The Annual Report of ASSA ABLOY ab (publ.) [Corporate Organization number 556059-3575] contains the Group’s accounts for the financial year 1 January – 31 December 2002.

Ownership ASSA ABLOY’S principal shareholders are Wärtsilä Corporation (7.6 percent of the capital and 22.8 percent of the votes), Investment ab Latour/SäkI (8.2 percent of the capital and 17.4 percent of the votes) and Melker Schörling (3.3 percent of the capital and 4.8 percent of the votes). They are represented on the Board of Directors by, respectively, Georg Ehrnrooth and Göran Ehrnrooth; Gustaf Douglas; and Melker Schörling.

Duties of the Board and Group Management
The Board determines the Group’s overall strategy and the acquisition of companies and real estate. In other respects, the Board is responsible for the organization and administration of the Group in accordance with the Swedish Companies Act. Working procedures in compliance with the Act were established in 1998 and are reviewed annually.

The Board consists of seven members, two employee representatives and two deputy employee representatives. The Board meets on not less than four occasions a year, of which one is a meeting combined with a visit and an in-depth review of a country in which the company has operations. During 2002, seven Board meetings were held.

ASSA ABLOY’S auditor participates in the Board’s annual year-end meeting.

Group Management consists of 17 people. Geographical responsibilities are allocated within Group Management to ensure rapid and short decisionmaking paths. The Group endeavors to achieve a non-hierarchical and simple organizational structure.

In the annual budget process, the Board and Group Management establish business frameworks based on improvements on previous years, which also lay the basis for a high degree of decentralization of the Group’s operations. The common financial and accounting policy establishes the financial control and monitoring framework.

ASSA ABLOY’S Board of Directors decided during the year to form an Audit Committee consisting of ASSA ABLOY Board members Melker Schörling (Chairman), Gustaf Douglas and Per- Olof Eriksson, and a Remuneration Committee consisting of ASSA ABLOY Board members Georg Ehrnrooth (Chairman), Melker Schörling and Sven-Christer Nilsson. The aim of these committees is to assist the Board in giving deeper and more efficient consideration to these matters. In addition, starting with the 2003 Annual General Meeting, the major shareholders will recommend a Nomination Committee with the task of preparing for the selection of Directors, the setting of Directors’ remuneration and matters pertaining thereto before forthcoming General meetings. Up to the 2003 Annual General Meeting the tasks have been fulfilled by Georg Ehrnrooth, Gustaf Douglas and Melker Schörling.

Important events
Continued establishment of global platform and expanded product portfolio. The first stage in ASSA ABLOY’S growth strategy is to establish local leading positions throughout the world, to create a global platform and to expand the product portfolio.

Acquisitions made during 2002. The acquisitions made during the year represent significant additions to the Group and add both geographical and product strengths. The companies acquired during 2002 have total sales, pro forma, of sek 2.3 billion, of which sek 1.1 billion has been consolidated. The total acquisition price was sek 3.3 billion. Goodwill amounts to sek 2.6 billion, most of which is tax-deductible.

Acquisition of a new segment in the product portfolio through Besam. ASSA ABLOY’S strategy is based on creating security solutions that prevent unauthorized ingress while permitting fast, efficient evacuation and being easy and convenient to use. Door automatics form a natural component of such solutions. These products and systems are steadily growing in importance in society but up to now have formed only a limited part of the Group’s product portfolio.

Besam is the world leader in the field of door automation. The product range consists of automatic door operators for swing doors, sliding doors and revolving doors. The company’s market share in West Europe and the USA for the different product groups varies between 15 percent and 30 percent. The company is represented in more than 60 countries and has its own subsidiaries in 20 of them. Service and maintenance form an important and highly profitable part of the business and account for more than 30 percent of sales. It is only in recent years that the company has started to focus on this side of the business. Growth is currently running at more than 10 percent and there is substantial potential for development. Besam holds a unique position by virtue of its strong brand, its large installed base and its worldwide organization and aftermarket service. The head office and much of the production are located in Landskrona in Sweden. There are also manufacturing plants in Germany and the USA. There are about 1,400 employees, of which 310 are in Sweden. The market for door automatics has grown historically at 7-10 percent a year. In the second half of 2002 Besam’s sales totaled around sek 1,000 m, after the effect of the weak dollar, with a profit margin of over 10 percent. The acquisition price was sek 3,050 m for a debt-free company. The acquisition generated goodwill of sek 2,484 m, which it is planned to amortize over 20 years. The acquisition is expected to contribute to earnings per share from 2003 and to generate positive cash flow from the outset. The company is consolidated from 1 July 2002.

To finance the acquisition of Besam, the Board of Directors of ASSA ABLOY ab decided at the Board meeting on 30 May 2002 to increase the company’s share capital by an issue of 10,000,000 new shares of Series b, in line with authority given at the Annual General Meeting. The issue price was sek 126 per share. The issue was made by private placement to a number of Swedish and foreign institutional investors. The issue provided the company with sek 1.26 billion of capital before costs.

Acquisitions in New Markets. Poli Cerraduras, the market leader in Chile, was acquired on 1 September 2002. The company has sales of sek 75 m and 300 employees. The acquisition of Poli strengthens ASSA ABLOY’S position in South America and will contribute to earnings per share from the outset. codas Electronica, HID’s distributor in Argentina, was acquired on 1 August 2002.

uba Almadis, for many years Assa’s distributor in Lithuania, was acquired on 1 October. Radikovic in Slovenia, acquired on 1 October, is focused primarily on high-security solutions and is a distributor for effeff. Union Locks Ltd in Kenya was acquired on 1 July 2002. On 1 December 2002 the outstanding minority share in Mul-TLock in Israel was acquired.

Acquisitions of distributors in mature markets. vema, which was acquired on 1 April 2002, is market leader in the electromechanical field in the Netherlands. vema is a distributor for effeff’s product range. The company has annual sales of eur 9 m and shows high profitability. The acquisition will contribute to earnings per share from the outset.

INITIAL, since renamed Abloy France, was acquired on 1 April and specializes in electromechanical locking solutions, based on its position as Abloy’s distributor in France for many years. The company has annual sales of eur 3.3 m with stable profitability and growth.

Assets of the German company Melchert were acquired at book value. The company has annual sales of about eur 8 m and for the last ten years has been Assa Ruko GmbH’s partner in marketing security packages for locksmiths.

Acquisitions made in 2003. Interlock Holding ag in Switzerland, which was acquired on 1 January 2003, manufactures access-control cards with a wide range of technical applications, including contactless cards for access-control, time-and-attendance control and the identification industry. The company employs 70 people and has annual sales of chf 12.6 m. The acquisition strengthens ASSA ABLOY’S position in electronic identification. For customers in Europe the acquisition will provide a wider choice of card-based access-control solutions and stronger support.

Integration of acquired companies. ASSA ABLOY took part in the Volvo Ocean Race to support the process of integrating the more than 100 companies that it had acquired around the world, and to develop and strengthen ASSA ABLOY’S identity internationally. The objective was to unite all the companies under a single vision and generate common values and work ethics. ASSA ABLOY’S internal Attitude Survey showed that the integration project has greatly increased awareness about ASSA ABLOY within the Group. The increase is especially great among production workers. 57 percent of ASSA ABLOY’S employees believe that their knowledge of ASSA ABLOY’S values, working methods and management philosophy has increased during the past year. The results also show that employees have great pride in their local company and that their positive attitude to ASSA ABLOY has increased. 75 percent say that they have great pride in their local company and 69 percent have a ‘positive’ or ‘very positive’ attitude to ASSA ABLOY. The Volvo Ocean Race project has also launched ASSA ABLOY as ‘The world’s leading lock company’ all round the world. ASSA ABLOY’S total exposure in the media is estimated to have been worth more than usd 60 m.

The Volvo Ocean Race project has clearly speeded up and strengthened the Group’s will to work together to develop Group strength. A number of new joint Group projects to leverage possible synergy effects in Research & Development, purchasing, production and sales have been initiated during the year. Developing the market towards ‘more intelligent locks’ and ‘total solutions’ requires coordinated investment in r&d, which is achieved through the Group’s Product Council. Last year ASSA ABLOY’S CLIQ concept was launched as a successful example of such a joint project. In order to utilize ASSA ABLOY’S economic advantages of joint production of components and products, more and more production is being moved to the Group’s lowcost countries, for example in eastern Europe, Mexico and China. The Group’s purchasing of raw materials, components and finished products is continually coordinated by the Group’s Purchasing Council, which has generated good results during the year. ASSA ABLOY has also worked for some while to introduce a Group-wide model for stock control, which has succeeded in freeing sek 340 m of inventory in the past 24 months.

Benchmarking. Continuous benchmarking between the various units has continued to produce results in the form of higher productivity and further margin improvements in many companies. The Group’s operating margin before goodwill amortization increased to 14.2 percent, even though the acquisitions of Besam and TESA produced lower margins than other Group companies initially. Accelerating organic growth through increased focus on the customer. The Group is now ready to embark on the third stage of its development strategy, to accelerate organic growth by increasing focus on the customer. Security requirements are increasing throughout the world. The level of security varies greatly from country to country, and ASSA ABLOY has an excellent business opportunity to drive the development of highsecurity technology through increased understanding of individual customers’ needs and better education of the market about security.

The Group’s worldwide sales network is a source of great strength. Through increased cross-selling of the Group’s broad and comprehensive product portfolio, the Group can strengthen its competitiveness and meet customers’ requirements better. The distribution process is currently undergoing change. Two trends can be detected: towards more direct selling to the market, and towards more specialist distribution. 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.

ASSA ABLOY’S organic growth for 2002 amounted to 2 percent, which should be compared with the 2-3 percent above gnp growth judged to be the normal rate of growth for the industry over a full business cycle. The weak growth seen in 2002 is explained in part by a weak economy in several major markets and in part by the generally low rate of inflation.

Comments on the income statement
Group sales totaled sek 25,396.9 m (22,510.0). This is an increase of 13 percent compared with 2001. In local currencies the increase amounted to 17 percent, comprising organic growth of 2 percent (3) for comparable units, while acquired units accounted for 15 percent of the increase in volume.

Earnings before interest, tax, depreciation and amortization (ebitda) amounted to sek 4,545.0 m (4,019.9). This was an increase of 13 percent compared with 2001. The increase is primarily due to improvements in operational units and to acquisitions.

The gross margin, defined as ebitda in relation to sales, was 17.9 percent (17.9). The unchanged margin is due to the lower margins of the newly acquired units.

The Group’s operating income before goodwill amortization amounted to sek 3,595.0 m (3,159.2), an increase of 14 percent. The operating margin before goodwill amortization (EBITA) was 14.2 percent (14.0). Goodwill amortization amounted to sek 957.1 m (860.4). The increase is attributable to acquisitions during 2002 and 2001.

Consolidated income before tax and non-recurring items amounted to sek 2,015.0 m (1,641.6). This represents an increase of 23 percent compared with the preceding year. In translating the income statements of subsidiaries, foreign exchange effects had a negative impact of sek 88 m (42) on income before tax.

Profit margin, defined as income before tax and non-recurring items in relation to sales, was 7.9 percent (7.3). The Group’s tax charge totaled sek 689.1 m (507.4), corresponding to an effective tax rate of 34.2 percent (34.4) in relation to income before tax. Net income for the year amounted to sek 1,269.9 m (948.6). The Parent Company’s income before tax amounted to sek –24.8 m (430.6).

Comments on the cash flow analysis
The consolidated operating cash flow amounted to sek 3,524.7 m (2,338.4), equivalent to 175 percent (142) of income before tax. Cash flow from operating activities before interest and tax totaled sek 4,539.3 m (4,062.8), an increase of 12 percent over the previous year. Projects to simplify flows and reduce working capital are contributing to the strong cash flow, and there is significant potential for further improvements.

Capital expenditure on tangible fixed assets, less sales of tangible fixed assets, amounted to sek 838.9 m (829.9), which corresponded to 88 percent (96) of depreciation of tangible fixed assets applicable to the financial year.

Total purchase price for investments in subsidiaries amounted to sek 3,335.4 m (6,979.6). Acquired net debt totaled sek 92.3 m (82.2). The acquisitions carried out in 2002 were financed by a new issue, existing borrowings and internally generated cash flow.

The dividend to shareholders for the 2001 financial year was sek 353.8 m (317.8), which represents sek 1.00 per share.

The Parent Company’s cash flow amounted to sek 141.0 m (-357.9).

Comments on the balance sheet
Accounts receivable amounted to sek 4,241.5 m (4,338.5), corresponding to 16.7 percent (19.3) of sales. Inventories amounted to sek 3,595.0 m (3,812.0), which corresponds to 14.2 percent (16.9) of sales. Intangible fixed assets amounted to sek 16,385.8 m (16,557.8). Goodwill on acquisitions of sek 2,629.3 m were added during the year. A valuation model based on discounted future cash flow is used for regular reassessment of the possible need to write down goodwill. This has not resulted in any write-down during the year.

Financing
Cash and cash equivalents amounted to sek 1,408.0 m (1,418.4). Cash and cash equivalents are invested in banks with high credit ratings. Net debt amounted to sek 13,988.9 m (15,534.2), of which sek 1,023.3 m (1,093.0) consisted of pension liabilities. In spite of the year’s acquisitions, net debt fell. The reduction was due primarily to the strong operating cash flow, the new issue, and positive exchange rate effects.

The Group’s long-term financing consists mainly of a Multi-Currency Revolving Credit (mrcf) agreement for a maximum of eur 825 m (1,200), an emtn program for a maximum of eur 1,500 m (1,500), a Nordic mtn program for sek 3,000 m (2,000) and a Swedish commercial paper program for sek 5,000 m (3,000). At year-end the emtn program had been utilized for sek 5,494 m, the commercial paper program for sek 3,735 m, the Nordic mtn program for sek 1,831 m and the mrcf agreement for sek 1,313 m. The interest-coverage ratio, defined as income before taxes, plus net interest and non-recurring items, divided by net interest, was 3.9 (3.5).

Periods for fixed-interest-rate borrowings are generally short, averaging less than one year. This is partly because Group revenues largely follow the trends in each country, and partly due to the strong cash flow.

Shareholders’ equity totaled sek 12,381.2 m (11,845.6). The equity ratio was 38.2 percent (35.6). The net debt / equity ratio was 1.13 (1.31).

Ratings
Standard & Poor’s has assigned an ‘a-minus’ long-term and an ‘a-2’ short-term corporate credit rating to ASSA ABLOY. The Swedish commercial paper program has been rated ‘k1’. The ratings reflect the Group's strong position on the stable lock market, its geographically diverse earnings base, its strong cash flow and the company’s financial profile.

Personnel
The average number of employees was 28,754 (24,211). The increase was mainly due to the acquisitions. The Group’s total wage, salary and other remuneration payments, including holiday pay but excluding social welfare costs, amounted to sek 6,701.2 m (5,740.9).

The average number of employees in the Parent Company was 37 (34).

Environmental impact
Four of the ASSA ABLOY Group’s subsidiaries in Sweden carry out permitted business activities in accordance with environmental regulations. The Group’s permitted and registered activities affect the external environment chiefly through the subsidiaries Assa AB, Assa Industri ab, ab fas Låsfabrik and fix ab. The companies operate machine shops and foundries and associated surface-coating plants which have an impact on the external environment through the discharge of water and air.

The subsidiaries Assa AB, Assa Industri ab, ab fas Låsfabrik and fix ab are actively addressing environmental questions, and are certified in accordance with iso 14001.

Legal disputes
ASSA ABLOY’S dispute regarding VingCard’s liability to pay damages to a development company in Texas, for which sek 166 m was reserved in the 2001 accounts, has been finally decided in line with the earlier judgment.

However, another company, Ibertech, has since sued VingCard on the grounds of the same contractual obligations. Settlement negotiations are in hand and it is still too early to judge the final outcome of this dispute. No reservation has therefore been made in the consolidated balance sheet. In the 2001 Annual Report ASSA ABLOY reported a dispute in which the former owner of Mul-TLock was claiming a sum of about usd 45 m. After ASSA ABLOY won an important interim court judgment in Tel Aviv, the parties have come to a settlement without significant net cost for ASSA ABLOY.

Accounting principles
The new recommendations of the Swedish Financial Accounting Standards Council, which came into force on 1 January 2002, have been adopted in this Report. This has not resulted in adjustment of figures for previously reported periods. In all other respects accounting principles are unchanged from previous years.

Outlook for 2003
ASSA ABLOY’S development prospects are substantial. The Group’s strong position, security-driven growth and potential for continued rationalization as well as the ongoing consolidation of the lock industry create opportunities for continued good growth and profit development.

Proposed disposition of earnings
As shown in the consolidated balance sheet, the Group’s unrestricted equity amounts to sek 1,672.4 m (2,200.6). No transfer to the Group’s restricted equity is required.

The following unappropriated earnings are available for disposition by the shareholders at the Annual General Meeting:

Net income for the year: sek -26.4 m
Unappropriated earnings brought forward: sek 3,394.6 m
Total: sek 3,368.2 m

The Board of Directors and the President propose that a dividend of sek 1.25 per share, a maximum total of sek 457.4 m, be distributed to shareholders and that the remainder be carried forward to the new financial year.

 

	Stockholm, 6 February 2003
Georg Ehrnrooth Chairman	Melker Schörling Vice Chairman	Gustaf Douglas
Per-Olof Eriksson	Göran Ehrnrooth	Sven-Christer Nilsson
	Carl-Henric Svanberg President
Mats Persson Employee representative		Gösta Johnsson Employee representative
	Our audit report was issued on 7 February 2003
	PricewaterhouseCoopers ab
	Anders Lundin Authorized Public Accountant