RNS Number:7735L
ASSA ABLOY AB (publ)
08 November 2006
8 November 2006
ASSA ABLOY REPORTS STRONG stable SALES
* Sales for the third quarter increased by 10% to SEK 7,736 M (7,019),
which includes 8% organic growth and 5% acquired growth.
* Operating income (EBIT) for the third quarter, excluding restructuring
costs, amounted to SEK 1,235 M (1,103) corresponding to an EBIT-margin of 16.0%
(15.7).
* Restructuring costs during the quarter totaled SEK 437 M.
* Net income for the third quarter amounted to SEK 366 M (706).
* Earnings per share for the third quarter amounted to SEK 0.99 (1.89), or
SEK 2.02 (1.89) excluding restructuring items.
* Operating cash flow for the third quarter amounted to SEK 919 M (1,190).
* The acquisition of Fargo Electronics was completed on 3 August and is
proceeding according to plan.
"We are seeing stable demand on our most important markets in Europe and North
America, while acquisitions, headed by Fargo, are developing well," says
President & CEO Johan Molin. "Our strong sales growth and the restructuring
measures we have carried out provide good opportunities for further improving
profitability."
SALES AND INCOME
Third quarter Nine months
2006 2005 Change 2006 2005 Change
Sales, SEK M 7,736 7,019 +10% 23,078 20,272 +14%
of which,
Organic growth +8% +9%
Acquisitions +5% +3%
Exchange-rate effects -176 -3% 384 +2%
Operating income (EBIT), 1,235* 1,103 +12% 3,496* 3,015 +16%
SEK M
Operating margin (EBIT), % 16.0* 15.7 15.2* 14.9
Income before tax, SEK M 1,054* 969 +9% 3,014* 2,633 +14%
of which, exchange-rate
effects, SEK M -18 -2% 53 +2%
Net income, SEK M 366 706 -48% 1,367 1,922 -29%
Operating cash flow, SEK M 919 1,190 -23% 2,339 2,552 -8%
Earnings per share (EPS), 2.02* 1.89 +7% 5.85* 5.13 +14%
SEK
*Excluding restructuring costs totaling SEK 437 M (third quarter) or SEK 957 M
(nine months)
THIRD QUARTER
The Group's sales in the third quarter totaled SEK 7,736 M (7,019), an increase
of 10% on the previous year. Organic growth was 8% (5). Newly acquired
companies, principally Fargo and Adams Rite, contributed 5% (1) to sales.
Translation of foreign subsidiaries' sales to Swedish kronor had a negative
effect of SEK 176 M due to changes in exchange rates.
The quarter's earnings were burdened by restructuring costs of SEK 437 M.
Operating income before depreciation, EBITDA, excluding restructuring costs
amounted to SEK 1,464 M (1,317). The corresponding margin was 18.9% (18.8). The
Group's operating income, EBIT, excluding restructuring costs amounted to SEK
1,235 M (1,103) after negative currency effects of SEK 30 M. The corresponding
operating margin (EBIT) was 16.0% (15.7). The quarter's income before tax,
excluding restructuring costs, amounted to SEK 1,054 M (969), including negative
currency effects of SEK 18 M due to translation of foreign subsidiaries. The
Group's tax charge totaled SEK 251 M (263), corresponding to an effective tax
rate of 41% on reported income before tax. The reason for the increase in
effective tax rate is that deferred tax on some restructuring items has not been
considered. Earnings per share excluding restructuring items for the third
quarter amounted to SEK 2.02 (1.89), which represents an increase of 7%.
Operating cash flow for the quarter amounted to SEK 919 M - equivalent to 87% of
income before tax, excluding restructuring costs - compared with SEK 1,190 M
last year. Working capital rose by SEK 241 M during the quarter due to increased
capital tied up in accounts receivable as a result of growth, and to increased
material costs which had a negative effect on inventories.
THE PERIOD JANUARY TO SEPTEMBER
Sales for the first nine months of the year totaled SEK 23,078 M (20,272), which
represents an increase of 14%. Organic growth was 9% (4). Newly acquired
companies contributed 3% (1). Exchange rates affected sales positively by SEK
384 M compared with the corresponding period in 2005.
Operating income before depreciation, EBITDA, excluding restructuring costs
amounted to SEK 4,174 M (3,662). The corresponding margin was 18.1% (18.1). The
Group's operating income, EBIT, excluding restructuring costs increased by 16%
to SEK 3,496 M (3,015) after positive currency effects of SEK 58 M. The
corresponding operating margin (EBIT) was 15.2% (14.9). Earnings per share for
the period excluding restructuring items increased by 14% to SEK 5.85 (5.13).
Operating cash flow for the period amounted to SEK 2,339 M (2,552). The cash
flow was strong but affected by the strong sales growth combined with
substantial price increases in inventories.
RESTRUCTURING MEASURES
The comprehensive restructuring program initiated at the start of the year 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 assembly, and some units will be closed. The cost of
the program is estimated at SEK 1,250 M and it is expected to generate cost
savings of about SEK 600 M a year once the whole program is completed in 2009.
Most of the costs of the program are expected to be expensed in 2006. About 80%
of the costs will relate to payments associated with redundancies and the
remainder to write-downs chiefly concerned with machinery and equipment.
In addition to the restructuring described above, it has been decided to cease
the existing car-lock manufacturing in the UK because of the unprofitable cost
position and prospects of British car manufacturers. The costs of closure are
estimated to amount to SEK 200 M.
The quarter's earnings were burdened by restructuring costs totaling SEK 437 M.
Of this, SEK 68 M relates to write-downs chiefly of machinery and equipment.
Payments related to the action program amounted to SEK 51 M.
Costs related to the restructuring program amount to SEK 757 M in total, on top
of which earnings have been burdened by SEK 200 M resulting from the cessation
of car-lock manufacture in the UK. Out of the total of SEK 957 M, SEK 132 M
relates to write-downs. Up to now, about 300 employees affected by the
restructuring program have left the Group.
COMMENTS BY DIVISION
EMEA
Sales for the third quarter in the EMEA division (Europe, Middle East and
Africa) totaled EUR 316 M (295), with 8% organic growth. Operating income
excluding restructuring costs amounted to EUR 51 M (45), which represents an
operating margin (EBIT) of 16.1% (15.2). Return on capital employed excluding
restructuring items amounted to 17.9% (15.6). Operating cash flow before
interest paid totaled EUR 58 M (59).
Sales growth remained stable at a high level during the third quarter. The
Nordic region, Germany, eastern Europe and Africa are continuing to generate
strong organic growth. Benelux and Spain are showing an improved sales trend.
Restructuring costs for the quarter totaled EUR 34 M. The operating margin
excluding restructuring costs continued to advance very well during the quarter.
AMERICAS
Sales for the third quarter in the Americas division totaled USD 359 M (308)
with 9% organic growth. Acquired growth contributed 8%. Operating income
excluding restructuring costs amounted to USD 71 M (58), which represents an
operating margin (EBIT) of 19.8% (18.9). Return on capital employed excluding
restructuring items amounted to 23.2% (21.6). Operating cash flow before
interest paid totaled USD 68 M (80).
Americas' strong sales trend continued during the third quarter, with sustained
good demand in North America. The Residential Group and Electromechanical Group
report continuing strong growth for the quarter. The Architectural Hardware
Group reports an improved growth rate. The acquisitions of Adams Rite and Baron
are progressing according to plan. The operating margin excluding restructuring
costs improved satisfactorily during the quarter as a result of the growth in
sales volumes. Cash flow was restrained by the strong growth.
ASIA PACIFIC
Sales for the third quarter in the Asia Pacific division totaled AUD 111 M (108)
with 3% organic growth. Operating income excluding restructuring costs amounted
to AUD 12 M (15), representing an operating margin (EBIT) of 10.3% (13.9).
Return on capital employed excluding restructuring items amounted to 12.7%
(18.6). Operating cash flow before interest paid totaled AUD -2 M (6).
Sales in Asia advanced strongly, mainly driven by good performance on the
Chinese market. Demand on the non-residential markets in both Australia and New
Zealand continued to be good while residential markets remain at a low level.
The operating margin excluding restructuring costs improved relative to the
previous quarter but continued to be negatively affected by increased material
costs. Cash flow was weak due to building related capital expenditure made in
connection with restructuring activities.
GLOBAL TECHNOLOGIES
The Global Technologies division reported sales of SEK 1,107 M (844) in the
third quarter, with organic growth of 11%. Acquired growth contributed 22%.
Operating income excluding restructuring costs amounted to SEK 168 M (128),
giving an operating margin (EBIT) of 15.1% (15.2). Return on capital employed
excluding restructuring items amounted to 16.1% (17.3). Operating cash flow
before interest paid amounted to SEK 108 M (126).
Global Technologies reports continued strong organic growth in all three of its
businesses. The acquisition of Fargo is proceeding according to plan as regards
both sales growth and profitability. Restructuring costs relate mainly to
consolidation of production in Norway, Germany and the USA.
The operating margin is affected positively by growth in sales volumes but
constrained by continuing investments in an enlarged marketing and sales
organization in the fast-growing segments. Cash flow is being held down by an
expected outflow of working capital in acquired units.
ENTRANCE SYSTEMS
The Entrance Systems division reported sales of SEK 674 M (591) in the third
quarter, representing organic growth of 11%. Acquired growth contributed 5%.
Operating income excluding restructuring costs amounted to SEK 87 M (84), giving
an operating margin (EBIT) of 12.9% (14.2). Return on capital employed excluding
restructuring items amounted to 11.3% (11.2). Operating cash flow before
interest paid amounted to SEK 23 M (44).
Demand continues to be good on all major markets, especially in the USA but also
in Asia. Sales growth is strongest on markets where the division generates
weaker profits. The profitability of acquired units is steadily improving but
they continue to dilute the operating margin. The quarter's strong growth had a
negative effect on cash flow.
ACQUISITIONS
The acquisition of Fargo Electronics, a world leader in security systems based
on ID cards, including card writers, peripheral equipment and software, was
completed at the beginning of August. Sales are expected to exceed USD 90 M in
2007, with a strong EBIT margin. The company has about 240 employees. The
acquisition is expected to have a mildly diluting effect on earnings per share
in 2006 and to contribute to earnings per share in 2007.
A small Brazilian manufacturer of contactless cards, specializing in cards for
general communications, was acquired in July. In Denmark two small sales units
were acquired in August with the aim of improving development in the
electromechanical area. These units have annual sales of around SEK 100 M, with
low profitability.
The combined acquisition price for these acquisitions, adjusted for acquired
interest-bearing assets including estimated earn-outs, is about SEK 2,200 M.
Preliminary acquisition analyses indicate that goodwill and other intangible
assets with indefinite useful life amount to about SEK 2,000 M.
OTHER EVENTS
ASSA ABLOY has entered into a partnership with Cisco Systems, the world leader
in Internet Protocol (IP) networks. The two companies will collaborate in
developing compatible technologies for convergence between physical access and
logical access. At the ASIS exhibition in San Diego, the two companies
demonstrated a 'networked door' that combines ASSA ABLOY's new Hi-OTM (Highly
Intelligent Operation) lock-technology system and Cisco's patent-pending
IP-based converged access-control technology.
The aims of the partnership are to ensure that ASSA ABLOY's Hi-O products and
Cisco's access-control products will work together and that access-control
systems and video surveillance can be integrated into IP networks. Such
integration will benefit customers by providing enhanced physical security and
network security together with lower total costs of ownership.
PARENT COMPANY
'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 574 M
(562) for the nine months. Income before tax amounted to SEK 480 M (1,070).
Investments in tangible and intangible assets totaled SEK 15 M (13). Liquidity
is good and the equity ratio was 44% (45).
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 66-70 of the 2005 Annual Report. New or revised IFRS
effective after 31 December 2005 have had no material effect on the consolidated
income statement or balance sheet. The Group's Interim Report is 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.
OUTLOOK
Organic sales growth is expected to continue at a good rate. The operating
margin (EBIT) and operating cash flow are expected to develop well, excluding
the effects of future restructuring.
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.
Stockholm, 8 November 2006
Johan Molin
President and CEO
This Interim Report has not been reviewed by the Company's Auditor.
Financial information
The fourth quarter's report (Year-End Report) will be published on 14 February
2007.
Paste the following link into your web browser to download the PDF document
related to this announcement:
http://www.rns-pdf.londonstockexchange.com/rns/7735l_-2006-11-8.pdf
___________
ASSA ABLOY AB (publ)
Box 70340, SE 107 23 Stockholm, Sweden
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
Visiting address: Klarabergsviadukten 90
www.assaabloy.com
ASSA ABLOY is holding an analysts' meeting at 12.00 today in Stockholm.
The analysts' meeting can also be followed over the Internet at
www.assaabloy.com.
It is possible to submit questions by telephone on +44 (0)20 7162 0125.
______
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
Martin Hamner, Director of Investor Relations and Group Controller, Tel: + 46 8 506 485 79
This information is provided by RNS
The company news service from the London Stock Exchange
END
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