ASSA ABLOY: CONTINUED STRONG ORGANIC GROWTH IN THE THIRD QUARTER
"The third quarter's organic growth is another step in the right direction. We are now back on the positive course that characterizes ASSA ABLOY through continuing improvements in sales and earnings," says President and CEO, Bo Dankis. "We have compensated for higher material costs, and the margins are increasing thanks to better volumes and to the restructuring we have carried out."
SALES AND INCOME
Sales SEK M
Operating margin (EBITA), %
Income before tax, SEK M
of which, exchange-rate effects
Net income, SEK M
Operating cash flow, SEK M
Earnings per share (EPS), SEK
EPS excluding goodwill, SEK
The Group's sales in the third quarter totaled SEK 6,447 M (5,930), an increase of 9% compared to the previous year. Organic growth was 6%. Translation of foreign subsidiaries' sales to Swedish kronor had a negative effect of SEK 176 M due to changes in exchange rates. Newly acquired companies contributed 6% to sales.
Sales for the first nine months of 2004 amounted to SEK 19,263 M (17,983), which represents an increase of 7%. Organic growth was 6% and acquired units contributed 5%. Exchange-rate variations affected sales negatively by SEK 738 M compared with the equivalent period in 2003.
Operating income before depreciation, EBITDA, for the third quarter amounted to SEK 1,196 M (1,044). The corresponding margin was 18.6% (17.6).
The Group's operating income before goodwill amortization, EBITA, amounted to SEK 976 M (824) after negative currency effects of SEK 30 M. The operating margin (EBITA) was 15.1% (13.9). Goodwill amortization amounted to SEK 245 M (238).
For the nine months, operating income before depreciation, EBITDA, amounted to SEK 3,484 M (3,114). The corresponding margin was 18.1% (17.3). The Group's operating income before goodwill amortization, EBITA, amounted to SEK 2,802 M (2,440) after negative currency effects of SEK 109 M. The operating margin (EBITA) was 14.5% (13.6).
Income before tax for the third quarter was SEK 605 M (467) after negative currency effects due to translation of foreign subsidiaries of SEK 16 M. The Group's tax charge totaled SEK 208 M (165), corresponding to an effective tax rate of 34% (35) on income before tax. Income before tax for nine months was SEK 1,706 M (1,342) after negative currency effects of SEK 60 M.
Earnings per share after tax for the third quarter amounted to SEK 1.07 (0.81). EPS excluding goodwill amortization was SEK 1.71 (1.46). Earnings per share for nine months amounted to SEK 3.02 (2.34). EPS excluding goodwill amortization was SEK 4.98 (4.28).
Operating cash flow for the quarter, excluding costs of the restructuring program, amounted to SEK 1,082 M - equivalent to 179% of income before tax - compared with SEK 1,054 M last year. Working capital decreased by SEK 135 M in the quarter, mainly referable to a reduction of the capital tied up in accounts receivable. Operating cash flow for nine months totaled SEK 2,349 M (2,196).
THE 'LEVERAGE AND GROWTH' ACTION PROGRAM
The two-year action program initiated in November 2003 is progressing well, with a long series of specific actions. The previously announced sale of the Detention Group in the USA was completed during the quarter. The Detention Group has sales exceeding SEK 200 M.
Cost savings are projected to reach SEK 450 M a year by late 2005. SEK 150 M is expected to be realized during 2004 and additional SEK 200 M in 2005. Up to the end of September 2004, payments of SEK 192 M - of the planned SEK 935 M - relating to the action program have been made and 500 of the 1,400 employees becoming redundant have left the Group. Negotiations concerning 1,000 of the 1,400 employees have been finalized.
COMMENTS BY DIVISION
Sales for the third quarter in the EMEA division (Europe, Middle East and Africa) totaled EUR 282 M (260), with 4% organic growth. Operating income before goodwill amortization amounted to EUR 41 M (33) with an operating margin (EBITA) of 14.7% (12.7). Return on capital employed before goodwill amortization amounted to 14.8% (12.1). Operating cash flow before interest paid totaled EUR 67 M (50).
Sales growth in the third quarter was more widely spread than in the previous quarter. Scandinavia, Benelux and Israel are generating strong organic growth, while France, the United Kingdom and Germany were weaker in the quarter. Volume increases and the implementation of restructuring measures contributed to an improved EBITA margin.
Sales for the third quarter in the Americas division totaled USD 299 M (280) with 7% organic growth. Operating income before goodwill amortization amounted to USD 54 M (47) with an operating margin (EBITA) of 17.9% (16.8). Return on capital employed before goodwill amortization amounted to 19.8% (17.3). Operating cash flow before interest paid totaled USD 49 M (57).
The positive trend in Americas strengthened during the third quarter, in terms of both sales and margins. The Door Group and the Residential Group reported very strong growth during the quarter. The Door Group is continuing to improve its margins despite higher material costs. The Architectural Hardware Group recorded good organic growth and continues to improve its margins. The activities involved in the action program have been completed.
Sales for the third quarter in the Asia Pacific division totaled AUD 93 M (81) with 5% organic growth. Operating income before goodwill amortization amounted to AUD 15 M (13) with an operating margin (EBITA) of 16.0% (16.0). Return on capital employed before goodwill amortization amounted to 19.0% (17.4). Operating cash flow before interest paid totaled AUD 8 M (7).
Asia Pacific reported good improvements in both sales and margins. The trend of strong growth in Asia is continuing. The Australian market was slightly weaker this quarter, with lower demand from the residential market. Margins that are seasonally stronger during the second half of the year were to some extent negatively affected by the stronger growth in Asia.
The Global Technologies division reported sales of SEK 1,253 M (1,000) in the third quarter, corresponding to 7% organic growth. Operating income before goodwill amortization amounted to SEK 182 M (139) with an operating margin (EBITA) of 14.5% (13.9). Return on capital employed before goodwill amortization amounted to 13.4% (10.6). Operating cash flow before interest paid amounted to SEK 258 M (156).
Global Technologies reported strong organic growth in the Identification Technology Group and Door Automatics, with good increase in margins even though acquisitions made by the Identification Technology Group had a diluting effect on the division's margins. In varying market conditions the Hospitality Group continued to report negative organic growth but did not make a loss. A number of restructuring measures are ongoing.
ASSA ABLOY's Board of Directors has decided to adopt a new dividend policy based on distribution, over the long term, of 33-50% of earnings after standard tax of 28%, but always taking into account ASSA ABLOY's long-term financing requirements. One effect of the transition to IFRS accounting from 2005 will be that the income statement will not be debited with amortization of goodwill. This will result in a significant increase in the dividend. The Board of Directors will propose the Annual General Meeting 2005 to apply the new dividend policy pro forma for the 2004 accounts.
During the quarter two small companies were acquired - Panija in England, which is active in identification, and Kingsgate in China, which manufactures hotel safes. In addition, a joint venture has been established with Brighthandle in Sweden, which develops innovative door handles.
The ASSA ABLOY nomination committee consists of Georg Ehrnrooth, Melker Schörling and Gustaf Douglas. In accordance with the resolution at the Annual General Meeting, have the major institutional shareholders been contacted during the third quarter with the objective to appoint two additional members that will be announced shortly.
ASSA ABLOY employs the accounting principles discussed in Note 1 of the Annual Report for 2003, with the additional application of RR 29 'Remuneration of Employees' from 1 January 2004.
Preparations for the transition to International Financial Reporting Standards (IFRS) in 2005 continue. Goodwill will not be amortized according to plan; some minor adjustments will be made regarding acquisitions made in 2004 and accounting of deferred taxes.
OUTLOOK FOR 2004-2005*)
ASSA ABLOY'S outlook has been revised upwards in terms of sales volumes. Organic sales growth is expected to continue at a good rate. The operating margin before goodwill amortization (EBITA) is expected to rise, which in 2005 will be mainly due to savings resulting from the restructuring program. Excluding restructuring payments, the strong cash generation is expected to continue.
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 positions will accelerate growth and increase profitability.
Stockholm, 2 November 2004
President and CEO
*) The previous outlook published in July 2004 stated: The outlook has been revised upwards in terms of sales volumes. Organic sales growth for the second half of the year is expected to be slightly lower than for the first six months given the stronger comparative. The EBITA margin is expected to improve although certain savings from the restructuring program have been pushed back in time. Excluding restructuring payments, the strong cash generation is expected to continue.
Long term, we expect an increase in security-driven demand. Focus on end-user value and innovation as well as leverage on ASSA ABLOY's strong positions will accelerate growth and increase profitability.
This Interim Report has not been reviewed by the company's auditor.
The Year-End Report from ASSA ABLOY AB will be published on 16 February 2005.
Further information can be obtained from:
Bo Dankis, President and CEO, tel: +46 8 506 485 42
Göran Jansson, Deputy CEO and CFO, tel: +46 8 506 485 72
Martin Hamner, Director of Investor Relations and Group Controller, tel: + 46 8 506 485 79
ASSA ABLOY AB (publ)
Box 70340, SE 107 23 Stockholm, Sweden
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
Visiting address: Klarabergsviadukten 90
ASSA ABLOY is holding an analysts' meeting at 12.00 today at Operaterrassen 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+44 (0)20 7162 0186.
The full report including tables can be downloaded from the link below.
The ASSA ABLOY Group is the world's leading manufacturer and supplier of locking solutions, dedicated to satisfying end-user needs for security, safety and convenience. The Group has about 30,000 employees and annual sales of around EUR 3 billion.
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.