"We are seeing stable demand on our most important markets in Europe and North America, while acquisitions, headed by Fargo, are developing well," says President & CEO Johan Molin. "Our strong sales growth and the restructuring measures we have carried out provide good opportunities for further improving profitability."

 

 

 

*Excluding restructuring costs totaling SEK 437 M (third quarter) or SEK 957 M (nine months)

 

The Group's sales in the third quarter totaled SEK 7,736 M (7,019), an increase of 10% on the previous year. Organic growth was 8% (5). Newly acquired companies, principally Fargo and Adams Rite, contributed 5% (1) to sales. Translation of foreign subsidiaries' sales to Swedish kronor had a negative effect of SEK 176 M due to changes in exchange rates.

 

The quarter's earnings were burdened by restructuring costs of SEK 437 M. Operating income before depreciation, EBITDA, excluding restructuring costs amounted to SEK 1,464 M (1,317). The corresponding margin was 18.9% (18.8). The Group's operating income, EBIT, excluding restructuring costs amounted to SEK 1,235 M (1,103) after negative currency effects of SEK 30 M. The corresponding operating margin (EBIT) was 16.0% (15.7). The quarter's income before tax, excluding restructuring costs, amounted to SEK 1,054 M (969), including negative currency effects of SEK 18 M due to translation of foreign subsidiaries. The Group's tax charge totaled SEK 251 M (263), corresponding to an effective tax rate of 41% 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 excluding restructuring items for the third quarter amounted to SEK 2.02 (1.89), which represents an increase of 7%.

 

Operating cash flow for the quarter amounted to SEK 919 M - equivalent to 87% of income before tax, excluding restructuring costs - compared with SEK 1,190 M last year. Working capital rose by SEK 241 M during the quarter due to increased capital tied up in accounts receivable as a result of growth, and to increased material costs which had a negative effect on inventories.

 

Sales for the first nine months of the year totaled SEK 23,078 M (20,272), which represents an increase of 14%. Organic growth was 9% (4). Newly acquired companies contributed 3% (1). Exchange rates affected sales positively by SEK 384 M compared with the corresponding period in 2005.

Operating income before depreciation, EBITDA, excluding restructuring costs amounted to SEK 4,174 M (3,662). The corresponding margin was 18.1% (18.1). The Group's operating income, EBIT, excluding restructuring costs increased by 16% to SEK 3,496 M (3,015) after positive currency effects of SEK 58 M. The corresponding operating margin (EBIT) was 15.2% (14.9). Earnings per share for the period excluding restructuring items increased by 14% to SEK 5.85 (5.13). Operating cash flow for the period amounted to SEK 2,339 M (2,552). The cash flow was strong but affected by the strong sales growth combined with substantial price increases in inventories.

 

The comprehensive restructuring program initiated at the start of the year 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 cost of the program is estimated at SEK 1,250 M and it is expected to generate cost savings of about SEK 600 M a year once the whole program is completed in 2009. Most of the costs of the program are expected to be expensed in 2006. About 80% of the costs will relate to payments associated with redundancies and the remainder to write-downs chiefly concerned with machinery and equipment.

 

In addition to the restructuring described above, it has been decided to cease the existing car-lock manufacturing in the UK because of the unprofitable cost position and prospects of British car manufacturers. The costs of closure are estimated to amount to SEK 200 M.

 

The quarter's earnings were burdened by restructuring costs totaling SEK 437 M. Of this, SEK 68 M relates to write-downs chiefly of machinery and equipment. Payments related to the action program amounted to SEK 51 M.

 

Costs related to the restructuring program amount to SEK 757 M in total, on top of which earnings have been burdened by SEK 200 M resulting from the cessation of car-lock manufacture in the UK. Out of the total of SEK 957 M, SEK 132 M relates to write-downs. Up to now, about 300 employees affected by the restructuring program have left the Group.

 

 

Sales for the third quarter in the EMEA division (Europe, Middle East and Africa) totaled EUR 316 M (295), with 8% organic growth. Operating income excluding restructuring costs amounted to EUR 51 M (45), which represents an operating margin (EBIT) of 16.1% (15.2). Return on capital employed excluding restructuring items amounted to 17.9% (15.6). Operating cash flow before interest paid totaled EUR 58 M (59).

 

Sales growth remained stable at a high level during the third quarter. The Nordic region, Germany, eastern Europe and Africa are continuing to generate strong organic growth. Benelux and Spain are showing an improved sales trend. Restructuring costs for the quarter totaled EUR 34 M. The operating margin excluding restructuring costs continued to advance very well during the quarter.

 

Sales for the third quarter in the Americas division totaled USD 359 M (308) with 9% organic growth. Acquired growth contributed 8%. Operating income excluding restructuring costs amounted to USD 71 M (58), which represents an operating margin (EBIT) of 19.8% (18.9). Return on capital employed excluding restructuring items amounted to 23.2% (21.6). Operating cash flow before interest paid totaled USD 68 M (80).

 

Americas' strong sales trend continued during the third quarter, with sustained good demand in North America. The Residential Group and Electromechanical Group report continuing strong growth for the quarter. The Architectural Hardware Group reports an improved growth rate. The acquisitions of Adams Rite and Baron are progressing according to plan. The operating margin excluding restructuring costs improved satisfactorily during the quarter as a result of the growth in sales volumes. Cash flow was restrained by the strong growth.

 

Sales for the third quarter in the Asia Pacific division totaled AUD 111 M (108) with 3% organic growth. Operating income excluding restructuring costs amounted to AUD 12 M (15), representing an operating margin (EBIT) of 10.3% (13.9). Return on capital employed excluding restructuring items amounted to 12.7% (18.6). Operating cash flow before interest paid totaled AUD -2 M (6).

 

Sales in Asia advanced strongly, mainly driven by good performance on the Chinese market. Demand on the non-residential markets in both Australia and New Zealand continued to be good while residential markets remain at a low level. The operating margin excluding restructuring costs improved relative to the previous quarter but continued to be negatively affected by increased material costs. Cash flow was weak due to building related capital expenditure made in connection with restructuring activities.

 

The Global Technologies division reported sales of SEK 1,107 M (844) in the third quarter, with organic growth of 11%. Acquired growth contributed 22%. Operating income excluding restructuring costs amounted to SEK 168 M (128), giving an operating margin (EBIT) of 15.1% (15.2). Return on capital employed excluding restructuring items amounted to 16.1% (17.3). Operating cash flow before interest paid amounted to SEK 108 M (126).

Global Technologies reports continued strong organic growth in all three of its businesses. The acquisition of Fargo is proceeding according to plan as regards both sales growth and profitability. Restructuring costs relate mainly to consolidation of production in Norway, Germany and the USA.

The operating margin is affected positively by growth in sales volumes but constrained by continuing investments in an enlarged marketing and sales organization in the fast-growing segments. Cash flow is being held down by an expected outflow of working capital in acquired units.

 

The Entrance Systems division reported sales of SEK 674 M (591) in the third quarter, representing organic growth of 11%. Acquired growth contributed 5%. Operating income excluding restructuring costs amounted to SEK 87 M (84), giving an operating margin (EBIT) of 12.9% (14.2). Return on capital employed excluding restructuring items amounted to 11.3% (11.2). Operating cash flow before interest paid amounted to SEK 23 M (44).

 

Demand continues to be good on all major markets, especially in the USA but also in Asia. Sales growth is strongest on markets where the division generates weaker profits. The profitability of acquired units is steadily improving but they continue to dilute the operating margin. The quarter's strong growth had a negative effect on cash flow.

 

The acquisition of Fargo Electronics, a world leader in security systems based on ID cards, including card writers, peripheral equipment and software, was completed at the beginning of August. Sales are expected to exceed USD 90 M in 2007, with a strong EBIT margin. The company has about 240 employees. The acquisition is expected to have a mildly diluting effect on earnings per share in 2006 and to contribute to earnings per share in 2007.

 

A small Brazilian manufacturer of contactless cards, specializing in cards for general communications, was acquired in July. In Denmark two small sales units were acquired in August with the aim of improving development in the electromechanical area. These units have annual sales of around SEK 100 M, with low profitability.

 

The combined acquisition price for these acquisitions, adjusted for acquired interest-bearing assets including estimated earn-outs, is about SEK 2,200 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to about SEK 2,000 M.

 

 

 

 

ASSA ABLOY has entered into a partnership with Cisco Systems, the world leader in Internet Protocol (IP) networks. The two companies will collaborate in developing compatible technologies for convergence between physical access and logical access. At the ASIS exhibition in San Diego, the two companies demonstrated a 'networked door' that combines ASSA ABLOY's new Hi-O(TM) (Highly Intelligent Operation) lock-technology system and Cisco's patent-pending IP-based converged access-control technology.

 

The aims of the partnership are to ensure that ASSA ABLOY's Hi-O products and Cisco's access-control products will work together and that access-control systems and video surveillance can be integrated into IP networks. Such integration will benefit customers by providing enhanced physical security and network security together with lower total costs of ownership.

 

'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 574 M (562) for the nine months. Income before tax amounted to SEK 480 M (1,070). Investments in tangible and intangible assets totaled SEK 15 M (13). Liquidity is good and the equity ratio was 44% (45).

 

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.

 

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, 8 November 2006

 

 

Johan Molin

President and CEO

 

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

 

 

 

 

The fourth quarter's report (Year-End Report) will be published on 14 February 2007.

___________

 

 

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 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 0125.

 

 

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

Tomas Eliasson, Chief Financial Officer, Tel: +46 8 506 485 72

Martin Hamner, Director of Investor Relations and Group Controller, Tel: + 46 8 506 485 79