ASSA ABLOY Interim Report January - March 2002

29 Apr 2002

Sales for the period January to March 2002 amounted to SEK 6,303 M (5,104), which represents an increase of 23%. In local currencies the increase amounted to 19%. Since the start of the year the rate of organic growth has remained stable at around 3%, even with continued clean-out of unprofitable low-end products in the Yale companies and the downturn in the hotel segment. However, the quarter's figure for organic growth was 0% because Easter fell in March this year and the quarter therefore contained 3-4% fewer working days. Acquired units contribute by 19% to the increase of sales. Exchange-rate effects affected sales positively by SEK 240 M.
The Group's income before tax increased by 21% to SEK 460 M (380). Operating margin before goodwill amortization (EBITA) for the period was 13.7%, slightly above the fourth quarter pro forma. Previously the first quarter has always shown a lower margin than the last quarter, but positive effects from various integration and efficiency projects are starting to bring the expected results. Translation of foreign subsidiaries' earnings affected income positively by SEK 16 M due to exchange-rate variations.
Earnings per share after tax and full conversion increased by 16% to SEK 0.81 (0.70). Earnings per share after tax and full conversion but excluding goodwill amortization amounted to SEK 1.45 (1.27).
Operating cash flow before tax and acquisitions was strong and amounted to SEK 643 M (293). Cash earnings per share after tax and full conversion (CEPS) increased by 20% to SEK 2.15 (1.79).
Development of the subsidiaries
Sales for the Finnish companies were somewhat below last year's. The Finnish home market is weak partly since the rapid expansion of the telecoms industry and its demand for additional premises has ceased. This has affected Abloy's sales of locks and especially those of various sophisticated electromechanical solutions. Export sales have continued to develop well. The new program of investment in manufacturing is now complete and is showing results in the form of a reduction in working capital and increased efficiency.
Growth in Scandinavia was affected by the long Easter break in Norway, and sales were just below last year's level. Earnings by the Norwegian companies increased strongly after the completion of the cost-reduction program. The Swedish companies continued to develop well. A number of products have been launched including the CLIQ electromechanical cylinder. Development in Denmark remained weak.
The German companies were affected by weakening of the German economy. Various product launches were made and will strengthen the market position. In the Netherlands, Ambouw showed good growth, and Lips is also beginning to show growth in response to the restructuring work. The acquisition of VEMA, the leading electromechanical lock distributor in the Netherlands, will create a stronger platform for continuing growth. In Switzerland the integration of KESO is proceeding well and a number of cross-selling projects are underway. Overall, sales in Central Europe are running at a similar level to last year.
South Europe showed growth of 1%. The pace of growth was good at the start of the year, but the effect of Easter was quite strong, especially in France. As regards to the new 35-hour week reform people seem to prefer longer holidays rather than shorter working hours. Fichet's success in marketing high-security locks to private individuals continues. The acquisition of INITIAL strengthens our position in the field of electromechanical locks. In Spain the integration of TESA has started well, including the adjustments following the separation of the hotel business are continuing.
The British companies showed growth of 1%. A range of initiatives, aimed at creating growth and improving profitability have been taken, including product launches, reorganization of production into smaller Profit Centers and development of the marketing organization. The negative sales trend of recent years has now been turned. The company is steadily consolidating its market-leading position and creating better conditions for strong future development.
The North American business reported growth of 1%. Also this region started the year well but was affected by less number of working days in the quarter. The Yale integration has been successfully carried out. A new joint organization has been created with the aims of increasing cooperation and exploiting various synergies. Several new growth projects have begun.
Emtek, which focuses on the residential market, continues to show very strong growth. The Mexican companies have begun the year strongly and the integration program is progressing according to plan.
Australia and New Zealand grew by 5%. Last year's many product launches, which included cylinders, padlocks and panic exit devices from different Group companies, are successful. The efficiency program is running well with steadily increasing margins. The integration of Interlock is progressing well and the company has started the year strongly.
In New Markets, South Africa continues to show strong sales and earnings growth, and products for higher security have successfully been launched. Brazil is developing well and show good growth. The addition of IMAB will strengthen our position especially in the retail segment. The Asian market remained weak. At the same time the clean-out of unprofitable low-end products continued. In the past year this process has reduced sales by SEK 100 M while earnings have significantly improved. East Europe is developing steadily. However Mul-T-Lock has been hit by the serious situation in Israel. The company exports more than two-thirds of its production, but demand on the home market is currently very low.
The downturn in the hotel segment has slowed and the chances of a recovery towards the end of the year are increasing. The first quarter's sales were 9% down on the previous year. The sales drop is particularly strong in the USA. A successful cost-reduction program is underway and the company is showing increasing margins in spite of falling sales.
In the Identification segment the good growth continued, partly due to increased focus on security, reaching 6% for the first quarter. The integration of Indala is progressing well and the company has already reached the same margin as HID.
Acquisition of Besam
ASSA ABLOY's strategy is based on creating security solutions that prevent unauthorized entry while permitting safe and fast exit in emergency situations, and also being simple and convenient to use. Door automatics is a natural component of such solutions. Automatic products and systems are steadily growing in importance in society but up to now have formed only a limited part of ASSA ABLOY's product portfolio. In the task of developing tomorrow's locking solutions, it has become increasingly important to take a leading position in this segment too.
The world market for door automatics totals SEK 10-12 billion and has grown historically at 7-10% a year. The Swedish company Besam has annual sales of SEK 2,100 M and a profitability of more than 10%. Service and maintenance account for about one-third of sales and show very high profitability.
The acquisition price is SEK 3,050 M, most of the goodwill is tax-deductible and the acquisition is expected to contribute to earnings per share from 2003. For more information regarding the acquisition of Besam, see separate press release sent earlier today.
Acquisition of VEMA
ASSA ABLOY has signed an agreement to acquire VEMA, market leader in electromechanical locking solutions in the Netherlands. VEMA sells effeff's product range among others. The company has annual sales of EUR 9 M and shows high profitability. The acquisition will contribute to EPS from the outset.
Acquisition of IMAB
ASSA ABLOY has signed a letter of intent to acquire IMAB, one of the leading lock companies in Brazil. IMAB focuses primarily on the retail segment and has shown strong growth in recent years. IMAB has annual sales of BRL 15 M (SEK 80 M) and has 320 employees.
Acquisition of INITIAL
ASSA ABLOY has acquired the French company INITIAL, which has been Abloy's distributor for many years. The company has annual sales of EUR 3.3 M and specializes in electromechanical locking solutions.
The new recommendations of the Swedish Financial Accounting Standards Council, which came into force on 1 January 2002, have been adopted in this Report. This has not resulted in adjustment of figures for previously reported periods.
ASSA ABLOY's development prospects are substantial. The Group's strong position and security-driven growth, the increased need for user-friendly locking solutions, the potential
for continued rationalization and the consolidation of the lock industry create conditions for continued good profit development.
Stockholm, 29 April 2002
Carl-Henric Svanberg
President and CEO
This Interim Report has not been reviewed by the Group's Auditor.
Financial information

Interim Report (1 January - 30 June): 9 August 2002
Interim Report (1 January - 30 September): 7 November 2002
Year-end Report for 2002: 6 February 2003
Annual Report for 2002: March 2003
Further information can be obtained from
Carl-Henric Svanberg, President and CEO, tel: +46 8 506 485 52 or +46 70 510 05 51
Göran Jansson, Chief Financial Officer, tel: +46 8 506 485 72 or +46 70 698 85 72
Box 70340, SE 107 23 Stockholm
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
Visiting address: Klarabergsviadukten 90
Information about the analysts' meeting, web and telephone conference later today can be found on ASSA ABLOY's website,
The ASSA ABLOY Group is the world's leading manufacturer and supplier of locks and associated products dedicated to satisfying end-user needs for security, safety and convenience. The Group has around 30,000 employees and annual sales of approx EUR 3 billion.