ASSA ABLOY: Good performance throughout the Group

27 Oct 2010

  • Sales amounted to SEK 9,474 M (8,405), an increase of 13%, made up of 6% organic growth, 10% acquired growth and exchange-rate effects of -3%.
  • Positive growth in all geographical regions.
  • North America showed growth for the first time since 2008.
  • Good activity in the acquisition field, with bid for ActivIdentity and a share of Agta Record.
  • Operating income (EBIT) amounted to SEK 1,630 M (1,346), an increase of 21%, corresponding to a margin of 17.2% (16.0).
  • Net income amounted to SEK 1,099 M (888).
  • Earnings per share rose by 24% to SEK 2.93 (2.36).

SALES AND INCOME

  Third quarter Jan-Sep
  2009 2010 Change 2009 2010 Change
Sales, SEK M 8,405 9,474 +13% 26,163 27,175 +4%
of which,            
  Organic growth     +6%     +2%
  Acquisitions     +10%     +7%
  Exchange-rate effects 783 -216 -3% 3,676 -1,240 -5%
Operating income (EBIT), SEK M 1,346 1,630 +21% 4,014* 4,440 +11%
Operating margin (EBIT), % 16.0 17.2   15.3* 16.3  
Income before tax, SEK M 1,187 1,440 +21% 3,486* 3,961 +14%
Net income, SEK M 888 1,099 +24% 2,458** 3,009 +22%
Operating cash flow, SEK M 2,125 1,890 -11% 4,547 4,200 -8%
Earnings per share (EPS), SEK 2.36 2.93 +24% 6.81* 8.03 +18%

 

*   Excluding restructuring costs amounting to SEK 109 M in 2009.
** Excluding restructuring costs, net income in Jan-Sep 2009 was SEK 2,567 M.

 

COMMENTS BY THE PRESIDENT AND CEO

"Growth has now returned in all regions and the quarter saw good organic growth of 6%," says Johan Molin, President and CEO. "In addition, acquired units added a further 10% growth this quarter. Especially pleasing was the sales development in Asia and South America. North America was also positive through its growth for the first time since 2008.

"The increases in sales and operating income, which rose by 13% and 21% respectively, were extremely satisfying, with strong contributions from volume growth and efficiency improvements. The efficiency program for the production structure and improvement in working capital combined with the profit growth gave a very strong cash flow.

"Activity in the acquisition field remained high. It is with great pleasure that I welcome the bid for the American company ActivIdentity and the acquisition of a share in Agta Record. These companies complement our strategic development of secure identification within logical access and entrance automation.

"Aftermarket activities, which represent two-thirds of sales, continued to make strong advance during the quarter, with particularly good progress in electromechanics. However, it should be mentioned that the EMEA region reported weaker sales development within new construction because of reduction of governmental spending. Overall, therefore, our forecast for organic growth for the full year remains slightly positive."

THIRD QUARTER

The Group's sales totaled SEK 9,474 M (8,405), an increase of 13% compared with 2009. Organic growth was 6% (-13). Acquired units contributed 10% (2). Exchange-rate effects had a negative impact of SEK 216 M on sales, that is -3% (8).

Operating income before depreciation, EBITDA, amounted to SEK 1,875 M (1,584). The corresponding EBITDA margin was 19.8% (18.8). The Group's operating income, EBIT, amounted to SEK 1,630 M (1,346), a rise of 21%. The operating margin was 17.2% (16.0).

Net financial items amounted to SEK 190 M (159). New rules for acquisition accounting had a negative effect of SEK 26 M on net financial items for the quarter. The Group's income before tax amounted to SEK 1,440 M (1,187), an improvement of 21% compared with the previous year. Exchange-rate effects had a negative impact of SEK 26 M on the Group's income before tax. The profit margin was 15.2% (14.1). The Group's tax charge totaled SEK 341 M (300). Earnings per share amounted to SEK 2.93 (2.36), an increase of 24%.

FIRST NINE MONTHS OF THE YEAR

Sales for the nine-month period totaled SEK 27,175 M (26,163), representing an increase of 4%. Organic growth was 2% (-13). Acquired units contributed 7% (3). Exchange-rate effects affected sales negatively by SEK 1,240 M, i.e. -3% (13).

Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 5,191 M (4,779). The corresponding margin was 19.1% (18.3). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 4,440 M (4,014), which was an increase of 11%. The corresponding operating margin (EBIT) was 16.3% (15.3).

Earnings per share, excluding restructuring costs, rose to SEK 8.03 (6.81). Operating cash flow amounted to SEK 4,200 M (4,547).

RESTRUCTURING MEASURES

Payments related to all restructuring programs amounted to SEK 71 M in the quarter.

The restructuring programs continued according to plan and have led to a reduction in personnel of 191 people during the quarter and 5,179 people since the projects began.
A further 1,236 people will leave in the next few years.

At the end of the quarter, provisions of SEK 1,106 M were set aside in the balance sheet for carrying out the remaining parts of the programs.

COMMENTS BY DIVISION

EMEA

Sales for the quarter in EMEA division totaled SEK 3,065 M (3,155), with organic growth of 1% (-11). The market recovery continued, but at a slow pace. Finland, Germany, Italy and Spain showed strong growth while Eastern Europe, France and the Netherlands had a weaker quarter. Acquired growth amounted to 2%. Operating income rose to SEK 520 M (476), which represents an operating margin (EBIT) of 17.0% (15.1). Return on capital employed amounted to 20.8% (16.5). Operating cash flow before paid interest totaled SEK 704 M (779).

AMERICAS

Sales for the quarter in Americas division totaled SEK 2,537 M (2,416), with organic growth of 2% (-22). The recovery on the North American market continued and all units except the Door Group showed growth during the quarter. Mexico, Canada and in particular South America showed good growth. Acquired growth amounted to 3%. Operating income totaled SEK 515 M (475) and the operating margin was 20.3% (19.7). Return on capital employed amounted to 24.1% (21.7). Operating cash flow before paid interest totaled SEK 614 M (789).

ASIA PACIFIC

Sales for the quarter in Asia Pacific division totaled SEK 1,735 M (1,023), with organic growth of 15% (0). All units showed strong growth. Continued measures to stimulate the economy benefited demand in Australia, while in China demand from the growth regions in the interior increased strongly. On other Asian markets performance was especially strong in Korea and India. Acquired growth amounted to 51%. Operating income totaled SEK 271 M (139), representing an operating margin (EBIT) of 15.6% (13.6). The quarter's return on capital employed amounted to 21.6% (19.6). Operating cash flow before paid interest totaled SEK 300 M (124).

GLOBAL TECHNOLOGIES

Sales for the quarter in Global Technologies division totaled SEK 1,365 M (1,113), with organic growth of 26% (-19). HID showed strong growth in both access control and identification technology. Hospitality showed growth for the first time since 2008. A strong recovery on the renovation market and successful launches of RFID locks for hotels had a positive effect on demand. The division's operating income amounted to SEK 247 M (187), giving an operating margin (EBIT) of 18.1% (16.8). Return on capital employed amounted to 18.1% (12.8). Operating cash flow before interest paid totaled SEK 186 M (321).

ENTRANCE SYSTEMS

Sales for the quarter in Entrance Systems division totaled SEK 987 M (896) for the quarter, with organic growth of -1% (-2). The positive trend on the service side continued. On the market for automatic doors, demand from the retailing segment rose while demand from the healthcare segment fell as a result of cutbacks in the health sector. Ditec's sales stabilized. Acquired growth amounted to 15%. Operating income totaled SEK 152 M (135), giving an operating margin of 15.4% (15.0). Return on capital employed amounted to 14.3% (14.6). Operating cash flow before interest paid totaled SEK 165 M (101).

ACQUISITIONS

Acquisitions consolidated during the quarter comprised Paddock in the UK, after approval by the British competition authority, Security Metal Products in the USA and one smaller company. This means that a total of eleven acquisitions were consolidated in the first nine months of the year. The combined acquisition price for these acquisitions amounted to SEK 3,918 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 3,049M. The acquisition price is adjusted for acquired net debt and estimated earn‑outs. Estimated earn-outs amount to SEK 1,905 M, of which SEK 1,732 M relates to the largest single acquisition of the first half-year, the Chinese company Pan Pan, and concerns the development of earnings over the next three years.

On 12 October it was announced that an agreement had been signed for the acquisition of the American company ActivIdentity. ActivIdentity is active in systems for strong authentication and credential management. It had sales of USD 62 M in 2009 and has 223 employees. The acquisition is expected to be completed in December 2010.

On 18 October it was announced that ASSA ABLOY had acquired 32.95% of the Swiss company Agta Record. Agta Record is active in entrance automation, has 1,700 employees and had sales of EUR 222 M in 2009. ASSA ABLOY has initiated discussions with other owners with the aim of acquiring the whole company.

SUSTAINABILITY

Energy-saving activities are carried out in a large number of facilities throughout the Group.

At Americas division's factory in Guadalajara, Mexico, which employs 400 people, a well structured program has cut energy costs by 30%. A large number of employees have been involved in the work and an important part of the process has been to continuously measure and record the energy consumption in different parts of the factory. Internal energy audits have been a valuable tool in sharing best practice on energy-efficient processes and solutions. Special attention has been given to the control of lighting, ventilation, air conditioning and the generation of compressed air.

PARENT COMPANY

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 1,145 M (834) for the nine-month period. Income before tax amounted to SEK 1,344 M (1,209). Investments in tangible and intangible assets totaled SEK 9 M (1). Liquidity is good and the equity ratio was 51.4% (58.3).

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 72‑77 of the 2009 Annual Report. ASSA ABLOY has implemented the revised International Financial Reporting Standard IFRS 3, which came into force on 1 July 2009. The change affects the reporting of acquisition expenses, deferred considerations and step acquisitions. All acquisition expenses relating to acquisitions made in 2010 are reported on a current basis in the income statement from 1 January 2010. ASSA ABLOY is also applying the revised International Financial Reporting Standard IAS 27, which came into force on 1 July 2009. IAS 27 affects the reporting of non-controlling interest (previously minority interest) in future acquisitions.

This Interim Report was prepared in accordance with IAS 34 Interim Financial Reporting and the Annual Accounts Act. The Interim Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2.3 Reporting by a legal entity.

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, see the 2009 Annual Report. No significant risks other than the risks described there are judged to have occurred.

AUDIT

This Report has not been reviewed by the Company's Auditors.

OUTLOOK *)

Long-term outlook
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.

Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well.

Outlook for 2010
Organic growth in 2010 is expected to be slightly positive.

*) The outlook published on 28 July 2010:

Long-term outlook
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.

Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well.

Outlook for 2010
Organic growth in 2010 is expected to be slightly positive.

FINANCIAL INFORMATION

The Year-end Report and Quarterly Report for the fourth quarter will be published on 7 February 2011.

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 10.00 today
at Operaterrassen 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

 

 

This information is that which ASSA ABLOY is required to disclose under the Swedish Securities Exchange and Clearing Operations Act and/or the Swedish Financial Instruments Trading Act.
The information is released for publication at 08.00 on 27 October.