ASSA ABLOY REPORTS ALL-TIME-HIGH CASH FLOW AND IMPROVED UNDERLYING MARGINS IN Q3

7 Nov 2003

  • Sales amounted to SEK 5,930 M (6,459), SEK -613 M currency effects; 0% organic growth
  • Income before tax amounted to SEK 467 M (523), SEK -49 M currency effects
  • Operating margin, EBITA, was 13.9% (14.5), underlying margin* improved to 14.7% from 14.3%
  • Operating cash flow reached an all-time high of SEK 1,054 M
  • A two-year action program has been initiated to leverage on Group strength and create a firm foundation for sustainable growth. The cost of the program is estimated at SEK 1.3 billion with a payback time of less than three years.
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    "Considering the soft market, the third-quarter result is a proof of strength," said Bo Dankis, President and CEO of ASSA ABLOY. "We have delivered strong cash flow, the negative sales trend has turned and we have improved underlying margins in line with our forecasts. The stage is set for more focused efforts to leverage on ASSA ABLOY's strong position."
     
    TWO-YEAR ACTION PROGRAM
    An action program has been initiated to leverage on Group strength and create a firm foundation for sustainable growth. Targets encompassing all segments (EMEA, Americas, Asia Pacific and Global Technologies) have been set. Under the program ASSA ABLOY will increase focus on innovations, market activities, channel management and brand building. Low performers will be turned round or divested before the end of 2004. Accelerated supply management and increased excellence in operations will create substantial savings. The cost of the program is estimated at SEK 1.3 billion with a payback time of less than three years.
     
    "ASSA ABLOY is by far the world's largest player in our industry. But we are currently a federation of lock companies rather than a Group and are not taking full advantage of our size to capitalize on leverage and growth opportunities. This action program will change that," said Bo Dankis.
     


    Third quarter Nine months
      2003 2002 Change 2003 2002 Change
    Sales, SEK M 5,930 6,459       -8% 17,983 19,008 -5%
    Whereof:
    Organic growth 0% -1%
    Acquisitions 1% 7%
    FX-differences -613 -9% -2,033 -11%
    Operating margin (EBITA), % 13.9 14.5         - 13.6 14.0         -
    Underlying margin, %* 14.7 14.3         - 14.2 13.6         -
    Income before tax, SEK M 467 523 -11% 1,342 1 468 -9%
    Whereof FX-differences -49 -9% -142 -10%
    Net income, SEK M 299 322 -7% 855 907 -6%
    Operating cash flow, SEK M 1,054 1,002 5% 2,196 2,530 -13%
    Earnings per share (EPS),SEK 0.81 0.88 -8% 2.34 2.53 -8%
    EPS excluding goodwill, SEK 1.46 1.55 -6% 4.28 4.48 -4%
     
    *Excluding restructuring costs for comparable units and currency effects
     
    In the second-quarter report the Group announced a number of initiatives concerning production and to reduce headcount.
    EMEA is almost two-thirds of the way through the initiatives and in Americas the initiatives have virtually been completed. The headcount reduction is ahead of plan. The fast implementation of the new organization has made these achievements possible.
     
    SALES AND EARNINGS
    Sales for the Group in the third quarter amounted to SEK 5,930 M (6,459), a decrease of 8%. Organic growth was 0%. Exchange-rate variations when translating foreign subsidiaries' sales affected income negatively by SEK 613 M, which is minus 9%. The acquired companies had a positive effect of 1% on the top line. In spite of the lackluster market conditions and the strong sales in the third quarter last year, organic growth improved from the second-quarter level.
     
    Sales for nine months totaled SEK 17,983 M (19,008), which represents a decrease of 5%. Organic growth was minus 1%. Acquired units contributed 7% to the increase in volume. Exchange-rate variations affected sales negatively by SEK 2,033 M compared with 2002.
     
    Operating income before depreciation, EBITDA, for the third quarter amounted to SEK 1,044 M (1,172). The corresponding margin was 17.6% (18.1). The Group's operating income before goodwill amortization, EBITA, amounted to SEK 824 M (933) after negative currency effects of SEK 100 M. The EBITA margin was 13.9% (14.5%). The underlying margin improved to 14.7% from 14.3%. The result for the quarter includes restructuring and integration costs of about SEK 52 M. Goodwill amortization amounted to SEK 238 M (247).
     
    For nine months, operating income before depreciation, EBITDA, amounted to SEK 3,114 M (3,382). The corresponding margin was 17.3% (17.8). The Group's operating income before goodwill amortization, EBITA, amounted to SEK 2,440 M (2,663) after negative currency effects of SEK 300 M. The EBITA margin was 13.6% (14.0%). The result for the period includes restructuring and integration costs of SEK107 M. The underlying margin improved to 14.2% from 13.6%.
     
    Income before tax in the third quarter totaled SEK 467 M (523), with a negative currency effect of SEK 49 M.
     
    Income before tax for nine months was SEK 1,342 M (1,468), with a negative currency effect of SEK 142 M.
     
    The Group's tax charge for the quarter totaled SEK 165 M (184), corresponding to an effective tax rate of 35% (35) in relation to income before tax.
     
    Earnings per share for the quarter amounted to SEK 0.81 (0.88), with a negative currency effect of SEK 0.05 per share. The EPS before goodwill amortization was SEK 1.46 (1.55), with negative currency effect SEK 0.13 per share.
     
    Earnings per share for nine months amounted to SEK 2.34 (2.53), with negative currency effect SEK 0.17 per share. The EPS before goodwill amortization was SEK 4.28 (4.48), with negative currency effect SEK 0.39 per share.
     
    Operating cash flow for the quarter was SEK 1,054 M - representing 226% of Income before tax - compared with SEK 1,002 M last year. Cash flow for nine months was SEK 2,196 M (2,530).
     
     
    COMMENTS BY SEGMENT
     
    EMEA
    Third-quarter sales in EMEA (Europe, Middle East and Africa) amounted to EUR 260 M (269) with one percent negative organic growth. Operating income before goodwill amortization amounted to
    EUR 33 M (37) with an EBITA margin of 12.7% (13.7). Return on capital employed before goodwill amortization was 23.2% (25.1). Operating cash flow before paid interest was EUR 50 M (52).
     
    Sales for nine months totaled EUR 825 M (859) with two percent negative organic growth. Operating income before goodwill amortization amounted to EUR 108 M (118) with an EBITA margin of 13.0% (13.7). Return on capital employed before goodwill amortization was 26.6% (26.1). Operating cash flow before paid interest was to EUR 109 M (131).
     
    Business sentiment is improving slightly in EMEA, albeit still with large variation between sub-regions. Excluding restructuring costs the EBITA margin increased to 14.1% from 13.7%. Units representing a quarter of EMEA's business achieved over 5% growth in the quarter while volume pull-backs in other units, especially in Italy as a result of the continued export realignment, reduced their organic growth. EMEA's two largest market segments, France and Scandinavia, managed to keep volumes and margins stable under rather rough market conditions.
     
    AMERICAS
    Third-quarter sales in Americas amounted to USD 280 M (286) with two percent negative organic growth. Operating income before goodwill amortization amounted to USD 47 M (48) with an EBITA margin of 16.8% (16.7). Return on capital employed before goodwill amortization was 46.3% (44.3). Operating cash flow before paid interest was USD 57 M (48).
     
    Sales for nine months totaled USD 811 M (832) with two percent negative organic growth. Operating income before goodwill amortization amounted to USD 130 M (131) with an EBITA margin of 16.1% (15.8). Return on capital employed before goodwill amortization was 41.2% (39.4). Operating cash flow before paid interest was USD 134 M (138).
     
    The institutional new-construction index in the US is no longer falling and a slight recovery was noted at the end of the quarter. The latest forecast indicates no additional improvement during 2004.
     
    Three of the companies within Americas are currently undergoing restructuring and represent the bulk of the negative growth for the quarter. The Architectural Hardware Group (locks, cylinders, door closers and panic exit devices), which represents 40% of Americas, has returned to organic growth and is continuing to improve its performance. The Door Group is still suffering from the low level of new construction although there are some signs of a recovery in volume. Its margins are still kept up well. The Residential Group is continuing to develop in a very favorable way with 16% growth and high margins. South America and Mexico continue to under perform.
     
    ASIA PACIFIC
    Third-quarter sales in Asia Pacific amounted to AUD 81 M (83) with two percent organic growth. Operating income before goodwill amortization amounted to AUD 13 M (12) with an EBITA margin of 16.0% (14.5). Return on capital employed before goodwill amortization was 36.1% (33.1). Operating cash flow before paid interest was AUD 7 M (13).
     
    Sales for nine months totaled AUD 225 M (223) with four percent organic growth. Operating income before goodwill amortization amounted to AUD 31 M (27) with an EBITA margin of 14.0% (12.1). Return on capital employed before goodwill amortization was 27.9% (23.8). Operating cash flow before paid interest was AUD 26 M (32).
     
    The third-quarter performance for Asia Pacific is characterized by good progress in both volumes and margins for South Pacific but weak sales in South East Asia and China. New construction is down in the formerly booming markets of South East Asia.
     
    GLOBAL TECHNOLOGIES
    Third-quarter sales for Global Technologies amounted to SEK 1,000 M (1,023) with six percent organic growth. Operating income before goodwill amortization amounted to SEK 139 M (126) with an EBITA margin of 13.9% (12.3). Return on capital employed before goodwill amortization was 50.4% (46.0). Operating cash flow before paid interest was SEK 156 M (125).
     
    Sales for nine months totaled SEK 2,991 M (2,196) with six percent organic growth. Operating income before goodwill amortization amounted to SEK 382 M (307) with an EBITA margin of 12.8% (14.0). Return on capital employed before goodwill amortization was 46.1% (42.0). Operating cash flow before paid interest was SEK 386 M (369).
     
    Global Technologies is continuing to develop very well with good growth and margin development. Door Automatics is continuing to improve its margins in the European operation. The move of Besam's US production facility is almost completed. Identification shows improving margins and is focusing on European expansion. The Hospitality business is growing with improved margins in spite of negative currency impact.
     
    OTHER EVENTS
    ASSA ABLOY has entered into a partnership with CoreStreet, a leading provider of validation and authorization technology. CoreStreet will work with ASSA ABLOY to embed CoreStreet's Real Time Credential (RTC) technology in ASSA ABLOY's door locks for access control validation. The manufactured product will be the world's first physical access system that provides real-time authentication, revocation and auditing for wired, wireless and even totally disconnected environments.
     
    ASSA ABLOY has acquired the majority position in Sokymat S.A. The company develops, manufactures and markets transponders for access control cards, animal and food identification, logistics solutions for industry and other important applications of the Radio Frequency Identification (RFID) technology.
     
    ASSA ABLOY has acquired the identification technology business of ACG Advanced Component Group AG and the majority position in OMNIKEY AG. ACG is an independent distributor and technology provider in the market for Radio Frequency Identification (RFID) technology and smart cards. OMNIKEY is a leading manufacturer of smart readers for IT applications.
     
    OUTLOOK FOR 2003*
    In a soft market, and in spite of increased restructuring costs (but excluding the above-mentioned two-year action program), ASSA ABLOY anticipates stable volumes and margins for comparable units in local currencies, and good cash generation for the remainder of 2003. There is strong confidence that security-driven demand will increase. The Group intends to grow and increase profit by leverage on its strong position and increased focus on customer value.
     
    Stockholm, 7 November 2003
     
    Bo Dankis
    President and CEO
     
     
    This Interim Report has not been reviewed by the Group's Auditor.
     
    Financial information
     
    The Year End Report from ASSA ABLOY AB will be published on 6 February 2004.
     
    *from the Report for the Second Quarter of 2003: In a soft market, and in spite of increased restructuring costs, ASSA ABLOY anticipates stable volumes and margins for comparable units in local currencies and good cash generation. There is strong confidence that security-driven demand will increase. The Group intends to grow and increase profit by leverage on its strong position and increased focus on customer value.
     
     
    ___________
     
    Further information can be obtained from
    Bo Dankis, President and CEO, tel: +46 8 506 485 42
    Göran Jansson, EVP 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
    Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
    www.assaabloy.com
     
    An analyst meeting will be held 12.00 today at Operaterassen in Stockholm. The meeting can also be followed over Internet at www.assaabloy.com. It's possible to dial into the conference for questions: +44 (0) 207 162 0181.
     
    A telephone conference with analysts will be held 16.00. To participate, please dial +44 (0) 207 162 0179.
    A recorded version of the conference will subsequently be available at +44 (0) 208 288 4459, code 783012.
     
     
    The full report including tables can be downloaded from the attached link.

    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 about EUR 3 billion.