STRONG GROWTH IN USA BUT WEAKER IN EUROPE FOR ASSA ABLOY

27 Apr 2005

"Our sales in - by far our largest market -USA increased by 8% this quarter," says President and CEO Bo Dankis. "In Europe the effect of Easter limits our growth at the same time as we note different development trends between markets. We are now increasing the pace of change in Europe."
 
SALES AND INCOME


 
The Group's sales in the first quarter totaled SEK 6,269 M (6,283). Organic growth was 2%. Translation of foreign subsidiaries' sales to Swedish kronor had a negative effect of SEK 205 M due to changes in exchange rates. Newly acquired companies had a positive effect of 1% on sales.
 
Operating income before depreciation, EBITDA, for the first quarter amounted to SEK 1,102 M (1,102). The corresponding margin was 17.6% (17.5). The Group's operating income, EBIT, amounted to SEK 890 M (868) after negative currency effects of SEK 33 M. The operating margin (EBIT) was 14.2% (13.8).
 
Income before tax for the first quarter was SEK 764 M (751) after negative currency effects due to translation of foreign subsidiaries amounting to SEK 17 M. The Group's tax charge totaled SEK 205 M (196), corresponding to an effective tax rate of 27% on income before tax. Earnings per share after tax for the first quarter amounted to SEK 1.49 (1.50).
 
Operating cash flow for the quarter, excluding costs of the restructuring program, amounted to
SEK 549 M - equivalent to 72% of income before tax - compared with SEK 615 M last year. Working capital increased by SEK 333 M in the quarter, mainly referable to increased capital tied up in accounts receivable and inventories.
 
THE 'LEVERAGE AND GROWTH' ACTION PROGRAM
The two-year action program initiated in November 2003 is progressing well, with a long series
of specific actions. Cost savings are projected to reach SEK 450 M a year by late 2005. Savings of SEK 70 M were realized during the first quarter 2005. During 2005, payments totaling SEK 56 M relating to the action program have been made and 950 of the 1,400 employees becoming redundant have left the Group. Negotiations concerning some 250 of the total of 1,400 employees affected by the program are still ongoing.
 
COMMENTS BY DIVISION
EMEA
Sales for the first quarter in the EMEA division (Europe, Middle East and Africa) totaled EUR 305 M (307), with -1% organic growth. Operating income amounted to EUR 44 M (44) with an operating margin (EBIT) of 14.3% (14.4). Return on capital employed amounted to 15.8% (16.1). Operating cash flow before interest paid totaled EUR 25 M (31).
 
Easter had a negative effect of over 3% on the division's sales. Sales growth in the first quarter continued to be widely spread. Scandinavia, Israel and eastern Europe are generating strong organic growth, while France, Benelux and Germany show a weaker development. The United Kingdom and Italy are maintaining the average pace of 2004. Activities under the Leverage and Growth action program are producing savings as planned. However, these were counteracted during the quarter by lower sales volumes. The new EMEA management has accelerated its efforts to implement the new strategy which leads to somewhat higher selling costs due to investments related to specification and DIY. These activities have not yet significantly affected sales.
 
AMERICAS
Sales for the first quarter in the Americas division totaled USD 283 M (273) with 5% organic growth. Operating income amounted to USD 51 M (45) with an operating margin (EBIT) of 17.9% (16.6).
Return on capital employed amounted to 18.4% (16.4). Operating cash flow before interest paid totaled USD 32 M (38).
 
The positive trend in Americas continued during the first quarter in terms of sales, volumes and margins. The Door Group, the Residential Group and South America reported strong growth during the quarter. The Architectural Hardware Group showed improved growth and margins. Sales and earnings in Mexico suffered a temporary negative impact from changed tax regulations concerning inventories, which led to one-time adjustments of stock levels in the distribution chain.
 
ASIA PACIFIC
Sales for the first quarter in the Asia Pacific division totaled AUD 81 M (72) with 0% organic growth. Operating income amounted to AUD 8 M (9) with an operating margin (EBIT) of 9.7% (12.3). Return on capital employed amounted to 9.9% (13.3). Operating cash flow before interest paid totaled AUD 15 M (8).
 
Asia Pacific's sales increased as a result of acquisitions made. The organic growth was negatively affected by changed exchange rates on exports from New Zealand to the USA and continuing weakness in the Australian residential market. Growth in Asia improved during the quarter, mainly due to sales to other divisions. Earnings were affected negatively by lower volumes and higher sales costs in Asia. The increased sales costs are expected to produce higher sales later in the year.
 
GLOBAL TECHNOLOGIES
The Global Technologies division reported sales of SEK 1,268 M (1,165) in the first quarter, corresponding to 9% organic growth. Operating income amounted to SEK 169 M (142) with an operating margin (EBIT) of 13.4% (12.2). Return on capital employed amounted to 12.4% (10.4). Operating cash flow before interest paid amounted to SEK 190 M (76).
 
Global Technologies reported strong organic growth due to increased sales in USA for all entities. Identification Technology Group continues to develop well. Automatic Doors improves margins by increased service sales. The Hospitality Group reported markedly improved sales during the quarter, which had a positive effect on the division's organic growth and margin. The restructuring program in the Hospitality Group is intensified, which leads to a temporary rise in the level of costs.
 
OTHER EVENTS
During the quarter ASSA ABLOY signed a contract to acquire 70% of the Chinese company WangLi. WangLi is a leading supplier of high-security doors and high-security locks in China. The company has built up a comprehensive distribution network in China and holds a leading position in its segment. WangLi's operations are based in the Zhejiang region south of Shanghai. Forecast annual sales for 2005 amount to SEK 200 M. Consolidation will take place during the second quarter.
 
In April a contract was signed to acquire the Swedish company Habo Industry, which has sales of SEK 45 M and supplies locks and fittings to the window and door industry in Scandinavia and in Europe. The acquisition is expected to contribute to earnings per share immediately.
 
BEST Metaline (Asia Pacific) and Doorman Services (Global Technologies) were consolidated from 1 February. Their combined annual sales are over SEK 200 M. The acquisitions contributed to earnings per share during the quarter. The acquisition cost including estimated earn-outs amount to some SEK 150 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite life amount to under SEK 100 M.
 
ACCOUNTING PRINCIPLES
ASSA ABLOY has adopted International Financial Reporting Standards (IFRS) from 1 January 2005. The transition to IFRS took effect from 1 January 2004, which required comparatives for 2004 to be adjusted in accordance with IFRS. The effects of the transition to IFRS were described in a separate report, 'IFRS-adjusted 2004 figures for ASSA ABLOY', published on 20 April 2005. The report is available on ASSA ABLOY's website. ASSA ABLOY's accounting principles under IFRS form Appendix 1 to the present report.
 
OUTLOOK *
Organic sales growth in 2005 is expected to continue at a good rate, although affected by the weaker development in Europe. The operating margin (EBIT) is expected to rise, mainly due to savings resulting from the restructuring program. Excluding payments relating to restructuring, the strong cash generation is expected to continue.  
 
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, 27 April 2005
 
 
Bo Dankis
President and CEO
 
*The outlook published in February 2005 read:
"Organic sales growth is expected to continue at a good rate. The operating margin (EBITA) is expected to rise, mainly due to savings resulting from the restructuring program. Excluding restructuring payments, the strong cash generation is expected to continue. 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 positions will accelerate growth and increase profitability."
 
The Interim Report has not been reviewed by the Group's Auditor.
 
Financial information
 
Further Quarterly Reports from ASSA ABLOY AB will be published on 17 August and 8 November 2005.
 
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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, Sweden
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
Visiting address: Klarabergsviadukten 90
www.assaabloy.com
 
 
 
 
 
 
ASSA ABLOY is holding an analysts' meeting at 12.45 today at Operaterrassen 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 0181.
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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 around EUR 3 billion.