* Sales in the second quarter increased by 8% to SEK 8,329 M
(7,689), with 7% organic growth, 5% acquired growth and
exchange-rate effects of -3%.
* Operating income (EBIT) increased by 15% to SEK 1,325 M (1,151*),
which is a record for the Group, representing a margin of 15.9%
(15.0*).
* Net income amounted to SEK 822 M (297).
* Earnings per share amounted to 2.20 SEK (1.95*).
* New acquisitions in the quarter by EMEA, Global Technologies and
a strategic acquisition in China by the Asia Pacific division
adds further growth.
* Incentive 2007 fully subscribed.
SALES AND INCOME
Second quarter First half-year
2007 2006 Change 2007 2006 Change
Sales, SEK M 8,329 7,689 +8% 16,556 15,342 +8%
of which,
Organic growth +7% +8%
Acquisitions +5% +5%
Exchange-rate effects -234 -3% -695 -5%
Operating income (EBIT),
SEK M 1,325 1,151* +15% 2,614 2,261* +16%
Operating margin (EBIT),
% 15.9 15.0* 15.8 14.7*
Income before tax, SEK M 1,128 995* +13% 2,229 1,960* +14%
Net income, SEK M 822 297 +177% 1,625 1,001 +62%
Operating cash flow, SEK
M 957 833 +15% 1,762 1,420 +24%
Earnings per share
(EPS), SEK 2.20 1.95* +13% 4.36 3.83* +14%
*Excluding restructuring costs totaling SEK 520 M
COMMENTS BY THE PRESIDENT AND CEO"Sales in the second quarter continued to develop well through both
organic and acquired growth. All five divisions reported increased
sales combined with substantial improvements in earnings. The Group's
cash flow also showed good performance during the quarter. The
restructuring program is proceeding according to plan and the pace of
savings is good. Particularly pleasing was also the acquisition of
Baodean in China, a strategically important market for the Group.
Through the acquisition we take leadership within the fast growing
antitheft lock segment" says Johan Molin, President and CEO.
SECOND QUARTER
The Group's sales totaled SEK 8,329 M (7,689), an increase of 8%
compared with 2006. In local currencies the increase amounted to 12%
(9), of which organic growth for comparable units contributed 7% (7)
while acquired units accounted for 5% (2) of the increase in volume.
Exchange-rate effects had a negative impact of SEK 234 M on sales -
i.e. 3%.
Operating income before depreciation, EBITDA, amounted to SEK 1,554 M
(1,378), an increase of 13% compared with 2006. The EBITDA margin was
18.7% (17.9). The Group's operating income, EBIT, amounted to SEK
1,325 M (1,151), an increase of 15%, after negative currency effects
of SEK 44 M. The operating margin (EBIT) was 15.9% (15.0). Net
financial items amounted to SEK -197 M (-156), which corresponds to
an average interest rate of just over 5%. The Group's income before
tax amounted to SEK 1,128 M (995), which represents an increase of
13% on the previous year. After translation of subsidiaries' income
statements, exchange-rate effects had a negative impact of SEK 39 M
on the Group's income before tax. The profit margin was 13.5% (12.9).
The Group's tax charge totaled SEK 306 M (178), corresponding to an
effective tax rate of 27% for the quarter. Earnings per share
amounted to SEK 2.20 (1.95), which represents an increase of 13%.
The Group's operating cash flow amounted to SEK 957 M (833) -
equivalent to 85% (84) of income before tax. Working capital
increased seasonally by SEK 159 M during the quarter, mainly due to
an increase in the capital tied up in accounts receivable and
inventories.
FIRST HALF-YEAR
Sales for the first half of 2007 totaled SEK 16,556 M (15,342), which
represents an increase of 8% compared with 2006. Organic growth was
8% (9). Newly acquired companies contributed 5% (2). Exchange-rate
effects affected sales negatively by SEK 695 M, i.e. 5%, compared
with the first half of 2006.
Operating income before depreciation, EBITDA, amounted to SEK 3,072 M
(2,710) for the half-year. The corresponding margin was 18.6% (17.7).
The Group's operating income, EBIT, increased by 16% to SEK 2,614 M
(2,261) after negative exchange-rate effects of SEK 118 M. The
corresponding operating margin (EBIT) was 15.8% (14.7).
Earnings per share for the first half-year increased by 14% to 4.36
SEK (3.83). Operating cash flow for the half-year amounted to SEK
1,762 M (1,420).
RESTRUCTURING MEASURES
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 81 M
during the quarter and SEK 125 M in the first half-year. Savings
resulting from measures carried out since the project began are
assessed at SEK 60 M (10) for the quarter. So far about 800 out of
the total of 2,000 employees affected by the restructuring program
have left the Group.
COMMENTS BY DIVISION
EMEA
Sales for the second quarter in the EMEA division (Europe, Middle
East and Africa) totaled SEK 3,370 M (3,103), with 7% organic growth.
Acquired growth contributed 2%. Operating income amounted to SEK 556
M (492), which represents an operating margin (EBIT) of 16.5% (15.9).
Return on capital employed amounted to 20.7% (18.8). Operating cash
flow before interest paid totaled SEK 502 M (418).
Sales growth remained strong in the second quarter. Scandinavia,
Spain, eastern Europe and Africa generated the best organic growth.
Operating margin and return on capital employed both advanced well
during the quarter. Cash flow ran at a satisfactory level.
AMERICAS
Sales for the second quarter in the Americas division totaled SEK
2,607 M (2,603) with 5% organic growth. Acquired growth contributed
3%. Operating income amounted to SEK 506 M (495), which represents an
operating margin (EBIT) of 19.4% (19.0). Return on capital employed
amounted to 22.4% (22.1). Operating cash flow before interest paid
totaled SEK 450 M (454).
Americas' sales trend remained strong in the second quarter except
for the Residential Group which reported a weak development. The
American businesses in the commercial segment, headed by the
Architectural Hardware Group and the Electromechanical Group,
reported continuing good growth during the quarter whilst the Door
Group had a somewhat weaker development. The previous good
profitability improved further during the quarter and reached 19.4%,
despite dilution of 0.2 of a percentage point from acquisitions.
ASIA PACIFIC
Sales for the second quarter in the Asia Pacific division totaled SEK
650 M (580) with 8% organic growth. Acquired growth contributed 5%.
Operating income amounted to SEK 73 M (45), representing an operating
margin (EBIT) of 11.3% (7.7). Return on capital employed amounted to
13.9% (9.2). Operating cash flow before interest paid totaled SEK 60
M (65).
Sales are developing well in China and Australia. The acquisition of
Pyropanel is proceeding according to plan. The operating margin
improved relative to previous quarters as a result of price increases
made during the first half-year. Cash-flow showed a good improvement.
GLOBAL TECHNOLOGIES
The Global Technologies division reported sales of SEK 1,174 M (936)
in the second quarter, with organic growth of 8%. Acquired growth
contributed 21%. Operating income amounted to SEK 169 M (116), giving
an operating margin (EBIT) of 14.4% (12.4). Return on capital
employed amounted to 13.1% (15.1). Operating cash flow before
interest paid amounted to SEK 160 M (118).
Global Technologies reported continued strong organic growth. Demand
for the division's products remained good within all businesses as a
result of market investments and launches of several new products.
The planned distribution changes at Fargo were carried out with a
positive result. The combined dilution from acquisitions was reduced
to 0.3 of a percentage point.
ENTRANCE SYSTEMS
The Entrance Systems division reported sales of SEK 749 M (660) in
the second quarter, representing organic growth of 9%. Acquired
growth contributed 5%. Operating income amounted to SEK 108 M (84),
giving an operating margin (EBIT) of 14.4% (12.7). Return on capital
employed amounted to 13.7% (11.0). Operating cash flow before
interest paid amounted to SEK 102 M (78).
Sales continued to develop positively through good growth in Europe
and North America. The integration of the service companies La Force
and Portronik continued according to plan. Profitability improved
significantly by increased sales volumes in door automatics and
service and through selective prices increases.
ACQUISITIONS
During the first six months the acquired companies Pemko, Pyropanel,
LaForce, Portronik and Integrated Engineering were consolidated. All
have been announced previously. The total acquisition price for the
companies consolidated during the first half-year amounts to SEK 585
M and preliminary acquisition analyses indicate that goodwill and
other intangible assets with indefinite useful life amount to SEK
380 M. The acquisition price is adjusted for acquired
interest-bearing liabilities including estimated earn-outs.
EMEA division's previously announced acquisition of the Israeli
company Alba, which has sales of about SEK 70 M and 65 employees, was
approved by the Israeli competition authority during the second
quarter. It has therefore been possible to complete the transaction,
and the company will be consolidated during the third quarter.
During the second quarter EMEA division completed the acquisition of
the Italian company Esety, which is a manufacturer and distributor of
high-security locks for the Italian market. The company has sales of
SEK 60 M and about 50 employees, and will contribute to earnings per
share from the date of acquisition. The company will be consolidated
from July 2007.
During the quarter the Asia Pacific division has come to an agreement
concerning the acquisition of the Chinese company Baodean. Baodean is
one of China's leading manufacturers of anti theft locks and lock
cylinders. The acquisition is an important step in ASSA ABLOY's drive
to become the market leader on the Chinese market. Baodean has
estimated sales of SEK 300 M and has 1,370 employees. The acquisition
is conditional on the approval of the relevant authorities.
In June a public offer was made for the shares in the Korean company
iRevo. iRevo is South Korea's largest manufacturer of digital locks
for the residential market, selling mainly in South Korea and China.
The company has sales of around SEK 400 M and has 200 employees. When
the offer period expired on 24 July, acceptances for a sufficient
number of shares had not been received and the offer therefore
lapsed. ASSA ABLOY is currently analyzing the situation that has
arisen and is considering the next step in the acquisition process.
At the beginning of July it was announced that Global Technologies
division has acquired the Irish company Aontec Teoranta, which is one
of the world's largest manufacturers of inlays for electronic
passports. The company has sales of around SEK 140 M and has 140
employees. The company is expected to contribute to earnings per
share from the date of acquisition and will be consolidated from July
2007.
OTHER EVENTS
Registration for ASSA ABLOY's incentive program for employees,
Incentive 2007, has ended. The program was fully subscribed and
amounts to EUR 100 M. More than 1,400 employees in some 15 countries
are participating. The program runs until June 2012 in line with the
maturity date of the convertible bonds. The dilution effect of the
program, calculated as the maximum increase in the number of shares
after dilution, will amount to 1.2% of the share capital and 0.8% of
the total number of votes.
A new MCRF (Multi-Currency Revolving Credit Facility) was signed on
26 June between ASSA ABLOY and 15 banks. The Facility covers a total
of EUR 1,100 M and runs for seven years.
PARENT COMPANY
'Other operating income' for the Parent company ASSA ABLOY AB totaled
SEK 836 M (366) for the half-year. Income before tax amounted to SEK
1,393 M (783). The improved income is due to intra-Group dividends
and royalty payments. Investments in tangible and intangible assets
totaled SEK 2 M (10). Liquidity is good and the equity ratio was
47.5% (43.2).
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 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.
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
ASSA ABLOY as an international Group with a wide geographic spread 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.
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.
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.
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, 9 August 2007
Gustaf Douglas Melker Schörling Carl-Henric Svanberg
Chairman Vice Chairman Vice Chairman
Johan Molin Carl Douglas Per-Olof Eriksson
President and CEO Board Member Board Member
Lotta Lundén Sven-Christer Nilsson Seppo Liimatainen
Board Member Board Member Employee representative
Mats Persson
Employee representative
REVIEW REPORT
We have reviewed the interim report for the period 1 January 2007 -
30 June 2007 for ASSA ABLOY AB (publ). Management is responsible for
the preparation and presentation of this interim financial
information in accordance with IAS 34 and the Annual Accounts Act.
Our responsibility is to express a conclusion on this interim
financial information based on our review.
We conducted our review in accordance with the Standard on Review
Engagements SÖG 2410, Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by FAR. 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 ('RS') and other generally
accepted auditing practices. The procedures performed in a review do
not enable us to obtain a level of assurance that would make us aware
of all significant matters that might be identified in an audit.
Therefore, the conclusion expressed based on a review does not give
the same level of assurance as a conclusion expressed based on an
audit.
Based on our review, nothing has come to our attention that causes us
to believe that the accompanying interim financial information is
not, in all material respects, prepared in accordance with IAS 34 and
the Annual Accounts Act.
Stockholm, 9 August 2007
PricewaterhouseCoopers AB
Peter Nyllinge
Authorised Public Accountant
Partner in charge
Financial information
The Interim Report for the third quarter will be published on 8
November 2007.
The Report for the fourth quarter will be published on 13 February
2008.
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 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.
The full report with tables can be downloaded from the following
link:
Continued growth and earnings improvement for ASSA ABLOY
| Source: ASSA ABLOY AB
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