Strong end to the year for ASSA ABLOY - growth, improved profits and record cash flow in all divisions

13 Feb 2008

Correction outlook
 
Fourth quarter
 
  • Sales increased by 8% to SEK 8,721 M (8,059), with 6% organic growth, 5% acquired growth and exchange-rate effects of -2%.
  • Operating income (EBIT) increased by 13% to SEK 1,440 M (1,274*), representing a margin of 16.5% (15.8*).
  • Net income, including non-recurring financial expenses of SEK 54 M after tax, amounted to SEK 859 M (388**).
  • Earnings per share, including non-recurring financial expenses of SEK 54 M after tax, increased by 7% to SEK 2.30 (2.14*). Excluding the non-recurring financial expenses earnings per share increased by 14% to SEK 2.44.
  • Operating cash flow reached a record high, rising by 46% to SEK 1,740 M (1,189).
  • Proposed dividend 3.60 SEK per share (3.25).
 
Full year
 
  • Sales increased by 8% to SEK 33,550 M (31,137), with 7% organic growth, 5% acquired growth and exchange-rate effects of -4%.
  • Operating income (EBIT) increased by 14% to SEK 5,458 M (4,771*), representing a margin of 16.3% (15.3*).
  • Net income, including non-recurring financial expenses of SEK 54 M after tax, amounted to SEK 3,368 M (1,756**).
  • Earnings per share, including non-recurring financial expenses of SEK 54 M after tax, increased by 13% to SEK 9.02 (7.99*). Excluding the non-recurring financial expenses earnings per share increased by 15% to SEK 9.16.
  • Operating cash flow was strong, rising by 36% to SEK 4,808 M (3,528).

SALES AND INCOME                                           





 
*    Excluding restructuring costs for 2006 amounting to SEK 517 M for the quarter and SEK 1,474 M for the year.
**  Excluding restructuring costs, net income in 2006 was SEK 794 M for the quarter and
SEK 2,988 M for the year.
 
COMMENTS BY THE PRESIDENT AND CEO
 
"ASSA ABLOY made strong progress during the quarter and in 2007 as a whole. All divisions showed growth, increased profitability, increased return and strong cash flow. Measures to increase market coverage and the development and launch of new products give us a very strong base for good long-term advancement, even though the pace of growth on markets in Europe and North America slowed to some extent towards the end of the year. It was particularly gratifying that acquisition activities continued at a high level this quarter and contributed to increased growth in both mature and new markets as well as in the fast-growing electromechanical field," said Johan Molin, President and CEO.
 
FOURTH QUARTER
 
The Group's sales totaled SEK 8,721 M (8,059), an increase of 8% compared with 2006. In local currencies the increase amounted to 11% (14), of which organic growth for comparable units contributed 6% (9) while acquired units accounted for 5% (5) of the increase in volume. Exchange-rate effects had a negative impact of SEK 188 M on sales, i.e. 2%.

Operating income before depreciation, EBITDA, amounted to SEK 1,670 M (1,494), an increase of 12% compared with 2006. The EBITDA margin was 19.1% (18.5). The Group's operating income, EBIT, amounted to SEK 1,440 M (1,274), an increase of 13%, after negative currency effects of SEK 37 M. The operating margin was 16.5% (15.8).
 
Net financial items amounted to SEK 271 M (188) after non-recurring expenses of
SEK 75 M, which corresponds to an average interest rate of about 5.5%. The Group's income before tax amounted to SEK 1,168 M (1,086), which represents an increase of 8% on the previous year. After translation of subsidiaries' income statements, exchange-rate effects had a negative impact of SEK 31 M on the Group's income before tax. The profit margin was 13.4% (13.5). The Group's tax charge totaled SEK 309 M (181), corresponding to an effective tax rate of 26.5% for the quarter. Earnings per share amounted to
SEK 2.30 (2.14), which represents an increase of 7%.
 
FULL YEAR
 
Sales for 2007 totaled SEK 33,550 M (31,137), which represents an increase of 8% compared with 2006. Organic growth was 7% (9). Acquired companies contributed 5% (3). Exchange-rate effects affected sales negatively by SEK 1,131 M, i.e. 4%, compared with the equivalent period in 2006.
 
Operating income before depreciation, EBITDA, amounted to SEK 6,366 M (5,669). The corresponding margin was 19.0% (18.2). The Group's operating income, EBIT, amounted to SEK 5,458 M (4,771) an increase of 14%, after negative exchange-rate effects of
SEK 203 M. The corresponding operating margin (EBIT) was 16.3% (15.3).
 
Earnings per share increased by 13% to SEK 9.02 (7.99). Operating cash flow amounted to SEK 4,808 M (3,528).
 
RESTRUCTURING MEASURES
 
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 209 M during the quarter and SEK 424 M for the year. Savings during the quarter resulting from measures carried out are assessed at SEK 55 M compared with the same period last year. The quarterly rate of savings from the start of the program now amounts to SEK 90 M. So far 1,316 out of the total of 2,000 employees affected by the restructuring program have left the Group.
 

COMMENTS BY DIVISION
 
EMEA
 
Sales in EMEA division increased but at a slower rate during the fourth quarter and totaled SEK 3,519 M (3,287), with an organic growth of 4%. Acquired growth amounted to 1%. Operating income grew very positively and amounted to SEK 602 M (531), which represents an operating margin (EBIT) of 17.1% (16.2). Return on capital employed also improved and amounted to 22.4% (20.7). Operating cash flow before interest paid totaled SEK 829 M (650) and exceeded operating income.
 
AMERICAS
 
Sales in Americas division increased during the quarter with a stable good growth in the commercial segment and the sales trend in the residential segment was negative. Total sales amounted to SEK 2,383 M (2,388), with 5% organic growth. Acquired growth contributed 3%. Operating income continued to improve from an already good level and amounted to SEK 460 M (457), which represents an operating margin (EBIT) of 19.3% (19.1). Return on capital employed amounted to 21.6% (20.9). Operating cash flow before interest paid was strong and totaled SEK 717 M (492).
 
ASIA PACIFIC
 
Sales in Asia Pacific division grew strongly in all markets in the region and totaled
SEK 895 M (584), with 15% organic growth. The new acquisitions, Baodean and iRevo, were consolidated from the fourth quarter and as a result acquired growth increased to 41%. Operating income improved in response to compensated raw-material costs and a growth in volume and amounted to SEK 115 M (70), which represents an operating margin (EBIT) of 12.8% (12.0) in spite of dilution from the new acquisitions of 0.8 of a percentage point. The quarter's return on capital employed rose further to 19.6% (13.7). Operating cash flow before interest paid totaled SEK 90 M (48).
 
GLOBAL TECHNOLOGIES
 
Global Technologies division reported continued strong growth with sales of SEK 1,328 M (1,227) in the fourth quarter, of which organic growth accounted for 10%. A number of new products from HID and Fargo contributed to the good performance. Acquired growth amounted to 3%. The operation to merge HID and ITG proceeded according to plan and will in time yield good effects on both sales and production. Operating income amounted to SEK 219 M (194), giving an operating margin (EBIT) of 16.5% (15.8). Return on capital employed amounted to 16.9% (15.2). Operating cash flow before interest paid amounted to SEK 293 M (195).
ENTRANCE SYSTEMS
 
Entrance Systems division reported sales of SEK 823 M (765) in the fourth quarter, representing organic growth of 3%. During the quarter growth slowed in Europe and North America but remained very strong in the division's newly established operations in Asia. Acquired growth amounted to 4%. Operating income amounted to SEK 130 M (120), giving an operating margin (EBIT) of 15.7% (15.7). Return on capital employed amounted to 16.3% (15.3). Operating cash flow before interest paid amounted to SEK 177 M (108).
 
ACQUISITIONS
 
The acquired companies Baodean, iRevo, Powershield and Advance Door were consolidated during the fourth quarter. The total acquisition price for all companies consolidated during the year amounts to SEK 1,675 M and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 1,200 M. The acquisition price is adjusted for acquired interest-bearing liabilities including estimated earn-outs.
 
On 18 January it was announced that ASSA ABLOY's EMEA division has signed an agreement to acquire Valli&Valli, a leading Italian producer of design handles. The company is based near Milan and has 200 employees. Valli&Valli is expected to achieve sales of SEK 300 M in 2008. The acquisition is expected to be completed in the second quarter.
 
On 31 January it was announced that ASSA ABLOY's Global Technologies division has signed an agreement to acquire the German company SimonsVoss Technologies AG, a leader in the fast-growing segment for digital access control systems. The company is based in Munich, has 225 employees and is expected to achieve sales of SEK 400 M in 2008. The acquisition is expected to be approved by the relevant authorities in the second quarter.
 
SUSTAINABILITY
 
During the quarter ASSA ABLOY continued work to implement its declared 20-point program of sustainable development. The Group's 2007 Sustainability Report will be published in good time for the forthcoming Annual General Meeting. One of the year's major successes was the phasing-out of chlorinated solvents, which progressed very well. Consumption was reduced by 40% during 2007, and the remainder will be phased out during 2008. Current information about sustainable development is published on the Group's website.
 
OTHER EVENTS
 
Non-recurring costs of SEK 75 M relate to a write-down in Net financial items for an external development project in which ASSA ABLOY took part as one of several sources of finance. The financing took the form of a convertible loan and ASSA ABLOY's receivable is now entirely written off. The reason for the write-down is that the market potential of the product developed was judged to be lower than planned.
 
PARENT COMPANY
 
 'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 1,641 M (945) for the full year. Income before tax amounted to SEK 2,351 M (1,047). The improved income is chiefly due to royalty income as well as to non-recurring expenses which burdened last year's figures. Investments in tangible and intangible assets totaled SEK 496 M (402). Liquidity is good and the equity ratio was 47.1% (44.9).
 
DIVIDEND AND ANNUAL GENERAL MEETING
 
The Board of Directors proposes a dividend of SEK 3.60 (3.25) per share for the 2007 financial year. The Annual General Meeting will be held on 24 April 2008.
 
ACCOUNTING PRINCIPLES
 
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 32:06.
 
TRANSACTIONS WITH RELATED PARTIES
 
No transactions that significantly affected the company's position and income have taken place between ASSA ABLOY and related parties.
 

RISKS AND UNCERTAINTY FACTORS
 
As an international Group with a wide geographic spread, ASSA ABLOY 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.
 
OUTLOOK*
 
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.
 
Sales growth and profitability during the first quarter will be affected negatively by the Easter effect. This is expected to be recovered during the second quarter.
 
 
*The outlook is unchanged except the addition regarding the Easter effect in the first quarter.
 
 
 
 
Stockholm, 13 February 2008
 
Johan Molin
President and CEO

The Year-end Report has not been reviewed by the Company's Auditor.
 
 
Financial information
The Interim Report for the first quarter will be published on 23 April 2008. The Annual General Meeting will be held on 24 April at the Modern Museum (Moderna Museet) in Stockholm.
 
 
Further information can be obtained from:
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.
  
 
 
 
 
ASSA ABLOY discloses the information provided herein pursuant to the Securities Markets Act and/or the Financial Instruments Trading Act. The information was submitted for publication at 08.00 CET on 13 February.