“ Building value starts with a satisfied customer.”

We have created a worldwide presence. And we have come a long way in building a unified Group with a common mindset. Now it is time to focus even more on our customers and how we can add value by providing increased security, safety and convenience.

In this Annual Report you will find several examples of our work to meet – and exceed – the expectations of our customers around the world. Creating customer value is the only true underlying source of growth – and, in the long run, of value for the shareholders – and it all starts with a satisfied customer.

Another challenging but successful year
The markets in Europe and us softened as a result of the generally weak economy. At the same time, in an increasingly insecure world, we are experiencing a growing focus on security. The interest in more convenient and intelligent locking solutions is growing as well and opens interesting perspectives for the future.

We increased sales by 13 percent to sek 25,397 m. In local currencies the increase was even stronger, 17 percent. Income before tax grew by 23 percent to sek 2,015 m. Our efforts to achieve operational excellence are continuing with a wide range of improvement initiatives throughout the Group. Margins are steadily increasing and the potential for further improvements is still significant.

Earnings per share increased by 18 percent. Operating cash flow amounted to sek 3,525 m, which corresponds to 175 percent of earnings before tax. Increased production cooperation as well as reduced lead times and inventories are important contributors to the strong cash flow.

Our different regions and their companies continue to strengthen their positions. I will first briefly comment on some of last year’s highlights in the different regions.

We grew sales and margins steadily in Scandinavia throughout the year. Successful product launches contributed to good growth, especially in Sweden. Our Norwegian foundry was successfully moved to Romania during the year, a fascinating project that involved 73 trucks fully loaded with production equipment. Finland on the other hand stagnated, mostly as a result of the dramatic telecom slowdown.

In Europe the German market was particularly weak. In adjusting to these market conditions we are reducing the number of employees by 280. The project also includes a transfer of certain production to Romania. In Spain the integration of the market leader TESA has started well. This company has a particular strength and spirit that adds great value to our Group. The French units are continuing to develop successfully while the development in Italy, where our position is not so strong, is taking longer.

The development in the UK is encouraging even though the figures do not yet reflect the initiatives taken. Lead times have been dramatically improved and a large number of product launches during the year are expected to accelerate growth.

North America did well in spite of worries about the slowing economy, and margins are steadily increasing. The Yale integration, which primarily involved the architectural hardware companies, was completed very successfully. The ongoing merging of our door operations is proceeding well, with results in line with forecasts. Our Oklahoma door-frame plant with 160 employees was closed during the autumn and the production moved, with no interruption, to Curries in Mason City. Some of the more labor-intensive door production is being moved to Mexico. Canada and Mexico have become large and important markets for us and we noted good growth and encouraging margin improvements in all units. The South Pacific region, Australia and New Zealand, was our strongest performer last year with strong operational improvements and successful growth projects in collaboration with sister companies.

New Markets ended the year strongly after a slow start. South Africa and Brazil were our star performers while Israel (Mul-T-Lock) and Asia are back to growth again and showing healthy margin increases.

Our Identification Group had a good year with a very successful integration of the newly acquired Indala. Several additional small acquisitions were made on top of a good organic growth that was pulled in part by the increasing demand for accesscontrol. The hotel activities suffered from a falling demand related to less traveling, but an aggressive cost-cutting program improved margins and the companies are well positioned for the future.

Our strategy to ensure presence and growth
We see our growth strategy in three steps.

• Create a worldwide presence and add new areas of expertise
• Leverage synergies and develop Group strength
• Increase focus on creating value for our customers

Acquiring Besam was a great example of adding a new area of expertise, and gave us a world-leading position in door automatics. This was an important strategic step since the demand from large customers for intelligent total openings solutions is growing and we will now be able to lead this development. HID, acquired two years ago, was equally important. The company has developed strongly from the start and brought us leadership in Identification.

We leverage Group strengths
The successful Volvo Ocean Race integration project brought us all closer together, and the response we received, internally and among our partners, exceeded our own expectations. The project created a pride in belonging to ASSA ABLOY and advanced interest in leveraging Group synergies in r&d, production, cross sales and marketing. This work is now being intensified and, by working together, each company will be able to achieve much more than on its own.

New intelligent locking solutions require more investments in research and development and are now carried out jointly. The increasing demand for total solutions also requires more cooperative ventures. We are striving for more ‘platform thinking’ in our local r&d so as to develop economies of scale by joint production of components and products. An increasing proportion of production is being carried out in our low-cost manufacturing units, mainly in Romania, Mexico and China.

Time to increase customer value In a world of growing security concerns, the need for improved and more sophisticated locking solutions is obvious. There are great growth opportunities for us in utilizing our global sales network. Around a billion locks of our make and brands are presently installed around the world. Due to the steadily increasing need for security, locks are being upgraded on average three to four times during the lifetime of a building.

Through Group cross-trading we can offer our customers a complete range of products. This cross-trading is supported by a common database and a common intra-Group customer interface. By also taking advantage of our world-leading technologies developed jointly and then adapted to local needs, we can offer our customers products and systems with unique values.

Distribution is also undergoing a gradual change. There are two trends, more direct ways to market and more specialist distribution. Intermediate non-value-adding steps are disappearing, putting us closer to the users. Furthermore, with more sophisticated locking solutions and the need to satisfy particular customer demands, there are obvious benefits in distributors focusing on different users, e.g. on large or small companies or on private houses. Since distributors and manufacturers both add value in creating locking solutions, this increases the opportunity for us to jointly develop the total value-added chain.

Great opportunities for growth
Every day we see examples of how the demand for security and safety is increasing all over the world. The differences in security levels between countries are significant and we can still do a much better job in developing the market and meeting users’ demands for secure, safe and convenient locking solutions. For larger buildings the development of more intelligent and sophisticated systems that can provide an intelligent total opening has only just begun. This is the basis of our business idea and it gives us great potential for growth.

We have created a platform to build on. Acquisitions will continue but are less critical to our growth. Our organization is in better shape than ever and the potential for continued margin improvements is still considerable. We have entered the third level of our strategic development, i.e. increased focus on business development and adding value for our customers. The outlook remains strong and we can look forward to continued good development of volume and profit.

Stockholm, February 2003

Carl-Henric Svanberg
President & CEO

The strategy remains as Bo Dankis takes over
As Carl-Henric Svanberg becomes President and CEO at Ericsson from April 2003, he is succeeded by Bo Dankis. Bo Dankis, who was born in 1954 and has a Master of Science degree from Linköping Institute of Technology, has a long track record of successfully managing international companies. From abb Japan, he joined ASSA ABLOY France in 1997. Since 2000 he has served as Group Vice President and head of ASSA ABLOY South Europe.

“Our strategy and our goals remain the same,” Bo Dankis says. “We have created a worldwide presence. And we have come a long way in building a unified Group with common values and working methods. Now it is time to focus even more on our customers, adding value for them through increased security, safety and convenience. That way, we will be able to ensure continued growth and profitability.

“Historically we have produced technically outstanding products, but have not always done this in response to the directly expressed needs of our customers. We must develop a much better understanding of the true needs of the end-users of our products,” he says and concludes “I feel great confidence and enthusiasm for the role of leading ASSA ABLOY further.”