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      Other        
GROUP   Share contributed   Retained Minority  
SEK M Note capital capital Reserves earnings interests Total
Opening balance 1 January 2004 27 366 8,905 0 560 16 9,847
Translation differences for the year 28     -479   -2 -481
 
Transaction costs connected with convertible bond issue     -18       -18
Income/expenses reported directly to equity     -18 -479   -2 -499
 
Net income from income statement         2,349 7 2,356
Total income and expenses     -18 -479 2,349 5 1,857
 
Dividend for 2003 27       -457   -457
Acquisitions of shares of subsidiaries           6 6
Closing balance 31 December 2004 27 366 8 887 -479 2,452 27 11,253
 
Opening balance 1 January 2005 27 366 8 887 -479 2,452 27 11,253
Effect of changed accounting principle, IAS 39 28     4 -81   -77
Adjusted opening balance 1 January 2005   366 8 887 -475 2,371 27 11,176
 
Translation differences for the year       1,539   3 1,542
Changes in value of cash flow hedging instruments 28     -3     -3
Income/expenses reported directly to equity       1,536   3 1,539
 
Net income from income statement         2,608 5 2,613
Total income and expenses       1,536 2,608 8 4,152
 
Dividend for 2004 27       -951   -951
Acquisitions of shares of subsidiaries           36 36
Closing balance 31 December 2005 27 366 8,887 1,061 4,028 71 14, 413

          Unrestricted  
          shareholders'  
    Restricted shareholders' equity equity  
PARENT COMPANY   Share Reserve Premium Retained  
SEK M Note capital fund reserve earnings Total
Opening balance 1 January 2004 26, 27 366 645 8 260 2,472 11,743
Net income from income statement         3,869 3,869
Total income and expenses         3,869 3,869
 
Dividend for 2003 27       -457 -457
Closing balance 31 December 2004   366 645 8,260 5,883 15,154
 
Opening balance 1 January 2005   366 645 8,260 5,883 15,154
Group contributions net         -40 -40
Net income         715 715
Total income and expenses         675 675
 
Dividend for 2004 27       -951 -951
Transfer from premium reserve     8,260 -8,260    
Closing balance 31 December 2005 27 366 8,905 0 5,607 14,878

Page 67

ASSA ABLOY is exposed to a variety of financial risks through its international business operations.
Organization and activities
ASSA ABLOY'S Treasury Policy, which is reviewed annually by the Board of Directors, constitutes a framework of guidelines and regulations for the management of financial risks and financial activities.
ASSA ABLOY'S financial activities are coordinated centrally within the subsidiary ASSA ABLOY Treasury S.A. in Switzerland, which is the Group's internal bank. External financial transactions are conducted by the internal bank, which also handles transactions involving foreign currencies and interest rates. The internal bank achieves many economies of scale when borrowing funds, fixing interest rates and exchanging currency flows.
Currency risk
Currency risk affects ASSA ABLOY mainly through translation of capital employed and net debt, through translation of income in foreign subsidiaries, and through flow of goods between countries.
Translation exposure
The effect arising on translation of capital employed is limited by the fact that financing is largely done in local currency.
The capital structure in each country is optimized based on local legislation. So far as this constraint allows, the currency exposure and gearing per currency should reflect the overall exposure and gearing for the whole Group to limit the effect from movements in individual currencies. The internal bank uses currency derivatives to supply the appropriate funding and eliminate currency exposure.
The table 'Net debt by currency' below shows the use of currency forward contracts in association with funding, for the major currencies. The forward contracts are used to neutralize the exposure arising between net debt and internal needs.
Net debt by currency (in millions)

  Currency Forward External
Currency exposure contracts borrowing
USD 546 -9 555
EUR 278 -381 659
SEK 1,347 948 399
GBP 119 119 0
Other (SEK) 905 905 0
Total internal bank (SEK) 11,012   11,012
 
SEK      
External loans     366
Overdrafts     272
Cash and cash equivalents     -958
Long-term interest-bearing receivables     -71
Pension obligations     1,634
Accrued financial items     -15
Net debt     12,240
Exposure of Group earnings
A general strengthening of the Swedish krona in 2006 by one percent is calculated to have a negative impact of about SEK 265 M on Group sales and of about SEK 20 M on Group earnings.
Transaction exposure
Currency risk in the form of transaction exposure, or the relative values of exports and imports of goods, is limited in the Group.
From 2005 onwards, instead of hedging individual flows, the Group hedges a basket of flows with the aims of facilitating contract management and reducing administrative costs.
Forecast transaction flows by major currency for 2006 (imports + and exports –)

Currency Currency exposure (SEK M)
USD 372
EUR 216
CHF -254
GBP 257
Interest rate risk
Interest rate fluctuations have a direct impact on ASSA ABLOY's net interest expense, but there is also an indirect effect on the Group's operating income as a result of the impact of interest rates on the economy as a whole.
The internal bank is responsible for identifying and managing the Group's interest rate exposure. Interest duration in the Group is generally short. At year-end, the average interest rate duration, excluding pension obligations, was about 16 months.
Effective interest rate by currency, 31 December 2005

Currency Interest rate
USD 4.5%
EUR 4.4%
SEK* 5.0%
GBP 4.3%
Average for the Group 4.6%
* The SEK figure includes the effects of interest rate swaps.
External funding and interest rate swap
The table 'External funding / net debt' on page 64 gives an overview of interest rate swaps associated with debt. The interest-rate derivatives are structured to have durations matching the underlying debt securities. The internal bank swaps parts of the EMTN loan in EUR and the Private Placement program in USD to floating rates.
Sensitivity analysis
A rise/fall of 1 percentage point in market rates is calculated to have a negative/positive impact in the form of higher/
lower interest expense of SEK 65 M / SEK 69 M for the year 2006.