Strong progress for ASSA ABLOY - continued growth and improved profits in all divisions

 

 

*Excluding 2006 restructuring costs totaling SEK 437 M for the quarter and SEK 957 M for the first nine months.

** Excluding restructuring costs the 2006 net income is SEK 759 M for the quarter and SEK 2,194 M  for the first nine months. 

 

 

"During the third quarter growth continued at a good pace throughout the Group. It was particularly pleasing that growth in Asia Pacific more than doubled and that all divisions delivered substantial improvements in earnings. The Group's cash flow was stable and strong and the restructuring program continued to proceed according to plan," said Johan Molin, President and CEO.

 

 

The Group's sales totaled SEK 8,274 M (7,736), an increase of 7% compared with 2006. In local currencies the increase amounted to 11% (13), of which organic growth for comparable units contributed 7% (8) while acquired units accounted for 4% (5) of the increase in volume. Exchange-rate effects had a negative impact of SEK 248 M - i.e. 3% -on sales.

 

Operating income before depreciation, EBITDA, amounted to SEK 1,625 M (1,464), an increase of 11% compared with 2006. The EBITDA margin was 19.6% (18.9). The Group's operating income, EBIT, amounted to SEK 1,404 M (1,235), an increase of 14%, after negative currency effects of SEK 48 M. The operating margin (EBIT) was 17.0% (16.0).

 

Net financial items amounted to SEK 193 M (181), which corresponds to an average interest rate of just over 5%. The Group's income before tax amounted to SEK 1,211 M (1,054), which represents an increase of 15% on the previous year. After translation of subsidiaries' income statements, exchange-rate effects had a negative impact of SEK 42 M on the Group's income before tax. The profit margin was 14.6% (13.6). The Group's tax charge totaled SEK 327 M (251), corresponding to an effective tax rate of 27% for the quarter. Earnings per share amounted to SEK 2.36 (2.02), which represents an increase of 17%.

 

The Group's operating cash flow amounted to SEK 1,306 M (919), equivalent to 108% (87) of income before tax. Working capital fell by SEK 53 M during the quarter.

 

 

Sales for the first nine months of 2007 totaled SEK 24,830 M (23,078), 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 943 M, i.e. 4%, compared with the equivalent period in 2006.

 

Operating income before depreciation, EBITDA, for the period amounted to SEK 4,697 M (4,174). The corresponding margin was 18.9% (18.1). The Group's operating income, EBIT, amounted to SEK 4,018 M (3,496) an increase of 15%, after negative exchange-rate effects of SEK 166 M. The corresponding operating margin (EBIT) was 16.2% (15.2).

 

Earnings per share for the period increased by 15% to SEK 6.72 (5.85). Operating cash flow for the period amounted to SEK 3,068 M (2,339).

 

 

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 90 M during the quarter and SEK 215 M in the first nine months. Savings during the quarter resulting from measures carried out are assessed at SEK 60 M compared with the same period last year. The quarterly rate of savings from the start of the program now amounts to SEK 85 M. So far 1,035 out of the total of 2,000 employees affected by the restructuring program have left the Group.

 

 

 

Sales growth in EMEA division remained good during the third quarter, with no major regional variations. Sales totaled SEK 3,144 M (2,914), with 6% organic growth. Acquired growth amounted to 1%. Operating income developed very positively and amounted to SEK 543 M (469), which represents an operating margin (EBIT) of 17.3% (16.1). Return on capital employed also improved and amounted to 20.0% (17.9). Operating cash flow before interest paid totaled SEK 559 M (537) and was well in line with operating income.

 

 

The sales trend in Americas division remained good in the commercial segment during the quarter, and sales for the third quarter totaled SEK 2,621 M (2,632), with 5% organic growth. Progress was weaker in the sections dependent on the residential market. Acquired growth amounted to 4%. Operating income continued to improve and amounted to SEK 533 M (523), which represents an operating margin (EBIT) of 20.3% (19.8). Return on capital employed amounted to 24.0% (23.2). Operating cash flow before interest paid was strong and totaled SEK 595 M (498).

 

 

Sales in Asia Pacific division grew strongly in all markets in the region and totaled SEK 696 M (611), with 10% organic growth. The acquisition of Pyropanel is proceeding according to plan and work to integrate Baodean and iRevo, which will be consolidated from the fourth quarter, has begun. Acquired growth amounted to 5%. Operating income improved strongly relative to previous quarters as a result of price increases made to compensate for rising raw-material costs, together with a healthy growth in volume, and amounted to SEK 93 M (63), representing an operating margin (EBIT) of 13.4% (10.3). Return on capital employed amounted to 17.6% (12.7). Operating cash flow before interest paid totaled SEK 100 M (-7), a significant improvement on the previous year.

 

 

Global Technologies division reported continued strong growth with sales of SEK 1,254 M (1,107) in the third quarter, of which organic growth accounted for 11%. The integration of Integrated Engineering and Aontec proceeded according to plan and acquired growth amounted to 7%. Operating income amounted to SEK 203 M (168), giving an operating margin (EBIT) of 16.2% (15.1). Return on capital employed amounted to 15.8% (16.1). Operating cash flow before interest paid amounted to SEK 221 M (108).

 

 

Entrance Systems division reported sales of SEK 747 M (674) in the third quarter, representing organic growth of 7%. The service side showed especially strong growth while the USA had rather lower overall growth. The division's newly established operations in Asia are showing very good growth. Acquired growth amounted to 4%. Profitability was boosted by increased sales volumes and prices during the quarter, and operating income amounted to SEK 109 M (87), giving an operating margin (EBIT) of 14.6% (12.9). Return on capital employed amounted to 13.7% (11.3). Operating cash flow before interest paid amounted to SEK 41 M (23).

 

 

The acquired companies Esety, Aontec and Alba were consolidated during the third quarter. The total acquisition price for the companies consolidated during the first nine months amounts to SEK 1,060 M and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 750 M. The acquisition price is adjusted for acquired interest-bearing liabilities including estimated earn-outs.

 

Asia Pacific division's acquisitions of the Chinese company Baodean and the Korean company iRevo were completed once all necessary permissions had been received, and both companies will be consolidated from 1 October.

 

 

During the quarter ASSA ABLOY has decided on a 20-point program of sustainable development which is to be carried through during the years 2007 to 2010. Matters covered by the program include the phasing-out of some chemicals used in production; energy consumption; workplace conditions; and other social and ethical issues governed by the company's Code of Conduct. The stated goals also require the work of sustainable development to be integrated into the company's existing processes. The results of the program will be reported in the annual report on sustainable development in the Group which in the future will be published at about the same time as the Group's Annual Report. Current information about sustainable development is published on the Group's website.

 

 

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 888 M (574) for the nine months. Income before tax amounted to SEK 2,037 M (480). The improved income is chiefly due to non-recurring costs which burdened last year's figures. Investments in tangible and intangible assets totaled SEK 2 M (15). Liquidity is good and the equity ratio was 49.6% (44.2).

 

 

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 32:05.

 

 

No transactions that significantly affected the company's position and income have taken place between ASSA ABLOY and related parties.

 

 

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.

 

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.

 

 

 

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

 

The Report for the fourth quarter will be published on 13 February 2008.

 

 

Johan Molin, President and CEO, tel no: +46 8 506 485 42

Tomas Eliasson, CFO and Executive Vice President, tel no: +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.