers with holes for the key. the correct key turns the wafers to the right position and the lock can be opened or closed in combined action with a side bar. Lever tumbler locks have a number of locking levers built into the lockcase. the correct key lifts the levers and frees the bolt to open or close. ChAnGE In PRODuCt mIx 2000 SEK 14 billion mechanical products, 66% Electromechanical products, 20% Security doors,14% ELECTROMECHANICAL PRODUCTS the first electromechanical locks were developed in the early 20th century, when the bolt was operated by an electric motor and/or electromagnet instead of muscu- lar effort. Electromechanical technology has developed substantially over the past 20 years with various code systems. the lock itself is still based on mechanical prin- ciples, while the key element utilizes electronic codes and readers with a control unit that evaluates the read code. Electronic codes can be stored on cards, on mechanical keys with a chip or be transmitted wire- lessly from a cell phone. the reader provides a signal to an electrically operated opening or closing mechanism. ENTRANCE AUTOMATION this is a fast-growing and global leading business within ASSA ABLOY. the technology is usually described as automatic as it is based on sensors, electronics and elec- tric motors that open and close doors without direct user involvement. typical application areas are large entrances to institutions, organizations and companies, which are used by many people daily. the technology has developed into central control and monitoring sys- tems for whole building complexes for enhanced secu- rity, convenience and a better environment. 2012 SEK 47 billion mechanical products, 36% Entrance automation, 24% Electromechanical products, 22% Security doors, 18% ASSA ABLOY ANNUAL REPORT 2012 PRODUCT LEADERSHIP 25 Product leadership Product development process the innovation strategy aims to create cost and quality benefits for the customer through con- stant small steps. the Group-wide product development process is based on ASSA ABLOY’s global presence and strengthens local operations. the ambition is to halve development time and in- crease the number of new prod- ucts. All new projects are driven by customer needs. A common process with increased customer focus and better product planning ASSA ABLOY continues to develop the Group-wide product development process with the goal of halving development time and increasing the number of new products. A clear gate- way model with common terminology and interdisciplinary collaboration ensures the quality of the product development PRODUCT SPECIFICATION Project proposal/ pilot study Requirements specification Master specification PRODUCT BOARD PRODUCT BOARD CUSTOMER NEEDS AND REQUIREMENTS PRODUCT LEADERSHIP Brighthandle designed door handles communicate with colored light. 26 PRODUCT LEADERSHIP Product leadership is achieved and maintained through the continuous development of products offering enhanced customer value and lower product costs, often in close collabo- ration with ASSA ABLOY’s end-users and distributors. Customers are increasingly demanding more advanced lock and door products, and the techni- cal level is constantly rising, with electromechani- cal door opening solutions growing considerably faster than traditional mechanical products. 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 Technolo- gies, and through collaboration within and between divisions. Customer needs are integrated into the Group’s product development and innovation processes as a result of systematic collaboration at many levels and in many dimensions. The Group conducts ongo- ing studies of various customer segments, giving rise to new product concepts. Future Lab is an inter- net forum in which ASSA ABLOY can ask customers questions about requirements, trends and product initiatives. ASSA ABLOY strengthens its customer relevance through continuous multidimensional develop- ment. Customer needs are constantly developing with regard to functional integration, design, compli- ance with regulations and standards in other countries, openness to other systems, and simplicity in installation, operation and maintenance. Substantial strengthening of entrance automation offering ASSA ABLOY is a global leader in automatic doors through its Entrance Systems division. The division’s annual sales have risen from SEK 3 billion to nearly SEK 11 billion in five years. As a result, the Group has gained clear product and market leadership in entrance automation. Automatic doors have sensors and electronics that ensure a convenient and energy-saving door environ- ment in, for example, stores, hotels and hospitals. It is increasingly important to be able to offer a total entrance automation solution comprising both auto- matic door opening solutions and industrial doors. The InvEStmEntS In RESEARCh AnD DEvELOPmEnt¹ SEK M 1,400 1,200 1,000 800 600 400 200 0 08 09 10 11 12 for 2008 and 2009. ¹ Reclassification has been made ASSA ABLOY ANNUAL REPORT 2012 process. Product management is a very important factor, and the number of product managers increased sharply during the year. Customer requirements and views are a natural part of the Group’s process for strengthening customer relationships and integrating customers into the Group’s product development process, thereby increasing the fitness for purpose of the product offering. A number of in-depth studies conducted jointly with customers have resulted in the development of many new concepts and products. CUSTOMERS Product and process design Industrialization and marketing Launch PRODUCT BOARD PRODUCT BOARD CUSTOMER NEEDS AND REQUIREMENTS 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 building. A number of acquisitions in recent years have strengthened the product range with solu- tions for all entrances and doors in which central con- trol systems can minimize drafts and energy losses in buildings. RFID enhances security and is more user-friendly Since the acquisition of HID Global ten years ago, ASSA ABLOY has had clear market and product leader- ship in secure identity solutions. Products and services include keys, keycards and other identity carriers that are encoded, giving access to doors and computers. The codes and the electronic keys are managed securely and distributed encrypted. In North America, HID Global products are esti- mated to account for 70 percent of the installed base in secure identity solutions. The position is also strong on other markets. Acquisitions during the year have further strengthened ASSA ABLOY’s position in this area. Radio frequency identification (RFID) and wireless communication allow the Group to create new secu- rity applications, while offering services that are user- friendly. 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. This technology has allowed HID Global to become the global leader in ePassport programs and national programs for various types of ID cards and driving licenses, including the very advanced US Green Card (a permit allowing a foreign national to live and work permanently in the USA). Deliveries also include a range of very high capacity ID printers, Fargo. The year 2012 saw the launch of a new model, which is particularly suit- able for major ID card programs in the public sector, uni- versities and large companies. Wireless Aperio technology allows cost-effective con- nection of several doors in an existing access control sys- tem. 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 control systems have integrated Aperio tech- nology into their systems. Cell phone replaces key VingCard uses RFID and the wireless technology offered by mobile telephony in combination 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 phone to unlock the door of their hotel room by holding the phone close to the lock. 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 technol- ogy continues to grow. The year 2012 saw the launch of Seos, the world’s first commercial ecosystem for issuing and managing digi- tal keys on cell phones with NFC technology. Seos pro- vides the customer with a complete system in which cell phones replace ordinary keys and keycards for opening doors in homes, workplaces, hotels, offices, hospitals, The year 2012 saw the launch of Seos, the world’s first commer- cial ecosystem for issuing and managing digital keys on cell phones with NFC technology. ASSA ABLOY ANNUAL REPORT 2012 PRODUCT LEADERSHIP 27 Product leadership universities, and industrial and other commercial build- ings. Access control can be centrally managed and secu- rity staff can, for example, send temporary digital keys to visitors and service staff. Seos digital keys can be pro- tected by PIN codes. safety requirements. By combining hundreds of thou- sands of different 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. Total door opening solutions are ASSA ABLOY’s strength ASSA ABLOY’s sales are not only based on new innova- tions. The Group’ 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 plants with varied security and In recent years a number of products have been launched with the aim of reducing energy consump- tion in buildings. By using doors with improved insula- tion together with new sealing products, loss of heat to a cooler environment can be reduced, while in hot cli- mates air conditioning costs can be cut. In addition, the use of recycled materials in doors is increasingly possible and desirable. total door opening solution magnetic lock Automatic door closer Electronic strike plate Electronic lockcase Access control Handle Electromechanical cylinders Emergency exit device Electronic hardware 28 PRODUCT LEADERSHIP ASSA ABLOY ANNUAL REPORT 2012 the Essence hotel lock is the ultimate minimalist lock solution. All the lock’s electronic components are housed in the door and are RFID and nFC controlled. Albany insulated door for cold stores from ASSA ABLOY Entrance Systems, designed for increased security, improved productivity and lower maintenance costs. the system is remotely controlled and validated in accordance with the customer’s own rules. New innovations drive growth ASSA ABLOY is leading development in fast- growing electrome- chanical and entrance automation technolo- gies. New products and solutions that create cost and quality benefits for the customer drive growth. Double-leaf door from ASSA ABLOY’s Group company Pan Pan in China. An extra lock in the middle of the door enhances security. ASSA ABLOY’s Aperio wireless cupboard lock makes it simple and cost-efficient to link access control to cup- boards and pedestals requiring control and verification. CLIQ Remote allows access to be controlled and man- aged from remote locations. the keys are programmed remotely via the administration system and validated in accordance with the customer’s own rules. FARGO Industrial Series is a new advanced printer for card personalization and issuance suitable for customers requiring high card volumes and extra durability, such as government ID cards, universities and large companies. ASSA ABLOY ANNUAL REPORT 2012 PRODUCT LEADERSHIP 29 Cost- efficiency + Constant major cost reductions a strategic priority + Production restructuring program providing significant results + Number of suppliers reduced by 17 percent in five years + Price management for price leadership Cost-efficiency Successful restructuring programs ASSA ABLOY is endeavoring to radically reduce the breakeven point through cost-efficiency and improved processes, to achieve the opera- ting margin target of 16-17 percent. Restructuring programs are continu- ously improving the production structure and product costs. Flexible final assembly close to the customer is combined with the transfer of standard production to low-cost countries. Lean programs, outsourcing and automated flows are further increasing cost-efficiency, which is a condition for ASSA ABLOY being a price leader and contributing to sustainable development. PRODUCTION STRUCTURE ASSA ABLOY is moving from manufac- turing everything itself to concentra- ting efficient assembly plants in high- cost countries, transferring production to low-cost countries, and sourcing more non-critical components. The restructuring programs have been very success- ful, resulting in considerable savings and increased efficiency in the production units. Four programs launched between 2006 and 2009 have led to the closure of 53 production units. The majority of the remaining production units in high-cost coun- tries have switched from full production to mainly final assembly and customization. As a result of this re structuring, 6,765 employees have left the Group. Ongoing restructuring activities include closures or switching another 34 plants in high-cost countries from full production to assembly and customization, affecting 770 employees. Standard production has been increasingly trans- ferred to internal and external production units in low-cost countries. Today 55 percent of products are manufactured in low-cost countries, compared with 43 percent five years ago. This is also reflected in the distribution of the Group’s staff, with 48 percent of total employees now located in low-cost countries, compared with 38 percent five years ago. The produc- tion process has been improved, while local presence on end-customer markets in both high- and low-cost countries has been strengthened for fast delivery and efficient assembly of customized products. Automated production in ASSA ABLOY’s Americas division. ChAnGE In PRODuCtIOn StRuCtuRE % 100 80 60 40 20 0 08 09 10 11 12 high-cost countries, Full production high-cost countries, Assembly Low-cost countries, Production Acquired production units 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. 32 COST-EFFICIENCY ASSA ABLOY ANNUAL REPORT 2012 PROFESSIONAL SOURCINg A sharp increase in sourcing is an important element in a more cost-efficient structure in which assembly is concentrated in high-cost countries. the ambition is to have a limited number of high-quality suppliers as strategic partners based on delivery contracts, category management, and development, quality and sustainability guidelines. Extensive work is in progress to develop competence, create category responsibility, and coordinate and streamline purchases of raw materials and components. This is driven by the outsourcing of component supply to external suppliers in low-cost countries and the ambi- tion to exploit economies of scale. Increased outsourcing has resulted in material costs rising from 28 to 36 percent of sales in five years, or an increase of 85 percent in absolute terms. This makes totally new demands on the purchasing organization, which has moved from simple call off to professional sourcing. Today the divisions have specialized purchas- ing managers for each component category. Central purchasing centers in the Group efficiently manage different component categories. These activities have resulted in a 17 percent reduction in the number of suppliers over the past five years, despite a 34 percent increase in sales over the same period as a result of organic and acquired growth. numBER OF SuPPLIERS ShARE OF tOtAL PuRChASES In LOW-COSt COuntRIES Number 10,000 9,000 8,000 7,000 6,000 5,000 4,000 08 09 10 11 12 % 60 50 40 30 20 08 09 10 11 12 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 17 percent over the past years. the share of the Group’s total purchases of raw materials, components and finished goods from low-cost countries has increased from 38 per- cent to 55 percent over the past five years. Cost-efficiency increases with a larger share of purchases from a smaller number of high-quality suppliers, based on delivery contracts and development, quality and sustainability guidelines. ASSA ABLOY ANNUAL REPORT 2012 COST-EFFICIENCY 33 Cost-efficiency PROCESS DEVELOPMENT ASSA ABLOY applies a number of tested methods to increase cost-efficiency. Lean methods include all processes and result in increased customer value using less resources at all stages. value Analysis and value Engineering (vA/vE) involve in-depth analyses of products and production processes to avoid materials waste. Seamless Flow optimizes the Group’s flows through It standardization and integration of information dissemination. Today all ASSA ABLOY’s major workplaces have well- functioning Lean programs and organization for both production and administration. Implementation is ongoing. The results show more efficient production flows, better materials cost control, improved decision- making procedures, shorter development times, and increased collaboration with the marketing and sales organization. In 2012 the Group implemented more Lean projects than in any previous year. Value Analysis focuses on eliminating materials waste, improving products and increasing customer value in existing products through a structured pro- cess. The same applies to Value Engineering, which is part of the product development process. ASSA ABLOY can point to results involving product cost savings of between 25 and 40 percent. A total of over 124 studies were conducted during the year involving 1,200 employees. Since the methodology was intro- duced in 2007, the Group has made savings of more than SEK 570 M as a result of VA/VE. ASSA ABLOY aims to maximize resources for inno- vation, product development, production and sales. Other operations, i.e. administrative support functions, account for 30 percent of all staff and more than 40 per- cent of the total personnel cost. This is equivalent to around 25 percent of sales. The most important activity for streamlining these functions across the business is automated flows, known as Seamless Flow. The goal is to reduce or totally eliminate manual work in all processes so that more resources can be transferred to production and sales. Seamless Flow is a process project in which a coordinated and optimized IT structure is fundamental. On the customer side, this includes e-ordering, while on the supplier side, e-purchasing projects are in pro- gress. Manufacturing, product development, logistics and other internal processes are now 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 six. The number of data centers is to be reduced from 55 to five worldwide, while today’s more than 80 networks are to be consolidated into just one. The implementation of Seamless Flow and the coordina- tion and optimization of the IT structure will also enable the more efficient coordination of support functions. Price management As a market leader, ASSA ABLOY also has the role of a price leader. A high innovation and product develop- ment rate and constant streamlining of all areas of the business provide the basis for the best value at the best price for customers. ASSA ABLOY operates an active price management program, with a shift from cost- based to value-based pricing, systematic and fact-based monitoring of price trends and discounting, a detailed calculation of shipping costs, and a price strategy that manages the significant differences between new sales and the aftermarket. Lean methods are used to increase efficiency in all major workplaces and administrative processes. 34 COST-EFFICIENCY ASSA ABLOY ANNUAL REPORT 2012 mobile access control prized at netflix netflix, founded 1997, is the leading online subscription service streaming tv episodes and movies over the internet. As netflix has a mobile, global work force, the company recently began exploring various ways of using cell phones for physical and logical access control. A pilot project for mobile access control was implemented in collaboration with hID Global. Challenge: Solution: Unlike many other companies, Netflix’s over 1,000 employees at headquarters do not need to use photo ID badges. Instead they have been using pocket-size ProxKey key fobs from HID Global, which offer contactless technology smoothly and con- veniently. Netflix has a totally paperless employee induction system, which is entirely online. HID Global’s solution of sending digital keys direct to new employees’ cell phones was intended to help further streamline this process. multiCLASS SE readers were configured to read both contactless keycards and NFC-enabled smartphones with Seos digital keys. Participants in the pilot project emphasized the increased security as one of the many advantages of using smart- phones for opening doors. In addition, 90 per cent of participants found the solution user-friendly, while 88 percent stated that they would like to use a smartphone to open all locked doors at Netflix. According to 81 percent of the respondents, the fact that Netflix is testing and implementing mobile access solutions makes the company a more fun and exciting workplace. ASSA ABLOY ANNUAL REPORT 2012 35 Growth and profitability + Sales growth from SEK 3 billion to SEK 47 billion in 18 years + Total average sales growth of 16 percent since 1994 + Operating income (EBIt), excluding items affecting comparability, has increased from SEK 156 M to SEK 7,501 M, by more than 4,700 percent, since 1994 + Earnings per share has increased by 1,300 percent to SEK 13.84 since 1994 Growth and profitability Strategy to deliver stable, long-term value value-creating strategies for all the Group’s stakeholders have enabled ASSA ABLOY to become by far the largest global supplier of door opening solutions since its formation in 1994. Organic growth and acquisitions, market-leading technological development and cost-efficiency have transformed the company from a traditional, regional lock company into a modern, multinational security company in intelligent door opening solutions. growth from SEK 3 billion to SEK 47 billion in 18 years Since ASSA ABLOY’s formation in 1994, Group sales have risen from SEK 3 billion to SEK 47 billion. Today the Group has around 43,000 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 7,501 M in 2012, an increase of over 4,700 percent. ASSA ABLOY was founded when Securitas (Sweden ) and Metra (Finland) merged their lock businesses. The company had operations in Sweden, Finland, Nor- way, Denmark and Germany at that time. The strategy of increasing market presence through organic and acquired growth has been successful. Global market leadership involves Group operations in 70 countries and sales worldwide. Since 2007, the Group has focused on enhancing its presence on emerging markets in Asia, eastern Europe, the Middle East, Africa and South America. Sales on these markets are growing rapidly and account for 25 percent of total Group sales, while China accounts for 9 percent. Sales on emerging markets totaled SEK 115 M or 3 percent of total Group sales 18 years ago. Today more than one in ten lock purchasers worldwide chooses a lock from ASSA ABLOY, which has the world’s largest installed base of locks and lock systems. Demand for safety and security is constantly increasing world- wide, and the Group has never had a wider product range, higher market penetration and so many innovative new products. At the start, the product range largely consisted of mechanical security products such as traditional locks and handles for entrance doors, with market penetra- tion mainly in northern and central Europe. ASSA ABLOY has become the industry’s global technology leader as a result of its product leadership strategy combined with acquisitions. The product offering has gradually widened from traditional lock products to include security doors, entrance automation and secure identity solutions. New technology areas New technology areas and innovative products are the most important sources of organic growth. The Group SALES AnD OPERAtInG InCOmE (EBIt)  Sales Operating income (EBIT) EBIT, SEK M 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. 0 96 04 12 961 971 981 991 001 011 021 031 04 05 062 07 082, 3 092, 3 10 112 12 03 05 97 01 00 02 08 11 10 06 07 09 98 99 4,700 % Operating income (EBIT) has increased by over 4,700 percent in 18 years. Sales, SEK M 50,000 40,000 30,000 20,000 10,000 38 gROWTH AND PROFITABILITY ASSA ABLOY ANNUAL REPORT 2012 Strategy market presence Product leadership Cost- efficiency Increasing growth in the core business. Exploiting the strength of the brand portfolio and the sales force. Expanding into new markets and segments. Developing products with enhanced customer value in close collaboration with end- users and distributors. Innovation and product development to increase cost-efficiency. Quality product development – for quality products. Continuous streamlining of the production structure, with flex- ible assembly and final assembly in high-cost countries close to the customer and the transfer of standard production to low-cost countries. Cost benefits from a substantial increase in outsourcing. Increased cost-efficiency through methods and processes such as Lean, VA/VE and Seam- less Flow. Efficient price management for price leadership. 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. therefore invests heavily in R&D. Investments in prod- uct development have increased by between 10 and 20 percent per year in recent years, and products launched in the past three years account for a quarter of sales. The Group employs over 1,350 development engineers. Electromechanical products now account for 46 per- cent of Group sales, and the growth rate remains high. Value creation is driven by clear cost-efficiency strate- gies. Group-wide programs to streamline products and the production structure, and cost savings in produc- tion processes, sourcing and administration are pre- requisites for good profits, high profitability and stable finances. As a result, ASSA ABLOY contributes to long- term sustainable business, which creates value for cus- tomers, employees and shareholders, and to social sus- tainable development. ASSA ABLOY’S DEvELOPmEnt AnD ACQuISItIOnS 2008-2012 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). 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 Entrance Solutions and FlexiForce, which strengthen the customer offering in industrial doors, docking solutions and garage doors. Other acquisitions: Swesafe (Sweden), Portafeu (France), metalind (Croatia), Electronic Security Devices (uSA), and Angel metal (South Korea). 2012 – Acquisitions strengthen Entrance Systems range the acquisition of Albany Door Systems, a global leader in high-performance doors, is completed. ASSA ABLOY also acquires 4Front (uSA), a leader in docking systems, Securistyle Group holdings Limited and traka (uK), Frameworks manufacturing (uSA), and helton (Canada), which manufactures overhead door hardware. In China, the Group acquires the hardware manufacturer Shandong Guoqiang. Other acquisitions: Dynaco (Belgium) and Shantou Longhu Sanhe metal holdings (China). In addition to the acquisitions listed above, ASSA ABLOY has acquired a number of smaller companies. ASSA ABLOY ANNUAL REPORT 2012 gROWTH AND PROFITABILITY 39 SALES AnD OPERAtInG InCOmE (EBIt) ASSA ABLOY’s divisions ASSA ABLOY is divided into three regional and two global divisions. Regional divisions The regional divisions manufacture and sell mechanical and electrome- chanical locks, digital door locks, cylinders and security doors adapted to the local market’s standards and security requirements. Americas Share of sales Share of operating income 21% 25 % Read about the division’s operations and performance on pages 44–45 The global divisions manufacture and sell electronic access control, identifica- tion products and entrance automation on the global market. Global Technologies Share of sales Share of operating income 13 % 14 % Read about the division’s operations and performance on pages 48–50 EMEA Asia Pacific Share of sales Share of operating income Share of sales Share of operating income 14 % 12 % Read about the division’s operations and performance on pages 46–47 28 % 29 % Read about the division’s operations and performance on pages 42–43 Entrance Systems Share of sales Share of operating income 24 % 20 % Read about the division’s operations and performance on pages 52–53 EMEA Growth and continued good profitability in a year of challenging market conditions 2012 was a challenging year with continuing weak economic activity and austerity measures seen across many European countries. Emerging markets in Eastern Europe, the Middle East, Turkey and Africa experienced strong demand growth. The division’s investments in new products and market lead- ership contributed to increased sales. Operating income and margin remained at a good level due to intensive efforts on market presence, cost-efficiency and price management. Report on the year • Sales: SEK 13,382 M (13,030) with 1 percent organic growth. • Operating income (EBIT) excluding restructuring costs: SEK 2,279 M (2,203). • Operating margin: 17.0 percent (16.9). Market development The mature markets were marked by subdued demand for most of the year, affected by the fiscal problems and tough austerity measures in southern Europe and a deepening economic slowdown in western Europe. The Nordic and German-speaking countries showed strong growth in the first half of the year, which weakened in the second half. France and the UK showed weak growth. Sales fell relatively sharply in southern Europe. The emerging markets in Eastern Europe, the Middle East, Turkey and Africa continued to grow rapidly, resulting in strong sales growth for the division. Market presence EMEA’s markets are very diverse, with a major difference in product demand due to local differences in building and security standards and climate. ASSA ABLOY’s local The Cliq Remote key manage- ment system is controlled by cell phone. FACTS ON EMEA companies have a good knowledge of local lock stand- ards and long-term relationships with their distribu- tors, stabilizing demand. In addition, the aftermarket is important, with a large installed lock base. The sales organizations are coordinated under the ASSA ABLOY master brand. Market presence was strength- ened through the continued consolidation of brands and products. A more complete product program now reaches more customers. Trade fair participation under the ASSA ABLOY brand was more intensive than ever. Mar- keting was further developed through unique online and offline campaigns for Yale, including TV advertising that attract much attention. Successful specification sales of total door opening solutions continued. The division has 240 dedicated speci- fication sales representatives, a sharp increase. Contacts with key partners, such as architects and security experts, were continuously strengthened. During the year more than 12,000 projects were specified, involving more than 1,400,000 doors. A large proportion of these projects were in the commercial sector, such as universities, hospitals and major commercial buildings. Demand in Eastern Europe, Turkey the Middle East and Africa, which jointly account for around 17 percent of sales, is growing substantially. Sales in these emerging markets rose more than 13 percent during the year and were particularly strong in Russia. This is the result of a deliberate investment in a larger distribution network for ABLOY products. Electromechanical locks and solu- tions for the commercial sector account for a substantial fast-growing share of sales. Several large deliveries are being made to the sports facilities in Sochi, Russia for the 2014 Winter Olympics. In Africa sales rose by 11 percent. The African conti- nent is expected to have major potential due to its rapid urbanization rate and increased standard of living. EMEA Offering: Mechanical and electromechanical locks, digital door locks, security doors and fittings. diverse markets. Products are sold primarily through a number of distribution channels and also directly to end users. Markets: EMEA is the leader in its product areas in Europe, the Middle East and Africa. The commercial segment accounts for around 60 percent of sales and the residential segment for 40 percent. EMEA comprises a large number of Group companies with a good knowledge of their local and in many respects Brands: ABLOY, ASSA, IKON, Mul-T-Lock, TESA, UNION, Vachette and Yale. Acquisitions: Traka and Securistyle (UK). 4242 EMEA DIVISION ASSA ABLOY ANNuAL REpORT 2012 is positioning itself on the markets, which are expected to account for 90 percent of Africa’s GDP by 2015. Two acquisitions of British companies complemented the product portfolio. Securistyle strengthens the division’s position in window hardware on mature markets. The company has sales of around SEK 225 M. Traka is a leader in electronic key management and secure storage solutions, with high innovation competence and growth. Sales total around SEK 140 M. product leadership Efficient product development is the most important activity for creat- ing organic growth. The Group’s new development process focuses on enhanced customer value, while the products are more cost-efficient and maintain a higher quality. Group-wide product platforms with fewer components contribute to enhanced customer value and lower costs. Substantially increased investment in R&D in recent years has increased the share of products launched in the past three years to over 25 percent, a doubling in three years. The division’s High Impact products were a major success during the year. There are currently six such products, which have been developed in the past two years. Particular importance has been placed on a high technical standard and modern design. Marketing is coordinated across the whole division with special competence teams that cooperate closely with the local sales teams. The new door closer range under the ASSA ABLOY brand – a High Impact product – has been a major success. Launched in 2011, sales have now reached over EUR 15 M or around 1 percent of the division’s sales. Demand for the other five High Impact products is increasing sharply: Aperio, an electromechanical lock that can be wirelessly connected to networks; Cliq Remote, another innovative mobile electromechanical cylinder system; Smartair, an access control system; DDL, digital door locks, and Code Handle, a digital door and window handle. Additional products launches and further product development are in progress. Cost-efficiency Cost-efficiency efforts have focused on the division’s production struc- ture. The relocation of component production to low-cost countries con- tinued during the year. The remaining plants in western Europe are being rapidly transformed into fewer, more efficient plants for final assembly and product customization in close contact with demand growth. The number of production plants has almost halved since 2005. The Group’s broad, deep programs for Lean production methods, Seam- less Flow in various administrative processes, as well as outsourcing and more efficient supply management run parallel to the rationalization of the production structure. The program to reduce the number of ERP systems and harmonize IT use is progressing country by country and is estimated to be completed with a common ERP system by 2016. Several important steps were taken in supply management during the year. The share of purchases in low-cost countries continued to increase and is beginning to approach the short-term target of 40 percent. The share of external suppliers is in the process of being halved, compared with 2005. The division coordinates purchases in major categories and is changing the procurement process from tendering to target cost contracts. Implementation of VA/VE methods continued to yield positive results. Product development aims for major cost savings through a sustainable approach to materials consumption, logistics and packag- ing. Sustainability efforts were intensified through several program activities across the whole division, especially the introduction of bet- ter measuring methods. Investments are being made to reduce energy consumption and CO2 emissions in production plants, while new meth- ods were introduced for process water purification. The number of specification sales representatives has increased sharply. KEY FIGURES SEK M Income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 2011 2012 13,030 0 2,203 16.9 8,950 5,564 22.0 13,382 1 2,279 17.0 9,217 5,846 22.6 2,142 10,071 2,241 10,260 1 Excluding items affecting comparability of SEK 587 M in 2011. 2 Excluding restructuring payments. SALES AND OPERATING INCOME SEK M 14,000 12,000 10,000 8,000 6,000 08 09 10 11 12 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. SALES BY PRODUCT GROUP Mechanical locks, lock systems and fittings, 62 % Electromechanical and electronic locks, 24% Security doors and hardware , 14 % ASSA ABLOY ANNuAL REpORT 2012 EMEA DIVISION 4343 Americas Increased market presence and inno- vation strengthen sales and earnings Sales rose mainly due to growth in high-security and electro- mechanical products, as well as a recovery in the North American residential market. Apart from Brazil, demand con- tinued to grow in Latin America. Several years of considerable investments in market presence and product development resulted in a strengthened market position. Continued cost- efficiency measures and increased customer activities con- tributed to an increased operating margin. Report on the year • Sales: SEK 9,671 M (8,906) with 4 percent organic growth. • Operating income (EBIT) excluding restructuring costs: SEK 2,007 M (1,812). • Operating margin: 20.8 percent (20.3). Market development This year was the second year of growth following the deep recession of 2009–2010. Sales growth was strong overall in Central and South America, and additionaly for high-security and electromechanical products in the insti- tutional and commercial segments. Demand for mechani- cal lock products and security doors was stable. The divi- sion was able to meet increased demand and strengthen its market presence with a number of new products and solutions in both North and Latin America. The residential market in North America showed strong growth. Renovations and upgrades have shown relatively stable growth in recent years, which strength- ened in 2012. The Latin American markets showed stable growth with increased demand driven by urbanization and growing prosperity. The exception was Brazil, where new construction fell due to high interest rates. Security Metal Products steel security door with frosted glass with Sargent Harmony Wiegand lock from Americas division. FACTS ON AMERICAS Market presence In the North American market there is a clear distinction between products for the residential segment and those for the commercial segment. The distribution channels are also separate. Safety and security requirements are higher in the commercial segment, particularly regard- ing fire and evacuation safety. The division has therefore had a segmented marketing and sales organization for a number of years to meet each customer group’s specific demands, combined with experts in a number of areas such as electronic access control. Considerable investments have been made in recent years to strengthen the division’s market presence. In the USA, direct sales people account for 60 percent of marketing and sales staff, compared with 30 percent in 2004. The number of specification sales representatives and specialist teams has increased sharply. These target leading architectural firms with training and the introduc- tion of new products and solutions in their role as the end- customer’s door solution expert. A large training program has been devoted to the latest electromechanical products and solutions. These have experienced strong demand growth on the replacement market in recent years. ASSA ABLOY has the industry’s leading brands in North America. The main emphasis in brand manage- ment is on the overall message that ASSA ABLOY is the leading player in total door opening solutions. During the year the division took part in over 50 trade fairs. Fixed and mobile exhibitions continued to attract an increased number of visitors in over 300 cities in North America. The acquisition of Frameworks Manufacturing and Alarm Controls Corporation strengthen the division’s offering of total door opening solutions for commercial and institutional customers in the USA and Canada. product leadership The division has doubled its R&D investments since 2009. The main focus is on the fast-growing electro- mechanical area and products that support the devel- Offering: Mechanical and electromechanical locks, cylinders, door fittings, security doors and door frames. Markets: US, Canada, Mexico, Central America and South Ame- rica. 88 percent of sales are in the USA and Canada where ASSA ABLOY has an extensive sales organization and sells its products through distributors. Institutional and commercial customers are the largest end- customer segments and account for 90 per cent of sales. The private residential segment is accounts for 10 percent of sales. Sales in South America and Mexico take place mainly through distributors, wholesalers and DIY stores. Sales in these markets are more evenly distributed between the commercial and resi- dential segments. Brands: Some of the leading brands are Ceco, Corbin Russwin, Curries, Emtek, Medeco, Phillips, SARGENT and La Fonte. Acquisitions: Frameworks Manufacturing Inc. and Alarm Controls Corporation (USA). 4444 AMERICAS DIVISION ASSA ABLOY ANNuAL REpORT 2012  Mobile Innovation Showrooms bring door opening solutions to architects, end-users, integrators and other customers. opment of building standards. Nearly 300 significant products and solutions have been launched in the past three years. Design and cli- mate-smart solutions are increasing in importance. The share of overall sales from new products exceeded 20 percent during the year, contrib- uting substantially to a stronger market position. The year saw the launch of new wireless-controlled digital locks for the residential segment. Consequently, the division has strengthened its product offering for the fast-growing home automation market (systems to control and monitor a number of different functions in the home via electronic networks). Increased commitment to sustainable construction practices is a significant trend. Buildings account for 40 percent of all energy con- sumption in the USA, with 5 percent leakage through doors. ASSA ABLOY has the widest offering of certified doorway products designed to meet sustainable construction regulations and guidelines, including energy efficiency, materials and resources, and indoor environmental quality. This offering experienced considerable demand during the year. Cost-efficiency Americas division’s production structure has been undergoing major rationalization since 2005. The number of production plants has been reduced by 40 percent, including 14 acquisitions during the period. A total of 16 factories have been consolidated and a number of cent- ers of excellence for development and manufacturing have been cre- ated. Implementation of Lean projects continued at an undiminished rate not only in production but also in administration, where more than one-third of the projects are being implemented. A large number of products have been reviewed and processes simplified using VA/VE methods in product development. The number of parts in a SARGENT electromechanical lock has, for example, been reduced from 48 to 20, with improvements in the performance. More efficient supply management and increased outsourcing to low-cost countries have helped to nearly double cost savings since 2008. The number of suppliers has fallen by 30 percent, while the share of materials and components sourced from low-cost countries has increased substantially. The implementation of Seamless Flow activities continued to give posi- tive results. Production is moving towards the ‘paperless plant’. A large number of workstations have been modernized, with robots and semi- or fully automated machinery. Order management has been streamlined, not least due to the introduction of fully automated e-commerce mainly for sales of standardized products to wholesalers, where the share of e-commerce has risen to over 50 percent in just a few years. KEY FIGURES SEK M Income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 2011 2012 8,906 2 1,812 20.3 8,468 6,041 22.8 1,731 6,658 9,671 4 2,007 20.8 8,301 5,913 23.6 1,797 6,620 1 Excluding items affecting comparability of SEK 150 M in 2011. 2 Excluding restructuring payments. SALES AND OPERATING INCOME SEK M 12,000 10,000 8,000 6,000 4,000 08 09 10 11 12 SEK M 2,400 2,000 1,600 1,200 800  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting comparability in 2008, 2009 and 2011. SALES BY PRODUCT GROUP Mechanical locks, lock systems and fittings, 49 % Electromechanical and electronic locks, 39 % Security doors and hardware , 12 % ASSA ABLOY ANNuAL REpORT 2012 AMERICAS DIVISION 4545 Asia Pacific Continued expansion in Asia and rapid growth in digital lock solutions The division’s sales increased on the important Chinese market, where demand slowed during the year. Growth was strong on the Southeast Asian emerging markets, while it was negative in Australia, which resulted in a somewhat lower operating margin but improved operating income. Demand for digital lock solutions increased rapidly in Asia where the Group is the clear market leader. Report on the year • Sales: SEK 7,224 M (6,633) with 3 percent organic growth. • Operating income (EBIT) excluding restructuring costs: SEK 978 M (933). • Operating margin: 13.5 percent (14.1). Market development The high growth rate in China slowed during the year. The underlying growth factors in the country – the urbanization trend, industrialization, new construction and increased prosperity – continue to be important growth drivers. The credit restrictions imposed by the Chinese government in late 2011 to avoid overheating in the economy resulted in a lower investment tempo in the domestic economy, while the export sector con- tinued to grow strongly. All ASSA ABLOY’s product areas experienced strong growth. The Group has a strong and clearly leading position on the advanced South Korean market, with a wide product range of total door opening solutions. The domestic market was weak, while the con- siderable export sales of the Group companies iRevo and King continued to grow at a high rate. Demand for digi- tal door locks is considerable in South Korea and iRevo is the market leader. The company collaborates with other Door designed by ASSA ABLOY’s Group company Pan Pan in China. Facts on asia PaciFic Group companies to adapt and export digital door locks to the residential markets in China, Southeast Asia, India, Australia, Singapore, and the EMEA and Americas divi- sions, a successful expansion that is ongoing. Growth in India and several other countries in South- east Asia continued to increase at a high rate. The divi- sion’s sales in India increased by 18 percent following significant investments in market presence and the mar- keting of new products. Sales also increased rapidly in Vietnam and Indonesia from low levels. The Australian market position is very strong. Demand, which has been weak since 2011 due to a low level of new construction and fewer government stimu- lus measures, improved towards the end of the year. Market presence ASSA ABLOY has a very strong position on the major emerging market of China. The need for security is increasing strongly in pace with urbanization, prosper- ity and new housing construction. Demand for security doors is increasing rapidly and the division sold over two million units in 2012. There is tough competition from a very large number of small local firms, whose main weapon is low prices, but business failure has accel- erated in the wake of lower growth and higher costs. ASSA ABLOY’s market share remains small, but expan- sion potential is strengthened by the increased need for consolidation. The division continued to make major investments in the specification of door opening solutions and training. The number of specification sales representatives dou- bled during the year. Market presence in China strengthened as a result of the acquisition of Sanhe Metal, with sales of SEK 130 M. This gives the division a comprehensive position in the fire door segment in the fast-growing coastal regions. The acquisition of Guoqiang, with sales of around SEK offering: Mechanical and electromechanical locks, digital door locks, high-security doors and hardware. mature markets with established lock standards. Renovations and upgrades account for the majority of sales. Markets: China accounts for 50 percent of sales, South Korea and the rest of Asia for 20 percent, Australia and New Zealand for 20 percent, and exports to the rest of the world for 10 percent. The Asian countries are emerging markets without established security standards. New construction accounts for around three-quarters of sales. In China, the same types of lock, handle and hardware are often used in both homes and workplaces. The production units in China also supply ASSA ABLOY’s other divisions. Australia and New Zealand are Brands: In China Baodean, Guli, Pan Pan, Liyi (Shenfei), Doormax, Beijing Tianming, Golking, Sahne and Longdian. In South Korea Gateman, Angel and King and the global Yale brand. In Australia and New Zealand, the largest brands are Lockwood and Interlock. acquisitions: Sanhe Metal and Guoqiang (China). Sale agree- ment: Wangli (China). 4646 asia PaciFic Division assa aBLoY annuaL RePoRt 2012 Airports are an important customer segment for ASSA ABLOY. 600 M, opens up a new, growing segment for the division in window hardware in China. Guoqiang is one of China’s leading manufacturers of window hardware with a strong patent portfolio. In 2012, an agree- ment was reached to sell the co-owned Chinese company Wangli, with annual sales of SEK 600 M. Following substantial sales growth, the division established its own sales companies in the highly populated countries of Vietnam and Indonesia, which have a population of 85 million and 220 million respectively. Urbanization, industrialization and rapidly rising prosper- ity provide significant growth potential on these markets. Product leadership The Group’s product leadership is an important factor for market penetration in Asia. Demand for digitalization and access control is increasing rapidly and sales more than doubled in the region. In China, the number of digital door lock distributors rose from 50 to 100, with major successes on the residential market. The investment in India was strengthened by the development of several unique products for this major market, contributing to the division’s high share of products launched in the past three years of 31 percent. cost-efficiency The division’s Chinese production units account for a large share of the Group’s production and employees. The division had about 14,600 employees in China. More than 90 percent of the Chinese production is sold on the domestic market and less than 10 percent is exported to other regions. The number of employees fell by around 1,300 people, excluding acquisitions, compared with 2011, as a result of intensified implemen- tation of Lean processes, an increased share of purchases and outsourc- ing, and the automation of production processes. These efficiency measures are necessary to meet increased cost pressure particularly from wage increases in China, but also to reduce the division’s sensitiv- ity to cyclical fluctuations, thereby improving margin growth. System- atic efforts to increase the share of coordinated purchases are increas- ing rapidly and give positive results. The efforts will continue in 2013. KEY FIGURES seK M income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % capital employed Capital employed – of which goodwill Return on capital employed1, % cash flow Cash flow2 Average number of employees 2011 2012 6,633 9 933 14.1 4,278 3,410 23.6 7,224 3 978 13.5 5,168 4,326 20.7 912 15,784 1 348 15,284 1 Excluding items affecting comparability of SEK 48 M in 2011. 2 Excluding restructuring payments. SALES AND OPERATING INCOME SEK M 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 08 09 10 11 12 SEK M 1,000  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting comparability in 2008, 2009 and 2011. 900 800 700 600 500 400 300 SALES BY PRODUCT GROUP Mechanical locks, lock systems and fittings, 54 % Electromechanical and electronic locks, 8 % Security doors and hardware , 38 % assa aBLoY annuaL RePoRt 2012 asia PaciFic Division 4747 Global Technologies Continued good growth with new products and services Demand was strong in the markets for upgrading and supplementing existing systems. Sales increased, driven by launches of new products and services and successful expansion in emerging markets. Continued streamlining and cost-efficiency programs contributed to a significant profit increase and a strong margin improvement. HID Global’s iCLASS SE techno- logy contributes to increased security, mobility and flexibility. Report on the year • Sales: SEK 6,262 M (5,756) with 6 percent organic growth. • Operating income (EBIT) excluding restructuring costs: SEK 1,073 M (897), a 20 percent increase. • Operating margin: (EBIT): 17.1 percent (15.6) Global Technologies division consists of two business units: HID Global and ASSA ABLOY Hospitality. HID GLOBAL Market development Demand remained strong in all markets for upgrading and supplementing existing systems. The traditional product areas in identity and access management showed strong, stable demand. Sales rose as a result of a successful focus on emerging markets, such as China, Indonesia, Russia and Brazil, and marketing of new prod- ucts and services in recent years. The division made a strong contribution to the Group’s core operations in electronic door opening solutions, with high growth in physical access control, accounting for 40 percent of the Group’s sales in 2012. Demand for secure identity solutions is increasing in all markets. HID Global improved its market-leading position through the launch of innovations in mobile access and identity solutions, more efficient card print- ers, and new technology in converged access solutions combining physical with logical access control and other integrated solutions. Market presence HID Global is making a long-term investment in its global leading market presence, with considerable success in the institutional and commercial markets. Increased emphasis on unique selling points, a scalable ecosys- tem of security solutions, and a global partner program further strengthened the brand position. Brand consoli- dation has been very successful, resulting in the con- solidation of 17 brands into a single HID Global brand in just five years. All product lines have gained wider distribution worldwide, strengthening brand loyalty while a complete product portfolio can be offered to all customers. The focus on market segmentation con- tinued and resulted in deeper customer dialogue and a stronger customer offering across all product lines. The development of specification expertise continues with investments in special teams for global advice and development in cooperation with end-customers. For example, the focused sales initiative in Government ID Solutions has resulted in a leading position in four key segments: e-documents, ID readers, personalization and issuance solutions, and professional support solutions. HID Global’s solutions are in many important national programs for various types of ID cards, passports, driving licenses and vehicle registration, including 27 ePassport programs and 49 national ID/eID programs. HID Global reader technology is used by the world’s five largest doc- ument reader suppliers. The American company EasyLobby, a specialist in visi- tor management solutions, was acquired at the end of 2011. The Group company was successfully integrated in 2012. product leadership The global product strategy is to offer a complete eco- system for secure identity management with solutions for all parts of the value chain. In 2012 the main focus FACTS ON GLOBAL TECHNOLOGIES Offering: HID Global is a global leader in secure identity solu- tions, primarily in identity and access management, and in con- tactless identification technology solutions. ASSA ABLOY Hospitality is a global leader in electronic lock systems and safes for hotels and cruise ships. Markets: Customers are mainly in the institutional and commer- cial sectors worldwide. Brands: HID Global and VingCard. Acquisitions: Codebench, USA. 4848 GLOBAL TECHNOLOGIES DIVISION ASSA ABLOY ANNuAL REpORT 2012 KEY FIGURES SEK M Income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 2011 2012 5,756 11 897 15.6 6,449 4,846 14.3 933 2,819 6,262 6 1,073 17.1 5,717 4,524 17.3 1 140 3,029 1 Excluding items affecting comparability of SEK 87 M in 2011. 2 Excluding restructuring payments. SALES AND OPERATING INCOME SEK M 7,000 6,000 5,000 4,000 3,000 08 09 10 11 12 SEK M 1,200 1,000 800 600 400  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting compa- rability in 2008, 2009 and 2011. SALES BY PRODUCT GROUP Access control, 52 % Identification technology, 26 % Hotel locks, 22% was on improving convenience in use and installation, product and sys- tem security, and systems integration. Quality assurance work showed positive results. Customer satisfaction with delivered quality was very high. ASSA ABLOY has a world-class product development process. HID Global has broadened the innovation process to include systems inte- gration and an overall approach comprising development platforms, as well as collaborations with external partners, customers and other parts of the Group. Several new products and solutions were launched during the year. FARGO HDP8500 is an industrial class ID printer, which is particularly suitable for large government ID card programs and other demanding environments. It allows considerable reductions in materials costs and initial investments in printer hardware. pivCLASS is an extensive range of security solutions, which make it easier for the US Federal Government, its subcontractors and others to comply with high security requirements and use personal ID cards for physical access control. The new EDGE EVO and VertX EVO IP-enabled platforms, forms a unique portfolio of advanced, networked solutions. The year also saw the launch of Seos, the worlds first commercial eco- system for digital keys in NFC cell phones, which was met with consid- erable interest. Seos enables doors to be opened by holding the cell phone in front of the lock. Private individuals and security staff can send temporary digital keys to visitors via their cell phone. Cost-efficiency Efforts to reduce inventories and optimize working capital across all product areas and geographical regions continued with positive results in 2012. HID Global began consolidation of distribution and produc- tion plants in the USA, with the announced closure of four units and the construction of a new plant in Austin, Texas, that is due for comple- tion in 2014. A new production plant is under construction in Malaysia for deliveries to the fast-growing Asian markets. This consolidation will contribute significant cost savings in future years. A major global project has begun to consolidate the number of stra- tegic suppliers. Work will continue in 2013, resulting in greater flexibil- ity, an increased rate of development and launch of new products in the market, better quality and reduced costs. The new plants in the USA and Malaysia are being built to the high- est sustainability and high energy efficiency standards to comply with the requirements of ISO 14001. Continuous sustainability audits of important suppliers now cover 98 percent of the annual materials flow. Sustainability is a criterion in the development of new products and solutions. Examples include low-energy access control readers, ENERGY STAR compliant card printers, and biodegradable cards. HID GLOBAL HID Global supplies solutions for secure identity creation and management to commercial companies, healthcare, educational and financial institutions as well as government and state institutions. HID Global’s open technology platforms provide significant benefits. pRODuCT AND SERVICE OFFERING physical access control: cards, card readers and networked access control units. Secure issuance: card printers and software. Identity assurance: smart cards, readers and credential management and other software. Government ID: cards, card printers, readers, software and professional services for government-issued credentials. Managed Services: customized smart cards and secure identity issuance, such as mobile keys. Mobile access control: digital keys and reader technology for NFC cell phones. Contactless identification: RFID tags, readers and embedded solutions for identification. ASSA ABLOY ANNuAL REpORT 2012 GLOBAL TECHNOLOGIES DIVISION 4949 Global Technologies VingCard’s RFID (radio fre- quency identification) lock system offers functions such as contactless access control using encoded communica- tion and secure, copy protected software. ASSA ABLOY HOSpITALITY Report on the year ASSA ABLOY Hospitality experienced strong growth, despite an economic slowdown that affected demand for hotel rooms in mature markets. Sales growth was driven by increased global demand for renovation and upgrade projects. Active market development in recent years led to several major contracts for deliveries to global hotel chains. The market for new hotel construction remained weak. Demand from the cruise ship market declined due to a more subdued global economy. The aftermarket’s good margins further strengthened operating profit and operating margin. ASSA ABLOY Hospitality’s customers are a clear example of the rapid market trend towards increasingly advanced electromechanical technology and entrance automation. In recent years marketing efforts have focused on promoting the replacement or upgrade of installed lock systems that use magnetic strip cards. The latest contactless RFID (radio frequency identi- fication) technology provides hotels and hotel guests with considerably more secure, flexible and user-friendly locks, which also create opportunities for major energy savings. ASSA ABLOY Hospitality has established itself as a market leader with a clear hi-tech image. Today nearly three-quarters of sales are RFID-based systems and more than 750,000 VingCard RFID locks have now been installed globally. The new VISIONLINE system is also attracting considerable interest. It is integrated with the hotel’s other operating systems to add efficient new housekeeping, security, front desk and maintenance functions. This allows 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 or exchange their key. VingCard Elsafe has also established itself as an impor- tant supplier of energy management systems for the hotel market through its Orion range launched in 2010. Sensors that can detect guest presence in the room and information from the door lock when the guest enters and leaves the room allow Orion to efficiently manage energy consumption. The technology can contribute to energy cost savings of up to 20-30 percent. Market presence Global market presence has gradually strengthened in recent years, with deliveries to 166 countries. Sales have increased rapidly on new emerging markets due to tar- geted marketing initiatives. Market presence in China, for example, strengthened during the year and sales rose sharply, due to a high level of investment in the country and modernization in the hotel sector. product leadership Product development continued at a high rate during the year. One important launch was Seos, the world’s first commercial ecosystem for digital keys in NFC (Near Field Communication) cell phones. The hotel guest can check in and receive their electronic key using their cell phone. On arrival the guest can enter their hotel room using their cell phone. RFID technology was further developed with a new common electronic platform. This is suitable for both old and new locks and provides better performance. The newly developed concept of loyalty cards was launched by several major global hotel chains during the year. The Hotel’s guest’s loyalty card acts as a room key, the booking confirmation and room number are sent by SMS or Email, the guest skips the front desk and uses their loyalty card to open the assigned door. Booking confirmation and room number are sent to the guest by SMS or email. VingCard Elsafe launched a new electronic concept, Essence by VingCard. All lock com- ponents are housed in the door, a new stage in the devel- opment of door design. Cost-efficiency ASSA ABLOY Hospitality continued its successful relo- cation of component production to high-quality sup- pliers in low-cost countries, mainly China. The program to streamline production and product development in the new Shanghai production plant yielded positive results. It included major efforts to reduce environmen- tal impact. VA/VE methods have contributed to consid- erable materials savings in production, as well as a life cycle perspective. Implementation of the global ERP sys- tem also continued, which will strengthen Hospitality’s Seamless Flow program to automate an increasing num- ber of process flows. This system will be taken into use in the beginning of 2013. FACTS ASSA ABLOY HOSpITALITY ASSA ABLOY Hospitality manufactures and sells electronic lock systems, safes, energy management systems and minibars for hotels and cruise ships under the VingCard Elsafe brand. It is the world’s best-known brand for hotel lock systems and in-room safes, with products installed in over seven million hotel rooms in more than 42,000 hotels worldwide. 5050 GLOBAL TECHNOLOGIES DIVISION ASSA ABLOY ANNuAL REpORT 2012 VingCard Elsafe security solution for Park Inn Trysil Mountain Resort On 19 December 2011 the Rezidor Hotel Group, SkiStar and Peab opened Park Inn Trysil Mountain Resort in the Norwegian ski resort of Trysil. The hotel has 369 rooms and is part of the Park Inn by Radisson chain, Rezidor’s young and dynamic mid-priced brand. Guests are offered a carefree stay, a relaxed and personal atmosphere, and comfortable modern rooms. Challenge: Solution: The 33,000 square meter Park Inn Trysil Mountain Resort has four apartment wings, which are connected to the main build- ing with its conference facilities, lobby, restaurant and spa via a 30 meter long glazed bridge. The hotel complex is located around 800 meters above sea level, and it is a challenge to service and maintain all these buildings in low temperatures. Ving- Card Elsafe was commissioned to develop an access control solution, which makes it easier for technicians and reception staff, while providing guests with increased security and flexibility. VingCard Elsafe supplied 471 electromechanical locks and 32 wall-mounted RFID (radio frequency identification) readers, which are all wirelessly connected to an access control system. The company’s R&D department developed new software, which enables guests to use their SKIDATA lift pass to open the door of their hotel room at Park Inn Trysil Mountain Resort and other participating facilities. The Rezidor Hotel Group, SkiStar and Peab are extremely satisfied with this solution and VingCard Elsafe’s continuous control of the facility. ASSA ABLOY ANNuAL REpORT 2012 51 Entrance Systems More growth platforms for continued global expansion Demand was weak in Europe but continued at a stable level in North America, while growing strongly on emerging markets. The division has successfully integrated the many acquisitions made in recent years and continued to acquire companies to strengthen its global leading position in entrance automation. Operating income increased, while the operating margin weakened somewhat. Report on the year • Sales: SEK 10,979 M (8,278) with -2 percent organic growth. • Operating income (EBIT) excluding restructuring costs: SEK 1,546 M (1,197). • Operating margin: 14.1 percent (14.5). Market development Growth declined in western Europe, which accounts for the majority of sales, but the picture was diverse. Sales in Germany, Austria, Switzerland and the Nordic countries grew in the first half of the year, but weakened gradually during the year. Sales fell sharply in the crisis-hit coun- tries in southern Europe. Demand remained at a stable level in North and South America, with all the division’s companies reporting positive growth. Asia also showed positive growth particularly in the industrial segment. The strongest segment during the year was industrial customers, with strong demand on the whole for Craw- ford, Albany and the newly acquired Dynaco. The health- care and transport sectors were negatively impacted by fiscal restrictions and fewer investments in major public projects, which affected Besam. The residential segment also experienced weakening demand, while demand in the retail trade was stable. Besam revolving door in a hospital environment. FACTS ON ENTRANCE SYSTEMS Nearly 40 percent of the division’s sales are generated by the comprehensive service offering, with its high and regular sales. This has helped to counterbalance equip- ment sales, which are more cyclical. The division has grown very strongly in recent years mainly through acquisitions. Sales have nearly tripled since 2010, and ASSA ABLOY has consequently achieved a global leading position. The year was marked by inten- sive integration activities. The division now has a number of geographically and technologically well-positioned platforms for continued rapid global growth. It has also invested in the development of new products, solutions and service, which provided strength in the weakened business climate in 2012. Market presence A significant trend is that the entrance automation market is developing from a large number of regional markets to a more global market. The division is driving this develop- ment through acquisitions and global growth platforms. The year saw the start of major organization development to further strengthen market presence. The division’s companies are organized into three groups focusing on direct sales, indirect sales via distributors and component sales. Within these groups, sales activities for both prod- ucts and service will be segmented even more effectively, with specialist teams for large end-customer segments, providing customers with their own problem solvers. The Key Account Management concept for selected customers continued its successful development. This is an answer to the globalization of major industrial, transport and retail companies, which are aiming for har- monized total door opening systems for their facilities worldwide. The service concept continued to be devel- oped with solutions for regular preventive service. The acquisition of Albany Door Systems was com- pleted during the year, as was the acquisition of Dynaco, a leading manufacturer of automatic high-performance Offering: Entrance automation products, components and ser- vice. The product range includes automatic swing, sliding and revolving doors, air curtains, gate automation, garage doors, high-performance doors, industrial doors, docking solutions and hangar doors. Markets: Entrance Systems is a global leader with sales world- wide. It has sales companies in 30 countries and distributors in 60 countries. Service operations account for nearly 40 percent of sales. The products are sold through two channels. In the direct chan- nel, new equipment and comprehensive service are sold direct to the end-customer, while in the indirect channel, products and components are sold to end-customers through distributors. Brands: Besam, Crawford, Megadoor, Albany, FlexiForce, Normstahl , Ditec and EM. Acquisitions: Albany and 4Front (USA), Dynaco (Belgium) and Helton (Canada). 5252 ENTRANCE SYSTEMS DIVISION ASSA ABLOY ANNuAL REpORT 2012 doors specializing in sales to a global distributor network. The acquisi- tion of Helton fits well with the acquisition of FlexiForce in 2011. Helton manufactures overhead door components for private and industrial customers on the North American market. The American company 4Front, a leader in docking systems, was acquired at the end of the year. The company offers a complete product range of docking systems and a large range of fittings for increased safety in the loading bay area. product leadership Investments in new product development continued to increase. Strengthening product development competence and increasing the rate of new product launches are an important part of the integration of acquired companies. The new product development organization established in recent years has considerably streamlined the develop- ment of new products and shortened the lead times to market. Product development and production are achieving significant economies of scale in resource and component utilization, due to an increasing num- ber of common product platforms and modular solutions for more and more products. Environmental considerations and energy efficiency are strong sales arguments. VA/VE methods in the product development phase reduce energy and raw material consumption in the production process, reducing product cost and increasing customer value. The division has also begun the development of new service concepts, increasing focus on preventive and improvement service. The aim is to offer customers total modernization solutions for the division’s door opening solutions and those of its competitors. This involves extensive upgrades of old installations with a series of new products and components. This type of major renovation and modernization requirement is expected to increase in the coming years. Cost-efficiency An important task during the year, in the wake of the many acquisi- tions, was simplifying the complexity and streamlining the structure of production and administration. The extensive program to rational- ize the production structure of the newly acquired units accelerated. A number of production plants are being closed, with production trans- ferred between existing plants in both high- and low-cost countries. Meanwhile investments are being made in five final assembly plants in strategic locations in Europe. Complementary programs are coordi- nating supply management to reduce the number of suppliers. Many administrative functions can likewise be coordinated and concentrated to increase efficiency. A large number of IT-based systems are set to be replaced by fewer systems. Dynaco high speed doors. KEY FIGURES SEK M Income statement Sales Organic growth, % Operating income (EBIT)1 Operating margin (EBIT)1, % Capital employed Capital employed – of which goodwill Return on capital employed1, % Cash flow Cash flow2 Average number of employees 2011 2012 8,278 5 1,197 14.5 10,837 7,153 12.2 1,317 5,605 10,979 –2 1,546 14.1 13,189 8,323 12.3 1,648 7,429 1 Excluding items affecting comparability of SEK 423 M in 2011. 2 Excluding restructuring payments. SALES AND OPERATING INCOME SEK M 12,000 10,000 8,000 6,000 4,000 2,000 0 08 09 10 11 12 SEK M 1,800 1,500 1,200 900 600 300 0  Sales1 Operating income2 1 Reclassification has been made for 2008 and 2009. 2 Excluding items affecting compa- rability in 2008, 2009 and 2011. SALES BY PRODUCT GROUP Products, 63% Service, 37% Megadoor hangar door. ASSA ABLOY ANNuAL REpORT 2012 ENTRANCE SYSTEMS DIVISION 5353 Sustainable development Corporate responsibility drives a more profitable ASSA ABLOY ASSA ABLOY’s sustainability initiatives are based on the operations impact of the environment, increasing demand for sustainable products, and the intention to be a responsible and attractive company. Work on relevant sustainability issues is integrated across the value chain – from product development to recycling. Sustainability Report 2012 The global leader in door opening solutions Further information about ASSA ABLOY’s sustainability initiatives is to be found in the 2012 Sustainability Report, which will be published in con- nection with the 2013 Annual General Meeting. ¹ for comparable units. total energy consumption amounted to 692 gWh including units acquired during the year and increased reporting. ² for comparable units. total consumption amounted to 20 tonnes including units aquired during the year and increased reporting. 3 for comparable units. the total injury rate (ir) was 9.1 including units acquired during the year and increased reporting. 4 for comparable units. the total injury lost day rate (iLDr) was 171 including units acquired during the year and increased reporting. 5 for comparable units. number of certificates and correspond- ing certifiable systems for north American units amounted to 100. 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. Sales companies with iSO 14001 cer- tification are included in the reports from 2012. ASSA ABLOY has a Group-wide Code of Conduct that provides the basis for everyone’s behavior. The Group identifies continuing risks and opportunities to be man- aged in dialogue with internal and external stakeholders. It helps customers reduce their energy consumption and environmental impact through continuing improve- ments to production processes, and the development of new products and solutions. Sustainable products account for an ever-increasing share of Group sales. The drivers for ASSA ABLOY’s sustainability initia- tives are risk management and reduction, streamlining production and administration, and the management of opportunities. This approach enables ASSA ABLOY to meet customer expectations, expand market share and create value. Control of sustainability initiatives The Code of Conduct is Group-wide and establishes the principles that ASSA ABLOY has defined for the Group’s employees, suppliers and other stakeholders. The Code is based on international standards and is available in 22 languages. ASSA ABLOY monitors compliance with the Code of Conduct. Action is taken in case of non-compli- ance with the Code. The Code is available to all employees. It forms part of the induction of new employees, and it is every employee’s responsibility to read and comply with the Code and related policies. Whistle-blowing procedures are in place to enable all employees to report suspected infringements. Reported cases are investigated by a spe- cial committee headed by ASSA ABLOY’s HR director. Suppliers are informed of ASSA ABLOY’s Code of Con- duct and undertake in writing to comply with it in their collaboration with the Group. Since 2011, the Code of Conduct has been supplemented with a separate anti- corruption policy, which is now being implemented across the Group. SOme Of the reSuLtS Of the SuStAinABiLitY prOgrAm Deterioration unchanged improvement Targets Results 2008 Results 2009 Results 2010 Results 2011 Results 2012 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. 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. Suppliers – Sustainability appraisals – Code of Conduct requirement for all suppliers. Sustainability audits of suppliers in risk category. Gender equality – Improve current levels of gender equality at senior levels. 482 GWh 491 GWh 605 GWh 632 GWh¹ 633 GWh 42 tonnes 44 tonnes 32 tonnes 22 tonnes 17 tonnes ² IR: 8.7 ILDR: 166 IR: 8.4 ILDR: 150 IR: 7.8 ILDR: 141 IR: 8.9 ILDR: 161 IR: 9.03 ILDR: 1734 63 62 69 75 915 100 sustain- ability audits in China 178 sustain- ability audits in China 376 sustain- ability audits in China 493 sustain- ability audits in Asia 795 sustain- ability audits in Asia Level 2: 0 % Level 3: 11 % Level 4: 17 % Level 5: 23 % Level 2: 0 % Level 3: 15 % Level 4: 18 % Level 5: 20 % Level 2: 0 % Level 3: 16 % Level 4: 18 % Level 5: 24 % Level 2: 0 % Level 3: 15 % Level 4: 19 % Level 5: 26 % Level 2: 18 % Level 3: 16 % Level 4: 18 % Level 5: 23 % 5454 SuSTaInablE dEvElOpmEnT aSSa ablOY annual REpORT 2012 aSSa ablOY’s way of working The Board of Directors has the overall responsibility, while the Executive Team is responsible for operational management of relevant sustainability issues and the Group’s strategies. Appointed coordinators at divisional and company level are responsible for the availability and implemen- tation of environmental guidelines, programs and tools. HR functions at Group and divisional level are responsi- ble for the same in the management of social and busi- ness ethical issues. The divisions and Group companies are responsible for compliance with the Group’s Code of Conduct. ASSA ABLOY provides information, guidelines and tools to support the Group companies in their work on relevant sustainability issues. There is a Group-wide database for reporting and monitoring of the sustain- ability program. This database is a knowledge bank that employees working with sustainability can access. A target-based activity ASSA ABLOY has been working in accordance with a sus- tainability program since 2007. The program has been revised regularly; the last time was in 2010. In 2012, the Group continued working to achieve the targets and to integrate newly acquired companies into the Group reporting. In 2012, 293 companies were included in the Group reporting, an increase of 15 percent on 2011. ASSA ABLOY has gradually increased the accuracy and the level of detail of internal reporting to increase con- trol and ensure continuous progress with the Group’s sustainability initiatives. The targets now governing the work apply until 2015 and have been formulated for all the Group’s divisions. These targets include ASSA ABLOY’s most important sus- tainability issues: water consumption, chemicals man- agement, energy efficiency, health and safety, employee issues, supplier relations, and the overall control of sus- tainability initiatives. The program has been part of cre- ating a structure for sustainability initiatives. repOrting unitS 300 250 200 150 100 50 0 08 09 10 11 12 the number of reporting units in the group has increased to 293 (256). SuStAinABiLitY initiAtiVeS Are integrAteD ACrOSS the VALue ChAin 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 per- spective. Suppliers failing to comply with the Group’s requirements are requested to make improvements or will otherwise be phased out. MANUFACTURING The manufacture of the Group’s products should be carried out safely and with minimal environmental impact. Hazardous processes are gradually being phased out and replaced by eco-friendly alternatives. MARKET PRESENCE ASSA ABLOY respects the laws and regulations governing business ethics in the countries in which it operates, and requires all partners to act in the same way. CUSTOMERS ASSA ABLOY’s ambition is to supply high-quality products that fulfill custom er needs, have a long service life and are manufactured with minimal resource consumption and environmental impact over their life cycle. e rs m u st o C in n o v atio n employees Code of Conduct and Corporate governance g cin r u o S m a r k e t p r e s e n c e manufacturing aSSa ablOY annual REpORT 2012 SuSTaInablE dEvElOpmEnT 5555 Sustainable development aSSa ablOY’s customer offering Sales of products and solutions with a sustainable profile are increasing. The product innovation process has three important stages: • Product management – refers to the strategic aspects Development of energy-efficient products is a cen- tral part of ASSA ABLOY’s product development. Energy- efficient products account for an ever-increasing share of Group sales. Understanding and satisfying customer needs is crucial for retaining a strong market position. Demand for sustainable products is increasing, and it is important for the Group to develop products that meet customer expectations, and get them certified and included in the 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 increasing in importance and make them more attractive to the market. ASSA ABLOY has a number of climate-smart prod- ucts, which combined with increased security help the customer to reduce energy consumption and create a better quality indoor environment. progress towards more sustainable products ASSA ABLOY’s ambition is to have world-class product development. This requires a good knowledge of cus- tomer needs today and tomorrow, as well as knowledge of the product’s value chain. Group companies use the Group’s product innovation process and environmental checklist for all new product development. • of the process. Involving customers in product development. Voice of the Customer ensures ASSA ABLOY develops prod- ucts that customers want. • The Gateway process – ensures that development projects are structured and efficient. The Group has carried out product life cycle analyses to evaluate where 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 development. In the case of electromechanical products, standby power consumption has a relatively large environmental impact. ASSA ABLOY has there- fore launched a number of products with considerably reduced energy consumption in standby mode. ASSA ABLOY can reduce its environmental impact and costs through a reduced and efficient use of chemi- cals, 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 sustainable and efficient processes. Redu- cing the amount of packaging materials for different cus- tomer groups and forms of delivery is an important issue in working towards more resource-efficient operations. SuStAinABLe DeVeLOpment prOgrAm in Brief 2004–2008 Code of Conduct with updates Whistle-blowing Internal audits Due diligence directive Tools for supplier control Employee survey Sustainability strategy for prod- uct development including checklists Marketing and sales training Training in supplier control 2009 Sales companies and offices are included in reported figures Increased monitoring of energy consumption and CO2 Launch of joint recruitment and selection guide 2010 Increased audit of suppliers in low-cost countries Targets for 2015 are defined for all monitored areas 2011 Increased reporting of environ- mental data 25 percent more Group compa- nies included in reporting Improved analysis and bench- marking opportunities between Group companies Updated Code of Conduct Implementation of an anti-bribery policy across the Group Target of 30 percent women in management positions within ASSA ABLOY 2012 Increased reporting of environmental data on water usage and green- house gases¹ 15 percent more Group companies included in reporting Internal semi-annual reporting for increased internal control More than 6,000 employees participated in anti-bribery training ¹ the increased reporting is presented in ASSA ABLOY’s Sustainability report 2012. 5656 SuSTaInablE dEvElOpmEnT aSSa ablOY annual REpORT 2012 energy-efficient door system from entrance Systems Challenge: Solution: Result: The ICA Group has set a target to reduce its carbon emissions by 30 percent between 2006 and 2020. ICA has made a strategic investment in a pilot project, the ICA store at Sannegården in Gothenburg, using energy reducing technology. Part of the solution is that ASSA ABLOY Entrance Systems has supplied two energy-efficient Besam RD3L revolv- ing doors to ICA. This is a high-capacity door opening solution, which is 20 percent more energy-efficient than any other current automatic door system, due to enhanced insulation and the use of low-energy bulbs. The door design ensures separation between internal and external environments. In this pilot project, ICA has managed to reduce energy consumption by around 35 percent, compared to a five- year-old ICA store. Besam’s revolving doors are responsible for about a third of this energy reduction. The reduction is equivalent to the annual energy consumption of two medium-sized Swedish households. In addition, the indoor environment has improved, due to a more even indoor climate and a reduction in noise and exhaust fumes from the exterior. The pilot project was successful and ICA estimates that it could reduce its carbon emissions by 30 percent. ICA intends to apply these energy-reducing principles in the construction of new ICA stores. Security Intersects with Sustainability Challenge: Solution: Facilities are faced with the challenge of increasing security within the restraints of their existing budget with minimal disruption to the build- ing. Together with the growing trend of sustainable building design, many facilities seek to leverage existing infrastructure while maximizing energy efficiency and achieving sustainability goals. To meet this end-user security challenge, Group brands Corbin Russwin and SARGENT have developed IP-enabled Power over Ethernet (PoE) and WiFi locking solutions that utilize existing infrastructure to expand access control. These high performing electronic access control solutions, par- ticularly PoE locks, help achieve numerous sustainability goals. The Cor- bin Russwin Access 800 IP1 PoE lock easily brings online access control to more doors and provides substantial advantages, including minimized components – access control functions (e.g. door position monitoring and request to exit sensor) are incorporated in one lock body rather than sepa- rately purchased and installed components. This PoE lock uses 50% less power per activation than traditional access control solutions using PoE, and significantly less standby power than traditional access control. Facili- ties also re-use existing building infrastructure adding to the overall ROI savings. Result: The Access 800 IP1 exemplifies a new generation of energy-efficient, sus- tainable access control products. When the total Life Cycle Assessment of a PoE system is considered, the result is less energy and material used dur- ing manufacturing, shipping, installation and use. aSSa ablOY annual REpORT 2012 SuSTaInablE dEvElOpmEnT 5757 Sustainable development development of supplier relations Evaluation and improvement of the supplier base is a continuous process. Supplier selection is based on standardized criteria for both quality and work on rel- evant sustainability issues. Good supplier control and working in accordance with jointly agreed action plans result in increased product quality and more sustainable processes. ASSA ABLOY’s suppliers are required to comply with its Code of Conduct. Quality and sustainability audits are carried out before new suppliers are approved. Suppliers deemed to be in a risk category are prioritized for audit. The system used to monitor suppliers’ compliance with the Code of Conduct includes factors such as wages, overtime, noise levels, protective equipment, chemicals management, accident reporting, environ- mental management systems, and health and safety training. Any supplier failing to comply with these require- ments is requested to implement necessary improve- ments in accordance with an action plan. The contract is terminated if action is not taken. Supplier selection process The process has three stages: • Supplier self-assessment – the supplier assesses its ability to meet ASSA ABLOY’s requirements, using a form from ASSA ABLOY. • On-site audit – a sustainability audit assesses how well a potential supplier meets ASSA ABLOY’s requirements. • Extended sustainability audit – this complements the standard audit. Following 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 conducted In 2012 ASSA ABLOY conducted 795 (493) sustainability audits. At year-end, 806 (461) active suppliers had sat- isfied the minimum standards for quality and relevant sustainability issues, and were therefore considered reli- able. 10 (19) suppliers were blacklisted. Sustainability audits have been gradually extended to cover a larger geographical area. In 2012 suppliers in all low-cost countries were included. All new suppliers in low-cost countries carry out a self-assessment of their sustainability, in accordance with a standardized process, before they can be consid- ered as potential suppliers to ASSA ABLOY. This is fol- lowed by an on-site audit. ASSA ABLOY annually moni- tors previously approved suppliers. ASSA ABLOY’s supplier database The Group’s suppliers are listed, graded and monitored in a supplier database. Audit reports on both quality and relevant sustainability issues are regularly entered into the database. Suppliers are listed with a standardized name, geographical location, type of products and other information, in order that green 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 regard- ing non-compliance. This means that a supplier rejected for poor management of relevant sustainability issues is either stopped immediately or must wait until the defi- ciencies have been addressed for approval. SuStAinABiLitY AuDitS Of SuppLierS in ASiA ShAre Of tOtAL purChASeS in LOW-COSt COuntrieS Number 800 700 600 500 400 300 200 100 0 08 09 10 11 12 % 60 50 40 30 20 08 09 10 11 12 in 2012 ASSA ABLOY conducted 795 (493) sustainability audits. the share of the group’s total purchases of raw materials, components and finished goods that comes from low-cost countries has risen from 38 percent to 55 percent in the past five years. 5858 SuSTaInablE dEvElOpmEnT aSSa ablOY annual REpORT 2012 more efficient production Energy ASSA ABLOY’s ambition is to reduce energy consump- tion 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. 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 use efficiency have focused on plants with surface treatment processes, which account for the bulk of consumption. Technical improvements in the purification and reuse of water in the production process have reduced water consumption. Waste management The Reduce, Reuse, Recycle principle is applied across the organization. This principle means that ASSA ABLOY works systematically to reduce the amount of materi- als in products, develop products that can be upgraded rather than replaced, and enable recycling of both pro- duction waste and the finished products at the end of their life cycle. The Group has refined its monitoring of waste in various types of materials with the aim of better monitoring and reducing the amount of waste. Hazardous chemicals ASSA ABLOY works continuously to reduce the use of hazardous substances in the production process and find substitutes for them. Most production plants have phased out chlorinated organic solvents successfully. Health and safety ASSA ABLOY should offer a safe working environment and has a zero vision for accidents at work. The goal is to create a culture where each individual contributes to a safe workplace and good health. ASSA ABLOY has defined a number of targets intended to lead to ongoing improvements. These tar- gets are based on the zero vision. 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 preven- tive measures. uSe Of ChLOrinAteD OrgAniC SOLVentS (per AnD tri) Tons 50 40 30 20 10 0 08 09 10 11 12 2012 represents development for comparable units from 2011. inJurieS per miLLiOn hOurS WOrKeD energY uSe 10 8 6 4 2 0 08 09 10 11 12 2012 represents development for comparable units from 2011. GWh 700 600 500 400 300 200 100 0 08 09 10 11 12 2012 represents development for comparable units from 2011. aSSa ablOY annual REpORT 2012 SuSTaInablE dEvElOpmEnT 5959 Sustainable development Manufacture of industrial doors at the Entrance Systems plant at Torslanda, Sweden. Employees generate success ASSA ABLOY’s vision and ambition is to be an attractive company to work for. Each individual has responsibility for his/her professional development. It is important that all employees feel that they contribute. Competi- tion for talent is intensifying and ASSA ABLOY is invest- ing globally and locally to offer stimulating assignments with clear responsibility, good development opportuni- ties, and a positive, engaging work situation. ASSA ABLOY Employee Survey The ASSA ABLOY Employee Survey is an efficient means of finding out what the employees think about their work situation, how they perceive ASSA ABLOY as an employer, how they perceive health and safety in their workplace and if everyone is given equal opportunities. The survey is carried out every 18–24 months. The most recent survey took place in March 2012, and received responses from nearly 28,000 employees. The results in 2012 show a slight improvement in all areas compared to the previous survey (2010). The results have been broken down into 275 units, making them more relevant to all employees and ena- bling appropriate actions to be taken at the local level to achieve further improvements. Common knowledge base A good knowledge of the company in which you work and an understanding of how your own efforts relate and contribute to the overall goals are crucial for moti- vation and commitment. One way to achieve this is that all employees have a common understanding of what ASSA ABLOY’s business is and how the goals are to be achieved. To create this basic knowledge all employees complete the interactive induction program ‘Entrance to ASSA ABLOY’. This program is available in 15 lan- guages and covers the Group’s history, organization, products, strategy and Code of Conduct. Gender equality ASSA ABLOY’s ambition is to achieve a better gender bal- ance at all levels in the organization. In 2011, the Group set a target of 30 percent women in management posi- tions at levels 2 to 5 by 2020. A gender equality policy is already in place to direct these efforts. The trend in the share of women at management level is monitored in connection with the Talent Man- agement Process. Other measures include prioritizing the underrepresented gender in the recruitment pro- cess provided they have equal qualifications, and aiming for at least one person from the underrepresented gen- der among the final candidates. Growing with care ASSA ABLOY is an acquisition-intensive Group, and it is important to monitor how monitor how new units are operating in relation to ASSA ABLOY’s Code of Conduct and policies. Third party social audits in accordance with internationally accepted methods have been con- ducted for several years for this purpose. These audits cover areas such as working conditions, human rights, the work environment, workplace culture and skills development. During the year audits were conducted at one production plant in China and one in Romania. The audits are followed by measures to implement improve- ments where needed. NUMBER OF EMPLOYEES BY REGION Europe, 15,904 North America, 7,631 Central and South America, 850 Africa, 520 Asia, 16,802 Australia and New Zealand, 1,055 AVERAGE NUMBER OF EMPLOYEES WOMEN AT DIFFERENT LEVELS OF THE ORGANIZATION Men Women Number 50,000 40,000 30,000 20,000 10,000 0 08 09 10 11 12 Share of women,% Level 2008 2009 2010 2011 2012 2 – reports to CEO 3 – reports to level 2 4 – reports to level 3 5 – reports to level 4 Levels 2 – 5 Average number of employees 0 11 17 23 – 40 0 15 18 20 – 39 0 16 18 24 – 37 0 15 19 26 24 35 18 16 18 23 22 35 In 2012, the definition has been revised to include only managerial and specialist positions. This has had a negative impact on levels 4 and 5. 6060 SuStAinABLE dEvELOpmEnt ASSA ABLOY AnnuAL REpORt 2012 management training Every year ASSA ABLOY offers a number of senior man- agers the opportunity to take part in one of the Group’s two senior management development programs: ASSA ABLOY Management Training (MMT) and ASSA ABLOY ‘Boosting Market Leadership Program’ MMT is intended to provide participants with an increased knowledge of all areas of ASSA ABLOY’s opera- tions, develop their internal contact network, and con- tribute to sharing best practices and identifying new business opportunities. This is of particular importance for ASSA ABLOY in view of its continuing acquisition of companies. The ASSA ABLOY ‘Boosting Market Leadership Pro- gram’ was launched in 2011. This is a tailor-made pro- gram developed in collaboration with IMD in Lausanne, Switzerland. The program’s main aim is to support the implementation of ASSA ABLOY’s strategy. 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 program is open to all employees. Employee development ASSA ABLOY has a well-established global employee development process at all levels, the Talent Manage- ment Process. The aim is to support career develop- ment in a structured way, optimize the utilization of the Group’s total resources, and ensure that the skills needed to meet future requirements are available. Recruitment and future supply of competence ASSA ABLOY has great confidence in its employees, and it is up to each individual to take responsibility for their career. 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. Recruitment takes place locally in the majority of cases. dialogue with external stakeholders ASSA ABLOY’s stakeholders in sustainability issues are shareholders, investors, analysts, customers, suppliers, employees, local communities, NGOs and the media. The Group’s policy of openness means that we listen to these stakeholders and take on board their views. During the year ASSA ABLOY held a round-table dis- cussion with investors on ASSA ABLOY’s management of sustainability issues. Round-table discussions have been held annually for a number of years. Requests from investors have generally concerned more externally available information on suppliers in low-cost coun- tries, procedures for establishing new operations and the acquisition process. Investors have also requested increased transparency with regard to the targets for each monitored area. These meetings have proved valu- able and given the Group important feedback. Learning and networking A new IMD program is bringing ASSA ABLOY’s senior managers together for an intensive and informative week with lots of learning and networking. More than 250 of ASSA ABLOY’s senior managers from 32 countries have taken part in IMD programs since 2005, when ASSA ABLOY began collaboration with the world-leading Swiss business school, IMD. A new program, Boosting Market Leadership, was launched in 2011. This program is held once or twice a year and focusses on key stra- tegic issues, such as market leadership, innovation and growth. The aim is to give ASSA ABLOY’s senior managers an inspirational and informative experience. Allen Wong, Vice President of Operations and Technology, ASSA ABLOY Asia Pacific, has taken part in two IMD programs. “It was a fantastic experience,” said Allen. “I learned a lot and it was quite intensive but very enjoyable. I learned just as much from my course col- leagues as from the program itself.” Allen has already applied two models he learned on the course; one concerns motivation and the other concerns values. “The program is very relevant to our job and our leadership development,” he said. Allen consid- ers that in particular he learned to think on new lines, introduce new models and develop a more effective leadership style. Allen Wong, Vice President of Operations and Technology, ASSA ABLOY Asia Pacific. aSSa ablOY annual REpORT 2012 SuSTaInablE dEvElOpmEnT 6161 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 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 63 65 68 72 74 77 78 79 80 81 82 83 84 85 86 88 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 leases 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 Investments in associates 18 Deferred tax 19 Other financial assets 20 Inventories 21 Trade 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 current liabilities 27 Accrued expenses and deferred income 28 Contingent liabilities 29 Assets pledged against liabilities to credit institutions 30 Business combinations 31 Assets of disposal group classified as held for sale and discontinued operations 32 Cash flow 33 Employees 34 Financial risk management and financial instruments Comments on five years in summary Five years in summary Quarterly information Definitions of key data proposed distribution of earnings Auditor’s report 90 95 96 96 96 96 96 96 96 97 97 97 97 98 100 101 101 102 102 102 102 102 102 103 105 105 105 105 105 105 107 107 108 110 116 117 118 119 120 121 62 ASSA ABLOY AnnuAL RepORt 2012 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 to 31 December 2012. 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 46,619 M (41,786), with organic growth of 2 percent (4) and acquired growth of 9 percent (17). Operating income (EBIT) excluding restructur- ing costs rose 13 percent to SEK 7,501 M (6,624), equivalent to an operating margin of 16.1 percent (15.9). Income before tax excluding restructuring costs totaled SEK 6,731 M (5,979). Operating cash flow excluding restructuring payments remained strong and amounted to SEK 7,044 M (6,080). Earnings per share after full dilution excluding restructuring costs were SEK 13.84 (12.30), an increase of 13 percent. Restructuring The restructuring programs launched during the period 2006–2007 have been completed. The activity level in the remaining restructuring programs remained high during the year and is expected to continue in the same way during the years 2013–2014. At year-end 2012, 6,765 employees had left the Group as a result of the changes in the production structure since the programs began, of which 896 employees left during the year. A total of 53 production plants closures have been implemented and a large number of plants in high-cost countries have switched from production to final assembly. A total of 28 offices have also closed during the equivalent period. 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 498 M (373) for the full year. At year-end 2012, the remaining provisions for restructuring measures amounted to SEK 1,068 M (1,665). Acquisitions and divestments On 11 January 2012, 100 percent of the share capital was acquired in Albany Door Systems (USA), a global leader in automatic high-performance doors. The company has global market penetration in industrial automatic high-per- formance doors. The products are used for industrial appli- cations and in logistics centers, where there is a major need for customized automatic high-performance doors with high security and access control. Albany also offers service and maintenance on the company’s principal markets. The company is headquartered in Georgia, USA. On 1 March 2012, 100 percent of the share capital was acquired in Dynaco (Belgium). Dynaco is a leading manufac- turer of automatic high-performance doors specializing in sales to a global distributor network. The acquisition of Dynaco further strengthens ASSA ABLOY’s position in the fast-growing market segment of high-performance doors. Dynaco adds manufacturing expertise, with many leading patented products and a global distribution channel. The company is headquartered in Moorsel, Belgium. On 29 May 2012, 100 percent of the share capital was acquired in Guoqiang, a Chinese manufacturer of window hardware. Guoqiang offers a complete range of window hardware mainly for the Chinese market. The company has a good market presence in China through an extensive net- work of sales offices. Guoqiang provides a good fit with the existing offering in total door opening solutions in China and gives access to the Chinese window hardware market. The company is headquartered in Leling, Shandong Prov- ince, China. On 24 December 2012, 100 percent of the share capital was acquired in 4Front, a leading American player in docking systems. The company offers a complete product range of docking systems and a large range of fittings. The acquisition increases the strategic foothold on the important North American entrance automation market, and provides an excellent fit with the Group’s growing product portfolio in docking systems. A total of 13 acquisitions, including minor acquisitions, were consolidated during the year. The total purchase price of these acquisitions was SEK 4,799 M, and preliminary acquisition analyses show that goodwill and other intangible assets with an indefinite useful life amount to SEK 3,768 M. During the year an agreement was signed to sell the Group’s 70-percent interest in Wangli Security Products Ltd in China. The business was not considered to be a good fit with ASSA ABLOY’s operations in the long-term. The divest- ment is dependent on the approval of the authorities and is expected to be completed in 2013. The business has been shown as an asset in a disposal group held for sale. Sales and operating income have not been reported on a current basis. No significant capital gain/loss is expected to arise on the sale. Research and development ASSA ABLOY’s expenditure on research and development during the year amounted to SEK 1,344 M (1,202), equiva- lent to 2.9 percent (2.9) 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 2012 RepORt OF the BOARD OF DiReCtORS 63 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. The subsidiaries ASSA AB and ASSA OEM AB are actively addressing environmental issues and are certified in accordance with ISO 14001. Crawford Entrance Solutions also carries on licensable and notifiable activities in Gothen- burg and Strömstad. 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 2012 Sustainability Report, reporting on the Group’s prioritized environmental activities and providing other information on sustainable development, will be published at the time of the Annual General Meeting in April 2013. transactions with related parties No transactions occurred between ASSA ABLOY and related parties that significantly affected the company’s financial position and results. Significant events after the financial year-end No significant events occurred after the financial year-end and up to the date of adoption of the Annual Report of ASSA ABLOY AB. Outlook Long-term outlook ASSA ABLOY anticipates an increase in demand for security solutions in the long term. A focus on customer value and innovations as well as leverage on the Group’s strong posi- tion will accelerate growth and increase profitability. Organic sales growth is expected to be strong. The ope- rating margin (EBIT) and operating cash flow are expected to develop favorably. 64 RepORt OF the BOARD OF DiReCtORS ASSA ABLOY AnnuAL RepORt 2012 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 sig- nificant effects on ASSA ABLOY’s operations and business objectives. Operational risks comprise risks directly attribu- table 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’s pension obligations. ASSA ABLOY’s Board of Directors has overall responsibil- ity for risk management within the Group and determines the Group’s strategic focus based on recommendations from the Executive Team. In view of the decentralized struc- ture of the Group, and to keep risk analysis and risk manage- ment as close as possible to the actual risks, a large propor- tion of operational risk management takes place at division and business unit level. Strategic risks The 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 and brand positioning. In addi- tion, 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 naturally exposed to both general business environment risks and country-specific risks, including political decisions and com- prehensive changes in the regulatory framework etc. 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 cen- trally and locally. The Group owns a number of the strongest brands in the industry, including several global brands that complement the ASSA ABLOY master brand. Local product brands are gradually being linked increasingly to the master brand. Generally speaking, ASSA ABLOY’s good reputation is one of the Group’s strengths and serves as a foundation for market leadership. Activities to maintain and further strengthen ASSA ABLOY’s good reputation are constantly ongoing. These include ensuring compliance with ASSA ABLOY’s Code of Conduct. 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 and environmental risks, acquisition of new businesses, restruc- turing measures, availability and price fluctuations of raw materials, customer dependence etc. Risks relating to com- pliance with laws and regulations and to financial reporting and internal control are also included in this category. The table on page 66 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, regu- lates the allocation of responsibilities and control of the Group’s financing activities. Group Treasury has the main 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 • Country-specific risks etc. • Legal and environmental 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 2012 RepORt OF the BOARD OF DiReCtORS 65 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 2012 there are considered to be no outstanding legal disputes that may lead to signif- icant 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 central legal function. Guidelines on compliance with applicable com- petition, export control and anti-bribery legisla- tion have been implemented. Legal risks associated with property and liability issues are continually evaluated. environmental risks Ongoing and potential environmental risks are regularly monitored in the operations. External expertise is brought in for environmental assess- ments when necessary. Prioritized environmental activities and other information on sustainable development are reported in the Group’s Sustainability Report. 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 2012 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. 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 exposure to the risk areas listed above is regulated by means of its own captive insurance company. 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. The Group’s insurance cover is considered to be generally adequate, providing a reasonable bal- ance between assessed risk exposure and insur- ance costs. Risks relating to internal control of financial reporting The organization is considered to be relatively trans- parent, with a clear allocation of responsibilities. 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 responsibilities, authorization and other internal control proce- dures are laid down in an internal control manual. Compliance with internal control is evaluated annually for all operating companies. 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 govern ance. 66 RepORt OF the BOARD OF DiReCtORS ASSA ABLOY AnnuAL RepORt 2012 responsibility for financial risks within the framework estab- lished in the financial policy. A large number of financial instruments are used in this work. Accounting principles, risk management and risk exposure are described in more detail in Notes 1 and 34, 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 asso- ciated with the Group’s pension obligations. Financing risk Financing risk refers to the risk that financing the Group’s capital requirements and refinancing outstanding loans become more difficult or more expensive. It can be reduced by maintaining an even maturity profile for loans and a high credit rating. The risk is further reduced by substantial unutil- ized confirmed credit facilities. Currency risk Since ASSA ABLOY sells its products in countries worldwide and has companies in a large number of countries, the Group is exposed to the effects of exchange rate fluctua- tions. These fluctuations 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 transac- tion exposure, i.e. the relative values of exports and imports of goods, is relatively limited in the Group, even though it is expected to increase over time due to rationalization of pro- duction and purchasing. In accordance with financial policy, the Group only hedged a very limited part of current cur- rency flows in 2012. 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 foreign 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 the Group’s 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 14,732 M (14,207) at year-end 2012. Debt 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 variable-rate and fixed-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 32 months (16). 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 2012, ASSA ABLOY had obligations for pensions and other post-employment benefits of SEK 5,437 M (5,300). The Group manages pension assets valued at SEK 3,193 M (3,115). Provisions in the balance sheet for pension plans and post-employment healthcare benefits totaled SEK 1,224 M (1,173). Unrecognized actuarial losses and expenses relating to past service in accordance with applica- ble regulations, the so-called corridor, amounted at year- end 2012 to SEK 1,073 M. Changes in the value of assets and liabilities from year to year are due partly to the develop- ment 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 2012 RepORt OF the BOARD OF DiReCtORS 67 Report of the Board of Directors Corporate governance Important external rules and regulations • Swedish Companies Act • NASDAQ OMX Stockholm Rule Book for Issuers • Swedish Code of Corporate Governance (www.corporate- governanceboard.se) Important internal rules and regulations • Articles of association • Board of Directors’ rules of procedure • Financial policy • Accounting Manual • Communications Policy Insider Trading Policy • Internal control • procedures • Code of Conduct and Anti-Bribery Policy 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 Group’s corporate governance is based on the Swedish Companies Act, the rules and regulations of NAS- DAQ OMX Stockholm and the Swedish Code of Corporate Governance, as well as other applicable external laws, reg- ulations and recommendations, and internal rules and reg- ulations. 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 2012. 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 gov- ernance for ASSA ABLOY can be summarized in a number of interacting components, which are described below. orting Financial rep Share- holders General Meeting Nomination Committee E x t e r n a l a u d i t Board of Directors Audit Committee Remuneration Committee CEO and Executive Team Management philosophy Guidelines and policies Internal control and risk management Decentralized organization shareholders At year-end ASSA ABLOY had 17,591 shareholders (18,697). The principal shareholders are Investment AB Latour (9.5 percent of the share capital and 29.5 percent of the votes) and Melker Schörling AB (3.9 percent of the share capital and 11.5 percent of the votes). Foreign shareholders accounted for around 68 percent (64) of the share capital and around 46 percent (44) of the votes. The ten largest shareholders accounted for around 38 percent (38) of the share capital and around 58 percent (58) of the votes. For further information on shareholders, see page 123. A shareholders’ agreement exists between Gustaf Douglas, Melker Schörling and related companies and includes an agreement on right of first refusal if any party disposes of Series A shares. The Board 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 370,858,778 distributed among 19,175,323 Series A shares and 351,683,455 Series B shares. The total number of votes was 543,436,685. 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 compa- ny’s assets and earnings. Repurchase of own shares Since 2010 the Board has requested and received a man- date from the Annual General Meeting to repurchase and transfer ASSA ABLOY shares. The aim has been to be able to adapt the company’s capital structure and thereby contrib- uting to increased shareholder value, to be able to exploit acquisition opportunities by fully or partly financing com- pany acquisitions with its own shares, and to secure the company’s long-term incentive programs. The 2012 Annual General Meeting authorized the Board to repurchase, dur- ing 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 600,000 (400,000) Series B shares after repurchase to secure the company’s undertak- ings in connection with the company’s long-term incentive programs (LTI 2010, LTI 2011 and LTI 2012). These shares account for around 0.2 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 103 M (65). Of the above shares, 200,000 (100,000) Series B shares were repurchased in 2012. These account for around 0.05 percent (0.03) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 38 M (17). 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 90,082 M. The Board’s 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 date and have duly notified their intention to attend are entitled to take part in the General Meeting, either in person or via a proxy. Resolutions at the General Meeting are normally passed by simple majority. For certain matters, however, the Swedish Companies Act prescribes that a proposal should be sup- ported 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. Mat- ters 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 68 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2012 members and Chairman of the Board of Directors; appoint- ment of the Nomination Committee and auditors; determi- nation of remuneration guidelines for senior management and fees for the Board of Directors and auditors. An Extraor- dinary General Meeting may be held if the Board of Directors considers this necessary or if ASSA ABLOY’s auditors or share- holders holding at least 10 percent of the shares so request. 2012 Annual General Meeting The Annual General Meeting in April 2012 was attended by shareholders representing 60.2 percent of the share capital and 73.0 percent of the votes. At the Annual General Meeting, Carl Douglas, Birgitta Klasén, Eva Lindqvist, Johan Molin, Sven-Christer Nilsson, Lars Renström and Ulrik Svensson were re-elected as mem- bers of the Board of Directors. Jan Svensson was elected as a new member of the Board of Directors. Further, Lars Ren- ström was elected as the new Chairman, and Carl Douglas as Vice Chairman. Gustaf Douglas declined re-election and was thanked for over 17 years’ service as a member of the Board of Directors, including the past six years as Chairman. The Annual General Meeting approved a dividend of SEK 4.50 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 repurchase and transfers of own Series B shares, and the implementation of a long-term incentive program (LTI 2012) for senior management and other key staff in the Group, as well as appointing members of the Nomination Committee prior to the 2013 Annual General Meeting. Nomination Committee The Nomination Committee prior to the 2013 Annual Gen- eral Meeting comprises Gustaf Douglas (Investment AB Latour), Mikael Ekdahl (Melker Schörling AB), Liselott Ledin (Alecta), Marianne Nilsson (Swedbank Robur fonder) and Per-Erik Mohlin (SEB fonder/SEB Trygg Liv). Gustaf Douglas 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 share- holders 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 2013 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, the Vice Chairman and other members of the Board of Directors, the appointment of the auditor, the elec- tion of the Chairman of the Annual General Meeting, the appointment of the Nomination Committee prior to the Annual General Meeting, and fees and associated matters. Prior to the 2013 Annual General Meeting, the Nomina- tion 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 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. Shareholders wishing to submit proposals to the Nomi- nation Committee can do so by emailing: nominationcommittee@assaabloy.com. The Nomination Committee’s proposals are published at the latest in conjunction with the formal notification of the Annual General Meeting, which is expected to be issued around 21 March 2013. Board of directors In accordance with the Swedish Companies Act, the Board of Directors is responsible for the organization and adminis- tration of the Group and for ensuring satisfactory control of bookkeeping, asset management and other financial cir- cumstances. 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’s 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 own- ership structure. The Chairman should also, when necessary, take part in particularly important external discussions and, in consultation with the CEO, in other matters of particular significance. The Chairman should ensure that the work of the Board of Directors is evaluated annually, and that new members of the Board of Directors receive appropriate training. assa aBLoY annuaL RepoRt 2012 RepoRt of the BoaRd of diRectoRs 69 Report of the Board of Directors Corporate governance The Board of Directors has at least four scheduled meetings 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, possi- bly 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 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 Com- mittees are appointed annually by the Board of Directors at the statutory board meeting. Instructions for the Commit- tees are included in the Board of Directors’ rules of proce- dure. Board of Directors’ work in 2012 During the year the Board of Directors held nine meetings (five scheduled meetings, one statutory meeting and three extraordinary meetings). One board member was absent at two meetings. All board members were present at the other meetings. At the scheduled board meetings, the CEO reported on the Group’s performance and financial posi- tion, including the outlook for the coming quarters. Invest- ments, acquisitions and divestments were also considered. All acquisitions and divestments 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 divestments 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, among other things, ASSA ABLOY’s investment in Seos, a commercial ecosystem for creating and managing digital keys in NFC cell phones. In addition, the Board of Directors dealt with a number of acquisitions, including Guoqiang and 4Front. During the year, the Board of Directors conducted in-depth reviews of the Group’s operations in Entrance Systems and EMEA and visited Americas’ operations Curries and Graham in the USA. Remuneration Committee During 2012 the Remuneration Committee comprised Lars Renström (Chairman), Jan Svensson and Sven-Christer Nilsson. The Remuneration Committee’s task is to draw up remu- neration guidelines for senior management, which the Board of Directors proposes to the Annual General Meeting for resolution. The Board of Directors’ proposal for guide- lines prior to the 2013 Annual General Meeting can be seen on page 77. The Remuneration Committee also prepares, negotiates and evaluates matters regarding salaries, bonus, pension, severance pay and incentive programs for the CEO and other senior executives. The Committee held one meeting in 2012 at which all members were present. 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 2013. The meetings of the Committee are minuted, the minutes are distributed with material for the Board of Direc- tors and a verbal report is given at board meetings. Audit Committee During 2012 the Audit Committee comprised Ulrik Svensson (Chairman), Birgitta Klasén and Jan Svensson. 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 2012 at which all members, the company’s auditor and representatives of senior management 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 Committee are minuted, the min- utes are distributed with material for the Board of Directors 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 signifi- cant shareholdings or partnerships in companies with sig- nificant 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 2012 Annual General Meeting passed a resolution on board fees totaling SEK 4,600,000 (excluding remuneration for commit- tee work), to be allocated between the members as follows: SEK 1,350,000 to the Chairman, SEK 750,000 to the Vice Chairman and SEK 500,000 to each of the other members appointed by the Annual General Meeting and 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 (the Chairman excluded) SEK 100,000, and members of the Remuneration Committee (the Chairman excluded) SEK 50,000. 70 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2012 The Chairman of the Board of Directors and other board members have no pension benefits or severance pay agree- ments. The CEO and employee representatives do not receive board fees. For further information on the remuner- ation of board members in 2012, see Note 33. Independence of the Board of Directors ASSA ABLOY’s Board of Directors fulfills the require- ments for independence in accordance with the Swedish Code of Corporate Governance. name Lars Renström Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson Jan Svensson Ulrik Svensson position independent of the company and its management independent of the company’s major shareholders Chairman Vice Chairman Board member Board member Board member, President and CEO Board member Board member Board member Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes – Yes No No The Board of Directors’ composition and shareholdings position elected Born Remuneration committee audit committee name Lars Renström Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Chairman of the Board Vice Chairman Board member Board member Board member, President and CEO Sven-Christer Nilsson Board member Board member Jan Svensson Board member Ulrik Svensson Board member, employee Seppo Liimatainen representative Board member, employee representative Deputy, employee representative Deputy, employee representative Per Edvin Nyström Mats Persson Rune Hjälm 2008 2004 2008 2008 2006 2001 2012 2008 1951 1965 1949 1958 1959 1944 1956 1961 2003 1950 1994 1955 2005 1964 1994 1955 Chairman – – – – Member Member – – – Member – – – Member Chairman – – – – – – – – series a shares¹ – 13,865,243 – – series B shares¹ 10,000 21,300,000 7,000 2,300 – – – – – – – – 526,267 5,000 2,000 3,000 2,600 – – 5,727 1 Including related parties and through companies. Shareholdings as at 31 December 2012. This information is updated regularly at www.assaabloy.com assa aBLoY annuaL RepoRt 2012 RepoRt of the BoaRd of diRectoRs 71 Report of the Board of Directors Corporate governance Board of Directors Board members elected at the 2012 Annual General Meeting Lars Renström Chairman. 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. Shareholdings (including related parties and through companies): 10,000 Series B shares. carl douglas Vice Chairman. Board member since 2004. Born 1965. BA (Bachelor of Arts). Self-employed. Other appointments: Vice Chairman of Securitas AB. Board member of Investment AB Latour and Swegon AB. Shareholdings (including related parties and through companies): 13,865,243 Series A shares and 21,300,000 Series B shares through Investment AB Latour. Birgitta Klasén Board member since 2008. Born 1949. Master of Science in Engineering. Independent IT consultant (Senior IT Advisor). Chief Information Officer (CIO) and Head of Information Management at EADS (European Aeronautics Defence and Space Company) 2004–2005. CIO and Senior Vice President of Pharmacia 1996–2001. Prior to that, CIO of Telia. Held various posts at IBM 1976–1994. Other appointments: Board member of Acando AB and IFS AB. Shareholdings (including related parties 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 TeliaSonera 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 related parties and through companies): 2,300 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 positions mainly in finance and marketing, later divisional head in the Atlas Copco Group 1983–2001. Other appointments: Chairman of Nobia AB. Shareholdings (including related parties and through companies): 526,267 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 Defence Materiel Administration (FMV). Board member of Sprint Nextel Corporation and CEVA, Inc. Shareholdings (including related parties and through companies): 5,000 Series B shares. Lars Renström Carl Douglas Birgitta Klasén Eva Lindqvist Johan Molin Sven-Christer Nilsson 72 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2012 Shareholdings as at 31 December 2012. This information is updated regularly at www.assaabloy.com 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 related parties and through companies): 3,000 Series B shares. Jan svensson Board member since 2012. Born 1956. Mechanical Engineer and Bachelor of Science in Business Administration and Economics. President and CEO of Investment AB Latour since 2003. Other appointments: Chairman of AB Fagerhult, Nederman Holding AB and Oxeon AB. Board member of Loomis AB, Investment AB Latour and Tomra Systems ASA. Shareholdings (including related parties and through companies): 2,000 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: 5,727 Series B shares. Ulrik Svensson Jan Svensson Seppo Liimatainen Mats Persson Rune Hjälm Per Edvin Nyström assa aBLoY annuaL RepoRt 2012 RepoRt of the BoaRd of diRectoRs 73 Shareholdings as at 31 December 2012. This information is updated regularly at www.assaabloy.com Report of the Board of Directors Corporate governance The Executive Team Johan Molin Tzachi Wiesenfeld Carolina Dybeck Happe Thanasis Molokotos Denis Hébert Tim Shea Jonas Persson Juan Vargues Ulf Södergren tzachi Wiesenfeld Born 1958. Bachelor of Science in Industrial Engineering, MBA. Executive Vice President. Head of EMEA division. Employed since: 2000. Shareholdings: 11,113 Series B shares. thanasis Molokotos Born 1958. Master of Science in Engineering. Executive Vice President. Head of Americas division. Employed since: 1996. Shareholdings: 37,157 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: 5,584 Series B shares. Juan Vargues Born 1959. Degree in Mechanical Engineering, MBA. Executive Vice President. Head of Entrance Systems division. Employed since: 2002. Shareholdings: 10,677 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: 526,267 Series B shares. carolina dybeck happe Born 1972. Masters degree in Finance. Executive Vice President and Chief Financial Officer (CFO). Employed since: 2012. Shareholdings: 5,769 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: 9,301 Series B shares. Jonas persson Born 1969. Master of Science in Engineering. Executive Vice President. Head of Asia Pacific division. Employed since: 2009. Shareholdings: 13,333 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: 6,907 Series B shares. 74 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2012 Shareholdings as at 31 December 2012. This information is updated regularly at www.assaabloy.com 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 headoffice are responsible for coordination, monitoring, policies and guidelines at an overall level. The Group’s structure results in a geographical and strategic spread of responsibility ensuring short-decision-making paths. The Group’s man- agement philosophy is based on trust and respect for local cultures and conditions. Guidelines and policies The Group’s most important guidelines and policies define the product areas in which the Group should operate and describe the principles for market development, growth, product development, organization, cost-efficiency and employee development. These principles are described in the publication ‘Our Road to the Future’, which has been provided to all employees in the Group. Other important guidelines and policies concern financial control, communi- cation issues, insider issues, the Group’s brands, business ethics, export control, and environmental issues. ASSA ABLOY’s financial policy and accounting manual pro- vide the framework for financial control and monitoring. The Group’s communications policy aims to ensure essen- tial information is provided at the right time and in compli- ance with applicable rules and regulations. ASSA ABLOY has adopted an insider policy to complement applicable Swed- ish insider legislation. This policy applies to all persons reported to the Swedish Financial Supervisory Authority as holding insider position in ASSA ABLOY AB (including sub- sidiaries) 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 responsibility. Applica- tion of the Code of Conduct in the Group’s different units is monitored regularly to ensure compliance and relevance. ASSA ABLOY has also adopted an anti-bribery policy and an export control 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 industry’s local nature 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, among other things, the Board of Directors’ rules of procedure and instructions to the CEO, the Code of Conduct, financial policy, and an annual financial evaluation plan. Regular meetings are held with the Audit Committee. The Group has 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 con- trol 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 2012 RepoRt of the BoaRd of diRectoRs 75 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 estab- lished and carries out annual financial evaluations in accord- ance with the plan annually adopted by the Audit Commit- tee. The results of the financial evaluations for 2012 are sub- mitted to the Audit Committee and the auditors. 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 relevant poli- cies, legal issues and HR issues. Information and communication Reporting and accounting manuals as well as other financial reporting guidelines are available to all employees con- cerned on the Group’s intranet. A regular review and analy- sis 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 legal and operating review. Operating reviews con- form to a structure in which sales, earnings, cash flow, capi- tal 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 SEB, Securi- tas 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 conducted in accordance with International Standards in Auditing (ISA), which has been good auditing practice in Sweden since 2011. The audit of the financial statements for legal entities outside Sweden is conducted in accordance with statutory requirements and other applicable rules in each country. For information about the fees paid to auditors and other assignments car- ried out in the Group in the past three financial years, see Note 3 and the Annual Report for 2011, Note 3. 76 RepoRt of the BoaRd of diRectoRs assa aBLoY annuaL RepoRt 2012 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 2013 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 2012 Annual General Meeting. The basic principle is that remuneration and other employment con- ditions should be in line with market conditions and be competitive. ASSA ABLOY takes into account both global remuneration practice and practice in the home country of each member of the Executive Team. The total remunera- tion 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 33. Fixed and variable remuneration The basic salary should be competitive and reflect responsi- bility and performance. The variable part consists of remu- neration paid partly in cash and partly in the form of shares. The Executive Team should be able to receive variable cash remuneration, based on the outcome in relation to financial targets and, when applicable, individual targets. This remu- neration should be equivalent to a maximum 75 percent of the basic salary (excluding social security costs). In addition, the Executive Team should, within the frame- work of the Board of Directors’ proposal for a long-term incentive program, be able to receive variable remunera- tion in the form of shares, based on the outcome in rela- tion to a range determined by the Board of Directors for the performance of earnings per share during 2013. This remu- neration 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 the basic salary (excluding social security costs). The cost of variable remuneration for the Executive Team as above, assuming maximum outcome, totals around SEK 61 M (excluding social security costs). This calculation is made on the basis of the current members 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 bene- fits plus an additional 12 months’ basic salary. Deviations from guidelines The Board of Directors 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 2012 RepoRt of the BoaRd of diRectoRs 77 Sales and income • Organic growth was 2 percent (4), while acquired growth was 9 percent (17). • Operating income (EBIT) increased by 13 percent to SEK 7,501 M (6,624), equivalent to an operating margin of 16.1 percent (15.9). • Earnings per share after full dilution increased by 13 percent to SEK 13.84 (12.30). Sales The Group’s sales amounted to SEK 46,619 M (41,786). Exchange rate effects had an impact on sales of SEK 290 M (–2,309). Change in sales % Organic growth Acquired growth Exchange rate effects Total 2011 2012 4 17 –8 13 2 9 1 12 The total change in sales for 2012 was 12 percent (13). Organic growth was 2 percent (4) and acquired units made a positive contribution of 9 percent (17). Sales by product group Mechanical locks, lock systems and fittings accounted for 36 percent (38) of total sales. Electromechanical and electronic locks rose to 46 percent (42) of sales, of which entrance automation accounted for 24 percentage points (20). Secu- rity doors and hardware accounted for 18 percent (20) of sales. Cost structure Total wage costs, including social security expenses and pen- sion expenses, amounted to SEK 12,705 M (11,835), equiva- lent to 27 percent (28) of sales. The average number of employees in the Group was 42,762 (41,070). The Group’s material costs amounted to SEK 16,111 M (14,655), equivalent to 35 percent (35) of sales. Other purchasing costs totaled SEK 9,256 M (7,616), equivalent to 20 percent (18) of sales. Depreciation and amortization of non-current assets amounted to SEK 1,034 M (1,022), equivalent to 2 percent (2) of sales. Operating income Operating income (EBIT) excluding restructuring costs rose to SEK 7,501 M (6,624), due to efficiency savings and contin- ued growth in operations. The corresponding operating margin was 16.1 percent (15.9). Exchange rate effects amounted to SEK 37 M (–430). Operating income before depreciation and amortization (EBITDA) excluding restructuring costs totaled SEK 8,536 M (7,646). The corresponding margin was 18.3 percent (18.3). Items affecting comparability Operating income for the year was not reduced by restructur- ing costs (–1,420). Net income for the year from assets held for sale and discontinued operations amounted to SEK 11 M (404). In 2011 Cardo Flow Solutions and Lorentzen & Wettre were divested, giving rise to a capital gain of SEK 404 M. Income before tax Income before tax excluding restructuring costs totaled SEK 6,731 M (5,979). The exchange rate effect amounted to SEK 28 M (–399). Net financial items amounted to SEK –770 M (–645). The change in net financial items is mainly due to increased pension and interest expenses. The profit margin, defined as income before tax in relation to sales, was 14.4 percent (14.3) excluding restructuring costs. The parent company’s income before tax was SEK 3,507 M (2,297). Tax The Group’s tax expense totaled SEK 1,617 M (1,095), equiv- alent to an effective tax rate of 24 percent (24). Earnings per share Earnings per share after full dilution, excluding items affect- ing comparability, amounted to SEK 13.84 (12.30), an increase of 13 percent. SALES AND OPERATING INCOME SEK M 50,000 40,000 30,000 20,000 10,000 0 08 09 10 11 12 SEK M 7,500 6,000 4,500 3,000 1,500 0  Sales Operating income1 1 Excluding items affecting comparability 2008, 2009 and 2011. 78 CONSOLIDATED fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 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 of disposal group classified as held for sale and discontinued operations Net income Net income attributable to: Parent company’s shareholders Non-controlling interest Earnings per share before dilution, SEK after dilution, SEK after dilution and 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’s shareholders – Non-controlling interest Note 2 3 4 5 6–9, 33 10 9, 11 12 31 13 13 13 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 2012 46,619 –28,190 18,429 –7,162 –2,410 –1,344 –82 70 7,501 32 –802 6,731 –1,617 5,114 11 5,125 5,112 14 13.85 13.84 13.84 2012 5,125 –96 –1 181 –978 4,232 4,226 6 SALES BY PRODUCT GROUP, 2012 EARNINGS PER SHARE AFTER TAX AND DILUTION  Mechanical locks, lock systems and fittings, 36% (38)  Entrance automation, 24% (20)  Electromechanical and electronic locks, 22% (22)  Security doors and hardware, 18% (20) SEK 14 12 10 8 6 4 2 0  Earnings per share after tax and dilution1 08 09 10 11 12 1 Excluding items affecting comparability 2008, 2009 and 2011. ASSA ABLOY ANNuAL rEpOrT 2012 CONSOLIDATED fINANCIAL STATEMENTS 79 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 Technologies 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 entrance automation products and service. Global Technologies Sales totaled SEK 6,262 M (5,756), with organic growth of 6 percent (11). Acquired units contributed 1 percent (13) to sales. Operating income excluding restructuring costs amounted to SEK 1,073 M (897), with an operating margin (EBIT) of 17.1 percent (15.6). Return on capital employed excluding restructuring costs was 17.3 percent (14.3). Ope- rating cash flow before interest paid was SEK 1,140 M (933). The division showed continued strong organic growth during the year for both business units, HID Global and Hospitality, driven by new products and services. Operating margin and operating cash flow increased considerably. Entrance Systems Sales totaled SEK 10,979 M (8,278), with organic growth of –2 percent (5). Acquired units contributed 37 percent (110) to sales. Operating income excluding restructuring costs amounted to SEK 1,546 M (1,197), with an operating margin (EBIT) of 14.1 percent (14.5). Return on capital employed excluding restructuring costs was 12.3 percent (12.2). Ope- rating cash flow before interest paid was SEK 1,648 M (1,317). Demand was stable but weak in Europe during the year. The market position continued to strengthen considerably due to major acquisitions. Sales and operating cash flow increased substantially, 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 382 M (418). Elimination of sales between the Group’s segments and restructuring costs are included in ‘Other’. EMEA Sales totaled SEK 13,382 M (13,030), with organic growth of 1 percent (0). Acquired units contributed 4 percent (5) to sales. Operating income excluding restructuring costs amounted to SEK 2,279 M (2,203), with an operating margin (EBIT) of 17.0 percent (16.9). Return on capital employed excluding restructuring costs was 22.6 percent (22.0). Ope r- ating cash flow before interest paid was SEK 2,241 M (2,142). Demand on mature European markets remained weak during the year. Continued intensive efforts on market pres- ence, cost-efficiency, and the launch of new products improved the operating margin. Americas Sales totaled SEK 9,671 M (8,906), with organic growth of 4 percent (2). Acquired units contributed 1 percent (1) to sales. Operating income excluding restructuring costs amounted to SEK 2,007 M (1,812), with an operating margin (EBIT) of 20.8 percent (20.3). Return on capital employed excluding restructuring costs was 23.6 percent (22.8). Oper- ating cash flow before interest paid was SEK 1,797 M (1,731). Sales rose mainly in high-security products and electro- mechanical products, combined with a recovery on the American residential market. The operating margin remained high due to strengthened market presence and a broad product portfolio. Asia pacific Sales totaled SEK 7,224 M (6,633), with organic growth of 3 percent (9). Acquired units contributed 1 percent net (4) to sales. Operating income excluding restructuring costs amounted to SEK 978 M (933), with an operating margin (EBIT) of 13.5 percent (14.1). Return on capital employed excluding restructuring costs was 20.7 percent (23.6). Ope- rating cash flow before interest paid was SEK 1,348 M (912). Sales rose further in China, where market demand slowed during the year. Demand was strong on the majority of other Asian markets, but negative in Australia. Operating margin and cash flow were maintained at a good level. EXTERNAL SALES, 2012  EMEA, 28% (30)  Americas, 21% (21)  Asia Pacific, 14% (15)  Global Technologies, 13% (14)  Entrance Systems, 24% (20) 80 CONSOLIDATED fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 Results by division SEK M Sales, external Sales, internal Sales Organic growth Share of earnings in associates Operating income (EBIT) excluding items affecting comparability Operating margin (EBIT) excluding items affecting comparability Items affecting comparability 6 Operating income (EBIT) Operating margin (EBIT) Net financial items Tax on income Net income from discontinued operations Net income Capital employed –of which goodwill – of which other intangible and tangible assets –of which shares in associates Return on capital employed excluding 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 Interest paid and received Operating cash flow 5 EMEA1 Americas2 Asia pacific3 Global Technologies4 Entrance Systems Other Total 2011 2012 12,762 13,177 204 13,030 13,382 268 0% 2 1% –6 2011 8,867 39 8,906 2% – 2012 9,623 48 9,671 4% – 2011 6,243 391 6,633 9% – 2012 6,705 518 7,224 3% 5 2011 5,688 67 5,756 11% – 2012 6,191 71 6,262 6% – 2011 2012 2011 8,226 10,923 57 8,278 10,979 52 – –817 7 –817 2012 – –8987 –898 2011 2012 41,786 46,619 – 41,786 46,619 – 5% 41 –2% 71 – – – – 4% 43 2% 70 2,203 2,279 1,812 2,007 933 978 897 1,073 1,197 1,546 –418 –382 6,624 7,501 16.9% –587 1,616 12.4% 17.0% – 2,279 17.0% 20.3% –150 1,662 18.7% 20.8% – 2,007 20.8% 14.1% –48 885 13.3% 13.5% – 978 13.5% 15.6% –87 810 14.1% 17.1% – 1,073 17.1% 14.5% –423 774 9.3% 14.1% – 1,546 14.1% – –125 –543 – – – –382 – 15.9% –1,420 5,204 12.5% –645 –1,095 404 3,869 16.1% – 7,501 16.1% –770 –1,617 11 5,125 8,950 5,564 2,590 33 9,217 5,846 2,556 22 8,468 6,041 1,484 – 8,301 5,913 1,442 – 4,278 3,410 2,464 – 5,168 4,326 2,488 315 6,449 4,846 1,258 – 1,133 – 2,237 1,178 3,377 1,182 5,717 10,837 13,189 8,323 7,153 4,524 –1,041 – –518 – 37,942 41,073 27,014 28,932 22.0% 22.6% 22.8% 23.6% 23.6% 20.7% 14.3% 17.3% 12.2% 12.3% 1,616 587 385 –331 8 –123 2,142 2,279 – 353 –441 128 –79 2,241 1,662 150 182 –140 5 –128 1,731 2,007 – 176 –211 9 –185 1,797 885 48 148 –215 10 35 912 978 – 162 –203 274 135 1,348 810 87 169 –98 0 –35 933 1,073 – 172 –112 0 8 1,140 774 423 126 –111 19 86 1,317 1,546 – 164 –113 109 –59 1,648 93 – – –543 125 12 –3 10 –73 –472 0 –482 97 – 10,126 11,093 1,519 1,211 – 17.4% 18.2% –382 – 6 –7 9 102 –272 –312 –546 5,204 1,420 1,022 –898 52 –238 6,563 0 –482 6,080 7,501 – 1,034 –1,086 530 –77 7,902 –312 –546 7,044 Average number of employees 10,071 10,260 6,658 6,620 15,784 15,284 2,819 3,029 5,605 7,429 133 140 41,070 42,762 1 Europe, Middle East and Africa. 2 North and South America. 3 Asia, Australia and New Zealand. 4 ASSA ABLOY Hospitality and HID Global. 5 Excluding restructuring payments. 6 Items affecting comparability consist of restructuring costs. 7 Of which eliminations SEK 898 M (817). 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, 2012 1, 2 AVERAGE NUMBER OF EMPLOYEES, 2012  EMEA, 29% (31)  Americas, 25% (26)  Asia Pacific, 12% (13)  Global Technologies, 14% (13)  Entrance Systems, 20% (17) 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, 24% (25)  Americas, 16% (16)  Asia Pacific, 36% (38)  Global Technologies, 7% (7)  Entrance Systems, 17% (14) ASSA ABLOY ANNuAL rEpOrT 2012 CONSOLIDATED fINANCIAL STATEMENTS 81 Financial position • Capital employed amounted to SEK 41,073 M (37,942). • Return on capital employed remained high at 18.2 percent (17.4). • The net debt/equity ratio was 0.55 (0.60). SEK M Capital employed – of which goodwill Assets and liabilities of disposal group held for sale Net debt Equity –of which non-controlling interests 2011 37,942 27,014 – 14,207 23,735 208 2012 41,073 28,932 384 14,732 26,725 183 Capital employed Capital employed in the Group, defined as total assets less interest-bearing assets and non-interest-bearing liabilities including deferred tax liabilities, amounted to SEK 41,073 M (37,942). The return on capital employed excluding items affecting comparability was 18.2 percent (17.4). Intangible assets amounted to SEK 34,422 M (31,455). 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 3,768 M as a result of completed acquisitions. A valuation model based on discounted future cash flows is used for impairment testing of goodwill and other intangi- ble assets with an indefinite useful life. Tangible assets amounted to SEK 5,603 M (5,684). Capi- tal expenditure on tangible and intangible assets, less sales of tangible and intangible assets, totaled SEK 556 M (846). Depreciation amounted to SEK 1,034 M (1,022). Trade receivables amounted to SEK 7,557 M (6,924) and inventories totaled SEK 5,905 M (5,704). The average collec- tion period for trade receivables was 51 days (47). Material throughput time was 98 days (97). The Group is making sys- tematic efforts to increase capital efficiency. Net debt Net debt amounted to SEK 14,732 M (14,207), of which pen- sion commitments and other post-employment benefits accounted for SEK 1,224 M (1,173). 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 a Private Placement Program in the USA totaling USD 750 M, of which USD 698 M (500) is long-term, a GMTN program of SEK 5,392 M (2,656), and a loan from the European Invest- ment Bank of EUR 110 M (110). During the year new issues were made under the Private Placement Program in the USA. A total of USD 250 M was raised divided into three tranches of 7, 10 and 12 years. In addition, nine issues were made under the GMTN program for a total amount of around SEK 2,800 M. 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. 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 2,152 M (4,242) 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 reduction in short-term financ- ing is mainly linked to the increase in long-term capital mar- ket issues implemented to extend the Group’s maturity structure. The interest coverage ratio, defined as income before tax plus net interest, divided by net interest, was 10.4 (8.8). Fixed interest terms fell somewhat during the year, with an average term of 32 months (16) at year-end. Cash and cash equivalents amounted to SEK 907 M (1,665) and are invested in banks with high credit ratings. Some of the Group’s main financing agreements contain a customary 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 agree- ments should control of the company change. Equity The Group’s equity totaled SEK 26,725 M (23,735) at year- end. The return on equity was 20.1 percent (16.7). The equity ratio was 44.6 percent (42.9). The debt/equity ratio, defined as net debt divided by equity, was 0.55 (0.60). NET DEBT CAPITAL EMPLOYED AND RETURN ON CAPITAL EMPLOYED SEK M 15,000 12,000 9,000 6,000 3,000 0 08 09 10 11 12  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 08 09 10 11 12 % 28 24 20 16 12 8 4 0  Capital employed Return on capital employed1 1 Excluding items affecting comparability 2008, 2009 and 2011. 82 CONSOLIDATED fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 Consolidated balance sheet SEK M ASSETS Non-current assets Intangible assets Tangible assets Investments in associates Other financial assets Deferred tax assets Total non-current assets Current assets Inventories Trade receivables Current tax receivables Other current receivables Prepaid expenses and accrued income Derivative financial instruments Short-term investments Cash and cash equivalents Assets of disposal group classified as held for sale Total current assets TOTAL ASSETS EQuITY 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 Deferred tax liabilities Pension provisions Other non-current provisions Other non-current liabilities Total non-current liabilities Current liabilities Short-term loans Convertible debentures Derivative financial instruments Trade payables Current tax liabilities Current provisions Other current liabilities Accrued expenses and deferred income Liabilities of disposal group classified as held for sale Total current liabilities TOTAL EQuITY AND LIABILITIES Note 2011 2012 14 15 17 19 18 20 21 34 34 34 31 23 34 18 24 25 34 34 34 34 25 26 27 31 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 34,422 5,603 1,519 89 1,370 43,003 5,905 7,557 336 822 578 114 24 907 610 16,853 59,856 371 9,675 –1,173 17,670 26,543 183 26,725 11,194 1,226 1,224 1,871 704 16,219 3,301 – 87 3,883 822 1,204 3,991 3,397 226 16,911 59,856 ASSA ABLOY ANNuAL rEpOrT 2012 CONSOLIDATED fINANCIAL STATEMENTS 83 Cash flow • Operating cash flow remained very strong and amounted to SEK 7,044 M (6,080). • Net capital expenditure totaled SEK 557 M (846). 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 2011 5,347 373 –846 1,206 6,080 2012 5,990 498 –557 1,113 7,044 Investments in subsidiaries The total purchase price of investments in subsidiaries amounted to SEK 4,799 M (13,600), of which the cash flow effect was SEK –3,836 M (–12,297). Acquired cash totaled SEK 345 M (411). Change in net debt Net debt was mainly affected by the strong positive operat- ing cash flow, the dividend to shareholders and 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 Cash and cash equivalents of disposal group classified as held for sale Net debt at 31 December 2011 10,564 –6,080 373 1,206 6,511 1,472 –308 17 452 2012 14,207 –7,044 498 1,113 4,619 1,683 –450 38 –321 – 14,207 390 14,732 Operating cash flow SEK M Operating income (EBIT) Restructuring costs Depreciation Net capital expenditure Change in working capital Interest paid and received Non-cash items Operating cash flow1 Operating cash flow/ Income before tax 1 Excluding restructuring payments. ² Excluding restructuring costs. 2011 5,204 1,420 1,022 –846 –238 –482 0 6,080 2012 7,501 – 1,034 –557 –77 –546 –312 7,044 1.022 1.05 The Group’s operating cash flow amounted to SEK 7,044 M (6,080), equivalent to 105 percent (102) of income before tax excluding restructuring costs. Net capital expenditure Net capital expenditure on intangible and tangible assets totaled SEK 556 M (846), equivalent to 54 percent (83) of the depreciation on intangible and tangible assets. The low net capital expenditure is mainly due to real estate sales dur- ing the year. In addition, the Group’s long-term efforts to streamline the production structure contributed to the low net capital expenditure. Change in working capital SEK M Inventories Trade receivables Trade payables Other working capital Change in working capital 2011 –32 –249 235 –192 –238 2012 0 –192 –22 136 –77 The material throughput time was 98 days (97) at year-end. Capital tied up in working capital increased to a lesser extent during the year, which had an impact on cash flow of SEK –77 M (–238) overall. 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 08 09 10 11 12 1 Excluding items affecting comparability 2008, 2009 and 2011. 2 Excluding restructuring payments. SEK M 1,000 800 600 400 200 0 08 09 10 11 12  Net capital expenditure  Depreciation Net capital expenditure % of sales % 2.5 2.0 1.5 1.0 0.5 0 84 CONSOLIDATED fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 Consolidated cash flow statement SEK M OpErATING ACTIVITIES Operating income Depreciation Reversal of restructuring costs Restructuring payments Other 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 Investments in associates 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 of disposal group held for sale Cash and cash equivalents at 31 December Note 8 32 32 14, 15 14, 15 32 32 32 34 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 2012 7,501 1,034 – –498 –312 7,726 –596 50 –1,113 6,067 –77 5,990 –1,086 530 –3,836 –352 –12 19 –4,738 –1,683 4,507 –2,169 450 –38 –2,632 –1,564 –312 1,665 –312 –56 –390 907 ASSA ABLOY ANNuAL rEpOrT 2012 CONSOLIDATED fINANCIAL STATEMENTS 85 Changes in consolidated equity parent company’s shareholders Share capital Other con- tributed capital 366 8,921 Note 23 SEK M 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 Total transactions with parent company’s shareholders Closing balance 31 December 2011 Opening balance 1 January 2012 Net income Other comprehensive income Total comprehensive income Dividend for 2011 Stock purchase plans Share issue Purchase of treasury shares Change in non-controlling interest Total transactions with parent company’s shareholders Closing balance 31 December 2012 23 23 23 23 23 reserves –484 197 197 –287 –287 –886 –886 retained earnings Non-controlling interest 11,849 3,843 3,843 –1,472 16 –17 –1,473 14,219 14,219 5,112 5,112 –1,655 27 –38 5 –1,660 17,670 169 26 13 39 208 208 14 –7 6 –27 –4 –32 183 Total 20,821 3,869 210 4,079 –1,472 16 308 –17 –1,165 23,735 23,735 5,125 –893 4,232 –1,683 27 450 –38 1 –1,242 26,725 2 306 2 368 306 9,227 368 9,227 3 448 3 371 448 9,675 –1,173 EQUITY PER SHARE AFTER DILUTION AND RETURN ON EQUITY AFTER TAX DIVIDEND SEK 70 60 50 40 30 20 10 0 % 35 30 25 20 15 10 5 0 08 09 10 11 12  Equity per share after dilution, SEK  Return on equity after tax, % SEK 15 12 9 6 3 0  Dividend per share  Earnings per share after tax and dilution1 08 09 10 11 12 1 Excluding items affecting comparability 2008, 2009 and 2011. 86 CONSOLIDATED fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 ASSA ABLOY secures state-of-the-art hospital St. Alexius Medical Center and its recently constructed Women & Children’s Hospital, supports the prevention, treatment and elimination of pediatric disease through its 60 medical and surgical specialties. This state-of-the-art, child-friendly environment also offers flexible visiting hours, convenient meal options, and private spaces meeting the needs of Chicago’s northwest suburbs. Challenge: Solution: Having established door opening standards for its facilities, St. Alexius Medical Center sought to balance this consistency with the evaluation and integration of relevant life-safety and security solutions to help the new facility meet its goals for the patient experience. Since it was a pediatric facility, it was equally important that safety and security be seamless. ASSA ABLOY, with a close end-user relationship, proposed the use of new product innovations to modernize the safety and security of the 500 door opening facility. The new Medeco X4 key system with patent protection until 2027, allowed the facility to update its mechanical security and also allow for future upgrade of other hospital facilities. New SARGENT wireless access control solutions extended the reach of the EAC system and provided the security and audit capabilities necessary to meet healthcare privacy requirements. Electromechanical exit devices and the recently designed push/ pull trim, all with the MicroShield antimicrobial finish became new standards for the facility. Product Brands – Hardware and Access Control: HES, Markar, McKinney, Norton, Rixson, Rockwood, Sargent; Hollow Metal Doors and Frames: Curries; Key System: Medeco; Solutions: MicroShield. ASSA ABLOY ANNuAL rEpOrT 2012 CONSOLIDATED fINANCIAL STATEMENTS 87 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 financial assets Total non-current assets Current assets Receivables from subsidiaries Other current 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 Non-restricted equity Share premium reserve Retained earnings Net income Total equity provisions Other provisions Total provisions Non-current liabilities Long-term loans Total non-current liabilities Current liabilities Short-term loans Convertible debentures Trade payables Current liabilities to subsidiaries Other current liabilities Accrued expenses and deferred income Total current liabilities TOTAL EQuITY AND LIABILITIES Assets pledged Contingent liabilities Note 3, 6, 8, 9 6, 8, 9 4 9, 33 10 9, 11 12 2011 –662 –297 1,808 849 2,394 –714 –232 2,297 –29 2,268 2011 2,268 258 2,526 2012 –775 –313 1,938 850 9,975 –6,970 –348 3,507 –11 3,496 2012 3,496 84 3,580 Note 2011 2012 14 15 16 19 22 23 25 34 34 34 27 29 28 109 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 – 10,613 923 3 28,100 1,489 30,515 2,411 38 17 4 2,470 32,985 371 8,905 788 2,947 3,496 16,507 73 73 5,386 5,386 – – 55 10,779 4 181 11,019 32,985 – 9,405 88 pArENT COMpANY fINANCIAL STATEMENTS ASSA ABLOY ANNuAL rEpOrT 2012 Cash flow statement – parent company Change in equity – parent company SEK M OpErATING ACTIVITIES Operating income Depreciation Cash flow before interest and tax Interest paid and received Dividends received Tax paid and received 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 Other investments Cash flow from investing activities fINANCING ACTIVITIES Dividends Loans raised Loans 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 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 SEK M Opening balance 1 January 2011 Net income Hedge accounting Write-up of shares in subsidiaries Total comprehensive income Dividend for 2010 Stock purchase plans Share issue Purchase of treasury shares Total transactions with parent company’s shareholders Closing balance 31 December 2011 Opening balance 1 January 2012 Net income Hedge accounting Total comprehensive income Dividend for 2011 Stock purchase plans Share issue Purchase of treasury shares Total transactions with parent company’s shareholders Closing balance 31 December 2012 restricted equity Non-restricted equity Note Share capital Statutory reserve 366 8,905 fair value reserve – Share premium reserve 34 23 23 23 2 2 368 8,905 368 8,905 3 – – 306 340 340 340 448 23 371 8,905 – 788 retained earnings 3,476 2,268 –17 275 2,526 –1,472 16 –17 –1,473 4,529 4,529 3,496 84 3,580 –1,655 27 –38 –1,666 6,443 2012 850 250 1,100 –473 9,775 3 10,405 –242 10,163 –1,063 0 –2,592 –331 –3,986 –1,655 4,109 –9,039 450 –38 –6,173 4 0 4 4 Total 12,781 2,268 –17 275 2,526 –1,472 16 308 –17 –1,165 14,142 14,142 3,496 84 3,580 –1,655 27 450 –38 –1,215 16,507 ASSA ABLOY ANNuAL rEpOrT 2012 pArENT COMpANY fINANCIAL STATEMENTS 89 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 2012 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 63–120. 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. The actuarial assumptions made when calculating post- employment benefits to employees also have material impor- tance for the consolidated financial statements. Information on these actuarial assumptions is to be found in Note 24. 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 2012 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 1 (Revised) Presentation of 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 10 and 12 which become effective on 1 January 2014, and IFRS 9 which becomes effective on 1 January 2015. All the standards except IFRS 9 have been adopted by the EU. Management analyzes the impact of the new and revised IFRS on the financial state- ments. The new IFRS 10 and the revised IAS 19 require retro- active application, while the other standards are applied prospectively, and consequently have no impact on financial statements 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 31 December 2011 and SEK 1,073 M as at 31 December 2012. The Group’s total pension provision, adjusted for amounts in the ‘corridor’, conse- quently totals SEK 2,297 M (2,265) at year-end 2012 (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- AssA ABLoY ANNuAL report 2012 90 Notes Note 1 cont. 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. Intra-group transactions and balance sheet items and unrealized profits on transactions between Group compa- nies are eliminated in the consolidated financial statements. age rate for the period. Foreign exchange differences arising from the translation of foreign subsidiaries are reported as translation differences in comprehensive income. The table below shows the weighted average rate and the closing rate for currencies used in the Group, relative to the Group’s presentation currency (SEK). Country Currency 2011 2012 2011 2012 Average rate Closing 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. Investments in associates are accounted for in accor- dance with the equity method. In the consolidated balance sheet, shareholdings in associates are reported at cost, and the carrying amount is adjusted for the share of associates’ earnings after the acquisition date. Dividends from associ- ates are reported as a reduction in the carrying amount of the holdings. The share of associates’ earnings is reported in the consolidated income statement in operating income as the holdings are related to business operations. Segment reporting Operating segments are reported in accordance with internal reporting to the chief operating decision maker. Chief operat- ing decision maker is the function that is responsible for allo- cation of resources and assessing performance of the operat- ing segments. The divisions form the operational structure for internal control and reporting and also constitute the Group’s segments for external financial reporting. The Group’s busi- ness is divided into five divisions. Three divisions are based on products sold in local markets in the respective division: EMEA, Americas and Asia Pacific. Global Technologies’ and Entrance Systems’ products are sold worldwide. Foreign currency translation Functional currency corresponds to local currency in each country where Group companies operate. Transactions in foreign currencies are translated to functional currency by application of the exchange rates prevailing 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 prepared in functional currencies other than the Group’s presentation currency, all balance sheet items except net income are trans- lated at the year-end rate and net income is translated at the average rate. The income statement is translated at the aver- ARS Argentina AUD Australia BRL Brazil CAD Canada CHF Switzerland CLP Chile CNY China COP Colombia CZK Czech Republic DKK Denmark Euro zone EUR United Kingdom GBP HKD Hong Kong HUF Hungary ILS Israel INR India 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 TRY Turkey USD USA ZAR South Africa 1.57 6.73 3.88 6.57 7.31 0.013 1.01 0.37 1.21 9.02 10.38 0.83 0.032 1.81 0.139 0.074 1.48 6.98 3.46 6.74 7.22 0.014 1.07 0.0035 0.0037 0.35 1.17 8.71 10.70 0.87 0.030 1.75 0.126 0.080 0.0059 0.0060 2.52 0.51 2.18 1.16 5.46 2.08 1.96 0.22 5.39 0.22 3.74 6.74 0.82 2.61 0.52 2.12 1.16 5.16 2.19 2.13 0.22 5.16 0.21 3.88 6.50 0.90 1.61 7.03 3.71 6.78 7.36 0.013 1.10 0.35 1.20 8.96 10.68 0.89 0.029 1.82 0.130 0.081 1.32 6.76 3.18 6.54 7.13 0.014 1.04 0.0036 0.0037 0.34 1.16 8.62 10.49 0.84 0.030 1.74 0.119 0.076 0.0060 0.0061 2.50 0.50 2.12 1.17 5.34 2.12 1.95 0.21 5.32 0.21 3.63 6.51 0.77 2.59 0.49 2.18 1.15 5.35 2.04 2.08 0.22 5.33 0.22 3.61 6.92 0.85 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 and the like are reported when there is reasonable assur- ance 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 car- rying amount of the asset by the amount of the grant. AssA ABLoY ANNuAL report 2012 Notes 91 Note 1 cont. 92 Notes Research and development Research costs are expensed as they are incurred. Develop- ment costs are reported in the balance sheet only to the extent that they are expected to generate future economic benefits for the Group and provided such benefits can be reliably measured. 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 rec- ognized 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 at 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 offset 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 recover- AssA ABLoY ANNuAL report 2012 Note 1 cont. able amount is the higher of the asset’s fair value less selling 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 pro- gress and finished goods include both direct costs incurred and a fair allocation of indirect manufacturing costs. Trade receivables Trade 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 as selling expenses. Financial assets Financial assets include cash and cash equivalents, trade 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 trade receivables. Manage- ment 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 comprehensive income. Loan receivables and trade receivables Trade 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 considerations, loan liabilities, trade 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. Non-current loan liabilities have an anticipated term to maturity exceeding one year, while cur- rent loan liabilities have a term to maturity of less than one year. Trade payables Trade payables are initially 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 de- signated 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). When the transaction is entered into, the Group docu- ments the relationship between the hedging instrument and the hedged item, as well as the Group’s risk management objectives and risk management strategy as regards the hedg- ing. The Group also documents its assessment, both when AssA ABLoY ANNuAL report 2012 Notes 93 Note 1 cont. 94 Notes hedging 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 prob- able that an outflow of resources will be required to settle the obligation, and that a reliable estimate can be made of the amount. Provisions are reported at a value representing the probable outflow of resources that will be needed to set- tle the obligation. The amount of a provision is discounted to present value where the effect of time value is material. Assets and liabilities in disposal groups classified as held for sale Assets and liabilities are classified as held for sale when their carrying amounts are to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less selling expenses. 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-employ- ment 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 discount 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 service period. The Group’s payments relating to defined contribution pen- sion 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 regulated, 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 state- ment. Personnel costs for shares relating to the perform ance- based program are calculated on each accounting date based on an assessment of the probability of the perform- ance 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 matching 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 treasury shares). Earnings per share after dilu- tion is calculated by dividing the net income attributable to the Parent company’s shareholders by the sum of the weighted average number of ordinary shares and potential 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 Act and with regard to the relationship between accounting AssA ABLoY ANNuAL report 2012 Note 1 cont. and taxation. The recommendation states what exceptions from, and additions to, IFRS should be made. Note 2 sales Customer sales by country Group 2011 9,772 3,861 2,979 2,652 2,192 1,977 1,793 1,273 1,462 1,049 1,068 852 793 726 903 820 614 526 522 396 277 308 284 281 297 284 199 173 230 236 214 195 176 159 195 116 136 125 91 51 91 92 66 1,280 41,786 2012 11,220 4,304 3,147 2,986 2,567 2,354 1,869 1,659 1,548 1,221 1,118 927 906 895 748 727 624 602 531 388 374 333 311 296 284 272 264 234 234 226 212 193 188 176 167 162 158 147 111 103 102 99 95 1,537 46,619 Sales by product group seK M Mechanical locks, lock systems and fittings Entrance automation Electromechanical and electronic locks Security doors and hardware total Group 2011 2012 15,877 8,444 9,044 8,421 41,786 16,762 11,100 10,193 8,564 46,619 seK M USA China France Sweden Germany United Kingdom Australia Canada Netherlands Norway Finland Denmark South Korea Belgium Italy Spain Mexico Austria Switzerland Czech Republic Saudi Arabia Poland New Zealand United Arab Emirates South Africa Brazil Russia Indonesia Hong Kong Romania India Israel Turkey Singapore Portugal Thailand Colombia Chile Ireland Croatia Slovakia Estonia Japan Other countries total Revenue The Parent company’s revenue consists of intra-group franchise and royalty revenues. These are reported in the income statement as ‘Other operating income’ to make it clear that the Parent company has no product sales similar to those of other group companies with external business. 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 are 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 accord- ance 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. AssA ABLoY ANNuAL report 2012 Notes 95 Note 3 Auditors’ fees Note 6 operating leases 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 2011 2012 2011 2012 seK M 2011 2012 2011 2012 30 11 1 – 8 2 19 3 74 37 10 1 – 13 2 14 1 78 3 – 1 – 1 – 15 – 20 3 – 1 – 2 – 5 – 11 Lease payments during the year total Nominal value of agreed future lease payments: 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 Due for payment in (2017) 2018 or later total 463 463 466 466 423 419 331 304 235 237 177 161 128 121 126 1,420 112 1,354 16 16 15 15 15 15 16 16 92 13 13 15 16 16 16 17 17 97 Note 4 other operating income and expenses Group seK M 2011 2012 Rent received Business-related taxes Transaction expenses from acquisitions Impairment of tangible asset Exchange rate differences Other, net total 12 –20 –22 –37 –15 5 –77 18 16 –39 – –11 –66 –82 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 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 39,106 M (36,548). Below, these same costs are broken down by nature: seK M Remuneration of employees (Note 33) Direct material costs Depreciation (Note 8, 14, 15) Other purchase expenses Restructuring costs total Group 2011 11,835 14,655 1,022 7,616 1,420 36,548 2012 12,705 16,111 1,034 9,256 – 39,106 Note 8 Depreciation and amortization seK M Agta Record AG Saudi Crawford Doors Factory Ltd Låsgruppen Wilhelm Nielsen AS Goal Co., Ltd Tallares Agui S.A. Other total Group 2011 2012 37 4 2 – – 0 43 69 1 3 5 –9 0 70 seK M Intangible assets Machinery Equipment Buildings Land improvements total Group parent company 2011 183 452 228 157 2 1,022 2012 2011 2012 222 443 218 148 3 1,034 156 – 1 – – 157 249 – 1 – – 250 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 2012. Note 9 exchange differences in the income statement parent company Group seK M 2011 2012 2011 2012 Exchange differences reported in operating income Exchange differences reported in financial expenses (Note 11) total –15 –11 7 –8 10 0 0 9 9 0 11 11 96 Notes AssA ABLoY ANNuAL report 2012 Note 10 Financial income seK M 2011 2012 2011 2012 Group parent company 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) of which from continuing operations of which from discontinued operations Earnings per share after dilution seK M Earnings attributable to the Parent company's shareholders Interest expenses for convertible debentures, 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) of which from continuing operations of which from discontinued operations Group 2011 2012 3,843 5,112 367,833 369,185 10.45 9.35 1.10 13.85 13.82 0.03 Group 2011 2012 3,843 5,112 11 4 3,854 5,116 367,833 369,592 4,680 114 – – 372,627 369,592 10.33 9.24 1.09 13.84 13.81 0.03 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 debentures, 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) of which from continuing operations of which from discontinued operations 2011 2012 3,843 5,112 11 736¹ 4 – 4,590 5,116 367,833 369,592 4,680 114 – – 372,627 369,592 12.30 11.21 1.09 13.84 13.81 0.03 ¹ Items affecting comparability for 2011 consist of restructuring costs and net income from discontinued operations. Earnings from invest- ments in subsidiaries Earnings from invest- ments in associates Intra-group interest income Other financial income External interest income and similar items total – – – 23 36 59 – – – 2,256 9,750 24 25 114 200 14 – – 18 32 0 2,394 0 9,975 Note 11 Financial expenses seK M 2011 2012 2011 2012 Group parent company – –14 – –5 –429 –534 –14 –5 –562 –652 –226 –148 Intra-group interest expenses Interest expenses, con- vertible debentures 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 interests Other financial expenses total –8 10 –41 –83 7 10 –1 –20 –8 20 –18 1 – –68 –704 – – 9 – – – – – 11 – – – – –74 –802 –22 –32 –6,280 –14 –714 –6,970 Fair value adjustments on shares and interests relate to impairment losses in connection with dividends received. Note 12 tax on income Group parent company seK M 2011 2012 2011 2012 Current tax Tax attributable to prior years Foreign withholding tax Deferred tax total –1,048 –1,776 –142 – 95 8 – 151 –1,095 –1,617 –30 5 –4 – –29 –11 – – – –11 Explanations for the difference between nominal Swedish tax rate and effective tax rate based on income before tax: percent 2011 2012 2011 2012 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 –5 0 –2 1 0 24 26 4 –3 0 –3 – 0 24 26 – –25 – – – – 1 26 – –26 – – – – 0 AssA ABLoY ANNuAL report 2012 Notes 97 Note 14 Intangible assets 2012, seK M opening accumulated acquisition value Purchases Acquisitions of subsidiaries Sales/disposals Reclassifications Reclassification to assets of disposal group held for sale Adjustments for acquisitions in the prior year Exchange rate differences Closing accumulated acquisition value opening accumulated amortization/impairment Acquisitions of subsidiaries Sales/disposals Reclassifications Impairment Amortization Exchange rate differences Closing accumulated amortization/impairment Carrying amount 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 Group Intangible assets Goodwill 27,080 – 3,146 – – –104 –177 –947 28,998 –66 – – – – – 0 –66 28,932 Goodwill 22,343 – 4,584 –34 187 27,080 –64 –2 – – –66 27,014 5,521 152 1,062 –12 433 –31 276 –225 7,176 –1,079 –7 9 –433 –10 –222 56 –1,686 5,490 Group Intangible assets 3,789 112 1,590 – 30 5,521 –875 – –183 –21 –1,079 4,442 parent company Intangible assets 1,060 1,063 – – – – – – 2,123 –951 – – – – –249 – –1,200 923 parent company Intangible assets 945 115 – – – 1,060 –795 – –156 – –951 109 total 32,599 152 4,208 –12 433 –135 99 –1,172 36,174 –1,143 –7 9 –433 –10 –222 56 –1,752 34,422 total 26,132 112 6,174 –34 215 32,599 –939 – –183 –21 –1,143 31,455 Intangible assets consist mainly of brands and licenses. The carrying amount of intangible assets with an indefinite useful life amounts to SEK 4,026 M (3,412) and relates to brands. Useful life has been defined as indefinite where the time period, during which an asset is deemed to contribute eco- nomic benefits, cannot be determined. These calculations are based on estimated future cash flows, 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. Amortization and impairment of intangible assets are mainly recognized as cost of goods sold in the income state- ment. Material assumptions used to calculate values in use: • Budgeted operating margin. • Growth rate for extrapolating cash flows beyond the The item Adjustments for acquisitions in the prior year refers to changes in connection with adoption of a final acqui- sition analysis for acquisitions completed in the previous year. budget period. • Discount rate after tax used for estimated future cash flows. Impairment testing of goodwill and intangible assets with indefinite useful life Goodwill and intangible assets with 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. 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. 98 Notes AssA ABLoY ANNuAL report 2012 Note 14 cont. 2012 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 5,846 198 6,044 Americas Asia pacific Global technologies 5,913 221 6,134 4,326 1,160 5,486 4,524 349 4,873 entrance systems 8,323 2,098 10,421 total 28,932 4,026 32,958 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 sensitivity analysis A sensitivity analysis has been carried out for each cash- generating unit. The results of this analysis are summarized below. 2012 If the estimated operating margin after the end of the budg- et period had been one percentage point lower than the management’s estimate, the total recoverable amount would be 6 percent lower (EMEA 5 percent, Americas 4 per- cent, Asia Pacific 7 percent, Global Technologies 5 percent, and Entrance Systems 6 percent). 2011 If the estimated operating margin after the end of the budg- et 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). 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 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 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 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). 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 factors are any more or less likely to change. 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 2012 Notes 99 Note 15 tangible assets 2012, seK M Buildings ments Machinery equipment Land and land improve- Construc- tion in progress total equipment Group parent company opening accumulated acquisition value Purchases Acquisitions of subsidiaries Sales/disposals Reclassification to assets of disposal group held for sale Reclassifications Exchange rate differences Closing accumulated acquisition value opening accumulated depreciation/impairment Acquisitions of subsidiaries Sales/disposals Depreciation Reclassification to assets of disposal group held for sale Reclassifications Exchange rate differences Closing accumulated depreciation/impairment Carrying amount 4,121 129 52 –399 – 295 –153 4,045 –1,992 –28 158 –148 – –14 72 839 1 57 –73 – 67 –21 870 –142 –2 – –3 – –1 3 6,629 311 296 –527 58 –15 –452 2,314 196 99 –261 – 24 –146 555 297 56 –67 – –371 20 14,458 934 560 –1,327 58 0 –752 6,300 2,226 490 13,931 –4,852 –106 511 –443 –41 4 393 –1,786 –71 234 –218 – 11 133 – – – – – – – –8,773 –207 903 –812 –41 0 602 –1,952 2,093 –145 725 –4,534 1,766 –1,697 529 – 490 –8,328 5,603 18 1 – – – – – 19 –15 – – –1 – – – –16 3 2011, seK M Buildings ments Machinery equipment Land and land improve- Construc- tion in progress total equipment Group parent company 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 Carrying amount 3,706 61 338 –23 56 –18 4,121 –1,728 11 –104 –157 0 –14 –1,992 2,128 820 7 51 –1 0 –38 839 –139 0 0 –2 0 –1 –142 697 6,272 232 142 –210 148 44 2,244 166 69 –167 –21 22 382 318 – –6 –234 95 13,042 784 600 –407 –51 106 6,629 2,314 555 14,458 –4,436 173 –99 –452 –11 –27 –4,852 1,777 –1,698 153 –9 –228 12 –15 –1,786 528 – – – – – – – 555 –8,002 337 –212 –840 0 –56 –8,773 5,684 17 1 – – – – 18 –14 – – –1 – – –15 3 100 Notes AssA ABLoY ANNuAL report 2012 Corporate identity number, registered office Number of shares share of equity % Carrying amount, seK M parent company 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 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 1 180 – 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 50,000 650,000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 36 2 100 98 1 100 100 100 100 100 90 1 100 100 100 100 100 100 100 100 71 1 100 100 100 100 100 100 100 100 100 1 The Group’s holdings amount to 100 percent. ² The Group’s holdings amount to 70 percent. Note 17 Investments in associates Group 2012 Company name Agta Record AG Goal Co., Ltd Låsgruppen Wilhelm Nielsen AS SARA Loading Bay Ltd Talleres Agui S.A. Saudi Crawford Doors Ltd Other total Country of registration Number of shares share of equity % Switzerland Japan Norway United Kingdom Spain Saudi Arabia 5,077,964 2,300,790 305 4,999 4,800 800 38 38 50 50 40 40 197 22 181 3,036 60 220 0 189 0 4,257 538 376 1,086 771 567 1,964 0 47 109 3,077 1 293 901 184 2,237 0 13 17 242 48 765 142 105 14 0 303 72 5,093 0 0 973 28,100 Carrying amount, seK M 1,163 315 15 13 7 5 1 1,519 The share of equity 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 2012. For the period January to June, the company’s revenue totaled SEK 1,081 M (1,019) and income after tax was SEK 65 M (41). The company’s assets totaled SEK 2,095 M (2,007)and total liabilities amounted to SEK 722 M (720). 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 AssA ABLoY ANNuAL report 2012 Number of shares 5,077,964 4,800 305 800 350 Group share of equity % 38 40 50 40 35 Carrying amount, seK M 1,171 17 15 6 1 1 1,211 Notes 101 Note 18 Deferred tax seK M Deferred tax assets Tangible and intangible assets Pensions Tax losses and other tax credits Other deferred tax assets Deferred tax assets Deferred tax liabilities Deferred tax assets, net Change in deferred tax Opening balance Acquisitions of subsidiaries, net Reported in income statement Reclassification to liabilities of disposal group held for sale Exchange rate differences Closing balance Group 2011 2012 183 115 366 122 786 497 289 393 –205 95 – 6 289 279 87 397 607 1,370 1,226 144 289 –249 151 –27 –20 144 The Group has tax loss carryforwards and other tax credits of SEK 2,400 M (3,500) for which deferred tax assets have not been recognized, as it is uncertain whether they can be off- set against taxable income in future taxation. Deferred tax assets and deferred tax liabilities, which were recognized net in the previous year, were recognized gross in 2012. Note 19 other financial assets Group parent company seK M 2011 2012 2011 2012 Investments in associates in parent company Other shares and interests Interest-bearing non-current receivables Other non-current receivables total Note 20 Inventories seK M Materials and supplies Work in progress Finished goods Advances paid total – 52 44 68 164 – 4 29 1,141 1,489 – – – – 56 89 – 1,141 – 1,489 Group 2011 1,663 1,459 2,348 234 5,704 2012 1,751 1,397 2,561 196 5,905 Impairment of inventories amounted to SEK 181 M (43). Note 21 trade receivables seK M Trade receivables Provision for bad debts total Maturity analysis Trade receivables not due Trade receivables due not impaired: < 3 months 3–12 months > 12 months Impaired trade receivables: < 3 months 3–12 months > 12 months total Group 2011 7,461 –537 6,924 2012 8,127 –570 7,557 5,075 5,279 1,675 371 340 2,386 –84 –174 –279 –537 6,924 2,064 447 337 2,848 –111 –139 –320 –570 7,557 trade receivables per currency EUR USD GBP AUD CNY SEK Other currencies total Current year change in provision for bad debts Opening balance Acquisitions and disposals Receivables written off Reversal of unused amounts Provision for bad debts Exchange rate differences Closing balance 2011 2,374 1,675 319 282 545 443 1,286 6,924 2012 2,349 2,169 400 296 677 328 1,338 7,557 2011 2012 465 77 –80 –77 150 2 537 537 30 –67 –72 162 –20 570 Note 22 parent company’s equity The Parent company’s equity is split between restricted and non-restricted equity. Restricted equity consists of share capital and the statutory reserve. Restricted funds must not be reduced by issue of dividends. Non-restricted equity con- sists of the share premium reserve, retained earnings and net income for the year. 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 K 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 19,175 – 349,075 2,609 368,250 2,609 368,250 2,609 19,175 351,684 370,859 370,859 191,753 351,684 543,437 Opening balance at 1 January 2011 Share issue Closing balance at 31 December 2011 Number of votes, thousands Opening balance at 1 January 2012 Share issue Closing balance at 31 December 2012 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 369,185 thousand (367,833) during the year. The weighted average number of shares after the effects of outstanding long-term incentive programs was 369,592 thousand (372,627) dur- ing the year. The total number of treasury shares as at 31 December 2012 amounted to 600,000. A total of 200,000 shares were repurchased in 2012. Dividend per share The dividend paid during the financial year totaled SEK 1,655 M (1,472), equivalent to SEK 4.50 (4.00) per share. A dividend for 2012 of SEK 5.10 per share, a total of SEK 1,888 M, will be proposed at the Annual General Meeting on Thursday, 25 April 2013. 102 Notes AssA ABLoY ANNuAL report 2012 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 mainly relate 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. There are also plans for post-employment medical benefits in the USA. Amounts recognized in the income statement pension costs, seK M 2011 2012 Defined benefit pension plans (A) Defined contribution pension plans Post-employment medical benefit plans (A) total 80 295 27 402 163 381 22 566 Amounts recognized in the balance sheet pension provisions, seK M 2011 2012 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 652 441 80 1,173 –23 1,150 A) Specification of amounts recognized in the income statement pension costs, seK M Current service cost Interest on obligation Expected return on plan assets Actuarial losses (gains), net Write-down/reversal of 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 2011 2012 6 21 – 0 – 0 – 27 6 21 27 5 20 – 1 – 0 –5 22 1 21 22 Defined benefit pension plans total 2011 48 204 –176 28 –15 1 –10 80 39 41 80 2012 54 215 –155 69 – –3 –17 163 34 129 163 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. 754 418 52 1,224 – 1,224 2012 59 235 –155 70 – –3 –21 185 35 150 185 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. B) Specification of amounts recognized in the balance sheet The actual return on plan assets for defined benefit plans amounted to SEK 274 M (32) in 2012. Partly funded or unfunded pension plans are reported as provisions for pensions. 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 2011 2012 – – – 472 –30 –1 441 – – – 415 2 0 418 Defined benefit pension plans total 2011 4,046 –3,115 931 782 –1,033 –28 652 2012 4,083 –3,193 891 937 –1,062 –12 754 2011 4,046 –3,115 931 1,254 –1,063 –29 1,093 80 1,173 2012 4,083 –3,193 891 1,354 –1,060 –13 1,172 52 1,224 AssA ABLoY ANNuAL report 2012 Notes 103 Note 24 cont. C) Movement in obligations post-employment medical benefits Defined benefit pension plans total 2011 2012 438 6 21 – 22 – – – – –26 11 472 472 5 20 0 –27 0 – –5 – –28 –20 417 2011 4,046 48 204 – 327 – –15 20 329 –192 61 4,828 2012 4,828 54 215 1 267 –3 – –17 67 –212 –180 5,020 seK M opening present value of obligations Current service cost Interest on obligation Employee contributions Actuarial losses (gains) Past service cost Write-down/reversal of pension receivables Curtailments Acqusitions/disposals Payments Exchange rate differences Closing present value of obligations 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 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 of medical benefits the effect of a 1 percent change in the assumed medical cost trend, seK M Effect on the aggregate of the current service cost and interest expense Effect on the defined benefit obligation G) Key actuarial assumptions 2011 4,484 54 225 – 349 – –15 20 329 –218 72 5,300 2012 5,300 59 235 1 240 –3 – –22 67 –240 –200 5,437 Defined benefit pension plans 2011 2,854 176 –144 –5 227 –94 101 3,115 2011 1,547 1,187 381 3,115 2012 3,115 155 119 – – –83 –113 3,193 2012 1,695 1,107 391 3,193 +1% 3 45 –1% –2 –38 Key actuarial assumptions (weighted average), % 2011 2012 2011 2012 2011 2012 united Kingdom Germany usA Discount rate Expected annual return on plan assets 1 Expected annual salary increases Expected annual pension increases Expected annual medical benefit increases Expected annual inflation As at 31 December Present value of obligations (+) Fair value of plan assets (–) obligations, net 4.7 6.6 n/a 2.9 n/a 2.9 4.5 5.2 n/a 2.6 n/a 2.7 4.5 n/a 2.8 1.2 n/a 1.5 3.2 n/a 2.6 2.2 n/a 1.6 4.6 6.1 3.5 2.0 9.2 3.1 4.0 5.6 4.0 2.0 9.0 3.0 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 2012 5,437 –3,193 2,244 1 The expected return on plan assets is determined on the basis of the expected returns on assets underlying the current investment policy. Plan assets chiefly consist of equity instruments and interest-bearing investments. The expected return is mainly based on risk premiums and indexes for 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 2012 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 pension contributions that are contracted to Alecta total SEK 23 M (28), of which SEK 8 M (6) relates to the Parent company. Alecta’s surplus may be distributed to the policy-holders and/or the persons insured. As at 30 September 2012 Alec- ta’s surplus expressed as the collective consolidation level amounted to 123 percent (113 as at 31 December 2011). The collective consolidation level consists of the market value of Alecta’s assets as a percentage of its insurance com- mitments calculated according to Alecta’s actuarial calcula- tion assumptions, which do not comply with IAS19. 104 Notes AssA ABLoY ANNuAL report 2012 Note 25 other provisions seK M opening balance at 1 January 2011 Provisions for the year Deferred considerations acquisitions Reversal of non-utilized amounts Utilized during the year Exchange rate differences Closing balance at 31 December 2011 seK M opening balance at 1 January 2012 Provisions for the year Acquisitions of subsidiaries Deferred considerations acquisitions Reclassification to liabilities of disposal groups held for sale Reclassifications Reversal of non-utilized amounts Utilized during the year Exchange rate differences Closing balance at 31 December 2012 Balance sheet breakdown: Other non-current provisions Current provisions total restruc- turing reserve 924 1,224 1 –91 –403 10 Group other total 1,640 403 65 –194 –246 10 2,564 1,627 66 –285 –649 20 Note 28 Contingent liabilities Group parent company seK M 2011 2012 2011 2012 Guarantees Guarantees on behalf of subsidiaries total 74 – 74 61 – – – 10,613 61 10,613 9,405 9,405 In addition to the guarantees shown in the table above, the Group has a large number of minor bank guarantees for per- formance of obligations in operating activities. No material liabilities are expected as a result of these guarantees. 1,665 1,678 3,343 Group Group Maturity profile – guarantees, seK M 2011 2012 restruc- turing reserve other total 1,665 133 – – –12 –62 –133 –498 –25 1,678 553 39 70 – 62 –167 –215 –13 3,343 686 39 70 –12 – –300 –713 –38 <1 year >1<2 year >2<5 year >5 year total 25 10 30 9 74 25 9 22 5 61 Note 29 Assets pledged against liabilities to credit institutions Group parent company seK M 2011 2012 2011 2012 Real estate mortgages Other mortgages total 305 134 439 106 32 138 – – – – – – 1,068 2,007 3,075 Note 30 Business combinations Group seK M 2011 1,315 2,028 3,343 2012 1,871 1,204 3,075 Cash paid for acquisitions Paid part for prior year Deferred considerations total purchase price 2011 12,599 555 446 13,600 1,590 843 803 1,371 411 –244 –2,038 0 2,736 –6,280 4,584 12,599 2012 3,876 – 923 4,799 1,055 410 477 818 345 –439 –1,000 –13 1,653 – 3,146 3,876 –411 –345 109 305 12,297 5,143 644 5,588 3,836 2,830 480 347 Acquired assets and liabilities Intangible assets Other non-current assets Inventories Receivables Cash and cash equivalents Interest-bearing liabilities Other liabilities Non-controlling interest Acquired net assets at fair value Disposed acquired net assets Goodwill Cash paid for acquisitions Cash and cash equivalents in acquired subsidiaries Paid deferred considerations for acquisitions in previous years Change in cash and cash equivalents due to acquisitions Net sales from acquisition date EBIT from acquisition date Net income from acquisition date The net sales of acquired units for 2012 totaled SEK 4,487 M (6,601) and net income amounted to SEK 460 M (5,676). Acquisition-related costs for 2012 totaled SEK 39 M (22) and have been reported as other operating expenses in the income statement. Acquisition analyses have been prepared for all acquisi- tions in 2012. The acquisition analysis for the acquisition of 4Front, which was completed on 24 December, is prelimi- nary pending a final valuation of the fair value of acquired identifiable intangible assets. The restructuring reserve relates to the ongoing restructuring programs launched in 2008, 2009 and 2011. The closing bal- ance is expected to be chiefly utilized in the next three years and mainly relates to severance payments. The non-current part of the restructuring reserve totaled SEK 373 M. For fur- ther 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 current liabilities seK M VAT and excise duty Employee withholding tax Advances received Social security contributions and other taxes Deferred considerations Other current liabilities total Group 2011 2012 397 25 573 81 134 432 1,642 353 83 409 68 2,705 373 3,991 Note 27 Accrued expenses and deferred income Group parent company seK M Personnel-related expenses Customer-related expenses Deferred income Accrued interest expenses Other total 2011 1,630 611 126 131 663 3,161 2012 2011 2012 1,768 91 91 547 201 98 784 3,397 – – 40 14 145 – – 48 42 181 AssA ABLoY ANNuAL report 2012 Notes 105 Note 30 cont. See below for an account of all significant acquisitions com- pleted in 2012 and 2011. 2012 Albany Doors On 11 January 2012, 100 percent of the share capital was acquired in Albany Door Systems (USA), a global leader in automatic high-performance doors. The company has global market penetration in industrial automatic high-per- formance doors. The products are used for industrial appli- cations and in logistics centers, where there is a major need for customized automatic high-performance doors with high security and access control. Albany also offers service and maintenance on the company’s principal markets. The company is headquartered in Georgia, USA. Intangible assets in the form of the brand and customer relationships have been disclosed separately. Residual goodwill mainly relates to synergies and other intangible assets, which do not meet the criteria for separate recognition. Dynaco On 1 March 2012, 100 percent of the share capital was acquired in Dynaco (Belgium). Dynaco is a leading manufac- turer of automatic high-performance doors specializing in sales to a global distributor network. The acquisition of Dynaco further strengthens ASSA ABLOY’s position in the fast-growing market segment of high-performance doors. Dynaco provides manufacturing expertise, with many lead- ing patented products and a global distribution channel. The company is headquartered in Moorsel, Belgium. Intangible assets in the form of the brand and customer relationships have been disclosed separately. Residual goodwill mainly relates to synergies and other intangible assets, which do not meet the criteria for separate recognition. Guoqiang On 29 May 2012, 100 percent of the share capital was acquired in Guoqiang, a Chinese manufacturer of window hardware. Guoqiang offers a complete range of window hardware mainly for the Chinese market. The company has a good market presence in China through an extensive net- work of sales offices. Guoqiang provides a good fit with the existing offering in total door opening solutions in China and gives access to the Chinese window hardware market. The company is headquartered in Leling, Shandong Province, China. The brand has been disclosed separately, and residual goodwill mainly relates to synergies and other intangible assets, which do not meet the criteria for separate recogni- tion. Other acquisitions Other significant acquisitions during the year comprised Securistyle (UK), Traka (UK), Helton (Canada), Sanhe Metal (China) and 4Front (USA). 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 California, USA. Intangible assets in the form of brand and customer relationships have been disclosed. Residual good- will is mainly attributable to synergies and other intangible assets, which do not meet the criteria for separate recogni- tion. 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. Intangible assets in the form of brand and customer relationships have been disclosed separately. Residual goodwill is mainly attrib- utable to synergies and other intangible assets, which do not meet the criteria for separate recognition. 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, which do not meet 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. 106 Notes AssA ABLoY ANNuAL report 2012 Discontinued operations In 2011, Cardo Flow Solutions and Lorentzen & Wettre, which were part of Cardo Entrance Solutions acquired during the year, were divested. These divestments were reported in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The cash flow effect and the result from divestments are shown in the table below: seK M Disposed net assets Assets of disposal group held for sale Liabilities of disposal group held for sale total Purchase prices received Less: Cash and cash equivalents in dis- posed subsidiaries Change in cash and cash equivalents due to disposal Net income after tax from discontinued operations during the holding period Net income from discontinued operations Note 32 Cash flow seK M Adjustments for non-cash items Profit on sales of non-current assets Change in pension provision Other Adjustments for non-cash items Change in working capital Inventories increase/decrease (–/+) Trade receivables increase/ decrease (–/+) Trade payables increase/ decrease (+/–) Other working capital increase/ decrease (–/+) Change in working capital Investments in subsidiaries Total purchase price Less, part of purchase prices paid in prior year Less, acquired cash and cash equivalents Less, unpaid parts of purchase prices Paid purchase prices relating to acquisitions in 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 and interests Investments in/sales of other non-current receivables other investments Group 2011 2012 –7,539 1,161 –6,378 6,690 – 6,690 92 404 – – – – – – – – Group 2011 2012 3 40 –43 0 –32 –347 48 –13 –312 0 –249 –192 235 –192 –238 –22 136 –77 –13,600 –4,799 555 411 446 – 345 923 –109 –12,297 –305 –3,836 6,690 – 6,690 –876 –28 –904 –12 – –12 5 14 19 Note 30 cont. Intangible assets in the form of the brand and customer rela- tionships have been disclosed separately. Residual goodwill mainly relates to synergies and other intangible assets, which do not meet the criteria for separate recognition. The table below shows the final purchase price allocation for Cardo Entrance Solutions. seK M Cash paid Less: Discontinued 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 non-current assets Inventories Receivables Cash and cash equivalents Interest-bearing liabilities Other liabilities 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 acquisition date EBIT from acquisition date Net income from acquisition date 2011 11,340 –6,280 5,060 –2,009 3,051 1,597 555 515 919 176 –111 –1,642 2,009 11,340 –6,690 –176 4,474 3,709 455 5,699 Note 31 Assets of disposal group classified as held for sale and discontinued operations seK M Assets of disposal group classified as held for sale Intangible assets Tangible assets Deferred tax assets Inventories Trade receivables Cash and cash equivalents total Liabilities of disposal group classified as held for sale Provisions Trade payables Current tax liabilities Other current liabilities Accrued expenses and deferred income total Net income of disposal group classified as held for sale Sales Costs Income before tax Tax on income Impairment of assets of disposal group held for sale Net income of disposal group classified as held for sale Cash flow from disposal group classified as held for sale Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow from disposal group classified as held for sale Group 2011 2012 – – – – – – – – – – – – – – – – – – – – – – – 135 17 26 33 9 390 610 12 92 9 80 33 226 568 –542 26 –6 –9 11 54 –3 3 54 AssA ABLoY ANNuAL report 2012 Notes 107 Note 33 employees Salaries, wages, other remuneration and social security costs seK M Salaries, wages and other remuneration Social security costs – of which pensions total Group 2011 9,704 2,131 402 11,835 2012 10,627 2,078 416 12,705 Fees to Board members in 2012 (including committee work), SEK thousand Name and post Lars Renström, Chairman Carl Douglas, Vice Chairman Birgitta Klasén, Member Eva Lindqvist, Member Johan Molin, President and CEO Sven-Christer Nilsson, Member Ulrik Svensson, Member Jan Svensson, Member Employee representatives (2) total Board 1,350 750 500 500 – 500 500 500 – 4,600 remuneration Committee Audit Committee 100 – – – – 50 – 50 – 200 – – 100 – – – 200 100 – 400 parent company 2011 2012 115 59 21 174 118 53 24 171 total 1,450 750 600 500 – 550 700 650 – 5,200 Total fees for Board members amounted to SEK 4.6 M in 2011. Remuneration and other benefits of the Executive Team in 2012 seK thousands Fixed salary Variable salary benefits other benefits pension costs Johan Molin Other members of the Executive Team (8) total remuneration and benefits Total remuneration and other benefits for the Executive Team amounted to SEK 90 M in 2011. 12,536 34,498 47,034 9,270 16,014 25,284 4,742 9,244 13,986 126 3,280 3,406 4,326 8,234 12,560 stockrelated Salaries and remuneration for the Board of Directors and the parent company’s Executive Team Salaries and remuneration for the Board of Directors and the parent company’s Executive Team totaled SEK 44 M (37). Social security costs amounted to SEK 33 M (20), of which 8 SEK M (7) 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 and 2012 Annual General Meetings, it was decided to implement further long-term incentive pro- grams for senior executives and other key staff in the Group. The new long-term incentive programs, LTI 2011 and LTI 2012, have been drawn up with similar terms to LTI 2010. For each Series B share acquired by the CEO within the framework of LTI 2010, LTI 2011 and LTI 2012, 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 programs, employees have acquired a total of 264,670 shares in ASSA ABLOY AB, of which 90,038 shares were acquired in 2012 within the framework of LTI 2012. Each matching stock option entitles the holder to receive one free Series B share in the company after three years, pro- vided that the holder, with certain exceptions, is still employed in the Group when the interim report for Q1 2013, 2014 and 2015 for the respective program is pub- lished, and has retained the shares acquired within the framework of the long-term incentive programs. Each per- formance-based stock option entitles the holder to receive one free Series B share in the company three years after allotment, provided that the above conditions have been fulfilled. In addition, the maximum level in a range deter- mined by the Board for the performance of the company’s earnings per share must have been fulfilled. The perfor- mance based condition for each respective year has been fulfilled for all three programs. Outstanding matching and performance-based stock options for LTI 2012 total 264,027. The total number of out- standing matching and performance-based stock options for LTI 2010, LTI 2011 and LTI 2012 amounted to 701,941 on the reporting date. Fair value is based on the share price on the allotment 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 108 Notes AssA ABLoY ANNuAL report 2012 Note 33 cont. being met when calculating the compensation expense. The fair value of ASSA ABLOY’s Series B share on the allot- ment date for LTI 2012 of 22 May 2012 was SEK 187.77. The equivalent value on the allotment date for LTI 2011 of 25 May 2011 was SEK 173.29. The equivalent value on the allot- ment date for LTI 2010 of 28 July 2010 was SEK 161.79. The total cost of the Group’s three long-term incentive programs amounted to SEK 27 M (16) in 2012. Other equity-based incentive programs ASSA ABLOY has previously issued a number of convertible debentures to employees in the Group. At year-end 2012, there were no outstanding convertible debentures issued to employees in the Group. For further information on other equity-based incentive programs, see the section on the ASSA ABLOY share (page 122). 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, broken down by gender China USA France Sweden Germany United Kingdom Czech Republic Mexico Netherlands Finland Australia Italy Romania South Korea Malaysia Spain Canada Norway Belgium Denmark Israel South Africa Brazil Switzerland New Zealand Colombia Austria Ireland Chile Other total Sweden total total 14,781 5,861 2,200 1,857 1,453 1,319 1,139 1,128 949 955 764 802 539 669 472 733 434 550 306 448 353 418 336 343 316 389 190 208 167 993 41,070 total 124 124 Group 2011 of which women of which men 6,083 1,855 703 517 475 466 550 527 167 340 209 202 228 255 260 183 104 139 85 131 102 187 74 112 108 46 42 88 37 264 14,538 8,698 4,006 1,497 1,340 978 853 586 601 782 615 556 600 312 414 212 550 330 411 222 317 251 231 262 231 208 343 148 120 130 730 26,532 2012 of which women of which men 6,293 1,870 696 569 530 532 583 477 176 316 221 178 265 242 421 165 157 134 114 188 122 166 92 101 95 41 47 77 42 320 15,229 8,252 4,045 1,563 1,588 1,257 1,062 605 594 873 607 533 556 419 436 233 485 488 446 354 274 283 214 264 218 205 249 171 138 133 987 27,533 total 14,545 5,915 2,259 2,156 1,788 1,594 1,188 1,071 1,050 924 754 733 684 678 655 650 645 580 468 462 405 380 356 319 300 290 217 215 175 1,307 42,762 parent company 2011 of which women of which men 26 26 98 98 2012 of which women of which men 25 25 100 100 2012 of which women of which men 2 1 1 3 6 8 2 14 total 125 125 total 8 9 3 17 Gender distribution of Board of Directors and Executive Team Board of Directors 1 Executive Team –of which Parent company's Executive Team total 1 Excluding employee representatives. 2011 of which women of which men 2 – – 2 6 9 3 15 total 8 9 3 17 AssA ABLoY ANNuAL report 2012 Notes 109 Note 34 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. ing 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 Non-current interest-bearing receivables Short-term interest-bearing investments incl. positive market values of derivatives Cash and bank balances Pension provisions Non-current interest-bearing liabilities Current interest-bearing liabilities incl. negative market values of derivatives total equity Net debt/equity ratio, times Group 2011 –44 –284 –1,665 1,173 7,422 7,605 14,207 23,735 0.60 2012 –29 –138 –907 1,224 11,194 3,388 14,732 26,725 0.55 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, return- 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 2011 31 December 2012 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 Non-current interest-bearing receivables Deferred considerations Trade receivables Trade payables Net total Confirmed credit facilities Credit facilities maturing < 1 year Adjusted maturity profile¹ –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 1 For maturity structure of guarantees, see Note 28. –49 –648 – – – 29 –669 –341 –3,804 – – – 65 –4,080 –1,070 –2,734 – – – –2 –3,806 –9 –351 – –804 –2,519 29 –3,654 –74 –2,308 – – – 43 –2,340 –538 –4,764 – – – 43 –5,259 –648 –4,415 – – – 19 –5,044 – – – 1,045 – – – – –2,288 – – –2,957 – – –2,957 – –166 – – –4,246 –9,851 – –14,097 – – – – –3,806 – – –3,806 29 –2,705 7,557 –3,883 –1,611 9,957 –472 7,874 – –257 – – –2,596 –9,485 – –12,081 – –144 – – –5,403 – – –5,403 – –8 – – –5,052 – – –5,052 110 Notes AssA ABLoY ANNuAL report 2012 Note 34 cont. External financing/net debt Credit lines/facilities US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program US Private Placement Program Multi–Currency RCF Bank loan EIB Global MTN Program Amount, seK M 521 491 325 325 794 163 456 976 488 9,485 949 12,934 Other long-term loans total long-term loans/facilities US Private Placement Program Incentive Program Global CP Program Swedish CP Program Other bank loans Overdraft facility total short-term loans/facilities total loans/facilities 259 28,165 342 – 6,507 5,000 201 1,132 13,181 41,346 Maturity May 2015 Dec 2016 Apr 2017 May 2017 Dec 2018 Aug 2019 May 2020 Aug 2022 Aug 2024 Jun 2014 Jul 2018 2 Mar 2014 Jun 2014 Dec 2014 Jan 2015 Aug 2015 Oct 2015 Oct 2015 Jun 2016 Jun 2016 Aug 2016 May 2017 Jun 2018 Dec 2020 Feb 2027 Dec 2013 Carrying amount, seK M Currency Amount 2011 Amount 2012 of which parent company, seK M USD USD USD USD USD USD USD USD USD EUR EUR EUR EUR SEK EUR SEK SEK JPY NOK NOK SEK SEK SEK EUR EUR USD EUR USD EUR SEK 80 76 50 50 122 0 70 0 0 1,100 110 45 150 0 0 0 0 0 250 100 0 0 500 0 0 53 100 220 10 2,650 80 76 50 50 122 25 70 150 75 1,100 110 45 150 300 30 250 500 3,000 250 100 250 500 500 30 30 53 – 25 110 1,050 388 1,293 300 259 250 500 226 286 117 250 500 500 259 259 567 1 491 325 325 794 163 456 976 488 0 948 388 1,293 300 259 248 500 226 304 1 117 250 500 500 257 1 261 259 11,194 342 – 162 948 1,042 201 605 3,301 14,495 –907 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 accounting. 2 The loan amortizes starting November 2016. In the table the average date of maturity of the loan has been stated. –29 –27 1,224 14,732 –24 Rating Agency short- term outlook Long-term Standard & Poor’s Moody’s A2 P2 Stable Stable A – n/a Credit outlook Stable In March 2012 Standard & Poor’s revised the outlook on the long-term rating from negative to stable. This was confirmed in November 2012. 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 investments. ASSA ABLOY strives to have access on every occasion to both short-term and long-term loan facilities. In accordance with financial policy, the available loan facilities should include a AssA ABLoY ANNuAL report 2012 Notes 111 Note 34 cont. 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 110 shows the maturi- ties for ASSA ABLOY’s financial instruments, including con- firmed credit facilities. During the year, the maturity profile was extended through a number of capital market transac- tions. The maturities are not concentrated to a particular date in the immediate future. When the refinancing require- ment is assessed, the credit facility of EUR 1,100 M maturing in June 2014, which was wholly unutilized at year-end, is taken into account. Moreover, existing financial assets are also taken into account. The table shows undiscounted future cash flows relating to the Group’s financial instru- ments at the reporting date, and these amounts are there- fore not found in the balance sheet. Interest-bearing liabilities The Group’s long-term loan financing mainly consists of a Private Placement Program in the USA totaling USD 750 M, of which USD 698 M (500) is long-term, a GMTN program of SEK 5,392 M (2,656), and a loan from the European Invest- ment Bank of EUR 110 M (110). During the year new issues were made under the Private Placement Program in the USA. A total of USD 250 M was raised divided into three tranches of 7, 10 and 12 years. In addition, nine issues were made under the GMTN program for a total amount of around SEK 2,800 M. 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. 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 2,152 M (4,242) 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 reduction in short-term financ- ing is mainly linked to the increase in long-term capital mar- ket issues implemented to extend the Group’s maturity structure. At year-end the average time to maturity for the Group’s interest-bearing liabilities, excluding the pension provision, was 47 months (31). Some of the Group’s main financing agreements contain a customary 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 agreements 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 matured in 2012. Half of the convertible debentures relating to Incentive 2007 were converted. Conversion was managed by an external party and took place in 2012. A total of 2,608,400 Series B shares were issued in connection with Incentive 2007. 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 113. Cash and cash equivalents and other interest-bearing receivables Short-term interest-bearing investments amounted to SEK 24 M (50) at year-end. In addition, ASSA ABLOY has long- term interest-bearing receivables of SEK 29 M (44) and financial derivatives with a positive market value of SEK 114 M (234) 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 (1.0) at year-end 2012. 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 2011 1,665 2012 907 – – 1,665 907 50 44 24 29 234 1,993 114 1,074 2011 2012 4 – 4 23 – – 27 42 – 42 – – – 42 112 Notes AssA ABLoY ANNuAL report 2012 Note 34 cont. Net debt by currency seK M USD EUR SEK AUD DKK CZK CAD KRW Other total 31 December 2011 31 December 2012 Net debt excluding currency swaps Net debt including currency swaps Net debt excluding currency swaps Net debt including currency swaps 5,937 4,510 3,913 –4 13 3 –29 265 –402 14,207 5,465 2,399 5,791 661 260 178 –141 265 –672 14,207 5,488 5,314 3,497 30 16 19 30 171 169 14,732 6,406 4,882 2,045 650 250 226 212 171 –108 14,732 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 (1.0) at year-end 2012. A downward change in the yield curve of one percentage point would reduce the Group’s interest income by around SEK 8 M (8) and consolidated equity by SEK 6 M (6). 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 34 months (16). An upward change in the yield curve of one percentage point would increase the Group’s interest expense by around SEK 74 M (93) and reduce consolidated equity by SEK 56 M (71). 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, even though it can be significant for individual busi- ness units. The main principle is to allow currency fluctua- tions to have an impact on the business as quickly as possi- ble. 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 PLN RON SEK Currency exposure 2011 410 439 –754 –203 742 357 91 –41 –756 2012 325 537 –1,094 –165 1,049 459 145 –199 –822 Translation exposure in 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 2011 2012 AUD CAD CNY EUR GBP HKD NOK USD 38 16 53 151 18 6 23 201 39 18 51 158 26 22 26 234 AssA ABLoY ANNuAL report 2012 Notes 113 Note 34 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 cur- rencies. Treasury uses currency derivatives to achieve appro- priate financing and to eliminate undesirable currency expo- sure. The table ‘Net debt by currency’ on page 113 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 (85) of the Group’s sales were settled through cash pools in 2012. 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 trade receivables are distributed across a large number of customers who are spread globally. The concen- tration of credit risk associated with trade receivables is therefore limited. The fair value of trade receivables corre- sponds to the carrying amount. Credit risks relating to oper- ating 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 115 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 115 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. 114 Notes AssA ABLoY ANNuAL report 2012 Note 34 cont. Outstanding derivative financial instruments at 31 December Instrument, seK M Foreign exchange forwards, funding Interest rate swaps Forward Rate Agreements total 31 December 2011 31 December 2012 positive fair value Negative fair value Nominal value positive fair value Negative fair value Nominal value 106 112 16 234 –126 –37 –16 –179 9,936 14,845 502 25,283 25 89 0 114 –34 –49 –4 –87 2,688 4,059 1,295 8,042 Financial instruments: carrying amounts and fair values by measurement category 2011 2012 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 52 112 6,924 95 139 234 50 1,665 922 6,500 7,422 896 562 5,969 179 3,796 2,531 52 112 6,924 95 139 234 50 1,665 922 6,907 7,829 896 562 5,969 179 3,796 2,531 4 1,519 7,557 75 39 114 24 907 2,041 9,153 11,194 – 65 3,235 87 3,883 3,114 4 1,519 7,557 75 39 114 24 907 2,041 9,543 11,584 – 65 3,235 87 3,883 3,114 seK M Financial assets Other shares and interests Other financial assets Trade 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 debentures Short-term loans – hedge accounting Short-term loans – not hedge accounting Derivative instruments – held for trading Trade payables Deferred 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 2011 2012 Carrying amounts Quoted prices observ- able data Non- observ- able data Carrying amounts Quoted prices observ- able data Non- observ- able data 139 – 917 562 179 2,531 – – – – – – 139 – 917 562 179 – – – – – – 2,531 39 – 2,041 65 87 3,114 – – – – – – 39 – 2,041 65 87 – – – – – – 3,114 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 significant amounts. AssA ABLoY ANNuAL report 2012 Notes 115 Comments on five years in summary 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. 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. Cost adjustments in the form of staff redundancies and Operating income excluding restructuring costs 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. 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 acqui- sitions 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. increased 10 percent and cash flow remained strong. Earn- ings per share after full dilution excluding items affecting comparability increased 13 percent. 2012 Organic growth was 2 percent, despite the continued weak market conditions globally. The share of sales on emerging markets continued to increase to over 25 percent of total sales. The major investments in product development in recent years have been fruitful. This can be seen from the share of products launched in the past three years, which has increased considerably and currently accounts for around 25 percent of total sales. Operating income excluding items affecting comparabil- ity increased by 13 percent during the year and operating cash flow remained very strong. Earnings per share after full dilution, excluding items affecting comparability, increased by 13 percent, compared with 2011. A total of 13 acquisitions were completed during the year, which mainly strengthened the position in entrance automation for high-performance doors and docking sys- tems. These acquisitions increase annual sales by a total of around SEK 4,500 M and provide important products and technology. Activities in the ongoing restructuring programs remained at a high level during the year. The transfer of pro- duction to low-cost countries continued, combined with conversion of plants from production to assembly and installation. More than 6,700 employees have left the Group, as a result of these activities since the programs began in 2006. In summary, it may be stated that ASSA ABLOY continued gradually to expand and consolidate its leading market posi- tion during the year, and showed good earnings capacity under the prevailing economic circumstances. 116 Comments on five years in summary assa aBLoy annuaL report 2012 Five years in summary amounts in seK m unless stated otherwise 2008 2009 2010 2011 2012 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 investments in associates Assets and liabilities of disposal group classified as held for sale 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 debentures net after tax Number of shares, thousands Number of shares after dilution, thousands Average number of employees 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 4.50 172.60 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 46,619 2 9 8,536 –1,034 7,501 6,731 5,125 5,990 –4,738 –1,564 –312 7,044 41,073 28,932 11,093 1,519 385 14,732 183 26,543 13.85 13.84 71.82 5,102 242.90 18.3 16.1 14.4 18.2 18.2 20.1 44.6 0.55 10.4 3.9 370,859 370,859 42,762 ¹ Excluding items affecting comparability in 2008, 2009 and 2011. ² For 2012, 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 08 09 10 11 12 % 20 15 10 5 0 08 09 10 11 12 Number 45,000 37,500 30,000 22,500 15,000 7,500 0 1 Excluding items affecting compara- bility 2008, 2009 and 2011. assa aBLoy annuaL report 2012 08 09 10 11 12 five years in summary 117 Quarterly information tHe Group in summary amounts in seK m unless stated otherwise Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 full year 2011 Q 1 2012 Q 2 2012 Q 3 2012 Q 4 2012 full year 2012 Sales Organic growth Gross income excluding items affecting comparability Gross income/ Sales operating income before depreciation (eBitDa) excluding restructuring costs Operating 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 of disposal group classified as held for sale and discontinued operations 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 Interest paid and received 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 Cash and cash equivalents of disposal group classified as held for sale 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 provisions Long-term interest-bearing liabilities Short-term interest-bearing liabilities including derivatives total 8,699 10,502 10,841 11,744 4% 5% 6% 2% 41,786 10,839 11,997 11,545 12,239 46,619 2% 4% 1% 3% 3% 0% 3,560 40.9% 4,050 38.6% 4,208 38.8% 4,469 38.0% 16,287 39.0% 4,307 39.7% 4,687 39.1% 4,603 39.9% 4,832 18,429 39.5% 39.5% 1,630 18.7% –253 1,377 15.8% – 1,377 –162 1,215 14.0% –268 1,863 17.7% –248 1,615 15.4% – 1,615 –156 1,460 13.9% –321 2,002 18.5% –251 1,751 16.2% – 1,751 –169 1,582 14.6% –348 –4 943 17 1,156 419 1,653 941 2 1,143 13 1,644 8 2,151 18.3% –270 1,881 16.0% –1,420 461 –158 303 2.6% –158 –27 118 114 4 7,646 18.3% –1,022 6,624 15.9% –1,420 5,204 –645 4,559 10.9% –1,095 1,929 17.8% –274 1,655 15.3% – 1,655 –173 1,481 13.7% –341 2,157 18.0% –272 1,885 15.7% – 1,885 –208 1,677 14.0% –385 2,183 18.9% –251 1,932 16.7% – 1,932 –184 1,748 15.1% –452 2,268 18.5% –238 2,030 16.6% – 2,030 –205 1,825 14.9% –439 8,536 18.3% –1,034 7,501 16.1% – 7,501 –770 6,731 14.4% –1,617 404 3,869 – 1,140 4 1,295 7 1,303 – 1,386 11 5,125 3,843 26 1,138 2 1,293 2 1,294 9 1,386 0 5,111 14 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 Q 1 2012 Q 2 2012 Q 3 2012 Q 4 2012 1,655 – 274 –183 –1,155 –482 4 483 0.33 1,885 – 272 –165 –300 –180 –77 1,435 0.86 1,932 – 251 –265 266 –100 –116 1,967 1.13 2,030 – 238 57 1,112 –154 –123 3,160 1.73 Q 1 2012 Q 2 2012 Q 3 2012 Q 4 2012 full year 2012 7,501 – 1,034 –557 –77 –546 –312 7,044 1.05 full year 2012 10,564 21,586 23,403 16,159 –2,794 183 418 324 – – – –448 48 235 11,606 – – – –1,528 75 190 –6,415 – – –308 –1,311 67 363 996 1,472 17 – 10,564 14,207 15,749 18,003 16,509 14,207 –7,044 –6,080 498 373 1,113 1,206 4,181 6,511 1,683 1,472 38 17 –450 –308 –1,967 118 173 452 28 – – –1,435 86 341 1,221 1,655 38 –450 –3,160 202 239 1,019 – – – –483 92 360 1,489 – – – – 213 – –419 – –84 21,586 23,403 16,159 14,207 0.60 – 742 1.10 1.03 0.69 – 83 – 452 390 118 14,207 15,749 18,003 16,509 14,732 14,732 0.55 59 –356 324 474 7 –84 0.72 0.60 0.66 0.64 0.55 Q 1 2011 –64 Q 2 2011 –58 Q 3 2011 –49 Q 4 2011 –44 Q 1 2012 –32 Q 2 2012 –33 Q 3 2012 –30 Q 4 2012 –29 –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 14,668 17,279 10,510 7,605 21,586 23,403 16,159 14,207 –202 –1,208 1,215 8,153 –138 –211 –256 –907 –971 –1,143 1,237 1,224 1,214 8,726 10,028 11,194 7,824 3,388 15,749 18,003 16,509 14,732 6,479 9,472 118 QuarterLy information assa aBLoy annuaL report 2012 CapitaL empLoyeD anD finanCinG Capital employed – of which goodwill – of which other intangible and tangible assets – of which investments in associates Assets and liabilities of 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 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 Q 1 2012 Q 2 2012 Q 3 2012 Q 4 2012 40,193 42,603 41,285 41,073 27,824 29,924 28,635 28,932 8,496 10,129 10,043 10,126 1,211 1,111 1,234 1,121 10,436 10,599 10,917 11,093 1,519 1,444 1,231 1,206 6,379 6,299 – 21,586 23,403 16,159 14,207 208 301 198 201 – – 396 385 15,749 18,003 16,509 14,732 183 183 382 214 211 20,783 20,907 23,308 23,527 24,231 24,785 24,975 26,543 Q 1 2011 Q 2 2011 Q 3 2011 Q 4 2011 full year 2011 Q 1 2012 Q 2 2012 Q 3 2012 Q 4 2012 full year 2012 2.57 2.53 3.08 3.07 4.40 4.42 0.40 0.30 10.45 10.33 3.09 3.10 3.51 3.51 3.50 3.49 3.74 3.74 13.85 13.84 2.52 3.05 3.30 3.43 12.30 3.10 3.51 3.49 3.73 13.84 58.34 59.35 65.91 65.79 65.54 68.24 67.24 67.39 71.61 71.82 mar 2011 Jun 2011 sep 2011 Dec 2011 full year 2011 mar 2012 Jun 2012 sep 2012 Dec 2012 full year 2012 367,732 368,250 368,250 368,250 368,250 368,250 370,859 370,859 370,859 370,859 373,038 373,000 372,946 372,627 372,627 368,057 368,352 369,155 369,592 369,592 Definitions of key data 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 on 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 debentures, 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 debentures, divided by weighted average number of shares after dilution. shareholders’ equity per share after dilution Equity excluding non-controlling interests, plus convertible debentures, divided by number of shares after dilution. assa aBLoy annuaL report 2012 QuarterLy information 119 Proposed distribution of earnings The following earnings are at the disposal of the Annual General Meeting: Share premium reserve: SEK 788 M Retained earnings brought forward: SEK 2,947 M Net income for the year: SEK 3,496 M TOTAL: SEK 7,231 M The Board of Directors and the President and CEO propose that a dividend of SEK 5.10 per share, a total of SEK 1,888 M, be distributed to shareholders and that the remainder, SEK 5,343 M, be carried forward to the new financial year. The dividend amount is calculated on the number of outstanding shares as per 6 February 2013. No dividend is payable on ASSA ABLOY AB’s holding of treasury shares, the exact number of which is determined on the record date for payment of dividend. ASSA ABLOY AB held 600,000 treasury shares as at 6 February 2013. Tuesday, 30 April 2013 has been proposed as the record date for dividends. If the Annual General Meeting confirms this proposal, dividends are expected to be distributed by Euroclear Sweden AB on Monday, 6 May 2013. The Board of Directors and the President and CEO declare that the consolidated accounts have been prepared in accordance with International Financial Reporting Standards, IFRS, as adopted by the EU and give a true and fair view of the Group’s financial position and results. The Parent company’s annual accounts have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent company’s financial position and results. The Report of the Board of Directors for the Group and the Parent company gives a true and fair 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, 6 February 2013 Lars Renström Chairman of the Board Carl Douglas Vice Chairman of the Board Birgitta Klasén Board member Sven-Christer Nilsson Board member Eva Lindqvist Board member Jan Svensson 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 6 February 2013 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant 120 proposeD DistriBution of earninGs assa aBLoy annuaL report 2012 Auditor’s 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 2012. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 63–120. 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 2012 and of its financial perfor- mance and its cash flows for the year then ended in accor- dance with the Annual Accounts Act. 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 2012 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. A corporate governance statement has been prepared. The statutory administration report and the cor- porate governance statement 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 2012. 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 opinions. 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, 6 February 2013 PricewaterhouseCoopers AB Peter Nyllinge Authorized Public Accountant assa aBLoy annuaL report 2012 auDit report 121 The ASSA ABLOY share share price trend in 2012 2012 was a good year on NASDAQ OMX Stockholm, with a 12 percent rise in the index. It was also a very good year for ASSA ABLOY’s Series B share, whose value increased by fully 41 percent from SEK 172.60 to SEK 242.90. Market capital- ization amounted to SEK 90,082 M (63,560) at year-end. The lowest closing price during the year was SEK 171.70 recorded on 4 January, while the highest closing price was SEK 244.80 recorded on 27 December. 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 746 million (918) shares in 2012, equivalent to a turnover rate of 201 percent (249). Turnover of the series B share on NASDAQ OMX Stockholm amounted to 270 million (391) shares, equivalent to a turnover rate of 73 percent (106). The average turnover rate was 74 percent (96) on NASDAQ OMX Stockholm, and 77 percent (101) on the Large Cap list. 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 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 2012, such as Boat, Bats Chi-X, Burgundy and Turquoise. Increasingly fragmented trading means that an ever-increas- ing share of trading in most Swedish shares takes place on markets other than NASDAQ OMX Stockholm. Trading on NASDAQ OMX Stockholm accounted for 36 percent of turn- over of the share in 2012, compared with 43 percent in 2011, 51 percent in 2010, and 65 percent in 2009. ownership structure The number of shareholders at year-end was 17,591 (18,697) and the ten largest shareholders accounted for around 38 percent (38) of the share capital and 58 percent (58) of the votes. Shareholders with more than 50,000 shares, a total of 361 shareholders, accounted for 95 percent (97) of the share capital and 98 percent (97) of the votes. Investors outside Sweden accounted for around 68 per- cent (64) of the share capital and 46 percent (44) of the votes, and were mainly in the USA and the United Kingdom. SHARE PRICE TREND AND TURNOVER 2003–2012 DIVIDEND PER SHARE 2003–2012 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 6 5 4 3 2 1 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 03 04 05 06 07 08 09 10 11 12 Series B share OMX Stockholm No. of shares traded, thousands (incl. after hours) 2012 proposed dividend Data per share seK/share 1 2003 2004 2005 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 2003 has not been adjusted for IFRS. 3 Excluding items affecting comparability 2006, 2008, 2009 and 2011. 4 Proposed dividend by the Board. 2007 2010 2012 3.31 1.25 1.5 33.9 85.50 110.00 67.00 31.23 13.84 5.104 2.1 36.8 242.90 244.80 171.70 71.82 370,935 378,718 378,718 376,033 380,713 380,713 372,931 372,736 371,213 370,859 10.89 4.00 2.1 37.0 189.50 199.20 126.60 58.64 9.02 3.60 2.8 40.5 129.75 164.00 124.50 46.76 6.97 3.25 2.6 47.6 125.00 126.00 89.25 42.85 6.33 2.60 2.3 42.0 113.50 113.50 84.00 34.74 2008 9.213 3.60 4.1 52.3 88.50 126.00 69.75 55.91 2009 9.223 3.60 2.6 47.8 137.80 142.50 71.50 54.76 2011 12.303 4.50 2.6 36.6 172.60 194.90 133.50 65.54 2006 7.993 3.25 2.2 64.0 149.00 151.00 109.00 39.13 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. 122 tHe assa aBLoy sHare assa aBLoy annuaL report 2012 ASSA ABLOY’s ten largest shareholders Based on the share register at 31 December 2012. shareholders series a shares series B shares Investment AB Latour Melker Schörling AB Capital Group fonder BlackRock fonder Swedbank Robur fonder Norges Bank SHB fonder AMF Försäkring & Fonder Harris Associates fonder SEB fonder & SEB Trygg Liv Other shareholders total number 13,865,243 5,310,080 19,175,323 21,300,000 9,162,136 31,693,500 18,730,437 10,135,991 9,402,027 5,542,930 5,046,500 4,894,400 4,622,692 231,152,842 351,683,455 Source: SIS Ägarservice AB and Euroclear Sweden AB. total number of shares 35,165,243 14,472,216 31,693,500 18,730,437 10,135,991 9,402,027 5,542,930 5,046,500 4,894,400 4,622,692 231,152,842 370,858,778 share capital, % votes, % 9.5 3.9 8.5 5.1 2.7 2.5 1.5 1.4 1.3 1.2 62.3 100.0 29.5 11.5 5.8 3.4 1.9 1.7 1.0 0.9 0.9 0.9 42.5 100.0 OWNERSHIP STRUCTURE (SHARE CAPITAL) OWNERSHIP STRUCTURE (VOTES) Investment AB Latour, 9.5% Capital Group Funds, 8.5% BlackRock Funds, 5.1% Melker Schörling AB, 3.9% Swedbank Robur Funds, 2.7% Norges Bank, 2.5% SHB Funds, 1.5% AMF Insurance & Funds, 1.4% Harris Associates Funds, 1.3% SEB fonder & SEB Trygg Liv, 1.2% Other shareholders, 62.3% Investment AB Latour, 29.5% Melker Schörling AB, 11.5% Capital Group Funds, 5.8% BlackRock Funds, 3.4% Swedbank Robur Funds, 1.9% Norges Bank, 1.7% SHB fonder, 1.0% AMF Insurance & Funds, 0.9% Harris Associates Funds 0.9% SEB fonder & SEB Trygg Liv, 0.9% Other shareholders, 42.5% Share capital The share capital amounted to SEK 370,858,778 at year-end, distributed among a total of 370,858,778 shares, comprising 19,175,323 Series A shares and 351,683,455 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. 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 2012 2012 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 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 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 67,179,562 268,718,248 295,564,487 295,970,830 301,598,383 313,512,880 333,277,912 334,576,089 344,576,089 346,742,711 347,001,871 349,075,055 349,075,055 351,683,455 351,683,455 share capital, seK 2,000,000 2,000,000 53,592,110 64,310,532 64,310,532 70,732,118 71,075,983 71,369,974 285,479,896 314,002,299 314,408,642 320,036,195 332,688,203 352,453,235 353,751,412 363,751,412 365,918,034 366,177,194 368,250,378 368,250,378 370,858,778 370,858,778 assa aBLoy annuaL report 2012 tHe assa aBLoy sHare 123 The ASSA ABLOY share share capital and voting rights The share capital amounted to SEK 370,858,778 at year-end, distributed among a total of 370,858,778 shares, comprising 19,175,323 Series A shares and 351,683,455 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 543,436,685. Each Series A share carries ten votes and each Series B share one vote. Repurchase of own shares Since 2010 the Board has requested and received a mandate from the Annual General Meeting to repurchase and transfer ASSA ABLOY shares. The aim has been to be able to adapt the company’s capital structure, and thereby contributing to increased shareholder value, to be able to exploit acquisi- tion opportunities by fully or partly financing company acquisitions with its own shares, and to secure the compa- ny’s long-term incentive programs. The 2012 Annual Gen- eral Meeting authorized the Board 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 num- ber of shares in the company. ASSA ABLOY holds a total of 600,000 (400,000) Series B shares after repurchase, to secure the company’s obligations in connection with the company’s long-term incentive pro- grams (LTI). These shares account for 0.2 percent (0.1) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 103 M (65). Of the above shares, 200,000 (100,000) Series B shares were repurchased in 2012. These account for 0.05 percent (0.03) of the share capital and each share has a par value of SEK 1.00. The purchase consideration amounted to SEK 38 M (17). 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 Precident and CEO pro- pose that a dividend of SEK 5.10 per share (4.50) be paid to shareholders for the 2012 financial year, equivalent to a divi- dend yield on the Series B share of 2.10 percent (2.6). other equity-based incentive programs ASSA ABLOY has issued a number of convertible debentures to employees in the Group. In 2007 it was decided to launch an incentive program, Incentive 2007. The program matured in 2012. Half of the convertible debentures relating to Incentive 2007 were con- verted. Conversion was managed by an external party and took place in 2012. A total of 2,608,400 Series B shares were issued in connection with Incentive 2007. At year-end 2012, there were no outstanding convertible debentures issued to employees in the Group. For long-term incentive programs see Note 33. Analysts who cover ASSA ABLOY Company name telephone email ABG Sundal Collier Bank of America Merrill Lynch Barclays Capital Carnegie Carnegie Cheuvreux Credit Suisse Danske Bank Deutsche Bank DnB NOR Dresdner Kleinwort Enskilda Securities Erik Penser Exane BNP Paribas Goldman Sachs Handelsbanken Capital Markets Handelsbanken Capital Markets ICAP Securities Ltd J.P. Morgan Nomura Nomura Pareto Securities Redburn Partners Sanford C. Bernstein Société Générale Swedbank Markets UBS UBS UniCredit Bank AG Anders Idborg Ben Maslen Allan Smylie Kenneth Toll Johansson Agnieszka Vilela Andreas Dahl Andre Kukhnin Oscar Stjerngren Johan Wettergren Lars Brorson Colin Grant Stefan Andersson Max Frydén Jonathan Mounsey Aaron Ibbotson Peder Frölén Jon Hyltner Nick Wilson Andreas Willi Klas Bergelind Daniel Cunliffe David Jacobsson James Moore Martin Prozesky Sébastien Grunter Niclas Höglund Guillermo Peigneux Fredric Stahl Alasdair Leslie +46 8 566 286 74 +44 207 996 4783 +44 207 773 4873 +46 8 5886 8911 +46 8 5886 8586 +46 8 723 51 63 +44 207 888 0350 +46 8 5688 0606 +46 8 463 55 18 +44 207 621 6149 +44 207 475 9161 +46 8 522 296 57 +46 8 463 8463 +44 207 039 9529 +44 207 774 6661 +46 8 701 1251 +46 8 701 1275 +44 207 532 4683 +44 207 134 4569 +44 207 102 5097 +44 207 102 5096 +46 8 402 5272 +44 207 000 2135 +44 207 170 0577 +33 1 4213 4722 +46 8 5859 1800 +46 8 453 7308 +46 8 493 7309 +44 207 826 7961 anders.idborg@abgsc.se ben.maslen@baml.com allan.smylie@barcap.com kentol@carnegie.se agnvil@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 stefan.andersson@enskilda.se max.fryden@penser.se jonathan.mounsey@exanebnpparibas.com aaron.ibbotson@gs.com pefr15@handelsbanken.se johy01@handelsbanken.se nicholas.wilson@icap.com andreas.p.willi@jpmorgan.com klas.bergelind@nomura.com daniel.cunliffe@nomura.com david.jacobsson@paretoohman.se james.moore@redburn.com martin.prozesky@bernstein.com sebastien.grunter@sgcib.com niclas.hoglund@swedbank.se guillermo.peigneux-lojo@ubs.com fredric.stahl@ubs.com alasdair.leslie@unicreditgroup.de 124 tHe assa aBLoy sHare assa aBLoy annuaL report 2012 Information for shareholders Annual General Meeting The Annual General Meeting of ASSA ABLOY AB will be held at Moderna Museet (Museum of Modern Art), Skeppshol- men, Stockholm at 15.00 on Thursday, 25 April 2013. Shareholders wishing to attend the Annual General Meeting should: • Be registered in the share register kept by Euroclear Sweden AB by Friday, 19 April 2013. • Notify ASSA ABLOY AB of their intention to attend by Friday, 19 April 2013. Registration in the share register In addition to notification of intention to attend, sharehold- ers whose shares are nominee registered must be tempo- rarily 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 this registration to be completed by Friday, 19 April 2013, the shareholder should contact his/her bank or nominee well in advance of this date. Notification of intention to attend • Website www.assaabloy.com • Address ASSA ABLOY AB, Annual General Meeting Box 7842, SE-103 98 Stockholm, Sweden • Telephone +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 Nomination Committee The Nomination Committee has the task of preparing reso- lutions on the election of the Chairman, the Vice Chairman and other members of the Board of Directors, the appoint- ment of the auditor, the election of the Chairman of the Annual General Meeting, and fees and associated matters. The Nomination Committee prior to the 2013 Annual General Meeting comprises Gustaf Douglas (Investment AB Latour), Mikael Ekdahl (Melker Schörling AB), Liselott Ledin (Alecta), Marianne Nilsson (Swedbank Robur Fonder) and Per-Erik Mohlin (SEB Fonder/SEB Trygg Liv). Gustaf Douglas is Chairman of the Nomination Committee. Dividend Tuesday, 30 April 2013 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 Monday, 6 May 2013. Further information Niklas Ribbing, Head of Investor Relations Telephone: +46 (0)8 506 485 79 niklas.ribbing@assaabloy.com Reports can be ordered from ASSA ABLOY AB • Website www.assaabloy.com • Telephone +46 (0)8 506 485 00 +46 (0)8 506 485 85 • Fax ASSA ABLOY AB • Post Box 70340 SE-107 23 Stockholm Sweden A shareholder who is to be represented by a proxy should submit the proxy in connection with the notification of in- tention to attend the Annual General Meeting. Proxy forms are available at: www.assaabloy.com. Financial reporting First quarter: 24 April 2013 Second quarter: 19 July 2013 Third quarter: 28 October 2013 Fourth quarter and Year-end report: February 2014 Annual Report 2013: March 2014 Production: ASSA ABLOY in cooperation with Hallvarsson & Halvarsson. Photo: Peter Hoelstad/Molly & Co, Gerard Jörén, Getty Images and ASSA ABLOYs photographic library, among others. Printing: Elanders AB, Falköping in March 2013. 125 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 

Continue reading text version or see original annual report in PDF format above