*Excluding restructuring costs totaling SEK 1,474 M (full year)

 

 

 

"The year got off to an excellent start with continued strong organic growth driven by good demand especially for Global Technologies' fast-growing products and in Europe. Acquired growth rose as a result of several relatively small but value-creating acquisitions. It is gratifying to report that we grew organically and through acquisitions by 14% in the quarter at the same time as our restructuring program progressed according to plan."

 

 

 

The Group's sales in the first quarter totaled SEK 8,227 M (7,653), an increase of 8% on the previous year. Organic growth was 8% (12). Newly acquired companies, principally Fargo, Adams Rite and Pemko, contributed 6% (2) to sales. Translation of foreign subsidiaries' sales
to Swedish kronor had a negative effect of SEK 461 M due to changes in exchange rates.

 

Operating income before depreciation, EBITDA, amounted to SEK 1,518 M (1,332). The corresponding margin was 18.5% (17.4). The Group's operating income, EBIT, amounted to SEK 1,289 M (1,110), an increase of 16%, after negative currency effects of SEK 74 M. Income was boosted by increased sales volumes and by savings from the restructuring program. The operating margin (EBIT) improved strongly to 15.7% (14.5) despite some dilution from acquired units and continued rises in material costs. The quarter's income before tax amounted to SEK 1,101 M (965) after negative currency effects of SEK 70 M due to translation of foreign subsidiaries. The Group's tax charge totaled SEK 298 M (261), corresponding to an effective tax rate of 27% on reported income before tax. Earnings per share for the first quarter amounted to SEK 2.16 (1.88), which represents an increase of 15%.

 

Operating cash flow for the quarter amounted to SEK 805 M - equivalent to 73% (61) of income before tax - compared with SEK 587 M last year. Working capital rose by SEK 469 M during the quarter.

 

 

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 final assembly, and some units will be closed. The cost of the program is assessed at 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 was expensed in 2006.

 

Payments related to the restructuring program amounted to SEK 44 M during the quarter. Savings resulting from measures carried out are assessed at SEK 45 M for the quarter. So far about 600 out of the total of 2,000 employees affected by the restructuring program have left the Group.

 

 

 

Sales for the first quarter in the EMEA division (Europe, Middle East and Africa) totaled SEK 3,444 M (3,205), with 9% organic growth. Acquired growth contributed 1%. Operating income amounted to SEK 593 M (479), which represents an operating margin (EBIT) of 17.2% (15.0). Return on capital employed amounted to 22.7% (18.3). Operating cash flow before interest paid totaled
SEK 376 M (294).

 

Sales growth remained strong in the first quarter. The Nordic region, the UK, Spain and new markets in eastern Europe and Africa are generating the best organic growth. The operating margin advanced well during the quarter as a result of rising sales volumes and savings from the restructuring program. Increased profitability led to a strong improvement in return on capital employed. Cash flow was seasonally weak during the quarter.

 

 

 

Sales for the first quarter in the Americas division totaled SEK 2,607 M (2,519) with 6% organic growth. Acquired growth contributed 10%. Operating income amounted to SEK 496 M (470), which represents an operating margin (EBIT) of 19.0% (18.7). Return on capital employed amounted to 22.3% (21.1). Operating cash flow before interest paid totaled SEK 449 M (280).

 

Americas' sales trend remained strong in the first quarter except for the Door Group and the Residential Group which both reported lower rates of growth. The American businesses in the commercial segment, headed by the Architectural Hardware Group and the Electromechanical Group, reported continuing strong growth during the quarter. The acquired unit Pemko is developing according to plan but is producing some dilution of the operating margin. The operating margin for comparable units advanced well during the quarter as a result of the growth in sales volumes.

 

 

Sales for the first quarter in the Asia Pacific division totaled SEK 539 M (534) with 6% organic growth. Acquired growth contributed 3%. Operating income amounted to SEK 41 M (35), representing an operating margin (EBIT) of 7.7% (6.6). Return on capital employed amounted to 8.0% (7.1). Operating cash flow before interest paid totaled SEK 45 M (6).

 

Sales in China are developing well and the sales trend in Australia improved. The acquisition of Pyropanel is proceeding according to plan. The operating margin improved relative to previous quarters as a result of price increases made. Further price increases are being made in April.

 

 

The Global Technologies division reported sales of SEK 1,167 M (950) in the first quarter, with organic growth of 13%. Acquired growth contributed 16%. Operating income amounted to SEK 163 M (134), giving an operating margin (EBIT) of 14.0% (14.1). Return on capital employed amounted to 12.8% (17.8). Operating cash flow before interest paid amounted to SEK 25 M (5).

 

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 operating margin is being temporarily impaired by market investments and planned changes in acquired units, primarily Fargo.

 

 

The Entrance Systems division reported sales of SEK 668 M (617) in the first quarter, representing organic growth of 7%. Acquired growth contributed 3%. Operating income amounted to SEK 86 M (77), giving an operating margin (EBIT) of 12.8% (12.5). Return on capital employed amounted to 11.0% (9.8). Operating cash flow before interest paid amounted to SEK 177 M (123).

 

Demand continues to be good on all major markets. Growth during the quarter was strongest
in North America. Acquired units are strengthening the service organization in the USA and Canada. Profitability was boosted by increased sales volumes and prices during the quarter. Cash flow was seasonally strong.

 

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 is consolidated in the Asia Pacific division from 1 February.

 

The acquisition of Pemko, a leading manufacturer of door components in the USA, took place
at the beginning 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 is consolidated in the Americas division from 1 January.

 

In March Entrance Systems division acquired the service companies La Force Associates in south-western USA and Portronik in Canada. The companies distribute, install and carry out servicing of automatic doors and have combined annual sales of around SEK 100 M. Servicing and installation are strategically prioritized business areas for Entrance Systems' growth. The acquisitions are expected to contribute to earnings per share from the times of acquisition.

 

The combined acquisition price for the acquisitions made during the quarter is about
SEK 500 M. This price is adjusted for acquired interest-bearing assets including estimated earn-outs. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to about SEK 300 M.

 

Global Technologies division completed the acquisition of Integrated Engineering in the Netherlands at the start of April. The company develops and sells advanced access-card readers based on RFID technology. The company, which had sales of about SEK 35 M in 2006, has achieved high growth and has 14 employees.

 

EMEA division has signed a contract for the acquisition of the Israeli company Alba. The company manufactures and sells mechanical lock products for the local market. The company had sales of about SEK 70 M in 2006 and has about 65 employees. The acquisition is conditional on the approval of the Israeli competition authority. The transaction is expected to be able to be completed during the spring.

 

 

Joe Grillo has regrettably decided to leave his position as Head of Global Technologies division. Joe has during his six years in the Group been instrumental in the development of the division and we thank him for his contribution and wish him success in his future career. Johan Molin, President and CEO, will take over the responsibility for Global Technologies during a transition period until a permanent successor has been appointed.

 

ASSA ABLOY's Board of Directors has decided to recommend to the Annual General Meeting a new incentive program directed at 28,000 of the Group's employees in 17 countries. The program is to be issued at market price, with an estimated dilution effect amounting to about 1% of the share capital. The proposed duration is five years. The program has been discussed with the largest shareholders.

 

In March ASSA ABLOY published its first-ever report about its work on sustainable development. This covers the environment, business ethics, health & safety and working conditions. The report can be found on the company's website.

 

 

'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 176 M (-9) for the quarter. Income before tax amounted to SEK 789 M (-48). Investments in tangible and intangible assets totaled SEK 1 M (4). Liquidity is good and the equity ratio was 47.6% (44.3).

 

 

ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. Significant accounting and valuation principles are detailed on pages 58-62 of the 2006 Annual Report. New or revised IFRS effective after 31 December 2006 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 '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.

 

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, 25 April 2007

 

 

 

Johan Molin

President and CEO

 

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

 

The Annual General Meeting will be held on 26 April at the Modern Museum (Moderna Museet) in Stockholm.

The Interim Report for the second quarter will be published on 9 August 2007.

The Interim Report for the third quarter will be published on 8 November 2007.

The Report for the fourth quarter will be published in February 2008.

 

 

Johan Molin, President and CEO, Tel: +46 8 506 485 42

Tomas Eliasson, Executive Vice President and CFO, tel: +46 8 506 485 72

 

 

 

ASSA ABLOY is holding an analysts' meeting at 14.00 today at Klarabergsviadukten 90 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 5052 0270, +44 208 817 9301 or +1 718 354 1226.

 

The full report with tables can be downloaded from the following link: