ASSA ABLOY

Annual Report (ESEF) • Mar 7, 2022

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ASSA ABLOY | ANNUAL REPORT 2021 Contents Who we are How we create value How we operate What we offer Financial statements Introduction ....................................................................................................... 1 The year in brief ................................................................................................2 Statement from our CEO .......................................................................... 4 Who we are ........................................................................................................ 6 The global leader in access solutions ................................... 6 ASSA ABLOY in your daily life .................................................. 8 How we create value .................................................................... 10 Market and trends .................................................................... 10 Our value creation business model ....................................12 Sustainability ...............................................................................14 Strategic overview ........................................................................ 17 Strategic activities in 2021 ................................................... 18 Growth through customer relevance ............................... 20 Product leadership through innovation .......................... 24 Cost-efficiency in everything we do .................................. 28 Evolution through people ..................................................... 31 Divisions overview ........................................................................ 34 Opening Solutions EMEIA ...................................................... 36 Opening Solutions Americas ............................................... 37 Opening Solutions Asia Pacific ............................................ 38 Global Technologies – HID Global ...................................... 39 Global Technologies – Global Solutions ........................... 40 Entrance Systems ..................................................................... 41 Report of the Board of Directors ............................................. 42 Significant risks and risk management ............................. 46 Corporate governance ........................................................... 49 Board of Directors ................................................................ 54 Executive Team ...................................................................... 56 Internal control – financial reporting ............................ 59 Remuneration guidelines for senior executives ........... 60 Financial statements .................................................................... 62 Notes ............................................................................................. 74 Five years in summary ............................................................. 99 Comments on five years in summary ............................. 100 Definitions of key ratios ...................................................... 101 Board of Directors and CEO assurance .......................... 102 Auditor’s report ..................................................................... 103 Shareholder information ........................................................ 108 Investment story .................................................................... 108 The ASSA ABLOY share ........................................................ 109 Information for shareholders ............................................ 112 Financial calendar and contact details .......................... 113 We are the global leader in access solutions. We are 51,000 employees in more than 70 countries around the world. In an ever-changing world, we develop new products and solutions so that people feel safe and secure and experience a more open world. We are a global company with a uniquely decentralized business model. We have about 1,000 sites including 130 production facilities and 100 R&D sites. Our strategic objectives guide our daily operations. We offer a complete range of innovative access solutions of mechanical and electromechanical locks, cylinders, keys, tags, security doors, identification products and automated entrances, delivered by our five divisions. Who we are How we create value How we operate What we offer Accelerating profitable growth As markets gradually moved out of lockdowns, we shifted focus to activi- ties that accelerate our long-term growth and profitability. Some of the activities include upgrading the installed base, leading the transition from mechanical to electromechanical access solutions, growing our recurring revenues, growing in emerging markets and creating sustainable solutions through innovation. We also continued with our acquisition strategy. These initiatives will strengthen our position as the leading access solution group in the industry. ANNUAL REPORT 2021 | ASSA ABLOY The year in brief SALES AND OPERATING INCOME (EBIT) 1 EARNINGS PER SHARE 1,2 Strong recovery • Sales increased by 8% to SEK 95,007 M (87,649) as many markets recovered strongly after Covid-restrictions eased up. • Operating income increased by 19% to SEK 14,181 M (11,916) with an operating margin of 14.9% (13.6). Acquisitions during the year • In total, 13 acquisitions were completed, and two businesses were divested, contributing to net acquired sales growth of 2% for the year. • The acquisition of the Hardware and Home Improvement busi- ness unit of Spectrum Brands was announced. This will add about 15% to sales and is an important strategic step in developing our residential business in North America. The acquisition is subject to regulatory approval and customary closing conditions. Large number of new products • Investments in product development continued and contributed to the launch of more than 400 products. 22% (25) of sales were generated by products launched in the last three years. Sustainability program making progress • The implementation of the 2025 sustainability program contin- ued and resulted in improved sustainability performance across the Group versus the base year 2019. • ASSA ABLOY became a member of the Dow Jones Sustainability Index Europe. The index tracks the performance of the top 20% of the 600 largest European companies in the S&P Global Broad Market IndexSM that lead the field in terms of sustainability. Key figures 2020 2021 Change Sales, SEK M 87,649 95,007 +8% of which: Organic growth, % -8 +11 of which: Acquired growth, net total, % 4 +2 of which: Exchange rate effects, % -3 -5 Operating income (EBIT), SEK M 1 11,916 14,181 +19% Operating margin, % 1 13.6 14.9 Income before tax (EBT), SEK M 1 11,133 13,538 +22% Operating cash flow, SEK M 14,560 13,265 -9% Return on capital employed 13.0 15.2 Dividend, SEK/share 2 3.90 4.20 8% 1 Excluding items affecting comparability. 2 As proposed by the Board of Directors. The year in brief 1 Earnings per share has been restated due to the 3:1 share split in 2015. 2 Excluding items affecting comparability. SEK 0 2 4 6 8 10 21201918171615141312 1 Excluding items affecting comparability. 20,000 40,000 60,000 80,000 100,000 21201918171615141312 5,000 7,500 10,000 12,500 15,000 Sales, SEK M EBIT, SEK M Sales Operating income (EBIT) Sales recovered strongly and increased by 8% in 2021 and we shifted our focus to activities that accelerate our long-term profit- able growth. 2 ASSA ABLOY | ANNUAL REPORT 2021 The injury rate decreased by 13% and has decreased by 20% since 2019. We have worked systematically throughout the organization with actions and awareness campaigns to reduce the injury rate. In 2021, our greenhouse gas emissions increased by 2% versus 2020 due to the higher activity level. However, compared to the base year 2019, the emissions have decreased by 17% and we are on track to achieve the target for 2025 of a 25% emission reduction in absolute terms versus 2019. Injury rate Carbon footprint absolute TARGET 2021 VS. 2019 (BASE YEAR) –33% –25% Goals and outcomes We have set ambitious but achievable financial and sustainability goals. The financial targets are set to balance growth with a return rate that can create substantial value. During the ten years prior to the pandemic, we grew by The year in brief Sales grew by 8% in 2021 driven by record-high organic growth as pandemic restrictions were eased and the activity levels improved in many of our markets. Acquired growth contributed with net 2% in sales, while currency fluctuations had a negative effect on sales of -5%. The adjusted operating margin was 14.9 (13.6), reflecting a strong recovery as many markets opened up from restric- tions and lockdowns. The margin was diluted by our acquisitions and dilutions by 70bps, higher raw material cost and other inflationary cost items. Annual growth through a combination of organic and acquired growth Operating margin 1 1 Excluding items affecting comparability. 1 Number of injuries per million hours worked. OVER A BUSINESS CYCLE 10% 16–17% SEK M 0 20,000 40,000 60,000 80,000 100,000 21201918171615141312 % 10 12 14 16 18 20 21201918171615141312 more than 9% annually with an adjusted operating margin of more than 16%. The sustainability targets set for 2025 are one step on the way for us to become net zero in 2050. 0 1 2 3 212019 Injury rate 1 0 100 200 300 212019 ’000 tons 3 ANNUAL REPORT 2021 | ASSA ABLOY Increased focus on accelerating growth Sales recovered strongly in 2021 and increased by 8% to SEK 95,007 M, as our core markets gradually opened up during the year. The organic sales grew very strongly by 11%, net acquired growth was 2% and we had a negative currency ef- fect of -5%. Both demand and operations were impacted by Covid-19 and our operations were also affected by material and component shortages. Another challenge during the year was the significantly higher raw material costs. In some markets the price of materials increased by more than 200%. This created a big challenge, but we were able to offset most of the effect through operational efficiency measures and strong price adjustments. As a result, the higher raw material cost im- pacted the operating margin by less than 50bps. Despite all the operational challenges, total operating profit grew 19% to SEK 14,181 (11,916) M and the adjusted operating margin increased 1.3 pts to 14.9%. Operating cash flow was strong, at SEK 13,265 (14,560) M, despite higher working capital. Divisional development Demand returned gradually during the year and adjusted for currency and acquisitions, sales were back to or above pre-pandemic levels in EMEIA, Americas and Entrance Systems by mid-2021. The recovery was strong in EMEIA where organic sales grew 13% during the year. This followed continued solid demand in the residential segment and a strong recovery in non-residential demand. The Americas division grew 14% organically during 2021 with continued strong demand in Latin America and the res- idential segment in the US, while the recovery of the com- mercial and institutional demand drove our growth towards the second half of the year. Raw material costs increased the most in the US, but due to strong price management and cost actions, most of the inflation pressure was offset. Despite Asia Pacific continuing to be impacted by lock- downs and restrictions throughout most of the year and the building industry slowdown in China, we managed to report positive organic sales growth with improved profitability. In Global Technologies, volumes also remained below pre- pandemic levels, particularly in the travel-related verticals. Component shortages also impacted sales negatively in the second half of the year. It is, however, encouraging to see that the demand is gradually increasing and that our mobile key solutions are getting more traction. This is a trend we expect to continue. Finally, Entrance Systems performed very strongly in 2021, growing organically by 14% in combination with historically high margins. The new organization which was implemented in 2020 and the successful integration of agta record con- tributed to the positive performance. Accelerating profitable growth Our strategy, with its four strategic objectives, our decentral- ized organization and our focus on protecting the bottom line and cash flow have, with strong operational execution, led us successfully through the pandemic. As mobility gradually increased, we shifted our focus to activities that accelerate our long-term profitable growth. An important driver is how we proactively are upgrading the installed mechanical base to more value-adding electrome- chanical products and solutions with accelerated investments in product development as a strong enabler. R&D accounted for 4% of our sales and resulted in more than 400 new product launches in 2021. Organic sales growth from our electrome- chanical products was very strong, and this also provides op- portunities to grow our recurring revenue from licenses and software. We have seen a strong acceleration of our software as a service business over recent years and it now makes up around 5% of total sales. We are still at the beginning of the transformation to smarter and even more user-friendly access solutions and there are almost unlimited opportunities. The increased focus on sustainable buildings and our investments in a sustainable product offering are other important growth drivers. In 2021, ‘green’ specification sales grew faster than traditional specification sales, and this trend will further accelerate. We also have many untapped opportunities in the emerg- ing markets. All divisions have specific strategies in place to increase our presence and growth in these markets. In a world with more connected products, there is a greater need for cross-divisional collaboration. Our ‘Together We’ program strives to realize more synergies across entities, and it is good to see how this collaboration has resulted in new products and sales growth. The Linus smart lock in the EMEIA region and the Incedo access control platform are two good examples of strong internal collaboration. Acquisitions – an important driver for growth In addition to ongoing activities to accelerate our organic growth, we continue to deliver on our successful acqui- sition strategy. During 2021, we finalized 13 acquisi- tions, which combined contributed to 4% of our sales. In particular, we announced the acquisition of the Hardware and Home Improvement business unit (HHI) of Spectrum Demand gradually strengthened in 2021, after a very challenging 2020 due to the outbreak of the pan- demic. While the market conditions improved, significantly higher material costs, material shortages and logistical challenges put pressure on our operations. These challenges were addressed thanks to strong execution by our experienced and decentralized operational teams, and we can put a year be- hind us in which we report strong organic growth and operating profit improvements. During the year, we increased the focus on growth-accelerating initiatives. We also announced the acquisition of the Hardware and Home Improvement business unit of Spectrum Brands, which will enable ASSA ABLOY to expand into the residential segment in North America. MSEK 95,007 total sales MSEK 700 efficiency savings from manufacturing program MSEK 14,181 operating result Statement from our CEO 4 ASSA ABLOY | ANNUAL REPORT 2021 Brands, which is a leading provider of security, plumbing, and builders’ hardware products to the North American residential segment. HHI will bring strong, well-known brands and high quality, innovative products to our resi- dential portfolio in North America. Sustainability Our work with sustainability is an avenue to opportunities that both accelerates our sales and reduces our emission footprint and operational costs. We are making good pro- gress on our 2025 sustainability program. Our health and safety record continues to improve and we are also on track to deliver significant absolute emission reductions. Further emission reductions will be achieved through a combina- tion of energy efficiency improvements at our sites, consoli- dation of our manufacturing footprint and a move to more renewable energy. In our product development processes, we use our Sustainability Compass, which improves product performance and reduces the environmental footprint of our new products and solutions. Sustainability is embedded in our strategy and guides us in everything we do. Material shortages, inflation and the Covid-19 pandemic have been significant challenges in 2021 and affected our daily lives to a large degree, but they have not changed the fundamental drivers of our industry. Instead, we see that many businesses and individuals are shifting more and more to electromechanical products and solutions. We will there- fore continue to target 10% annual growth combined with an operating margin of 16-17% over a business cycle. Thanks to the efforts of our employees and our loyal customers, our position as the leader of access solutions has strengthened. We look forward to launching many new products and solutions to help people feel safe, secure and experience a more open world. Thank you! Stockholm, 2 March 2022 Nico Delvaux President and CEO Statement from our CEO 5 ANNUAL REPORT 2021 | ASSA ABLOY Who we are The global leader in access solutions The ASSA ABLOY Group is the global leader in access solutions. Every day, we help billions of people to experience a more open world with innovative solutions that enable safe, secure and convenient access to physical and digital places. Access solutions for every need We offer a complete range of access solutions with market-leading positions in areas such as mechanical and electromechanical locking, access control, identification technology, entrance automation, security doors, hotel security and mobile access. Our offerings are delivered both separately and together as part of a full-service access solution. Strong brands Our brands play an important role in creating trust, loyalty and differentia- tion. We use a combination of master, endorsed and standalone brands to reach all our audiences. ASSA ABLOY is our employer brand and main commercial brand, HID covers secure identities and access management, and Yale covers residential products and services. Regional divisions Global divisions Opening Solutions EMEIA Global Technologies Opening Solutions Americas Entrance Systems Opening Solutions Asia Pacific A decentralized organization We are a global company with a uniquely decentralized business model that enables us to quickly meet and deliver on customer needs. Our local business units know local standards inside-out and optimize resources and products according to the local conditions and demand. The regional divisions manufacture and sell mechanical and electromechanical locks, digital door locks, cylinders and secu- rity doors, adapted to the local market’s standards and security requirements. The global divisions manufacture and sell access solutions, identification products and entrance automation in the global market. Read more on pages 34–41. Group brand and employer brand Master brands Service Solutions Entrance automation Openings Identities Master key systems Access control Authentications Data and analytics 6 ASSA ABLOY | ANNUAL REPORT 2021 39% Europe Sales 9% Asia Sales 1% Africa Sales 4% Oceania Sales 44% North America Sales 3% South America Sales •• Country sites and larger locations In total, we have about 1,000 sites, comprising more than 100 R&D sites and 130 production facilities. The other sites are distribution centers and offices. ASSA ABLOY has operations in more than 70 countries. Global presence Electromechanical on the rise The Group sees fast-growing demand for electrome- chanical products and solutions. Since 2011 these have increased from 22% to 30% of Group sales. Mechanical products continue to grow, but electro- mechanical products are growing considerably faster. Sales by product group Customer split New construction/Aftermarket Together we create access 51,000 employees 6% of our employees work in R&D 9,500 patents >70 countries  Mechanical locks, lock systems and fittings, 23% Entrance automation, 31% Electromechanical and electronic locks, 30% Security doors and hardware, 16%  Commercial, 75% Residential, 25% Commercial, 75% Residential, 25% New construction, 33% Aftermarket, 67%  New constuction, 33% Aftermarket, 67% 7 ANNUAL REPORT 2021 | ASSA ABLOY The global leader in access solutions | Who we are ASSA ABLOY in your daily life We are part of people’s everyday life all over the world! We provide access solutions from the perimeter to the core of buildings. You will find ASSA ABLOY’s products and solutions in your home, at work or school, when you shop or travel. Some products are very visible to you like keys, locks and doors, while other products are embedded in solutions like e-passports and identity solutions. Enterprise 1 Automatic sliding doors are particularly suitable for entrances and indoor areas with large pedestrian flows. Automatic sliding doors allow you to enter a building conveniently without manually open doors. 2 Inside the building, there are mechanical and electromechanical key systems, software and solutions for access control. There are also systems and solutions for secure issuance and management of identities with specific security requirements, such as staff ID cards. Positioning solutions provide a secure and digital solution to address social distancing, workplace optimization and contact tracing to locate, notify and isolate if employee health is compromised. 3 ASSA ABLOY has a complete offering for service, maintenance and upgrading of automatic entrances and loading docks to enable a more seamless customer experience. 4 Bollards and other safety devices protect pedestrians from motor vehicles. The various models can be permanently installed, portable or retractable, and they can be integrated in security and alarm systems. 5 Mobile keys, physical access control systems including readers and controllers to manage access in the building. 6 Electromechanical locks and other hardware such as security-rated doors, frames and delivery lockers work together with physical access control systems, including readers and controllers to manage access and package deliveries. 4 1 2 10 9 12 11 3 8 7 Enterprise Hotel/retail Multi-family building Who we are | ASSA ABLOY in your daily life Multi-family building 7 Complete solutions for multi-famility buildings, ranging from mechanical locks to sophisticated, customized access control systems. Digital door locks can easily be opened with a code or a smartphone app. The app enables controlling the lock remotely to let in authorized people and to, for example, open the door for service and deliveries directly into the home. 8 High-security fences and gates protect against unauthorized entry. 8 ASSA ABLOY | ANNUAL REPORT 2021 Hotel/retail 9 Complete access solutions for retail premises and hotels. For the hospitality industry, our offering includes mobile access solutions, access management systems, staff safety, in-room safes and energy control. 10 With mobile access, hotel guests can use a smartphone to directly book a room. Secure Seos technology then sends a digital key to the guest’s mobile phone, enabling the guest to bypass the front desk and go directly to the room and unlock the door. The solution is connected to the hotel’s booking and security systems, and the digital key will be deleted at check-out. 6 1 5 Outside Inside Door closersDelivery lockers Hinges Air louvers Key pads, push but- tons, key switches, touch bars Electric strikes Panic bars Kick plates Door operators Floor closers Wireless locks Cabinet locks Glass door hardware Power supplies Mechanical & electro-mechanical locks & keys Steel doors & frames 11 Revolving doors create spacious entrances and are ideal when climate control is a priority. Advanced sensor technology ensures functionality in the door’s features, while conveniently controlling safe traffic flows and providing superior separation of indoor and outdoor climates. Side doors are added for increased accessibility and rapid evacuation. 12 Garage doors, bars and gates are secure and easy to connect to the building’s access control system. 9 ANNUAL REPORT 2021 | ASSA ABLOY ASSA ABLOY in your daily life | Who we are How we create value Strong trends drive our industry The access control industry is subject to strong underlying trends which drive growth and demand for our products. The basic need for safety and security is one of the most fundamental needs. Con- venient and secure access solutions, combined with an increased focus on energy efficiency in buildings, will drive profitable growth in our industry for the foreseeable future. Market overview The access solution industry is an ever-evolving industry that today has a global value of more than USD 100 bn annually. It has a history of stable growth, driven by the develop- ment of more secure, innovative access solutions with an increased focus on convenience and ways of improving the sustainability performance of buildings. Through continuous evolution, local standards have emerged, driven by local needs. As a result, the market for access solutions is fragmented, particularly in emerging markets. At ASSA ABLOY, we secure buildings from the pe- rimeter to their shell and core. We are the largest provider of access solutions, but due to the fragmentation of the market our global market share is still low, meaning that we have significant potential to grow. Industry trends New technologies Emerging technologies and technical innovations are enabling the development of convenient new solutions for customers and providing new business opportunities. The change of the product mix to more electromechani- cal products will continue and bring with it many business opportunities, while supporting recurring revenues and software as a service. Local regulations ASSA ABLOY is one of the few global players in the industry able to supply access solutions that comply with the local markets’ constantly changing regulations, standards and requirements. This creates good customer relations, market demand and entry barriers for competitors. We have a strong local presence with local manufacturing in both mature and emerging markets. Currently we have operations in more than 70 countries. This enables us to quickly deliver and respond to local customer demands. We have increased our investments in R&D and shifted to more software development. The proportion of electromechanical products that we sell has increased from 22% to 30% over the last ten years. Growing trends There are a number of trends driving increased demand for access solutions, including meeting the individual’s most basic need for safety and security. The shift to electrome- chanical and digital solutions enables us to offer even more convenient customer solutions and also add more service- based solutions offerings. At the same time, the demand for more sustainable and resilient products is fuelled by the strong growth in green buildings and more sustainable urban environments around the world. ASSA ABLOY’s response: The shift to electro- mechanical and digital solutions enable us to offer even more con- venient customer solutions. 10 ASSA ABLOY | ANNUAL REPORT 2021 1 Source: Dodge Data & Analysis, World Green Building Trend 2018. As the global leader in access solutions, we provide state-of-the-art prod- ucts and services related to openings and entrance automation as well as trusted identities with the safety and security of our customers in mind. We are developing products that help our customers reduce their envi- ronmental impact and offer Environmental Product Declarations (EPDs) for important product groups. EPDs make our products more attractive because they help our customers to achieve higher ratings in their green building certification. In 2020, we committed to setting science-based targets illustrating our commitment to reduce our own emissions as well. Given our global leading position and strong R&D resources, we are at the forefront of developing new solutions to meet the ever-changing needs for secure and safe access solutions. We invest in markets where we see urbanization taking place. Urbanization Urbanization is taking place around the world, with the most apparent shifts in the emerging markets where an increased need for housing, workplaces and commercial buildings drives demand for access solutions. For example, the United Nations projects that the population living in urban areas will increase by 2.5 billion people by 2050. This is fueling the demand for access solutions. Demand for security The basic need for safety and security is fundamental. In a world with a high perception of uncertainty, the demand and need for secure, convenient and efficient access solutions is increas- ing – both in the residential and non-residential segments. The growth is further supported by the demand for convenient and time-efficient access solutions. Sustainability As concerns for the environment grow, customers are looking for sustainable solutions. This increases the demand for more green buildings and access systems. For example, about 50% 1 of all new commercial buildings are now expected to be certified according to green building standards. This also requires more transparency regarding the environmental impact of products, production and working conditions. There is also increasing regulation for more energy-efficient buildings and access solu- tions. Digitalization The rapid development of digital solutions continues in all areas of society and places demands on new digital technolo- gies, including access solutions. This provides opportunities to develop new, more convenient and secure access solutions. One such opportunity is remote management, where homes, offices and other premises can be monitored, and access can be managed remotely. In addition, premises are more frequently protected via interconnected systems that both increase the level of security while also enhancing efficiency and accuracy. ASSA ABLOY’s response: Megatrends 11 ANNUAL REPORT 2021 | ASSA ABLOY Market and trends | How we create value Every day, we help billions of people to experience a more open world with innovative solutions that enable safe, secure and convenient access to physical and digital places. By responsibly using human capital, natural resources and capital, we continuously create sustainable value for our shareholders and other stakeholders. Together we create value! We help people feel safe, secure and experience a more open world How we create value | Our value creation business model How we operate 51,000 employees in more than 70 countries around the world. We are truly global, uniquely local 2,800 employed in R&D working with our sus tain able innovations 190 strong brands and diversi- fied product portfolio 9,500 patents 130 efficient production and assembly facilities ~50,000 suppliers for direct mate- rial and indirect services. We have strategic and cost efficient suppliers SEK 70 bn in shareholder equity Our resources Together we are guided by our core values and beliefs Empowerment We have trust in people Innovation We have the courage to change Integrity We stand up for what’s right Sustainability is part of everything we do throughout ASSA ABLOY’s value chain. It is an important element in innovation, sourcing, production, employee development and in ASSA ABLOY’s products and solutions as well as in the Group’s relationships with all stakeholders. We are a global company with a uniquely decentralized business model with about 1,000 sites including 130 production facilities. We use a multi-brand strategy to leverage our global and local strengths and address different market- and customer segments and routes to market. Acquiring relevant businesses to continue our growth is key in our strategy. Our strategic objectives The Group’s strategic direction is to lead the trend towards the world’s most innovative and well-designed access solutions. Our strategic objectives are executed locally, which gives a high level of autonomy in decision- making so we stay close to our customers. Evolution through people Developing our people, and growing their careers within ASSA ABLOY, is how we secure the Group’s future success and growth. Cost-efficiency in everything we do All activities must lead to improved efficiency where realized savings can be invested in innovation and activities that accelerate our growth. Product leadership through innovation Innovation is an enabler for everything we do and is the most important driver for our organic sales growth. Growth through customer relevance We believe that continued profitable growth starts with understanding our customers. 12 ASSA ABLOY | ANNUAL REPORT 2021 Electromechanical products 30% Security doors and hardware 16% Entrance automation 31% Mechanical locks 23% A more open world Value creation to stake holders in 2021 Our aim is to deliver safety, security and convenience. We offer a complete range of unique and innovative access solutions. Our offering Shareholders and investors • Dividends and capital appreciation SEK 4.3 bn dividend paid Employees • Professional development • Safe and stable workplace • Inclusive workplace with equal opportunities SEK 27.9 bn in salaries and other remuneration Customers • Increased security and competi- tiveness for our customers • Sustainable products with environmental product declarations >400 new products launched Suppliers and partners • Technological development • Stable partner SEK ~45 bn in supplier payments Society • Increased safety and security • Reduced environmental impact • Paid taxes and employment SEK 2.6 bn in income tax 13 ANNUAL REPORT 2021 | ASSA ABLOY Accelerating towards a sustainable future ASSA ABLOY has made a long-term climate commitment to reduce carbon emissions in line with the 1.5-degree ambition level of the Paris agreement. Our work with sustain- ability will further improve our competitiveness and resilience as an organization. Sustainability targets 2025 vs. 2019 Our sustainability program to 2025 focuses on the most material areas, en- suring we have the biggest impact where it is needed most. Targets include carbon footprint (-25%), water intensity (-25%) and injury rate (-33%) amongst others. Science Based Targets ASSA ABLOY has committed to set- ting science-based targets, limiting a global temperature rise to 1.5°C, by halving absolute carbon emissions by 2030. Net zero ASSA ABLOY has committed to reaching net-zero no later than 2050. 2025 2030 2050 How we create value | Sustainability The UN Sustainable Development Goals ASSA ABLOY is a strong advocate of all 17 UN Sustainable Development Goals (SDGs), with a focus on six of the goals that have the most material impact. Our Sustainability program to 2025 was developed to ensure our targets and ambition contribute directly to the SDGs. According to the World Green Building Council, buildings are responsible for 38% of global energy-related carbon emissions and 50% of all extracted materials. As the global leader in access solutions, ASSA ABLOY has an important role to play in leading our industry to reduce emissions across the entire value chain. We believe we can have a great impact and support the global goals by focusing on the fol- lowing six SDGs: Achievements in 2021 ASSA ABLOY is accelerating towards a sustainable future. We committed to setting science-based targets in 2020 and by 2021 we were deep into the target setting process, analyz- ing our footprint and the improvements we need to make across our entire value chain. However, we are not waiting until our targets are ratified to start working towards achiev- ing the goal. To reduce our emissions, the Group is taking a multifaceted approach: Within our operations, we continue to roll out our Green Team Playbook while driving major overhauls of some of our most energy- and carbon-intensive sites. Through sustainable innovation and our Sustainability Compass, we focus on reducing the embodied carbon of our solutions and making them more energy-efficient, and energy-independent where possible through technologies such as energy harvesting. This enables us to support our customers in reducing their environmental impact, making us more relevant to our customers. We are also working closely with our material suppliers to identify and imple- ment emission reduction opportunities. Climate and carbon emissions reduction is a major focus area for ASSA ABLOY, though we remain firmly focused on our broader sustainability targets as well to reduce our water consumption, minimize our waste, and operate in a responsible way globally. For more details on our sustainability program 2025, our work towards the SDGs, and our continuing efforts to further improve health and safety in the organization, please see our Sustainability Report. Climate action Responsible consumption and production Decent work and economic growth Clean water and sanitation Sustainable cities and communities Industry, innovation and infrastructure READ MORE IN OUR SUSTAINABILITY REPORT 14 ASSA ABLOY | ANNUAL REPORT 2021 Sustainable product leadership at California’s Sonoma Academy “ASSA ABLOY was a leading participant and an active contributor that met a challenge with a clear solution and compatible products.” CASE FACTS Project: Sonoma Academy, Santa Rosa, California. Sustainability accreditations: Living Building Challenge Materials Petal and Zero Carbon Certified; LEED v3 Platinum Cer- tified; WELL Building Standard Education Pilot Certified. The project is also certified under the following LBC Petals: Place, Energy, Health & Happiness, Materials, Equity and Beauty. ASSA ABLOY Products: Door openings, frames, hinges and electrified hardware. QQ What are the specifics of this project and design initiatives? AA – Located in southeastern Santa Rosa, California, the Sonoma Academy Janet Durgin Guild & Commons is a testa- ment to the future of sustainability. One specific goal of this project was to avoid all Red List ingredients/chemicals. To accomplish this, every single product and material used in construction had to be vetted and often, alternatives found. It’s the first project to achieve both LBC Materials Petal 1 and Zero Carbon Certification by the International Living Future Institute (ILFI). QQ What role did sustainability play in the architectural design? AA – Sonoma Academy owners wanted to expose and edu- cate students on the importance of sustainability, and what better way to do that than in the building itself? The materi- als vetting process was difficult, as it involved many different classes of products. We used doors and accessories with LBC Declare labels which are hard to come by and require a lot of work to reach that level. ASSA ABLOY was a leading partici- pant in that program and an active contributor that met a challenge with a clear solution and compatible products. QQ Why was ASSA ABLOY chosen for the project? AA – ASSA ABLOY’s door frame and door hardware products were used in the Guild & Commons facility and its participa- tion in the Declare Program made procuring ingredient- transparent materials simple. Better yet, ASSA ABLOY prod- ucts offered Declare labels demonstrating they were free of Red List ingredients and compliant with both VOC 2 and CDPH 3 emissions targets. The project was pleased to have found ASSA ABLOY an ally in creating healthier materials and spaces. Every project can include sustainable attributes and have an impact on the client’s life or the industry at large. ASSA ABLOY in your daily life MEGHAN COLE, SUSTAINABILITY COORDINATOR, WRNS STUDIO, SAN FRANCISCO, USA 1 The intent of the LBC (Living Building Challenge) Materials Petal is to help create a materials economy that is non-toxic, ecologically restorative, transparent and socially equitable. 2 Volatile Organic Compounds. 3 California Department of Public Health. Photo: © Celso Rojas 2021 15 ANNUAL REPORT 2021 | ASSA ABLOY “If a key is lost or stolen this minimizes the security risk, because each individual key can be deactivated if required and have access rights changed or removed, providing a dynamic secure system.” UK Power Networks upgrades its locking systems CASE FACTS Project: Upgrade of UK Power Networks locking systems in south east England and London, including 29,000 km 2 , 130,000 substations and 189,000 km of overhead lines and under- ground cables. Solution: Abloy’s PROTEC2 CLIQ, ABLOY PROTEC2. ASSA ABLOY’s business unit Abloy UK has been awarded a 5-year contract with UK Power Networks to upgrade the current mechanical locking systems to a combined electro- mechanical and mechanical locking solution, for its high and low voltage distribution networks. QQ Who is UK Power Networks? AA – UK Power Networks is the UK’s biggest electricity distri- butor, delivering power to 8.3 million homes and businesses across London, the South East and the East of England. It keeps power flowing to 19 million people. QQ What kind of solution did it choose for its site security and access management? AA – Products specified include a mix of Abloy’s PROTEC2 CLIQ® electromechanical and ABLOY PROTEC2 mecha- nical padlocks and cylinders, which will be controlled and administered using the new CIPE Manager operating system. Abloy will supply around 9,500 padlocks per annum, together with programmable PROTEC2 CLIQ Bluetooth Low Energy keys. QQ Why do customers choose Abloy? AA – CLIQ® offers high security and flexibility that supports the complex workflow of organizations in the energy sector by enabling audit trails to be generated for individual cylin- ders, padlocks, keys and system users. QQ How does Abloy’s solution help with third-party access needed for critical sites? AA – The CLIQ® keys are programmable, so a temporary contractor can be issued with a key that permits entry to specific sites for a limited time period. After the authoriza- tion period ends, the key cannot open the lock. If a key is lost or stolen this minimizes the security risk, because each individual key can be deactivated if required and have access rights changed or removed, providing a dynamic secure system. ASSA ABLOY in your daily life 16 ASSA ABLOY | ANNUAL REPORT 2021 Strategic overview The Group’s vision is to be the global leader in providing innovative access solutions. Our purpose is to help people feel safe, secure and experience a more open world. Our core values, beliefs and strategic objectives help guide us. Purpose To every day help people feel safe, secure and experience a more open world Vision To be the global leader in provid- ing innovative access solutions that help people feel safe and secure so that they can experi- ence a more open world Mission • Building sustainable share- holder value • Providing added value to our customers, partners and end-users • Being a world leading organi- zation where people succeed • Conducting business in an ethical, compliant and sustainable way Financial targets Core values and beliefs Our strategic objectives Empowerment We have trust in people Innovation We have the courage to change Integrity We stand up for what’s right Growth 5% organic 5% acquired = 10% total growth EBIT 16–17% How we operate Cost-efficiency in everything we do Product leadership through innovation Growth through customer relevance Evolution through people Sustainability is part of everything we do throughout ASSA ABLOY’s value chain. 17 ANNUAL REPORT 2021 | ASSA ABLOY How we operate | Strategic activities Strategic activities in 2021 To accelerate our profitable growth in line with the financial targets, ASSA ABLOY works with a number of strategic activities. Continued investments in product innovation, strengthening the common culture, and initiatives to reduce our cost base are key enablers for our strategic initiatives. These are described in more detail on pages 24–33. Demand in many markets improved gradually in 2021 and was back to, or even above, pre-pandemic levels in three of our five divisions. Therefore, we gradually shifted our focus to accelerate our profitable growth. One important activity is the upgrading of the installed base to lead the transition from mechanical to electromechanical solutions. The pan- demic has accelerated this transition, providing opportuni- ties to accelerate our recurring revenue from licenses and software. Another driver is growth in the emerging markets, where we have many untapped opportunities. The shift to more sustainable solutions will also drive growth. Continue with successful acquisitions Acquisitions are a vital part of our growth strategy. Since ASSA ABLOY was founded in 1994, we have acquired more than 300 businesses that have generated significant value. In 2021, we announced our to date largest acquisition ever of the Hardware and Home Improvement business unit of Spectrum Brands, which will contribute about 15% in annual sales. The businesses that we acquire are often leading access providers in their respective markets with well- established customer bases and brands with strong growth potential to contribute to our financial targets. We see many opportunities to continue our acquisition journey and our divisions have identified more than 900 potential acquisi- tion targets globally. Upgrade the installed base One strong growth driver is the transition from mechani- cal products to electromechanical products and solutions. Before the pandemic, our electromechanical products grew by more than 10% annually in our regional divisions. As ASSA ABLOY has the largest installed base of access solutions globally, the transition to electromechanical products and solutions provides us with great opportunities to grow. The largest opportunities are in the commercial and institution- al segments that comprise the largest portion of our sales. The change in the product mix will continue and provide many opportunities. At the same time, this transition will support recurring revenues and software monetization. Generate more recurring revenues The aftermarket represents two-thirds of our sales, provid- ing a stable recurring demand through renovations, replace- ments and upgrades, as well as services. New construction, which constitutes about one-third of our business, is more cyclical in nature. We aim to generate more recurring rev- enues through software licenses, identity management and service agreements as the demand for electromechanical, digital and smart solutions increases. Connected products, new features and subscription services will continue to ac- celerate profitable growth in the future. Accelerate growth in emerging markets Emerging markets also offer significant growth potential with many untapped opportunities. During the last ten years, the sales in our emerging markets, excluding China, has grown about 40%. Our ambition is to grow more than 10% in the emerging markets in the coming years through a combination of organic growth and acquisitions. Having 18 ASSA ABLOY | ANNUAL REPORT 2021 Strategic activities | How we operate the right people with local knowledge of the market will be essential for reaching our target. In China, we have been consolidating our organization, including brands, R&D centers and operations. This will help position us for profitable growth also in the commercial and institutional segments and increase our exposure in the aftermarket. Sustainable solutions Sustainability will be vital to economic and industrial development in the coming decades and is clearly a driver for growth. Our customers’ expectations in relation to sustainability are constantly increasing. Studies indicate that 70% of consumers search for green products and about 50% of all new commercial constructions are built accord- ing to green standards. Within our product development, we not only look at the product’s sustainable footprint, but we also develop products that contribute to the customer’s total sustainability solution. Our 276 verified Environmental Product Declarations (EPDs) guide our customers in making sustainable decisions. These EPDs give us an advantage over competitors and are an important differentiator. Demands on our own production are increasing as more of our customers commit to science-based targets. We have set ambitious targets for 2025 and are committed to the science-based targets initiative. These targets will be achieved through efficiency improvements in our operations and sup- ply chain, enabled by technology improvements. The strategic activities help us accelerate our profitable growth in line with our financial targets. 19 ANNUAL REPORT 2021 | ASSA ABLOY 20 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives Strategic objective #1 Growth through customer relevance Growth through customer relevance is about understanding the ever-shifting needs of our customers so we can provide them with the most appropriate solutions. Our solutions are designed to address the demands for safety, security, sustainability and convenience from specific customer segments. Through our local presence, global leadership, processes and tools, we continue to gain in-depth customer insights and knowledge to exceed our customers’ demands and fuel the growth of our company. 30% share of electro- mechanical products, an increase from 22% to 30% in ten years. No. 1 in the world within access solutions. 45% increase in subscription sales in 2021. 21 ANNUAL REPORT 2021 | ASSA ABLOY Strategic objectives | How we operate Market insights and segmentation We continuously monitor trends, customers, and our competitors to increase our market insights. We have also segmented our markets into end-user verticals to gain a deeper understanding of the specific needs of customers and end-users so we can deliver more customized and targeted products and solutions. Acquisitions help us increase our customer relevance and cater to specific markets. For example, the acquisition of In- vengo Textile Services, which tracks and monitors linen and textile assets, reinforces our offering within the global RFID ecosystem. Another example is the acquisition of Capitol Door Service, a leading pedestrian door distributor and ser- vice company, that will help us grow our position in the US. Institutional and commercial markets represent about 75% of total sales, while smart locks and the smart home trend are driving sales in the residential market, which ac- counted for 25% of total sales in 2021. The aftermarket continues to represent a large portion of our sales – 67% – providing stable demand through renova- tions, replacements and upgrades, as well as services. New construction accounted for about 33% of sales in 2021, driven primarily by growth in the residential market and certain non-residential segments. Seamless customer experiences Offering a world-class customer experience is a key ele- ment in our efforts to be the brand of choice and nurture loyal customers. Our goal is to ensure that all touchpoints, whether digital or physical, are as seamless as possible. Our digital platforms make it easier for customers to ex- plore, buy, install and service our products. In 2021 we com- pleted the implementation of a single application to further enhance the customer experience with our Yale smart prod- ucts. Our Yale Access app, available in 174 countries, allows seamless interconnectivity with smart home products and services from external vendors, including Google Assistant, Amazon Alexa, and Philips Hue. Partnerships open new channels to customers and together we can develop innovative product features that enhance our customer offering and accelerate growth. Our Yale smart locks, for example, are integrated with Google’s smart home software in a solution specifically designed to seamlessly communicate with Google Nest solutions. We are further improving the customer experience through dedicated resources and investments in user in- terfaces and other tools. We constantly measure customer experience across different touchpoints using Net Promoter Score® (NPS®) or CSAT (customer satisfaction) surveys, and follow up by implementing changes in the business to improve or resolve identified gaps. Sustainability a growth enabler Today’s customers are increasingly driven by sustainabil- ity agendas and the demand for sustainable buildings. Our customers increasingly take into consideration the environmental performance of a product when making design and purchase decisions, with certifications such as LEED and BREEAM helping to drive this trend. ASSA ABLOY is in an excellent position to help customers meet their environmental targets by offering a growing portfolio of green solutions, which are developed in accordance with our Sustainability Compass. The Sustainability Compass, which is used to assess various environmental attributes in new products, helps us secure sustainability through design, decreasing the environmental footprint of each new innova- tion. Our efforts to offer more sustainable solutions through specifications continue to pay off, and sales have acceler- ated, driven by “green” specifications in 2021. Taking e-business further E-business is a key strategic initiative for the Group. In 2021, we continued to make progress towards our ambition of providing the best digital customer experience to discover, buy and service our offering. All divisions have strategies in place to increase the pace of digitalization through invest- ments in tools, processes, and dedicated resources. We have started to migrate our various branded websites to a new, customer-centric global platform, which went live in 2021. Having the majority of our brands on a single online platform enhances the customer experience and makes it easier to navigate between our various products and  Mechanical locks, lock systems and fittings, 23% Entrance automation, 31% Electromechanical and electronic locks, 30% Security doors and hardware, 16% North America, 44% South America, 3% Europe, 39% Asia, 9% Oceania, 4% Africa, 1% Sales by product group, 2021 Sales by region, 2021 Legend Legend Legend Legend Legend Legend Sales channels The majority of our sales go through distribu- tors. Most markets are fragmented where we sell our products to several distributors. We work proactively with these distributors in product marketing and product develop- ment, with the aim to grow our share of their business. The end-customers are influenced by specification, and also by direct relation- ships with some key accounts. ASSA ABLOY OEM Integrators, installers (incl. lock - smiths) and DIY Distributor/ wholesaler End customer Create demand through management of sales channels and channel partners Demand driven by specifications, brand loyalty and recurring revenues 75% Commercial institutional and commercial market 25% Residential private customers and residential market 33% New construction 67% Aftermarket renovations, remodeling and additions, replace- ments and upgrades of existing access solutions, as well as ongoing service Breakdown of ASSA ABLOY’s sales 22 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives solutions. Our efforts in social media to raise awareness and drive customers to our websites and webshops have also been significantly accelerated. During the year we made significant investments, in areas such as training, further rollout of e-shops, and data analytics to offer an improved digital experience. Our ambition is for e-commerce to increase as a share of the total Group sales. Overall, sales through our web- shops and configurators continue to grow double-digit year over year. Tools to increase collaboration We work with common processes and a structured ap- proach to master data management. Customer Relationship Management (CRM) systems help us deliver more targeted information to customers and collaborate across divisions. We have our own BIM-enabled (Building Information Modeling) software platform called ASSA ABLOY Openings StudioTM. The industry-leading tool helps create and visual- ize openings for complete specifications, faster and more seamlessly. Through Openings Studio, our teams work closer with architects, contractors and other partners to deliver the most suitable solutions. In 2021, we continued our international rollout of Openings Studio and the tool is now available in more than 50 markets. Our brands ASSA ABLOY is our main commercial brand and we have master, endorsed, and standalone brands to reach all of our target groups. HID is a market-leading brand for secure identities and access management, and our Yale brand has strong recognition in residential markets worldwide. We also have a number of well-known brands that are endorsed by one of the master brands and we maintain some stan- dalone niche brands that are sold mainly through distribu- tors and installers. Pricing management activities We continue to focus on pricing management and have a global network of managers dedicated to pricing activities. Value-based pricing techniques enable us to capture the full value of our products and services. We regularly review and track price performance, price optimization and discount management, among other areas, through established key performance indicators. During the year, we focused on training related to pricing models for our subscription sales, such as for software or service agreements. We continued to invest in resources and platforms to drive this area, result- ing in a growth in subscription sales by 45% in 2021. These combined pricing efforts help protect our profitability while delivering increased customer value. Emerging markets We are expanding our presence in emerging markets through organic growth and acquisitions. We will grow these markets by having a local presence and developing products and services tailored to local standards and re- quirements. Our 2021 acquisition of MR Group’s hardware division, with parts of its operations in Morocco, is an exam- ple in this direction, expanding our footprint in North Africa. While we traditionally tend to have a strong position in the premium segments, we are also expanding our offering in the low and mid-range segments to attract more custom- ers in emerging markets. Our share of sales in the emerging markets was 15% in 2021 and the organic growth was 11%. 23 ANNUAL REPORT 2021 | ASSA ABLOY A connected solution for smooth operations at DB Schenker “Docking Management System gives us full control of our terminals, improving energy efficiency, productivity, and our working environment.” CASE FACTS Project: DB Schenker, Södertälje, Sweden. ASSA ABLOY Products: ASSA ABLOY delivers over 100 solutions including complete docking stations, overhead sectional doors and high-speed doors. QQ Why did you need new docking solutions? AA – We’re in the process of constructing an important new terminal in Södertälje, Sweden, that needs docking sta- tions, overhead sectional doors and high-speed doors. This is one of the largest and most important business areas in the Stockholm region, so we needed a partner we can trust to deliver. QQ Why did you choose ASSA ABLOY? AA – We’ve had a strong relationship with ASSA ABLOY Entrance Systems for many years, so we know our new ter- minal is in safe hands. ASSA ABLOY is a one-stop shop for all the products and services we need, so it’s easy and conveni- ent for us, and we know everything will be delivered on time. The ASSA ABLOY Docking Management System (DMS) is something that really appealed to our business too – it means our terminal will be fully equipped with intelligent doors and docking solutions that ensure our production never stops. QQ How will you use the DMS? AA – The DMS provides real-time data insights helping us to manage our fleet in the docking area. It also allows us to control when our doors are open and closed for energy ef- ficiency, security, and optimal working conditions. The service team at ASSA ABLOY monitors the data to identify any issues with our entrances so they can quickly fix them to reduce any downtime. QQ Would you recommend the DMS? AA – Absolutely! The DMS gives us full control of our terminals, improving energy efficiency, productivity, and our working environment. Our service agreement also means that we have lifetime after-care of our entrances, ensuring our operation continues to run smoothly, saving us time and money. ASSA ABLOY in your daily life STEFAN JOHANSSON, MANAGER AT SCHENKER PROPERTY 24 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives Strategic objective #2 Product leadership through innovation ASSA ABLOY is recognized as one of the most innovative companies globally and we continue to reinforce that position. We are delivering product leadership through innovation by focusing on ten strategic actions designed to accelerate organic growth, ensure more efficiency in resource utilization, and secure a constant flow of new, enhanced, innovative and sustainable products. In 2021, we focused on several areas where we see growing demand, such as in service and predictive maintenance, and on sustainability where solutions like our ultra-low power locks are contributing to energy reductions for customers. 22% of sales generated by products launched in the last three years. >500 new patents during the last three years. >400 number of product launches during 2021. A groundbreaking transparent OLED automatic sliding door will take image quality to a new level thanks to a collaboration between ASSA ABLOY Entrance Systems and leading consumer electronics company LG Electronics. 25 ANNUAL REPORT 2021 | ASSA ABLOY Strategic objectives | How we operate Organization ASSA ABLOY is well-positioned when it comes to innovation capabilities. Throughout our innovation organization, which includes more than 100 R&D sites, we utilize common tools and ways of working to align strategic initiatives and im- prove transparency. At the same time, we can leverage the Group’s broad competence and benefit from the diversity of a global organization that also maintains a local presence and knowledge. Our innovation organization also facilitates cross-divisional collaboration and promotes career develop- ment and job flexibility, helping us to retain and attract key talent. Process Product quality, safety, and security We apply a “first time right” approach to product develop- ment to ensure that each product meets the highest re- quirements for quality, safety, and security as well as design and sustainability. Processes, tools, training, and governance support this culture. Through the Group’s gateway process for product development, we work with a quality assur- ance assessment, which also drives high security and safety. Within the gateway process we are able to monitor our investments in innovation through a post-launch review and retrospectively evaluate the business case based on sales, quality, and customer satisfaction. In 2021, we added ad- ditional resources in quality and continued to add dedicated security centers to meet customer requirements and main- tain our position as the global leader in access solutions. Excellence in product management and innovation While we work with product management excellence to identify the right things to do, innovation process excellence guides us in doing things right. It addresses project execution, the continuous delivery of hardware and software, and add- on development like customization, quality improvement, and value engineering. Our “fail fast, learn fast” approach decreases our time to market, improves our ability to respond to change and lowers cost. An agile process for continuous product innovation increases speed and enhances the digi- talization of our products and services. In 2021 we revised our product management training to emphasize the importance of working with visionary scen- arios. This is helping us to envision the future of our industry based on current trends related to customers, industries, and technology. With over 100 sites working in product manage- ment, we have the ability to gather excellent insights into the needs of local markets and customers. Innovation and awards In 2021, new products launched during the last three years accounted for 22% of total sales. During the year, we launched more than 400 products and filed for around 150 patents that were added to our patent portfolio of about 9,500 patents. Our innovation agenda also includes break- through innovation, which can enable the Group to create new market opportunities. During the year, ASSA ABLOY received multiple awards for innovation, including the Red Dot design award for the energy-efficient SW60 swing door operator, which contributes to better hygiene through its touchless user interface. The Linus® Smart Lock was ranked number one among nearly 10,000 entries, winning an iF Design Award in 2021 for its sleek, innovative and functional design. This was just one of many accolades for the Linus door lock, which is meeting a growing demand for smart security solutions with stylish design. Product Generation planning The entire Group uses generation planning to define future product offerings. Each division is responsible for determin- ing its own plans, which are reviewed annually to identify synergy effects. Generation plans provide direction to prod- uct and technology roadmaps and secure that our business strategy and objectives are reflected in our innovation activities. Generation plans also outline platform, technol- ogy and capability needs over time. Increasing standardization ASSA ABLOY plays a key role in the Connectivity Standards Alliance (CSA) and other organizations working to ensure the interoperability of products and develop open, global standards for the Internet of Things (IoT). Through internal standardization of interfaces, we have begun this journey by increasing the interoperability between products and software from different Group entities. We are working to ensure product compatibility and security with third-party products and systems such as smart home systems and building management systems. Having fewer, more stand- ard interfaces reduces complexity and improves the user experience. SEK M 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2120191817 Investments in research and development Product quality Product safety & security Generation plans Technology & platforms Sustainable products Standard Interfaces & API’s Product management excellence Innovation process excellence Breakthrough innovation Collaboration Innovation Centers P r o c e s s P r o d u c t Strategic actions Innovation strategy O r g a n i z a t i o n The ASSA ABLOY innovation strategy is structured around three strategic pillars - organization, process and product. For each area we have defined strategic actions which are the core of our strive for product leadership through innovation. Efficient execution of these strategic actions will secure a constant flow of new, enhanced, innovative and sustainable products that optimize customer value. Together they will help us accelerate organic sales growth. 26 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives Development of digital and mechanical products Digital solutions and software comprise an important part of our product portfolio, and we have a digital service organiza- tion that supports a growing number of customers. Through “the digital factory,” a cross-functional approach, we are able to work seamlessly throughout the organization and towards customers. In 2021, we focused on a number of strategic areas where we see growing demand, such as within cloud- based access control and connected devices (IoT). Service and predictive maintenance is another growth area as our customers digitalize and transition to industry 4.0. The Covid-19 pandemic has triggered higher demand for touchfree products and digital innovations such as our Mobile Access for hotel check-in, and HID Location Services, a real-time location system (RTLS). Among its many advantages, RTLS helps customers control social distancing in, for example, offices or healthcare facilities. During the year, we also continued to develop our core mechanical products and helped our custom- ers reduce health risks with anti-bacterial handles and other low-touch solutions like arm and foot pull handles. Compass for sustainability benefits All newly released products have a sustainability value proposition that is in line with ASSA ABLOY’s strategic goal to be perceived as the most sustainable company in the industry. Our Sustainability Compass is used to assess a variety of environmental attributes in new products, includ- ing recycled content, raw materials, and energy in use. A material reference list and a restricted material list based on the EU’s REACH 1 regulation and RoHS 2 rules help guide designers to make choices that lower the environmental impact of products. The Sustainability Compass plays an important role in our innovation processes, guiding the development of each product we develop to ensure benefits for both customers and the environment. Energy harvesting and ultra-low power locks, which reduce energy consump- tion, carbon emissions, and costs for customers, were just a couple of the areas in focus in 2021. 1 Registration, Evaluation, Authorization and Restriction of Chemicals. 2 Restriction of Hazardous Substances. P a c k a g i n g R a w m a t e r i a l E n e r g y i n u s e R e c y c l a b i l i t y R e c y c l e d c o n t e n t R e u s e C a r b o n f o o t p r i n t C o s t R e c y c l e R e u s e R e d u c e Sustainability compass The Sustainability Compass is a tool to increase our efficiency and decrease the environmental footprint. The Compass includes eight dimensions: • Reduce – five areas • Reuse • Recycle – two areas The green leaf indicates sustain- able footprint to minimize the footprint throughout the lifecycle. Sustainability Compass We look at innovation as a sys- tem. We believe that efficiency is maximized by embracing the en- tire system. For example, strong product management is neces- sary to run efficient projects. Having a mix of pre product, new product and continuous product innovation will also help us achieve long-term success. ASSA ABLOY’s innovation system is our engine, and all parts need to work separately, but also together. The innovation system sup- ports the dynamics between incremental and disruptive innovation, which are necessary to develop new solutions for our short- and long-term success. Innovation system Innovation Strategy incl. IP and Technology Product management Customer and market insights Innovation culture and knowledge Continuous product innovation (CPI) Pre product innovation (PPI) New product innovation (NPI) Management Product innovation is an enabler to increase our long- term profitable growth. ASSA ABLOY joins Hyatt to roll out room keys in Apple Wallet “Our approach to technology always includes listening to guests and members. They want near-instantaneous access. Room keys in Apple Wallet is an easy, convenient and secure option when guests travel.” CASE FACTS Customer: Hyatt. Solution implemented: Room keys in Apple Wallet and ASSA ABLOY Global Solutions Vostio Access Management. Result: Seamless and secure tap to unlock experience with room keys on iPhone and Apple Watch. QQ What solution was ASSA ABLOY Global Solutions able to provide for Hyatt? AA – Hyatt’s approach to technology is rooted in listening to guests and members, and Hyatt heard that guests want access to be near-instantaneous. So we were able to work together to provide another convenient room key option with industry-leading speed and ease of use, and more control and flexibility during a guest’s stay. QQ How does this solution work? AA – Hyatt room keys in Apple Wallet are supported by ASSA ABLOY Global Solutions door locks and the Vostio Access Management cloud-based solution. Vostio Access Management provides the digital key information that is securely delivered to guest devices. Room keys in Apple Wallet are stored on the device and take full advantage of the privacy and security built into iPhone and Apple Watch. When or where a World of Hyatt guest uses a room key in Apple Wallet is never shared with Apple or stored on Apple servers. If an iPhone or Apple Watch is misplaced, the guest can promptly use the Find My app to lock the device and help locate it. QQ How are room keys in Apple Wallet used by guests? AA – Room keys in Apple Wallet are provisioned from the World of Hyatt app, so members can add their room key to Apple Wallet after completing a reservation. If they need to change rooms, extend a stay or access late checkout, the hotel can update the guest’s room key in Apple Wallet remotely – bypassing the need to visit the front desk. QQ What are the main benefits of the new feature? AA – As the first hotel brand to offer room keys in Apple Wallet, World of Hyatt guests at participating locations can seamlessly and securely tap their iPhone or Apple Watch to unlock guestrooms and key card-protected common areas like gyms, pools, and elevators – no need to open an app or handle a traditional plastic room key. This marks an important milestone as Hyatt continues to reimagine the guest experience through digital innovations. JULIA VANDER PLOEG, SENIOR VICE PRESIDENT AND GLOBAL HEAD OF DIGITAL & TECHNOLOGY, HYATT Photo: © Hyatt 27 ANNUAL REPORT 2021 | ASSA ABLOY ASSA ABLOY in your daily life 28 ASSA ABLOY | ANNUAL REPORT 2021 Strategic objective #3 Cost-efficiency in everything we do Cost-efficiency is an enabler for profitable growth. In 2021 we continued to work with operational excellence including sustainable operations throughout the ASSA ABLOY organization, from strengthening our sourcing through cross-divisional collaboration to consolidating sites through our manufacturing footprint program. The improvements we make today will enable us to fuel our investments for innovation and future growth. MSEK 700 efficiency savings from MFP programs in 2021. 10 factories have been closed over the past three years. –7% the number of direct ma- terial suppliers has been reduced by -7% over the past three years. How we operate | Strategic objectives 29 ANNUAL REPORT 2021 | ASSA ABLOY Strategic objectives | How we operate Operational excellence throughout We apply lean principles to every stage of the value chain and work with an operational excellence structure that enables us to target costs for direct labor, direct material, fixed and variable production costs. This structure includes clearly defined target stages linked to productivity perfor- mance. We measure sustainability, quality, delivery, and cost performance across the Group through key performance indicators (KPIs). This year, all our major sites completed individual assess- ments and drafted improvement roadmaps to increase our benchmarking and improve operational excellence. Focusing on customer needs, working with continuous improvement, and empowering our employees are among the other day-to- day operational activities that are helping us to improve cost efficiency. Exploring automation Our operational excellence structure and assessments provide an overview that helps us identify and target opportunities for automation, such as where we can best deploy robots and automated systems within operations. We are currently focusing on pilot cases in European and American sites, particularly related to data analysis and machine learning, to increase efficiency within production. We are, for example, gathering data from our automated cylinder assembly machines that will help predict the need for maintenance. Manufacturing footprint programs There is a constant need to target savings and find synergies, due in part to our frequent acquisitions. Since 2006, we have been working with Manufacturing Footprint Programs (MFP) to capture cost savings within our operations. Since ASSA ABLOY’s first MFP, annual savings have been more than SEK 5.5 bn. MFP8, which was launched in late 2020, is a two- year program designed to increase our efficiency by closing ten production plants and about 30 offices and lead to total savings of about SEK 1 bn. In 2021, a dedicated council focused particularly on consolidating offices in major cities, targeting sites where leases are expiring. MFP8 is our largest program to date and has delivered savings of about SEK 600 M until and including 2021. Value Analysis and Value Engineering Each of our divisions is working with Value Analysis (VA) and Value Engineering (VE). VA is a structured process for op- timizing cost while maximizing customer value in existing products. VE is part of the development process and focuses on new and existing products. Both processes systematical- ly reduce costs while taking into account a product’s design, components and production methods in order to enhance customer value with improved quality. We are, for example, applying VA and VE in our product innovation process to ensure that each product is designed using the right materi- als and resources, and developed at the right cost. Cost-efficiency through sustainability Cost-efficiency and sustainability go hand in hand in our efforts to reduce our environmental footprint. During the year, our work with VA and VE focused on sustainability by, for example, looking at ways to reduce the steel content in our safety doors. This also alleviated the impact from sharp price hikes on raw materials in 2021. We are also reducing our environmental footprint through our MFPs as we consolidate offices and operations. These efforts have led to lower consumption of materials, energy, water and waste, along with lower greenhouse gas emissions from our production processes. We continue to increase the use of renewable energy, sourcing renewable energy where it is available, and practice kaizen methodol- ogy within all of our operations to address daily energy MSEK 0 100 200 300 400 500 600 700 800 2120191817 Annual MFP savings The MFP savings have resulted in SEK 2.8bn annual savings during 2017-2021 30 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives saving activities. These energy measures have contributed to an energy intensity reduction of -9.1% compared to the base year 2019. Our health and safety culture, which includes proactively identifying risks and implementing safety improvements to minimize the risk of injury has an impact on our opera- tional performance and cost efficiency. The injury rate has decreased by 20% since 2019. Supply chain and logistics We continue to target improvements in global logistics to capture cost savings, improve delivery performance and lower our environmental footprint. By consolidating platforms, phasing out old legacy products and reducing complexity, as well as having more standardized digital processes, we are able to achieve further efficiencies in our supply chain. We also continue to optimize and consolidate our warehouse locations through our MFP. Our logistics were impacted by supply availability issues caused by the Covid-19 pandemic in 2021, along with tariffs and increasing uncertainty in China. When it comes to sup- ply, we believe in “best cost” rather than “low cost” and are building new alliances and shifted some of our focus to, for example, Eastern Europe and Mexico in 2021. Professional sourcing is key We are constantly reviewing our supply base and streamlin- ing our component assortment to leverage volumes. We practice multi-tendering, benchmarking and Group-wide contracts. We are guided by the sourcing principles in our sourcing policy and apply “should-cost” analysis and e-auctions to ensure the best cost, quality and performance of our supply base. Professional sourcing and strategic part- nerships help us to reduce costs and ensure we are more competitive. Throughout the year, we continued to consolidate and discontinue stock-keeping units (SKUs) that are no longer integral to our customer offering. Through our top sup- plier sourcing program and our Group-wide “Together we” concept, we were able to increase our cross-divisional collaboration and approach about 100 of our common top suppliers in a collective way. This resulted in substantial sav- ings on our direct material spending in 2021. The savings are particularly notable in a year when we faced extremely high price hikes for direct material such as steel. We will continue to strengthen our sourcing teams by commodity, work cross-divisionally and focus on pricing. The Manufacturing Footprint Programs generated MSEK 700 in savings in 2021 and during the year we closed two production plants. The Manufacturing Footprint Program (MFP) applies not only to manufacturing sites, but also to other operations such as offices, warehouses and service centers. In this photo, for example, employees from three different business units, previously situated in different locations, now work at the same site in Stockholm, Sweden. This has not only reduced complexity and cost, but Consolidation of sites also increased cooperation between the divisions and functions. ASSA ABLOY has about 1,000 different sites with offices, warehouses and service centers globally, of which several are located in the same cities or close to each other. The ambition is to use shared sites for manufacturing, warehousing and offices whenever possible and beneficial. 31 ANNUAL REPORT 2021 | ASSA ABLOY Strategic objective #4 Evolution through people Our mission is to be a world-leading organization where people succeed. This is best achieved by creating a culture where employees feel empowered, are encouraged to learn and collaborate, have internal mobility and can develop careers. Through our “Evolution through people” strategic objective and its seven strategic initiatives, we are foster- ing an environment where employees contribute to ASSA ABLOY’s future growth and success. In 2021, we continued to deliver on our strategic initiatives while tackling the im- mediate challenges caused by the Covid-19 pandemic. Strategic objectives | How we operate 32 nationalities in leading positions. 22% increase in internal applications since 2017. –20% reduced injuries per million working hours since 2019. 32 ASSA ABLOY | ANNUAL REPORT 2021 How we operate | Strategic objectives Common culture “Together we” is our Group-wide initiative that encompass- es our identity, purpose, vision and mission. It also defines our common culture, which comprises core values, beliefs and behaviors. Throughout the organization we advocate for three core values: empowerment, innovation and integrity. Our common culture has an impact on all strategic initiatives and processes and guides us in everything we do. It helps align our diverse and global workforce so we can grow in the same direction. Having a common culture also helps employees – and potential employees – understand what our Group stands for. Employee experience We have an agile and inclusive organization and recognize the value in an adaptable approach to work routines. We have learned that meetings and travel can be replaced by digital solutions, leading to reduced costs and balanced schedules. Our aim is to offer our increasingly diverse work- force different ways of working. By offering various ways of working within an agreed framework, we can increase staff motivation, build better relationships between the organization and its employees, increase the rate of staff retention, reduce absenteeism, attract new talent, promote work-life balance and reduce employee stress. In doing so, we improve the Group’s ef- ficiency, productivity and competitiveness. Our employee engagement survey is an important tool in continuing to make ASSA ABLOY a great place to work. It helps us see where we are today and where we want the company to be tomorrow. At ASSA ABLOY, everyone’s voice matters. Experience has shown that colleagues, who feel their voice is heard, are more empowered to perform their best work. Global participation in our 2021 employee survey was 83%. High marks were given to, among other areas, the Group’s managing of the pandemic situation and the vast majority agrees that safety is a priority for the leadership. Talent management How we attract, develop, engage and retain talent is crucial for our success. We aim for longevity when hiring and focus on talent retention by prioritizing internal candidates. Our people are encouraged to develop and change roles within the Group, and we focus on facilitating a personalized devel- opment journey tailored to the needs of the individual. We encourage our people to develop transferable skills that will allow them to take on roles in other functions, divisions, or countries. This has been more limited during the pandemic, but flexible work arrangements are helping make it possible. In 2021 we established an internal talent acquisition func- tion and launched a talent assessment process to identify the development needs of future successors. We have also piloted an employee referral program to further boost internal mobility. Thousands of employees participated in this year’s pilot of our new and global performance process, with people development at the forefront. Every employee has at least one personal development goal that is tied to the goals and objectives of the organization as well as to our competency framework and leadership behaviors. We offer digital courses, an internal leadership program, and programs in collabora- tion with external partners, but we strongly believe that the best way to learn is on the job and through stretched assign- ments that go beyond one’s present expertise. Leadership Leadership development for us is not only about how we lead, but also about how we help others become leaders. We have implemented Leadership Dimensions that form the basis for how our leaders should act. These have been embedded into all of our people processes such as in the employee performance process, assessments of executive search positions and employer branding. Leadership behaviors should incorporate our values and develop our business. Our people are encouraged to develop and change roles within the Group, and we focus on facilitating a personalized development journey tailored to the needs of the individual. 33 ANNUAL REPORT 2021 | ASSA ABLOY Strategic objectives | How we operate How to lead from a distance was at the top of the agenda in 2021 due to circumstances caused by the Covid-19 pan- demic. Leaders were provided with guiding principles on the topic and webinars were held on how to conduct activities virtually instead of face to face. For our 120 top leaders we continued the work with our Group leaders network, where we focus on people development and collaboration. Ethical and social responsibility The ASSA ABLOY Code of Conduct is our framework for daily operations and it applies to all employees and suppliers. We have mandatory compliance training programs and policies to address anti-corruption, antitrust, export control and data protection, among others. Any concerns or suspected breaches of our Code of Conduct can be reported through a whistleblowing process. ASSA ABLOY does not tolerate any form of discrimination or harassment in the workplace and we actively promote diversity and inclusion by continuing to educate, advocate and communicate. During the year we further aligned the branding on our career website, templates and recruitment materials for a more inclusive tone of voice to increase the diversity. The reporting of gender diversity is a part of our sustain- ability reporting with a Group objective to have at least 30% females in high-level leadership roles by 2025. In 2021 we reached 27%. We also report on diversity at a divisional level, with each division identifying local challenges to overcome, such as those related to age, ethnicity, and disability. Health and safety The health and safety of our employees is a top priority that we have been working on systematically for a long time. Today, the biggest health and safety risks tend to be in envi- ronments beyond our full control, for example, ergonomic or weather challenges that service engineers and installers face in the field. We are working to mitigate health and safety risks and apply disciplinary actions when needed. We believe that safety is a precondition of doing business and have zero tolerance when it comes to unsafe behaviors and environments. We continued to address and promote health and safety internally through “Together we are safe” workshops, procedures, dialogue, and leadership engagement. We also addressed the emotional wellbeing of employees with the “mental health first aiders” support program. We promoted Covid-19 vaccinations and had onsite clinics at many locations to offer employees a convenient way to get vaccinated. Digital workplace Our digital processes enable us to work from anywhere and this has been particularly valuable throughout the Covid-19 pandemic. A communications and learning campaign, with continuous communication on our intranet and virtual team “get-togethers,” helped us stay connected. We contin- ued to put a lot of effort into helping people work, learn and lead virtually. The Group’s digital workplace is adopting new software, and a project has been underway to support its implemen- tation and provide training. While we now have the digital tools in place to work remotely and will continue to enable flexible work depending on the local organization’s business and employee needs, we look forward to bringing people together again in person. We strongly believe this will enrich our collaboration, innovation and the building of ASSA ABLOY’s culture. Assessments of acquisitions With our deep experience in acquiring companies, we have learned how important it is to take a proactive and inclusive approach. Our integration work is led by dedicated integra- tion project managers, and we put emphasis on creating a common understanding. We engage both current and new employees by creating an identity and culture of belonging. Our common culture has an impact on all strategic initiatives and processes and guides us in everything we do. It helps align our diverse and global workforce so we can grow in the same direction. What we offer Regional divisions  Mechanical locks, lock systems and fittings, 48%  Electromechanical and electronic, 36%  Security doors and hardware, 16%  Mechanical locks, lock systems and fittings, 42% Electromechanical and electronic, 26%  Security doors and hardware, 32%  Mechanical locks, lock systems and fittings, 49%  Electromechanical and electronic, 25%  Security doors and hardware, 26% Share of sales Share of sales Share of sales Share of operating income Share of operating income Share of operating income Sales by product group Sales by product group Sales by product group The regional divisions manufacture and sell mechanical and electromechanical locks, digital door locks and smart home access solutions, high-security doors, fire doors and hardware adapted to the local market’s standards and security requirements. 21% 20% 22% 3%8% Opening Solutions EMEIA Opening Solutions Americas Opening Solutions Asia Pacific 28% Financials in brief 2021 • Sales: SEK 20,522 M (18,982) with +13% organic growth. • Operating income (EBIT): SEK 2,916 M (2,263). 1 • Operating margin: 14.2% (11.9). 1 Financials in brief 2021 • Sales: SEK 20,507 M (19,013) with +14% organic growth. • Operating income (EBIT): SEK 4,200 M (3,698). 1 • Operating margin: 20.5% (19.4). 1 Financials in brief 2021 • Sales: SEK 8,719 M (8,841) with +2% organic growth. • Operating income (EBIT): SEK 499 M (396). 1 • Operating margin: 5.7% (4.5). 1 Sales, SEK M Operating income 1 , SEK M 0 2,000 4,000 6,000 8,000 10,000 12,000 2120191817 Sales 0 250 500 750 1,000 1,250 1,500 Operating income 1 1 Excluding items affecting comparability. Sales, SEK M Operating income 1 , SEK M 12,000 14,000 16,000 18,000 20,000 22,000 24,000 2120191817 Sales 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Operating income 1 1 Excluding items affecting comparability. Sales, SEK M Operating income 1 , SEK M 10,000 12,000 14,000 16,000 18,000 20,000 22,000 2120191817 Sales 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Operating income 1 1 Excluding items affecting comparability. 34 ASSA ABLOY | ANNUAL REPORT 2021 Divisions overview  Products, 72%  Service, 28% Share of sales Share of operating income Global divisions  Access solutions, 78%  Hotel locks, 15%  Service, 7% Share of sales Share of operating income Sales by product group Sales by product group 15% 34%15% 34% The global divisions manufacture and sell access solutions, identification products and entrance auto- mation in the global market. Global Technologies Entrance Systems Financials in brief 2021 • Sales: SEK 14,604 M (14,158) with +5% organic growth. • Operating income (EBIT): SEK 2,253 M (2,023). 1 • Operating margin: 15.4% (14.3). 1 Sales, SEK M Operating income 1 , SEK M 0 3,000 6,000 9,000 12,000 15,000 18,000 2120191817 Sales 0 500 1,000 1,500 2,000 2,500 3,000 Operating income 1 1 Excluding items affecting comparability. Financials in brief 2021 • Sales: SEK 32,690 M (28,323) with +14% organic growth. • Operating income (EBIT): SEK 4,988 M (4,083). 1 • Operating margin: 15.3% (14.4). 1 Sales, SEK M Operating income 1 , SEK M 2,000 8,400 14,800 21,200 27,600 34,000 2120191817 Sales 1,000 1,800 2,600 3,400 4,200 5,000 Operating income 1 1 Excluding items affecting comparability. Divisions | What we offer 35 ANNUAL REPORT 2021 | ASSA ABLOY Opening Solutions EMEIA Strong post-pandemic recovery Overview EMEIA is organized into 12 market regions with divisional headquarters located in Woking in the UK. In 2021, India was transferred from Asia Pacific to EMEIA. The market regions are responsible for manufacturing and selling mechanical and electromechanical locks, hardware and security doors adapted to the standards and requirements of local markets. The products for the commercial market are sold under the master brand ASSA ABLOY or brands endorsed by ASSA ABLOY, while Yale is the master brand for the residential market. EMEIA has about 11,800 employees. The largest market region is Scandinavia, followed by the UK and DACH (Germany, Austria, and Switzerland). Financial development Although restrictions and lockdowns related to the Covid-19 pandemic impacted 2021, sales in EMEIA recovered well and reached pre-pandemic levels driven by continued strong residential demand and a sequential improvement in the commercial segment. For the full year, the organic growth was 13%, with the UK, France and Finland growing very strongly. Net acquired growth was -2%, primar- ily driven by the CERTEGO divestment. Operating income increased 29% and the operating margin was 14.2% (11.9%). Cash flow continued to be strong, but the conversion rate declined slightly to 106% of EBIT, driven by higher receiva- bles and inventory levels. To maintain our competitive advantage in technology we continued to invest in R&D. The share of new products introduced over the past three years was 24% of total sales. Acquisitions Two acquisition and two divestments were completed during the year. MR Group’s hardware division was acquired. This is a leading supplier of aluminum profile hardware and locks in Portugal. We also acquired Malkowski-Martech, a Polish producer of fire-rated curtains and gates. We divested the Nordic locksmith business CERTEGO and the Italian manufacturer of residential security doors, Gardesa. These divestments reinforce the strategic focus on the core security solutions business. Furthermore, the acquisition of Arran Isle was announced, a leading door and window hard- ware manufacturer in the UK and Ireland. The acquisition is expected to be completed in 2022. What we offer | Divisions Neil Vann Executive Vice President and Head of EMEIA division Markets EMEIA has a leading posi- tion in Europe, the Middle East, India and Africa for locks, access solutions, high security doors and hardware. The region has unique local standards and regulations creating a diverse environment to operate in. Commercial and institutional custom- ers are the largest end- customer segment and account for about 60% of sales, while the residen- tial segment accounts for about 40%. Products are sold primarily through several distribution chan- nels, but also directly to end-users. Comments by Divisional Head What are the recent trends in your market? – We have seen good recovery in most countries back to pre-pandemic levels. The Covid-19 pandemic has also brought us new opportunities, specifically with new types of commercial activi- ties that require more flexible access control and touchless solutions. This will help accelerate our digitalization process to give people more flex- ibility with their products. What activities are you working with to accelerate profitable growth? – We have built a clear strategic framework which is built around three key growth drivers. Firstly, maximising sales in our core products from both organic and acquired geographical and range ex- pansion. Secondly, capture the big opportunities in digitalization, by converting our huge installed base. Finally, we have a great opportunity in several emerging markets with strong pipeline development driven through project specifica- tion and local product variations. Why was India moved to the EMEIA division in 2021? – This was done to support our efforts to drive growth in emerging markets and enable us to capture the strong synergies between the Middle East, Africa, and India regions. Our approach in India will be driven through focused project specification using tools and processes that have We have seen good recovery in most countries back to pre-pandemic levels. proved successful in the Middle East and Africa, coupled with a strong local product presence. How is sustainability impacting the EMEIA division? – We have seen an unprecedented increase in the number of specification projects for ‘green’ build- ings. These projects now account for 20% of the total value we specify. This has been supported by the development of a green specification guide that provides guidelines and tools for specifica- tion delivery on green projects and the growing focus and use of our environmental product declarations. 36 ASSA ABLOY | ANNUAL REPORT 2021 Opening Solutions Americas Strong operational execution Overview The Americas division, headquartered in New Haven in the US, is organized into 13 business areas and market regions. Opening Solutions in the US, the largest market, is organized by product category, while the other regions are organized in a country structure. The business areas and market re- gions are responsible for manufacturing and selling mechan- ical and electromechanical locks, hardware, secure lockers, access control devices and security doors adapted to the standards and requirements of local markets. ASSA ABLOY and Yale are the master brands, with a strong portfolio of endorsed brands. Institutional and commercial customers are the largest end-customer segments and account for 75% of sales, while the residential segment accounts for 25% of sales. The Americas division has about 9,300 employees. Financial development Americas reported strong organic growth, with sales exceed- ing pre-pandemic levels. Renovation trends during Covid-19 boosted residential sales and the commercial segment also recovered during the year, primarily thanks to high activity on the institutional side. Latin America, with Brazil and Chile as the main drivers, reported strong growth during the year. Organic growth increased by 14%. Supported by agile price management and cost savings measures, the operating mar- gin was strong at 20.5% (19.4%), despite significant steel price increases in the US. Cash flow was strong, and the conversion rate was 89% of EBIT. New products introduced in the past three years accounted for 25% of sales. Acquisitions Three acquisitions were announced in 2021. Sure-Loc, a re- gional supplier of residential locks and associated hardware in the US; Pucon, a leading commercial high security company in Peru; and SimpleK, the software division of Prosystech, of- fering a strong master key system management tool in the US and Canada. Also, we announced the acquisition of Spectrum Brands’ Hardware and Home Improvement (HHI), subject to customary regulatory clearance processes, with an expected close in 2022. HHI is a leading provider of security, plumb- ing and builders’ hardware products to the North American residential segment. Divisions | What we offer Lucas Boselli Executive Vice President and Head of Americas division Markets Americas has a leading position in the US, Canada, Mexico, Central America and South America for locks, access solutions, high-security doors and hardware. Institutional and com- mercial customers are the largest end-customer segments and account for about 75% of sales, while the residential segment accounts for 25%. Sales in South America and Mexico are primarily focused on the residential segment, although several verticals in the commercial area have grown significantly in recent years. Comments by Divisional Head What are the recent trends in your market? – The demand for faster delivery times continued to increase in 2021. We also continued to see a strong migration from mechanical to digital solu- tions across the division with digital access control moving beyond the perimeter and penetrating deeper into buildings and homes. What activities are you working with to accelerate profitable growth? – We are continuing to invest in robotics and automation across all our facilities, with over 50 new robots and automated systems added in 2021. We are seeing benefits from the roll out of additive manufacturing in some of our locations, enabling us to prototype faster and streamline new product development. We have also focused heavily on optimizing our supply chain and transportation processes and have implemented strategic pricing initiatives to help mitigate supply chain headwinds. How will the acquisition of HHI change the Americas division? – It is a strong complement to our existing com- mercial business in North America. HHI adds well-known brands to our residential portfolio and supports access to new channels which accelerates the adoption of digital locks to consumers. HHI’s manufacturing footprint also provides us with alter- native production capabilities in key regions. We continue to see a strong migration from mechanical to digital solutions with digital access control moving beyond the perimeter and penetrating deeper into buildings and homes. How is sustainability impacting the Americas division? – We already have a deep history with driving sustainability initiatives in the Americas division, from Environmental Product Declarations to im- plementing innovative sustainability solutions in our production facilities, and are now focused on setting new goals based on science-based targets. Of note, our EcoFlex mortise lock from SARGENT was recently awarded a Living Product Challenge Certification and became one of only 24 products in the world to be recognized as a living product. 37 ANNUAL REPORT 2021 | ASSA ABLOY Opening Solutions Asia Pacific New organization established Overview As of January 2021, the division has been organized into two business units: Greater China & Southeast Asia and Pacific & Northeast Asia. The local organization in China is divided by market segment and the other regions in Asia and Pacific are organized according to market segments or region/ country structures. The business areas and market regions are responsible for manufacturing and selling mechanical and electromechanical locks, hardware and security doors adapted to the standards and requirements of local markets. ASSA ABLOY is the master brand for products in commercial markets and Yale is the master brand for the residential market and its endorsed brands. The Asia Pacific division has about 8,300 employees across the region. The largest mar- ket by sales is China followed by Australia and South Korea. Financial development Restrictions and lockdowns in many markets were challeng- ing for Asia Pacific. During the first quarter, China saw posi- tive organic growth. However, as the year progressed, higher steel prices put the construction industry under financial strain. This, in combination with strict covid-19 pandemic policies dampened the activity level and negatively affected the demand in China and Pacific during the second half of the year. Despite the lockdowns in several other Asia Pacific countries, activity remained relatively stable. Organic sales grew by 2% with net acquired growth of -2%, primarily driven by the transfer of India to EMEIA. We continue to focus on our business plan for China, where we are working to increase operational stability while improving margins. The operating margin was 5.7% (4.5%), as positive effects from efficiency measures were offset by higher raw material costs and lockdowns in the second half of the year. Cash flow was lower than last year due to increased working capital. Demand for electromechanical products and solutions grew and several new products were launched during the year. Acquisitions One acquisition was conducted during the year: NZ Fire Doors, a manufacturer of fire-rated and specialty doors in New Zealand. Simon Ellis Executive Vice President and Head of Pacific & North East Asia Martin Poxton Executive Vice President and Head of Greater China & South East Asia Comments by Divisional Heads What are the recent trends in your market? – We have seen a significant impact from Covid-19, but it has also led to increased demand in detached dwellings in the Pacific region, while urbanization remains an important trend in the emerging markets. Announcements for invest- ments in government infrastructure have raised expectations of increased commercial activity in the coming years. The growing e-commerce trend is also likely to result in increased demand for digital access solutions. What activities are you working with to accelerate profitable growth? – In the residential segments, we have invested in brand-building activities, and continued to invest in both our digital access solutions and smart residential markets. We have also developed our Building Information Modeling (BIM) competen- cies to support architects to drive more sticky specification and focused on commercial projects in key verticals with higher profitability. How has the implementation of the new organi- zation progressed? – The organizational development has progressed well. We are well underway to realizing the ben- efits from the change. We are seeing the benefits of bringing South Korea, being a more mature economy, into the Pacific region. The focus has Markets Asia Pacific has a leading position in Australia and New Zealand as well as in some Asian countries for locks, access solutions, high security doors and hardware. The Pacific region is a mature market with established standards and regula- tions, while most Asian countries are emerging markets. Urbanization is a driver for growth in Asia and sales for new construction account for most of the business. Through a combination of organic growth and acquisitions we are build- ing a stronger position in the fast-growing Asian markets. The commercial and institutional seg- ments and the residential segment each account for about half of the total sales. What we offer | Divisions We have focused more on commercial projects in key verticals with higher profitability and growth potential such as healthcare, travel, and transportation. also been on sharing best practices in specification and new product development to continue to develop our digital access solutions. How is sustainability impacting the Asia Pacific division? – We are seeing increased demand from custom- ers and are assisting them with their overall sustainability footprint, particularly in commercial construction projects. Sustainability is taking an increasing role in how we are developing new products and servicing our customers. We work with locally manufactured and imported products having green tag certification, removing packaging where not required and in some cases we deliver products in reusable bulk containers. We have also developed more energy efficient solutions such as improved sealing on windows and doors to limit temperature transfer. 38 ASSA ABLOY | ANNUAL REPORT 2021 Divisions | What we offer Global Technologies – HID Global Strong organic growth and margin improvement Overview HID Global is organized into six business areas with the business unit headquarters located in Austin, Texas in the US. The business areas are responsible for global sales and product development in their product area. HID Global powers the trusted identities of the world’s people, places, and things. Our trusted identity solutions give people secure and convenient access to physical and digital places and connect things that can be accurately identified, verified, and tracked digitally. The products and solutions are sold under the master HID brand or by brands endorsed by HID. Institutional and commercial customers are the main end- customer segments. HID Global has about 4,400 employees worldwide. The largest business area is Physical Access Control Solutions. HID Global accounts for some 70% of the Global Technologies division. Financial development Continued restrictions in many markets held back develop- ment during the first half of the year. With vaccine rollouts, increased mobility and a return to offices, growth gradually improved during the second half of the year. However, the component shortage dampened the growth for Physical Access Control particularly in the second half of the year. Secure Issuance and Identification Technologies posted the strongest growth during the year. Tight control and operational efficiencies contributed to improved profitabil- ity and operating leverage during the year. We continued to invest in R&D and several new products and solutions were launched. New products introduced over the past three years accounted for 21% of sales. Acquisitions Four acquisitions were completed in 2021: Invengo in France and InvoTech in the US, both which are real-time inventory management platforms to identify, track and monitor linen and textile assets; Technology Solutions in the UK, a global provider of RFID handheld readers; and Omni ID, a manufacturer of RFID tags and industrial IoT hardware devices based in the US. We also invested in Paravision, a provider of advanced facial recognition solutions. Markets HID Global has a market presence in all continents, with a global leading market position in access control solu- tions. Every day millions of people worldwide use our products, for billions of things that need to be identified, verified, and tracked. We work with governments, universi- ties, hospitals, financial institutions, and some of the most innovative companies on the planet. Through a combina- tion of innovative new products and solutions as well as acquisitions we have a leading position in trusted identities. Comments by Divisional Head What are the recent trends in your market? – The market continues to be dynamic, and we have seen demand for mobile, location services, and access solutions accelerate, especially as employees return to the office. Semiconductor shortages posed a challenge and required us to be agile. Partnerships and mergers and acquisitions activity have been robust as new players, including large technology companies, become increasingly involved in the identity ecosystem. What activities are you working with to accelerate profitable growth? – Our organic growth and M&A priorities, comple- mented by our innovation focus, will allow us to achieve our ambition to double HID’s sales in a few years. We are investing in sales capabilities across businesses to drive growth in current and new markets, while continuing to create value through M&As. Mobile solutions, biometrics, and location services represent a few of the key product areas where we are driving innovation. How did the demand for our office-related access solutions develop in 2021? – The pandemic has accelerated the adoption of digital and touchless access solutions to assist with contact tracing and social distancing. End-user or- ganizations also focused on upgrading their access solutions from legacy to modern technologies to prepare for the new, mobile-first normal. Björn Lidefelt Executive Vice President and Head of Global Technologies business unit HID Global The pandemic has accelerated the adoption of digital and touchless access solutions to assist with contact tracing and social distancing. How is sustainability impacting HID? – Sustainability serves as a key part of our growth strategy. We have enhanced sustainability in manufacturing by using fewer physical resources and reducing waste. To further minimize our carbon footprint, we are creating digital solutions that reduce our dependency on plastics and lessen the need to ship physical products globally. 39 ANNUAL REPORT 2021 | ASSA ABLOY Global Technologies – Global Solutions Digital access on the rise Overview Global Solutions is a global organization comprising eight verticals, Hospitality, Marine, Senior Care, Education, Critical Infrastructure, Construction, Key and Asset Management, and Self Storage. Each vertical is responsible for its own manufacturing, sales, and solutions developments. Global Solutions’ products include electronic locks, safes, access management, credentials, and software services. Its in- novative solutions are sold under the ASSA ABLOY master brand and the Traka and Abloy brands. The division has around 2,100 employees worldwide. The largest vertical is Hospitality, offering advanced electronic locking solutions in combination with a range of tailored services for guest convenience. Global Solutions accounts for some 30% of the Global Technologies division. Financial development Mobility remained at low levels globally during most of the year, which had a significant negative effect on Hospital- ity and Marine. A gradual increase in travel volumes was noted from the second quarter of the year. The trend with hotels upgrading to mobile key solutions continued. Critical Infrastructure, Construction and Key and Asset Management reported very strong growth during the year, positively affected by the removal of many restrictions. Senior Care also grew strongly as more customers are appreciating the advantages with our digital access offering. We continued to invest in new, innovative solutions and launched several new solutions. New products introduced over the past three years accounted for 26% of total sales. Acquisitions One acquisition was conducted in 2021: Traka Iberia, a distributor of Key and Asset Management Solutions in Spain and Portugal. Markets ASSA ABLOY Global Solu- tions has a presence in all continents, with leading market positions in the hospitality and marine segments for access solu- tions. Our systems and products are installed in hotel rooms and cruise ships worldwide. Through a combination of acquisi- tions and innovative solutions utilizing Group technology, we continue to increase our footprint in verticals like senior care facilities, education, construction sites, key and asset management and critical infrastructure. Comments by Divisional Head What are the recent trends in your market? – The most pressing trend is for seamless and mo- bile access, with greater awareness of how they can contribute to more hygienic environments. This is matched by continued interest in devices connected by IoT networks and cloud control. Furthermore, we see a stronger demand for new business models such as service and recurring revenue. The drive for digital and mobile access can also be seen across our verticals. What activities are you working with to accelerate profitable growth? – There are four key growth drivers. Firstly, we are moving forward with digitalization across several industries. Secondly, we are using the recent success of key products to drive geographic expansion. Thirdly, in line with this we are always scanning the market for relevant acquisitions. Fourthly, we continue to improve user experi- ences, so customer interactions are as seamless as possible. Moreover, we are introducing cloud- based access control management platforms, investing in new products as well as developing service centers closer to our customers. What will your priorities be in 2022 as a new leader for Global Solutions? – The world is gradually opening up and I see Global Solutions playing a big role in that. Several products such as mobile access are now seen as Stephanie Ordan Stephanie Ordan was appointed Executive Vice President and Head of Global Solutions from September 2021. She succeeds Chris- tophe Sut, who left ASSA ABLOY for a new position outside the Group. What we offer | Divisions Several products such as mobile access are now seen as essential for safe re-opening of our societies. essential for safe re-opening of our societies. We also plan to expand by showcasing the benefits of these products in new regions and are assessing new verticals as well. How is sustainability impacting Global Solutions? Improving sustainability is of real importance to us and our customers. Innovation in our product range is a key focus, particularly around reducing energy usage where we are working on ultra low-power locks. We are designing with sustain- ability in mind and looking to give clients as much information and transparency on our products as possible. 40 ASSA ABLOY | ANNUAL REPORT 2021 Divisions | What we offer Entrance Systems Record-high organic growth Overview Entrance systems is a global organization with four business segments: Pedestrian, Industrial, Residential and Perimeter Security. The business segments are responsible for sales, manufacturing and product development in their specific product areas. The divisional headquarters are located in Switzerland. Entrance Systems manufactures and sells entrance automation products, services and perimeter se- curity. The route to market is both direct and indirect, with the master brand ASSA ABLOY and the brand, agta record, in the direct channel, and a number of brands in the indirect channel. Entrance Systems has about 14,700 employees worldwide. The largest business segment is Industrial fol- lowed by Pedestrian. Financial development There was very strong sales growth during the year driven primarily by a continued strong e-commerce market and residential renovations. This resulted in positive demand for our Perimeter Security, Residential and Industrial segments. Sales growth was also positively impacted by price increases as a result of higher raw material prices, which contributed to strong organic sales growth of 14% for the division. Despite the higher raw material costs, the operating margin improved to 15.3% (14.4%). Synergies realized from the in- tegration of agta record contributed to the positive margin. Investments in our service organization continued and sales development was positive. Cash flow was strong with a con- version rate of 80%. The share of new products introduced over the past three years was 19% of sales. Acquisitions Two acquisitions were completed. Capitol Door Service, a leading pedestrian door distributor and service company based in the US and B&B Roadway and Security Solutions, a manufacturer of roadway safety, traffic control and perim- eter security solutions in the US. Markets Entrance Systems is a global leader in automated entrance solutions. The product portfolio includes automatic, industrial, and commercial, high perfor- mance, residential garage and hangar doors. It also includes loading dock equipment, perimeter security, maintenance, and service. The entrance solutions are sold both directly to end-users as well as through several distribution channels. About 20% of sales are in the residential sector and 80% are in the com- mercial and institutional segments. Comments by Divisional Head What are the recent trends in your market? – The pandemic has continued to accelerate e-commerce adoption which has led to increased demand from logistical centers and warehouses. To meet the increased demand for hygiene, we have developed services and solutions such as door operators for touchless entry and exit into a building. There is also an ongoing trend towards consumers improving their living spaces, which is particularly evident in our residential garage business. What activities are you working with to accelerate profitable growth? – A key pillar of growth is our increased focus on service and the aftermarket, where we invest in our service organization to create additional customer value. Our customers demand con- nectivity and real-time information, and we can provide them with this through our Docking Management System. This connects our products, providing real-time data to our customers and our service teams for better management, control and maintenance of their fleet operations. What will your priorities be in 2022 as a new leader for ASSA ABLOY Entrance Systems? – Apart from safety, service excellence is at the core of our business and will continue to be a key pillar of our strategy. Customers are demand- ing intelligent solutions so our focus will be on Massimo Grassi Massimo Grassi was appointed Executive Vice President and Head of the Entrance Systems division from September 2021. He succeeds Christopher Norbye, who left ASSA ABLOY for a new position outside the Group. A key pillar of growth is our increased focus on service and the aftermarket, where we invest in our service organization to create additional customer value. customer-led product innovation in connectivity. We also continue to see opportunities in emerg- ing markets and are focused on increasing our presence through greater penetration in these markets. How is sustainability impacting the Entrance Systems division? – Sustainability is changing our division for the better and employees are becoming more aware that they can make a difference as an individual. An example of this is our initiative to reduce waste generation where we are working with our vendors on pallet return programs instead of crushing them along with other waste in our compactors. Our engineering team is also excited about designing and investing in automation that is more efficient in terms of energy consumption. For example, moving away from hydraulic air solu- tions to electromechanical solutions to reduce the energy need. Furthermore, many of our products improve energy efficiency. 41 ANNUAL REPORT 2021 | ASSA ABLOY Report of the Board of Directors and Financial statements Contents Report of the Board of Directors Significant risks and risk management 46 Corporate governance 49 Board of Directors 54 Executive Team 56 Internal control – financial reporting 59 Guidelines for remuneration to senior executives 60 Consolidated financial statements Sales and income 62 Consolidated income statement 63 Consolidated statement of comprehensive income 63 Comments by division 64 Reporting by division 65 Financial position 66 Consolidated balance sheet 67 Cash flow 68 Consolidated statement of cash flows 69 Changes in consolidated equity 70 Parent company financial statements Income statement – Parent company 71 Statement of comprehensive income – Parent company 71 Balance sheet – Parent company 72 Cash flow statement – Parent company 73 Change in equity – Parent company 73 Notes 1 Significant accounting and valuation principles 74 2 Sales 79 3 Auditors’ fees 80 4 Other operating income and expenses 80 5 Share of earnings in associates 80 6 Recognition of leases for the Parent company 80 7 Expenses by nature 81 8 Depreciation and amortization 81 9 Exchange differences in the income statement 81 10 Financial income 81 11 Financial expenses 81 12 Tax on income 81 13 Earnings per share 81 14 Intangible assets 82 15 Property, plant and equipment 84 16 Right-of-use assets 84 17 Shares in subsidiaries 85 18 Investments in associates 85 19 Deferred tax 86 20 Other financial assets 86 21 Inventories 86 22 Trade receivables 86 23 Parent company’s equity and proposed distribution of earnings 86 24 Share capital, number of shares and dividend per share 87 25 Post-employment employee benefits 87 26 Other provisions 89 27 Other current liabilities 89 28 Accrued expenses and deferred income 89 29 Assets pledged against liabilities to credit institutions 89 30 Contingent liabilities 89 31 Cash flow items 89 32 Reserves 90 33 Business combinations 90 34 Employees 91 35 Financial risk management and financial instruments 93 Five years in summary 99 Comments on five years in summary 100 Definitions of key ratios 101 Board of Directors and CEO assurance 102 Auditor’s report 103 42 ASSA ABLOY | ANNUAL REPORT 2021 Significant events Sales and income Business operations performed positively during the year, with gradual recovery of demand on most markets, primar- ily in North and South America and Europe. However, recov- ery was slower in Asia overall and for travel-related verticals in general on account of continued restrictions during the Covid-19 pandemic. Sales increased by 8 percent for the full year and amounted to SEK 95,007 M (87,649). Organic growth was 11 percent (–8) and net acquired and divested growth was 2 percent (4). The exchange rate effect on sales was –5 percent (–3). Operating income (EBIT) excluding items affecting comparability increased by 19 percent to SEK 14,181 M (11,916), equivalent to an operating margin of 14.9 percent (13.6). The improvement in income is primarily due to the strong sales growth, driven by improved global demand dur- ing the year. However, high price rises for raw materials of importance to the Group, combined with a general scarcity of certain materials and components in the latter part of the year, had a negative impact on income. There were no items affecting comparability in 2021. Corresponding items for 2020 consisted of a positive revalu- ation to fair value of the former shareholding in agta record (shareholdings in associates) of SEK 1,909 M and costs for the restructuring program totaling SEK 1,366 M before tax. Net financial items were SEK –643 M (–782). Income before tax excluding items affecting comparability totaled SEK13,538 M (11,133), an increase of 19 percent. The effec- tive tax rate on income excluding items affecting compara- bility was 19.5 percent (24.8). The lower effective tax rate is primarily due to non-recurring positive tax effects related to an intra-Group brand transfer. Earnings per share after full dilution, excluding items affecting comparability, increased 30 percent to SEK 9.81 (7.54). Operating cash flow remained very strong and amounted to SEK 13,265 M (14,560), corresponding to cash conver- sion of 0.98 (1.31). Restructuring The restructuring program, launched at year-end 2020, pro- ceeded well during 2021, with good savings effects. These activities are part of ASSA ABLOY’s continuous cost savings and efficiency enhancements. Ten plant closures and around thirty office closures are planned during a two-year period. The total cost of the program, which is estimated at SEK 1,366 M before tax, was fully expensed in 2020. The payback period is expected to be about two years. In 2021, just over 1,100 employees left the Group in conjunction with changes in the production and office organization. Two plant closures were implemented during the year, along with a number of other restructuring activi- ties, including conversion from production to final assembly in production units. In recent years, the Group has increasingly concentrated production on its own plants in Asia, Central Europe and Eastern Europe, as well as outsourcing to external suppliers in low-cost countries. Payments for the restructuring programs totaled SEK563M (747) for the year. At year-end 2021, the remain- ing provisions for restructuring measures amounted to SEK658M (1,224). Organization A new organizational structure was implemented begin- ning in 2021 in the Asia Pacific division aimed at facilitating improved opportunities for long-term robust sales growth. Two new business units are being organized within the divi- sion: Opening Solutions Greater China and South East Asia and Opening Solutions Pacific and North East Asia. In connection with the new organizational structure, operations in India, which was previously part of the Asia Pacific division, were moved to the EMEIA division with the aim of creating new growth opportunities. Sales on an annual basis for the operations that were transferred to EMEIA from Asia Pacific totaled about SEK 400 M. The trans- fer of operations has been recognized, from the time of the transfer, as internal acquisitions/divestments between the divisions without any retroactive financial translation. Acquisition of HHI In September 2021, ASSA ABLOY signed a definitive agree- ment to acquire the Hardware and Home Improvement (HHI) division of Spectrum Brands. HHI is a leading provider of security, plumbing, and builders’ hardware products to the North American residential segment, with a diversified product offering of locksets, faucets, and builders’ hardware. HHI is headquartered in California, US, with some 7,500 employees worldwide. The company has manufacturing fa- cilities in the US, Mexico, Taiwan, China, and the Philippines. HHI will become part of the Americas division. The total consideration for the acquisition of HHI amounts to USD 4,300 M on a cash and debt free basis. The acquisition will be fully funded by existing cash and new debt. For the fiscal year ending in September 2020, HHI’s net sales were USD 1,342 M, with an adjusted EBITDA margin of approximately 19 percent. The operating margin effect for ASSA ABLOY is initially expected to be dilutive. The acquisi- Report of the Board of Directors Report of the Board of Directors The Annual Report of ASSA ABLOY AB (publ.), corporate identity number 556059-3575, contains the consolidated financial state- ments for the fiscal year 1 January through 31 December 2021, including the nature and focus of the business. ASSA ABLOY is the global leader in access solutions, dedicated to satisfying end-user needs for security, safety and convenience. 43 ANNUAL REPORT 2021 | ASSA ABLOY tion will be accretive to earnings per share from the start. The acquisition is conditional upon regulatory approval and customary closing conditions, and is expected to close during 2022. ASSA ABLOY has agreed to pay the seller a termination fee of USD 350 M in certain circumstances if the transaction agreement is terminated and required regula- tory approvals would not have been obtained. Other acquisitions In March 2021 ASSA ABLOY completed the acquisition of the Textile Services business unit of Invengo Information Technology Co, Ltd’s, a leading real-time inventory manage- ment platform combining software, RFID tags, equipment and services to efficiently identify, track and monitor linen and textile assets. The company is headquartered in La Ciotat, France. In May 2021 ASSA ABLOY acquired Sure-Loc, a leading supplier of residential locks and associated hardware in the US. The company is headquartered in Salt Lake City, US. In August 2021 ASSA ABLOY acquired Capitol Door Service, a leading pedestrian door distributor and service company in the US. The company is headquartered in Sacramento, US. In August 2021 ASSA ABLOY acquired Omni-ID, a leading manufacturer of RFID tags and industrial IoT hardware devices for passive and active tagging, tracking, monitoring and alerting applications, based in the US. The company is headquartered in Rochester, US. In October 2021 ASSA ABLOY acquired MR Group’s hardware division, a leading supplier of aluminum profile hardware and locks in Portugal. The company is headquar- tered in Águeda, Portugal. In December 2021 ASSA ABLOY acquired B&B Roadway and Security Solutions, a manufacturer of roadway safety, traffic control and perimeter security solutions in the US. The company is headquartered in Texas, US. In December 2021 ASSA ABLOY acquired Małkowski- Martech, a Polish producer of fire-rated curtains and gates. The company is listed on the Warsaw Stock Exchange. The company is headquartered in Czołowo, Poland. In September 2021, ASSA ABLOY signed an agreement to acquire Arran Isle, a leading designer, manufacturer and distributor of door and window hardware in the UK. The company has some 560 employees and has manufacturing and distribution sites in the UK, Ireland, the rest of Europe and China. The acquisition is subject to regulatory approval and customary closing conditions and is expected to close during 2022. The total purchase price of the 13 businesses acquired during the year, including adjustments for acquisitions from previous years, was SEK 1,887 M. The preliminary acquisi- tion analyses indicate that goodwill and other intangible assets with an indefinite useful life amount to SEK 1,276 M. Estimated deferred considerations relating to acquisitions for the year totaled SEK 150 M. No additional acquisitions of non-controlling interests occurred during the year. Divestments In September 2021 ASSA ABLOY divested CERTEGO, a market-leading locksmith and security solutions installation business in the Nordic region. It provides planning, installa- tion and managing of mechanical, electro-mechanical and electronic security solutions for customers across multiple verticals. CERTEGO has a network of around 70 locations and with some 1,200 employees in Sweden, Finland, Norway and Denmark. The impact from the divestment on ASSA ABLOY’s external sales is approximately SEK 1,500 M on an annual basis and will have a positive effect on the consolidated operating margin going forward. The divestment resulted in a capital loss before tax of SEK 196 M. At the end of 2020, ASSA ABLOY sold its Italian residential door business within Gardesa. At the start of 2021, Gardesa’s Italian shutter business was also divested. This divestment resulted in a small capital gain. Research and development ASSA ABLOY’s expenditure on research and development during the year totaled SEK 3,936 M (3,902), equivalent to 4.1 percent (4.5) of sales. The pace of innovation remained high during the year thanks to the continued commitment to invest in research and development. The number of employees in research and development at year-end was just over 2,800, which is comparable to the previous year. Sustainable development A number of ASSA ABLOY units outside Sweden carry on licensable activities and hold equivalent licenses under local legislation. ASSA ABLOY’s units worldwide are working systematically and purposefully to reduce their environmen- tal impact. In accordance with the Swedish Annual Accounts Act, Chapter 6, Section 11, ASSA ABLOY opted to prepare the Sustainability Report as a separate report from the Annual Report. The Sustainability Report has been submitted to the auditor at the same time as the Annual Report. The 2021 Sustainability Report, reporting on the Group’s targets for 2021, and providing details of the 2025 sustain- ability program and other information about sustainable development, is available on the company’s website, assaabloy.com. Internal control and financial reporting ASSA ABLOY’s internal audit and internal control functions have dedicated internal auditors employed in all divisions. The internal audit function increased staff numbers during the year to enhance internal control and compliance in the company in general. The number of reviews was also increased in the past year, with a particular focus on financial reporting, including continuous reconciliation of balance sheets. Transactions with related parties No transactions occurred between ASSA ABLOY and related parties that significantly affected the company’s financial position and performance. Significant events after the financial year-end The war in Ukraine could have a negative business impact on ASSA ABLOY, both short- and long-term. The impact on the business is very difficult to predict due to the uncertainty of market conditions, but the health and safety of our employ- ees is our first priority. Report of the Board of Directors 44 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors Proposed distribution of earnings The following earnings are at the disposal of the Annual General Meeting: Share premium reserve: SEK 787,314,216 Retained earnings carried forward: SEK 11,384,265,521 Net income for the year: SEK 6,631,244,591 Total: SEK 18,802,824,328 The Board of Directors proposes that these earnings be appropriated as follows: A dividend to the shareholders of SEK 4.20 per share SEK 4,665,260,603 Be carried forward to the new financial year SEK 14,137,563,725 Total: SEK 18,802,824,328 1 The Board of Directors’ proposal for a dividend of SEK 4.20 (3.90) per share corresponds to an increase of 8 percent. In order to facilitate a more efficient cash management, the dividend is proposed to be paid in two equal installments, the first with the record date 29 April 2022 and the second with the record date 22 November 2022. If the proposal is adopted by the Annual General Meeting, the first install- ment is estimated to be paid on 4 May 2022 and the second installment on 25 November 2022. 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 ASSA ABLOY’s strong posi- tion will accelerate growth and increase profitability. Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well. 1 The dividend and retained earnings to be carried forward to the new financial year are calculated on the number of outstanding shares at 3 February 2022. No dividend is payable on ASSA ABLOY AB’s holding of treasury shares, the exact number of which is determined on each record date for payment of dividend. ASSA ABLOY AB’s holding of treasury shares amounted to 1,800,000 Series B shares at 3 February 2022. 45 ANNUAL REPORT 2021 | ASSA ABLOY 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 geographical spread, involving exposure to various forms of strategic, operational and financial risks. Strategic risks refer to changes in the business environment with potentially significant effects on ASSA ABLOY’s operations and business objectives. Operational risks comprise risks directly attribut- able 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. Organization ASSA ABLOY’s Board of Directors has overall responsibility 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 structure of ASSA ABLOY, and to keep risk analysis and risk management as close as possible to the actual risks, a large proportion of operational risk management takes place at division and business unit levels. Responsibility ASSA ABLOY’s Board of Directors has overall responsibil- ity for the Group’s strategic direction in close consultation with the Executive Team. Divisions and business units have overall responsibility for management of operational risks, in accordance with ASSA ABLOY’s decentralized approach to organization, responsibility and authority. In the case of financial risks, allocation of responsibilities and control of the Group’s financing activities are regulated in a financial policy adopted by the Board of Directors. A centralized Treasury function then has the main responsibility for financial risks within the framework established in the financial policy, with the exception of credit risks relating to operational business activities, which are managed locally at company level and monitored at division level. Review process Strategic risks, such as competitors, brand positioning and so on, are regularly reviewed at ASSA ABLOY AB’s board meetings. The Group’s operational risk management is continuously monitored by the Executive Team through divisional reporting and divisional board meetings. Financial operations are centralized in a Treasury function, which manages most financial transactions as well as finan- cial risks with a Group-wide focus. ASSA ABLOY’s Treasury monitors the Group’s short- and long-term financing, financial cash management, currency risk and other financial risk management. 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 customer behavior, competitors, brand positioning and country-specific risks. It has recently also been clarified that worldwide health risks posed by pandemics (Covid-19) can significantly impact societies and global demand around the world. ASSA ABLOY has therefore dedicated great effort to protecting the health of its employees. The business has also been negatively impacted by the pandemic. While it is difficult to predict the continued impact of the pandemic on business in 2022 due to the uncertainty in market conditions, the health and safety of ASSA ABLOY employees continues to be our highest priority. Country-specific risks ASSA ABLOY has global market penetration, with sales and production in a large number of countries. The emphasis 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. Consequently, the Group has increased exposure to the emerging markets, which may en- tail a higher risk profile for country-specific risks in the form of inadequate compliance, policy decisions, overall changes in regulations and more. Customer behavior 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 relationships with them, are subject to continuous local review. Competitors As regards competitors, risk analyses are carried out both centrally and locally. Brand positioning 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. Reputational risk 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 for employees and the Code of Conduct for business part- ners. These codes express the Group’s values with regard to matters such as business ethics, human rights and working conditions, as well as the environment, health and safety. Operational risks Operational risks comprise risks directly attributable to business operations, with a potential impact on the Group’s financial position and performance. They include legal and environmental risks, tax risks, acquisition of new businesses, 46 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Significant risks and risk management restructuring measures, availability and price fluctuations of raw materials, and credit losses. This category also includes risks relating to compliance with laws and regulations, as well as to information technology (IT), internal control and financial reporting. See page 48 for a more detailed descrip- tion of the management of these risks. Financial risks The Group’s financial risks mainly comprise financing risk, currency risk, interest rate risk, credit risk, and risks associ- ated with the Group’s pension obligations. A large number of financial instruments are used to manage these risks. Ac- counting principles, risk management and risk exposure are described in more detail in Notes 1 and 35, as well as Note 25, Post-employment employee benefits. 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 borrowing and a solid credit rating. The risk is further reduced by substantial unutilized 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 transaction exposure, i.e. the relative values of exports and imports of goods, is expected to increase over time due to rationalization of production and sourcing. In accordance with financial policy, the Group only hedged a very limited part of current currency flows in 2021. As a result, currency 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 27,071 M (29,755) at year-end 2021. Debt was mainly denominated in 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 swaps are used to adjust interest rate sensitivity. Credit risk Credit risk arises in ordinary business activities and as a result of financial transactions. Trade receivables are spread across a large number of customers, which reduces credit risk. Credit risks relating 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 2021, ASSA ABLOY had obligations for pen- sions and other post-employment benefits of SEK 9,717 M (9,549). The Group manages pension assets valued at SEK 6,981 M (6,035). Provisions in the balance sheet for defined benefit and defined contribution plans and post- employment medical benefits totaled SEK 2,736 M (3,514). Changes in the value of assets and liabilities from year to year are due partly to the development of equity and inter- est rate markets and partly to the actuarial assumptions made. Significant remeasurement of obligations and plan assets is recognized on a current basis in the balance sheet and in other comprehensive income. The assumptions made include discount rates and anticipated inflation and salary increases. ASSA ABLOY’s risks Strategic risks Changes in the business environment with potentially significant effects on operations and business objectives. • Country-specific risks • Customer behavior • Competitors • Brand positioning • Reputational risk • Pandemics and other global health risks Operational risks Risks directly attributable to business operations with a potential impact on financial position and performance. • Legal and environmental risks • Tax risks • Acquisition of new businesses • Restructuring measures • Price fluctuations and availability of raw materials • Credit losses • Insurance risks • Risks relating to internal control • Risks relating to IT Financial risks Financial risks with a potential impact on financial position and performance. • Financing risk • Currency risk • Interest rate risk • Credit risk • Risks associated with pension obligations 47 ANNUAL REPORT 2021 | ASSA ABLOY Significant risks and risk management | Report of the Board of Directors ASSA ABLOY’s operational 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. Ongoing and potential disputes and other legal matters are reported regularly to the Group’s central legal function. Policies and guidelines on compliance with applicable competition, export control, anti- corruption and data protection legislation have been implemented. At year-end 2021, there are considered to be no outstanding legal disputes that may lead to significant costs for the Group. 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. Tax risks Ongoing and potential tax cases are regularly reported to the Group’s central tax function. At year-end 2021, there are considered to be no ongoing tax cases with a significant impact on the Group’s earnings. Acquisition of new businesses Acquisitions are carried out by a number of people with considerable acquisition experience and with the support of, for example, legal and financial consultants. Acquisitions are carried out according to a uniform and predefined Group-wide process. This consists of four documented phases: strategy, evaluation, implementation and integration. ASSA ABLOY maintained a high acquisition rate during the year, acquiring 13 businesses, and signing a contract for the acquisition of HHI, the largest acquisition in the history of the Group. The Group’s acquisitions in 2021 are reported in greater detail in the Report of the Board of Direc- tors and in Note 33, Business combinations. Restructuring measures The restructuring programs mainly entail some production units being closed or changing their focus to mainly performing final assembly, combined with office closures. The restructuring programs are carried on as a series of projects with stipulated activities and schedules. The various projects in the respective restructuring program are systematically moni- tored on a regular basis. The most recent restructuring program was launched at the end of 2020 involving the closure of about ten factories and about thirty offices over a two-year period. The level of activity in the program was high during the year. The scope, costs and savings of the restructuring programs are presented in more detail in the Report of the Board of Directors. Price fluctuations and availability of raw materials Raw materials are purchased and handled primar- ily at division and business unit level. Regional committees coordinate these activities with the help of senior coordinators for selected material components. The market prices of raw material components, for example steel, that are important to the Group rose sharply during the year. For further informa- tion about procurement of materials, see Note 7, Expenses by nature. Credit losses Trade receivables are spread across a large number of customers in many markets. No individual customer in the Group accounts for more than two percent of sales. Commercial credit risks are managed locally at company level and monitored at division level. Receivables from each customer are relatively small in relation to total trade receivables. The risk of significant credit losses for the Group is considered to be limited, but credit risk has been assessed to have increased in the past two years, given the global Covid-19 pandemic and its impact on global demand. Insurance risks A Group-wide insurance program is in place, mainly relating to property, business interruption and liability 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. The Group’s insurance cover is considered to be generally adequate, providing a reasonable balance between assessed risk exposure and insurance costs. Risks relating to internal control The organization is considered to be relatively transparent, with a clear allocation of responsibili- ties. A well-established Controller organization at both division and Group level monitors financial reporting quality. Instructions on the allocation of responsibilities, authorization and procedures for orders, sourcing, etc., are laid out in an internal control guide with rules and regulations that were updated during the year. Compliance is evaluated annually for all operating companies. An annual internal audit of financial reporting is performed for selected Group companies on a rotating basis. ASSA ABLOY’s internal audit and internal control functions have dedicated internal auditors employed in all divisions. More reviews were conducted during the year. Internal control and other related issues are reported in more detail in the Report of the Board of Directors, section on Corporate governance. Further information on risk management relating to financial reporting can be found in the Report of the Board of Directors, section on Corporate governance. See also the section “Basis of prepara- tion” in Note 1. Risks relating to Information technology (IT) Preventive measures are in place to protect business-critical information from unauthorized individuals and organizations. IT security is a high priority area at ASSA ABLOY through constant efforts to maintain and strengthen the level of security for the Group’s business information. 48 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Significant risks and risk management Corporate governance ASSA ABLOY AB is a Swedish public limited liability company with registered office in Stockholm, Sweden, whose Series B share is listed on Nasdaq Stockholm. ASSA ABLOY’s corporate governance is based on the Swedish Companies Act, the Annual Accounts Act, Nas- daq Stockholm’s Rule Book for Issuers and the Swedish Corporate Governance Code (the Code), as well as other applicable external laws, rules and regulations, and internal rules and regulations. This Corporate Governance Report has been prepared as part of ASSA ABLOY’s application of the Code. ASSA ABLOY follows the Code’s principle to “comply or explain” and in 2021 ASSA ABLOY has one deviation to explain. The Nomi- nation Committee deviates from the Code’s Rule 2.4 to the extent that, prior to the 2022 Annual General Meeting, 1 Shareholders At year-end 2021, ASSA ABLOY had 45,698 sharehold- ers. ASSA ABLOY’s principal shareholders are Investment AB Latour (9.5 percent of the share capital and 29.4 percent of the votes) and Melker Schörling AB (3.1 percent of the share capital and 10.9 percent of the votes). Foreign shareholders accounted for 67.3 percent of the share capital and 45.9 percent of the votes. The ten largest shareholders accounted for 36.1 percent of the share capital and 56.4 percent of the votes. For further information on shareholders, see page 110. board member Johan Hjertonsson (Investment AB Latour) is Chairman of the Nomination Committee and, prior to the 2021 Annual General Meeting, the Vice Chairman of the Board of Directors, Carl Douglas (Investment AB Latour), was Chairman of the Nomination Committee. The reason for this deviation is that the major shareholders consider it important to have the representative from the largest share- holder as Chairman of the Nomination Committee. The Corporate Governance Report is examined by ASSA ABLOY’s auditor. ASSA ABLOY’s objective is that its operations should gener- ate good long-term returns for its shareholders and other stakeholders. An effective scheme of corporate governance for ASSA ABLOY can be summarized in a number of interact- ing components, which are described below. Corporate governance structure 1 Shareholders 2 General Meeting 4 Board of Directors 3 Nomination Committee 5 Remuneration Committee 9 Auditor 6 Audit Committee 7 CEO 7 Executive Team 8 Divisions Important external rules and regulations • Swedish Companies Act • Annual Accounts Act • Nasdaq Stockholm’s Rule Book for Issuers • Swedish Corporate Governance Code (www.bolagsstyrning.se) Important internal rules and regulations • Articles of Association • Board of Directors’ rules of procedure • Financial Policy • Accounting Manual • Communication Policy • Insider Policy • Internal control procedures • Code of Conduct and Anti-Corruption Policy ASSA ABLOY’s Articles of Association contain a pre-emp- tion clause for owners of Series A shares regarding shares of Series A. A shareholders’ agreement exists between the Douglas and Schörling families and their related companies that includes an agreement on right of first refusal if any party disposes of Series A shares. The Board of Directors of ASSA ABLOY is not aware of any other shareholders’ agree- ments or other agreements between shareholders in ASSA ABLOY. 49 ANNUAL REPORT 2021 | ASSA ABLOY Corporate governance | Report of the Board of Directors Share capital and voting rights ASSA ABLOY’s share capital at the end of 2021 amounted to SEK 370,858,778 distributed among a total of 1,112,576,334 shares, comprising 57,525,969 Series A shares and 1,055,050,365 Series B shares. The total number of votes amounted to 1,630,310,055. Each Series A share carries ten votes and each Series B share one vote. All shares have a par value of around SEK 0.33 and give shareholders equal rights to the company’s assets and earnings. Repurchase of own shares Since 2010, the Board of Directors has requested and received a mandate from the Annual General Meeting to repurchase and transfer ASSA ABLOY Series B shares. The aim has been, among other things, to secure the company’s undertakings in connection with its long-term incentive programs (LTI). The 2021 Annual General Meeting author- ized the Board of Directors to acquire, 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 number of shares in the company. ASSA ABLOY holds a total of 1,800,000 Series B shares after repurchase. The cost for these shares amounts to SEK 103 M. The shares account for around 0.2 percent of the share capital and each share has a par value of around SEK 0.33. No shares were repurchased in 2021. Share and dividend policy ASSA ABLOY’s Series B share is listed on the Nasdaq Stock- holm Large Cap. At the end of 2021, ASSA ABLOY’s market capitalization amounted to SEK 307,294 M, calculated on both Series A and Series B shares. The Board of Directors’ 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. 2 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 intent to attend are entitled to take part in the General Meeting, either in person or by 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 support- ed by a higher majority. Individual shareholders who wish to submit a matter for consideration at the General Meeting can send such request 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: dividend; adoption of the income statement and balance sheet; discharge of the members of the Board of Direc- tors and the CEO from liability; election of members of the Board of Directors, Chairman of the Board of Directors and auditor; and fees for the Board of Directors and auditor. An Extraordinary General Meeting may be held if the Board of Directors considers this necessary or if ASSA ABLOY’s audi- tor or shareholders holding at least 10 percent of the shares so request. 2021 Annual General Meeting At the Annual General Meeting on 28 April 2021, sharehold- ers representing 52.5 percent of the share capital and 67.6 percent of the votes participated. In light of the Covid-19 pandemic, the Annual General Meeting was carried out solely through advance voting (postal voting) pursuant to temporary legislation. The Annual General Meeting’s resolu- tions included the following. • Dividend of SEK 3.90 per share, paid in two equal installments. • Lars Renström, Carl Douglas, Eva Karlsson, Lena Olving, Sofia Schörling Högberg and Joakim Weidemanis were re-elected as members of the Board of Directors. Birgitta Klasén and Jan Svensson decided not to stand for re-election. • Johan Hjertonsson and Susanne Pahlén Åklundh were elected as new members of the Board of Directors. • Lars Renström was re-elected as Chairman of the Board of Directors, and Carl Douglas was re-elected as Vice Chairman. • The audit firm Ernst & Young AB was re-elected as the company’s auditor. • Remuneration of the Board of Directors. • Approval of the Board of Directors’ report on remunera- tion as per Chapter 8, Section 53 a, of the Swedish Companies Act (remuneration report). • Authorization to the Board of Directors regarding repurchase and transfers of own Series B shares. • A long-term incentive program for senior executives and other key employees in the Group (LTI 2021). For more information about the Annual General Meeting, including the minutes, see ASSA ABLOY’s website assaabloy.com. 2022 Annual General Meeting ASSA ABLOY’s next Annual General Meeting will be held on 27 April 2022 in Stockholm, Sweden. 3 Nomination Committee The 2018 Annual General Meeting adopted in- structions for the Nomination Committee, comprising a procedure for appointing the Nomination Committee, which apply until further notice. According to these instructions, the Nomination Committee shall be composed of repre- sentatives of the five largest shareholders in terms of voting rights registered in the shareholders’ register maintained by Euroclear Sweden AB as of 31 August the year before the Annual General Meeting. Where a shareholder declines to participate in the Nomination Committee, a representative from the largest shareholder in turn shall be appointed. The Nomination Committee prior to the 2022 Annual General Meeting comprises Johan Hjertonsson (Investment AB Latour), Mikael Ekdahl (Melker Schörling AB), Marianne 50 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Corporate governance Nilsson (Swedbank Robur Fonder), Liselott Ledin (Alecta) and Yvonne Sörberg (Handelsbanken Fonder). Johan Hjertonsson is the Chairman of the Nomination Committee. The Nomination Committee has the task of preparing, on behalf of the shareholders, proposals regarding the election of Chairman of the General Meeting; members of the Board of Directors, Chairman of the Board, Vice Chairman of the Board; auditor; fees for the board members including divi- sion between the Chairman, Vice Chairman and the other board members, as well as fees for committee work; fees to the company’s auditor, and any changes of the instruc- tions for the Nomination Committee. The Audit Committee assists the Nomination Committee in work associated with the proposal regarding appointment of the external auditor. Prior to the 2022 Annual General Meeting, the Nomi- nation Committee makes an assessment of whether the current Board of Directors is appropriately composed and fulfills the requirements imposed on the Board of Directors by the company’s present situation and future direction. The annual evaluation of the Board of Directors and its work is part of the basis for this assessment. Moreover, the Nomina- tion Committee applies ASSA ABLOY’s diversity policy for the Board of Directors, which is based on Rule 4.1 of the Code, when preparing its proposal for election of members of the Board of Directors. 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 Nomina- tion Committee can do so by e-mailing: nominationcommittee@assaabloy.com. The Nomination Committee’s proposals for the 2022 An- nual General Meeting are published, at the latest, in conjunc- tion with the formal notification of the Annual General Meet- ing, which is expected to be issued around 23 March 2022. 4 Board of Directors In accordance with the Swedish Companies Act, the Board of Directors is responsible for the organization and administration of the Group and for ensuring satisfactory control of bookkeeping, asset management and other financial circumstances. The Board of Directors decides on the Group’s overall objectives, strategies, Group policies, acquisitions and divestments as well as investments of major importance. Acquisitions and divestments with a value (on a debt-free basis) exceeding SEK 200 M are decided by the Board of Directors. The threshold amount presumes that the matter relates to acquisitions or divestments in accordance with the strategy agreed by the Board of Directors. The Board of Directors approves documents such as the Annual Report and Interim Reports, proposes a dividend to the Annual Gen- eral Meeting, and makes decisions concerning the Group’s financial structure. The Board of Directors’ other ongoing duties include: • appointing, evaluating and if necessary, dismissing the CEO, • approving the CEO’s significant assignments outside the company, • identifying how sustainability issues impact risks to, and business opportunities for, the company, • establishing appropriate guidelines to govern the company’s conduct in society with the aim of ensuring long-term value-creating capability, • ensuring that appropriate systems are in place for follow- ing up and controlling the company’s operations and the risks for the company associated with its operations, • ensuring that there is satisfactory control of the company’s compliance with laws and other regulations relevant to the company’s operations, and its compliance with internal guidelines, and • ensuring that external information provided by the company is transparent, accurate, relevant and reliable. Each year, the Board of Directors reviews and adopts the Board of Directors’ rules of procedure, which is the docu- ment that governs the work of the Board and the distribu- tion of duties between the Board of Directors and the CEO. The rules of procedure include instructions for the CEO, instructions relating to financial reporting and internal control, and instructions to the Remuneration Committee and the Audit Committee. Included in the rules of procedure is a description of the role of Chairman of the Board. In addition to organizing and leading the work of the Board of Directors, the Chairman’s duties include maintaining contact with the CEO to continu- ously monitor the Group’s operations and development, consulting with the CEO on strategic issues, representing the company in matters concerning the ownership struc- ture, ensuring that the Board receives satisfactory informa- tion and data on which to base decisions and ensuring that Board decisions are implemented. In addition, the Chairman should ensure that the work of the Board of Directors is evaluated annually. The Board of Directors has at least four ordinary meetings and one statutory meeting per year. An ordinary Board meeting is always held in connection with the company’s publication of its Year-end Report and Interim Reports. At least once a year the Board of Directors visits one of the Group’s operations, combined with a Board meeting. In addition, extraordinary Board meetings are held when necessary. All meetings follow an approved agenda. Prior to each meeting, a draft agenda, including documentation, is provided to all members of the Board of Directors. 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 members of the Committees are appointed annually by the Board of Directors at the statutory Board meeting. Board of Directors’ composition The Board of Directors, including the Chairman and Vice Chairman of the Board, 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 of six and a maxi- mum of ten members elected by the Meeting. The Board of Directors also has two members who are appointed by employee organizations in accordance with Swedish law. The employee organizations also appoint two deputies. The 51 ANNUAL REPORT 2021 | ASSA ABLOY Corporate governance | Report of the Board of Directors Ordinary Board meeting Year-end results Proposal dividend Annual Report Auditor’s report Sustainability Report Proposals to Annual General Meeting Evaluation Executive Team Acquisitions Ordinary Board meeting Interim Report Q1 Acquisition strategy Acquisitions Remuneration Committee meeting Audit Committee meeting Extraordinary Board meeting (per capsulam) Notice Annual General Meeting Audit Committee meeting Statutory Board meeting (per capsulam) Appointment committee members Adoption Board of Directors’ rules of procedure and Group policies Signatory powers Remuneration Committee meeting Report of the Board of Directors | Corporate governance Board of Directors has consisted of eight elected members and two employee representatives since the 2021 Annual General Meeting. No board members are included in the Executive Team. For a presentation of the Board of Directors, see pages 54–55. The diversity policy that ASSA ABLOY applies with respect to the company’s Board of Directors is based on Rule 4.1 of the Code. The objective is that the composition of the Board of Directors, taking into account the company’s opera- tions, stage of development and other circumstances, shall be appropriate, characterized by versatility and breadth regarding qualifications, experience and background of the elected members, and strive to achieve gender equality. In 2021 the Nomination Committee has taken the diversity policy into account when preparing its proposal for election of members of the Board of Directors prior to the Annual General Meeting. After the election at the 2021 Annual General Meeting, the composition of the members of the Board of Directors elected by the Annual General Meeting is such that 50 percent are women and 50 percent are men, which is in line with the Swedish Corporate Governance Board’s aspiration for each gender to represent a share of at least 40 percent of the Board of Directors. In addition, an in-depth review of the operations of the EMEIA division was conducted during the year to broaden the expertise of the Board of Directors within ASSA ABLOY. Board of Directors’ work in 2021 The Board of Directors held eight meetings during the year (of which two were per capsulam). At the ordinary Board meetings the President and CEO reported on the Group’s performance and financial position, including the outlook for the coming quarters. Acquisitions and divestments were also discussed to the extent they arose. Major issues addressed by the Board of Directors during the year include the Group’s strategy and the impact and consequences of the Covid-19 pandemic. The Board of Directors also focused on the acquisition strategy and addressed the acquisition of the Hardware and Home Improvement division of Spectrum Brands. The Board of Directors also addressed a number of other acquisitions, including those of Capitol Door Service, Arran Isle and B&B Roadway and Security, and the divestment of the Nordic locksmith business CERTEGO as well as the divestments of the Italian residential door business within Gardesa and Gardesa’s Italian shutter business. The Board of Directors visited the EMEIA division’s operations in the Czech Republic during the year. The Board of Directors’ work is summarized in the timeline on pages 52–53. An evaluation of the Board of Directors’ work is con- ducted annually in the form of a web-based survey, which each board member responds to individually. A summary of the results is presented to the Board of Directors. Board members who wish can access the complete results of the evaluation. The Secretary to the Board of Directors presents the complete results of the evaluation to the Nomination Committee. 5 Remuneration Committee Since the statutory Board meeting after the 2021 An- nual General Meeting, the Remuneration Committee has con- sisted of Lars Renström (Chairman) and Johan Hjertonsson. The Remuneration Committee has the task of drawing up guidelines for remuneration to senior executives, which the Board of Directors proposes to the Annual General Meeting for resolution. The Board of Directors shall prepare a proposal for new guidelines at least every fourth year. For information about ASSA ABLOY’s current guidelines for remuneration to senior executives that were adopted at the 2020 Annual General Meeting, see Note 34. The Board of Directors’ proposal for new guidelines prior to the 2022 Annual General Meeting is set out on pages 60–61. The Remuneration Committee also prepares, monitors and evaluates matters regarding salaries, bonus, pension, severance pay and incentive programs for the CEO and other senior executives. The Committee has no decision-making powers. The Committee held two meetings in 2021. Its work included preparing a proposal for the remuneration report, preparing a proposal for the remuneration of the Executive Team, evaluating existing incentive programs, and prepar- ing a proposal for a new long-term incentive program. Remuneration Committee meetings are minuted; a copy of the minutes is enclosed with the materials provided to the Board and a verbal report is given at Board meetings. January February March April May June Summary of Board of Directors’ work and committee meetings in 2021 At the ordinary Board meetings the President and CEO also reported on the Group’s performance and financial position, including the outlook for the coming quarters. 52 ASSA ABLOY | ANNUAL REPORT 2021 Ordinary Board meeting Interim Report Q2 Acquisitions Ordinary Board meeting and visit to operations Visit EMEIA Ordinary Board meeting Interim Report Q3 Strategy Evaluation Board of Directors Ordinary Board meeting Acquisitions Audit Committee meeting Audit Committee meetingRemuneration Committee meeting Corporate governance | Report of the Board of Directors 6 Audit Committee Since the statutory Board meeting after the 2021 Annual General Meeting, the Audit Committee has consisted of Lars Renström (Chairman), Johan Hjertonsson and Lena Olving. The duties of the Audit Committee include continuous monitoring and quality assurance of ASSA ABLOY’s financial reporting. Regular communication is maintained with the company’s external auditor, including on the focus and scope of the audit. The Audit Committee is also responsible for evaluating the audit assignment and obtaining the results of the Swedish Inspectorate of Auditors’ quality control of the auditor, as well as informing the Board of Directors of the results of the evaluation. The Audit Committee also has the task of supporting the Nomination Committee in providing a proposal for the appointment of external auditor. Further- more, the Audit Committee shall review and monitor the im- partiality and independence of the auditor, paying particular attention to whether the auditor provides the company with services other than auditing services. The Audit Committee establishes guidelines for procurement of services other than audit services from ASSA ABLOY’s auditors, and, if applicable, it approves such services according to these guidelines, and establishes guidelines for the appointment of new local audit firms. Otherwise, the Committee has no decision-making powers. The Committee held four meetings in 2021. The com- pany’s external auditor and representatives from senior management also participated at these meetings. More important matters dealt with by the Audit Committee dur- ing the year included internal control, financial statements and valuation matters, tax matters, insurance and risk management matters and legal risk areas. Audit Committee meetings are minuted; a copy of the minutes is enclosed with the materials provided to the Board and a verbal report is given at Board meetings. Remuneration of the Board of Directors The General Meeting passes a resolution on the remu- neration to be paid to board members. The 2021 Annual General Meeting passed a resolution on Board fees totaling SEK 8,500,000 (excluding remuneration for committee work) to be allocated between the members as follows: SEK 2,700,000 to the Chairman, SEK 1,000,000 to the Vice July August September October November December Chairman, and SEK 800,000 to each of the other members elected by the Annual General Meeting. As remuneration for committee work, the Chairman of the Audit Committee is to receive SEK 325,000, the Chairman of the Remuneration Committee SEK 150,000, members of the Audit Committee (except the Chairman) SEK 225,000 each, and member of the Remuneration Committee (except the Chairman) SEK 75,000. The Chairman and other board members have no pension benefits or severance pay agreements. The employee repre- sentatives do not receive board fees. For further information on the remuneration of board members in 2021, see Note 34. Attendance at Board and Committee meetings in 2021 Board members Board Audit Committee Remuneration Committee Lars Renström 1 8 2 2 Carl Douglas 8 Johan Hjertonsson 2 5 2 1 Sofia Schörling Högberg 3 8 2 Eva Karlsson 8 Birgitta Klasén 4 3 2 Lena Olving 5 8 2 Jan Svensson 6 3 2 1 Joakim Weidemanis 8 Susanne Pahlén Åklundh 7 5 Rune Hjälm 8 Mats Persson 8 Total number of meetings 8 4 2 1 Appointed Chairman of the Audit Committee on 28 April 2021. 2 Elected as a new member of the Board at the Annual General Meeting on 28 April 2021 and appointed a member of the Audit Committee and the Remu- neration Committee on the same day. 3 Resigned as member of the Audit Committee on 28 April 2021. 4 Resigned as member of the Board at the Annual General Meeting on 28 April 2021 and thus also resigned as member of the Audit Committee. 5 Appointed a member of the Audit Committee on 28 April 2021. 6 Resigned as member of the Board at the Annual General Meeting on 28 April 2021 and thus also resigned as Chairman of the Audit Committee and member of the Remuneration Committee. 7 Elected as a new member of the Board at the Annual General Meeting on 28 April 2021. 53 ANNUAL REPORT 2021 | ASSA ABLOY Board of Directors Elected by the 2021 Annual General Meeting 1 Lars Renström Chairman. Board member since 2008. Born 1951. Master of Science in Engineering and Master of Science in Business and Economics. President and CEO of Alfa Laval AB 2004–2016. President and CEO of Seco Tools AB 2000–2004. President and Head of Division of Atlas Copco Rock Drilling Tools 1997–2000. Previously a number of senior positions at ABB and Ericsson. Other appointments: Chairman of Tetra Laval Group. Shareholdings (including through compa- nies and related natural parties): 30,000 Series B shares. 2 Carl Douglas Vice Chairman. Board member since 2004. Born 1965. BA (Bachelor of Arts) and D. Litt (h.c.) (Doctor of Letters). Self-employed. Other appointments: Board member of Investment AB Latour. Shareholdings (including through companies and related natural parties): 41,595,729 Series A shares and 63,900,000 Series B shares through Investment AB Latour. 3 Johan Hjertonsson Board member since 2021. Born 1968. Master of Science in Business and Economics. President and CEO of Investment AB Latour since 2019. Previously President and CEO of AB Fagerhult and Lammhults Design Group AB and various management positions within the Electrolux Group. Other appointments: Chairman of Nederman Holding AB, Swegon Group AB, Hultafors Group AB, Nord-Lock International AB, Caljan AS, Alimak Group AB and Latour Industries AB. Board member of Investment AB Latour and Sweco AB. Shareholdings (including through compa- nies and related natural parties): 10,000 Series B shares. 4 Sofia Schörling Högberg Board member since 2017. Born 1978. BSc (Bachelor of Science) in Business Administration. Other appointments: Board member of Melker Schörling AB, Securitas AB and Hexagon AB. Shareholdings (including through companies and related natural parties): 15,930,240 Series A shares and 18,120,992 Series B shares through Melker Schörling AB as well as 325,800 Series B shares through Edeby-Ripsa Skogsförvaltning AB. 5 Eva Karlsson Board member since 2015. Born 1966. Master of Science in Engineering. CEO of Sjöson Industri & Teknik since July 2021. CEO and Vice President Product Supply Arcam EBM 2020-2021. President and CEO of Armatec AB 2014-2019. CEO of SKF Sverige AB and Global Manufacturing Manager 2011-2013. Director of Industrial Marketing & Product Development Industrial Market AB SKF 2005-2010. Various positions in the SKF Group primarily within Manufacturing Management. Other appointments: Board member of Ratos AB, Modvion AB and Sjöson AB. Shareholdings (including through compa- nies and related natural parties): 500 Series B shares. 6 Lena Olving Board member since 2018. Born 1956. Master of Science in Mechanical Engineering. President and CEO of Mycronic AB 2013–2019. COO and Deputy CEO of Saab AB 2008–2013. Various positions within Volvo Car Corpora- tion 1980–1991 and 1995–2008 of which seven years in the Executive Management Team. CEO of Samhall Högland AB 1991–1994. Other appointments: Chairman of the Royal Swedish Opera, ScandiNova Systems AB and Academic Work. Board member of Investment AB Latour, Munters Group AB, NXP Semicon- ductor N.V. and Stena Metall AB. Fellow of the Royal Swedish Academy of Engineering Sciences (IVA). Shareholdings (including through compa- nies and related natural parties): 600 Series B shares. 7 Joakim Weidemanis Board member since 2020. Born 1969. Master of Science in Business and Economics. Executive Vice President and Corporate Officer of Danaher Corporation since 2017. Previously various management positions within Danaher 2011–2017. Head of Product Inspection and Corporate Officer of Mettler Toledo 2005–2011. Previously various operat- ing and corporate development roles within ABB 1995–2005. Other appointments: – Shareholdings (including through compa- nies and related natural parties): – 8 Susanne Pahlén Åklundh Board member since 2021. Born 1960. Master of Science in Engineering. President of the Energy Division of Alfa Laval AB 2017-August 2021. Previoulsy various positions in the Alfa Laval Group Management since 2009. Other appointments: Chairman of Alfdex AB. Shareholdings (including through com- panies and related natural parties): 2,500 Series B shares. Appointments and shareholdings at 31 December 2021 unless stated otherwise. Report of the Board of Directors | Board of Directors 1 2 3 5 6 8 4 7 54 ASSA ABLOY | ANNUAL REPORT 2021 Appointed by employee organizations 9 Rune Hjälm Board member since 2017. Born 1964. Employee representative, IF Metall. Chair- man of European Works Council (EWC) in the ASSA ABLOY Group. Shareholdings (including through compa- nies and related natural parties): – 10 Mats Persson Board member since 1994. Born 1955. Employee representative, IF Metall. Shareholdings (including through compa- nies and related natural parties): – 11 Bjarne Johansson Deputy board member since 2015. Born 1966. Employee representative, IF Metall. Shareholdings (including through compa- nies and related natural parties): – 12 Nadja Wikström Deputy board member since 2017. Born 1959. Employee representative, Unionen. Shareholdings (including through compa- nies and related natural parties): – Independence of the Board of Directors Name Position Independent of the company and its management Independent of the company’s major shareholders Lars Renström Chairman Yes Yes Carl Douglas Vice Chairman Yes No Johan Hjertonsson Board member Yes No Sofia Schörling Högberg Board member Yes No Eva Karlsson Board member Yes Yes Lena Olving Board member Yes No Joakim Weidemanis Board member Yes Yes Susanne Pahlén Åklundh Board member Yes Yes The Board of Directors’ composition and shareholdings Name Position Elected Born Remuneration Committee Audit Committee Series A shares 1 Series B shares 1 Lars Renström Chairman 2008 1951 Chairman Chairman – 30,000 Carl Douglas Vice Chairman 2004 1965 – – 41,595,729 63,900,000 Johan Hjertonsson Board member 2021 1968 Member Member – 10,000 Sofia Schörling Högberg Board member 2017 1978 – – 15,930,240 18,446,792 Eva Karlsson Board member 2015 1966 – – – 500 Lena Olving Board member 2018 1956 – Member – 600 Joakim Weidemanis Board member 2020 1969 – – – – Susanne Pahlén Åklundh Board member 2021 1960 – – – 2,500 Rune Hjälm Board member, employee representative 2017 1964 – – – – Mats Persson Board member, employee representative 1994 1955 – – – – Bjarne Johansson Deputy, employee representative 2015 1966 – – – – Nadja Wikström Deputy, employee representative 2017 1959 – – – – 1 Through companies and related natural parties. Appointments and shareholdings at 31 December 2021 unless stated otherwise. ASSA ABLOY’s Board of Directors ful- fills the requirements for independ- ence in accordance with the Swedish Corporate Governance Code. Board of Directors | Report of the Board of Directors 9 11 10 12 55 ANNUAL REPORT 2021 | ASSA ABLOY Executive Team 1 Nico Delvaux President and CEO since 2018, Head of Global Technologies division since 2018 and of the Asia Pacific division since 2021. Born 1966. Master of Engineering in Electromechanics and executive MBA. Previous positions: President and CEO of Metso Corporation August 2017–February 2018. Previously various positions in the Atlas Copco Group, including Business Area President Compressor Technique 2014– 2017, Business Area President Construction Technique 2011–2014, and various positions in sales, marketing, service, acquisition inte- gration management and General Manager in markets including Benelux, Italy, China, Canada, and the United States 1991–2011. Shareholdings (including through compa- nies and related natural parties): 122,534 Series B shares and 94,787 call options. 2 Erik Pieder Executive Vice President and Chief Financial Officer (CFO) since 2019. Born 1968. MBA and Master of Laws. Previous positions: Various positions in the Atlas Copco Group 1996–2019, including Vice President Business Control Compressor Technique. Shareholdings: 4,700 Series B shares. 3 Lucas Boselli Executive Vice President and Head of Americas division since 2018. Born 1976. Bachelor of Science in Industrial Engineering. Previous positions: Various positions in the ASSA ABLOY Group, including President of ASSA ABLOY Central and South America 2014–2018 and President of Yale Latin America 2012–2014. Previously various posi- tions in Ingersoll Rand 2000–2010. Shareholdings: 32,078 Series B shares. 4 Simon Ellis Executive Vice President and Head of Asia Pacific business unit ASSA ABLOY Opening Solutions Pacific and North East Asia since 2021. Born 1974. MBA. Previous positions: Various positions in the ASSA ABLOY Group, including President of Opening Solutions Pacific Region and Japan 2016–2020 and President of Opening Solutions New Zealand 2013–2016, Gen- eral Manager Security Merchants Australia 2010–2013. Previously various positions in the ASSA ABLOY Group 1997–2010. Shareholdings: 6,999 Series B shares. 5 Maria Romberg Ewerth Executive Vice President and Chief Human Resources Officer (CHRO) since 2019. Born 1978. Bachelor’s degree in Human Resources and MBA. Previous positions: Senior Vice President Human Resources ASSA ABLOY AB 2013– 2019, Vice President Human Resources ASSA ABLOY Entrance Systems 2011–2013. HR manager and HR director ASSA ABLOY Entrance Systems 2008–2011. Previously HR positions in various companies: JELD-WEN Sverige AB, VALEO Engine Cooling AB and Swedish Meats 2003–2008. Shareholdings: 11,618 Series B shares. 6 Massimo Grassi Executive Vice President and Head of Entrance Systems division since 2021. Born 1961. Master of Engineering. Previous positions: Divisional Manag- ing Director, IMI Precision Engineering 2015–2020. Various positions within Stanley Black & Decker Group, including President Stanley Security Europe 2012–2015, Global President Industrial Automotive Repair 2010–2012 and President in Europe 2007–2010. Previously various positions in Pentair Inc., BWT AG and Pirelli. Shareholdings: – Appointments and shareholdings at 31 December 2021 unless stated otherwise. 1 3 5 2 4 6 56 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Executive Team 7 Björn Lidefelt Executive Vice President and Head of Global Technologies business unit HID Global since 2020. Born 1981. Master of Science in Industrial Engineering and Management. Previous positions: Various positions in the ASSA ABLOY Group, including Chief Commercial Officer 2017–2020, and Gen- eral Manager ASSA ABLOY China (security products) 2013–2016. Shareholdings: 10,544 Series B shares. 8 Stephanie Ordan Executive Vice President and Head of Global Technologies business unit Global Solutions since 2021. Born 1976. Master of Business Administration and Engineering Diploma. Previous positions: Vice President Digital and Access Solutions, ASSA ABLOY EMEIA 2018–2021, Head of Energy Storage Busi- ness and Head of Marketing and Communi- cation, Eaton 2014–2018. Strategic Market- ing/New Products Development Director, General Electric 2013–2014. Previously, Application Engineer, Field Sales Engineer, Head of Strategy and Product Management, STMicroelectronics 1999–2013. Shareholdings: 2,536 Series B shares. 9 Martin Poxton Executive Vice President and Head of Asia Pacific business unit ASSA ABLOY Opening Solutions Greater China and South East Asia since 2021. Born 1972. HND in Mechanical and Manufacturing Engineering. Previous positions: Vice President Opera- tions ASSA ABLOY Opening Solutions Asia Pacific 2017–2020, Operations Director Adient China, 2013–2017, Business Unit General Manager and Launch Director Johnsons Controls China 2008–2012. Vari- ous positions in Faurecia China 2004–2008. Previously various positions in Keiper, Johnsons Controls and Flowform B’ham UK, 1992–2004. Shareholdings: 1,142 Series B shares. 10 Neil Vann Executive Vice President and Head of EMEIA division since 2018. Born 1971. Degree in Manufacturing Engineering. Previous positions: Various positions in the ASSA ABLOY Group, including Market Region Manager ASSA ABLOY UK 2014–2018, Market Region Manager Italy and Greece 2012–2014 and Vice President Operations EMEIA 2011–2012. Previously various posi- tions within ASSA ABLOY, Yale and Chubb 1987–2001. Shareholdings: 20,335 Series B shares. Changes in the Executive Team Mogens Jensen, Executive Vice President and Head of the Resi- dential business segment within Entrance Systems division, left the Executive Team on 30 June 2021 to enter retirement. Massimo Grassi was appointed Executive Vice President and Head of Entrance Systems division on 13 September 2021. He succeeded Christopher Norby, who left ASSA ABLOY on 30 June 2021. Stephanie Ordan was appointed Executive Vice President and Head of the Global Technologies business unit Global Solutions on 13 September 2021. She succeeded Christophe Sut, who left ASSA ABLOY on 30 September 2021. On 27 October 2021, ASSA ABLOY announced that Maria Romberg Ewerth, Executive Vice President and Chief Human Resources Officer, had decided to leave ASSA ABLOY. Appointments and shareholdings at 31 December 2021 unless stated otherwise. 7 9 8 10 57 ANNUAL REPORT 2021 | ASSA ABLOY Executive Team | Report of the Board of Directors 7 Organization CEO and Executive Team The Executive Team consists of the CEO, the Heads of the Group’s divisions, the Heads of the business units HID Global, Global Solutions, Opening Solutions Greater China and South East Asia and Opening Solutions Pacific and North East Asia, the Chief Financial Officer and the Chief Human Re- sources Officer. For a presentation of the CEO and the other members of the Executive Team, see pages 56–57. 8 Divisions – decentralized organization ASSA ABLOY’s operations are decentralized. Opera- tions are organizationally divided into five divisions: EMEIA, Americas, Asia Pacific, Global Technologies and Entrance Systems. The fundamental principle is that the divisions should be responsible, as far as possible, for business opera- tions, while various functions at ASSA ABLOY’s Group Center are responsible for coordination, monitoring, policies and guidelines at an overall level. Decentralization is a deliberate strategic choice based on the industry’s local nature and a conviction of the benefits of a divisional control model. The Group’s structure results in a geographical and strategic spread of responsibility ensuring short decision-making paths. 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 five divisions are divided into around 55 business units. These consist in turn of a large number of sales and production units, depending on the structure of the business unit concerned. Apart from monitoring by unit, monitoring of products and markets is also carried out. Policies and guidelines Significant policies and guidelines in the Group include financial control, communication issues, insider issues, in- formation security and data protection, sustainability issues, business ethics and export control. ASSA ABLOY’s financial policy and accounting manual provide the framework for financial control and monitoring. ASSA ABLOY’s communi- cation policy aims to ensure that information is provided at the right time and in compliance with applicable rules and regulations. ASSA ABLOY has adopted an insider policy to complement applicable insider legislation. This policy applies to individuals in managerial positions at ASSA ABLOY AB (including subsidiaries) as well as certain other categories of employees. Information security policies and guidelines are in place to protect business-critical informa- tion from unauthorized individuals and organizations. ASSA ABLOY has adopted a Code of Conduct for em- ployees and a separate ASSA ABLOY Code of Conduct for business partners. The Codes, which are based on a set of internationally accepted conventions, define the values and guidelines that should apply both within the Group and for ASSA ABLOY’s business partners with regard to matters such as business ethics, human rights and working conditions, as well as the environment, health and safety. Moreover, ASSA ABLOY has adopted policies and guide- lines on compliance with competition, export control, anti-corruption and data protection legislation applicable to the Group. 9 Auditor At the 2021 Annual General Meeting, Ernst & Young AB (EY) was re-elected as the external auditor until the end of the 2022 Annual General Meeting. Authorized public accountant Hamish Mabon is the auditor in charge. Hamish Mabon was born in 1965 and holds other significant audit assignments for Skanska AB, Essity AB and SEB. He has been a member of FAR, the institute for the accountancy profession in Sweden, since 1992 and is a FAR Certified Financial Institu- tion Auditor. He holds no shares in ASSA ABLOY AB. EY 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 administration by the Board of Directors and the CEO. The auditor in charge at- tends the 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 Inter- national Standards in Auditing (ISA), and generally accepted auditing standards in Sweden. The audit of the financial statements for legal entities outside Sweden is conducted in accordance with statutory requirements and other appli- cable rules in each country. For information about the fees paid to auditors and other assignments carried out in the Group in the past three financial years, see Note 3 and the Annual Report for 2020, Note 3. 58 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Corporate governance Internal control – financial reporting ASSA ABLOY’s internal control process for financial report- ing is designed to provide reasonable assurance of reliable financial reporting, which is in compliance with generally accepted accounting principles, applicable laws and regula- tions, and other requirements for listed companies. 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 the Board of Directors’ rules of procedure and instructions to the CEO, the Code of Conduct, financial policy, an annual financial evaluation plan etc. Regular meet- ings are held with the Audit Committee. The Group has an internal audit function whose primary objective is to ensure reliable financial reporting and good internal control. All units in the Group apply uniform accounting and reporting instructions. Internal control guidelines have been established and are reviewed annually through a self-assessment regarding internal controls. These Group- wide guidelines have a relatively broad scope and concern business-critical processes. A major focus has been on auditing the reconciliation between various accounts and consolidated reporting in recent years. The entire Group uses a financial reporting system with pre-defined report templates. Risk assessment Risk assessment is built in to the processes in question and a variety of methods are used to assess and limit risk, as well as to ensure that risks are managed in compliance with established policies and guidelines. A number of previously established documents govern the procedures to be used for accounting, finalizing accounts, financial reporting and review. Risk assessment includes identifying and evaluating the risk of material errors in accounting and financial report- ing at Group, division and local levels. The specific material risks that ASSA ABLOY has identified associated with finan- cial reporting are errors in business-critical processes such as sales, purchases, financial statements, inventories, facili- ties management, taxes, legal issues, occupational injuries and the risk of fraud, loss or embezzlement of assets. Control activities The Group’s controller and accounting organization at both central and division levels 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 are submitted to the Audit Committee and the auditors. Each division has employed full-time internal auditors who audit the companies and monitor internal control. 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 analysis of financial outcomes is carried out at both business unit and division levels and as part of the established operating Board structure. The Group also has established procedures for external communication of financial information, in accord- ance 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 conform to a structure in which sales, earnings, cash flow, capital employed and other impor- tant 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 business planning process and regular forecasts. The Group-wide internal control guidelines are reviewed during the year through self-assessment regarding internal control and continuous follow-up of internal audit reports. 59 ANNUAL REPORT 2021 | ASSA ABLOY Internal control – financial reporting | Report of the Board of Directors The Board of Directors’ proposal of guidelines for remuneration to senior executives Scope The Board of Directors proposes that the Annual General Meeting adopts the following guidelines for the remunera- tion and other employment conditions of the President and CEO and other members of the ASSA ABLOY Executive Team (the “Executive Team”). These guidelines are applicable to remuneration agreed, and amendments to remuneration already agreed, after adoption of the guidelines by the 2022 Annual General Meeting. These guidelines do not apply to any remuneration decided or approved by the General Meeting. Employment conditions of a member of the Executive Team that is employed or resident outside Sweden or that is not a Swedish citizen, may be duly adjusted for compliance with mandatory rules or established local practice, taking into account, to the extent possible, the overall purpose of these guidelines. Promotion of ASSA ABLOY’s business strategy, long-term interests and sustainability One of the strategies for value creation followed by ASSA ABLOY is Evolution through people. With the objective that ASSA ABLOY shall continue to be able to recruit and retain competent employees, the basic principle being that remu- neration and other employment conditions shall be offered on market conditions and be competitive, taking into ac- count both global remuneration practice and practice in the home country of each member of the Executive Team. These guidelines enable ASSA ABLOY to offer the Executive Team a total remuneration that is on market conditions and com- petitive. Prerequisites are thereby established for successful implementation of the Group’s business strategy, which on overall level is to lead the trend towards the world’s most innovative and well-designed access solutions, as well as safeguarding ASSA ABLOY’s long-term interests, including its sustainability. More information about ASSA ABLOY’s business strategy and ASSA ABLOY’s sustainability report is available on ASSA ABLOY’s website assaabloy.com. ASSA ABLOY has on-going share-based long-term incen- tive programs in place that have been resolved by the General Meeting and which are therefore excluded from these guidelines. Future share-based long-term incentive programs proposed by the Board of Directors and submit- ted to the General Meeting for approval will be excluded for the same reason. The purpose of the share-based long-term incentive program is to strengthen ASSA ABLOY’s ability to recruit and retain competent employees, to contribute to ASSA ABLOY providing a total remuneration that is on market conditions and competitive, and to align the interests of the shareholders with the interests of the employees concerned. Through a share-based long-term incentive program, the employees’ remuneration is tied to ASSA ABLOY’s future earnings and value growth. At present the performance criteria used is linked to earnings per share. The programs are further conditional upon the participant’s own investment and holding period of several years. More information about these programs is available on ASSA ABLOY’s website assaabloy.com. Types of remuneration The total yearly remuneration to the members of the Execu- tive Team shall be on market conditions and be competitive and also reflect each member of the Executive Team’s re- sponsibility and performance. The total yearly remuneration shall consist of fixed base salary, variable cash remuneration, pension benefits and other benefits (which are specified below excluding social security costs). Additionally, the General Meeting may – and irrespective of these guidelines – resolve on, among other things, share-related or share price-related remuneration. The variable cash remuneration shall be linked to predetermined and measurable targets, which are further described below, and may amount to not more than 75 percent of the yearly base salary. In order to ensure that the remuneration levels are in line with market conditions and competitive, taking into account the current market condi- tions in the US, the variable cash remuneration for members of the Executive Team employed in the US may amount to not more than 100 percent of the yearly base salary. Additional variable cash remuneration may be paid in specific cases in the form of remuneration with lump sums, provided that such remuneration is only provided at an individual basis for the purpose of recruiting senior executives. Such remuneration may not exceed an amount corresponding to 100 percent of the yearly base salary and the maximum variable cash remuneration, and may not be paid more than once per year and individual. The members of the Executive Team shall be covered by defined contribution pension plans, for which pension pre- miums are based on each member’s yearly base salary and is paid by ASSA ABLOY during the period of employment. The pension premiums shall amount to not more than 35 percent of the yearly base salary. Other benefits, such as company car, life insurance, extra health insurance or occupational healthcare, should be pay- able to the extent this is considered to be in line with market conditions in the market concerned for each member of the Executive Team. Premiums and other costs relating to such benefits may totally amount to not more than 10 percent of the yearly base salary. Furthermore, housing allowance benefit may be added in line with ASSA ABLOY’s policies and costs relating to such benefit may totally amount to not more than 25 percent of the yearly base salary. Premiums and other costs relating to other benefits and housing allow- ance benefit may, however, totally amount to not more than 30 percent of the yearly base salary. Criteria for awarding variable cash remuneration The variable cash remuneration shall be linked to predeter- mined and measurable financial targets, such as earnings per share (EPS), earnings before interest and taxes (EBIT), cash flow and organic growth and can also be linked to strategical and/or functional targets individually adjusted on the basis of responsibility and function. These targets shall be designed so as to contribute to ASSA ABLOY’s business strategy and long-term interests, including its sustainabil- ity, by for example being linked to the business strategy or 60 ASSA ABLOY | ANNUAL REPORT 2021 Report of the Board of Directors | Guidelines for remuneration to senior executives promote the senior executive’s long-term development within ASSA ABLOY. The Remuneration Committee shall for the Board of Directors prepare, monitor and evaluate matters regarding variable cash remuneration to the Executive Team. Ahead of each yearly measurement period for the criteria for awarding variable cash remuneration the Board of Directors shall, based on the work of the Remuneration Committee, establish which criteria that are deemed to be relevant for the upcoming measurement period. To which extent the criteria for awarding variable cash remuneration has been satisfied shall be determined when the measurement period has ended. Evaluations regarding fulfilment of financial targets shall be based on determined financial basis for the relevant period. Variable cash remuneration can be paid after the meas- urement period has ended or be subject to deferred pay- ment. Paid variable cash remuneration can be claimed back when such right follows from general principles of law. Duration of employment and termination of employment The members of the Executive Team shall be employed until further notice. If notice of termination is made by ASSA ABLOY, the notice period may not exceed 12 months for the CEO and 6 months for the other members of the Executive Team. If the CEO is given notice, ASSA ABLOY is liable to pay, including severance pay and remuneration under the notice period, the equivalent of maximum 24 months’ base salary and other employment benefits. If any other member of the Executive Team is given notice, ASSA ABLOY is liable to pay a maximum of 6 months’ base salary and other employment benefits plus severance pay amounting to a maximum of an additional 12 months’ base salary. If notice of termination is made by a member of the Executive Team, the notice period may not exceed 6 months, with no right to severance pay. A member of the Executive Team may, for such time when the member is not entitled to severance pay, be compen- sated for non-compete undertakings. Such compensation shall amount to not more than 60 percent of the monthly base salary at the time of the termination and shall only be paid as long as the non-compete undertaking is applicable, at longest a period of 12 months. Remuneration and employment conditions for employees In the preparation of the Board of Directors’ proposal for these remuneration guidelines, remuneration and employment conditions for employees of ASSA ABLOY have been taken into account by including information on the employees’ total remuneration, the components of the remuneration and increase and growth rate over time in the Remuneration Committee’s and the Board of Directors’ basis of decision when evaluating whether the guidelines and the limitations set out herein are reasonable. The decision-making process to determine, review and implement the guidelines The Remuneration Committee’s tasks include preparing the Board of Directors’ decision to propose guidelines for remu- neration to the Executive Team. The Board of Directors shall prepare a proposal for new guidelines at least every fourth year and submit it to the Annual General Meeting. The guidelines shall be in force until new guidelines are adopted by the General Meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remunera- tion to the Executive Team, the application of the guidelines for remuneration to the Executive Team as well as the ap- plicable remuneration structures and remuneration levels in ASSA ABLOY. The members of the Remuneration Commit- tee are independent of the company and its management. The CEO and other members of the Executive Team do not participate in the Board of Directors’ processing of and reso- lutions regarding remuneration-related matters in so far as they are affected by such matters. Deviation from the guidelines The Board of Directors may temporarily resolve to deviate from the guidelines, in whole or in part, if in a specific case there is special cause for the deviation and a deviation is necessary to serve ASSA ABLOY’s long-term interests, in- cluding its sustainability, or to ensure ASSA ABLOY’s financial viability. As set out above, the Remuneration Committee’s tasks include preparing the Board of Directors’ resolutions in remuneration-related matters. This includes any resolutions to deviate from the guidelines. Description of material changes of the guidelines and how the views of shareholders’ have been taken into consideration These guidelines, which are proposed for the 2022 Annual General Meeting, correspond to a large extent with the guidelines resolved upon by the 2020 Annual General Meeting. However, in the guidelines now proposed, an op- tion to pay additional variable cash remuneration has been introduced and, in addition, the maximum level for variable cash remuneration for members of the Executive Team employed in the US has been adjusted. Please be referred to the section “Types of remuneration” above. No comments or questions on the remuneration guide- lines have emerged in connection with general meeting proceedings. 61 ANNUAL REPORT 2021 | ASSA ABLOY Guidelines for remuneration to senior executives | Report of the Board of Directors Sales and income • Net sales increased by 8 percent to SEK 95,007 M (87,649). Organic growth was 11 percent (–8), while net growth from acquisitions and divestments amounted to 2 percent (4). • Operating income (EBIT) excluding items affecting comparability increased by 19 percent to SEK 14,181 M (11,916), equivalent to an operating margin of 14.9 percent (13.6). • Earnings per share after full dilution and excluding items affecting comparability increased by 30 percent to SEK 9.81 (7.54). Sales The Group’s sales for 2021 amounted to SEK 95,007 M (87,649), cor- responding to a change in sales of 8 percent (–7). Organic growth was 11 percent (–8), while the net contribution from acquisitions and divestments was 2 percent (4). The exchange rate impact on sales was –5 percent (–3). Change in sales % 2020 2021 Organic growth –8 11 Acquisitions and divestments 4 2 Exchange rate effects –3 –5 Total –7 8 Sales by product group Mechanical locks, lock systems and fittings accounted for 23 percent (24) of total sales. Electromechanical and electronic locks accounted for 30 percent (31) of sales, while entrance automation increased to 31 percent (29). Security doors and hardware accounted for 16 per- cent (16) of sales. Cost structure The Group’s total wage costs, including social security expenses and pension expenses, amounted to SEK 27,921 M (27,170), equivalent to 29 percent (31) of sales. The average number of employees was 50,934 (48,471). Material costs amounted to SEK 33,873 M (30,830), equivalent to 36 percent (35) of sales and other purchasing costs totaled SEK 14,833 M (15,087), equivalent to 16 percent (17) of sales. Depreciation and amortization of non-current assets amounted to SEK 3,841 M (3,776), equivalent to 4 percent (4) of sales. Operating income Consolidated operating income (EBIT) for 2021 amounted to SEK 14,181 M (12,458). Operating income excluding items affecting comparability increased by 19 percent to SEK 14,181 M (11,916), equivalent to an operating margin of 14.9 percent (13.6). The improvement in income was primarily attributable to improvement in global demand and continued efficiency enhancements and cost savings. High price rises for raw materials of importance to the Group, combined with a scarcity of certain material components in the latter part of the year, had a negative impact on operating income. Items affecting comparability No items affecting comparability were recognized for 2021, while there were two items affecting comparability for 2020. The Group launched a new restructuring program in 2020 with a total estimated cost before taxes of SEK 1,366 M, which was expensed in its entirety in 2020. In conjunction with the acquisition of agta record in 2020, the previous shareholding in the associate company was also remeasured at market value through profit or loss. The operating income, which did not affect cash flow, amounted to SEK 1,909 M, with no effect on taxes. Income before tax Consolidated income before tax was SEK 13,538 M (11,676). The exchange rate effect before taxes amounted to SEK –539 M (–510). Net financial items totaled SEK –643 M (–782), mainly because of lower net interest as a result of lower net debt compared with the previous year. The profit margin was 14.2 percent (13.3). The Parent company’s operating income for 2021 totaled SEK 1,053 M (868), mainly because of higher intra-Group operating income compared with the previous year. Tax on income The Group’s tax expense totaled SEK 2,638 M (2,504), equivalent to an effective tax rate excluding items affecting comparability of 19.5 percent (24.8). The reduced tax rate was due to a positive one-time effect from an intra-Group transfer of trademark. The effective income tax rate 2021 excluding the one-time tax effect was 24.4 per- cent. The reported effective tax rate overall amounted to 19.5 per- cent (21.4). Earnings per share Consolidated earnings per share before and after full dilution and excluding items affecting comparability amounted to SEK 9.81 (7.54), an increase of 30 percent. Sales and operating income Sales Operating income 1 1 Excluding items affecting comparability. Sales by product group, 2021 Mechanical locks, lock systems and fittings, 23% (24) Entrance automation, 31% (29) Electromechanical and elec- tronic locks, 30% (31) Security doors and hardware, 16% (16) SEK M SEK M 0 20,000 40,000 60,000 80,000 100,000 2120191817 Omsättning Rörelseresultat 1 0 3,000 6,000 9,000 12,000 15,000 Earnings per share before and after dilution SEK 0 2 4 6 8 10 2120191817 Earnings per share before and after dilution 1 1 Excluding items affecting comparability. 62 ASSA ABLOY | ANNUAL REPORT 2021 Consolidated financial statements Consolidated income statement Consolidated statement of comprehensive income SEK M Note 2020 2021 Sales 2 87,649 95,007 Cost of goods sold –53,336 –57,231 Gross income 34,313 37,777 Selling expenses –14,743 –14,374 Administrative expenses 3 –4,882 –4,928 Research and development costs –3,902 –3,936 Other operating income and expenses 4 1,415 –377 Share of earnings in associates 5 257 19 Operating income 7–9, 25, 34 12,458 14,181 Financial income 10 10 6 Financial expenses 9, 11, 25 –792 –649 Income before tax 11,676 13,538 Tax on income 12 –2,504 –2,638 Net income 9,172 10,901 Net income attributable to: Parent company’s shareholders 9,171 10,900 Non-controlling interests 1 1 Earnings per share Before and after dilution, SEK 13 8.26 9.81 Before and after dilution and excluding items affecting comparability, SEK 13 7.54 9.81 SEK M Note 2020 2021 Net income 9,172 10,901 Other comprehensive income: Items that will not be reclassified to profit or loss Actuarial gain/loss on post-employment benefit obligation 25 –319 917 Deferred tax from actuarial gain/loss on post-employment benefit obligations 56 –211 Total –262 705 Items that may be reclassified subsequently to profit or loss Share of other comprehensive income of associates –70 –6 Cash flow hedges 0 5 Net investment hedges –3 – Exchange rate differences reclassified to profit or loss –318 – Exchange rate differences –4,560 3,468 Tax attributable to items that may be reclassified subsequently to profit or loss 16 –23 Total –4,935 3,444 Total comprehensive income 3,975 15,050 Total comprehensive income attributable to: Parent company’s shareholders 3,975 15,049 Non-controlling interests 0 1 63 ANNUAL REPORT 2021 | ASSA ABLOY Consolidated financial statements Comments by division ASSA ABLOY is organized into five divisions. EMEIA (Europe, Middle East, India and Africa), Americas (North and South America) and Asia Pacific (Asia and Oceania) manufacture and sell mechanical and electromechanical locks, security doors and hardware in their respective geographic markets. Global Technologies operates world- wide in the product areas of access control systems, secure card issuance, identification technology and hotel locks. Entrance Systems is a global supplier of entrance automation products and service. Opening Solutions EMEIA Sales totaled SEK 20,522 M (18,982), with organic growth of 13 per- cent (–8). Net growth from acquisitions, divestments and internal segment transfers was –2 percent (–1). Operating income excluding items affecting comparability amounted to SEK 2,916 M (2,263), with an operating margin (EBIT) of 14.2 percent (11.9). Return on capital employed was 16.2 percent (11.9). Operating cash flow before non- cash items and interest paid was SEK 3,089 M (2,939). Demand recovered strongly for most market regions in EMEIA compared with the previous year, despite the continued impact of the Covid-19 pandemic. Growth remained high in the private resi- dential market, combined with gradual recovery in commercial and institutional segments. Business operations in India were transferred to EMEIA from Asia Pacific at the start of the year. Certego, a locksmith chain in the Nordics, was divested during the year. Opening Solutions Americas Sales totaled SEK 20,507 M (19,013), with organic growth of 14 per- cent (–7). Net growth from acquisitions, divestments and internal segment transfers was 1 percent (–9). Operating income excluding items affecting comparability amounted to SEK 4,200 M (3,698), with an operating margin (EBIT) of 20.5 percent (19.4). Return on capital employed was 30.0 percent (24.4). Operating cash flow before non- cash items and interest paid was SEK 3,722 M (4,837). There was very strong growth, and sales reached a higher level than before the pandemic. Growth in North America was very strong in the private residential market, while there was gradual recovery in commercial customer segments. Demand in Latin America contin- ued to develop very well. The division maintained a good level of profitability. A contract was signed during the year to acquire HHI, a leading supplier to the North American residential market. Opening Solutions Asia Pacific Sales totaled SEK 8,719 M (8,841), with organic growth of 2 percent (–16). Net growth from acquisitions, divestments and internal seg- ment transfers was –2percent (1). Operating income excluding items affecting comparability amounted to SEK 499 M (396), with an oper- ating margin (EBIT) of 5.7 percent (4.5). Return on capital employed was 5.9 percent (4.4). Operating cash flow before non-cash items and interest paid was SEK 285 M (762). Continued restrictions on account of the pandemic led to gradu- ally weaker demand for Asia Pacific during the year, primarily in China and South east Asia. Pacific and South Korea reported growth. A new organization was introduced at the start of the year to achieve long- term growth and improved profitability. The division reported posi- tive organic growth despite challenging market conditions, and the operating margin improved following continued efficiency enhance- ments and staff reductions. Global Technologies Sales totaled SEK 14,604 M (14,158), with organic growth of 5 per- cent (–15). Net growth from acquisitions, divestments and internal segment transfers was 3 percent (10). Operating income excluding items affecting comparability amounted to SEK 2,253 M (2,023), with an operating margin (EBIT) of 15.4 percent (14.3). Return on capital employed was 10.4 percent (8.9). Operating cash flow before non- cash items and interest paid was SEK 3,179 M (2,509). The division continued to be negatively affected by both the pan- demic and the scarcity of certain components in most business units. Continued investments in R&D and several acquisitions strengthened the market position in various areas. Efficiency enhancements and cost savings boosted the operating margin, and cash flow was main- tained at a high level. Entrance Systems Sales totaled SEK 32,690 M (28,323), with organic growth of 14 per- cent (–2). Net growth from acquisitions, divestments and internal segment transfers was 7 percent (15). Operating income excluding items affecting comparability amounted to SEK 4,988 M (4,083), with an operating margin (EBIT) of 15.3 percent (14.4). Return on capital employed was 15.8 percent (13.9). Operating cash flow before non- cash items and interest paid was SEK 3,971 M (4,974). Demand was strong in all business segments. Perimeter Security and Residential performed particularly well. The integration of the previous year’s acquisition, agta record, developed well. The expan- sion of the service organization continued to proceed as planned. The division’s operating margin improved further on the previous year. Other The costs of Group-wide functions, such as the Executive Team, accounting and finance, supply management and Group-wide prod- uct development, totaled SEK 675 M (547). Elimination of sales between the Group’s segments is included in “Other”. EMEIA, 21% (21) Americas, 22% (22) Asia Pacific, 8% (9) Global Technologies, 15% (16) Entrance Systems, 34% (32) External sales, 2021 Average number of employees, 2021 EMEIA, 23% (21) Americas, 19% (18) Asia Pacific, 16% (21) Global Technologies, 13% (13) Entrance Systems, 29% (27) Operating income, 2021 1, 2 EMEIA, 20% (18) Americas, 28% (30) Asia Pacific, 3% (3) Global Technologies, 15% (16) Entrance Systems, 34% (33) 1 “Other” is not included in the calculation. See section Comments by division for what is included in “Other”. 2 Excluding items affecting comparability. 64 ASSA ABLOY | ANNUAL REPORT 2021 Consolidated financial statements Reporting by division SEK M EMEIA Americas Asia Pacific Global Technologies Entrance Systems Other Total 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Sales, external 18,563 20,040 18,907 20,356 7,916 7,549 14,054 14,495 28,210 32,568 – – 87,649 95,007 Sales, internal 418 483 107 151 926 1,170 105 109 113 123 –1,668 1 –2,036 1 – – Sales 18,982 20,522 19,013 20,507 8,841 8,719 14,158 14,604 28,323 32,690 –1,668 –2,036 87,649 95,007 Organic growth –8% 13% –7% 14% –16% 2% –15% 5% –2% 14% – – –8% 11% Acquisitions and divestments –1% –2% –9% 1% 1% –2% 10% 3% 15% 7% – – 4% 2% Exchange rate effects –1% –3% –2% –7% –2% –1% –3% –5% –2% –6% – – –3% –5% Share of earnings in associates – – – – 9 18 9 1 239 –1 – – 257 19 Operating income, excluding items affecting comparability 2,263 2,916 3,698 4,200 396 499 2,023 2,253 4,083 4,988 –547 –675 11,916 14,162 Operating margin, excluding items affecting comparability 11.9% 14.2% 19.4% 20.5% 4.5% 5.7% 14.3% 15.4% 14.4% 15.3% – – 13.6% 14.9% Restructuring costs –448 – –51 – –303 – –195 – –220 – –150 – –1,366 – Revaluation of associate shareholding – – – – – – – – 1,909 – – – 1,909 – Operating income (EBIT) 1,815 2,916 3,647 4,200 93 499 1,828 2,253 5,772 4,988 –697 –675 12,458 14,181 Operating margin (EBIT) 9.6% 14.2% 19.2% 20.5% 1.1% 5.7% 12.9% 15.4% 20.4% 15.3% – – 14.2% 14.9% Net financial items –782 –643 Tax on income –2,504 –2,638 Net income 9,172 10,901 Operating income (EBIT) 1,815 2,916 3,647 4,200 93 499 1,828 2,253 5,772 4,988 –697 –675 12,458 14,181 Reversal, items affecting comparability 448 – 51 – 303 – 195 – –1,689 – 150 – –542 – Depreciation and amortization 925 969 471 493 355 306 917 923 1,078 1,114 30 37 3,776 3,841 Net capital expenditure –407 –475 –267 –351 –192 –182 –430 –250 –330 –361 –47 –10 –1,674 –1,629 Amortization of lease liabilities –318 –306 –132 –148 –108 –92 –144 –144 –559 –537 –14 –15 –1,275 –1,242 Change in working capital 476 –14 1,067 –471 311 –247 144 397 702 –1,233 –94 73 2,606 –1,496 Operating cash flow by division 2,939 3,089 4,837 3,722 762 285 2,509 3,179 4,974 3,971 –673 –591 15,349 13,656 Non-cash items –95 178 –95 178 Interest paid and received –694 –569 –694 –569 Operating cash flow 14,560 13,265 Capital employed 16,849 17,063 13,201 15,908 8,191 8,653 21,044 22,326 30,231 32,787 –883 –74 88,634 96,663 – of which goodwill 10,475 10,949 10,444 11,700 3,884 4,028 14,881 16,164 18,660 19,662 – – 58,344 62,502 – of which other intangible assets/property, plant and equipment 3,485 3,516 2,713 2,977 2,375 2,483 5,100 5,059 8,362 8,461 99 90 22,134 22,587 – of which right-of-use assets 998 937 387 430 264 243 457 512 1,390 1,270 17 44 3,513 3,436 – of which investments in associates 1 1 – – 589 602 28 32 20 17 – – 637 652 Return on capital employed 11.9% 16.2% 24.4% 30.0% 4.4% 5.9% 8.9% 10.4% 13.9% 15.8% – – 12.5% 15.2% Average number of employees 10,281 11,848 8,787 9,298 9,892 8,259 6,374 6,556 12,883 14,604 254 369 48,471 50,934 1 Of which eliminations SEK –2,036 M (–1,668). The segments have been determined on the basis of reporting to the President and CEO, who monitors the overall performance and makes decisions on resource allocation. The different segments generate their revenue from the manufac- ture and the sale of mechanical, electromechanical and electronic locks, lock systems and fittings, and security doors and hardware. The breakdown of sales is based on customer sales in the respec- tive country. Sales between segments are carried out at arm’s length. For further information on sales, see Note 2. 65 ANNUAL REPORT 2021 | ASSA ABLOY Consolidated financial statements Financial position • Capital employed amounted to SEK 96,663 M (88,634). • Return on capital employed was 15.2 percent (12.5). • The net debt/EBITDA ratio was 1.5 (1.9). SEK M 2020 2021 Capital employed 88,634 96,663 – of which goodwill 58,344 62,502 Net debt 29,755 27,071 Equity 58,879 69,582 – of which non-controlling interests 9 9 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 96,663 M (88,634). Return on capital employed was 15.2 percent (12.5). Intangible assets amounted to SEK 76,336 M (72,452). The increase is mainly due to currency effects and completed acquisi- tions. During the year, goodwill and other intangible assets with an indefinite useful life arose to a preliminary value of SEK 1,276 M (8,325) as a result of completed acquisitions and adjustments of acquisitions made in previous years. A valuation model, based on dis- counted future cash flows, is used for impairment testing of goodwill and other intangible assets with an indefinite useful life. Property, plant and equipment amounted to SEK 8,753 M (8,026). Capital expenditure on property, plant and equipment and intangible assets, less sales of property, plant and equipment and intangible assets, totaled SEK 1,629 M (1,674). Total depreciation, amortization and impairment amounted to SEK 3,841 M (3,776). Trade receivables amounted to SEK 15,844 M (13,665) and inven- tories totaled SEK 13,933 M (10,079) on the reporting date. The aver- age collection period for trade receivables was 51 days (55). Material throughput time averaged 99 days (97). The Group is making system- atic efforts to increase capital efficiency. Net debt Net debt amounted to SEK 27,071 M (29,755), of which pension commitments and other post-employment benefits accounted for SEK 2,736 M (3,514). Net debt decreased during the year because of the strong operat- ing cash flow in combination with exchange rate effects. External financing The Group’s long-term loan financing mainly consists of a GMTN Pro- gram of SEK 15,793 M (16,189), of which SEK 14,862 M (15,047) is long-term, a Private Placement Program in the US totaling USD 225 M, of which USD 75 M (225) is long-term, and loans from financial institutions such as the European Investment Bank (EIB) of EUR 0 M (18) and USD 349 M (366) and the Nordic Investment Bank of EUR 135 M (190). During the year there were no new issues under the GMTN Program and no new long-term loans were raised. Other changes in long-term loans are mainly due to some of the originally long-term loans now having less than 1 year to maturity. The size of the loans was also affected by currency fluctuations, especially regarding the USD. 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, however, the out- standing balance under the Commercial Paper programs was SEK 0 M (0). In addition, substantial credit facilities are available, mainly in the form of a Multi-Currency Revolving Credit Facility of EUR 1,200 M (1,200). Fixed interest terms decreased somewhat during the year, with an average term of 29 months (32) at year-end. Cash and cash equivalents amounted to SEK 4,325 M (2,756) and are invested in banks with high credit ratings. Some of the Group’s main financing agreements contain a cus- tomary 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. Equity Consolidated equity totaled SEK 69,592 M (58,879) at year-end. Return on equity was 17.0 percent (15.5) and the debt/equity ratio, calculated as net debt divided by equity, was 0.39 (0.51). The equity ratio was 53.5 percent (50.1) at year-end. Capital employed and return on capital employedNet debt Net debt Net debt/EBITDA Capital employed Return on capital employed SEK M 0 10,000 20,000 30,000 40,000 2120191817 0 1 2 3 4 SEK M % 0 20,000 40,000 60,000 80,000 100,000 2120191817 0 5 10 15 20 25 66 ASSA ABLOY | ANNUAL REPORT 2021 Consolidated financial statements Consolidated balance sheet SEK M Note 2020 2021 ASSETS Non-current assets Intangible assets 14 72,452 76,336 Property, plant and equipment 15 8,026 8,753 Right-of-use assets 16 3,513 3,436 Investments in associates 18 637 652 Other financial assets 20 212 267 Deferred tax assets 19 1,338 1,264 Total non-current assets 86,178 90,707 Current assets Inventories 21 10,079 13,933 Trade receivables 22 13,665 15,844 Current tax receivables 1,060 1,231 Other current receivables 1,542 1,720 Prepaid expenses and accrued income 2 1,675 1,945 Derivative financial instruments 35 426 262 Short-term investments 35 46 8 Cash and cash equivalents 35 2,756 4,325 Total current assets 31,250 39,267 TOTAL ASSETS 117,428 129,975 EQUITY AND LIABILITIES Equity Parent company’s shareholders Share capital 24 371 371 Other contributed capital 9,675 9,675 Reserves 32 1,794 5,237 Retained earnings including net income for the year 47,030 54,299 Equity attributable to the Parent company’s shareholders 58,870 69,582 Non-controlling interests 9 9 Total equity 58,879 69,592 Non-current liabilities Long-term loans 35 22,381 20,195 Non-current lease liabilities 35 2,477 2,433 Deferred tax liabilities 19 2,868 2,581 Pension provisions 25 3,514 2,736 Other non-current provisions 26 616 460 Other non-current liabilities 2 828 703 Total non-current liabilities 32,683 29,108 Current liabilities Short-term loans 35 3,514 5,042 Current lease liabilities 35 1,085 1,082 Derivative financial instruments 35 172 347 Trade payables 7,027 9,527 Current tax liabilities 1,341 1,598 Current provisions 26 1,159 794 Other current liabilities 2, 27 3,880 3,840 Accrued expenses and deferred income 2, 28 7,687 9,045 Total current liabilities 25,865 31,276 TOTAL EQUITY AND LIABILITIES 117,428 129,975 67 ANNUAL REPORT 2021 | ASSA ABLOY Consolidated financial statements Cash flow • Operating cash flow remained strong and amounted to SEK 13,265 M (14,560). • Cash flow from acquisitions and divestments of subsidi- aries totaled SEK –1,422 M (–5,068). Operating cash flow SEK M 2020 2021 Operating income (EBIT) 12,458 14,181 Restructuring costs 1,366 – Revaluation of previously owned shares in associates –1,909 – Depreciation and amortization 3,776 3,841 Net capital expenditure –1,674 –1,629 Change in working capital 2,606 –1,496 Amortization of lease liabilities –1,275 –1,242 Interest paid and received –694 –569 Non-cash items –95 178 Operating cash flow 14,560 13,265 Cash conversion 1.31 0.98 The Group’s operating cash flow amounted to SEK 13,265 M (14,560), equivalent to 98 percent (131) of income before tax excluding items affecting comparability. Net capital expenditure Net capital expenditure on intangible assets and property, plant and equipment totaled SEK 1,629 M (1,674), equivalent to 63 percent (68) of depreciation and amortization on intangible assets and property, plant and equipment. Change in working capital SEK M 2020 2021 Inventories 687 –2,943 Trade receivables 1,331 –1,289 Trade payables –370 1,959 Other working capital 958 778 Change in working capital 2,606 –1,496 Material throughput time averaged 99days (97). Capital tied up in working capital increased during the year, which had an impact on cash flow of SEK –1,496 M (2,606) overall. Relationship between cash flow from operating activities and operating cash flow SEK M 2020 2021 Cash flow from operating activities 13,658 12,456 Restructuring payments 747 563 Net capital expenditure –1,674 –1,629 Amortization of lease liabilities –1,275 –1,242 Reversal of tax paid 3,104 3,117 Operating cash flow 14,560 13,265 Investments in subsidiaries Cash flow from investments in subsidiaries totaled SEK 2,121 M (–6,238), while divestments of subsidiaries generated a positive cash flow of SEK 699 M (1,170). The cash flow effect from acquisitions and divestments was therefore SEK –1,422 M (–5,068). Acquired cash and cash equivalents totaled SEK 180 M (2,239). Change in net debt Net debt was mainly affected by the strong positive operating cash flow, the dividend to shareholders, acquisitions and exchange rate differences. SEK M 2020 2021 Net debt at 1 January 33,050 29,755 Operating cash flow –14,560 –13,265 Restructuring payments 747 563 Tax paid on income 3,104 3,117 Acquisitions and divestments 5,504 1,201 Dividend 4,277 4,333 Actuarial gain/loss on post-employment benefit obl. 319 –917 Change in lease liabilities –106 –86 Exchange rate differences, etc. –2,580 2,370 Net debt at 31 December 29,755 27,071 Capital expenditureIncome before tax and operating cash flow Income before tax 1 Operating cash flow Net capital expenditure Depreciation and amorti- zation Net capital expenditure as % of sales SEK M 0 3,000 6,000 9,000 12,000 15,000 2120191817 SEK M % 0 1,000 2,000 3,000 4,000 2120191817 0 1 2 3 4 1 Excluding items affecting comparability. 68 ASSA ABLOY | ANNUAL REPORT 2021 Consolidated financial statements Consolidated statement of cash flows SEK M Note 2020 2021 OPERATING ACTIVITIES Operating income 12,458 14,181 Depreciation and amortization 8 3,776 3,841 Revaluation of previously owned shares in associates –1,909 – Restructuring costs 1,366 – Other non-cash items 31 –95 178 Restructuring payments –747 –563 Cash flow before interest and tax 14,850 17,638 Interest paid –699 –564 Interest received 5 –5 Tax paid on income –3,104 –3,117 Cash flow before changes in working capital 11,052 13,952 Change in working capital 31 2,606 –1,496 Cash flow from operating activities 13,658 12,456 INVESTING ACTIVITIES Investments in property, plant and equipment and intangible assets 14, 15 –1,806 –1,713 Sales of property, plant and equipment and intangible assets 14, 15 133 84 Investments in subsidiaries 33 –6,238 –2,121 Divestments of subsidiaries 31 1,170 699 Other investments and divestments 0 –43 Cash flow from investing activities –6,741 –3,094 FINANCING ACTIVITES Dividend –4,277 –4,333 Long-term loans raised 35 5,806 8 Long-term loans repaid 35 –3,252 –2,473 Amortization of lease liabilities –1,275 –1,242 Purchase of shares in subsidiaries from non-controlling interest –16 – Stock purchase plans –22 –54 Change in short-term loans, etc. –1,522 282 Cash flow from financing activities –4,558 –7,813 CASH FLOW 2,359 1,549 CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January 442 2,756 Cash flow 2,359 1,549 Effect of exchange rate differences in cash and cash equivalents –45 20 Cash and cash equivalents at 31 December 35 2,756 4,325 69 ANNUAL REPORT 2021 | ASSA ABLOY Consolidated financial statements Changes in consolidated equity SEK M Parent company’s shareholders Total Share capital Other contribut- ed capital Reserves Retained earnings incl. net income for the year Non-con- trolling interests Opening balance 1 January 2020 371 9,675 6,728 42,369 11 59,154 Net income 9,171 1 9,172 Other comprehensive income –4,934 –262 –1 –5,197 Total comprehensive income –4,934 8,909 0 3,975 Dividend –4,276 –1 –4,277 Stock purchase plans 28 – 28 Total contributions by and distributions to Parent company’s shareholders –4,249 –1 –4,249 Change in non-controlling interest 1 –1 0 Total transactions with shareholders –4,248 –2 –4,249 Closing balance 31 December 2020 371 9,675 1,794 47,030 9 58,879 Opening balance 1 January 2021 371 9,675 1,794 47,030 9 58,879 Net income 10,900 1 10,901 Other comprehensive income 3,444 705 1 4,150 Total comprehensive income 3,444 11,605 1 15,050 Dividend –4,332 –2 –4,333 Stock purchase plans –5 – –5 Total contributions by and distributions to Parent company’s shareholders –4,337 –2 –4,338 Change in non-controlling interest – – – Total transactions with shareholders –4,337 –2 –4,338 Closing balance 31 December 2021 371 9,675 5,237 54,299 9 69,592 Dividend and earnings per shareEquity per share after dilution and return on equity Dividend per share Earnings per share before and after dilution 1 Equity per share after dilution, SEK Return on equity, % SEK % 0 10 20 30 40 50 60 70 2120191817 0 5 10 15 20 25 30 35 SEK 0 2 4 6 8 10 2120191817 1 Excluding items affecting comparability 70 ASSA ABLOY | ANNUAL REPORT 2021 Consolidated financial statements Income statement – Parent company Statement of comprehensive income – Parent company SEK M Note 2020 2021 Administrative expenses 3, 6, 8, 9 –2,279 –2,327 Research and development costs 6, 8, 9 –1,441 –2,004 Capitalized work for own account 8 0 Other operating income and expenses 4 4,580 5,384 Operating income 9, 34 868 1,053 Financial income 10 5,197 6,271 Financial expenses 9, 11 –703 –603 Income before appropriations and tax 5,363 6,721 Group contributions 663 636 Change in excess depreciation and amortization –214 –481 Tax on income 12 –259 –245 Net income 5,552 6,631 SEK M 2020 2021 Net income 5,552 6,631 Other comprehensive income – – Total comprehensive income 5,552 6,631 71 ANNUAL REPORT 2021 | ASSA ABLOY Parent company financial statements Balance sheet – Parent company SEK M Note 2020 2021 ASSETS Non-current assets Intangible assets 14 2,498 5,495 Property, plant and equipment 15 50 40 Shares in subsidiaries 17 35,821 40,339 Other financial assets 20 592 561 Total non-current assets 38,961 46,435 Current assets Receivables from subsidiaries 20,534 17,701 Other current receivables 514 488 Prepaid expenses and accrued income 21 42 Cash and cash equivalents 35 0 0 Total current assets 21,069 18,231 TOTAL ASSETS 60,030 64,666 EQUITY AND LIABILITIES Equity 23 Restricted equity Share capital 24 371 371 Revaluation reserve 275 275 Statutory reserve 8,905 8,905 Fund for development expenses 184 127 Non-restricted equity Share premium reserve 787 787 Retained earnings including net income for the year 15,664 18,016 Total equity 26,186 28,481 Untaxed reserves 1,125 1,606 Non-current liabilities Long-term loans 35 15,677 14,577 Total non-current liabilities 15,677 14,577 Current liabilities Short-term loans 35 1,594 1,852 Trade payables 154 199 Current liabilities to subsidiaries 14,862 17,531 Other current liabilities 7 9 Accrued expenses and deferred income 28 425 411 Total current liabilities 17,042 20,002 TOTAL EQUITY AND LIABILITIES 60,030 64,666 72 ASSA ABLOY | ANNUAL REPORT 2021 Parent company financial statements Cash flow statement – Parent company Change in equity – Parent company SEK M Note 2020 2021 OPERATING ACTIVITIES Operating income 868 1,053 Depreciation and amortization 8 745 1,244 Other non-cash items 50 49 Cash flow before interest and tax 1,663 2,346 Interest paid and received –258 –281 Dividends received 3,704 3,293 Tax paid and received –505 –189 Cash flow before changes in working capital 4,603 5,169 Change in working capital 751 616 Cash flow from operating activities 5,355 5,785 INVESTING ACTIVITIES Investments in property, plant and equipment and intangible assets –164 –4,231 Investments in subsidiaries –1,472 –5,703 Divestments of subsidiaries – 3,757 Cash flow from investing activities –1,636 –6,178 FINANCING ACTIVITES Dividend –4,276 –4,332 Loans raised 3,080 6,373 Loans repaid –2,500 –1,594 Stock purchase plans –22 –54 Cash flow from financing activities –3,718 393 CASH FLOW 0 0 CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January 0 0 Cash flow 0 0 Cash and cash equivalents at 31 December 0 0 SEK M Restricted equity Non-restricted equity Total Share capital Reval- uation reserve Statutory reserve Fund for devel- opment expenses Share premium reserve Retained earnings Opening balance 1 January 2020 371 275 8,905 219 787 14,326 24,883 Net income 5,552 5,552 Total comprehensive income 5,552 5,552 Dividend –4,276 –4,276 Stock purchase plans 28 28 Reclassifications –35 35 – Total transactions with shareholders –35 –4,213 –4,249 Closing balance 31 December 2020 371 275 8,905 184 787 15,664 26,186 Opening balance 1 January 2021 371 275 8,905 184 787 15,664 26,186 Net income 6,631 6,631 Total comprehensive income 6,631 6,631 Dividend –4,332 –4,332 Stock purchase plans –5 –5 Reclassifications –57 57 – Total transactions with shareholders –57 –4,279 –4,336 Closing balance 31 December 2021 371 275 8,905 127 787 18,016 28,481 73 ANNUAL REPORT 2021 | ASSA ABLOY Parent company financial statements Notes NOTE 1 Significant accounting and valuation principles Group ASSA ABLOY applies International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s RFR 1 Supplementary Accounting Rules for Corporate Groups. The accounting principles are based on IFRS as endorsed by 31/12/2021 and have been applied to all years presented, unless stated otherwise. This Note describes the most sig- nificant accounting principles that have been applied in the preparation of the financial statements, which comprise the information provided on pages 42–98. 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 pre- pared in accordance with the cost method, except for financial assets and liabilities (including derivative instruments) measured at fair value through profit or loss. Totals quoted in tables and statements may not always be the exact sum of the indi- vidual items because of rounding differences. The aim is that each line item should cor- respond to its source and rounding differences may therefore arise. 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 state- ment and balance sheet as well as the supplementary information provided in the finan- cial statements. Consequently, changes in estimates and assessments may lead to changes in the financial statements. Estimates and assessments play an important part in the measurement of items such as identifiable assets and liabilities in acquisitions, in impairment testing of goodwill and other assets, as well as in determining actuarial assumptions for calculating employee benefits. Estimates and assessments also affect valuation of deferred taxes, other provi- sions and deferred considerations, as well as valuation of right-of-use assets and lease liabilities where the Group, when estimating the term of a lease, assesses the likelihood that any extension options will be exercised. Estimates and assessments are continually evaluated and are based on both historical experience and reasonable expectations about the future. The Group considers that estimates and assessments relating to impairment testing of goodwill and other intangible 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 determined 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 mate- rial adjustments in carrying amounts during the next financial year. Material assump- tions and the effects of reasonable changes in them are described in Note14. The actuarial assumptions made when calculating post-employment employee ben- efits also have material importance for the consolidated financial statements. For infor- mation on these actuarial assumptions, see Note25. New and revised standards applied by the Group As of 1 January 2021, the Group has applied the changes to IFRS 9, IAS 39, IFRS 4, IFRS 7 and IFRS 16 as a consequence of the reference rate reform, phase 2. These changes have not had a material impact on the Group’s financial statements. No other new or amended standards with material impact on the Group’s financial statements were applied for the first time in 2021. New and revised IFRS not yet effective No new standards or interpretations that have been published but have not come into force as of the closing date are expected to have a material impact on future financial reports. Consolidated financial statements The consolidated financial statements include ASSA ABLOY AB (the Parent company) and all companies over which the Group has control. The Group controls an entity when the Group is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Companies acquired during the year are included in the consolidated financial state- ments with effect from the date when a controlling interest arose. Companies divested 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 prepared 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 deter- mines on an individual basis for each acquisition whether a non-controlling interest in the acquired company shall be recognized 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. Deferred considerations are classified as financial liabilities and revalued through profit or loss in operating income. Significant deferred considerations are discounted to present value. Acquisition-related transaction costs are expensed as incurred. Intra-Group transactions and balance sheet items, and unrealized profits on transac- tions between Group companies are eliminated in the consolidated financial state- ments. Non-controlling interests Non-controlling interests are based on the subsidiaries’ accounts with application of fair value adjustments resulting from a completed acquisition analysis. Non-controlling interests’ share in subsidiaries’ earnings is recognized 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 recognized sepa- rately in consolidated equity. Transactions with non-controlling interests are recog- nized as transactions with the Group’s shareholders in equity. Associates Associates are defined as companies which are not subsidiaries but in which the Group has a significant (but not a controlling) interest. This generally refers to companies in which the Group’s shareholding represents between 20 and 50 percent of the voting rights. Investments in associates are accounted for in accordance with the equity method. In the consolidated balance sheet, shareholdings in associates are recognized at cost, and the carrying amount is adjusted for the share of associates’ earnings after the acqui- sition date. Dividends from associates are recognized as a reduction in the carrying amount of the holdings. The share of associates’ earnings is recognized in the consoli- dated 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. The chief operating decision maker is the Group’s President and CEO, who is responsible for allocating resources and assessing the performance of the operating segments. The divisions form the operational structure for internal con- trol and reporting and also constitute the Group’s segments for external financial reporting. The Group’s business is divided into five divisions. Three divisions are based on products sold in local markets in the respective division: EMEIA, Americas and Asia Pacific. Global Technologies and Entrance Systems consist of products sold worldwide. Foreign currency translation Functional currency corresponds to local currency in each country where Group com- panies operate. Transactions in foreign currencies are translated to functional currency by application of the exchange rates prevailing on the transaction date. Foreign exchange gains and losses arising from the settlement of such transactions are normally recognized 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 transac- tions relating to qualifying cash flow hedges, which are recognized in other comprehen- sive income. Receivables and liabilities are measured 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 translated at the year-end rate and net income is translated at the average rate. The income statement is translated at the average rate for the period. Exchange dif- ferences arising from the translation of foreign subsidiaries are recognized as translation differences in other comprehensive income. The table below shows the weighted average rate and the closing rate for important currencies used in the Group, relative to the Group’s presentation currency (SEK). Country Currency Average rate Closing rate 2020 2021 2020 2021 United Arab Emirates AED 2.50 2.33 2.23 2.46 Argentina ARS 0.13 0.09 0.10 0.09 Australia AUD 6.35 6.43 6.27 6.56 Brazil BRL 1.81 1.59 1.57 1.59 Canada CAD 6.84 6.82 6.40 7.07 Switzerland CHF 9.78 9.40 9.27 9.86 Chile CLP 0.012 0.011 0.012 0.011 China CNY 1.33 1.33 1.25 1.42 Czech Republic CZK 0.40 0.39 0.38 0.41 Denmark DKK 1.41 1.36 1.35 1.38 Euro zone EUR 10.49 10.15 10.05 10.24 Notes 74 ASSA ABLOY | ANNUAL REPORT 2021 Country Currency Average rate Closing rate 2020 2021 2020 2021 United Kingdom GBP 11.82 11.77 11.08 12.19 Hong Kong HKD 1.18 1.10 1.06 1.16 Hungary HUF 0.030 0.028 0.028 0.028 Israel ILS 2.67 2.65 2.55 2.91 India INR 0.124 0.116 0.112 0.121 Kenya KES 0.087 0.078 0.075 0.080 South Korea KRW 0.0078 0.0075 0.0075 0.0076 Mexico MXN 0.43 0.42 0.41 0.44 Malaysia MYR 2.19 2.07 2.03 2.17 Norway NOK 0.98 1.00 0.95 1.03 New Zealand NZD 5.99 6.06 5.88 6.17 Poland PLN 2.36 2.22 2.21 2.23 Romania RON 2.17 2.06 2.06 2.07 Thailand THB 0.29 0.27 0.27 0.27 Turkey TRY 1.33 0.98 1.12 0.72 US USD 9.18 8.57 8.19 9.05 South Africa ZAR 0.57 0.58 0.56 0.57 Revenue The Group recognizes revenue from contracts with customers based on the five-step model described in IFRS 15. Revenue is recognized when the entity satisfies a perfor- mance obligation by transferring a promised good or service to a customer. The good or service is transferred when the customer acquires control over the asset, which may happen either over time or at a particular point in time. Under the five-step model an entity must complete the following steps before reve- nue can be recognized: Identify contracts with customers, identify performance obliga- tions, determine the transaction price, allocate the transaction price to each of the sep- arate performance obligations, and finally recognize the revenue attributable to each performance obligation. At the beginning of the customer contract ASSA ABLOY determines whether the goods and/or services that are promised in the agreement comprise one performance obligation or several separate performance obligations. A performance obligation is defined as a distinct promise to transfer a good or a ser- vice to the customer. A promised good or service is distinct if both of the following crite- ria are met: a) the customer can benefit from the good or service separately or together with other resources that are readily available to the customer and b) the Group’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. When determining the transaction price, which is the amount of consideration prom- ised in the contract, the Group takes into account any variable considerations, such as cash discounts, volume-based discounts, and right of returns. The transaction price includes variable considerations only if it is highly probable that a significant reversal of the revenue is not expected to occur in a future period. ASSA ABLOY receives payment in advance from customers to a limited extent. No cus- tomer contracts within the Group relating to the sale of goods or services are assessed to contain a significant financing component. The Group does not recognize any contract costs since the Group applies the practical expedient permitted by the standard, under which incremental costs of obtaining a contract are recognized as an expense when incurred if the amortization period of the asset that the Group otherwise would have rec- ognized is one year or less. ASSA ABLOY allocates the transaction price for each performance obligation on the basis of a stand-alone selling price. The stand-alone selling price is the price for which the Group would sell the good or service separately to a customer. In cases where a stand- alone selling price is not directly observable, it is usually calculated based on the adjusted market assessment approach or the expected cost plus a margin approach. Any discounts are allocated proportionately to all performance obligations in the contract, provided there is not observable evidence that the discount does not relate to all performance obligations. ASSA ABLOY recognizes revenue when the Group satisfies a performance obligation by transferring a good or service to a customer, i.e. as the customer gains control over the asset. A performance obligation is met either over time or at a particular point in time. ASSA ABLOY recognizes revenue over time if any of the following criteria are met: a) the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs an obligation b) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced c) the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Revenue that is not recognized over time is recognized at a given point in time, i.e. the point in time when the customer gains control over the asset. The Group’s revenue mainly consists of product sales. Service related to products sold represents a limited share of revenue. Revenue for the sale of the Group’s products is recognized at a given point in time when the customer gains control over the product, usually at the time of delivery. ASSA ABLOY also carries out installation services, which are recognized over time. For shorter installation jobs, revenue is recognized in practice upon completion of installation. Revenue from service contracts is recognized over time. For product sales, a receivable is recognized when the goods have been delivered, since this is usually the point in time when the consideration becomes unconditional. Payment terms for trade receivables differ among geographic markets. Intra-Group sales Transactions between Group companies are carried out at arm’s length and thus at mar- ket 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 recognized when there is reasonable assurance that the company will comply with the conditions attaching to the grant and that the grant will be received. Grants relating to assets are recognized after reducing the carrying amount of the asset by the amount of the grant. Research and development Research expenditure is expensed as incurred. Development expenditure is recognized in the balance sheet to the extent that it is 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. Expenditure on the further 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 attributable to the acquisition, construction or production of a qualifying asset (an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are included in the cost of the asset. Other borrowing costs are recognized as an expense 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. These taxes 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 recognized in the income statement, associated tax effects are also recognized in the income state- ment. The tax effects of items recognized directly against equity or in other comprehen- sive income are themselves recognized against equity or in other comprehensive income. The liability method is used in accounting for deferred tax. This means that deferred tax is recognized on all temporary differences between the carrying 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 recognized to the extent that it is probable that the allowance can be offset against taxable income in future taxation. Deferred tax liabilities for temporary differences relating to investments in subsidiaries are not recognized in the consolidated financial statements, since the Parent company can control the time at which the temporary differences are reversed, and it is not con- sidered 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 deferred taxes relate to the same tax authority. The Group measures each uncertain tax position using either the most likely amount or the expected value, based on the method expected to reflect the outcome in the best way. Assessments are reconsidered when there is new information that affects earlier judgments. Cash flow statement The cash flow statement has been prepared according to the indirect method. The rec- ognized cash flow includes only transactions involving cash payments. Cash and cash equivalents Cash and cash equivalents include cash and bank balances, and short-term financial investments that mature within three months of the acquisition date and are subject to a negligible risk of fluctuation in value. Note 1 continued Notes 75 ANNUAL REPORT 2021 | ASSA ABLOY Goodwill and acquisition-related intangible assets Goodwill represents the positive difference between the acquisition cost and the fair value of the Group’s share of the acquired company’s identifiable net assets at the acqui- sition date, and is recognized at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually to identify any impairment loss. Cash generating units are subject to systematic annual impairment testing using a valua- tion model based on discounted future cash flows. Deferred tax assets based on local tax rates are recognized in terms of tax-deductible goodwill (with corresponding reduction of the goodwill value). Such deferred tax assets are expensed as the tax deduction is uti- lized. Other acquisition-related intangible assets consist chiefly of various types of intel- lectual property rights, such as brands, technology and customer relationships. Identifia- ble acquisition-related intangible assets are initially recognized at fair value at the acquisition date and subsequently at cost less accumulated amortization and impair- ment losses. Amortization is on a straight-line basis over the estimated useful life and amounts to 5–12 years for technology and 8–15 years for customer relationships. Acqui- sition-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 recognized only if it is likely that the future economic benefits associated with the asset will flow to the Group, and if the cost of the asset can be reliably measured. Such an asset is initially recognized at cost and is amortized over its estimated useful life, usually between three and five years. The carrying amount is the cost less accumulated amortization and impairment losses. Property, plant and equipment Property, plant and equipment are recognized at cost less accumulated depreciation and impairment losses. Cost includes expenditure directly attributable to 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 incurred. Depreciable amount is the cost of an asset less its estimated residual value. Land is not depreciated. For other assets, cost is depreciated over the estimated useful life, which for the Group results in the following average depreciation periods: • Buildings 25–50 years • Land improvements 10–25 years. • Machinery 7–10 years • Equipment 3–6 years The residual value and useful life of assets are reviewed at each reporting date and adjusted when necessary. Gain or loss on the disposal of property, plant and equipment is recognized in the income statement as ‘Other operating income’ or ‘Other operating expenses’, and consists of the difference between the selling price and the carrying amount. Leases Within the Group there are a large number of current leases for which the Group is the lessee, mostly relating to offices, premises and vehicles. The Group recognizes a right-of- use asset and a lease liability corresponding to the present value of future lease pay- ments in the balance sheet on the day the leased asset is made available for use. In calcu- lating the present value, the Group’s incremental borrowing rate by currency is used. When measuring right-of-use and lease liability, the Group made estimates and assump- tions such as whether any options to extend or terminate a lease agreement will be exercised. The right-of-use asset is depreciated on a straight-line basis over the lease term, or over the period of use of the underlying asset if the lease transfers ownership of the underlying asset to the Group by the end of the lease term. Depreciation is recognized as an expense in profit or loss, while interest expense attributable to the lease liability is rec- ognized in net financial items. In the statement of cash flows the lease payments are split between interest paid in cash flow from operating activities and amortization of lease liabilities in financing activ- ities. Operating cash flow includes amortization of lease liabilities as an operating com- ponent. The Group does not recognize any right of use or lease liability regarding obligations for short-term leases and low-value leases. Lease payments relating to such leases are reported as operating expenses over the lease term. For periods before 2019 the Group recognizes leases in accordance with IAS 17 which means that lease payments are expensed on a straight-line basis over the term of the lease and are recognized as operating expenses. Impairment Assets with an indefinite useful life are not amortized but are tested for impairment on an annual basis and when events or circumstances indicate that the carrying amount may not be recoverable. For impairment testing purposes, assets are grouped at the lowest organizational 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. Impairment losses are recognized in the amount by which the carrying amount of the asset exceeds the recoverable amount. The recoverable amount is the higher of an 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 the reporting date. Deductions are made for internal profits arising from deliveries between Group companies. Work in progress and finished goods include both direct costs incurred and a fair allocation of indirect production costs. Trade receivables Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Regarding provisions for expected credit losses on trade receivables, see the section Impairment of financial assets. The year’s change in expected credit losses is recognized in the income statement as selling expenses. Financial assets Financial assets include cash and cash equivalents, trade receivables, short-term invest- ments, derivatives and other financial assets. Under IFRS 9, the Group classifies financial assets in the categories financial assets at amortized cost, financial assets at fair value through profit or loss, or financial assets at fair value through other comprehensive income. Financial assets at amortized cost Financial assets at amortized cost mainly comprise trade receivables and cash and cash equivalents. A financial asset is measured at amortized cost if the asset is held within a business model whose objective is to hold financial assets to collect their contractual cash flows, and the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets in this category are initially recognized at fair value plus transaction costs that are directly related to the purchase and then at amortized cost. Financial assets at fair value through other comprehensive income A financial asset is measured at fair value through other comprehensive income if the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and also the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of prin- cipal and interest on the principal amount outstanding. Financial assets in this category are initially recognized at fair value plus transaction costs that are directly related to the purchase and then at fair value through other com- prehensive income. As of the reporting date the Group has no financial assets in this cat- egory. Financial assets at fair value through profit or loss Financial assets that are not recognized in any of the other categories are measured at fair value through profit or loss. Financial assets in this category are initially recognized at fair value. Transaction costs related to financial assets recognized in this category are expensed directly in the income statement. As of the reporting date, this category com- prises shares and participations. Impairment of financial assets The Group applies the IFRS 9 simplified approach to measuring expected credit losses for trade receivables. Under this approach, a provision is made for lifetime expected credit losses for the trade receivable. For calculation of expected credit losses, the trade receivables are grouped based on the number of days past due. Expected credit losses on trade receivables that are not past due are primarily based on actual credit losses from recent years. Impairment that would be considered for other financial assets that are within the scope of expected credit losses have been assessed to be immaterial. Financial liabilities Financial liabilities include deferred considerations, loan liabilities, trade payables and derivatives. Recognition depends on how the liability is classified. The Group classifies financial liabilities in the categories: financial liabilities at amortized cost and financial liabilities at fair value through profit or loss. Financial liabilities are initially measured at fair value less, for a financial liability that is not measured at fair value through profit or loss, transaction costs that are directly related to the acquisition or issue of the financial liability. After initial recognition, finan- Note 1 continued Notes 76 ASSA ABLOY | ANNUAL REPORT 2021 cial liabilities are recognized either at amortized cost or at fair value through profit or loss, depending on the classification of the financial liability. Financial liabilities at fair value through profit or loss This category includes derivatives with a negative fair value that are not used for hedge accounting and deferred considerations. Liabilities are measured at fair value on a con- tinuous basis and changes in value are recognized in the income statement. Loan liabilities Loan liabilities are initially valued at fair value, net of transaction costs, and subsequently at amortized cost. Amortized cost is determined based on the effective interest rate cal- culated when the loan was raised. Accordingly, surplus values and negative surplus val- ues as well as direct issue expenses are allocated over the term of the loan. Non-current loan liabilities have an anticipated term of more than one year, while current loan liabili- ties have a term of less than one year. Trade payables Trade payables are initially valued at fair value, and subsequently at amortized cost using the effective interest method. Recognition and measurement of financial assets and liabilities Acquisitions and sales of financial assets are recognized on the trade date, the date on which the Group commits to purchase or sell the asset. Transaction costs are initially included in fair value for all financial instruments, except for those recognized at fair value through profit or loss where the transaction cost is recognized through profit or loss. The fair value of quoted investments is based on current bid prices. In the absence of an active market for an investment, the Group applies various measurement tech- niques to determine fair value. These include use of available information on current arm’s length transactions, comparison with equivalent assets and analysis of discounted cash flows. A financial asset is derecognized from the balance sheet 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 finan- cial liability is derecognized from the balance sheet when the obligation is fulfilled, can- celled or expires, see above. Financial assets and liabilities are offset against each other and the net amount is recog- nized in the balance sheet when there is a legal right of set-off and there is an intention to settle the items by a net amount. See note 35 for disclosures about offsetting of financial assets and liabilities. Derivative instruments and hedging Derivative instruments are recognized in the balance sheet at the transaction date and are measured at fair value, both initially and in subsequent revaluations. The method for recognizing profit or loss depends on whether the derivative instrument is designated as a hedging instrument, and if so, the nature of the hedged item. For derivatives not designated as hedging instruments, changes in value are recognized on a continuous basis through profit or loss under financial items, either as income or expense. The Group designates derivatives as follows: i) Fair value hedge: a hedge of the fair value of an identified liability; ii) Cash flow hedge: a hedge of a certain risk associated with a forecast cash flow for a certain transaction; or iii) Net investment hedge: a hedge of a net investment in a foreign subsidiary. When entering into the hedge transaction, the Group documents the relationship between the hedging instrument and hedged items, as well as its risk management strategy for the hedge. The Group also documents its assessment, both on inception and on a regular basis, of whether the derivative instruments used in hedge transactions are effective in offsetting changes in fair value attributable to the hedged items. The fair value of forward exchange contracts is calculated at net present value based on prevailing forward rates on the reporting date, while interest rate swaps are meas- ured by estimating future discounted cash flows. For information on the fair value of derivative instruments, see Note 35, ‘Financial risk management and financial instruments’. Derivatives at fair value, with a maturity of more than 12 months, are classified as non-current interest-bearing liabilities or receiv- ables. Other derivatives are classified as current interest-bearing liabilities and invest- ments respectively. Fair value hedges For derivatives that are designated and qualify as fair value hedges, changes in value of both the hedged item and the hedging instrument are recognized on a continuous basis in the income statement (under financial items). Fair value hedges are used to hedge interest rate risk in borrowing linked to fixed interest terms. If the hedge would no longer qualify for hedge accounting, the fair value adjustment of the carrying amount is dissolved through profit or loss over the remaining term using the effective interest method. Cash flow hedges For derivatives that are designated and qualify as cash flow hedges, changes in value of the hedging instrument are recognized on a continuous basis in other comprehensive income for the part relating to the effective portion of the hedges. Gain or loss arising from ineffective portions of derivatives is recognized directly in the income statement under financial items. When a hedging instrument expires, is sold or no longer qualifies for hedge accounting, and accumulated gains or losses relating to the hedge are recog- nized in equity, these gains/losses remain in equity and are taken to income, while the forecast transaction is finally recognized in the income statement. When a forecast trans- action is no longer expected to occur, the accumulated gain or loss recognized in equity is immediately transferred to other comprehensive income in the income statement. When a forecast transaction is no longer expected to occur, the gain or loss recognized in other comprehensive income is recognized directly under financial items. Net investment hedges For derivatives that are designated and qualify as net investment hedges, the portion of value changes in fair value designated as effective is recognized in other comprehensive income. The ineffective portion of the gain or loss is recognized directly in profit or loss for the period under financial items. Accumulated gain or loss in other comprehensive income is recognized in the income statement when the foreign operation, or part thereof, is sold. Provisions A provision is recognized when the Group has a legal or constructive obligation result- ing from a past event and it is probable that an outflow of resources will be required to settle the obligation, and that a reliable estimate of the amount can be made. Provisions are recognized at a value equivalent to the outflow of resources that will probably be required to settle the obligation. The amount of a provision is discounted to present value where the effect of time value is considered material. Assets and liabilities of disposal group classified as held for sale Assets and liabilities are classified as held for sale when their carrying amounts will prin- cipally be recovered through a sale and when such a sale is considered highly probable. They are recognized at the lower of carrying amount and fair value less selling expenses. As of the reporting date the Group had no assets or liabilities classified as held for sale. Remuneration of employees The Group operates both defined contribution and defined benefit pension plans. Com- prehensive defined benefit plans are found chiefly in the US, the UK and Germany. Post-employment medical benefits are also provided, mainly in the US, and 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 num- ber 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. Where a funded plan has a surplus, the net asset is measured at the lower of i) the surplus in the defined benefit plan and ii) the asset ceiling, i.e. the present value of available economic benefits in the form of refunds from the plan or in the form of reductions in future contributions to the plan. Actuarial gains and losses resulting from experience-based adjustments and changes in actuarial assumptions are recognized in other comprehensive income during the period they arise. The pension expense for defined benefit plans is spread over the employee’s service period. The Group’s payments relating to defined contribution pen- sion plans are recognized as an expense in the period to which they relate, based on the services performed by the employee. Swedish Group companies calculate tax on pen- sion costs based on the difference between pension expense determined in accordance with IAS 19 and pension expense determined in accordance with the regulations appli- cable in the legal entity. Equity-based incentive programs The Group has equity-based remuneration plans in the form of ASSA ABLOY’s long-term incentive program presented for the first time at the 2010 Annual General Meeting. Detailed information about the structure of the various programs can be found in Note 34 Employees. For the long-term incentive program, personnel costs during the vesting period are recognized based on the shares’ fair value on the allotment 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 program through 2017 comprised 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 pro- gram and that the latter remains employed in the ASSA ABLOY Group. Beginning in 2018, no matching portion is included in the long-term incentive programs. Fair value is based on the share price on the allotment date; a reduction in fair value relating to the anticipated dividend has not been made as the participants are compen- Note 1 continued Notes 77 ANNUAL REPORT 2021 | ASSA ABLOY 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 personnel costs are recognized in the income statement. Personnel costs for shares relating to the performance-based program are calculated on each accounting date based on an assessment of the probability of the performance tar- gets being achieved. The costs are calculated based on the number of shares that ASSA ABLOY expects to need to settle at the end of the vesting period. When allocating 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 recog- nized as a provision for social security contributions. The long-term incentive programs are essentially equity settled and an amount equivalent to the personnel cost is recognized against retained earnings in equity. In the income statement, the personnel cost is allocated to the respective function. Earnings per share Earnings per share before dilution is calculated by dividing the net income attributable to the Parent company’s shareholders by the weighted average number of outstanding shares (less treasury shares). Earnings per share after dilution 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 recognized if their conversion to ordinary shares would lead to a reduction in earnings per share after dilu- tion. Dividend Dividend is recognized as a liability after the General Meeting has approved the dividend. Parent company The Group’s Parent company, ASSA ABLOY AB, is responsible for Group management and provides Group-wide functions. The Parent company’s revenue consists of intra- Group franchise and royalty revenues. The significant balance 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 the Swedish Financial Reporting Board’s RFR 2 Accounting for Legal Entities. RFR 2 requires the Parent company, in its annual accounts, to apply all the International Financial Reporting Standards (IFRS) adopted 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 and taxation. The recommendation states which exceptions from and additions to IFRS should be made. Revenue The Parent company’s revenue consists of intra-Group franchise and royalty revenues. These are recognized in the income statement as ‘Other operating income’ to make clear that the Parent company has no product sales like other Group companies with external operations. Dividend Dividend revenue is recognized when the right to receive payment is considered certain. Research and development costs Research and development costs are expensed as incurred, with the exception of large product development projects, which have been capitalized. Intangible assets Intangible assets comprise patented technology and other intangible assets. They are amortized over 5–10 years. Property, plant and equipment Property, plant and equipment owned by the Parent company are recognized at cost less accumulated depreciation and any impairment losses in the same way as for the Group. They are depreciated over their estimated useful life, which entails 5–10 years for equipment and 3–5 years for IT equipment. Trade receivables Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The Parent company applies the IFRS 9 simplified approach to measuring expected credit losses for trade receivables. However, the expected credit losses attributable to the Parent company’s trade receiva- bles have been assessed to be immaterial. Pension obligations The Parent company’s pension obligations are accounted for in accordance with FAR RedR 1 and are covered by taking out insurance with an insurance company. Leases The Parent company recognizes leases in accordance with RFR 2, which means that lease payments are expensed in a straight line over the lease term. Shares in subsidiaries Shares in subsidiaries are recognized 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. Impairment losses are recognized in Financial expenses in the income statement. Financial instruments Derivative instruments are recognized at fair value. Changes in the value of derivative instruments are recognized in profit or loss. Group contributions The Parent company recognizes Group contributions in accordance with RFR 2. Group contributions received and paid are recognized under appropriations 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 subsidiaries. Such an obligation is classified as a financial guarantee in accordance with IFRS. For these guarantees, the Par- ent company applies the alternative rule in RFR 2, reporting these guarantees as a con- tingent liability. Note 1 continued Notes 78 ASSA ABLOY | ANNUAL REPORT 2021 NOTE 2 Sales Disaggregation of revenue from contracts with customers Sales by product group SEK M EMEIA Americas Asia Pacific Global Technologies Entrance Systems Other Group 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Mechanical locks, lock systems and fittings 9,012 9,814 7,892 8,562 4,357 4,289 291 294 7 8 –638 –703 20,921 22,264 Electromechanical and electronic locks 6,335 6,757 4,860 5,347 1,916 2,077 13,844 14,283 738 1,016 –800 –1,065 26,892 28,415 Security doors and hardware 3,131 3,392 6,224 6,560 2,497 2,240 24 27 2,364 2,930 –101 –127 14,139 15,023 Entrance automation 504 559 38 39 70 113 – – 25,214 28,737 –129 –141 25,697 29,306 Total 18,982 20,522 19,013 20,507 8,841 8,719 14,158 14,604 28,323 32,690 –1,668 –2,036 87,649 95,007 Sales by continent SEK M EMEIA Americas Asia Pacific Global Technologies Entrance Systems Other Group 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Europe 16,881 17,760 64 92 506 624 3,759 4,247 12,126 14,750 –751 –887 32,584 36,587 North America 426 434 17,354 18,288 797 1,073 6,795 6,790 14,160 15,803 –593 –734 38,939 41,653 Central and South America 64 75 1,436 1,994 43 63 424 430 60 70 –41 –35 1,986 2,597 Africa 665 909 40 12 15 11 386 288 56 49 –23 –34 1,139 1,234 Asia 835 1,213 109 114 5,155 4,503 2,070 2,070 1,126 1,068 –146 –201 9,149 8,767 Oceania 111 131 10 8 2,326 2,445 724 779 794 951 –113 –144 3,852 4,170 Total 18,982 20,522 19,013 20,507 8,841 8,719 14,158 14,604 28,323 32,690 –1,668 –2,036 87,649 95,007 Customer sales by country SEK M Group 2020 2021 US 34,659 36,728 France 4,046 5,503 Sweden 4,767 5,009 United Kingdom 3,843 4,611 Germany 3,616 4,074 China 4,077 3,724 Australia 3,124 3,377 Canada 2,885 3,354 Netherlands 2,179 2,335 Finland 1,999 1,869 Belgium 1,424 1,587 Mexico 1,395 1,571 Norway 1,541 1,497 Denmark 1,400 1,382 Switzerland 1,064 1,308 Spain 1,052 1,217 South Korea 1,355 1,151 Poland 974 1,142 Brazil 788 1,037 Italy 811 898 New Zealand 695 773 Austria 663 736 India 418 607 Ireland 483 566 South Africa 480 554 Czech Republic 440 461 SEK M Group 2020 2021 Chile 355 438 United Arab Emirates 399 437 Singapore 263 339 Saudi Arabia 414 331 Israel 268 294 Hong Kong 281 288 Hungary 243 277 Colombia 171 267 Japan 303 248 Turkey 221 241 Portugal 224 230 Estonia 229 217 Romania 199 214 Egypt 98 212 Russia 169 202 Philippines 159 180 Taiwan 115 174 Thailand 198 166 Malaysia 134 148 Croatia 125 146 Guatemala 125 136 Slovakia 119 119 Slovenia 74 111 Latvia 92 104 Other countries 2,493 2,416 Total 87,649 95,007 Notes 79 ANNUAL REPORT 2021 | ASSA ABLOY Contract assets and contract liabilities The Group recognizes the following revenue-related contract assets and contract liabilities: Contract assets SEK M Group 2020 2021 Accrued revenue 679 831 Total 679 831 Contract liabilities SEK M Group 2020 2021 Non-current advances from customers and deferred revenue 44 48 Current advances from customers and deferred revenue 1,789 2,195 Total 1,833 2,243 Contract assets increased by SEK 152 M during the year, of which acquired companies contributed SEK 16 M. Contract liabilities have increased by SEK 410 M. Acquired and discontinued companies resulted in a net increase in contract liabilities of SEK 18 M during the year. The total contract liability at 31 December 2020 of SEK 1,833 M was to a large extent recognized as income in 2021. Remaining performance obligations The total transaction price allocated to unsatisfied performance obligations at the reporting date amounts to SEK 22,851 M. Of this amount, SEK 21,194 M is expected to be recognized as revenue in 2021, while an estimated SEK 1,657 M will be recognized as revenue in 2022 or later. At 31 December 2020 the total transaction price allocated to unsatisfied perfor- mance obligations was SEK 14,505 M. NOTE 3 Auditors’ fees SEK M Group Parent company 2020 2021 2020 2021 Audit assignment EY 61 64 7 8 Others 29 22 – – Audit-related services in addition to audit assignment EY 1 2 1 2 Tax advice EY 2 3 0 – Others 19 14 6 9 Other services EY 2 2 1 1 Others 7 33 1 – Total 121 141 16 20 The auditors’ fee for EY in Sweden during the year was SEK 11 M (11) and the fee for extra services was SEK 2 M (1). NOTE 4 Other operating income and expenses SEK M Group 2020 2021 Restructuring costs –54 – Revaluation of previously owned shares in associates 1,909 – Remeasurement of deferred considerations 203 184 Profit/loss on sales of non-current assets 3 15 Profit/loss on sales of subsidiaries –46 –190 Business-related taxes –22 –50 Transaction expenses from acquisitions –233 –207 Exchange rate differences –97 –99 Other, net –248 –30 Total 1,415 –377 Parent company Other operating income in the Parent company consists mainly of franchise and royalty revenues from subsidiaries. NOTE 5 Share of earnings in associates SEK M Group 2020 2021 Agta record AG 231 – Goal Co., Ltd 9 18 Saudi Crawford Doors Ltd 6 2 PT Jasuindo Arjo Wiggins Security 9 1 SARA Loading Bay Ltd 2 –2 Total 257 19 On 20 August 2020 a majority stake was acquired in agta record AG and the company transitioned from associate to subsidiary. The company was consolidated from this date. NOTE 6 Recognition of leases for the Parent company The Parent company recognizes leases in accordance with RFR 2, which means that lease payments are expensed in a straight line over the lease term. Leases in the Parent company mainly relate to rented premises and cars. SEK M Parent company 2020 2021 Lease payments during the year 15 14 Total 15 14 Nominal value of agreed future lease payments: Due for payment in: (2021) 2022 6 12 (2022) 2023 3 12 (2023) 2024 3 5 (2024) 2025 3 1 (2025) 2026 1 – Total 16 31 Note 2 continued Notes 80 ASSA ABLOY | ANNUAL REPORT 2021 NOTE 7 Expenses by nature In the income statement costs are broken down by function. Below, these same costs are broken down by nature: SEK M Group 2020 2021 Remuneration of employees (note 34) 27,170 27,921 Direct material costs 30,830 33,873 Depreciation and amortization (notes 8, 14, 15) 3,776 3,841 Other purchase expenses 15,087 14,833 Total 76,863 80,468 NOTE 8 Depreciation and amortization SEK M Group Parent company 2020 2021 2020 2021 Intangible assets 1,201 1,285 733 1,231 Machinery 617 609 – – Equipment 420 436 12 14 Buildings 221 236 – – Land improvements 9 10 – – Right-of-use assets 1,307 1,265 – – Total 3,776 3,841 745 1,244 NOTE 9 Exchange differences in the income statement SEK M Group Parent company 2020 2021 2020 2021 Exchange differences recognized in operating income –97 –99 –17 –4 Exchange differences recognized in financial expenses 2 25 –128 –1 Total –95 –74 –145 –5 NOTE 10 Financial income SEK M Group Parent company 2020 2021 2020 2021 Dividends received from subsidiaries – – 3,667 3,290 Dividends received from associates – – 37 3 Capital gain/loss on sale of subsidiaries – – – 2,573 Fair value adjustments shares and interests – – 1,201 – Intra-Group interest income – – 292 255 External interest income and similar items 3 2 – – Other financial income 7 5 – 149 Total 10 6 5,197 6,271 NOTE 11 Financial expenses SEK M Group Parent company 2020 2021 2020 2021 Intra-Group interest expenses – – –251 –279 Interest expenses, other liabilities 1 –569 –555 –297 –259 Interest expenses, interest rate swaps –55 54 – – Interest expenses, currency derivatives –122 –91 – – Exchange rate differences on financial items 2 25 –128 –1 Other financial expenses –48 –82 –28 –64 Total –792 –649 –703 –603 1 Of which SEK –234 M (103) is fair value adjustments on derivative instruments, non-hedge account- ing, for the Group. NOTE 12 Tax on income SEK M Group Parent company 2020 2021 2020 2021 Current tax –2,713 –3,042 –219 –209 Tax attributable to prior years 220 –108 –8 –1 Withholding tax –28 –29 –11 –3 Deferred tax 18 541 –22 –32 Total –2,504 –2 638 –259 –245 Explanation for the difference between nominal Swedish tax rate and effective tax rate based on income before tax: Percent Group Parent company 2020 2021 2020 2021 Swedish income tax rate 21 21 21 21 Effect of foreign tax rates 3 4 – – Non-taxable income/non-deductible expenses 1 0 –17 –17 Exercised/new, not yet measured tax loss carryforwards 3 1 – – Non-taxable revaluation of shares in associates –4 – – – Effect of internal sale of brand – –5 – – Other –3 –1 – – Effective tax rate in income statement 21 20 4 4 NOTE 13 Earnings per share Earnings per share before and after dilution SEK M Group 2020 2021 Earnings attributable to the Parent company’s shareholders 9,171 10,900 Net profit 9,171 10,900 Weighted average number of outstanding shares (thousands) 1,110,776 1,110,776 Earnings per share (SEK) 8.26 9.81 None of the Group’s outstanding long-term incentive programs are expected to result in significant dilution in the future. Earnings per share before and after dilution and excluding items affecting comparability SEK M Group 2020 2021 Earnings attributable to the Parent company’s shareholders 9,171 10,900 Items affecting comparability Revaluation of shares in associates 1,909 – Restructuring costs –1,366 – Tax effect restructuring costs 255 – Total items affecting comparability after tax 797 – Net profit excluding items affecting comparability 8,374 10,900 Weighted average number of outstanding shares (thousands) 1,110,776 1,110,776 Earnings per share excluding items affecting comparability (SEK) 7.54 9.81 Notes 81 ANNUAL REPORT 2021 | ASSA ABLOY NOTE 14 Intangible assets 2021, SEK M Group Parent company Goodwill Brands Other intangible assets Total Intangible assets Opening accumulated acquisition cost 62,392 8,701 13,820 84,914 7,727 Purchases – 1 228 228 4,228 Acquisitions of subsidiaries 1,276 0 152 1,428 – Divestments of subsidiaries –775 – –40 –815 – Sales, disposals and adjustments – –63 –389 –452 – Reclassifications – 0 16 16 – Exchange rate differences 4,190 512 738 5,439 – Closing accumulated acquisition cost 67,084 9,151 14,525 90,759 11,955 Opening accumulated amortization and impairment –4,048 –1,194 –7,219 –12,462 –5,229 Divestments of subsidiaries – – 31 31 – Sales, disposals and adjustments – 63 387 450 – Depreciation, amortization and impairment – –2 –1,282 –1,285 –1,231 Impairment recognized in restructuring reserve – – –32 –32 – Exchange rate differences –533 –149 –444 –1,126 – Closing accumulated amortization and impairment –4,582 –1,282 –8,559 –14,423 –6,460 Carrying amount 62,502 7,869 5,966 76,336 5,495 2020, SEK M Group Parent company Goodwill Brands Other intangible assets Total Intangible assets Opening accumulated acquisition cost 61,970 7,410 12,817 82,197 7,604 Purchases – 1 389 390 122 Acquisitions of subsidiaries 6,421 1,904 1,377 9,703 – Divestments of subsidiaries –882 –95 –25 –1,002 – Sales, disposals and adjustments – 0 –32 –32 – Reclassifications – 1 8 9 – Exchange rate differences –5,116 –520 –714 –6,350 – Closing accumulated acquisition cost 62,392 8,701 13,820 84,914 7,727 Opening accumulated amortization and impairment –4,309 –1,263 –6,270 –11,842 –4,496 Divestments of subsidiaries – 4 6 10 – Sales, disposals and adjustments – – 6 6 – Reclassifications – – –2 –2 – Depreciation and amortization – –3 –1,199 –1,201 –733 Impairment – – –69 –69 – Exchange rate differences 260 68 308 637 – Closing accumulated amortization and impairment –4,048 –1,194 –7,219 –12,462 –5,229 Carrying amount 58,344 7,506 6,601 72,452 2,498 Other intangible assets consist mainly of customer relations and technology. The carry- ing amount of intangible assets with an indefinite useful life, excluding goodwill, amounts to SEK 7,830 M (7,467) and relates to brands. Useful life has been defined as indefinite where the time period, during which an asset is deemed to contribute economic benefits, cannot be determined. 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 tests goodwill and intangible assets with an indefinite useful life for impairment annually and when events or circumstances indi- cate that the carrying amount may not be recoverable. Recoverable amounts for Cash Generating Units have been determined by calculating value in use. These calculations are based on estimated future cash flows, which in turn are based on financial forecasts for a six-year period. Cash flows beyond the forecasted period are extrapolated using estimated growth rates according to the information below. Material assumptions used to calculate values in use: • Forecasted operating margin. • Growth rate for extrapolating cash flows beyond the forecasted period. • Discount rate after tax used for estimated future cash flows. Management has determined the forecasted operating margin 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 forecasted period. This growth rate is considered to be a conservative estimate. Further, an average discount rate in local currency after tax has been used in the calculations. The difference in value compared with using a discount rate before tax is not deemed to be material. The dis- count rate has been determined by calculating the weighted average cost of capital (WACC) for each division. Notes 82 ASSA ABLOY | ANNUAL REPORT 2021 2021 Overall, the discount rate after tax used varied between 8.0 and 9.0 percent (EMEIA 8.0 percent, Americas 8.0 percent, Asia Pacific 9.0 percent, Global Technologies 8.0 percent and Entrance Systems 8.0 percent). 2020 Overall, the discount rate after tax used varied between 8.0 and 9.0 percent (EMEIA 8.0 percent, Americas 8.0 percent, Asia Pacific 9.0 percent, Global Technologies 8.0 percent and Entrance Systems 8.0 percent). Goodwill and intangible assets with an indefinite useful life were allocated to the Cash Generating Units as summarized in the following table: Goodwill and intangible assets with an indefinite useful life were allocated to the Cash Generating Units as summarized in the following table: 2021, SEK M EMEIA Americas Asia Pacific Global Technologies Entrance Systems Total Goodwill 10,949 11,700 4,028 16,164 19,662 62,502 Intangible assets with indefinite useful life 141 793 842 880 5,173 7,830 Total 11,090 12,494 4,870 17,044 24,835 70,332 2020, SEK M EMEIA Americas Asia Pacific Global Technologies Entrance Systems Total Goodwill 10,475 10,444 3,884 14,881 18,660 58,344 Intangible assets with indefinite useful life 136 718 788 811 5,015 7,467 Total 10,610 11,162 4,672 15,692 23,675 65,811 Sensitivity analysis A sensitivity analysis has been carried out for each Cash Generating Unit. The results of this analysis are summarized below. 2021 If the estimated operating margin after the end of the forecasted period had been one percentage point lower than the management’s estimate, the total recoverable amount would be 5 percent lower (EMEIA 5 percent, Americas 4 percent, Asia Pacific 8 percent, Global Technologies 4 percent, and Entrance Systems 5 percent). If the estimated growth rate used to extrapolate cash flows beyond the forecasted period had been one percentage point lower than the basic assumption of 3 percent, the total recoverable amount would be 13 percent lower (EMEIA 13 percent, Americas 13 percent, Asia Pacific 11 percent, Global Technologies 13 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 8.0 to 9.0 percent, the total recoverable amount would be 17 percent lower (EMEIA 17 percent, Americas 17 percent, Asia Pacific 16 percent, Global Technologies 17 percent, and Entrance Systems 17 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 there- fore be interpreted with caution. None of the hypothetical cases above would lead to an impairment of goodwill in an individual Cash Generating Unit. 2020 If the estimated operating margin after the end of the forecasted period had been one percentage point lower than the management’s estimate, the total recoverable amount would be 5 percent lower (EMEIA 5 percent, Americas 4 percent, Asia Pacific 8 percent, Global Technologies 4 percent, and Entrance Systems 5 percent). If the estimated growth rate used to extrapolate cash flows beyond the forecasted period had been one percentage point lower than the basic assumption of 3 percent, the total recoverable amount would be 13 percent lower (EMEIA 13 percent, Americas 13 percent, Asia Pacific 10 percent, Global Technologies 13 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 8.0 to 9.0 percent, the total recoverable amount would be 17 percent lower (EMEIA 17 percent, Americas 17 percent, Asia Pacific 15 percent, Global Technologies 17 percent, and Entrance Systems 17 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 there- fore be interpreted with caution. None of the hypothetical cases above would lead to an impairment of goodwill in an individual Cash Generating Unit. Note 14 continued Notes 83 ANNUAL REPORT 2021 | ASSA ABLOY NOTE 15 Property, plant and equipment 2021, SEK M Group Parent company Buildings Land and land improvements Machinery Equipment Construction in progress Total Equipment Opening accumulated acquisition cost 6,150 1,139 10,153 4,511 616 22,569 127 Purchases 75 65 229 279 836 1,485 4 Acquisitions of subsidiaries 35 13 43 12 2 105 – Divestments of subsidiaries – – –28 –121 – –149 – Sales and disposals –52 –11 –479 –159 –8 –708 – Reclassifications 77 49 297 121 –560 –16 – Exchange rate differences 463 73 886 349 48 1,819 – Closing accumulated acquisition cost 6,747 1,329 11,101 4,992 935 25,103 130 Opening accumulated depreciation and impairment –3,448 –138 –7,582 –3,375 – –14,541 –77 Divestments of subsidiaries 0 – 27 105 – 132 – Sales and disposals 46 0 454 130 – 630 – Depreciation, amortization and impairment –236 –10 –609 –436 – –1,292 –14 Impairment recognized in restructuring reserve –16 –4 11 –3 – –12 – Reclassifications –1 – 6 –5 – – – Exchange rate differences –264 –9 –703 –289 – –1,265 – Closing accumulated depreciation and impairment –3,920 –162 –8,395 –3,873 – –16,350 –90 Carrying amount 2,828 1,166 2,706 1,118 935 8,753 40 2020, SEK M Group Parent company Buildings Land and land improvements Machinery Equipment Construction in progress Total Equipment Opening accumulated acquisition cost 6,301 1,215 11,226 4,203 692 23,635 85 Purchases 76 1 296 338 706 1,417 42 Acquisitions of subsidiaries 274 60 80 246 3 664 – Divestments of subsidiaries –343 –19 –290 –82 –8 –742 – Sales and disposals –104 –49 –393 –314 –36 –895 – Reclassifications 157 22 248 246 –681 –9 – Exchange rate differences –212 –91 –1,014 –126 –60 –1,502 – Closing accumulated acquisition cost 6,150 1,139 10,153 4,511 616 22,569 127 Opening accumulated depreciation and impairment –3,321 –150 –8,395 –3,272 – –15,137 –65 Divestments of subsidiaries 112 – 248 73 – 433 – Sales and disposals 48 14 377 297 – 736 – Depreciation and amortization –221 –9 –617 –420 – –1,268 –12 Impairment incl. reversals –74 – –40 –4 – –118 – Reclassifications –6 –1 96 –87 – 2 – Exchange rate differences 13 9 749 38 – 810 – Closing accumulated depreciation and impairment –3,448 –138 –7,582 –3,375 – –14,541 –77 Carrying amount 2,703 1,001 2,572 1,135 616 8,026 50 NOTE 16 Right-of-use assets The following amounts regarding right-of-use assets are recognized in the balance sheet. SEK M Group 2020 2021 Buildings 2,763 2,720 Machinery 22 17 Vehicles 676 614 Other equipment 52 85 Total 3,513 3,436 Additions to right-of-use assets for 2021 amounted to SEK 1,225 M (1,164). The following amounts related to leases are recognized in the income statement: SEK M Group 2020 2021 Amortization attributable to right-of-use assets: Buildings –912 –887 Machinery –11 –10 Vehicles –354 –334 Other equipment –31 –34 Operating expenses attributable to: Short-term leases –62 –53 Leases of low-value assets –14 –12 Variable lease payments are not included in lease liabilities –18 –21 Interest expenses relating to: Lease liabilities –85 –72 Total –1,486 –1,423 The total cash flow attributable to leases in 2021 was SEK 1,314 M (1,360). Notes 84 ASSA ABLOY | ANNUAL REPORT 2021 NOTE 17 Shares in subsidiaries Company name Corporate identity number, Registered office Parent company Number of shares Share of equity, % Carrying amount, SEK M ASSA Sverige AB 556061-8455, Eskilstuna 70 100 197 ASSA ABLOY Entrance Systems AB 556204-8511, Landskrona 1,000 100 287 ASSA ABLOY Global Solutions AB 556666-0618, Stockholm 1,306,891 100 475 ASSA ABLOY Kredit AB 556047-9148, Stockholm 400 100 6,036 ASSA ABLOY Holding AB 559180-8646, Stockholm 6,500 100 6,279 ASSA ABLOY Försäkrings AB 516406-0740, Stockholm 60,000 100 185 ASSA ABLOY Asia Holding AB 556602-4500, Stockholm 1,000 100 189 ASSA ABLOY OY 1094741-7, Joensuu 800,000 100 4,257 ASSA ABLOY Norge A/S 979207476, Moss 150,000 100 538 ASSA ABLOY Danmark A/S CVR 10050316, Herlev 60,500 100 376 ASSA ABLOY Deutschland GmbH HR B 66227, Berlin 1 100 1,086 ASSA ABLOY Nederland Holding B.V. 52153924, Raamsdonksveer 180 100 771 ASSA ABLOY France SAS 412140907, R.C.S. Versailles 15,184,271 100 1,964 HID Global Switzerland S.A. CH-232-0730018-2, Granges 2,500 100 47 ASSA ABLOY Entrance Systems Austria GmbH A-2320 Schwechat 1 100 109 ASSA ABLOY Ltd 2096505, Willenhall 1,330,000 100 3,091 HID Global Ireland Teoranta 364896, Galway 501,000 100 293 Mul-T-Lock Ltd 520036583, Yavne 13,787,856 100 901 ASSA ABLOY Holdings (SA) Ltd 1948/030356/06, Roodepoort 100,220 100 217 ASSA ABLOY Inc 039347-83, Oregon 100 100 3,627 ABLOY Canada Inc. 1148165260, Montreal 1 100 0 ASSA ABLOY of Canada Ltd 104722749 RC0003, Ontario 9,621 100 138 ASSA ABLOY Australia Pacific Pty Ltd ACN 095354582, Oakleigh, Victoria 48,190,000 100 844 Cerramex, S.A de C.V CER8805099Y6, Mexico 4 0 1 0 ASSA ABLOY Mexico, S.A de CV AAM961204CI1, Mexico 50,108,549 100 762 Cerraduras y Candados Phillips S.A de C.V CCP910506LK2, Mexico 112 0 1 0 ASSA ABLOY Colombia S.A.S 860009826-8, Bogota 3,115,080 100 203 WHAIG Limited EC21330, Bermuda 100,100 100 303 ASSA ABLOY Asia Pacific Ltd 53451, Hong Kong 1,000,000 100 72 ASSA ABLOY Entrance Systems IDDS AB 556071-8149, Landskrona 25,000,000 100 5,323 ASSA ABLOY Portugal, Unipessoal, Lda (Portugal) PT500243700, Alfragide 1 100 0 ASSA ABLOY Holding Italia S.p.A. IT01254420597, Rome 650 000 100 974 HID SA (Argentina) CUIT 30-61783980-2, Buenos Aires 2,400 2 1 0 HID Global SAS FR21341213411, Nanterre 1,000,000 100 679 ASSA ABLOY East Africa Ltd C.20402, Nairobi 13,500 100 90 Omni-ID Ltd 6163600, Bristol 2,200,000 100 26 Total 40,339 1 The Group’s holdings amount to 100 percent. NOTE 18 Investments in associates Company name Country of registration Group Number of shares Share of equity 2020, % Share of equity 2021, % Carrying amount 2020, SEK M Carrying amount 2021, SEK M Goal Co., Ltd Japan 2,778,790 46 46 589 602 PT Jasuindo Arjo Wiggins Security Indonesia 1,533,412 49 49 28 32 SARA Loading Bay Ltd United Kingdom 4,990 50 50 15 12 Saudi Crawford Doors Ltd Saudi Arabia 800 40 40 5 5 Others 1 1 Total 637 652 Notes 85 ANNUAL REPORT 2021 | ASSA ABLOY NOTE 19 Deferred tax SEK M Group 2020 2021 Deferred tax assets Non-current assets 70 611 Pension provisions 470 345 Tax loss carryforwards etc. 174 118 Other deferred tax assets 766 786 Offset deferred tax assets –142 –597 Deferred tax assets 1,338 1,264 Deferred tax liabilities Non-current assets 2,386 2,452 Pension provisions 56 6 Other deferred tax liabilities 568 720 Offset deferred tax liabilities –142 –597 Deferred tax liabilities 2,868 2,581 Deferred tax assets, net –1,531 –1,317 Change in deferred tax SEK M Group 2020 2021 Opening balance –1,163 –1,531 Acquisitions and divestments –546 –38 Recognized in income statement 18 541 Actuarial gain/loss on post-employment benefit obligation 56 –211 Exchange rate differences 104 –78 Closing balance –1,531 –1,317 The Group’s total tax loss carryforwards amount to SEK 5,728 M, of which SEK 5,154 M (4,545) are tax loss carryforwards for which deferred tax assets have not been meas- ured, as it is uncertain that future taxable profit will be available against which the tax loss carryforwards can be utilised. Of the total tax loss carryforwards and other tax credits, SEK 2,649 M is due within five years, while SEK 3,079 M has no due date. NOTE 20 Other financial assets SEK M Group Parent company 2020 2021 2020 2021 Investments in associates – – 461 461 Other shares and interests 6 52 – – Non-current interest-bearing receivables 159 170 – – Other non-current receivables 47 46 131 99 Total 212 267 592 561 NOTE 21 Inventories SEK M Group 2020 2021 Materials and supplies 3,057 4,729 Work in progress 2,164 2,789 Finished goods 4,790 6,264 Advances paid 68 151 Total 10,079 13,933 Impairment of inventories during the year amounted to SEK 333 M (474). NOTE 22 Trade receivables SEK M Group 2020 2021 Trade receivables 14,990 17,382 Loss allowance –1,325 –1,537 Total 13,665 15,844 Trade receivables by currency SEK M Group 2020 2021 USD 4,496 6,244 EUR 3,457 3,646 CNY 1,184 1,210 GBP 766 757 SEK 613 661 AUD 430 509 CAD 338 377 KRW 274 230 Other currencies 2,107 2,210 Total 13,665 15,844 Maturity analysis SEK M Group 2020 2021 Current trade receivables 10,475 12,220 Trade receivables due: < 3 months 2,908 3,306 3–12 months 922 1,114 >12 months 685 741 4,515 5,161 Impaired trade receivables: Not yet due –272 –308 Trade receivables due: < 3 months –155 –188 3–12 months –226 –270 >12 months –671 –771 –1,325 –1,537 Total 13,665 15,844 Change in loss allowance for trade receivables SEK M Group 2020 2021 Opening balance 898 1,325 Acquisitions and divestments of subsidiaries 123 –37 Actual losses –174 –293 Reversal of unused amounts –49 –70 Provision for bad debts 646 495 Exchange rate differences –119 118 Closing balance 1,325 1,537 NOTE 23 Parent company’s equity and proposed distribution of earnings The Parent company’s equity is split between restricted and non-restricted equity. Restricted equity consists of share capital, revaluation reserve, statutory reserve and the fund for development expenses. 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. Non-restricted equity consists of share premium reserves, retained earnings and net income for the year. At the disposal of the Annual General Meeting is SEK 18,802,824,328. The Board of Directors proposes that a dividend of SEK 4.20 per share, a total of SEK 4,665,260,603, be distributed to the shareholders and that the remainder, SEK 14,137,563,725, be carried forward to the new financial year. Notes 86 ASSA ABLOY | ANNUAL REPORT 2021 NOTE 24 Share capital, number of shares and dividend per share Number of shares, thousands Share capital, SEK K Series A shares Series B shares Total Opening balance at 1 January 2020 57,525 1,055,052 1,112,576 370,859 Closing balance at 31 December 2020 57,525 1,055,052 1,112,576 370,859 Number of votes, thousands 575,259 1,055,052 1,630,311 Opening balance at 1 January 2021 57,525 1,055,052 1,112,576 370,859 Closing balance at 31 December 2021 57,525 1,055,052 1,112,576 370,859 Number of votes, thousands 575,259 1,055,052 1,630,311 All shares have a par value of around SEK 0.33 (0.33) 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 1,110,776 (1,110,776) during the year. None of the Group’s outstanding long-term incentive programs are expected to result in significant dilution in the future. The total number of treasury shares at 31 December 2021 amounted to 1,800,000. No shares have been repurchased during the year. The dividend paid during the financial year totaled SEK 4,332 M (4,276), equivalent to SEK 3.90 (3.85) per share. NOTE 25 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. Pen- sion obligations in the balance sheet mainly relate to defined benefit plans. ASSA ABLOY has defined benefit pension plans in a number of countries. The most comprehensive defined benefit plans are found in the US, the UK and Germany. The defined benefit plans in the US and the UK are secured by assets in pension funds, while the plans in Germany are chiefly unfunded. In the US, there are also unfunded plans for post-employment medical benefits. The operations of pension funds are regulated by national regulations and practice. The responsibility for monitoring the pension plans and their assets rests mainly with the boards of the pension funds, but can also rest more directly with the company. The Group has an overall policy for the limits within which asset allocation should be made. Each pension fund adjusts its local asset allocation according to the nature of the local pension obligation, particularly the remaining term and the breakdown between active members and pensioners. The Group has not changed the processes used for managing these risks compared with previous periods. The investments are well diversified so that depreciation of an individual investment should not have any material impact on the plan assets. The majority of assets are invested in shares as the Group considers that shares produce the best long-term return at an acceptable risk level. The total allocation to shares should not, however, exceed 60 percent of total assets. Fixed income assets are invested in a combination of ordinary government bonds and corporate bonds but also in inflation-indexed bonds. The aver- age term of these is normally somewhat shorter than the term of the underlying liability. Bonds should not account for less than 30 percent of assets. A small proportion of assets is also invested in real estate and alternative investments, mainly hedge funds. At 31 December 2021, shares accounted for 45 percent (44) and fixed income secu- rities for 28 percent (29) of plan assets, while other assets accounted for 27 percent (27). The actual return on plan assets in 2021 was SEK 618 M (345). Amounts recognized in the income statement Pension costs, SEK M 2020 2021 Defined contribution pension plans 877 758 Defined benefit pension plans 188 185 Post-employment medical benefit plans 25 21 Total 1,091 964 of which, included in: Operating income 1,030 911 Net financial items 61 53 Amounts recognized in the balance sheet Pension provisions, SEK M 2020 2021 Provisions for defined benefit pension plans 2,925 2,121 Provisions for post-employment medical benefit plans 586 606 Provisions for defined contribution pension plans 3 9 Total 3,514 2,736 Pensions with Alecta Commitments for old-age pensions and family pensions for salaried employees in Swe- den are secured in part through insurance with Alecta. According to UFR 10, this is a defined benefit plan that covers many employers. For the 2021 financial year, the com- pany has not had access to information making it possible to report this plan as a defined benefit plan. Pension plans in accordance with ITP secured through insurance with Alecta are therefore reported as defined contribution plans. The year’s pension contributions that are contracted to Alecta total SEK 25 M (29), of which SEK 11 M (13) relates to the Parent company. Pension contributions are expected to remain largely unchanged in 2022. Alecta’s surplus can be distributed to policyholders and/or the insured. At 31 Decem- ber 2021, Alecta’s surplus expressed as the collective consolidation level amounted pre- liminarily to 172 percent (148 percent at 31 December 2020). The collective consolida- tion level consists of the market value of Alecta’s assets as a percentage of its insurance commitments calculated according to Alecta’s actuarial calculation assumptions, which do not comply with IAS 19. The collective consolidation level is normally allowed to vary between 125 and 175 percent. If the consolidation level deviates from this range, meas- ures in the form of an adjustment of the premium level should be taken to return to the normal range. Specification of defined benefit pension plans, post-employment medical benefits and plan assets by country Specification of defined benefits, SEK M United Kingdom Germany US Other countries Total 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Present value of funded obligations 3,206 3,332 99 92 2,095 2,170 2,055 1,974 7,455 7,568 Fair value of plan assets –2,796 –3,317 –21 –21 –1,842 –2,225 –1,376 –1,418 –6,035 –6,981 Net value of funded plans 410 16 78 71 254 –56 679 556 1,420 587 Present value of unfunded obligations – – 779 745 – – 726 789 1,506 1,533 Present value of unfunded medical benefits – – – – 582 603 3 4 586 606 Net value of defined benefit pension plans 410 16 857 816 836 547 1,408 1,348 3,511 2,727 Provisions for defined contribution pension plans – – – – – 4 3 5 3 9 Total 410 16 857 816 836 551 1,412 1,353 3,514 2,736 Key actuarial assumptions Key actuarial assumptions (weighted average), % United Kingdom Germany US 2020 2021 2020 2021 2020 2021 Discount rate 1.4 1.8 0.9 1.2 2.5 2.8 Expected annual salary increases n/a n/a 2.8 2.8 n/a n/a Expected annual pension increases 1.9 2.1 1.5 1.5 n/a n/a Expected annual medical benefit increases n/a n/a n/a n/a 5.8 5.8 Expected annual inflation 2.2 2.7 1.5 1.5 3.0 3.0 Notes 87 ANNUAL REPORT 2021 | ASSA ABLOY Movement in obligations 2021, SEK M Post-employment medical benefits Defined benefit pension plans Plan assets Total Opening balance 1 January 2021 586 8,960 –6,035 3,511 Acquisitions and divestments – 2 – 2 Recognized in the income statement: Current service cost 6 152 – 158 Past service cost – –5 – –5 Interest expense/income 15 131 –93 53 Total recognized in the income statement 21 278 –93 206 Recognized in other comprehensive income: Return on plan assets, excluding amounts included above – – –525 –525 Gain/loss from change in demographic assumptions – –107 – –107 Gain/loss from change in financial assumptions –33 –175 – –208 Experience-based gains/losses 0 –77 – –77 Actuarial gain/loss on post-employment benefit obligations –33 –359 –525 –917 Exchange rate differences 59 654 –577 136 Total recognized in other comprehensive income 26 294 –1,101 –781 Contributions and payments: Employer contributions – – –108 –108 Employee contributions – 57 –57 – Payments –27 –490 413 –104 Total payments –27 –433 249 –211 Closing balance 31 December 2021 606 9,102 –6,981 2,727 2020, SEK M Post-employment medical benefits Defined benefit pension plans Plan assets Total Opening balance 1 January 2020 615 8,901 –6,184 3,332 Acquisitions and divestments – 411 –271 140 Recognized in the income statement: Current service cost 6 139 – 145 Past service cost – 7 – 7 Interest expense/income 19 167 –125 61 Total recognized in the income statement 25 313 –125 213 Recognized in other comprehensive income: Return on plan assets, excluding amounts included above – – –220 –220 Gain/loss from change in demographic assumptions 53 245 – 298 Gain/loss from change in financial assumptions – 295 – 295 Experience-based gains/losses – –54 – –54 Actuarial gain/loss on post-employment benefit obligations 53 486 –220 319 Exchange rate differences –81 –743 604 –219 Total recognized in other comprehensive income –27 –257 384 99 Contributions and payments: Employer contributions – – –178 –178 Employee contributions – 32 –32 – Payments –27 –439 369 –96 Total payments –27 –407 160 –274 Closing balance 31 December 2020 586 8,960 –6,035 3,511 Plan assets allocation Plan assets 2020 2021 Publicly traded shares 2,630 3,169 Government bonds 666 762 Corporate bonds 892 1,017 Inflation-linked bonds 176 168 Property 325 444 Cash and cash equivalents 55 82 Alternative investments 50 51 Insurance contracts and other assets 1,242 1,286 Total 6,035 6,981 Sensitivity analysis of defined benefit obligations and post-employment medical benefits The effect on defined benefit obligations and post-employment medi- cal benefits of a 0.5 percentage change in some actuarial assumptions, change in percent +0.5% –0.5% Discount rate –7.6% 8.3% Expected annual medical benefit increases 4.2% –3.5% Note 25 continued Notes 88 ASSA ABLOY | ANNUAL REPORT 2021 Notes 89 ANNUAL REPORT 2021 | ASSA ABLOY NOTE 26 Other provisions SEK M Group Restruc- turing reserve Other Total Opening balance at 1 January 2021 1,224 551 1,775 Provisions for the year – 68 68 Acquisitions of subsidiaries – 21 21 Divestments of subsidiaries –2 – –2 Reversal of non-utilized amounts – –5 –5 Payments –563 –57 –620 Utilized during the year, without cash flow impact –44 – –44 Exchange rate differences 44 17 61 Closing balance at 31 December 2021 658 595 1,254 SEK M Group Restruc- turing reserve Other Total Opening balance at 1 January 2020 778 573 1,351 Provisions for the year 1,366 175 1,542 Acquisitions of subsidiaries _ 19 19 Reversal of non-utilized amounts – –138 –138 Payments –747 –74 –822 Utilized during the year, without cash flow impact –105 – –105 Exchange rate differences –68 –4 –72 Closing balance at 31 December 2020 1,224 551 1,775 Balance sheet breakdown: Group 2020 2021 Other non-current provisions 616 460 Other current provisions 1,159 794 Total 1,775 1,254 The restructuring reserve at year-end relates mainly to the ongoing restructuring pro- gram launched during the year and the previous year. The restructuring reserve is expected to be used over the next two years. The non-current part of the reserve totaled SEK 58 M. For further information on the restructuring programs, see the Report of the Board of Directors. Other provisions mainly relate to legal obligations including future environment- related measures. NOTE 27 Other current liabilities SEK M Group 2020 2021 VAT and excise duties 653 704 Employee withholding tax 143 130 Advances received 1,224 1,492 Social security contributions and other taxes 110 92 Current deferred considerations 781 346 Other current liabilities 970 1,076 Total 3,880 3,840 NOTE 28 Accrued expenses and deferred income SEK M Group Parent company 2020 2021 2020 2021 Personnel-related expenses 3,407 3,819 252 273 Customer-related expenses 1,236 1,772 – – Deferred income 565 703 – – Accrued interest expenses 126 111 83 82 Other 2,353 2,640 90 56 Total 7,687 9,045 425 411 NOTE 29 Assets pledged against liabilities to credit institutions SEK M Group Parent company 2020 2021 2020 2021 Real estate mortgages – 12 – – Other mortgages and collateral 137 94 – – Total 137 106 – – NOTE 30 Contingent liabilities SEK M Group Parent company 2020 2021 2020 2021 Guarantees on behalf of subsidiaries – – 9,190 9,485 Other guarantees and contingent liabilities 139 223 – – Total 139 223 9,190 9,485 In addition to the guarantees shown in the table above, the Group has a large number of minor bank guarantees for performance of obligations in operating activities. No mate- rial liabilities are expected as a result of these guarantees. Maturity profile – guarantees, SEK M Group 2020 2021 <1 year 123 204 >1 <2 years 7 11 >2 <5 years 4 3 >5 years 5 4 Total 139 223 NOTE 31 Cash flow items SEK M Group 2020 2021 Adjustments for non-cash items Profit/loss on sales of non-current assets –3 –15 Profit/loss on sales of subsidiaries 46 190 Change in pension provisions 152 153 Share of earnings in associates –257 –19 Dividend from associates 40 5 Remeasurement of deferred considerations –203 –184 Other 131 49 Adjustments for non-cash items –95 178 Change in working capital Inventories increase/decrease (–/+) 687 –2,943 Trade receivables increase/decrease (–/+) 1,331 –1,289 Trade payables increase/decrease (+/–) –370 1,959 Other working capital increase/decrease (–/+) 958 778 Change in working capital 2,606 –1,496 Divestments of subsidiaries Purchase prices received, net 1,206 720 Cash and cash equivalents in divested subsidiaries –37 –21 Change in consolidated cash and cash equivalents due to divestments 1,170 699 Notes 90 ASSA ABLOY | ANNUAL REPORT 2021 NOTE 32 Reserves SEK M Hedging reserve Exchange rate differences Total Net investment hedges Cash flow hedges Opening balance 1 January 2020 –247 – 6,975 6,728 Other comprehensive income in associates – – –70 –70 Reclassified to profit or loss –5 – –313 –318 Net investment hedges –3 – – –3 Cash flow hedges – 0 – 0 Exchange rate differences – – –4,559 –4,559 Tax attributable to reserves 1 – 16 16 Closing balance 31 December 2020 –255 0 2,049 1,794 Opening balance 1 January 2021 –255 0 2,049 1,794 Other comprehensive income in associates – – –6 –6 Cash flow hedges – 5 – 5 Exchange rate differences – 0 3,467 3,467 Tax attributable to reserves – – –23 –23 Closing balance 31 December 2021 –255 5 5,487 5,237 Of the item Net investment hedges, the entire amount relates to closed hedge relation- ships for which hedged objects remain. NOTE 33 Business combinations Consolidated acquisitions, 2021 Company acquired (country) Division Number of employees 2020 sales (SEK M) Consolida- tion month Traka Iberia (ES) Global Technolog. <50 <50 Feb Technology Solutions (UK) Global Technolog. 25 30 Feb Invengo Textile Services (FR) Global Technolog. 45 110 Mar Prosystech/SimpleK (CA) Americas <50 <50 Apr Sure-Loc (US) Americas 45 120 May Pucon (PE) Americas <50 <50 Jun New Zealand Fire Door (NZ) Asia Pacific 53 66 Aug Capitol Door Service (US) Entrance Systems 50 150 Aug Omni-ID (US) Global Technolog. 170 110 Aug MR Group (PT) EMEIA 380 230 Oct B&B Roadway and Security Sol. (US) Entrance Systems 60 120 Dec Malkowski-Martech (PL) EMEIA 150 110 Dec InvoTech Systems (US) Global Technolog. <50 <50 Dec See below for an account of some of the major acquisitions completed in 2021 and 2020. See the Report of the Board of Directors for further information about acquisitions. 2021 MR Group MR Group’s hardware division, a leading supplier of aluminium profile hardware and locks in Portugal, was acquired in October 2021. The company is headquartered in Águeda, Portugal. On the reporting date the acquisition analysis is preliminary with respect to valuation of intangible assets. B&B Roadway and Security Solutions US company B&B Roadway and Security Solutions, a manufacturer of road safety, traffic control and perimeter security solutions, was acquired in December 2021. The company is headquartered in Texas, US. On the reporting date the acquisition analysis is preliminary with respect to valuation of intangible assets. 2020 agta record On 20 August 2020 ASSA ABLOY, previously a 39% shareholder in the Swiss company agta record, announced that it had completed the indirect acquisition of the 54% shareholding in agta record from the shareholders of Agta Finance. agta record is a well-established manu- facturer and service organization for entrance automation. It is headquartered in Fehraltorf, Switzerland. ASSA ABLOY then launched a public offer for the acquisition of all remaining out- standing shares in agta record at a price of EUR 70.58 per share. As at 31 December 2020 ASSA ABLOY owns 99.7% of agta record. agta record was fully consolidated into ASSA ABLOY on 31 August 2020. Intangible assets in the form of technology, brands and customer relationships have been dis- closed in the purchase price allocation. Residual goodwill mainly relates to synergies and other intangible assets that do not meet the criteria for separate reporting. AM Group On 28 February 2020 ASSA ABLOY acquired 100 percent of the share capital in AM Group, an Australian industrial door company within entrance automation. The acquisition of AM Group complements the product offering and geographic coverage in Australia. AM Group has its headquarters in Sydney, Australia. Intangible assets in the form of technology, brands and customer relationships have been disclosed in the purchase price allocation. Residual goodwill mainly relates to syner- gies and other intangible assets that do not meet the criteria for separate reporting. Other acquisitions Other noteworthy acquisitions in 2020 were Biosite (UK) and Access-IS (UK). SEK M 2020 2021 Purchase prices Cash paid for acquisitions during the year 8,058 1,743 Holdbacks and conditional considerations for acquisitions during the year 318 150 Fair value previously owned shares in associates 3,752 – Adjustment of purchase prices for acquisitions in prior years 5 –6 Total 12,134 1,887 Acquired assets and liabilities at fair value Intangible assets 3,281 151 Property, plant and equipment 664 105 Right-of-use assets 265 13 Deferred tax assets 132 3 Other financial assets 4 1 Inventories 646 233 Current receivables and investments 1,062 332 Cash and cash equivalents 2,239 180 Deferred tax liabilities –706 –17 Pension provisions –189 –2 Other non-current liabilities –462 –23 Current liabilities –1,223 –363 Total 5,713 611 Goodwill 6,421 1,276 Cash paid for acquisitions during the year 8,058 1,743 Cash and cash equivalents in acquired subsidiaries –2,239 –180 Consideration paid relating to acquisitions from previous year 418 557 Change in cash and cash equivalents due to acquisitions 6,238 2,121 Net sales from acquisition date 2,091 445 EBIT from acquisition date 175 –13 Net income from acquisition date 138 –9 The table above includes fair value adjustments of acquired net assets from acquisitions made in previous years. Purchase price allocations have been prepared for all acquisitions in 2021. The net sales of acquired units for 2021 totaled SEK 1,182 M (4,801) and net income amounted to SEK 72 M (453). Acquisition-related costs for 2021 totaled SEK 207 M (233) and have been reported as other operating expenses in the income statement. Notes 91 ANNUAL REPORT 2021 | ASSA ABLOY NOTE 34 Employees Salaries, wages, other remuneration and social security costs SEK M Group Parent company 2020 2021 2020 2021 Salaries, wages and other remuneration 21,462 21,699 295 285 Social security costs 5,708 6,222 158 176 – of which pensions 1,029 911 51 44 Total 27,170 27,921 454 460 Remuneration and other benefits of the Executive Team in 2021, SEK thousands Name Fixed salary Variable salary Stock- related benefits Other benefits Pension costs Nico Delvaux, President and CEO 19,338 14,250 9,301 152 6,747 Other members of the Executive Team (10 positions) 52,713 19,324 8,705 3,728 8,730 Total remuneration and benefits 72,051 33,574 18,007 3,880 15,477 Total remuneration and other benefits of the Executive Team amounted to SEK 102.6 M in 2020. Fees to Board members in 2021 (including committee work), SEK thousand Name and post Board of Directors Remu- neration Committee Audit Committee Total Lars Renström, Chairman 2,700 150 325 3,175 Carl Douglas, Vice Chairman 1,000 – – 1,000 Johan Hjertonsson, Board member 800 75 225 1,100 Eva Karlsson, Board member 800 – – 800 Lena Olving, Board member 800 – 225 1,025 Susanne Pahlén Åklundh, Board member 800 – – 800 Sofia Schörling Högberg, Board member 800 – – 800 Joakim Weidemanis, Board member 800 – – 800 Employee representatives (4) – – – – Total 8,500 225 775 9,500 Total fees to Board members amounted to SEK 8.3 M in 2020. Salaries and remuneration for the Board of Directors and the Parent company’s Executive Team Salaries and other remuneration for the Board of Directors and the Parent company’s Executive Team for 2021 totaled SEK 66 M (49), excluding pension costs and social secu- rity costs. Pension costs amounted to SEK 9 M (10). Pension obligations for several sen- ior executives are secured through pledged endowment insurances. Guidelines for remuneration to senior executives Scope The 2020 Annual General Meeting adopted the following guidelines for the remunera- tion and other employment conditions of the President and CEO and other members of the ASSA ABLOY Executive Team (the “Executive Team”). These guidelines are applicable to remuneration agreed, and amendments to remu- neration already agreed, after adoption of the guidelines by the 2020 Annual General Meeting. These guidelines do not apply to any remuneration decided or approved by the General Meeting. Employment conditions of a member of the Executive Team that is employed or resi- dent outside Sweden, or that is not a Swedish citizen, may be duly adjusted for compli- ance with mandatory rules or established local practice, taking into account, to the extent possible, the overall purpose of these guidelines. Promotion of ASSA ABLOY’s business strategy, long-term interests and sustainability One of the strategies for value creation followed by ASSA ABLOY is Evolution through people. With the objective that ASSA ABLOY shall continue to be able to recruit and retain competent employees, the basic principle being that remuneration and other employment conditions shall be offered on market conditions and be competitive, taking into account both global remuneration practice and practice in the home coun- try of each member of the Executive Team. These guidelines enable ASSA ABLOY to offer the Executive Team a total remuneration that is on market conditions and competitive. Prerequisites are thereby established for successful implementation of the Group’s business strategy, which on an overall level is to lead the trend toward the world’s most innovative and well-designed access solutions, as well as safeguarding ASSA ABLOY’s long-term interests, including its sustainability. More information about ASSA ABLOY’s business strategy and ASSA ABLOY’s sustainability report is available on ASSA ABLOY’s website assaabloy.com. ASSA ABLOY has ongoing share-based long-term incentive programs in place that have been resolved by the General Meeting and which are therefore excluded from these guidelines. Future share-based long-term incentive programs proposed by the Board of Directors and submitted to the General Meeting for approval will be excluded for the same reason. The purpose of the share-based long-term incentive program is to strengthen ASSA ABLOY’s ability to recruit and retain competent employees, to contrib- ute to ASSA ABLOY providing a total remuneration that is on market conditions and competitive, and to align the interests of the shareholders with the interests of the employees concerned. Through a share-based long-term incentive program, the employees’ remuneration is tied to ASSA ABLOY’s future earnings and value growth. At present the performance criteria used is linked to earnings per share. The programs are further conditional upon the participant’s own investment and holding period of sev- eral years. More information about these programs is available on ASSA ABLOY’s web- site assaabloy.com. Types of remuneration The total yearly remuneration to the members of the Executive Team shall be on market conditions and be competitive and also reflect each member of the Executive Team’s responsibility and performance. The total yearly remuneration shall consist of fixed base salary, variable cash remuneration, pension benefits and other benefits (which are spec- ified below excluding social security costs). Additionally, the General Meeting may – and irrespective of these guidelines – resolve on, among other things, share-related or share price-related remuneration. The variable cash remuneration shall be linked to predetermined and measurable tar- gets, which are further described below, and may amount to not more than 75 percent of the yearly base salary. The members of the Executive Team shall be covered by defined contribution pen- sion plans, for which pension premiums are based on each member’s yearly base salary and are paid by ASSA ABLOY during the period of employment. The pension premiums shall amount to not more than 35 percent of the yearly base salary. Other benefits, such as company car, life insurance, extra health insurance or occupa- tional healthcare, should be payable to the extent this is considered to be in line with market conditions in the market concerned for each member of the Executive Team. Premiums and other costs relating to such benefits may totally amount to not more than 10 percent of the yearly base salary. Furthermore, housing allowance benefit may be added in line with ASSA ABLOY’s policies and costs relating to such benefit may totally amount to not more than 25 percent of the yearly base salary. Premiums and other costs relating to other benefits and housing allowance benefit may, however, totally amount to not more than 30 percent of the yearly base salary. Criteria for awarding variable cash remuneration The variable cash remuneration shall be linked to predetermined and measurable finan- cial targets, such as earnings per share (EPS), earnings before interest and taxes (EBIT), cash flow and organic growth and can also be linked to strategical and/or functional tar- gets individually adjusted on the basis of responsibility and function. These targets shall be designed so as to contribute to ASSA ABLOY’s business strategy and long-term inter- ests, including its sustainability, by for example being linked to the business strategy or promoting the senior executive’s long-term development within ASSA ABLOY. The Remuneration Committee shall for the Board of Directors prepare, monitor and evaluate matters regarding variable cash remuneration to the Executive Team. Ahead of each yearly measurement period for the criteria for awarding variable cash remunera- tion, the Board of Directors shall, based on the work of the Remuneration Committee, establish which criteria are deemed to be relevant for the upcoming measurement period. To which extent the criteria for awarding variable cash remuneration has been satisfied shall be determined when the measurement period has ended. Evaluations regarding fulfillment of financial targets shall be based on determined financial basis for the relevant period. Variable cash remuneration can be paid after the measurement period has ended or be subject to deferred payment. Paid variable cash remuneration can be claimed back when such right follows from general principles of law. Duration of employment and termination of employment The members of the Executive Team shall be employed until further notice. If notice of ter- mination is made by ASSA ABLOY, the notice period may not exceed 12 months for the CEO and 6 months for the other members of the Executive Team. If the CEO is given notice, ASSA ABLOY is liable to pay, including severance pay and remuneration under the notice period, the equivalent of maximum 24 months’ base salary and other employment bene- fits. If any other member of the Executive Team is given notice, ASSA ABLOY is liable to pay a maximum of 6 months’ base salary and other employment benefits plus severance pay amounting to a maximum of an additional 12 months’ base salary. If notice of termination is made by a member of the Executive Team, the notice period may not exceed 6 months, with no right to severance pay. A member of the Executive Team may, for such time when the member is not entitled to severance pay, be compensated for non-compete undertakings. Such compensation shall amount to not more than 60 percent of the monthly base salary at the time of the Notes 92 ASSA ABLOY | ANNUAL REPORT 2021 termination and shall only be paid as long as the non-compete undertaking is applica- ble, at longest a period of 12 months. Remuneration and employment conditions for employees In the preparation of the Board of Directors’ proposal for these remuneration guide- lines, remuneration and employment conditions for employees of ASSA ABLOY have been taken into account by including information on the employees’ total remunera- tion, the components of the remuneration and increase and growth rate over time in the Remuneration Committee’s and the Board of Directors’ basis of decision when evaluating whether the guidelines and the limitations set out herein are reasonable. The decision-making process to determine, review and implement the guidelines The Remuneration Committee’s tasks include preparing the Board of Directors’ deci- sion to propose guidelines for remuneration to the Executive Team. The Board of Direc- tors shall prepare a proposal for new guidelines at least every fourth year and submit it to the Annual General Meeting. The guidelines shall be in force until new guidelines are adopted by the General Meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remuneration to the Executive Team, the application of the guidelines for remuneration to the Executive Team as well as the applicable remu- neration structures and remuneration levels in ASSA ABLOY. The members of the Remu- neration Committee are independent of the company and its management. The CEO and other members of the Executive Team do not participate in the Board of Directors’ processing of and resolutions regarding remuneration-related matters in so far as they are affected by such matters. Deviation from the guidelines The Board of Directors may temporarily resolve to deviate from the guidelines, in whole or in part, if in a specific case there is special cause for the deviation and a deviation is nec- essary to serve ASSA ABLOY’s long-term interests, including its sustainability, or to ensure ASSA ABLOY’s financial viability. As set out above, the Remuneration Committee’s tasks include preparing the Board of Directors’ resolutions in remuneration-related matters including decisions regarding departures from the guidelines Transitional provisions applicable for the 2020 Annual General Meeting The total expensed remuneration of the Executive Team, including previous commitments not yet due for payment is reported in the Annual Report 2019 in Note 34. 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 employees in the Group. The purpose was to create the prerequisites for retaining and recruiting qualified employees for the Group, to contribute to providing a total remuneration that is on market condi- tions and competitive and align the interests of the shareholders with the interests of the employees concerned. At the 2011 to 2021 Annual General Meetings, it was decided to implement further long-term incentive programs for senior executives and other key employees in the Group. The incentive programs were named LTI 2011 to LTI 2021. LTI 2011 to LTI 2017 were based on similar terms to LTI 2010. LTI 2018 to LTI 2021 were based on similar prin- ciples as the earlier programs, but with an extended measurement period of three years for the performance-based condition and removal of matching shares. For each Series B share acquired by the CEO within the framework of LTI 2019, LTI 2020 and LTI 2021, the company has awarded six performance-based share awards. For each Series B share acquired by other members of the Executive Team, the company has awarded five performance-based share awards. For other participants, the company has awarded four performance-based share awards. In accordance with the terms of the three programs (LTI 2019–LTI 2021), employees have acquired a total of 362,659 Series B shares in ASSA ABLOY AB, of which 103,110 Series B shares were acquired in 2021 within the framework of LTI 2021. Each performance-based share award for LTI 2019, LTI 2020 and LTI 2021 entitles the holder to receive one Series B share in the company free of charge three years after allot- ment, provided that the holder, with certain exceptions, at the time of the release of the interim report for the first quarter 2022 (LTI 2019), first quarter 2023 (LTI 2020) and first quarter 2024 (LTI 2021) is still employed by the Group and has maintained the shares acquired within the framework of the respective program. In addition to these condi- tions, the number of performance-based share awards that entitle the holder to Series B shares in the company depends on the annual development of ASSA ABLOY’s earnings per share based on the target levels, as defined by the Board of Directors, during the measurement period 1 January 2019 – 31 December 2021 (LTI 2019), the measurement period 1 January 2020 – 31 December 2022 (LTI 2020) and the measurement period 1 January 2021 – 31 December 2023 (LTI 2021), where each year during the measurement period is compared to the previous year. The outcomes are calculated yearly, whereby one third of the performance-based share awards is measured against the outcome for the first year in the measurement period, one third is measured against the outcome for the second year in the measurement period and one third is measured against the out- come for the third year in the measurement period. The outcome for each year is meas- ured linearly. Unless the minimum target level in the interval is achieved for the year, none of the relevant performance-based share awards will give the right to any Series B shares. If the maximum target level in the interval is achieved, each performance-based share award linked to the relevant year entitles the holder to one Series B share at the end of the three-year vesting period, provided that the other conditions are met. The performance-based condition was fulfilled to 64 percent for LTI 2019. Fulfillment of the performance-based condition for LTI 2020 and LTI 2021, respectively, is intended to be presented in the Annual Report for the financial years 2022 and 2023, respectively. Outstanding performance-based share awards for LTI 2021 total 418,308. The total number of outstanding performance-based share awards for LTI 2019, LTI 2020 and LTI 2021 amounted to 1,277,820 on the reporting date of 31 December 2021. Fair value is based on the share price on the respective allotment date. The present value calculation is based on data from an external party. Fair value is also adjusted for performance-based share awards not expected to be realized at the end of the vesting period of the respective program. The company further assesses the probability of the performance targets being met when calculating the compensation expense. The fair value of ASSA ABLOY’s Series B share on the allotment date for LTI 2021, 9 June 2021, was SEK 259.86. The fair value of ASSA ABLOY’s Series B share on the allot- ment date for LTI 2020, 28 May 2020, was SEK 196.25. The fair value of ASSA ABLOY’s Series B share on the allotment date for LTI 2019, 24 May 2019, was SEK 194.23. The total cost of the Group’s long-term incentive programs (LTI 2018–LTI 2021) excluding social security costs amounted to SEK 49 M (50) in 2021. In April 2021 vesting of LTI 2018 took place equivalent to 221,196 Series B shares (126,551) at a total market value at the time of vesting of SEK 54 M (22). The payment referred to above for the vested shares in LTI 2018 was recognized in equity. Notice and severance pay If the CEO is given notice, the company is liable to pay the equivalent of a maximum of 24 months’ base salary and other employment benefits. If one of the other members of the Executive Team is given notice, the company is liable to pay a maximum six months’ base salary and other employment benefits plus an additional twelve months’ base salary. Average number of employees per country, broken down by gender Group 2020 2021 Total of which women of which men Total of which women of which men US 11,112 3,047 8,065 11,663 3,333 8,330 China 7,625 3,412 4,213 6,891 2,635 4,256 France 2,034 592 1,442 2,777 732 2,045 United Kingdom 2,139 536 1,603 2,500 694 1,806 Sweden 2,386 632 1,754 2,351 649 1,701 Mexico 1,765 539 1,227 1,901 542 1,359 Germany 1,556 459 1,097 1,791 471 1,320 Brazil 1,550 465 1,084 1,663 526 1,137 India 1,491 133 1,357 1,594 132 1,462 Poland 1,232 340 891 1,457 402 1,055 Australia 1,250 322 929 1,331 355 976 Czech Republic 1,081 381 701 1,261 458 803 Netherlands 1,151 210 941 1,202 241 961 Finland 1,194 322 872 1,177 327 850 Canada 820 255 565 858 199 658 Malaysia 793 399 395 829 407 422 Romania 744 295 449 826 314 512 Switzerland 640 169 470 690 137 553 Belgium 711 143 568 667 144 522 South Africa 620 253 367 655 265 390 Spain 573 153 420 647 195 452 South Korea 634 176 458 548 151 396 Norway 646 122 524 545 98 447 Denmark 544 117 427 498 106 393 Italy 418 118 301 483 187 295 New Zealand 355 100 254 403 110 294 Thailand 360 249 111 352 245 107 United Arab Emirates 347 37 310 334 37 297 Hungary 297 57 240 317 67 250 Chile 245 68 177 274 78 196 Ireland 228 81 147 244 89 155 Israel 217 68 149 239 76 163 Vietnam 52 14 38 220 136 85 Austria 200 29 171 213 29 185 Others 1,461 425 1,036 1,534 428 1,106 Total 48,471 14,718 33,753 50,934 14,996 35,939 Note 34 continued Notes 93 ANNUAL REPORT 2021 | ASSA ABLOY Parent company 2020 2021 Total of which women of which men Total of which women of which men Sweden 281 85 196 251 80 171 Total 281 85 196 251 80 171 Gender distribution of Board of Directors and Executive Team 2020 2021 Total of which women of which men Total of which women of which men Board of Directors 1 8 4 4 8 4 4 Executive Team 10 1 9 10 2 8 – of which Parent company’s Executive Team 3 1 2 3 1 2 Total 18 5 13 18 5 13 1 Excluding employee representatives. NOTE 35 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. Financial risk management for ASSA ABLOY’s units has been implemented in accordance with the ASSA ABLOY Group’s financial policy. The principles for financial risk management are described below. 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 financial activities. ASSA ABLOY’s financial activities are coordinated centrally and the majority of finan- cial transactions are conducted by the subsidiary ASSA ABLOY Financial Services AB, which is the Group’s internal bank. External financial transactions are conducted by Treasury. Treasury achieves significant economies of scale when negotiating borrowing agreements, using interest rate derivatives and managing currency flows. 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 benefits for other stakeholders. Maintaining an optimal capital structure enables the Group to keep capi- tal costs at a low level. The Group can adjust the capital structure based on the require- ments that arise by varying the dividend paid to shareholders, returning capital to share- holders, 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, including negative market values of derivatives, plus pension provisions and lease obligations, less cash and cash equiva- lents, and other interest-bearing investments including positive market values of deriva- tives. The table ‘Net debt and equity’ shows the position as at 31 December. Net debt and equity SEK M Group 2020 2021 Non-current interest-bearing receivables –159 –170 Short-term investments –46 –8 Derivative instruments – Positive market values –426 –262 Cash and cash equivalents –2,756 –4,325 Long-term loans 22,381 20,195 Short-term loans 3,514 5,042 Lease liabilities 3,562 3,515 Pension provisions 3,514 2,736 Derivative instruments – negative market values 172 347 Total 29,755 27,071 Equity 58,879 69,592 Debt/equity ratio 0.51 0.39 Rating 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 solid 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. When the acquisition of HHI was announced, Standard & Poor’s issued a Credit Watch with a negative outlook. Standard & Poor’s sees a risk of the long-term credit rating being downgraded when the acquisition is completed. Agency Short-term Outlook Long-term Outlook Standard & Poor’s A2 Stable A – Neg Credit Watch Moody’s P2 Stable n/a Maturity profile – financial instruments 1 SEK M 2 31 December 2020 31 December 2021 <1 year >1 <2 years >2 <5 years >5 years <1 year >1 <2 years >2 <5 years >5 years Long-term bank loans –1,368 –1,089 –1,160 –3,257 –1,110 –424 –2,208 –2,139 Long-term capital market loans –1,462 –2,417 –9,101 –6,582 –2,608 –3,178 –7,276 –6,048 Short-term bank loans –1,179 –2,042 Derivatives (outflow) –13,960 –20 –55 –33 –21,062 –22 –51 –24 Total by period –17,969 –3,526 –10,315 –9,871 –26,822 –3,624 –9,535 –8,212 Cash and cash equivalents incl. interest-bearing receivables 3,174 4,333 Non-current interest-bearing receivables 44 155 2 1 208 Derivatives (inflow) 14,049 60 166 98 20,883 65 145 74 Deferred considerations –781 –157 –6 –346 –53 –5 Trade receivables 13,665 15,844 Trade payables –7,028 –9,527 Lease liabilities –1,145 –874 –1,259 –408 –1,141 –859 –1,212 –438 Net total 3,966 –4,453 –11,415 –10,027 3,226 –4,470 –10,607 –8,368 Confirmed credit facilities 12,058 –12,058 50,736 –38,454 –12,282 Adjusted maturity profile 1 16,024 –4,453 –23,472 –10,027 53,962 –42,924 –22,889 –8,368 1 For maturity profile of guarantees, see Note 30. 2 The amounts in the table are undiscounted and include future known interest payments. The exact amounts are therefore not found in the balance sheet. Note 34 continued Notes 94 ASSA ABLOY | ANNUAL REPORT 2021 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 responsible for external borrowings 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 availa- ble loan facilities, including available cash and cash equivalents, should include a reserve (facilities available but not utilized) equivalent to at least 10 percent of the Group’s total annual sales. Maturity profile The table ‘Maturity profile’ above shows the maturities for ASSA ABLOY’s financial instruments, including confirmed credit facilities. The maturities are not concentrated to a particular date in the immediate future. An important component of liquidity plan- ning is the Group’s Multi-Currency Revolving Credit Facility totaling EUR 1,200 M. The maturity for EUR 1,116 M was extended in 2021 and is now in April 2026. A smaller por- tion, EUR 84 M will still mature in April 2024. This credit facility was wholly unutilized at year-end. To secure the financing of the HHI acquisition, two new loan agreements were entered into during the year: a Bridge Facility of USD 3,750 M and an agreement for a credit facility of USD 500 M. Both facilities mature in 2023, but the financing depends on completion of the HHI acquisition. Moreover, existing financial assets are also taken into account in the table. The table shows cash flows and known future interest payments relating to the Group’s financial instruments at the reporting date, and these amounts are therefore not found in the balance sheet. Cash and cash equivalents and other interest-bearing receivables Current interest-bearing investments totaled SEK 1,643 M (46) at year-end. In addition, ASSA ABLOY has long-term interest-bearing receivables of SEK 170 M (159) and finan- cial derivatives with a positive market value of SEK 262 M (426) 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, deposits in banks or inter- est-bearing instruments with high liquidity from issuers with a credit rating of at least A– according to Standard & Poor’s or a similar rating agency. The average term for cash and cash equivalents was 7 days (4) at year-end 2021. The Parent company’s cash and cash equivalents are held in a sub-account to the Group account. SEK M Group Parent company 2020 2021 2020 2021 Cash and bank balances 2,756 2,690 0 0 Short-term investments with maturity less than 3 months 0 1,635 – – Cash and cash equivalents 2,756 4,325 0 0 Short-term investments with maturity more than 3 months 46 8 – – Non-current interest-bearing receivables 159 170 – – Positive market value of derivatives 426 262 – – Total 3,388 4,764 0 0 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 interest-bearing assets are mostly short-term. Maturity for the investments has risen during the year. The fixed interest term for such short-term investments was 8 days (164) at year-end 2021. A downward change in the yield curve of one percentage point would reduce the Group’s interest income by around SEK 0 M (0) and consolidated equity by SEK 0 M (0). Interest-bearing liabilities The Group’s long-term loan financing mainly consists of a GMTN Program of SEK 15,793 M (16,189), of which SEK 14,862 M (15,047) is long-term, a Private Placement Program in the US totaling USD 225 M, of which USD 75 M (225) is long-term, and loans from financial institutions such as the European Investment Bank (EIB) of EUR 0 M (18) and USD 349 M (366) and the Nordic Investment Bank of EUR 135 M (190). During the year there were no new issues under the GMTN Program and no new long-term loans were raised. Other changes in long-term loans are mainly due to some of the originally long- term loans now having less than 1 year to maturity. The size of the loans was also affected by currency fluctuations, especially regarding the USD. 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, however, the outstanding balance under the Commercial Paper Programs was SEK 0 M (0). In addition, substantial credit facilities are available, mainly in the form of a Multi-Currency Revolving Credit Facility of EUR 1,200 M (1,200). At year-end the average time to maturity for the Group’s interest-bearing liabilities, excluding the pen- sion provision and lease obligations, was 45 months (53). 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. Note 35 continued Notes 95 ANNUAL REPORT 2021 | ASSA ABLOY External financing/net debt Credit lines/facilities Amount, SEK M Maturity Carrying amount, SEK M Currency Amount 2020 Amount 2021 Of which Parent company, SEK M US Private Placement Program 679 Aug 2024 679 USD 75 75 – Multi-Currency RCF 860 Apr 2024 – EUR 84 84 – Multi-Currency RCF 11,423 Apr 2026 – EUR 1,116 1,116 – Bridge loan facility 33,930 Oct 2023 – USD – 3,750 – Term loan facility 4,524 Oct 2023 – USD – 500 – Bank loan EIB 621 Oct 2024 2 621 USD 86 69 – Bank loan EIB 2,382 Mar 2027 2 2,382 USD 263 263 – Bank loan NIB 690 Jun 2026 690 EUR 68 68 – Bank loan NIB 690 Jun 2028 690 EUR 68 68 – Global MTN Program 24,658 Feb 2023 500 SEK 500 500 500 Mar 2023 154 EUR 15 15 154 Oct 2023 205 EUR 20 20 205 Nov 2023 233 1 USD 25 25 – Nov 2023 913 1 USD 100 100 905 Dec 2023 905 USD 100 100 905 Jan 2024 307 EUR 30 30 307 Apr 2024 550 SEK 550 550 550 May 2024 181 USD 20 20 181 Jul 2024 271 USD 30 30 271 Sep 2024 1,021 EUR 100 100 1,021 Oct 2024 181 USD 20 20 181 Feb 2025 512 EUR 50 50 512 Mar 2025 329 1 EUR 30 30 307 Jun 2025 905 USD 100 100 905 Jun 2025 511 EUR 50 50 511 Jun 2025 271 USD 30 30 271 Dec 2025 468 1 USD 50 50 452 Mar 2026 205 EUR 20 20 205 Nov 2026 489 1 CHF 50 50 493 Feb 2027 307 EUR 30 30 307 Feb 2027 510 EUR 50 50 510 Jun 2027 307 1 NOK 300 300 307 Sep 2027 509 EUR 50 50 509 Oct 2027 207 1 NOK 200 200 205 May 2029 152 EUR 15 15 152 Jun 2029 90 USD 10 10 90 Aug 2029 102 EUR 10 10 102 Oct 2029 303 1 EUR 28 28 284 Oct 2029 265 EUR 26 26 265 Dec 2029 908 1 USD 100 100 895 Mar 2030 306 EUR 30 30 306 Apr 2030 712 EUR 70 70 712 Feb 2031 102 EUR 10 10 102 Aug 2034 1,011 EUR 100 100 1,011 Other long-term loans 234 234 –12 Total long-term loans/facilities 80,690 20,195 14,577 US Private Placement Program 1 361 1,361 USD 150 150 – Global MTN Program 931 931 SEK 1,142 931 931 Global CP Program 9,048 – SEK – – – Swedish CP Program 5 000 – SEK – – – Other bank loans 2,334 2,334 921 Overdraft facility 3,372 416 – Total short-term loans/facilities 22,045 5,042 1,852 Total loans/facilities 102,734 25,237 16,430 Cash and cash equivalents –4,325 Non-current and current interest-bearing investments –177 Derivative financial instruments 86 Pension provisions 2,736 Lease liabilities 3,515 Net debt 27,071 1 The loans are subject to hedge accounting, in whole or in part. 2 The loans are amortizing. In the table the average dates of maturity of the loans have been stated. Note 35 continued Notes 96 ASSA ABLOY | ANNUAL REPORT 2021 Change in loans SEK M Long-term loans Short-term loans Total Opening balance 1 January 2021 22,381 3,514 25,895 Cash flow from financing activities Long-term loans raised 8 – 8 Long-term loans repaid – –2,473 –2,473 Net change in short-term loans – 682 682 Total 8 –1,791 –1,783 Changes without cash flow impact Acquisitions of subsidiaries 9 98 107 Divestments of subsidiaries – –245 –245 Reclassifications –3,177 3,177 – Unrealized exchange rate differences 959 200 1,159 Other changes 12 – 12 Exchange rate differences 3 90 93 Total –2,194 3,320 1,125 Closing balance 31 December 2021 20,195 5,042 25,237 SEK M Long-term loans Short-term loans Total Opening balance 1 January 2020 21,100 5,460 26,560 Cash flow from financing activities Long-term loans raised 5,806 – 5,806 Long-term loans repaid – –3,252 –3,252 Net change in short-term loans – –1,522 –1,522 Total 5,806 –4,774 1,032 Changes without cash flow impact Acquisitions of subsidiaries 182 43 225 Divestments of subsidiaries – –66 –66 Reclassifications –3,181 3,181 – Unrealized exchange rate differences –1,631 –319 –1,950 Other changes 105 –11 94 Total –4,525 2,828 –1,697 Closing balance 31 December 2020 22,381 3,514 25,895 Interest rate risks in borrowing Changes in interest rates have a direct impact on ASSA ABLOY’s net interest expense. Treasury is responsible for identifying and managing the Group’s interest rate exposure. Treasury 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 in the loan portfolio, and uses interest rate swaps to adjust the fixed interest term. The financial policy stipulates that the average fixed interest term should normally be within the interval of 12 to 36 months. At year- end, the average fixed interest term on gross debt, excluding pension liabilities and lease commitments, was around 29 months (32). An upward change in the yield curve of one percentage point would increase the Group’s interest expense by around SEK 53 M (89) and reduce consolidated equity by SEK 39 M (65). Change in lease liabilities SEK M Group 2020 2021 Opening balance 3,739 3,562 Acquisitions of subsidiaries 265 13 Divestments of subsidiaries –37 –181 New and terminated leases 1,169 1,156 Amortization of lease liabilities –1,275 –1,242 Exchange rate differences –299 207 Closing balance 3,562 3,515 Balance sheet breakdown: Group 2020 2021 Non-current lease liabilities 2,477 2,433 Current lease liabilities 1,085 1,082 Total 3,562 3,515 Currency composition The currency composition of ASSA ABLOY’s borrowing depends on the currency com- position 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’ below. Net debt by currency SEK M 31 December 2020 31 December 2021 Net debt excl. deriva- tives Net debt incl. deriva- tives Net debt excl. deriva- tives Net debt incl. deriva- tives USD 11,201 12,311 11,494 12,133 EUR 13,525 11,783 12,356 10,879 GBP 493 2,120 114 1,600 CNY 577 1,868 1,000 2,854 AUD 64 1,340 85 1,443 NOK 612 656 560 354 CZK 124 628 100 655 PLN 62 554 66 630 KRW 234 505 312 475 SEK 1,477 –1,968 –603 –2,596 CHF 748 –1,616 675 –2,648 Other 636 1,574 911 1,292 Total 29,755 29,755 27,071 27,071 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 business units. The main principle is to allow currency fluctuations to have an impact on the business as quickly as possible. 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 Currency exposure 2020 2021 AUD 679 742 CAD 852 857 CHF –772 –609 CNY –1,653 –1,688 CZK –389 –461 EUR 1,523 1,761 GBP 589 1,133 HKD –820 –572 SEK –2,223 –663 USD 1,120 1,259 Translation exposure in income The table below shows the impact on the Group’s income before tax of a reasonably possible change, in this case a 10 percent weakening of the Swedish krona (SEK) in rela- tion to the major currencies, with all other variables constant. Impact on income before tax of a 10 percent weakening of SEK Currency, SEK M 2020 2021 AUD 44 61 CAD 22 34 CHF 41 49 DKK 12 14 EUR 188 265 HKD 66 50 MXN 12 16 NOK 17 23 NZD 15 16 USD 753 853 Note 35 continued Notes 97 ANNUAL REPORT 2021 | ASSA ABLOY 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. When- ever possible, according to local conditions, gearing per currency should generally aim to be the same as for the Group as a whole to limit the impact of fluctuations in individ- ual currencies. Treasury uses currency derivatives and loans to achieve appropriate financing and to eliminate undesirable currency exposure. The table ‘Net debt by currency’ on page 96 shows the use of forward exchange con- tracts in relation to financing in major currencies. Forward exchange contracts are used to neutralize 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 investment 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 subsidiaries to repay the Group’s loans. This is primarily achieved through cash pools put in place by Treasury. Around 97 percent (96) of the Group’s sales were settled through cash pools in 2021. Smaller amounts may be held in other local banks for shorter time periods depending on how customers choose to pay. The Group can also invest surplus cash in the short term in banks to match borrowing and cash flow. The banks in which surplus cash is deposited have a high credit rating. In light of this and the short terms of the investments the effect of the calculated credit risk is assessed to be negligible. 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 deriva- tive contracts with banks that have a high credit rating. ISDA agreements (full netting of transactions in case of counterparty default) have been entered into with respect to interest rate and currency derivatives. The table on page 98 shows the impact of this netting. Commercial credit risk The Group’s trade receivables are distributed across a large number of customers who are spread globally. No single customer accounts for more than 2 percent of the Group’s sales. The concentration of credit risk associated with trade receivables is considered to be limited, but credit risk has been assessed to have increased in the past two years, given the global Covid-19 pandemic and its impact on global demand. The fair value of trade receivables is equivalent to the carrying amount. Credit risks relating to operating activities are managed locally at company level and monitored at division level. For more information see Note 22 and the section ‘Impairment of financial assets’ in the information on accounting principles. Commodity risk The Group is exposed to price risks relating to purchases of certain commodities (pri- marily metals) used in production. Forward contracts are not used to hedge commodity purchases. Fair value of financial instruments Derivative financial instruments such as forward exchange contracts and forward rate agreements are used to the extent necessary. The use of derivative instruments is lim- ited to reducing exposure to financial risks. The positive and negative fair values in the table ‘Outstanding derivative financial instruments’ on page 98 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 is equivalent to the gross value of the contracts. For accounting purposes, financial instruments are classified into measurement cate- gories in accordance with IFRS 9. The table ‘Financial instruments’ on page 98 provides an overview of financial assets and liabilities, measurement category, and carrying amount and fair value per item. Risk management through hedge accounting During the year the Group used hedge accounting in its financial risk management. Hedges can be divided into cash flow hedges, fair value hedges and net investment hedges. Changes in these hedges can be seen in the table below. For information regard- ing the effects of net investment hedges in other comprehensive income, see Note 32. Net investment hedges are used to manage currency risk that arises through invest- ments in foreign subsidiaries. Fair value hedges are used to manage interest rate risk that arises when the Group takes out loans at a fixed interest rate. Cash flow hedges for interest rate risk in loans with variable interest rates are used to adjust the interest rate risk for variable interest rates. Interest rate risk related to the long-term loans are hedged through hedge account- ing using interest rate swaps. In cases where the loans are denominated in a currency other than SEK, currency risk is not included in the applied hedge accounting. For risks related to net investments in foreign subsidiaries, hedge accounting is only applied to manage currency risk; no other related risks are managed by the hedges that are applied. ASSA ABLOY does not hedge 100% of its long-term loans or its net investments. Instead, the decision on when hedge accounting is appropriate is taken on a case-by- case basis, in accordance with the risk levels described in the financial policy. For fair value hedges the Group uses interest rate swaps with critical terms that are equivalent to the hedged object, such as reference rate, settlement days, maturity date and nominal amounts. This approach ensures an economic relationship between the hedging objects and the hedging instruments. Hedging relationship effectiveness is tested through periodic forward-looking evaluation to ensure that an economic rela- tionship still exists. Examples of identified sources of ineffectiveness in the hedging rela- tionship include if a credit risk adjustment in the interest rate swap is not matched by an equivalent adjustment to the loan, or if for some reason differences in the critical terms between the interest rate swap and the loan should arise. All critical terms matched dur- ing the year. For this reason, the economic relationship has been 100% effective. The changes that have occurred to date following the reference rate reform (IBOR reform) had no significant impact on the Group’s hedge relationships in 2021. For USD, most maturities for LIBOR do not end before 30 June 2023. Hedging instruments SEK M Interest rate hedging 2020 Interest rate hedging 2021 Net in- vestments 2020 Net in- vestments 2021 Carrying amount of hedged item – fair value 2,609 2,803 – – Carrying amount of hedged item – cash flow 432 1,907 Nominal amount of hedging instrument 3,041 4,711 – – Maturity 2021 to 2029 2022 to 2029 – – Hedge ratio 1:1 1:1 – – Total effect of hedging on hedged item –187 –75 – – Accrued remaining amount for terminated hedges –20 –11 –255 –255 Change in value, hedging instruments since 1 January 99 –107 –3 – Change in value, hedge item –99 107 3 – Ineffectiveness recognized in profit or loss 0 0 0 – Changes in the value of fair value hedged items are recognized against long-term loans, changes in value of hedging instruments are recognized against accrued revenue or expenses, respectively; ineffectiveness, if any, is recognized against interest income or expenses, respectively. Changes in value of hedge instruments in net investment hedges are recognized in the hedging reserve in equity. Changes in value of hedge instruments in cash flow hedges of interest rate risk are recognized in Other comprehensive income. Any ineffectiveness is recognized against interest income or interest expenses. Note 35 continued Notes 98 ASSA ABLOY | ANNUAL REPORT 2021 Disclosures of offsetting of financial assets and liabilities SEK M 2020 2021 Gross amount Amounts netted in the balance sheet Net amounts in the balance sheet Amount covered by netting agree- ment but not offset Net amount Gross amount Amounts netted in the balance sheet Net amounts in the balance sheet Amount cov- ered by netting agreement but not offset Net amount Financial assets 426 – 426 76 350 262 – 262 135 128 Financial liabilities 172 – 172 76 96 347 – 347 135 212 Netted financial assets and financial liabilities only consist of derivative instruments. Outstanding derivative financial instruments at 31 December Instrument, SEK M 31 December 2020 31 December 2021 Positive fair value 2 Negative fair value 2 Nominal value Positive fair value 2 Negative fair value 2 Nominal value Foreign exchange forwards, funding 240 –172 7,923 179 345 9,246 Interest rate derivatives 1 , fair value hedges 187 – 2,609 79 3 2,803 Interest rate derivatives 1 , cash flow hedges – 0 432 5 0 1,907 Total 426 –172 10,963 262 348 13,957 1 For Interest rate derivatives, only one leg is included in nominal value. 2 Assets are recognized against accrued revenue and liabilities against accrued expenses. Financial instruments: carrying amounts and fair values by measurement category SEK M 2020 2021 Carrying amount Fair value Carrying amount Fair value Financial assets at amortized cost Trade receivables 13,665 13,665 15,844 15,844 Other financial assets at amortized cost 252 252 223 223 Cash and cash equivalents 2,756 2,756 4,325 4,325 Financial assets at fair value through profit or loss Shares and interests 6 6 52 52 Derivative financial instruments Hedge accounting 187 187 84 84 Held for trading 240 240 179 179 Total financial assets 17,106 17,106 20,706 20,706 Financial liabilities at amortized cost Trade payables 7,027 7,027 9,527 9,527 Lease liabilities 3,562 3,562 3,515 3,515 Long-term loans – hedge accounting 2,781 2,781 2,864 2,864 Long-term loans – non-hedge accounting 19,600 20,157 17,331 17,519 Short-term loans – hedge accounting – – – – Short-term loans – non-hedge accounting 3,514 3,515 5,042 5,052 Financial liabilities at fair value through profit or loss Deferred considerations 944 944 403 403 Derivative financial instruments Hedge accounting 0 0 3 3 Held for trading 171 171 345 345 Total financial liabilities 37,600 38,158 39,027 39,228 Financial instruments: measured at fair value SEK M 2020 2021 Carrying amounts Quoted prices (level 1) Observable data (level 2) Non-observable data (level 3) Carrying amounts Quoted prices (level 1) Observable data (level 2) Non-observable data (level 3) Financial assets Derivative financial instruments 426 – 426 – 262 – 262 – Financial liabilities Derivative financial instruments 172 – 172 – 347 – 347 – Deferred considerations 944 – – 944 403 – – 403 Note 35 continued The fair value of long-term borrowing is based on observable data by discounting cash flows to market rate, which is deemed to correspond with level 2 according to the fair Measurement at fair value is classified hierarchically in three different levels based on input data used in measurement of the instruments. Deferred considerations relate to additional payments for acquired companies. The size of a deferred consideration is usually linked to the earnings and sales trend in an acquired company during a specific period of time. Deferred consideration is measured on the day of acquisition based on value hierarchy. The fair value of current receivables and current liabilities is considered to correspond to the carrying amount. the best judgment of management regarding future outcomes. Discounting takes place in the case of significant amounts. Belongs to level 3 in the hierarchy. For derivatives, the present value of future cash flows is calculated based on observa- ble yield curves and exchange rates on the balance sheet date. Belongs to level 2 in the hierarchy. Five years in summary Amounts in SEK M unless stated otherwise 2017 2018 2019 2020 2021 Sales and income Sales 76,137 84,048 94,029 87,649 95,007 Organic growth, % 4 5 3 –8 11 Acquisitions and divestments, % 2 2 3 4 2 Operating income (EBIT) excluding items affecting comparability 12,341 12,909 14,920 11,916 14,181 Operating income (EBIT) 12,341 6,096 14,608 12,458 14,181 Income before tax (EBT) 11,673 5,297 13,571 11,676 13,538 Net income 8,635 2,755 9,997 9,172 10,901 Cash flow Cash flow from operating activities 9,248 9,225 12,665 13,658 12,456 Cash flow from investing activities –8,661 –6,427 –5,464 –6,741 –3,094 Cash flow from financing activities –861 –2,728 –7,301 –4,558 –7,813 Cash flow –274 70 –100 2,359 1,549 Operating cash flow 10,929 11,357 14,442 14,560 13,265 Capital employed and financing Capital employed 75,932 81,146 92,204 88,634 96,663 – of which goodwill 50,330 53,413 57,662 58,344 62,502 – of which other intangible assets and property, plant and equipment 19,144 19,518 21,191 22,134 22,587 – of which right-of-use assets – 119 3,731 3,513 3,436 – of which shares and interests in associates 2,243 2,434 2,595 637 652 Net debt 25,275 29,246 33,050 29,755 27,071 Non-controlling interests 9 10 11 9 9 Shareholders’ equity, excluding non-controlling interest 50,648 51,890 59,143 58,870 69,582 Data per share, SEK Earnings per share before and after dilution 7.77 2.48 9.00 8.26 9.81 Earnings per share before and after dilution and excluding items affecting comparability 7.77 8.09 9.22 7.54 9.81 Shareholders’ equity per share after dilution 45.60 46.71 53.25 53.00 62.64 Dividend per share 3.30 3.50 3.85 3.90 4.20 1 Price of Series B share at year-end 170.40 158.15 219.00 202.50 276.20 Key figures Operating margin (EBIT), % excluding items affecting comparability 16.2 15.4 15.9 13.6 14.9 Operating margin (EBIT), % 16.2 7.3 15.5 14.2 14.9 Profit margin (EBT), % 15.3 6.3 14.4 13.3 14.2 Cash conversion 0.94 0.94 1.04 1.31 0.98 Return on capital employed, % 16.6 15.9 16.2 12.5 15.2 Return on equity, % 17.6 5.4 18.0 15.5 17.0 Equity ratio, % 50.9 48.7 50.1 50.1 53.5 Net debt/Equity ratio 0.50 0.56 0.56 0.51 0.39 Net debt/EBITDA 1.8 2.0 1.8 1.9 1.5 Total number of shares, thousands 1,112,576 1,112,576 1,112,576 1,112,576 1,112,576 Number of outstanding shares, thousands 1,110,776 1,110,776 1,110,776 1,110,776 1,110,776 Weighted average number of outstanding shares, before and after dilution, thousands 1,110,776 1,110,776 1,110,776 1,110,776 1,110,776 Average number of employees 47,426 48,353 48,992 48,471 50,934 1 Dividend proposed by the Board of Directors. % 0 5 10 15 20 2120191817 Number 0 10,000 20,000 30,000 40,000 50,000 60,000 2120191817 % 0 5 10 15 20 2120191817 Return on capital employed Operating margin (EBIT) 2 Average number of employees 2 Excluding items affecting comparability. 99 ANNUAL REPORT 2021 | ASSA ABLOY Five years in summary Comments on five years in summary 2017 Sales growth continued to be robust during the year. Organic growth was 4 percent, driven by growing demand for electromechanical and digital door opening solutions. For ASSA ABLOY, the mature markets primarily in Europe and the US demonstrated continued robust growth, while the trend in the emerging markets was weaker, especially in China, Brazil and the Middle East. Growth in Asia outside China continued to be robust. Product development continues to focus on areas such as digital and mobile technologies, which are believed to provide substantial potential for robust profitable growth for some time to come. ASSA ABLOY also has a growing selection of products with environmental product declara- tions as part of its sustainable solutions initiative. Operating income for the year, excluding items affect- ing comparability, increased by 10 percent compared with 2016, and cash flow remained strong. Earnings per share after full dilution, excluding items affecting comparability, increased 10 percent. A total of 16 acquisitions were consolidated during the year, which strengthened the market position in areas such as smart door locks, physical access management and iden- tity solutions. ASSA ABLOY divested its project operation within HID Global, AdvanIDe, in its entirety. 2018 Growth was strong during the year, with organic growth of 5 percent driven by continued successes for electrome- chanical and digital solutions, as well as strong growth in North and South America. The mature markets continued to demonstrate a favorable trend, with the US and Europe demonstrating strong and robust growth, respectively, dur- ing the year. The trend in the emerging markets was weaker, especially in Asia and the Middle East. A new restructuring program was launched during the year. About fifty production plants and offices are set to close over a three-year period, with an estimated payback period of less than three years. Product development continued at a high level with large investments in R&D, as reflected by 27 percent of sales for the year which relate to products that are less than three years old. Operating income for the year, excluding items affecting comparability, increased by 5 percent and cash flow re- mained strong. Earnings per share after full dilution, exclud- ing items affecting comparability, increased 4 percent. An impairment charge of SEK 6 billion was taken during the year for goodwill, other intangible assets and operating assets. A total of 19 acquisitions were consolidated during the year, which strengthened the market position for HID in secure identity solutions. ASSA ABLOY sold its wood door business within the Americas division during the year. 2019 Organic growth was 3 percent, driven by good growth in the Americas and Global Technologies divisions. Growth was particularly strong in the US on robust demand for smart locks in the private residential market, as well as the commercial business segments. Growth in Europe and Asia was generally mixed. The trend for the emerging markets continued to be relatively weak. The product development initiative accelerated during the year with large investments in R&D, as reflected by the 27 percent of sales which relate to products that are less than three years old. Operating income for the year, excluding items affecting comparability, increased by 12 percent and cash flow re- mained strong. Earnings per share after full dilution, exclud- ing items affecting comparability, increased 14 percent. Acquisition activity continued to be high during the year; at the same time, an agreement was also signed for the acquisition of agta record, the largest acquisition since 2011. 2020 Demand was negatively impacted during the year by the Covid-19 pandemic. Organic growth was –8 percent for the Group, with a negative sales trend in all divisions. Cost-saving measures and staff cuts have largely offset the negative impact on earnings from lower sales. A new restructuring program was also launched at the end of the year, with plans to close about ten plants and about thirty offices for a two-year period. The operating cash flow remained strong thanks to, among other things, cost reductions and reduced working capital. Demand was generally more stable in the more mature markets in Europe and the US compared with the trend in the emerging markets, especially in Asia, the Middle East and Africa. The focus on product development and innovation continued with undiminished strength. Major investments were made in R&D, where the full workforce was kept intact during the year. Operating income for the year, excluding items affecting comparability, decreased by 20 percent. Cash flow remained strong. Acquisition activity continued to be high during the year; for example, the acquisition of agta record was completed. 2021 The mature markets in the US and Europe gradually recovered during the year despite the continuation of the Covid-19 pandemic and restrictions in many countries. The continued restrictions in Asia meant weaker recovery of demand. Organic growth was very strong for the Group as a whole at 11 percent, with a positive sales trend in all divisions. However, rising material costs and scarcity of certain components presented an operational challenge and had a negative impact on sales and income. Operating income ex- cluding items affecting comparability increased overall by 19 percent, and the operating margin was 14.9 percent (13.6). Operating cash flow remained strong during the year. Acquisition activity was high, with thirteen businesses acquired, primarily in the US and Europe. Additional acquisi- tion contracts were signed during the year, primarily for HHI, a leading provider in the North American residential seg- ment. The Nordic locksmith and security solution installer CERTEGO was divested. The focus on product development and innovation contin- ued at a high level during the year, including the launch of more than 400 new products on the market. Sustainability remains a priority area for ASSA ABLOY. New initiatives were introduced during the year in our effort to meet the Group’s sustainability targets for 2025, with contin- ued reductions in emissions, waste and water consumption. 100 ASSA ABLOY | ANNUAL REPORT 2021 Five years in summary Definitions of key ratios Organic growth Change in sales for comparable units after adjustments for acquisitions, divestments and exchange rate effects. Operating margin (EBITDA) Operating income before depreciation, amortization and impairment as a percentage of sales. Operating margin (EBITA) Operating income before amortization of intangible assets recognized in business combinations, 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. Items affecting comparability Restructuring costs and significant non-recurring operating expenses such as revaluation of previously owned shares in associates and goodwill impairment. Operating cash flow Cash flow from operating activities excluding restructur- ing payments and tax paid on income minus net capital expenditure and repayment of lease liabilities. See the table on operating cash flow for detailed information. Cash conversion Operating cash flow in relation to income before tax exclud- ing items affecting comparability. Net capital expenditure Investments in, less sales of, intangible assets and property, plant and equipment. Capital employed Total assets less interest-bearing assets and non-interest- bearing liabilities including deferred tax liability. Average adjusted capital employed Average capital employed excluding restructuring reserves for the last twelve months. Net debt Interest-bearing liabilities less interest-bearing assets. See the table on net debt for detailed information. Net debt/EBITDA Net debt at the end of the period in relation to EBITDA for the last twelve months. Debt/equity ratio Net debt in relation to equity. Equity ratio Shareholders’ equity as a percentage of total assets. Shareholders’ equity per share Equity excluding non-controlling interests in relation to number of outstanding shares after any potential dilution. Return on equity Net income attributable to parent company’s shareholders for the last twelve months as a percentage of average parent company’s shareholders’ equity for the same period. Return on capital employed Operating Income (EBIT), excluding items affecting com- parability, for the last twelve months as a percentage of aver- age adjusted capital employed. Earnings per share before and after dilution Net income attributable to parent company’s shareholders divided by weighted average number of outstanding shares. None of the Group’s outstanding long-term incentive programs are expected to result in significant dilution in the future. Earnings per share before and after dilution, excluding items affecting comparability Net income attributable to parent company’s shareholders, excluding items affecting comparability, net of tax, divided by weighted average number of outstanding shares. None of the Group’s outstanding long-term incentive programs are expected to result in significant dilution in the future. 101 ANNUAL REPORT 2021 | ASSA ABLOY Definitions Board of Directors and CEO assurance The Board of Directors and the President and CEO declare that the consolidated accounts have been prepared in accord- ance 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 ac- cepted 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, 2 March 2022 Lars Renström Chairman Carl Douglas Vice Chairman Nico Delvaux President and CEO Johan Hjertonsson Board member Sofia Schörling Högberg Board member Eva Karlsson Board member Lena Olving Board member Joakim Weidemanis Board member Susanne Pahlén Åklundh Board member Rune Hjälm Board member Employee representative Mats Persson Board member Employee representative Our audit report was issued on 4 March 2022 Ernst & Young AB Hamish Mabon Authorized Public Accountant Auditor in charge 102 ASSA ABLOY | ANNUAL REPORT 2021 Board of Directors and CEO assurance Auditor’s report Opinions We have audited the annual accounts and consolidated accounts of ASSA ABLOY AB (publ) except pages 49–61 and the statutory sustainability report for the year 2021. The annual accounts and consolidated accounts of the company are included on pages 42–98 in this document. 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 2021 and its financial perfor- mance and cash flow for the year then ended in accordance 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 2021 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Stand- ards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 49–61. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group. Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11. Basis for Opinions We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those stand- ards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for account- ants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its con- trolled companies within the EU. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Key Audit Matters Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial state- ments section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the proce- dures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. S To the general meeting of the shareholders of ASSA ABLOY AB (publ), corporate identity number 556059-3575 Report on the annual accounts and consolidated accounts 103 ANNUAL REPORT 2021 | ASSA ABLOY Auditor’s report Other Information than the annual accounts and consolidated accounts This document also contains other information than the annual accounts and consolidated accounts and is found on pages1–41, 99–101 and 108–113. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the infor- mation identified above and consider whether the informa- tion is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this infor- mation, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Goodwill and other intangible assets with indefinite use of life Description How our audit addressed this key audit matter The value of goodwill and other intangibles with an indef- inite useful life as of 31 December 2021 amounted to 70,3 billion SEK. The Company performs an annual impairment test as well as whenever impairment indica- tors are identified. The recoverable amount for each cash-generating unit is determined as the value in use, which is calculated based on the discounted present value of future cash flows. Key assumptions in these cal- culations include forecast operating results, growth rates to extrapolate future cash flows and discount rates to be applied on future estimated cash flows. Applied discount rate (also referred to as” WACC- Weighted Average Cost of Capital”) is presented in note 14. An impairment test is a complex process and contains a high degree of judgment regarding future cash flows and other assumptions, not least because it is based on estimates of how the Company´s business will be affected by future market developments and by other economic events. Therefore, we have assessed valuation of goodwill and other intangibles assets with an indefinite useful life to be a key audit matter. In our audit we have evaluated and reviewed key assumptions, the application of recognized valuation practices, discount rate (and other source data that the Company has applied. Our eval- uation has included comparing to external data sources, such as forecasts of inflation or assessment of future market growth and by evaluating the sensitivity in the Company´s valuation model. We have specifically focused on the sensitivity in the calculations and have made an independent evaluation of whether there is a risk that reasonably probable events would give rise to a situation where the value in use would be lower than the carrying amount. In this assessment, we have also compared the company’s historical forecasts in the impair- ment tests with the amounts that is the actual outcome, in order to assess the company’s historical precision in its esti- mates and assessments. We have included valuation experts with appropriate skills in the team performing our review. Finally, we have evaluated disclosures provided in note 14, spe- cifically with regards to the disclosure of which of the stated assumptions that are most sensitive in calculating the value in use and the sensitivity analysis for those key assumptions. Description How our audit addressed this key audit matter The restructuring program is described in the Report of Board of Directors in the annual report in note 26. The outgoing balance as per December 31, 2021 amounts to 0,7 billion SEK. A provision for restructuring measures is recognized when the Group has established a detailed plan and either implementation has begun, or the main features of the measures have been communicated to the parties involved. In our audit we have focused on the recognition in the proper period and valuation of the restructuring provision as they require management’s judgment and estimates. Because of the significant amount and considerable estimates involved, we have assessed restructuring provision to be a key audit matter. We have reviewed the company´s process for identifying restructuring projects and the estimated costs for these pro- jects. Our audit procedures include evaluating if the restructur- ing programs in all material respects are in line with the accounting principles for provisions, i.e. IAS 37. We have evalu- ated if there is an obligation that represent future obligations. We have challenged management´s assumptions that there are basis for the restructuring provisions with the aim of assessing the reasonability of the provisions. Based on risk and material- ity, we have reconciled the parameters in the calculation against supporting documentation. This includes, among other things, the examination of minutes, agreements, calculations and communication with employees. We have evaluated management´s assessments of remaining cashflows by review- ing their quarterly project updates. Finally, we have evaluated the disclosures provided regarding restructuring activities in note 26. Provisions – Restructuring programs 104 ASSA ABLOY | ANNUAL REPORT 2021 Auditor’s report Responsibilities of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concern- ing the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so. The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process. Auditor’s responsibility Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing stand- ards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggre- gate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit proce- dures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstate- ment resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, inten- tional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of the company’s internal con- trol relevant to our audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective- ness of the company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director. • Conclude on the appropriateness of the Board of Direc- tors’ and the Managing Director’s use of the going con- cern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company’s and the group’s ability to continue as a going concern. If we con- clude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis- closures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evi- dence obtained up to the date of our auditor’s report. However, future events or conditions may cause a com- pany and a group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and con- solidated accounts represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient and appropriate audit evidence regard- ing the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direc- tion, supervision and performance of the group audit. We remain solely responsible for our opinions. We must inform the Board of Directors of, among other mat- ters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified. We must also provide the Board of Directors with a state- ment that we have complied with relevant ethical require- ments regarding independence, and to communicate with them all relationships and other matters that may reasona- bly be thought to bear on our independence, and where applicable, actions taken to eliminate threats or related safe- guards applied. From the matters communicated with the Board of Direc- tors, we determine those matters that were of most signifi- cance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit mat- ters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter. 105 ANNUAL REPORT 2021 | ASSA ABLOY Auditor’s report The auditor’s examination of the ESEF report Opinion In addition to our audit of the annual accounts and consoli- dated accounts, we have also examined that the Board of Directors and the Managing Director have prepared the annual accounts and consolidated accounts in a format that enables uniform electronic reporting (the Esef report) pur- suant to Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528) for ASSA ABLOY AB (publ) for the financial year 2021. Our examination and our opinion relate only to the statu- tory requirements. In our opinion, the ESEF report #[checksum] has been pre- pared in a format that, in all material respects, enables uni- form electronic reporting. Basis for opinion We have performed the examination in accordance with FAR’s recommendation RevR 18 Examination of the ESEF report. Our responsibility under this recommendation is described in more detail in the Auditors’ responsibility sec- tion. We are independent of ASSA ABLOY AB (publ) in accordance with professional ethics for accountants in Swe- den and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the evidence we have obtained is suffi- cient and appropriate to provide a basis for our opinion. Report on other legal and regulatory requirements Report on the audit of the administration and the proposed appropriations of the company’s profit or loss Opinions In addition to our audit of the annual accounts and consoli- dated accounts, we have also audited the administration of the Board of Directors and the Managing Director of ASSA ABLOY AB (publ) for the year 2021 (the financial year 2021- 01-01-2021-12-31) and the proposed appropriations of the company’s profit or loss. We recommend to the general meeting of shareholders that the profit be appropriated (loss be dealt with) in accord- ance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. A separate list of loans and collateral has been prepared in accordance with the provisions of the Companies Act. Basis for opinions We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional eth- ics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these require- ments. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the pro- posal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensur- ing that the company’s organization is designed so that the accounting, management of assets and the company’s finan- cial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing adminis- tration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accord- ance with law and handle the management of assets in a reassuring manner. Auditor’s responsibility Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect: • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or • in any other way has acted in contravention of the Compa- nies Act, the Annual Accounts Act or the Articles of Associ- ation. Our objective concerning the audit of the proposed appro- priations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Com- panies Act. As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judg- ment and maintain professional skepticism throughout the audit. The examination of the administration and the pro- posed appropriations of the company’s profit or loss is based primarily on the audit of the accounts. Additional audit pro- cedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relation- ships that are material for the operations and where devia- tions and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the compa- ny’s profit or loss we examined whether the proposal is in accordance with the Companies Act. 106 ASSA ABLOY | ANNUAL REPORT 2021 Auditor’s report The auditor’s examination of the ESEF report, continued Responsibilities of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of the Esef report in accord- ance with Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528), and for such internal control that the Board of Directors and the Managing Director determine is necessary to prepare the Esef report without material mis- statements, whether due to fraud or error. Auditor’s responsibility Our responsibility is to obtain reasonable assurance whether the Esef report is in all material respects prepared in a format that meets the requirements of Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528), based on the procedures performed. RevR 18 requires us to plan and execute procedures to achieve reasonable assurance that the Esef report is pre- pared in a format that meets these requirements. Reasonable assurance is a high level of assurance, but it is not a guarantee that an engagement carried out according to RevR 18 and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Esef report. The audit firm applies ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and other Assurance and Related Services Engagements and accordingly maintains a comprehensive system of quality control, including documented policies and procedures regarding compliance with professional ethical require- ments, professional standards and legal and regulatory requirements. The examination involves obtaining evidence, through various procedures, that the Esef report has been prepared in a format that enables uniform electronic reporting of the annual and consolidated accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement in the report, whether due to fraud or error. In carrying out this risk assessment, and in order to design audit procedures that are appropriate in the circumstances, the auditor considers those elements of internal control that are relevant to the preparation of the Esef report by the Board of Directors and the Managing Director, but not for the purpose of expressing an opinion on the effectiveness of those internal controls. The examination also includes an evaluation of the appropriateness and rea- sonableness of assumptions made by the Board of Directors and the Managing Director. The procedures mainly include a technical validation of the Esef report, i.e. if the file containing the Esef report meets the technical specification set out in the Commission’s Dele- gated Regulation (EU) 2019/815 and a reconciliation of the Esef report with the audited annual accounts and consoli- dated accounts. Furthermore, the procedures also include an assessment of whether the Esef report has been marked with iXBRL which enables a fair and complete machine-readable version of the consolidated statement of financial performance, financial position, changes in equity and cash flow. The auditor’s examination of the corporate governance statement The Board of Directors is responsible for that the corporate governance statement on pages 49–61 has been prepared in accordance with the Annual Accounts Act. Our examination of the corporate governance statement is conducted in accordance with FAR´s standard RevR 16 The auditor´s examination of the corporate governance state- ment. This means that our examination of the corporate gov- ernance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions. A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the sec- ond paragraph points 2-6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act. The auditor´s opinion regarding the statutory sustainability report The Board of Directors is responsible for the statutory sus- tainability report and that it is prepared in accordance with the Annual Accounts Act. Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor’s opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is dif- ferent and substantially less in scope than an audit con- ducted in accordance with International Standards on Audit- ing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with suffi- cient basis for our opinion. A statutory sustainability report has been prepared. Ernst & Young AB with Hamish Mabon as auditor in charge, Box 7850, 103 99 Stockholm was appointed auditor of ASSA ABLOY AB (publ) by the general meeting of the shareholders on the 28 April 2021 and has been the company’s auditor since the 29 April 2020. Stockholm 4 Mars 2022 Ernst & Young AB Hamish Mabon Authorized Public Accountant 107 ANNUAL REPORT 2021 | ASSA ABLOY Auditor’s report ASSA ABLOY as an investment We are the global leader in access solutions. Since ASSA ABLOY was founded in 1994, we have created significant customer and shareholder value by continuously optimizing our produc- tion and developing new, innovative products that meet our customers’ needs and demands. Below are the main reasons why we create customer and shareholder value.  Good industry to be in – Strong underlying trends are driving increased demand for access solutions, including meeting the individual’s most basic need for safety and security. The digitalization of the industry is enabling us to offer more convenient solutions and also shift to more ser- vice-based solutions offerings. At the same time, the demand for more sustainable and resilient ASSA ABLOY products is fuelled by the strong growth in green buildings and more sustainable urban environments around the world.  Leading market position – We have the largest in- stalled base and the deepest know-how of locks and different access solutions in the world. This is continuously maintained and upgraded with new solutions. Two-thirds of our revenue is generated from the aftermarket, which provides us with a stable customer and revenue base. Our steady aftermarket makes us less vulnerable to the cyclical demand affecting many other industries. 4  Consistent profitable growth – Our revenue has grown by more than 9 percent annually during the last ten years, and the adjusted EBIT margin has been stable at above 16 percent, when excluding the years of the pan- demic. We continue to focus on growing through customer relevance and being cost efficient in everything we do, which enables us to deliver consistent profitable growth. The shift to electromechanical products also allows us to grow in a profitable way long-term.  Investing in innovation – We invest about 4 percent of our revenue in R&D. Given the size of our business, this gives us a strong competitive advantage, both short and long term. Our innovation capacity is based on our common platforms and our global reach but also relies on the local competence of our innovation organization. The target for products launched in the past three years is to be 25 percent of our total sales.  Strong acquisition record – We have acquired more than 300 companies globally since ASSA ABLOY was established in 1994. In many cases, the businesses are leading access providers in their respective markets with well-established customer bases and brands. After realizing synergies, we grow the businesses and increase their profit- ability and margins. This strategy has proven successful, and our acquired businesses have generated significant value following integration. In 2021 we announced the acquisi- tion of the Hardware and Home Improvement business unit from Spectrum Brands, which adds about 15 percent in sales to ASSA ABLOY and constitutes an important strategic step in developing our residential business in North America.  Our trusted brands set us apart – We use multiple brands to make the most of our global and local strengths. Our Group and employer brand is ASSA ABLOY, and it is fast becoming the leading commercial brand for doors, locks, and related services. We also have strong mas- ter brands across our core businesses. These include Yale, one of the world’s best-known residential lock brands, and HID Global, which leads the way in secure identities. In total, there are 130 endorsed brands within the Group that help us create and keep loyal customers across different markets and regions.  Operational efficiency – Our production is struc- tured around local assembly lines close to the cus- tomer, adapted according to the local standards, with some strategic components concentrated to larger plants. This enables us to quickly supply our products efficiently to our customers. We also continue to optimize our supply chain, product setup, and footprint and work with lean processes and automation.  Leading sustainable solutions – We committed to science-based targets in 2020. This will further improve our competitiveness and provide sound business production and product development incentives. When we develop new products, our ambition is to minimize their environmental impact and embodied carbon footprint, while maximizing sustainability attributes, such as energy efficiency during the products’ in-use phase and recycling once they reach their end of life. +139% EPS growth in 10 years +127% sales growth in 10 years SEK M SEK M 0 20,000 40,000 60,000 80,000 100,000 2120191817 Omsättning Rörelseresultat 1 0 3,000 6,000 9,000 12,000 15,000 SEK 0 2 4 6 8 10 2120191817 Utdelning per aktie Vinst per aktie efter utspädning 1 % 0 5 10 15 20 25 30 2120191817 Sales Operating income 1 Dividend per share Earnings per share after dilution 1 Sales and operating income Dividend and earnings per share New product ratio 1 Excluding items affecting comparability. 1 Excluding items affecting comparability. 4 5 1 2 6 7 8 3 SEK 31 bn dividend in 10 years 108 ASSA ABLOY | ANNUAL REPORT 2021 Shareholder information Share price and turnover 2012–2021 Dividend per share 2012–2021 The ASSA ABLOY share Share price trend Despite the negative impact of the Covid-19 pandemic for much of 2021, the stock market developed positively during most parts of the year. The peak of the stock market during the year was reached in December, when OMX Stockholm PI index had increased 35 percent. The ASSA ABLOY share also had a positive develop- ment, reaching an all-time high on August 17. The markets contracted in September following uncertainties relating to supply reliability and higher raw material costs. After almost two months of a positive development, the markets turned negative again in late November due to uncertainties related to the new corona virus variant, Omicron, which put pressure on the stock markets. The stock market ended the year in a positive trend. For the full year, the OMX Stockholm PI index increased 35 percent, while ASSA ABLOY’s share price closed at SEK 276.20, an increase of 36 percent. The highest closing price for ASSA ABLOY Series B during the year was SEK 288.20 recorded on 17 August 2021 and the lowest price of SEK 200.20 was recorded on 5 January 2021. At year-end, market capitalization amounted to SEK 307 294 M (225,297), calculated on both Series A and Series B shares. Listing and trading ASSA ABLOY’s Series B share has been listed on Nasdaq Stockholm, Large Cap since November 8, 1994 under the code ASSA-B.ST. Turnover of the Series B share on Nasdaq Stockholm in 2021 amounted to 425 million shares (623), equivalent to a turnover rate of 40 percent (59). The implementation of the EU’s Markets in Financial In- struments Directive (MiFID) in 2007 has changed the struc- ture of equity trading in Europe and trading now takes place on both regulated markets and other trading platforms. Share price and turnover 2021 0 20,000 40,000 60,000 80,000 100,000 120,000 2021202020192018201720162015201420132012 SEK No. of shares traded, thousands 0 50 100 150 200 250 300 350 0 10,000 20,000 30,000 40,000 50,000 60,000 DNOSAJJMAMFJ 150 170 190 210 230 250 270 290 310 SEK No. of shares traded, thousands SEK 0 1 2 3 4 5 21201918171615141312 2021 proposed dividend ASSA ABLOY B OMX Stockholm PI No. of shares traded, thousands (incl. after hours) ASSA ABLOY B, total return SIX Return Index Source: Nasdaq and Bloomberg ASSA ABLOY B OMX Stockholm PI No. of shares traded, thousands (incl. after hours) Source: Nasdaq and Bloomberg 109 ANNUAL REPORT 2021 | ASSA ABLOY Shareholder information Ownership structure (share capital) Ownership structure (votes) Ownership structure The number of shareholders at the end of 2021 was 45,698 (43,734) and the ten largest shareholders accounted for 36.1 percent (34.9) of the share capital and 56.4 percent (55.5) of the votes. Shareholders with more than 50,000 shares, a total of 395 shareholders, accounted for 98 percent (97) of the share capital and 98 percent (98) of the votes. Investors outside Sweden owned 67.3 percent (66.8) of the share capital, accounted for 45.9 percent (45.6) of the votes, and were mainly in the US and the UK. ASSA ABLOY’s ten largest shareholders Based on the share register at 31 December 2021. Shareholders Series A shares Series B shares Total number of shares Share capital 1 , % Votes 1 , % Investment AB Latour 41,595,729 63,900,000 105,495,729 9.5 29.4 Melker Schörling AB 15,930,240 18,120,992 34,051,232 3.1 10.9 Fidelity Investments 45,795,967 45,795,967 4.1 2.8 Capital Group 43,026,179 43,026,179 3.9 2.6 BlackRock 39,383,656 39,383,656 3.5 2.4 Vanguard 28,682,299 28,682,299 2.6 1.8 Swedbank Robur Funds 27,292,102 27,292,102 2.5 1.7 Norges Bank 27,143,780 27,143,780 2.4 1.7 Alecta Pension Insurance 25,822,000 25,822,000 2.3 1.6 Handelsbanken Funds 24,542,409 24,542,409 2.2 1.5 Other shareholders 711,340,981 711,340,981 63.9 43.6 Total number 57,525,969 1,055,050,365 1,112,576,334 100.0 100.0 1 Based on the number of outstanding shares and votes of 1,110,776,334 and 1,628,510,055 respectively, excluding shares held by ASSA ABLOY. Source: Modular Finance AB and Euroclear Sweden AB. Legend Legend Legend Legend Legend Legend Legend Legend Legend Legend Legend Legend Latour, 29.4% Melker Schörling AB, 10.9% Fidelity Investments,2.8% Capital Group, 2.6% BlackRock, 2.4% Vanguard, 1.8% Swedbank Robur Funds, 1.7% Norges Bank, 1.7% Alecta Pension Insurance, 1.6% Handelsbanken Funds, 1.5% Other shareholders, 43.6% Latour, 9.5% Fidelity Investments, 4.1% Capital Group, 3.9% BlackRock, 3.5% Melker Schörling AB, 3.1% Vanguard, 2.6% Swedbank Robur Funds, 2.5% Norges Bank, 2.4% Alecta Pension Insurance, 2.3% Handelsbanken Funds, 2.2% Other shareholders, 63.9% Data per share SEK/share 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Earnings after tax and dilution 4.66 4,95 2 5.79 6.93 7.09 2 7.77 8.09 2 9.22 2 7.54 2 9.81 Dividend 1.70 1.90 2.17 2.65 3.00 3.30 3.50 3.85 3.90 4.20 3 Dividend yield, % 4 2.1 1.7 1.6 1.5 1.8 1.9 2.2 1.8 1.9 1.5 Dividend, % 5 36.8 38.4 37.4 38.2 42.3 42.5 43.3 41.8 51.7 42.8 Share price at year-end 80.97 113.27 138.27 178.00 169.10 170.40 158.15 219.00 202.50 276.20 Highest share price 81.60 114.07 139.17 189.00 190.10 197.10 193.90 231.40 246.50 288.20 Lowest share price 57.23 79.33 105.63 135.00 148.40 163.80 155.85 154.45 159.35 200.20 Equity 23.29 25.94 32.50 37.43 42.51 45.60 46.71 53.25 53.00 62.64 Number of shares, millions 6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1,112.6 1 Adjustments made for new issues and stock split (3:1) in 2015 for all historical periods prior to 2015. 2 Excluding items affecting comparability 2011, 2013, 2016, 2018-2020. 3 Dividend proposed by the Board of Directors. 4 Dividend as percentage of share price at year-end. 5 Dividend as percentage of earnings per share after tax and dilution, excluding items affecting comparability. 6 After full dilution. 110 ASSA ABLOY | ANNUAL REPORT 2021 Shareholder information Share capital and voting rights The share capital amounted to SEK 370,858,778 at year-end 2021, distributed among a total of 1,112,576,334 shares, comprising 57,525,969 Series A shares and 1,055,050,365 Series B shares. All shares have a par value of around SEK 0.33 and give shareholders equal rights to the company’s assets and earnings. The total number of votes amounted to 1,630,310,055. Each Series A share carries ten votes and each Series B share one vote. Repurchase of own shares Since 2010, the Board of Directors has requested and received a mandate from the Annual General Meeting to repurchase and transfer ASSA ABLOY Series B shares. The aim has been, among other things, to secure the company’s undertakings in connection with its long-term incentive programs (LTI). The 2021 Annual General Meeting autho- rized the Board of Directors to acquire, during the period until 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 1,800,000 Series B shares after repurchase. The cost for these shares amounts to SEK 103 M. The shares account for around 0.2 percent of the share capital and each share has a par value of around SEK 0.33. No shares were repurchased in 2021. 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, while always taking into account ASSA ABLOY’s long-term financing requirements. The Board of Directors proposes a dividend to share- holders of SEK 4.20 per share (3.90) for 2021. In order to facilitate a more efficient cash management, it is proposed that the dividend be paid in two equal installments, the first with the record date 29 April 2022 and the second with the record date 22 November 2022. If the proposal is adopted at the Annual General Meeting, the first installment is esti- mated to be paid on 4 May 2022 and the second installment on 25 November 2022. The proposal is equivalent to a total dividend yield on the Series B share of 1.5 percent (1.9). In 2021 the total return on the ASSA ABLOY share, defined as market price move- ment plus reinvested dividends, was 38.5 percent compared with the reinvested SIX Return Index in Stockholm, which was up 39.3 percent. Over the ten-year period 2012–2021, the total return on ASSA ABLOY’s Series B share was 471 percent, compared with the reinvested SIX Return Index in Stockholm, which increased by 372 percent. Changes in share capital Year Transaction Series A shares Series C shares Series B shares Share capital, SEK 1 1989 20,000 2,000,000 1994 Split 100:1 2,000,000 2,000,000 1994 Bonus issue 1994 Non-cash issue 1,746,005 1,428,550 50,417,555 53,592,110 1996 New share issue 2,095,206 1,714,260 60,501,066 64,310,532 1996 Conversion of Series C shares into Series A shares 3,809,466 60,501,066 64,310,532 1997 New share issue 4,190,412 66,541,706 70,732,118 1998 Converted debentures 4,190,412 66,885,571 71,075,983 1999 Converted debentures before split 4,190,412 67,179,562 71,369,974 1999 Bonus issue 1999 Split 4:1 16,761,648 268,718,248 285,479,896 1999 New share issue 18,437,812 295,564,487 314,002,299 1999 Converted debentures after split and new share issues 18,437,812 295,970,830 314,408,642 2000 Converted debentures 18,437,812 301,598,383 320,036,195 2000 New share issue 19,175,323 313,512,880 332,688,203 2000 Non-cash issue 19,175,323 333,277,912 352,453,235 2001 Converted debentures 19,175,323 334,576,089 353,751,412 2002 New share issue 19,175,323 344,576,089 363,751,412 2002 Converted debentures 19,175,323 346,742,711 365,918,034 2010 Converted debentures 19,175,323 347,001,871 366,177,194 2011 Converted debentures 19,175,323 349,075,055 368,250,378 2012 Converted debentures 19,175,323 351,683,455 370,858,778 2015 Split 3:1 57,525,969 1,055,050,365 370,858,778 1 SEK 1 per share before split in 2015 – number of shares at the end of the period and around SEK 0.33 per share after split in 2015. Number of shares at the end of the period 1,112,576,334 (including repurchase of own shares). 111 ANNUAL REPORT 2021 | ASSA ABLOY Shareholder information Information for shareholders Annual General Meeting The ASSA ABLOY 2022 Annual General Meeting will be held on 27 April 2022 in Stockholm, Sweden. The notice to convene the Annual General Meeting will be made in the prescribed manner. Nomination Committee The Nomination Committee has the task of preparing, on behalf of the shareholders, proposals regarding the elec- tion of Chairman of the General Meeting, members of the Board of Directors, Chairman of the Board, Vice Chairman of the Board, auditor, fees for the board members including division between the Chairman, the Vice Chairman, and the other board members, as well as fees for committee work, fees to the company’s auditor and any changes of the instructions for the Nomination Committee. The Nomination Committee prior to the 2022 Annual General Meeting comprises Johan Hjertonsson (Investment AB Latour), Mikael Ekdahl (Melker Schörling AB), Marianne Nilsson (Swedbank Robur Fonder), Liselott Ledin (Alecta) and Yvonne Sörberg (Handelsbanken Fonder). Johan Hjertonsson is Chairman of the Nomination Committee. Dividend The Board of Directors proposes a dividend to shareholders of SEK 4.20 per share for the 2021 financial year. In order to facilitate a more efficient cash management, the dividend is proposed to be paid in two equal installments, the first with the record date 29 April 2022 and the second with the record date 22 November 2022. If the proposal is adopted by the Annual General Meeting, the first installment is esti- mated to be paid on 4 May 2022 and the second installment on 25 November 2022. 112 ASSA ABLOY | ANNUAL REPORT 2021 Shareholder information Financial calendar and contact details Further information Lina Bonnevier Telephone +46 (0)8 506 485 51 lina.bonnevier@assaabloy.com Annual General Meeting and dividend Annual General Meeting 27 April 2022 Shares traded excluding right to dividend of SEK 2.10 28 April 2022 Record day for dividend 29 April 2022 Payment of dividend 4 May 2022 Shares traded excluding right to dividend of SEK 2.10 21 November 2022 Record day for dividend 22 November 2022 Payment of dividend 25 November 2022 Financial reporting Interim Report January–March 2022 27 April 2022 Half-year Report January–June 2022 19 July 2022 Interim Report January–September 2022 26 October 2022 Year-end Report 2022 3 February 2023 Reports can be ordered from ASSA ABLOY AB • Website assaabloy.com • Telephone +46 (0)8 506 485 00 • Email info@assaabloy.com • Mail ASSA ABLOY AB Box 70340 SE-107 23 Stockholm Sweden 113 ANNUAL REPORT 2021 | ASSA ABLOY Shareholder information Production: ASSA ABLOY in cooperation with Narva. Photo: Peter Hoelstad and ASSA ABLOY’s own photographic library, among others. Printing: Print Run, Stockholm, 2022. N O R D I C S W A N E C O L A B E L Printed matter 3041 0701 ASSA ABLOY AB Box 70340 SE-107 23 Stockholm Sweden Visiting address: Klarabergsviadukten 90 Tel +46 (0)8 506 485 00 Fax +46 (0)8 506 485 85 Reg. No. 556059-3575 assaabloy.com © ASSA ABLOY About ASSA ABLOY The ASSA ABLOY Group is the global leader in access solutions. The Group operates worldwide with 51,000 employees and sales of SEK 95 billion. The Group has leading positions in areas such as efficient door openings, trusted identities and entrance automation. ASSA ABLOY’s innovations enable safe, secure and convenient access to physical and digital places. Every day, we help billions of people experience a more open world.