ASSA ABLOY Q2: STRONG ORGANIC GROWTH

21 Jul 2004

"I'm proud to report that ASSA ABLOY achieved strong organic growth in the quarter. Our EBITA margin improved both as a result both of sales growth and the restructuring measures," says President and CEO, Bo Dankis. "We have upgraded the sales outlook and our margin for the full year will continue to increase. The full impact from the restructuring program has been pushed back to the latter part of 2005."
 
SALES AND INCOME

 
Second quarter
6 months
 
2004
2003
Change
2004
2003
Change
Sales, SEK M
6,533
5,930
+10%
12,816
12,054
+6%
of which:
 
 
 
 
 
 
Organic growth
 
 
+7%
 
 
+5%
Acquisitions
 
 
+6%
 
 
+6%
Exchange-rate effects
-174
 
-3%
-562
 
-5%
Operating margin (EBITA), %
14.3
13.0
 
14.3
13.4
 
Income before tax, SEK M
571
407
+40%
1,101
875
+26%
of which, exchange-rate effects
-8
 
-2%
-44
 
-5%
Net income, SEK M
372
257
+45%
717
557
+29%
Operating cash flow, SEK M
652
578
+13%
1,267
1,142
+11%
Earnings per share (EPS), SEK
1.01
0.71
+42%
1.95
1.53
+27%
EPS excluding goodwill, SEK
1.67
1.34
+25%
3.27
2.82
+16%
 
Sales for the Group in the second quarter amounted to SEK 6,533 M (5,930), an increase of 10% compared to the previous year. Organic growth was 7%. Translation of foreign subsidiaries' sales produced a negative effect of SEK 174 M due to changes in exchange rates. Acquired companies had a positive effect of 6% on sales.
 
Sales for the half year totaled SEK 12,816 M (12,054), which represents an increase of 6%. Organic growth was 5%. Acquired units contributed 6% to the increase in sales. Exchange-rate variations affected sales negatively by SEK 562 M compared with the first half of 2003.
 
Operating income before depreciation, EBITDA, for the second quarter amounted to SEK 1,168 M (993). The corresponding margin was 17.9% (16.7).
 
The Group's operating income before goodwill amortization, EBITA, amounted to SEK 936 M (770) after negative currency effects of SEK 25 M. The EBITA margin amounted to 14.3% (13.0%).
 
Goodwill amortization amounted to SEK 247 M (237).
 
For the half year, operating income before depreciation, EBITDA, amounted to SEK 2,288 M (2,071). The corresponding margin was 17.9% (17.2). The Group's operating income before goodwill amortization, EBITA, amounted to SEK 1,826 M (1,616) after negative currency effects of SEK 79 M. The EBITA margin amounted to 14.3% (13.4%).
 
Income before tax in the second quarter totaled SEK 571 M (407), with a negative currency effect of SEK 8 M. Income before tax for the first half year was SEK 1,101 M (875), with a negative currency effect of SEK 44 M.
 
The Group's tax charge for the quarter totaled SEK 197 M (143), corresponding to an effective tax rate of 34% (35) in relation to income before tax.
 
Earnings per share for the quarter amounted to SEK 1.01 (0.71). EPS before goodwill amortization was SEK 1.67 (1.34). Earnings per share in the first half year amounted to SEK 1.95 (1.53). EPS before goodwill amortization was SEK 3.27 (2.82).
 
Operating cash flow for the quarter, excluding restructuring payments was SEK 652 M - representing 114% of income before tax - compared with SEK 578 M last year. Cash flow was negatively affected by a build-up of inventory and accounts receivable due to higher material costs and higher sales towards the end of the quarter. Cash flow for the half year was SEK 1,267 M (1,142).
 
ACTION PROGRAM LEVERAGE AND GROWTH
The two-year action program initiated in November 2003 is proceeding well with many specific activities, Measures to turnaround low-performing units, addressed in this program, have been successful.
Certain headcount reductions in the EMEA division will require more time to complete.
 
Cost savings are estimated to reach SEK 450 M on an annual basis during the latter part of 2005. 25% of that amount is expected to be realized during 2004. During the first half of 2004, restructuring payments of SEK 80 M have been made and 250 of the 1,400 employees involved have left the Group.
 
COMMENTS BY DIVISION
 
EMEA
Sales for the second quarter in EMEA (Europe, Middle East and Africa) totaled EUR 313 M (277), with 6% organic growth. Operating income before goodwill amortization amounted to EUR 46 M (35) with an operating margin (EBITA) of 14.7% (12.6). Return on capital employed before goodwill amortization amounted to 16.7% (12.7). Operating cash flow before interest paid amounted to EUR 33 M (33).
 
All of EMEA's market regions showed positive organic sales growth, led by France and Scandinavia, the two largest regions both achieved double-digit growth. The overall sales increase is mainly attributed to improved market demand, the effect of more working days and price increases offsetting higher material costs. The EBITA margin benefited from volume increases and implemented restructuring.
 
AMERICAS
Second-quarter sales in the Americas business area amounted to USD 282 M (268) with 6% organic growth. Operating income before goodwill amortization amounted to USD 49 M (41) with an operating margin (EBITA) of 17.6% (15.3). Return on capital employed before goodwill amortization amounted to 18.2% (15.1). Operating cash flow before interest paid amounted to USD 40 M (41).
 
The Americas division showed an overall positive trend in terms of both sales and margin, mainly led by the Door Group, the Residential Group and the effects of implemented restructuring measures. The Door Group reported strong sales growth and better margin in spite of higher material costs. The Architectural Hardware Group showed stable sales and margins, while the order intake has started to improve.
 
ASIA PACIFIC
Sales in the second quarter in Asia Pacific totaled AUD 87 M (72), representing 15% organic growth. Operating income before goodwill amortization amounted to AUD 12 M (9) with an operating margin (EBITA) of 13.7% (12.5). Return on capital employed before goodwill amortization amounted to 16.0% (11.8). Operating cash flow before interest paid amounted to AUD 20 M (12).
 
The Asia Pacific division showed a good improvement in terms of sales and margins. The strong sales growth in China continued, but with a below-average margin. The export business of Interlock in New Zealand reported strong improvement in sales and margin. The newly acquired Security Merchants business contributed positively to the margin.
 
GLOBAL TECHNOLOGIES
Sales in the second quarter for Global Technologies totaled SEK 1,224 M (986), corresponding to 5% organic growth. Operating income before goodwill amortization amounted to SEK 150 M (133) with an operating margin (EBITA) of 12.3% (13.5). Return on capital employed before goodwill amortization amounted to 10.9% (10.0). Operating cash flow before interest paid amounted to SEK 155 M (137).
 
Global Technologies reported rather low organic sales growth in the quarter against strong comparative figures. The EBITA margin was negatively affected by a weaker quarter for the Hospitality Group, attributable to internal restructuring and a weak industry environment. The Identification Technology Group continued to deliver strong margins. Door Automatics improved its organic sales growth, mainly driven by new sales in Europe. The US business started to show signs of recovery.
 
OTHER EVENTS
The employee incentive program, Incentive 2004, was fully subscribed with participants in 15 countries. The program based on five year convertibles amounting to EUR 100 M, was approved by the Annual General Meeting in April. Maximum dilution amounts to 2%
 
ACCOUNTING PRINCIPLES
In this report ASSA ABLOY has applied the accounting principles disclosed in Note 1 of the Annual Report for 2003, RR 29 Employee benefits was adopted as at 1 January 2004.
 
OUTLOOK*
The outlook has been revised upwards in terms of sales volumes. Organic sales growth for the second half of the year is expected to be slightly lower than for the first six months given the stronger comparative. The EBITA margin is expected to improve although certain savings from the restructuring program have been pushed back in time. Excluding restructuring payments, the strong cash generation is expected to continue.
 
Long term, we expect an increase in security-driven demand. Focus on end-user value and innovation as well as leverage on ASSA ABLOY's strong positions will accelerate growth and increase profitability.
 
Stockholm, 21 July 2004
 
Bo Dankis
President and CEO
 
* The previous outlook published in April 2004:
The outlook remains unchanged except for currency translation effects. Organic growth in sales and growth from acquisitions is expected to be partly offset by negative translation effects and by discontinued volumes from low performers. The EBITA margin is expected to improve mainly due to the Leverage and Growth program. Excluding restructuring payments, the strong cash generation is expected to continue.
 
Long term, we expect an increase in security-driven demand. Focus on end-user value and innovations as well as leverage on ASSA ABLOY's strong positions will accelerate growth and increase profitability."
 
REVIEW REPORT
We have reviewed this Interim Report in accordance with the recommendation issued by FAR. A review is considerably limited in scope compared with an audit. Nothing has come to our attention that causes us to believe that the Interim Report does not comply with the requirements of the Securities and Clearing Operations Act and the Annual Accounts Act.
 
Stockholm, 21 July 2004
 
PricewaterhouseCoopers AB
 
Anders Lundin
Authorized public accountant
 
Financial information
 
The report for the third quarter will be published on 2 November.
___________
 
Further information can be obtained from:
Bo Dankis, 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 AB (publ)
Box 70340, SE 107 23 Stockholm
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
www.assaabloy.com
 
An analysts' meeting will be held at 13.00 today at Operaterrassen in Stockholm. The meeting can also be followed over the Internet at www.assaabloy.com. It is possible to dial into the meeting with questions: +44 (0)20 7162 0186.
 
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The full report including tables can be downloaded from the following 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.