through continuous improvements
On 1 December 2005 I took on the position of President and CEO of ASSA ABLOY. During my first few months I have concentrated on visiting as many Group companies as possible. My first assessment is that the Group has great potential for the future, with experienced staff and a good position in the market.
Report on the year
The year 2005 was successful for ASSA ABLOY, with sales totaling SEK 27,802 M and with an EBIT that rose by 11 percent to a record figure of SEK 4,078 M. The year started relatively weak but sales improved continuously and organic growth reached 5 percent for the full year.
These figures reflect good demand on the US market which impacts both Americas and Global Technologies. ASSA ABLOY has generally strengthened its position through increased customer focus both within its traditional businesses and in segments of higher market growth such as electromechanical locks, automatic doors, access control and identification technology.
The Leverage & Growth program initiated in 2003 was concluded at the end of the year. The program has improved the efficiency and productivity of the Group with estimated annual savings of SEK 450 M. The program has improved return on capital employed (ROCE) to 15.9 percent, moving the Group towards its financial target of 20 percent ROCE by 2008.
ASSA ABLOY's largest business division, EMEA, achieved an organic growth of 3 percent. The year 2005 started slowly but improved as the year passed. The creation of united sales forces under the ASSA ABLOY brand name and the implementation of Lean manufacturing were initiated during the year. During 2005 R&D activity was increased with several innovative products in the pipeline. The profitability in EMEA was almost unchanged in 2005 despite the completion of the Leverage & Growth program, which indicates that more structural work remains to be done.
Americas had a successful year, with good growth of 5 percent and an improved level of profitability. The sales forces were merged under the ASSA ABLOY brand name. Intensified work directed towards the specification market was well received, with a steep increase in the number of quotations. The consolidation of manufacturing continued, especially in Mexico where the Group faced problems at the beginning of the year due to low demand. R&D efforts were further coordinated during the year, with increased output of innovative new products.
Asia Pacific did not live up to expectations, with only 2 percent growth and declining profitability. The low organic growth was mainly due to weak demand in the residential market in Australia and New Zealand. Sales forces were united under the ASSA ABLOY brand name in 2005. Manufacturing was further concentrated to China, and the volumes manufactured for other Group companies increased sharply. Profitability in Asia Pacific will remain at a somewhat lower level than in the other divisions because of the continuing increase of sales to other parts of the Group.
Global Technologies had a very successful year, with strong growth of 10 percent and improved profitability. The rapidly growing business area of ITG has been split into two parts, one focusing on electronic access control and the other on RFID (Radio-Frequency Identification) and ID management. ASSA ABLOY Hospitality's sales force was reorganized and parts of its manufacturing relocated, leading to good improvements in both growth and profitability. ASSA ABLOY Entrance Systems continued its good performance, particularly in the USA, and added new products and services through the acquisition of Doorman in the UK. From 1 January 2006 ASSA ABLOY Entrance Systems has become a separate division in order to maximize the great growth potential.
A lot of work to improve efficiency and exploit synergies within the Group remains for the years to come. One important step is to unite sales forces under the ASSA ABLOY brand name. The customer will meet one salesman offering a portfolio of products from several product brands. The Group is continuing to consolidate, relocate and outsource manufacturing, to coordinate Research & Development and to introduce shared administrative services.
Product development will be increasingly directed towards creating innovative products for market segments with higher growth, which include electromechanical lock solutions, automatic doors and security-door solutions as well as electronic access and identification technologies.
Customers are increasingly looking for total locking solutions that include ease of use and installation. ASSA ABLOY has therefore developed open standards to allow all our locks to integrate fully with the customer's systems.
ASSA ABLOY strives to add customer value through being close to the customer. Our efforts to lead the specification market through early involvement in the customer's selection of security solutions are a good example of this approach. The fast-growing service organization within ASSA ABLOY Entrance Systems is another.
The year showed good development and progress in many areas, which have improved ASSA ABLOY's foundation for continued success. This would not have been possible without the excellent professional work carried out by our employees. They have shown themselves willing and ready to change and meet the challenges of the future. They know that continuous improvements are what it takes to create success.
ASSA ABLOY is the largest company in our industry. We have the right people and the necessary competencies to continue to develop and strengthen our position.
ASSA ABLOY is a relatively young Group, created in 1994. The present Group has been formed through a large number of acquisitions, but has in recent years focused more on integrating, improving and renewing the various businesses and company cultures.
The future creation of shareholder value will come from a combination of profitable organic growth – based on the development of innovative new products and services, extended global market presence and continued improvements in efficiency – and selective acquisitions.
Stockholm, 9 February 2006
President and CEO of ASSA ABLOY