Good progress for ASSA ABLOY with continued growth
The sales trend was positive and in comparable currencies sales rose by 7% in the third quarter.
Growth in Western Europe and Australia remained weak, but was good in North America and on Asian, African and South American markets.
Sales totaled SEK 8,722 M (8,274), with 1% organic growth, 6% acquired growth and exchange-rate effects of -2%.
Operating income (EBIT) excluding restructuring costs amounted to SEK 1,435 M (1,404), representing a margin of 16.5% (17.0).
Net income amounted to SEK 709 M (884).
Earnings per share amounted to SEK 2.38 (2.36) excluding restructuring costs.
The quarter's costs attributable to the new restructuring program amounted to SEK 247 M.
The acquisitions of Valli&Valli, Gardesa, Rockwood and Cheil were consolidated during the quarter. ASSA ABLOY has signed agreements for the acquisitions of ShenFei. The acquisition of Copiax was approved. ASSA ABLOY has made a public offer for the remainder of the minority shares in the Korean company iRevo.
SALES AND INCOME
January to September
Sales, SEK M
Operating income (EBIT),
Operating margin (EBIT), %
Income before tax, SEK M
Net income, SEK M
Operating cash flow, SEK M
Earnings per share (EPS),
* Excluding restructuring costs in 2008 totaling SEK 247 M for both the quarter and the first nine months.
COMMENTS BY THE PRESIDENT AND CEO
"Despite a continued slowdown on all mature markets, ASSA ABLOY showed good growth during the quarter. Development on the North American market was good while Europe, Australia and New Zealand continued to weaken. On emerging markets the positive trend continued, but at a lower level than before. The restructuring program from 2006 is entering its final phase and has been a great success. At the same time, work on the new program is underway and several projects were launched during the third quarter," said Johan Molin, President and CEO.
The Group's sales totaled SEK 8,722 M (8,274), representing growth of 5% compared with 2007. In local currencies the increase amounted to 7% (11), of which organic growth for comparable units was 1% (7) while acquired units accounted for 6% (4) of the increase. Exchange-rate effects had a negative impact of SEK 133 M (i.e. 2%) on sales.
Operating income excluding restructuring costs and before depreciation, EBITDA, amounted to SEK 1,669 M (1,625), a rise of 3% compared with 2007. The EBITDA margin was 19.1% (19.6). The Group's operating income, EBIT, excluding restructuring costs amounted to SEK 1,435 M (1,404), a rise of 2%, after negative currency effects of SEK 27 M. The operating margin excluding restructuring costs was 16.5% (17.0).
Net financial items amounted to SEK 207 M (193), which corresponds to an average interest rate of just over 5%. The Group's income before tax and excluding restructuring costs amounted to SEK 1,227 M (1,211), which represents a rise of 1% on the previous year. After translation of subsidiaries' income statements, exchange-rate effects had a negative impact of SEK 21 M on the Group's income before tax. The profit margin excluding restructuring costs was 14.1% (14.6). The Group's tax charge totaled SEK 271 M (327), which represents an effective tax rate of 28% for the quarter. The underlying tax rate is still 27% and the reason for the increase is that some restructuring costs have been reported without claims for deferred tax. Earnings per share excluding restructuring costs amounted to SEK 2.38 (2.36), which represents a rise of 1%.
THE PERIOD JANUARY TO SEPTEMBER
Sales for the first nine months of 2008 totaled SEK 25,451 M (24,830), which represents an increase of 3% compared with 2007. Organic growth was 2% (7). Acquired units contributed 4% (5). Exchange-rate effects affected sales negatively by SEK 794 M, i.e. 3%, compared with the first nine months of 2007.
Operating income before depreciation, EBITDA, amounted to SEK 4,744 M (4,697) excluding restructuring costs for the period. The corresponding margin was 18.6% (18.9). The Group's operating income, EBIT, excluding restructuring costs amounted to SEK 4,056 M (4,018), representing a small increase after negative exchange-rate effects of SEK 151 M. The corresponding operating margin (EBIT) was 15.9% (16.2).
Earnings per share for the period increased to SEK 6.76 (6.72), excluding restructuring costs. Operating cash flow amounted to SEK 2,852 M (3,068).
Payments related to the restructuring program amounted to SEK 83 M during the quarter, bringing the total for the first nine months of the year to SEK 291 M. Savings during the quarter resulting from measures carried out amount to SEK 40 M compared with the same period last year. The quarterly rate of savings from the start of the program now amounts to SEK 125 M.
So far 1,934 out of the total of a little over 2,000 employees affected by the restructuring program have left the Group. The whole program is expected to have reached completion by the end of the year and the savings effects will be materialized progressively during 2009.
The review of production structures in high-cost countries announced last quarter is now underway. The review covers those units that have not yet been converted from full production to assembly. About thirty projects will be carried out. The total cost is estimated to be SEK 800 M, with a payback time in line with the current restructuring plan of around two to three years. The entire cost of the program is expected to be expensed against income in 2008.
A proportion of the projects were announced and put in hand during the third quarter. The total cost during the quarter amounted to SEK 247 M.
COMMENTS BY DIVISION
Sales in EMEA division during the quarter totaled SEK 3,308 M (3,144), with organic growth of -2%. The weakening on most West European markets continued. The emerging markets in Africa and exports to the Middle East, Asia and South America grew strongly. Acquired growth amounted to 6%. Operating income excluding restructuring costs amounted to SEK 552 M (543), which represents an operating margin (EBIT) of 16.7% (17.3). Return on capital employed excluding restructuring costs amounted to 19.6% (20.0). Operating cash flow before interest paid totaled SEK 543 M (559).
Growth in the commercial segment in Americas division during the quarter was strong, with the Security Doors business unit showing especially good progress. The sales trend in the residential segment was negative for the fourth successive quarter. Total sales amounted to SEK 2,737 M (2,621), with 6% organic growth. Acquired growth amounted to 3%. The operating margin improved further from an already good level and amounted to 20.6% (20.3) excluding restructuring costs. Return on capital employed excluding restructuring costs amounted to 26.7% (24.0). Operating cash flow before interest paid totaled SEK 593 M (595).
Sales in Asia Pacific division weakened during the third quarter, but with substantial regional differences. In China growth was positive despite the interruption for the Olympic Games. Korea also showed strong sales improvement, while there was a weak negative trend in Australia and New Zealand. The division's sales totaled SEK 892 M (696), with 2% organic growth. Acquired growth amounted to 29%. Operating income excluding restructuring costs totaled SEK 107 M (93), which represents an operating margin (EBIT) of 12.0% (13.4). The quarter's return on capital employed excluding restructuring costs amounted to 16.4% (17.6). Operating cash flow before interest paid totaled SEK 141 M (100).
Global Technologies division reported continued growth overall, but with variations between the business units. HID and Hospitality had strong growth, whereas ITG had a negative sales trend as the program to phase out unprofitable segments continued and delays arose on some customer projects. Total sales in the third quarter were SEK 1,254 M (1,254), of which organic growth accounted for 3%. Acquired growth amounted to 0% as a net figure between acquisitions (+2%) and disposals (-2%). Operating income excluding restructuring costs for the division amounted to SEK 208 M (203), giving an operating margin (EBIT) of 16.6% (16.2). The operating margin continued to improve for HID, remained stable for Hospitality and decreased for ITG. Return on capital employed excluding restructuring costs amounted to 15.7% (15.8). Operating cash flow before interest paid totaled SEK 173 M (221).
Entrance Systems division reported sales of SEK 766 M (747) in the third quarter, representing organic growth of 1%. Acquired growth amounted to 3%. Sales of new installations on the mature markets of Europe, North America, Australia and New Zealand were weak because demand from the retail sector diminished. Sales in China were affected negatively by the Olympic Games. On the service side, however, several major contracts were received, mostly in the USA. Operating income excluding restructuring costs amounted to SEK 110 M (109), giving an operating margin (EBIT) of 14.3% (14.6). Operating income was positively effected by price increases made, but diminished by a growing price pressure on larger orders. Return on capital employed excluding restructuring costs amounted to 13.5% (13.7). Operating cash flow before interest paid totaled SEK 61 M (41).
The major acquisitions completed and consolidated during the third quarter were those of Cheil in Korea and Valli&Valli and Gardesa, both in Italy. Information about Cheil was published on 30 July, information about Valli&Valli was published on 18 January and 7 July, and information about Gardesa was published on 9 June. Adding smaller acquisitions, a total of eleven acquisitions were consolidated during the first nine months of the year. The combined acquisition price for these eleven acquisitions amounts to SEK 1,255 M and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to about SEK 835 M. The acquisition price is adjusted for acquired net debt and estimated earn-outs.
On 15 October Asia Pacific division made a public offer for the outstanding 49% of shares in the Korean company iRevo. The first 51% were acquired by ASSA ABLOY in September 2007 and the company has been consolidated into the Group since 1 October 2007.
On 17 October it was announced that Asia Pacific division has signed a contract for the acquisition of the Chinese company ShenFei. ShenFei is a leading manufacturer of door closers with 1,100 employees and annual sales of SEK 180 M. The acquisition requires the approval of the appropriate authorities and is expected to be completed in the fourth quarter of the year.
EMEA division's acquisition of Copiax has now been approved by the Swedish authorities and will be completed during the fourth quarter.
The competition authority in Germany is continuing to consider the acquisition of SimonsVoss by Global Technologies division.
During the quarter the company Bar Code Systems in Australia, which belonged to the HID business unit of Global Technologies division, was sold off.
In China ASSA ABLOY Wangli has been certified according to ISO 14001:2004 for its security doors, fire resistant doors and anti-theft locks businesses. ASSA ABLOY Wangli is the first Chinese company manufacturing security doors that has been certified as such. This is an important step in our efforts for a sustainable development for the Group in China, which is one of the most important growth markets in the world. More information about this and other information about sustainable development and the Group's sustainability program can be found at www.assaabloy.com.
Other operating income for the Parent company ASSA ABLOY AB totaled SEK 1,231 M (888) for the first nine months. Income before tax amounted to SEK 1,361 M (2,037). Investments in tangible and intangible assets totaled SEK 0 M (2). Liquidity is good and the equity ratio was 47.1% (49.6).
ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. Significant accounting and valuation principles are detailed on pages 67-71 of the 2007 Annual Report. New or revised IFRS effective after 31 December 2007 have had no material effect on the consolidated income statements or balance sheets. The Group's Interim Reports are prepared in accordance with IAS 34. The Parent company applies RFR 2.1.
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 refer to the 2007 Annual Report. No significant risks other than the risks described there are judged to have occurred.
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.
For 2008 the organic growth is expected to be positive, but can be lower than 3% depending on the development if the business cycle.
*) The Outlook is unchanged from the latest published in the Interim Report dated 30 July 2008.
Stockholm October 22, 2008
This report has not been reviewed by the company's auditors.
The Year-End Report and Quarterly Report for the fourth quarter will be published on 13 February 2009.
Further information can be obtained from:
Johan Molin, President and CEO, Tel: +46 8 506 485 42
ASSA ABLOY is holding an analysts' meeting at 10.30 today at Salénhuset, Norrlandsgatan 15, 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 5052 0270,+44 208 817 9301 or +1 718 354 1226.
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 08.30 on 22 October.
The full report with tables can be downloaded via the PDF link.
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 47,500 employees operating in more than 70 countries and sales of SEK 76 billion.