Strong finish to 2006 for ASSA ABLOY

  • Sales for the fourth quarter increased by 7% to SEK 8,059 M (7,530), with 9% organic growth, 5% acquired growth and -7% exchange-rate effects. Operating income (EBIT), excluding restructuring costs, increased by 20% to SEK 1,274 M (1,063). Earnings per share, excluding restructuring costs, increased by 16% to SEK 2.14 (1.84).
  • Sales for 2006 increased by 12% to SEK 31,137 M (27,802), with 9% organic growth, 3% acquired growth and no exchange-rate effect. Operating income (EBIT), excluding restructuring costs, increased by 17% to SEK 4,771 M (4,078). Earnings per share, excluding restructuring costs, increased by 15% to SEK 7.99 (6.97).
  • Restructuring costs totaled SEK 517 M for the quarter and SEK 1,474 M for the full year.
  • Pyropanel and Pemko were acquired in January 2007.
  • The proposed dividend is SEK 3.25 per share (3.25).
 
 
SALES AND INCOME                                      


 
Fourth quarter
Full year
 
 
 
 
 
 
 
 
2006
2005
    Change
2006
2005
     Change
Sales, SEK M
8,059
7,530
+7%
31,137
27,802
+12%
  of which,
 
 
 
 
 
 
  Organic growth
 
 
+9%
 
 
+9%
  Acquisitions
 
 
+5%
 
 
+3%
  Exchange-rate effects
-493
 
-7%
-109
 
0%
Operating income (EBIT),
SEK M
1,274*
1,063
+20%
4,771*
4,078
+17%
Operating margin (EBIT), %
15.8*
14.1
 
15.3*
14.7
 
Income before tax, SEK M
1,086*
923
+18%
4,100*
3,556
+15%
Net income, SEK M
388
691
-44%
1,756
2,613
-33%
Operating cash flow, SEK M
1,189
1,150
+3%
3,528
3,702
-5%
Earnings per share (EPS), SEK
2.14*
1.84
+16%
7.99*
6.97
+15%
Earnings per share (EPS), SEK
1.05
 
 
4.72
 
 
* Excluding restructuring costs totaling SEK 517 M (fourth quarter) or SEK 1,474 M (full year)
 
 
COMMENTS FROM THE PRESIDENT AND CEO, JOHAN MOLIN
 
"2006 was the best year ever for ASSA ABLOY, with the highest organic growth in the company's history and increased acquired growth. Profitability increased throughout the year driven by good volume growth and implemented efficiency measures. Our prospects for continued growth and increased profitability are great thanks to the Group's market-leading position, further acquisitions and the ongoing restructuring program."
 
 
FOURTH QUARTER
 
The Group's sales in the fourth quarter totaled SEK 8,059 M (7,530), an increase of 7% on the previous year. Organic growth was 9% (7). Newly acquired companies, principally Fargo and Adams Rite, contributed 5% (3) to sales. Translation of foreign subsidiaries' sales to Swedish kronor had a negative effect of SEK 493 M due to changes in exchange rates.
 
The quarter's earnings were burdened by restructuring costs of SEK 517 M. Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 1,494 M (1,298). The corresponding margin was 18.5% (17.2). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 1,274 M (1,063) after negative currency effects of SEK 85 M. The corresponding operating margin (EBIT) was 15.8% (14.1). The quarter's income before tax, excluding restructuring costs, amounted to SEK 1,086 M (923), including negative currency effects of SEK 76 M due to translation of foreign subsidiaries. The Group's tax charge totaled SEK 181 M (232), corresponding to an effective tax rate of 32% on reported income before tax. The reason for the increase in effective tax rate is that deferred tax on some restructuring items has not been considered. Earnings per share for the fourth quarter, excluding restructuring items, amounted to SEK 2.14 (1.84), which represents an increase of 16%.
 
Operating cash flow for the quarter amounted to SEK 1,189 M - equivalent to 109% of income before tax, excluding restructuring costs - compared with SEK 1,150 M last year. Working capital fell by SEK 192 M during the quarter.
 
FULL YEAR
 
Sales for 2006 totaled SEK 31,137 M (27,802), which represents an increase of 12%. Organic growth was 9% (5). Newly acquired companies contributed 3% (1). Exchange rates affected sales negatively by SEK 109 M compared with 2005. Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 5,669 M (4,960). The corresponding margin was 18.2% (17.8). The Group's operating income, EBIT, excluding restructuring costs, increased by 17% to SEK 4,771 M (4,078) after negative currency effects of SEK 27 M. The corresponding operating margin (EBIT) was 15.3% (14.7). Earnings per share excluding restructuring items increased by 15% to SEK 7.99 (6.97). Operating cash flow amounted to SEK 3,528 M (3,702). The strong growth combined with substantial price increases in inventories had a negative effect on working capital.
 
RESTRUCTURING MEASURES
 
The comprehensive restructuring program initiated in April 2006 is proceeding according to plan. The program includes some 50 individual restructuring measures. The roles of a large number of production units will be changed to focus mainly on assembly, and some units will be closed. The total cost of the program is SEK 1,274 M, and it is expected to generate cost savings of about SEK 600 M a year once the whole program is completed in 2009. The full cost of the program has been expensed in 2006.
 
In addition to the restructuring described above, the closing of the remaining car-lock manufacturing in the UK is continuing. The costs of closure amount to SEK 200 M. Of the total restructuring costs of SEK 1,474 M, it is estimated that SEK 1,275 M relate to payments associated chiefly with redundancies. Write-downs, chiefly relating to machinery and equipment, have totaled SEK 199 M.
 
Operating income in the quarter was burdened by restructuring costs totaling SEK 517 M. Of this, SEK 63 M relates to write-downs chiefly of machinery and equipment. Payments related to the restructuring program amounted to SEK 78 M. Savings resulting from measures carried out are estimated at SEK 35 M for the quarter.
 
During 2006 about 500 out of the total of 2,000 employees affected by the restructuring program have left the Group. Payments related to restructuring amounted to SEK 342 M for the full year.
 
COMMENTS BY DIVISION
 
EMEA
 
Sales for the fourth quarter in the EMEA division (Europe, Middle East and Africa) totaled EUR 359 M (330), with 10% organic growth. Operating income excluding restructuring costs amounted to EUR 58 M (48), which represents an operating margin (EBIT) of 16.2% (14.5). Return on capital employed excluding restructuring items amounted to 20.7% (16.9). Operating cash flow before interest paid totaled EUR 71 M (86).
 
There was strong sales growth during the fourth quarter, with France and the UK contributing to the improvement. The Nordic region and new markets in eastern Europe and Africa are continuing to generate strong organic growth. Restructuring costs for the quarter totaled EUR 35 M. The operating margin excluding restructuring costs continued to advance very well during the quarter, which led to a strong improvement in return on capital employed. Cash flow was strong during the quarter.
 
AMERICAS
 
Sales for the fourth quarter in the Americas division totaled USD 339 M (293) with 9% organic growth. Acquired growth contributed 7%. Operating income excluding restructuring costs amounted to USD 65 M (54), which represents an operating margin (EBIT) of 19.1% (18.3). Return on capital employed excluding restructuring items amounted to 20.9% (19.9). Operating cash flow before interest paid totaled USD 69 M (71).
 
Americas' strong sales trend continued during the fourth quarter, with sustained good demand
in North America. The American businesses in the commercial segment, headed by the Architectural Hardware Group and the Electromechanical Group, report continuing strong growth for the quarter. The Residential Group reports a significantly lower rate of growth. Development of recently acquired units is continuing according to plan. The operating margin excluding restructuring costs advanced very well during the quarter as a result of the growth in sales volumes. Cash flow was strong during the quarter.
 
ASIA PACIFIC
 
Sales for the fourth quarter in the Asia Pacific division totaled AUD 107 M (105) with 2% organic growth. Operating income excluding restructuring costs amounted to AUD 13 M (8), representing an operating margin (EBIT) of 12.0% (8.2). Return on capital employed excluding restructuring items amounted to 13.7% (9.7). Operating cash flow before interest paid totaled AUD 9 M (6).
 
Sales in Asia are developing well, driven mainly by good performance on the Chinese market. Demand on the commercial market in Australia and New Zealand remained good but sales on the residential market fell back. The operating margin excluding restructuring costs improved relative to the previous quarter as a result of price increases made. Cash flow improved during the quarter.
 
 
GLOBAL TECHNOLOGIES
 
The Global Technologies division reported sales of SEK 1,227 M (938) in the fourth quarter, with organic growth of 16%. Acquired growth contributed 24%. Operating income excluding restructuring costs amounted to SEK 194 M (129), giving an operating margin (EBIT) of 15.8% (13.8). Return on capital employed excluding restructuring items amounted to 15.2% (15.7). Operating cash flow before interest paid amounted to SEK 195 M (95).
 
Global Technologies reports continued strong organic growth in all three of its businesses. Demand for the division's products is good on all major markets. The Fargo acquisition is progressing according to plan as regards both sales growth and profitability. The operating margin excluding restructuring costs advanced very well as a result of the strong growth. Cash flow improved during the quarter.
 
ENTRANCE SYSTEMS
 
The Entrance Systems division reported sales of SEK 765 M (701) in the fourth quarter, representing organic growth of 11%. Acquired growth contributed 2%. Operating income excluding restructuring costs amounted to SEK 120 M (105), giving an operating margin (EBIT) of 15.7% (15.0). Return on capital employed excluding restructuring items amounted to 15.3% (15.0). Operating cash flow before interest paid amounted to SEK 108 M (32).
 
Demand continues to be good on all major markets, which is generating especially strong growth in the USA and Asia. Growth in Europe remains stable at a high level. Profitability improved very significantly during the quarter as a result of the strong growth in sales volumes and the price increases made. Cash flow improved during the quarter.
 
ACQUISITIONS
 
The acquisition of Pyropanel, a leading company in fireproof doors in Australia, took place at
the end of January. Its sales in 2006 amounted to AUD 19 M, with a good EBIT margin. The company has about 75 employees. The acquisition is expected to contribute to earnings per share from the time of acquisition. The company will be consolidated in Asia Pacific division from 1 February.
 
The acquisition of Pemko, a leading manufacturer of door components in the USA, took place at
the end of January. Its sales in 2006 amounted to USD 55 M, with a good EBIT margin. The company has about 330 employees. The acquisition is expected to contribute to earnings per share from the time of acquisition. The company will be consolidated in Americas division from 1 February.
 
The combined acquisition price for these acquisitions, adjusted for acquired interest-bearing liabilities including estimated earn-outs, is about SEK 400 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to about SEK 250 M.
 
OTHER EVENTS
 
A refinancing has been carried out during the quarter in the form of a Private Placement program in the USA amounting to USD 300 M. The loan consists of five tranches with durations between five and twelve years and with both fixed and variable interest, and will have the effect of extending the average term of the Group's borrowings.
 
 
PARENT COMPANY
 
Other operating income for the Parent company ASSA ABLOY AB totaled SEK 945 M (749) for the full year. Income before tax amounted to SEK 1,047 M (728). Investments in tangible and intangible assets totaled SEK 402 M (27). Liquidity is good and the equity ratio was 44.9% (43.5).
 
DIVIDEND AND ANNUAL GENERAL MEETING
 
The Board of Directors proposes a dividend of SEK 3.25 (3.25) per share for the 2006 financial year. The Annual General Meeting will be held on 26 April 2007.
 
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 66-70 of the 2005 Annual Report. New or revised IFRS effective after 31 December 2005 have had no material effect on the consolidated income statement or balance sheet. The Group's Interim Report is prepared in accordance with IAS 34 'Interim Financial Reporting' under the guidelines given in RR 31 issued by the Swedish Financial Accounting Standards Council. The Parent company applies RR 32:05.
 
 
OUTLOOK*
 
Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well.
 
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.
 
Stockholm, 14 February 2007
 
 
Johan Molin
President and CEO
 
*The Outlook published in November 2006 read:
Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well, excluding the effects of future restructuring. 
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.
 
 
This Year-End Report has not been reviewed by the Company's Auditor.
 
   
Financial information
 
The Interim Report for the first quarter will be published on 25 April 2007.
The Annual General Meeting will be held on 26 April at the Modern Museum (Moderna Museet) in Stockholm.
 
 
Further information can be obtained from:
Johan Molin, President and CEO, Tel: +46 8 506 485 42
Tomas Eliasson, Chief Financial Officer, Tel: +46 8 506 485 72
Martin Hamner, Group Controller and Director of Investor Relations, Tel: + 46 8 506 485 79
 
 
 
ASSA ABLOY is holding an analysts' meeting at 11.00 today at Klarabergsviadukten 90 in Stockholm .
The analysts' meeting can also be followed over 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.
 
 

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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