ASSA ABLOY: Improved market and higher profitability

21 Apr 2010


  • Sales amounted to SEK 8,345 M (8,859), which represents a reduction of 6%, comprising -3% organic growth, 5% acquired growth and exchange-rate effects of -8%. 

  • Trends improved on all markets. EMEA returned to growth and Asia Pacific showed strong growth. 

  • New construction in North America continued to show a downturn, but the renovation market showed a positive growth trend. 

  • Operating income (EBIT) amounted to SEK 1,295 M (1,328*), representing a reduction of 2%. At the same time the margin rose to 15.5% (15.0*). 

  • Profitability was supported by efficiency and restructuring measures. 

  • Net financial items improved and the tax rate decreased. 

  • Net income amounted to SEK 880 M (718**). 

  • Earnings per share rose by 7% to SEK 2.36 (2.20*). 


SALES AND INCOME


Full yearFirst quarter

20082009Change20092010Change
Sales, SEK M34,82934,963+0%8,8598,345-6%
of which,





  Organic growth

-12%

-3%
  Acquisitions

+3%

+5%
  Exchange-rate effects
+3,491+9%
-645-8%
Operating income (EBIT), SEK M5,526*5,413*-2%1,328*1,295-2%
Operating margin (EBIT), %15.9*15.5*
15.0*15.5
Income before tax, SEK M4,756*4,779*+0%1,124*1,158+3%
Net income, SEK M2,438**2,659**-718**880-
Operating cash flow, SEK M4,7696,843+43%838870+4%
Earnings per share (EPS), SEK9.21*9.22*+0%2.20*2.36+7%


*   Excluding restructuring costs for 2008 amounting to SEK 1,257 M for the year. Excluding restructuring costs in 2009 amounting to SEK 109 M for the quarter and SEK 1,039 M for the year.

** Excluding restructuring and non-recurring costs, net income in 2008 was SEK 3,451 M. Excluding restructuring costs, net income in 2009 was SEK 827 M for the quarter and SEK 3,474 M for the year.


COMMENTS BY THE PRESIDENT AND CEO

"The first quarter of 2010 showed that we have passed the bottom of the economic cycle," said Johan Molin, President and CEO. "All markets stabilized. It was particularly pleasing that EMEA showed growth for the first time since 2008, driven primarily by increased demand on the private housing market, and that Asia Pacific continued its strong growth. However, the strong downturn on the North American new-construction market persisted, although at the same time signs of an upturn in North America were evident with the renovation market that started to grow.

"Despite the negative effect of exchange rates, income fell by only a modest 2 percent by virtue of the underlying strengthening of the operating margin. This was due to the highly beneficial effects that continued to come from the successful efficiency and restructuring measures.

"Our strategic expansion in emerging markets continued, and it is with great pleasure that I welcome Pan Pan in China and Cerracol in Colombia to ASSA ABLOY. Through these acquisitions we are continuing to strengthen our positions on the world's major growth markets.

"Organic growth for 2010 is expected to be about 0 percent, while acquired growth will accelerate. With the structural changes we have carried out and with the new product range we have in place, we are ready for continued profitable growth as the economic situation improves."

FIRST QUARTER

The Group's sales totaled SEK 8,345 M (8,859), a fall of 6% compared with 2009. Organic growth for comparable units was -3% (-12). Acquired units contributed 5% (4). Exchange-rate effects had a negative impact of SEK 645 M on sales, i.e. -8% (16).


Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 1,536 M (1,594). The corresponding EBITDA margin was 18.4% (18.0). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 1,295 M (1,328), a fall of 2%. The operating margin, excluding restructuring costs, was 15.5% (15.0).


Net financial items amounted to SEK 137 M (205). The Group's income before tax, excluding restructuring costs, amounted to SEK 1,158 M (1,124), an improvement of 3% compared with the previous year. Exchange-rate effects had a negative impact of SEK 88 M on the Group's income before tax. The profit margin, excluding restructuring costs, was 13.9% (12.7). The Group's tax charge totaled SEK 278 M (296). Earnings per share, excluding restructuring costs, amounted to SEK 2.36 (2.20), an increase of 7%.

RESTRUCTURING MEASURES

Payments related to all restructuring programs amounted to SEK 112 M in the quarter.


The restructuring programs continued according to plan and have led to a reduction in personnel of 196 people during the quarter and 4,829 people since the projects began. A further 1,570 people will leave in the next few years.


At the end of the quarter, provisions of SEK 1,406 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 totaled SEK 3,296 M (3,458), with organic growth of 2%. Most markets showed growth, but at a low level. Italy, Spain and Eastern Europe remained negative. Acquired growth amounted to 0%. Operating income, excluding restructuring costs, amounted to SEK 525 M (496), which represents an operating margin (EBIT) of 15.9% (14.3). The effects of the restructuring programs and other efficiency measures made a very substantial contribution to the rise in income. Return on capital employed, excluding restructuring and non-recurring costs, amounted to 19.6% (15.2). Operating cash flow before interest paid totaled SEK 429 M (339).


AMERICAS

Sales for the quarter totaled SEK 2,205 M (2,741), with -11% organic growth. Demand rose on the aftermarket and for high-security locks and electromechanical products, while the low activity in new construction had a negative effect. Mexico and South America showed growth. Acquired growth amounted to 1%. By means of restructuring and capacity changes, the operating margin was maintained at a very strong level and amounted to 19.0% (19.2). Operating income totaled SEK 418 M (526). Return on capital employed amounted to 19.0% (20.2). Operating cash flow before interest paid totaled SEK 320 M (487).


ASIA PACIFIC

Sales for the quarter totaled SEK 1,014 M (759), with 11% organic growth. All market regions except Korea showed good growth. Production capacity in China has been expanded to meet the strong demand. Acquired growth amounted to 19%. Operating income totaled SEK 104 M (54), representing an operating margin (EBIT) of 10.2% (7.1), which includes dilution of 1.2 percentage points from Pan Pan. The quarter's return on capital employed amounted to 12.3% (7.4). Operating cash flow before interest paid totaled SEK -1 M (34).

GLOBAL TECHNOLOGIES

Sales for the quarter totaled SEK 1,085 M (1,274), with organic growth of -6%. Sales were unchanged for HID and were down for Hospitality. HID showed a very strong intake of orders in both access control and identification technology. The division's operating income amounted to SEK 184 M (199), giving an operating margin (EBIT) of 16.9% (15.6). Return on capital employed, excluding restructuring costs, amounted to 13.1% (12.5). Operating cash flow before interest paid totaled SEK 119 M (90).


ENTRANCE SYSTEMS

Sales for the quarter totaled SEK 954 M (822), with organic growth of -3%. Good sales on the service side compensated for much of the reduction in new-product sales, which were particularly weak in North America. Acquired growth amounted to 27%, largely due to Ditec. The division's operating income totaled SEK 134 M (128), giving an operating margin of 14.0% (15.5), which includes dilution from acquisitions of 2.8 percentage points. Return on capital employed amounted to 12.7% (14.8). Operating cash flow before interest paid totaled SEK 169 M (241).


ACQUISITIONS

Three acquisitions were consolidated during the quarter. The acquisitions were Pan Pan in China and two smaller companies. The combined acquisition price for these acquisitions amounts to SEK 2,857 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 2,268 M. The acquisition price is adjusted for acquired net debt and estimated earn-outs. Estimated earn-outs amount to SEK 1,892 M, of which SEK 1,885 M relates to Pan Pan and concerns the development of earnings in the acquired company over the next three years.


SUSTAINABLE DEVELOPMENT

ASSA ABLOY is issuing its 2009 Sustainability Report in conjunction with the Interim Report for the first quarter and the Annual General Meeting.


Important subjects covered in the Report include work with the Group's suppliers and their sustainability; water and energy consumption; reduction of organic solvents and environmentally damaging waste; independent social audits; and continuous activities to spread the message and the objectives among the Group's employees.


PARENT COMPANY

 'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 350 M (80) for the full year. Income before tax amounted to SEK 171 M (-69). Investments in tangible and intangible assets totaled SEK 1 M (1). Liquidity is good and the equity ratio was 51% (44).


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. The Parent company applies RFR 2.3.


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.


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 about 0 percent.



*The Outlooks published on 12 February 2010 were:

 

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

The organic growth is expected to be about 0 percent.





Stockholm, 21 April 2010


Johan Molin

President and CEO

 

The Interim Report has not been reviewed by the Company's Auditor.


FINANCIAL INFORMATION

The Quarterly Report for the second quarter will be published on 28 July 2010.



FURTHER INFORMATION CAN BE OBTAINED FROM:

Johan Molin, President and CEO, Tel: +46 8 506 485 42

Tomas Eliasson, CFO and Executive Vice President, Tel: +46 8 506 485 72



ASSA ABLOY is holding an analysts' meeting at 13.00 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 12.00 on 21 April.