ASSA ABLOY: Record profit and market growth

28 Jul 2010

  • Sales totaled SEK 9,356 M (8,899), an increase of 5%, made up of 2% organic growth, 8% acquired growth and exchange-rate effects of -5%.
  • Growth in Asia, South America and Europe.
  • The sales decline on the North American market was limited to -4%.
  • Strategic acquisitions of King in Korea and Paddock in the UK.
  • Operating income (EBIT) amounted to SEK 1,515 M (1,340), an increase of 13%, corresponding to a margin of 16.2% (15.1).
  • Net income amounted to SEK 1,031 M (852).
  • Earnings per share rose by 22% to SEK 2.74 (2.25).

 

SALES AND INCOME

  Second quarter First half-year
  2009 2010 Change 2009 2010 Change
Sales, SEK M 8,899 9,356 +5% 17,758 17,701 0%
of which,            
  Organic growth     +2%     -1%
  Acquisitions     +8%     +6%
  Exchange-rate effects 1,433 -379 -5% 2,893 -1,024 -5%
Operating income (EBIT), SEK M 1,340 1,515 +13% 2,668* 2,810 +5%
Operating margin (EBIT), % 15.1 16.2   15.0* 15.9  
Income before tax, SEK M 1,176 1,363 +16% 2,299* 2,521 +10%
Net income, SEK M 852 1,031 +21% 1,571** 1,910 +22%
Operating cash flow, SEK M 1,584 1,440 -9% 2,422 2,310 -5%
Earnings per share (EPS), SEK 2.25 2.74 +22% 4.45* 5.10 +15%

 

*   Excluding restructuring costs amounting to SEK 109 M in 2009.

** Excluding restructuring costs, net income in the first half of 2009 was SEK 1,680 M.

 

COMMENTS BY THE PRESIDENT AND CEO

"The market conditions continued to improve during the second quarter and the Group grew by 10%, whereof 2% organic growth," says Johan Molin, President and CEO. "Asia and South America grew strongly while Europe showed a positive trend at the same time as the sales decline on the North American market was limited to -4%.

 

"Sales and profit reached record levels, and the operating margin developed in a very positive way as a result of the successful efficiency activities. Cash flow remained strong despite increased investments in production capacity and working capital due to growth.

 

"The conversion of production to assembly in high cost countries continues, which means that further savings will be realized. This creates room for important investments in product development and market coverage going forward.

 

"The acquired growth amounted to a good 8% in the quarter, and it is with great pleasure that I welcome the strategic acquisitions of King in Korea and Paddock in the UK to the ASSA ABLOY Group. They complement our market position in Korea and the UK in an excellent way.

 

"During the quarter several large countries have initiated national budget savings programs which can have a dampening effect on the economic recovery. At the same time the world economy is improving and the organic growth for the full year is therefore expected to be slightly positive."

 

SECOND QUARTER

The Group's sales totaled SEK 9,356 M (8,899), an increase of 5% compared with 2009. Organic growth for comparable units was 2% (-14). Acquired units contributed 8% (4). Exchange-rate effects had a negative impact of SEK 379 M on sales, i.e. -5% (15).

 

Operating income before depreciation, EBITDA amounted to SEK 1,780 M (1,601). The corresponding EBITDA margin was 19.0% (18.0). The Group's operating income, EBIT, amounted to SEK 1,515 M (1,340), a rise of 13%. The operating margin was 16.2% (15.1).

 

Net financial items amounted to SEK 152 M (165). The Group's income before tax amounted to SEK 1,363 M (1,176), an improvement of 16% compared with the previous year. Exchange-rate effects had a negative impact of SEK 51 M on the Group's income before tax. The profit margin was 14.6% (13.2). The Group's tax charge totaled SEK 333 M (323). Earnings per share amounted to SEK 2.74 (2.25), an increase of 22%.

 

FIRST HALF-YEAR

Sales for the first half of 2010 totaled SEK 17,701 M (17,758), unchanged from 2009. Organic growth was -1% (-13). Acquired units contributed 6% (4). Exchange-rate effects affected sales negatively by SEK 1,024 M, i.e. -5% (15), compared with the first half of 2009.

 

Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 3,316 M (3,195) for the half-year. The corresponding margin was 18.7% (18.0). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 2,810 M (2,668), an increase of 5%. The corresponding operating margin (EBIT) was 15.9% (15.0).

 

Earnings per share, excluding restructuring costs, for the first half-year increased to SEK 5.10 (4.45). Operating cash flow for the half-year amounted to SEK 2,310 M (2,422).

 

RESTRUCTURING MEASURES

Payments related to all restructuring programs amounted to SEK 182 M in the quarter.

 

The restructuring programs continued according to plan and have led to a reduction in personnel of 158 people during the quarter and 4,988 people since the projects began.


A further 1,423 people will leave in the next few years.

 

At the end of the quarter, provisions of SEK 1,216 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 3,311 M (3,445), with organic growth of 3% (-18). Demand improved during the quarter in virtually all of the region. Finland, France and the Middle East showed especially strong growth while the weak trend in Eastern Europe continued. The UK, which had previously shown good growth, produced a negative trend this quarter. Acquired growth amounted to 1%. Operating income rose to SEK 525 M (489), which represents an operating margin (EBIT) of 15.9% (14.2). Return on capital employed, excluding restructuring and non-recurring costs, amounted to 19.9% (15.9). Operating cash flow before interest paid totaled SEK 613 M (597).

 

AMERICAS

Sales for the quarter in Americas division totaled SEK 2,503 M (2,615), with organic growth of -4% (-17). The sales decline for the Door Group, Architectural Hardware and Residential was reduced during the quarter. However, the aftermarket-related business units such as High Security and Electromechanical showed good positive growth. Mexico and South America also grew strongly during the quarter. Acquired growth amounted to 2%. Operating income totaled SEK 493 M (512) and the operating margin was 19.7% (19.6). Return on capital employed amounted to 21.6% (20.9). Operating cash flow before interest paid totaled SEK 586 M (857).

 

ASIA PACIFIC

Sales for the quarter in Asia Pacific division totaled SEK 1,566 M (963), with organic growth of 18% (-9). All units in both Australia / New Zealand and Asia showed strong growth. The trend in Korea was especially good with strong growth in digital door locks for both local and export markets. Investments in increased production capacity in China continued during the quarter. Acquired growth amounted to 41%. Operating income totaled SEK 222 M (123), representing an operating margin (EBIT) of 14.2% (12.7). The quarter's return on capital employed amounted to 20.3% (16.4). Operating cash flow before interest paid totaled SEK 57 M (221).

 

GLOBAL TECHNOLOGIES

Sales for the quarter in Global Technologies division totaled SEK 1,240 M (1,235), with organic growth of 5% (-10). HID showed strong growth in response to a strongly growing market for access control. Identification technology also showed good growth. At Hospitality negative growth continued, but with strongly rising tender activity. The division's operating income amounted to SEK 208 M (194), giving an operating margin (EBIT) of 16.8% (15.7). Return on capital employed amounted to 14.5% (12.1). Operating cash flow before interest paid totaled SEK 204 M (234).

 

ENTRANCE SYSTEMS

Entrance Systems division reported sales of SEK 1,012 M (863) for the quarter, representing organic growth of -2% (-5). Continuing good sales on the service side compensated for much of the reduction in new-product sales. Ditec showed a weak trend resulting from the low market activity in southern Europe. Acquired growth amounted to 25%. Operating income totaled SEK 145 M (128), giving an operating margin of 14.3% (14.9). The dilution from the acquisition of Ditec amounted to 2.5 percentage points. Return on capital employed amounted to 13.6% (15.1). Operating cash flow before interest paid totaled SEK 106 M (149).

 

ACQUISITIONS

Five acquisitions were consolidated during the quarter, which means that a total of eight acquisitions were consolidated in the first half-year. The combined acquisition price for these acquisitions amounted to SEK 3,393 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 2,582 M. The acquisition price is adjusted for acquired net debt and estimated earn‑outs. Estimated earn-outs amount to SEK 2,183 M, of which SEK 2,028 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.

 

SUSTAINABLE DEVELOPMENT

The EU's directive about higher energy efficiency in new and existing buildings has increased the need for innovative total solutions for doors and windows. The market for these types of product is expected to increase since the requirements become progressively stricter in future years.


ASSA ABLOY has successfully developed and launched a number of new products that make a tangible contribution to reducing air leakage and heat losses in various door and window solutions.


For example, the Group company effeff in Germany has produced an innovative solution for multi-point locks which means that the pressure of the door itself against the sealing-strip in the frame is optimized at three points instead of one. This results in reduced heat losses and also improved sound insulation, while the advantages of convenient use and simple installation are retained.

 

PARENT COMPANY

'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 911 M (685) for the half-year. Income before tax amounted to SEK 1,188 M (1,228). Investments in tangible and intangible assets totaled SEK 1 M (1). Liquidity is good and the equity ratio was 50.4% (56.8).


During the second quarter of 2010 a repurchase of ASSA ABLOY shares took place. ASSA ABLOY AB acquired 300,000 Series B shares at a total purchase price of SEK 48 M. The purpose was to ensure the company's undertakings, including social security costs, in connection with the long term incentive program.

 

INCENTIVE PROGRAM

In accordance with the Board of Directors' proposal, the Annual General Meeting resolved to implement a Long-Term Incentive program for senior executives and other key personnel in the ASSA ABLOY Group. For further information about the incentive program, refer to the Board's full proposal for resolution concerning the Long-Term Incentive program, which can be found on ASSA ABLOY's website. Under the terms of the Long-Term Incentive program, LTI 2010, employees have bought 87,564 ASSA ABLOY shares during the second quarter.

 

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 IAS34 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.

 

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 21 April 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 about 0 percent.

 

The Board of Directors and the President and CEO declare that this half-year report gives an accurate picture of the Parent company's and the Group's operations, position and income and describes significant risks and uncertainty factors faced by the Parent company and the companies making up the Group.

 

Stockholm, 28 July 2010

 

 

 

Gustaf Douglas
 

 

Carl Douglas
 

 

Birgitta Klasén
Chairman Board member Board member
     
 

 

Eva Lindqvist
 

 

Johan Molin
 

 

Sven-Christer Nilsson
Board member President and CEO Board member
     
 

 

Lars Renström
 

 

Ulrik Svensson
 

 

Seppo Liimatainen
Board member Board member Employee representative
     
 

 

Mats Persson
 

 

 
 
Employee representative    
     

 

 

REVIEW REPORT

We have reviewed this Report for the period 1 January to 30 June 2010 for ASSA ABLOY AB (publ). The Board of Directors and the CEO are responsible for the preparation and presentation of this Interim Report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this Interim Report based on our review.

 

We conducted our review in accordance with the Swedish Standard on Review Engagements SÖG 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden, RS, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

 

Based on our review, nothing has come to our attention that causes us to believe that the Interim Report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent company.

 

Stockholm, 28 July 2010

PricewaterhouseCoopers AB

 

Peter Nyllinge Bo Karlsson
Authorized Public Accountant Authorized Public Accountant
Auditor in charge  

 

 

FINANCIAL INFORMATION

The Quarterly Report for the third quarter will be published on 27 October 2010.

 

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 28 July.