"The strong sales are very encouraging and illustrate the opportunities for growth that exist in our industry, where ASSA ABLOY's unique position provides good scope for both organic and acquired growth," says Johan Molin, President & CEO. "We have formulated a comprehensive restructuring program to be undertaken over the next three years which is expected to have significant effects on our long-term competitiveness and profitability."

 

 

	First quarter			Full year
	2006	2005	Change	2005	2004	Change
Sales, SEK M	7,653	6,269	+22%	27,802	25,526	+9%
of which
Organic growth			+12%			+5%
Acquisitions			+2%			+1%
Exchange-rate effects	514		+8%	643		+3%
Operating margin (EBIT), %	14.5	14.2		14.7	14.4
Income before tax, SEK M	965	764	+26%	3,556	3,199	+11%
of which, exchange-rate effects	64		+8%	73		+2%
Net income, SEK M	704	559	+26%	2,613	2,356	+11%
Operating cash flow, SEK M	587	549	+7%	3,702	3,439	+8%
Earnings per share (EPS), SEK	1.88	1.49	+26%	6.97	6.33	+10%

 

The Group's sales in the first quarter totaled SEK 7,653 M (6,269), an increase of 22% on the previous year. Organic growth was 12%. Translation of foreign subsidiaries' sales to Swedish kronor had a positive effect of SEK 514 M due to changes in exchange rates. Newly acquired companies contributed 2% to sales.

The quarter's earnings were burdened by restructuring costs of SEK 40 M and by costs of SEK 15 M relating to a legal dispute. Operating income before depreciation, EBITDA, amounted to SEK 1,332 M (1,102). The corresponding margin was 17.4% (17.6). The Group's operating income, EBIT, amounted to SEK 1,110 M (890) after positive currency effects of SEK 79 M. The operating margin (EBIT) was 14.5% (14.2).

Income before tax for the quarter amounted to SEK 965 M (764), including positive currency effects of SEK 64 M due to translation of foreign subsidiaries. The Group's tax charge for the quarter totaled SEK 261 M (205), corresponding to an effective tax rate of 27% on income before tax. Earnings per share for the first quarter amounted to SEK 1.88 (1.49), representing an increase of 26%.

Operating cash flow for the quarter amounted to SEK 587 M - equivalent to 61% of income before tax - compared with SEK 549 M last year. Working capital showed a seasonal rise of SEK 492 M during the quarter, which is mainly due to increased capital tied up in accounts receivable. Capital tied up in inventories increased during the quarter as a result of ongoing restructuring of production.

 

ASSA ABLOY's Board of Directors has decided to undertake a comprehensive restructuring program, which is expected to run for three years. 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, while some units will be closed. The cost of the program has been calculated at SEK 1,250 M, and it is expected to produce cost savings of SEK 600 M a year once the whole program has been completed. Most of the costs of the program are expected to be expensed during 2006. About 75% of these costs will consist of payments in connection with redundancies; the remainder relate to write-downs mainly affecting machinery and equipment.

Apart from the restructuring described above, a review of the remaining car-lock manufacturing in the UK has been initiated as a result of the unprofitable cost position and prospects of British car manufacturers. This may lead to additional costs of approximately SEK 200 M.

 

Sales for the first quarter in the EMEA division (Europe, Middle East and Africa) totaled EUR 342 M (305), with 11% organic growth. Operating income amounted to EUR 51 M (44) with an operating margin (EBIT) of 15.0% (14.3). Return on capital employed amounted to 18.3% (15.8). Operating cash flow before interest paid totaled EUR 32 M (25).

Sales growth strengthened during the first quarter mainly because of a greater number of working days. The Nordic region and eastern Europe are generating strong organic growth, and France, Germany and Spain are showing an improved sales trend. The operating margin developed well, driven both by volume effects and by higher savings resulting from previous restructuring. Increased restructuring costs and costs related to a legal dispute burdened the quarter's earnings.

 

Sales for the first quarter in the Americas division totaled USD 322 M (283) with 13% organic growth. Operating income amounted to USD 60 M (51) with an operating margin (EBIT) of 18.7% (17.9).

Return on capital employed amounted to 21.1% (18.4). Operating cash flow before interest paid totaled USD 35 M (32).

Americas' positive sales trend strengthened during the first quarter partly as a result of the efforts put into specification. The Door Group and the Residential Group report continued strong growth for the quarter. The Architectural Hardware Group is showing improved growth. The sales recovery in Mexico is continuing, with strong growth during the quarter. The division's operating margin is developing well. The acquisition of Adams Rite, consolidated at the end of the quarter, is diluting return on capital employed.

 

Sales for the first quarter in the Asia Pacific division totaled AUD 93 M (81) with 6% organic growth. Operating income amounted to AUD 6 M (8) with an operating margin (EBIT) of 6.6% (9.7). Return on capital employed amounted to 7.1% (9.9). Operating cash flow before interest paid totaled AUD 1 M (15).

Sales in China are developing well. Demand on the residential markets in both Australia and New Zealand remains at a low level. The operating margin was affected negatively by increased material costs and by a poor sales-mix due in part to the increased internal sales to other divisions. Increased restructuring costs reduced the quarter's earnings, and continuing transfers of production held down the quarter's cash flow.

 

The Global Technologies division reported sales of SEK 950 M (773) in the first quarter, representing organic growth of 10%. Operating income amounted to SEK 134 M (106) with an operating margin (EBIT) of 14.1% (13.7). Return on capital employed amounted to 17.8% (16.1). Operating cash flow before interest paid amounted to SEK 5 M (60).

Global Technologies continues to record strong organic growth. HID and Identification Technology are continuing to show stable, high growth in sales-volumes, driven by new RFID products. Hospitality reports rather weaker sales growth. The operating margin is limited by investments in an enlarged marketing and sales organization in the fast-growing segments. Cash flow is burdened by a growth-related increase in working capital.

 

The Entrance Systems division reported sales of SEK 617 M (495) in the first quarter, representing organic growth of 12%. Operating income amounted to SEK 77 M (63) with an operating margin (EBIT) of 12.5% (12.7). Return on capital employed amounted to 9.8% (9.0). Operating cash flow before interest paid amounted to SEK 123 M (130).

Sales were affected by strong demand on all major markets, especially in the USA but also in Asia. Growth is split evenly between sales of automatic doors and of services. Development of margins is held back by some price pressure and increased costs for aluminum. Acquired units are developing well but produce some dilution of the operating margin.

 

The acquisition of Adams Rite in the USA took place at the end of March. The company has a strong brand and product range in aluminum doors. Its annual sales are around USD 50 M, with a good EBIT margin. The acquisition is expected to be neutral in 2006 and to contribute to earnings per share from 2007. The company has about 300 employees. Restructuring costs associated with the acquisition are expected to total around USD 3 M.

Baron Metal Industries, Canada's leading manufacturer of steel doors, was acquired at the beginning of April. The acquisition strengthens the solutions available from ASSA ABLOY by broadening its range of steel doors. The company's annual sales are around CAD 30 M, with a good EBIT margin. The acquisition is expected to contribute positively to earnings per share from the time of acquisition. The company has about 140 employees. Restructuring costs associated with the acquisition are expected to total around CAD 1 M.

Perth Door Services in Australia, a service company for automatic doors, was acquired in mid-April. The acquisition has more than doubled ASSA ABLOY's service business on the Australian market. Perth Door Services's annual sales are around AUD 12 M, with a low EBIT margin. The company has 80 employees. The acquisition is expected to contribute positively to earnings per share from the time of acquisition.

SALock in the USA, a development company concerned with wireless communication for locks in electromechanical door environments, was acquired at the beginning of April. The company will strengthen the Group's Shared Technologies organization.

The combined acquisition price for these acquisitions, including estimated earn-outs, totals around SEK 900 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to around SEK 600 M.

ASSA ABLOY's Board of Directors has decided to recommend to the Annual General Meeting a new global incentive program for senior management. The program will be issued at market price with a calculated dilution effect of about 1% of capital. The proposed duration is five years. The program has been discussed with the largest shareholders.

 

Since 1 January 2005 ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. 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.

 

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.

 

Stockholm, 25 April 2006

 

Johan Molin

President and CEO

 

The Interim Report for the second quarter will be published on 9 August 2006.

 

Further information can be obtained from:

Johan Molin, 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 is holding an analysts' meeting at 13.00 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 0025.