• Sales in the second quarter increased by 8% to SEK 8,329 M (7,689), with 7% organic growth, 5% acquired growth and exchange-rate effects of -3%.
• Operating income (EBIT) increased by 15% to SEK 1,325 M (1,151*), which is a record for the Group, representing a margin of 15.9% (15.0*).
• Net income amounted to SEK 822 M (297).
• Earnings per share amounted to 2.20 SEK (1.95*).
• New acquisitions in the quarter by EMEA, Global Technologies and a strategic acquisition in China by the Asia Pacific division adds further growth.
• Incentive 2007 fully subscribed.

 

 

 

*Excluding restructuring costs totaling SEK 520 M

 

 

 

 

"Sales in the second quarter continued to develop well through both organic and acquired growth. All five divisions reported increased sales combined with substantial improvements in earnings. The Group's cash flow also showed good performance during the quarter. The restructuring program is proceeding according to plan and the pace of savings is good. Particularly pleasing was also the acquisition of Baodean in China, a strategically important market for the Group. Through the acquisition we take leadership within the fast growing antitheft lock segment" says Johan Molin, President and CEO.

 

The Group's sales totaled SEK 8,329 M (7,689), an increase of 8% compared with 2006.  In local currencies the increase amounted to 12% (9), of which organic growth for comparable units contributed 7% (7) while acquired units accounted for 5% (2) of the increase in volume. Exchange-rate effects had a negative impact of SEK 234 M on sales - i.e. 3%.

 

Operating income before depreciation, EBITDA, amounted to SEK 1,554 M (1,378), an increase of 13% compared with 2006. The EBITDA margin was 18.7% (17.9). The Group's operating income, EBIT, amounted to SEK 1,325 M (1,151), an increase of 15%, after negative currency effects of SEK 44 M. The operating margin (EBIT) was 15.9% (15.0). Net financial items amounted to SEK -197 M (-156), which corresponds to an average interest rate of just over 5%. The Group's income before tax amounted to SEK 1,128 M (995), which represents an increase of 13% on the previous year. After translation of subsidiaries' income statements, exchange-rate effects had a negative impact of SEK 39 M on the Group's income before tax. The profit margin was 13.5% (12.9). The Group's tax charge totaled SEK 306 M (178), corresponding to an effective tax rate of 27% for the quarter. Earnings per share amounted to SEK 2.20 (1.95), which represents an increase of 13%.

 

The Group's operating cash flow amounted to SEK 957 M (833) - equivalent to 85% (84) of income before tax. Working capital increased seasonally by SEK 159 M during the quarter, mainly due to an increase in the capital tied up in accounts receivable and inventories.

 

 

Sales for the first half of 2007 totaled SEK 16,556 M (15,342), which represents an increase of 8% compared with 2006. Organic growth was 8% (9). Newly acquired companies contributed 5% (2). Exchange-rate effects affected sales negatively by SEK 695 M, i.e. 5%, compared with the first half of 2006.

 

Operating income before depreciation, EBITDA, amounted to SEK 3,072 M (2,710) for the half-year. The corresponding margin was 18.6% (17.7). The Group's operating income, EBIT, increased by 16% to SEK 2,614 M (2,261) after negative exchange-rate effects of SEK 118 M. The corresponding operating margin (EBIT) was 15.8% (14.7).

 

Earnings per share for the first half-year increased by 14% to 4.36 SEK (3.83). Operating cash flow for the half-year amounted to SEK 1,762 M (1,420).

 

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 81 M during the quarter and SEK 125 M in the first half-year. Savings resulting from measures carried out since the project began are assessed at SEK 60 M (10) for the quarter. So far about 800 out of the total of 2,000 employees affected by the restructuring program have left the Group.

 

 

 

Sales for the second quarter in the EMEA division (Europe, Middle East and Africa) totaled SEK 3,370 M (3,103), with 7% organic growth. Acquired growth contributed 2%. Operating income amounted to SEK 556 M (492), which represents an operating margin (EBIT) of 16.5% (15.9). Return on capital employed amounted to 20.7% (18.8). Operating cash flow before interest paid totaled SEK 502 M (418).

 

Sales growth remained strong in the second quarter. Scandinavia, Spain, eastern Europe and Africa generated the best organic growth. Operating margin and return on capital employed both advanced well during the quarter. Cash flow ran at a satisfactory level.

 

 

Sales for the second quarter in the Americas division totaled SEK 2,607 M (2,603) with 5% organic growth. Acquired growth contributed 3%. Operating income amounted to SEK 506 M (495), which represents an operating margin (EBIT) of 19.4% (19.0). Return on capital employed amounted to 22.4% (22.1). Operating cash flow before interest paid totaled SEK 450 M (454).

 

Americas' sales trend remained strong in the second quarter except for the Residential Group which reported a weak development. The American businesses in the commercial segment, headed by the Architectural Hardware Group and the Electromechanical Group, reported continuing good growth during the quarter whilst the Door Group had a somewhat weaker development. The previous good profitability improved further during the quarter and reached 19.4%, despite dilution of 0.2 of a percentage point from acquisitions.

 

 

Sales for the second quarter in the Asia Pacific division totaled SEK 650 M (580) with 8% organic growth. Acquired growth contributed 5%. Operating income amounted to SEK 73 M (45), representing an operating margin (EBIT) of 11.3% (7.7). Return on capital employed amounted to 13.9% (9.2). Operating cash flow before interest paid totaled SEK 60 M (65).

 

Sales are developing well in China and Australia. The acquisition of Pyropanel is proceeding according to plan. The operating margin improved relative to previous quarters as a result of price increases made during the first half-year. Cash-flow showed a good improvement.

 

 

The Global Technologies division reported sales of SEK 1,174 M (936) in the second quarter, with organic growth of 8%. Acquired growth contributed 21%. Operating income amounted to SEK 169 M (116), giving an operating margin (EBIT) of 14.4% (12.4). Return on capital employed amounted to 13.1% (15.1). Operating cash flow before interest paid amounted to SEK 160 M (118).

 

Global Technologies reported continued strong organic growth. Demand for the division's products remained good within all businesses as a result of market investments and launches of several new products. The planned distribution changes at Fargo were carried out with a positive result. The combined dilution from acquisitions was reduced to 0.3 of a percentage point.

 

 

The Entrance Systems division reported sales of SEK 749 M (660) in the second quarter, representing organic growth of 9%. Acquired growth contributed 5%. Operating income amounted to SEK 108 M (84), giving an operating margin (EBIT) of 14.4% (12.7). Return on capital employed amounted to 13.7% (11.0). Operating cash flow before interest paid amounted to SEK 102 M (78).

 

Sales continued to develop positively through good growth in Europe and North America. The integration of the service companies La Force and Portronik continued according to plan. Profitability improved significantly by increased sales volumes in door automatics and service and through selective prices increases.

 

During the first six months the acquired companies Pemko, Pyropanel, LaForce, Portronik and Integrated Engineering were consolidated. All have been announced previously. The total acquisition price for the companies consolidated during the first half-year amounts to SEK 585 M and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 380 M. The acquisition price is adjusted for acquired interest-bearing liabilities including estimated earn-outs.

 

EMEA division's previously announced acquisition of the Israeli company Alba, which has sales of about SEK 70 M and 65 employees, was approved by the Israeli competition authority during the second quarter. It has therefore been possible to complete the transaction, and the company will be consolidated during the third quarter.

 

During the second quarter EMEA division completed the acquisition of the Italian company Esety, which is a manufacturer and distributor of high-security locks for the Italian market. The company has sales of SEK 60 M and about 50 employees, and will contribute to earnings per share from the date of acquisition. The company will be consolidated from July 2007.

 

During the quarter the Asia Pacific division has come to an agreement concerning the acquisition of the Chinese company Baodean. Baodean is one of China's leading manufacturers of anti theft locks and lock cylinders. The acquisition is an important step in ASSA ABLOY's drive to become the market leader on the Chinese market. Baodean has estimated sales of SEK 300 M and has 1,370 employees. The acquisition is conditional on the approval of the relevant authorities.

 

In June a public offer was made for the shares in the Korean company iRevo. iRevo is South Korea's largest manufacturer of digital locks for the residential market, selling mainly in South Korea and China. The company has sales of around SEK 400 M and has 200 employees. When the offer period expired on 24 July, acceptances for a sufficient number of shares had not been received and the offer therefore lapsed. ASSA ABLOY is currently analyzing the situation that has arisen and is considering the next step in the acquisition process.

 

At the beginning of July it was announced that Global Technologies division has acquired the Irish company Aontec Teoranta, which is one of the world's largest manufacturers of inlays for electronic passports. The company has sales of around SEK 140 M and has 140 employees. The company is expected to contribute to earnings per share from the date of acquisition and will be consolidated from July 2007.

 

 

 

 

Registration for ASSA ABLOY's incentive program for employees, Incentive 2007, has ended. The program was fully subscribed and amounts to EUR 100 M. More than 1,400 employees in some 15 countries are participating. The program runs until June 2012 in line with the maturity date of the convertible bonds. The dilution effect of the program, calculated as the maximum increase in the number of shares after dilution, will amount to 1.2% of the share capital and 0.8% of the total number of votes.

 

A new MCRF (Multi-Currency Revolving Credit Facility) was signed on 26 June between ASSA ABLOY and 15 banks. The Facility covers a total of EUR 1,100 M and runs for seven years.

 

 

'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 836 M (366) for the half-year. Income before tax amounted to SEK 1,393 M (783). The improved income is due to intra-Group dividends and royalty payments. Investments in tangible and intangible assets totaled SEK 2 M (10). Liquidity is good and the equity ratio was 47.5% (43.2).

 

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.

 

 

No transactions that significantly affected the company's position and income have taken place between ASSA ABLOY and related parties.

 

 

ASSA ABLOY as an international Group with a wide geographic spread is exposed to a number of business and financial risks. The business risks can be divided into strategic, operational and legal risks. The financial risks are related to such factors as exchange rates, interest rates, liquidity, the giving of credit, raw materials and financial instruments. Risk management in ASSA ABLOY aims to identify, control and reduce risks. This work begins with an assessment of the probability of risks occurring and their potential effect on the Group. For a more detailed description of risks and risk management refer to the 2006 Annual Report. No significant risks other than the risks described there are judged to have occurred.

 

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.

 

 

 

The Board of Directors and the President and CEO declare that this half-year report gives an accurate picture of the Parent Company's and the Group's operations, position and income and describes significant risks and uncertainty factors faced by the Parent Company and the companies making up the Group.

 

Stockholm, 9 August 2007

 

 

 

 

 

We have reviewed the interim report for the period 1 January 2007 - 30 June 2007 for ASSA ABLOY AB (publ). Management is responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim financial information based on our review.

 

We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by FAR. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with ('RS') and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not, in all material respects, prepared in accordance with IAS 34 and the Annual Accounts Act.

 

Stockholm, 9 August 2007

 

PricewaterhouseCoopers AB

 

Peter Nyllinge

 

Authorised Public Accountant

 

Partner in charge

 

 

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

The Report for the fourth quarter will be published on 13 February 2008.

 

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

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

  

 

 

 

ASSA ABLOY is holding an analysts' meeting at 12.00 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:

Q2 2007