ASSA ABLOY: Continued weak market but strong earnings

 

 

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

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

 

 

"The negative trend on the market continued during the second quarter. In spite of this, profit and cash flow were maintained at very high levels as a result of the fast capacity adjustments of production combined with the successful restructuring program. Our expectation is still that the remainder of 2009 will be extremely challenging for both sales and earnings. During the second half of the year the important US market will weaken further owing to a severe cutback in commercial construction projects.

 

Investments in improved market coverage and in new products are proceeding on an undiminished scale, in parallel with continuing adaptation of the organization to the current market situation. It is also very pleasing that we have succeeded in boosting our leading position in the fast-growing and profitable door automation segment through the July agreement to acquire Ditec," said Johan Molin, President and CEO.

 

The Group's sales totaled SEK 8,921 M (8,526), representing growth of 5% compared with 2008. Organic growth for comparable units was -14% (5). Acquired units accounted for 4% (3) of the increase. Exchange-rate effects had a positive impact of SEK 1,433 M on sales, i.e. 15% (-5).

 

Operating income before depreciation, EBITDA, amounted to SEK 1,601 M (1,599), unchanged from 2008. The EBITDA margin was 17.9% (18.8). The Group's operating income, EBIT, amounted to SEK 1,340 M (1,378), a fall of 3%, after positive currency effects of SEK 268 M. The operating margin was 15.0% (16.2).

 

Net financial items amounted to SEK 165 M (190), which corresponds to an average net interest rate of just under 5%. The Group's income before tax amounted to SEK 1,176 M (1,188), corresponding to a decrease of 1%. Exchange-rate effects had a positive impact of SEK 252 M on the Group's income before tax. The profit margin was 13.2% (13.9). The Group's tax charge totaled SEK 323 M (323). Earnings per share amounted to SEK 2.25 (2.30), a decrease of 2%.

 

During the second quarter a refinancing of all long-term loans maturing in 2009 was carried out. In total, SEK 3.3 billion was borrowed on the capital market, split into seven facilities with durations of between two and five years. No long-term loans mature in 2010, which means that the next refinancing will be in 2011. In addition, the back-up facility of SEK 12 billion, which matures in 2014, is unused.

 

Sales for the first half of 2009 totaled SEK 17,803 M (16,728), which represents an increase of 6% compared with 2008. Organic growth was -13% (3). Acquired units contributed 4% (3). Exchange-rate effects affected sales positively by SEK 2,893 M, i.e. 15%, compared with the first half of 2008.

 

Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 3,195 M (3,075) for the half-year. The corresponding margin was 17.9% (18.4). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 2,668 M (2,621), representing a small increase after positive exchange-rate effects of SEK 493 M. The corresponding operating margin (EBIT) was 15.0% (15.7).

 

Earnings per share, excluding restructuring costs, for the first half-year increased to SEK 4.45 (4.38). Operating cash flow for the half-year amounted to SEK 2,422 M (1,663).

 

Payments related to the two restructuring programs amounted to SEK 224 M in the quarter.

 

The two restructuring programs, initiated in 2006 and 2008, have surpassed the expected cost savings and have led to reductions in personnel of respectively 2,387 and 1,442 people since the projects began, a total of 3,829 people. A further 1,085 people will leave during the second half of 2009 and in 2010.

 

The world economy began to weaken towards the end of 2007 and adjustments of the workforce were initiated at this time. From the fourth quarter of 2007 through the second quarter of 2009 a total of 7,462 people (including 3,184 people during the first half of 2009) - that is, 23% of the total number of employees - left the Group as a result of the capacity changes made and the restructuring programs carried out.

 

 

 

Sales in EMEA division during the quarter totaled SEK 3,459 M (3,578), with organic growth of -18%. The weakening on all markets continued, apart from the UK which seems to be bottoming out. Acquired growth amounted to 5%. Operating income amounted to SEK 489 M (608), which represents an operating margin (EBIT) of 14.1% (17.0). The effects of the restructuring programs and other efficiency measures compensated for many of the effects of the reduced sales volume. Return on capital employed excluding restructuring and non-recurring costs amounted to 15.9% (22.4). The return was impacted mainly by the lower income. Operating cash flow before interest paid totaled SEK 597 M (672).

 

The quarter's sales in Americas division totaled SEK 2,618 M (2,419), with -17% organic growth. All units were impacted by the downturn in the economy and showed negative growth, although the units in Canada, Mexico and South America were less affected than those in the USA. Acquired growth amounted to 3%. By means of restructuring and capacity adjustments, the operating margin was maintained at a very strong level and amounted to 19.6% (20.5). The operating income totaled SEK 512 M (497). Return on capital employed amounted to 20.9% (24.1). Operating cash flow before interest paid totaled SEK 857 M (564).

 

Sales for the quarter totaled SEK 963 M (856), with -9% organic growth. The market regions in Australia and New Zealand continued to show negative growth, while the Chinese market showed a stable trend. Production for export to Europe and North America fell back significantly. Acquired growth amounted to 9%. Operating income totaled
SEK 123 M (104), which represents an operating margin (EBIT) of 12.7% (12.2). The quarter's return on capital employed amounted to 16.4% (16.1). Operating cash flow before interest paid totaled SEK 221 M (55).

 

Sales for the quarter totaled SEK 1,239 M (1,157), with organic growth of -10%. The division has only commercial customers and the weakened market situation affected all units and regions. The net effect of acquisitions and disposals amounted to -1%. The division's operating income amounted to SEK 194 M (159), giving an operating margin (EBIT) of 15.6% (13.7). Return on capital employed excluding restructuring costs amounted to 12.1% (12.6). Operating cash flow before interest paid totaled SEK 234 M (183).

 

Entrance Systems division reported sales of SEK 863 M (758) for the quarter, representing organic growth of -5%. Continued good sales on the service side compensated to some extent for the reduction in new-product sales. Acquired growth amounted to 6%. Operating income amounted to SEK 128 M (105), giving an operating margin (EBIT) of 14.9% (13.8). Return on capital employed amounted to 15.1% (13.5). Operating cash flow before interest paid totaled SEK 149 M (65).

 

During the first half-year four acquisitions were consolidated and payment was made for the last minority shares in iRevo in Korea. The combined acquisition price for these acquisitions amounts to SEK 217 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 74 M. The acquisition price is adjusted for acquired net debt and estimated earn-outs.

 

In July a contract was signed for the acquisition of the Italian company Ditec. Ditec has annual sales of EUR 80 M and has 550 employees. The acquisition is expected to be completed during the third quarter. See separate press release.

 

As communicated in the Sustainability Report the Group's move to water-based washing and degreasing systems with very low environmental impact is proceeding at a rapid pace.

 

As a result, ASSA ABLOY reduced the amount of chlorinated organic solvents (perchloroethylene and trichloroethylene) used in 2008 by 55%, to 42 tonnes.

 

The program has continued at undiminished pace in 2009 and will result in annual consumption falling by a further 80%, to less than 10 tonnes, which compares with the 189 tonnes used in 2005.

 

'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 685 M (1,036) for the half-year. Income before tax amounted to SEK 1,228 M (1,310). Investments in tangible and intangible assets totaled SEK 1 M (0). Liquidity is good and the equity ratio was 56.8% (47.3).

 

ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. Significant accounting and valuation principles are detailed on pages 56-60 of the 2008 Annual Report. ASSA ABLOY has subsequently implemented the revised International Accounting Standard IAS 1, which came into force on 1 January 2009. The change means that additional items are now included in Other comprehensive income in the Group's income statement. These items were previously reported in changes to shareholders' equity. ASSA ABLOY has also implemented IFRS 8, which contains rules about segment reporting. ASSA ABLOY reports the same operating segments as before. The Group's Interim Reports are prepared in accordance with IAS 34. The Parent company applies RFR 2.2.

 

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, see pages 41-43 of the 2008 Annual Report. No significant risks other than the risks described there are judged to have occurred.

 

 

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.

 

2009 will be a challenging year since the financial crisis has had a strongly negative effect on investments in construction, and negative organic growth for the year is therefore expected for ASSA ABLOY.

 

 

 

 

 

 

 

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, 29 July 2009

 

We have reviewed this Report for the period 1 January 2009 to 30 June 2009 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, 29 July 2009

 

PricewaterhouseCoopers AB

 

 

The Interim Report for the third quarter will be published on 28 October 2009.

 

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 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