ASSA ABLOY AB (publ) 1st Quarter Results (0794X)

TIDM77BL

RNS Number : 0794X

ASSA ABLOY AB (publ)

25 April 2019

 
 
Organic growth 
+5% 
 
 
Operating income 
+15% 
 
 
Earnings per share 
+13% 
 
 

Good start to 2019

First quarter

-- Net sales increased by 16% to SEK 21,505 M (18,550), with organic growth of 5% (4) and acquired net growth of 3% (2)

-- Strong growth in Americas, Global Technologies and Asia Pacific, good growth in Entrance Systems and EMEA

-- Agreement signed to acquire a 54% holding in agta record, a Swiss manufacturer of automatic pedestrian doors with sales of SEK 3.9 billion in 2018. Closing is conditional upon authorities approval

   --       Three other acquisitions signed with combined expected annual sales of about SEK 650 M 

-- Operating income (EBIT) increased by 15% and amounted to SEK 3,246 M (2,829), corresponding to an operating margin of 15.1% (15.3)

   --       Net income amounted to SEK 2,218 M (1,964) 
   --       Earnings per share amounted to SEK 2.00 (1.77) 
   --       Operating cash more than doubled to SEK 1,171 M (575) 

Sales and income

 
                                     Full year                   First quarter 
                                ===================  ========  ================  ======== 
 
                                   2017        2018   <DELTA>     2018     2019   <DELTA> 
------------------------------  -------  ----------  --------  -------  -------  -------- 
 Sales, SEK M                    76,137      84,048       10%   18,550   21,505       16% 
 Of which: 
 Organic growth                   2,834       3,901        5%      705    1,006        5% 
 Acquisitions and divestments     1,753       1,793        2%      268      689        3% 
 Exchange-rate effects              257       2,217        3%     -565    1,260        8% 
 Operating income (EBIT), 
  SEK M                          12,341   12,909(1)        5%    2,829    3,246       15% 
 Operating margin (EBITA), 
  %                               16.5%    15.8%(1)              15.7%    15.6% 
 Operating margin (EBIT), 
  %                               16.2%    15.4%(1)              15.3%    15.1% 
 Income before tax, SEK 
  M                              11,673   12,110(1)        4%    2,654    2,997       13% 
 Net income, SEK M                8,635    8,984(1)        4%    1,964    2,218       13% 
 Operating cash flow, 
  SEK M                          10,929      11,357        4%      575    1,171      104% 
 Earnings per share, SEK           7.77     8.09(1)        4%     1.77     2.00       13% 
 

(1) Excluding costs for a new manufacturing footprint program in Q4 2018, totaling SEK -1,218 M before tax, corresponding to SEK -961 M after tax. Excluding impairment of goodwill and other intangible assets in Q2 2018, totaling SEK -5,595 M before tax, corresponding to SEK -5,268 M after tax.

Comments by the President and CEO

Strong growth and doubled cash flow

We had a good start to 2019 with the first quarter's sales growing by 16% to SEK 21,505 M. This resulted from strong organic growth of 5%, acquired net growth of 3%, and positive currency effects of 8%.

All divisions reported organic growth. Growth continued to be particularly strong in the Americas and Global Technologies divisions. Entrance Systems and EMEA reported good growth while Asia Pacific's external growth was flat. Sales growth for electromechanical products remains particularly strong and now represents 31% of total sales.

Operating income increased by 15% to SEK 3,246 M, driven primarily by good operating leverage in Americas and Global Technologies. This was partly offset by weaker performance in Asia Pacific due to flat external growth, increasing low-margin intra-group sales and build-up of the new Chinese organization.

Seasonal effects always impact the operating cash flow in the first quarter, but this year cash flow more than doubled versus last year. The improvement was driven by the higher earnings combined with actions taken in Q4 2018 to balance the seasonal variations between Q4 and Q1.

Innovation enables growth and leadership

One of ASSA ABLOY's strategic objectives is product leadership through innovation. To maintain our leading position, more than 2,000 engineers are dedicated to continuously developing new solutions for our customers, and this is reflected in that close to 4% of our sales were invested in R&D in the quarter.

Customer focus and innovation efforts pay off in growth and leadership. Sales of electromechanical products increased 30% in the quarter, driven by strong sales in the commercial/institutional segment and by smart locks in the US residential segment. The global sales potential for smart locks is significant, but we expect the growth rate to slow down from the second quarter onwards due to tougher comparatives. Our innovation efforts are also recognized by independent parties. In March, for instance, our new Tanzanian e-Passport, which has been designed and delivered by HID, won an award at the High Security Printing conference in Europe.

ASSA ABLOY to acquire majority stake in agta record

In March we announced the intention to acquire a majority stake in agta record. Subject to anti-trust approval, this will be ASSA ABLOY's largest acquisition in eight years, and it is expected to add 5% to the revenue base. ASSA ABLOY and agta record complement each other very well, and I am confident that our customers and shareholders will benefit from the strong value we can create together. Our intention is to keep the 'record' brand and operate it as a separate unit within Entrance Systems Division.

As a final note, I would once again like to emphasize that ASSA ABLOY's employees make the difference. In February, we completed the "Together we grow" leadership conference. The focus was on how we can further grow ASSA ABLOY and remain the global leader in access solutions. We have a strong team and we will continue to deliver innovative and smart solutions to our customers.

Stockholm, 25 April 2019

Nico Delvaux

President and CEO

First quarter

The Group's sales increased by 16% to SEK 21,505 M (18,550). Organic growth amounted to 5% (4). Acquisitions and divestments were 3% (2), of which 4% (3) were acquisitions and -1% (-1) were divestments. Exchange-rates affected sales by 8% (-4).

The Group's operating income, EBIT amounted to SEK 3,246 M (2,829) an increase of 15%. The operating margin was 15.1% (15.3). Exchange-rates had an impact of SEK 183 M (-89) on EBIT. Operating income before amortizations from acquisitions, EBITA amounted to SEK 3,352 M (2,921). The corresponding EBITA margin was 15.6% (15.7).

Net financial items amounted to SEK -248 M (-175). The Group's income

before tax was SEK 2,997 M (2,654), an increase of 13% compared with last year. Exchange-rates had an impact of SEK 169 M (-80) on income before tax. The profit margin was 13.9% (14.3).

The estimated effective tax rate on an annual basis was 26% (26). Earnings per share amounted to SEK 2.00 (1.77), an increase of 13% compared with last year. Operating cash flow amounted to SEK 1,171 M (575).

Restructuring measures

Payments related to all restructuring programs amounted to SEK 161 M (173)

in the quarter. The restructuring programs proceeded according to plan and

led to a reduction in personnel of 220 people during the quarter and 15,582 people since the projects began in 2006. At the end of the quarter provisions of SEK 1,054 M remained in the balance sheet for carrying out the programs.

Comments by division

EMEA

Sales for the quarter in EMEA totaled SEK 5,208 M (4,775), with organic growth of 3% (3). The growth was strong in Scandinavia, Finland, Germany and Middle East/Africa and good in East Europe, Benelux and the UK. Sales also grew in South Europe, but decreased in France. Acquired growth net was 3%. Operating income totaled SEK 841 M (764), which represents an operating margin (EBIT) of 16.2% (16.0). Return on capital employed amounted to 17.9% (20.0). Operating cash flow before interest paid totaled SEK 289 M (262).

Americas

Sales for the quarter in Americas totaled SEK 5,312 M (4,354), with organic growth of 10% (3). The growth was very strong for US Smart Residential, Electromechanical & High-security and Architectural Hardware and in Brazil, while sales were strong for US Security Doors and the Residential Group. Growth was good in Canada and stable in Mexico, while sales decreased in Colombia and Chile and for Perimeter Security in the USA. Acquired growth net was 1%. Operating income totaled SEK 1,040 M (845), which represents an operating margin (EBIT) of 19.6% (19.4). Return on capital employed amounted to 21.5% (21.0). Operating cash flow before interest paid totaled SEK 260 M (241).

Asia Pacific

Sales for the quarter in Asia Pacific totaled SEK 2,221 M (1,959), with organic growth of 6% (4) due to strong intra-group sales. The external sales growth was flat. In Japan, the growth was strong. There was good sales growth in Pacific and South Korea, while the growth in India and China was stable. In South Asia sales declined. Acquired growth was 2%. Operating income totaled SEK 115 M (154), which represents an operating margin (EBIT) of 5.2% (7.9). Return on capital employed amounted to 5.5% (4.9). Operating cash flow before interest paid totaled SEK -122 M (-158).

Global Technologies

Sales for the quarter in Global Technologies totaled SEK 3,348 M (2,477), with organic growth of 9% (6). The growth was driven by very strong development in Citizen ID, Secure Issuance and Physical Access Control and by strong sales growth for Identity & Access Solutions. Sales declined in Identification Technology and for Extended Access. ASSA ABLOY Global Solutions grew strongly. Acquired growth was 15%. Operating income totaled SEK 598 M (466), which represents an operating margin (EBIT) of 17.9% (18.8). Return on capital employed amounted to 12.2% (11.6). Operating cash flow before interest paid totaled SEK 345 M (201).

Entrance Systems

Sales for the quarter in Entrance Systems totaled SEK 5,922 M (5,322), with organic growth of 3% (5). The growth was strong in Pedestrian Doors, EU Residential Doors and Industrial Doors while sales for Door components were good. Sales for High Performance Doors were stable while US Residential Doors had a slight negative sales development. Growth for service accelerated. Acquired growth was 1%. Operating income totaled SEK 779 M (710), which represents an operating margin (EBIT) of 13.2% (13.3). Return on capital employed amounted to 14.1% (14.5). Operating cash flow before interest paid totaled SEK 895 M (379).

Acquisitions and divestments

A total of three acquisitions were consolidated during the quarter. The combined acquisition price for these companies, including adjustments from prior year acquisitions, amounted to SEK 917 M. The acquisition price on a cash and debt free basis amounted to SEK 1,076 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 872 M. Estimated deferred considerations amounted to SEK 9 M.

On March 6 it was announced that ASSA ABLOY signed an agreement to acquire a 54% holding in agta record, a well-established manufacturer and service organization dedicated to automatic pedestrian entrance systems. The company has about 2,600 employees and its sales in 2018 amounted to SEK 3.9 billion. After completion, ASSA ABLOY will own around 93% of the share capital and voting rights of the company and will launch a public tender offer for the remaining shares. The acquisition is conditional upon authorities approval and is expected to close during the fourth quarter. The purchase price for the 54% holding amounts to approximately EUR 502 M. As part of the transaction, ASSA ABLOY's existing 39% ownership in agta record, a shareholding in an associate company, will be revalued at fair value through the income statement at closing. The expected non-cash income in EBIT amounts to around SEK 2 billion.

On March 29 it was announced that ASSA ABLOY had acquired Spence Doors, a leading manufacturer of commercial doors in Australia. The company has about 260 employees and its expected sales in 2019 amount to around SEK 435 M.

On January 14 it was announced that ASSA ABLOY had signed an agreement to acquire KEYper Systems, a leading supplier of electronic and mechanical key management systems in the US with a strong presence in the automotive segment. The acquisition was completed during the first quarter. The company has about 25 employees and its expected sales in 2019 amount to around SEK 195 M.

Sustainable development

ASSA ABLOY's Sustainability Report for 2018 was published on 21 March 2019 and the report shows that the Group had a positive development across a majority of the reporting areas. The Group's materiality analysis was updated during the year with input from employees, customers and suppliers. The result confirms that the Group is working with the right priorities. The increased focus on Health and Safety has led to a decrease of 11% in the injury rate. The Group's water consumption has decreased by 10% and its energy consumption has decreased by 5% during the year. The consumption of organic solvents continued to decrease by switching to more environmentally friendly processes.

The Group carried out 1,055 sustainability audits of suppliers in low cost countries during 2018. The extensive auditing program has increased the portion of spend in low-cost countries represented by sustainability audited suppliers from 93% to 96%. ASSA ABLOY had 332 verified and published Environmental Product Declarations by the end of 2018.

Parent company

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 373 M (431) for the interim period. Operating income for the same period amounted to SEK -467 M (-261). Investments in tangible and intangible assets totaled SEK 6 M (12). Liquidity is good and the equity ratio is 40.6% (41.5).

Accounting principles

ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. The same accounting and valuation principles as in the latest Annual Report have been applied, with the exception of new and changed standards and interpretations that came into force on 1 January 2019 and are described briefly on page 16. This Report was prepared in accordance with IAS 34 'Interim Financial Reporting' and the Annual Accounts Act. The Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2 'Reporting by a Legal Entity'.

From 1 January 2019 ASSA ABLOY applies IFRS 16 'Leases' and IFRIC 23 'Uncertainty over Income Tax Treatments'. The financial effects of applying these standards are described in more detail on page 16.

ASSA ABLOY makes use of a number of financial performance measures that are not defined in the reporting rules that the company uses - so-called 'alternative performance measures'. For definitions of financial performance measures, refer to Page 17 of this Report and to the company's latest Annual Report. To check how the financial measurements have been calculated for current and earlier periods, refer to the tabulated figures in this Quarterly Report and to the company's Annual Report. The Annual Reports for the years 1994 to 2018 appear on the company's website www.assaabloy.com.

Totals quoted in tables and statements may not always be the exact sum of the individual items because of rounding differences. The aim is that each line item should correspond to its source, and rounding differences may therefore arise.

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, financial and tax-related 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 particular risks and risk management, see the 2018 Annual Report.

Review

The Company's Auditors have not carried out any review of this Report for the first quarter of 2019.

Stockholm, 25 April 2019

Nico Delvaux

President and CEO

Financial information

The Interim Report for the second quarter will be published on 17 July 2019.

The Interim Report for the third quarter will be published on 18 October 2019.

Further information can be obtained from:

Nico Delvaux,

President and CEO, tel. no: [phone]

Erik Pieder,

Executive Vice President and CFO, tel.no: [phone]

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/0794X_1-2019-4-25.pdf

ASSA ABLOY is holding a telephone and web conference at 09.30 today

which can be followed on the Internet at www.assaabloy.com.

It is possible to submit questions by telephone on:

[phone], [phone] or [phone]

 
        This information is information that ASSA ABLOY AB is obliged to make 
           public pursuant to the EU Market Abuse Regulation. The information 
     was submitted for publication, through the agency of the contact persons 
                               set out above, at 08.00 CEST on 25 April 2019. 
 
ASSA ABLOY AB (publ)         Tel [phone] 
 Box 703 40                   00 
 107 23 Stockholm             Fax [phone] 
 Visiting address             85 
 Klarabergsviadukten          www.assaabloy.com                   No.07/2019 
 90, Stockholm, Sweden 
                              Corporate identity number: 
                              556059-3575 
 

Financial information - Group

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Financial information - Parent company

Quarterly information - Group

Reporting by division

Reporting by division

Financial information - Notes

New accounting standards

Definitions of financial performance measures

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April 25, 2019 04:20 ET (08:20 GMT)