ASSA ABLOY: Solid sales and profit despite a weak market

  • Sales totaled SEK 10,868 M (10,839), with organic growth of -1%.
  • Good growth in Americas and continued growth in Asia.
  • EMEA and Entrance Systems were affected negatively by the weak economy in Europe.
  • Three minor acquisitions with total annual sales of SEK 130 M were completed during the year.
  • Operating income (EBIT) amounted to SEK 1,662 M (1,655). The operating margin was 15.3% (15.3).
  • Net income amounted to SEK 1,138 M (1,146).
  • Earnings per share fell by 1% to SEK 3.07 (3.11).
  • Cash flow was normal for the season and totaled SEK 498 M (483).



SALES AND INCOME
       

F ull year First quarter
2011 2012 Change 2012 2013 Change
Sales, SEK M 41,786 46,619 +12% 10,839 10,868 0%
  of which,
  Organic growth +2% -1%
  Acquisitions +9% +5%
  Exchange-rate effects -2,309 +290 +1% +149 -379 -4%
Operating income (EBIT), SEK M 1) 6,624 7,501 +13% 1,655 1,662 0%
Operating margin (EBIT), %1) 15.9 16.1 15.3 15.3
Income before tax, SEK M1) 5,979 6,784 +13% 1,490 1,533 +3%
Net income, SEK M2) 3,869 5,172 +34% 1,146 1,138 -1%
Operating cash flow, SEK M 6,080 7,044 +16% 483 498 +3%
Earnings per share (EPS), SEK 2) 12.30 13.97 +14% 3.11 3.07 -1%


1)   Excluding restructuring costs in 2011 amounting to SEK 1,420 M.
2)   If items affecting comparability are excluded, net income for the full year 2011 was SEK 4,605 M.

COMMENTS BY THE PRESIDENT AND CEO
"The development for the first quarter was stable for ASSA ABLOY, with a growth of 4% in local currencies, made up of -1% organic growth and 5% acquired growth," says Johan Molin, President and CEO. "It is particularly pleasing that North and South America and Asia continued to grow. But the European economy continued to weaken, which produced a negative outcome for EMEA and Entrance Systems.

"Against the background of the relatively weak market trend, it gives ASSA ABLOY a great sense of confidence that we have so many new products that are selling well. New products' share of sales continued to rise to a new record level of 26% (20).

"Earnings showed a solid performance, with the gross profit margin continuing to improve, as a result of new products and a more efficient production set-up. However, the improvement does not show on the bottom line since we have ongoing investments in Research & Development and market presence.

"Activities on the acquisition front continued to go well, and so far this year we have completed three minor acquisitions. Especially interesting was the acquisition of the Slovakian security-door company Sherlock, which complements our range of total door solutions in the region extremely well.

"My judgment is that the outlook from the fourth quarter is unchanged, with a continuing weak world economy affected by the budget cutbacks that many countries are making. It is therefore of the utmost importance that ASSA ABLOY should continue its expansion on the new markets, which are expected to go on growing well, and that our investments in new products and market presence are sustained."


FIRST QUARTER
The Group's sales totaled SEK 10,868 M (10,839). Organic growth for comparable units was -1% (3). Acquired units contributed 5% (19). Exchange-rate effects had an impact of SEK -379 M on sales, that is -4% (3).

Operating income before depreciation, EBITDA, amounted to SEK 1,911 M (1,929). The corresponding EBITDA margin was 17.6% (17.8). The Group's operating income, EBIT, amounted to SEK 1,662 M (1,655). The operating margin was 15.3% (15.3).

Net financial items amounted to SEK -129 M (-165). The Group's income before tax amounted to SEK 1,533 M (1,490), an improvement of 3% compared with the previous year. Exchange-rate effects had an impact of SEK -59 M (17) on the Group's income before tax. The profit margin was 14.1% (13.7). The underlying effective tax rate on an annual basis was estimated to be 25% (23). Earnings per share amounted to SEK 3.07 (3.11).


RESTRUCTURING MEASURES
Payments related to all restructuring programs amounted to SEK 190 M in the quarter.

All restructuring programs proceeded according to plan and led to a reduction in personnel of 101 people during the quarter and 6,866 people since the projects began.

At the end of the quarter provisions of SEK 897 M remained in the balance sheet for carrying out the programs.


COMMENTS BY DIVISION

EMEA
Sales for the quarter in EMEA division totaled SEK 3,171 M (3,431), with organic growth of -6% (4). The market situation in Europe weakened and the division was also affected by a negative day effect. Growth was good in Africa, the Middle East and eastern Europe. The sales trend on all other markets was negative, with strong negative growth in Spain, Italy, France, the Netherlands and Finland. Acquired growth amounted to 2%. Operating income totaled SEK 509 M (574), which represented an operating margin (EBIT) of 16.1% (16.7). Return on capital employed amounted to 19.3% (23.1). Operating cash flow before interest paid totaled SEK 105 M (273).


AMERICAS
Sales for the quarter in Americas division totaled SEK 2,353 M (2,308), with organic growth of 5% (3). The sales trends for the private residential market, electromechanical products and South America remained strong. Growth was good for mechanical locks, high-security products and security doors and in Canada and Mexico. Acquired growth amounted to 2%. Operating income totaled SEK 494 M (473) and the operating margin was 21.0% (20.5). Return on capital employed amounted to 23.5% (22.3). Operating cash flow before interest paid totaled SEK 148 M (220).


ASIA PACIFIC
Sales for the quarter in Asia Pacific division totaled SEK 1,355 M (1,319), with organic growth of 2% (3). Growth was strong in South Korea, driven by exports of digital door-locks, and in South-East Asia and New Zealand. China showed low growth, affected by lower exports to Europe. Australia showed weak negative growth. Acquired growth amounted to 4%. Operating income totaled SEK 151 M (138), representing an operating margin (EBIT) of 11.1% (10.5). The quarter's return on capital employed amounted to 11.7% (12.2). Operating cash flow before interest paid totaled SEK -59 M (-327).


GLOBAL TECHNOLOGIES
Sales for the quarter in Global Technologies division totaled SEK 1,426 M (1,477), with organic growth of 0% (8). HID had good growth in access control and major projects. Logical access and identification technology showed a stable trend while Government ID had negative growth. Hospitality continued to show good growth, principally in the renovation market. Profitability for the HID business unit improved strongly. Acquired growth amounted to 0%. The division's operating income amounted to SEK 242 M (225), with an operating margin (EBIT) of 17.0% (15.2). Return on capital employed amounted to 16.4% (13.7). Operating cash flow before interest paid totaled SEK 23 M (102).


ENTRANCE SYSTEMS
Sales for the quarter in Entrance Systems division totaled SEK 2,762 M (2,526), with organic growth of -3% (3). Sales were affected by the weak trend in Europe and a negative day effect. All segments in Europe showed negative growth while sales in America showed strong growth and the trend in Asia was good. Acquired growth amounted to 16%. Operating income totaled SEK 341 M (307), giving an operating margin of 12.4% (12.2). The operating margin was affected by 0,1 of a percentage point by dilution from acquisitions. Return on capital employed amounted to 10.0% (10.1). Operating cash flow before interest paid totaled SEK 419 M (376).


ACQUISITIONS AND DIVESTMENTS
During the first quarter two minor acquisitions were consolidated. The combined acquisition price for these two acquisitions amounted to SEK 92 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 85 M. The acquisition price is adjusted for acquired net financial assets and estimated earn-outs. Estimated earn-outs amount to SEK 54 M.

In February 2013 the Wangli Group was sold off. Since June 2012 the business has been reported under 'Assets held for sale' in accordance with IFRS 5.


SUSTAINABLE DEVELOPMENT
ASSA ABLOY is publishing its  Sustainability Report for 2012 at the time of the Annual General Meeting on 25 April 2013.

Important matters described in the Report include the work with the Group's suppliers and their sustainability work; water and energy consumption; reduction of organic solvents and environmentally dangerous waste; and independent social reviews. Activities to continually spread the message and the set targets among the Group's employees carried on during the year. Major efforts to integrate sustainability considerations in product development are also in hand in the Group, with the object of minimizing the products' environmental impact over their whole life cycle.

Most of the reviewed areas have improved in 2012 and the trends for these lie in line with the targets set for 2015.


PARENT COMPANY
Other operating income for the Parent company ASSA ABLOY AB totaled SEK 367 M (322) for the first quarter. Income before tax amounted to SEK 174 M (451). Investments in tangible and intangible assets totaled SEK 0 M (1). Liquidity is good and the equity ratio was 49.0% (49.3).


ACCOUNTING PRINCIPLES
ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. Significant accounting and valuation principles are detailed on pages 90-95 of the 2012 Annual Report.

This Interim Report was prepared in accordance with IAS 34 'Interim Financial Reporting' and the Annual Accounts Act. The Interim Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2 'Reporting by a Legal Entity'.


EFFECTS OF CHANGED ACCOUNTING PRINCIPLES
In 2013 financial reporting is affected by changes relating to the reporting of defined-benefit pension plans. The changed accounting principles remove the option of using the so-called corridor method: that is, the option of reporting only a proportion of actuarial gains and losses as income or expense. The significant changed valuations are instead reported as they arise in 'Other comprehensive income'. The changes also mean that the return on plan assets is no longer reported as expected return but is reported as an interest income item in the income statement, based on the value of the discount rate at the start of the financial year. The accounting principles for defined-benefit pension plans are therefore changed from the Group's accounting principles in the 2012 Annual Report and the Interim Reports published earlier in 2012.

The new principles affect reporting retroactively, and the opening balance at 1 January 2012 has been recalculated, as have the comparatives for 2012, as follows:

On the balance-sheet date of 1 January 2012, pension obligations and net debt increased by SEK 1,092 M. Equity was reduced by SEK 737 M and financial assets increased by SEK 355 M. Operating income for the quarter and the full year 2012 is unchanged. Financial items for the quarter and the full year 2012 improved by SEK 8 M and SEK 53 M respectively. The tax expense for the quarter and the full year 2012 increased by SEK 2 M and SEK 6 M respectively. Net profit for the quarter and the full year 2012 increased by SEK 6 M and SEK 47 M respectively. Earnings per share after dilution for the quarter and the full year 2012 increased by SEK 0.01 per share and SEK 0.13 per share respectively.


TRANSACTIONS WITH RELATED PARTIES
No transactions that significantly affected the company's position and income have taken place between ASSA ABLOY and related parties.


RISKS AND UNCERTAINTY FACTORS
As an international Group with a wide geographic spread, ASSA ABLOY is exposed to a number of business and financial risks. The business risks can be divided into strategic, operational and legal risks. The financial risks are related to such factors as exchange rates, interest rates, liquidity, the giving of credit, raw materials and financial instruments. Risk management in ASSA ABLOY aims to identify, control and reduce risks. This work begins with an assessment of the probability of risks occurring and their potential effect on the Group. For a more detailed description of risks and risk management, see the 2012 Annual Report. No significant risks other than the risks described there are judged to have occurred.


OUTLOOK*
Long-term outlook
Long term, ASSA ABLOY expects an increase in security-driven demand. Focus on end-user value and innovation as well as leverage on ASSA ABLOY's strong position 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.


* Outlook published on 7 February 2013:

Long-term outlook
Long term, ASSA ABLOY expects an increase in security-driven demand. Focus on end-user value and innovation as well as leverage on ASSA ABLOY's strong position 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.


Stockholm, 24 April 2013


Johan Molin
President and CEO


This Interim Report has not been reviewed by the Company's Auditor.


FINANCIAL INFORMATION
The Interim Report for the second quarter will be published on 19 July 2013.

FURTHER INFORMATION CAN BE OBTAINED FROM:
Johan Molin, President and CEO, Tel: +46 8 506 485 42
Carolina Dybeck Happe, Chief Financial Officer, Tel: +46 8 506 485 72

ASSA ABLOY is holding an analysts' meeting at 13.00 today
at Operaterrassen in Stockholm.
The analysts' meeting can also be followed on the Internet at www.assaabloy.com .
It is possible to submit questions by telephone on:
+46 8 5055 6476, +44 203 364 5371 or +1 877 679 2993  .

This information is that which ASSA ABLOY is required to disclose under the Swedish Securities Exchange and Clearing Operations Act and/or the Swedish Financial Instruments Trading Act .
The information is released for publication at 12.00 on 24 April.

About Us

ASSA ABLOY is the global leader in door opening solutions and offers mecahnical and electromechanical locks, digital door locks, security doors, entrance automation, hotel security and secure identity solutions, primarily in identity and access management, as well as a number of other related products and services. Since its formation in 1994, ASSA ABLOY has grown from a regional company into an international Group with some 47,000 employees operating in more than 70 countries and sales of around SEK 71 billion.

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