ASSA ABLOY AB (publ) 3rd Quarter Results (5806E)

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RNS Number : 5806E

ASSA ABLOY AB (publ)

19 October 2018

 
 
Organic growth 
+5% 
 
 
Operating income 
+11% 
 
 
Earnings per share 
+11% 
 
 

Strong organic sales growth

Third quarter

-- Net sales increased by 15% to SEK 21,191 M (18,499), with organic growth of 5% (3) and acquired net growth of 2% (2)

-- Strong sales growth in Global Technologies and Americas and good growth in Entrance Systems. Sales in EMEA and Asia Pacific were stable

-- Three acquisitions have been signed with combined expected annual sales of about SEK 1,200 M

-- Operating income (EBIT) amounted to SEK 3,424 M (3,080), with an operating margin of 16.2% (16.7)

   --       Net income amounted to SEK 2,384 M (2,153) 
   --       Earnings per share amounted to SEK 2.15 (1.94) 
   --       Operating cash flow increased by 13% to SEK 3,004 M (2,654). 

Sales and income

 
                                  Third quarter               January-September 
                                ================  ========  ====================  ======== 
 
                                   2017     2018   <DELTA>       2017       2018   <DELTA> 
------------------------------  -------  -------  --------  ---------  ---------  -------- 
 Sales, SEK M                    18,499   21,191       15%     56,028     60,881        9% 
 Of which: 
 Organic growth                     590      960        5%      1,956      2,620        5% 
 Acquisitions and divestments       373      446        2%      1,273      1,079        2% 
 Exchange-rate effects             -488    1,286        8%        990      1,154        2% 
 Operating income (EBIT) 
  (1) , SEK M                     3,080    3,424       11%      8,982      9,164        2% 
 Operating margin (EBITA) 
  (1) , %                         16.9%    16.6%                16.3%      15.5% 
 Operating margin (EBIT) 
  (1) , %                         16.7%    16.2%                16.0%      15.1% 
 Income before tax (1) 
  , SEK M                         2,910    3,221       11%      8,447      8,595        2% 
 Net income (1) , SEK 
  M                               2,153    2,384       11%      6,250      6,396        2% 
 Operating cash flow, 
  SEK M                           2,654    3,004       13%      6,053      6,435        6% 
 Earnings per share (1) 
  , SEK                            1.94     2.15       11%       5.63       5.76        2% 
 

(1) Excluding impairment of goodwill and other intangible assets of SEK -5,595 M in the second quarter of 2018. The effect on net income from the impairment of intangible assets was SEK -5,268 M.

Comments by the President and CEO

Strong organic sales growth in the quarter

The third quarter continued with strong organic growth of 5%. Organic growth was very strong in Global Technologies (12%) and Americas (10%) and continued to be good in Entrance Systems (4%), while EMEA and Asia Pacific reported stable organic sales growth of 2% and 1% respectively.

Accelerated growth in Global Technologies and continued strong growth in Americas

The demand for our products continued to grow at a good level in most of our markets during the third quarter and in the Global Technologies and Americas divisions in particular. Following a strong start to the year for Global Technologies, the growth accelerated during the third quarter.

During the last five years ASSA ABLOY Hospitality's performance has been very impressive, with innovative new solutions, combined with a solid financial development. The business has expanded from offering solutions for hotels and marine cruise ships into solutions for other verticals such as elderly care, student accommodation and logistics. As a result of this transformation, the Hospitality organization will now evolve under a new name, ASSA ABLOY Global Solutions, where we will develop the existing business and look for new opportunities to build global solutions for our customers.

HID Global is also developing positively. Two years ago ASSA ABLOY set a target to double HID's revenue in five years' time through organic sales and acquisitions. With the recent announcement of the acquisition of Crossmatch, we are on track to reach this target. Crossmatch allows us to offer biometric identity in critical applications and complements our total offering.

In Americas the growth was mainly driven by the development in the US. It is very encouraging that both the commercial and residential markets grew well during the quarter. In both segments our electromechanical products are market leaders and we note a strong demand for our innovative new solutions.

Strong operating income and cash flow

The third quarter's operating income improved strongly by 11% year-on-year to

SEK 3,424 M, corresponding to an operating margin of 16.2%. Due to higher raw material costs and negative currency effects the margin declined compared to last year, but we continue to work hard on further offsetting these material price increases.

Operating cash flow was strong in the third quarter and increased by 13% to SEK 3,004 M.

New CFO appointed

Last but not least, we have recently announced that Erik Pieder has been appointed as Chief Financial Officer. He will join ASSA ABLOY in January 2019.

I would like to thank Carolina Dybeck Happe for her invaluable contribution to ASSA ABLOY over the last 16 years and wish her great success in her new position.

Stockholm, 19 October 2018

Nico Delvaux

President and CEO

Third quarter

The Group's sales increased by 15% to SEK 21,191 M (18,499). Organic growth amounted to 5% (3). Acquisitions and disposals were 2% (2), of which 4% (3) were acquisitions and -2% (-1) were disposals. Exchange-rates affected sales by 8% (-2).

The Group's operating income, EBIT amounted to SEK 3,424 M (3,080) an increase of 11%. The operating margin was 16.2% (16.7). Operating income before amortizations from acquisitions, EBITA, amounted to SEK 3,516 M (3,132). The corresponding EBITA margin was 16.6% (16.9).

Net financial items amounted to SEK -203 M (-171). The Group's income

before tax was SEK 3,221 M (2,910), an increase of 11% compared with last year. The corresponding profit margin was 15.2% (15.7). Exchange-rates had an impact of SEK 166 M (-74) on income before tax.

The estimated effective tax rate, excluding impairment of goodwill, was 26% (26) on an annual basis. Earnings per share amounted to SEK 2.15 (1.94), an increase of 11% compared to last year.

First nine months of the year

The Group's sales for the first nine months of 2018 totaled SEK 60,881 M (56,028), representing an increase of 9%. Organic growth was 5% (4). Acquisitions and disposals were 2% (2), of which 4% (3) were acquisitions and

-2% (-1) were disposals. Exchange-rate effects affected sales by 2% (2).

The Group's operating income, EBIT excluding impairment of intangible assets amounted to SEK 9,164 M (8,982), an increase of 2% compared with last year. The operating margin was 15.1% (16.0). Operating income before amortizations from acquisitions, EBITA, excluding impairment of intangible assets, amounted to SEK 9,444 M (9,139). The corresponding EBITA margin was 15.5% (16.3).

Earnings per share excluding impairment of intangible assets amounted to SEK 5.76 (5.63), an increase of 2% compared with last year. Operating cash flow totaled SEK 6,435 M (6,053).

Restructuring measures

Payments related to all restructuring programs amounted to SEK 103 M (106)

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

led to a reduction in personnel of 165 people during the quarter and 14,400 people since the projects began in 2006. At the end of the quarter provisions of SEK 507 M remained in the balance sheet for carrying out the programs.

The planning of a new restructuring program continues. The launch is scheduled for the fourth quarter and the program is expected to take place over a period of three years. The total estimated cost of the restructuring program is in line with previous programs, with an expected payback time of around three years. The restructuring cost will be expensed over two years.

Organization

Erik Pieder has been appointed Chief Financial Officer (CFO) and Executive Vice President of ASSA ABLOY effective January 14, 2019. He succeeds Carolina Dybeck Happe who will take up a new position outside the company. Erik is currently Vice President Business Control at Atlas Copco Compressor Technique and has previously held various management positions in the Atlas Copco Group.

Comments by division

EMEA

Sales for the quarter in EMEA division totaled SEK 4,872 M (4,278), with organic sales growth of 2% (4). Growth was strong in Finland and Scandinavia and good in Germany, Eastern Europe and South Europe. Sales in the UK and France were stable while Benelux and Africa & Middle East had negative sales growth. Electromechanical products continued to show strong growth. Acquired growth net was 5%. Operating income totaled SEK 774 M (717), which represents an operating margin (EBIT) of 15.9% (16.8). Return on capital employed amounted to 17.4% (19.2). Operating cash flow before interest paid totaled SEK 627 M (640).

Americas

Sales for the quarter in Americas division totaled SEK 5,211 M (4,426), with organic sales growth of 10% (3). The growth was very strong in the US Residential market and for Electromechanical & High-security products while Canada, Brazil and the US markets for Perimeter Protection, Architectural Hardware and Security doors all showed strong growth. Growth in Mexico was good, but was negative in Colombia. The demand for electromechanical products in the USA continued to be very strong. Acquired growth net was 0%. Operating income totaled SEK 1,046 M (966), which represents an operating margin (EBIT) of 20.1% (21.8). Return on capital employed amounted to 23.8% (25.9). Operating cash flow before interest paid totaled SEK 1,203 M (1,046).

Asia Pacific

Sales for the quarter in Asia Pacific division totaled SEK 2,627 M (2,448), with organic sales growth of 1% (2). Growth was strong in South Korea and Japan and stable in Pacific and South Asia. In China sales of both lock products and security doors declined. The implementation of a new strategy and new organization is ongoing in China. Electromechanical locks continued to grow strongly. Acquired growth was 0%. Operating income totaled SEK 242 M (277), which represents an operating margin (EBIT) of 9.2% (11.3). Return on capital employed amounted to 12.3% (9.3). Operating cash flow before interest paid totaled SEK 120 M (155).

Global Technologies

Sales for the quarter in Global Technologies division totaled SEK 3,001 M (2,417), with organic sales growth of 12% (6). The growth was driven by very strong development in Extended Access, Identification Technology, Identity & Access Solutions, Citizen ID and Physical Access Control, but growth for Secure Issuance was negative. ASSA ABLOY Global Solutions also grew very strongly. Acquired growth net was 4%. Operating income totaled SEK 641 M (431), which represents an operating margin (EBIT) of 21.4% (17.8). Return on capital employed amounted to 14.4% (14.6). Operating cash flow before interest paid totaled SEK 674 M (373).

Entrance Systems

Sales for the quarter in Entrance Systems division totaled SEK 5,909 M (5,242), with organic growth of 4% (2). US Residential Doors grew strongly and Industrial Doors had good growth. Sales for Pedestrian Doors and Door Components were stable, while High Performance Doors and Residential Doors in Europe had a negative development. Acquired growth was 1%. Operating income totaled SEK 831 M (762), which represents an operating margin (EBIT) of 14.1% (14.5). Return on capital employed amounted to 15.6% (15.7). Operating cash flow before interest paid totaled SEK 593 M (593).

Acquisitions and disposals

A total of five acquisitions were consolidated during the quarter. The combined acquisition price for the companies acquired during the year, including adjustments from prior-year acquisitions, amounted to SEK 4,765 M. The acquisition price for these companies on a cash and debt free basis amounted to SEK 5,306 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 4,241 M. Estimated deferred considerations amounted to SEK 764 M.

On September 24 it was announced that ASSA ABLOY had acquired Crossmatch, a leader in biometric identity management and secure authentication solutions. The company has about 270 employees and its sales in 2018 are expected to amount to SEK 1,150 M.

Sustainable development

Reduced energy consumption in the Group's factories and sales companies is a priority area for achieving a reduced environmental impact and lower costs. The improvement project is driven locally in the Group's units, often with support from Kaizen methodology to identify and prioritize different activities.

To further drive improvements, EMEA has certified three major production plants to the International Standard for Energy Management Systems, ISO 50001:2011. The Standard specifies the requirements for maintaining and improving an energy management system. The Standard will enable the plants to follow a systematic approach in achieving continual improvements in energy performance, efficiency and cost. Two of the plants are located in Germany and one in France. The plants have energy-intensive production processes involving for instance machining and die-casting. The three plants account for approximately 3% of the Group's total energy consumption.

The Group's ambition is to improve its energy efficiency by 20% between 2015 and 2020. At the end of 2017 the like-for-like energy consumption had been reduced by 17% compared to 2015. Further improvements are expected during the coming years.

Parent company

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 2,965 M (2,620) for the first nine months of the year. Operating income for the same period amounted to SEK 829 M (940). Investments in tangible and intangible assets totaled SEK 21 M (14). Liquidity is good and the equity ratio is 38.2% (42.5).

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 2018 and are described briefly on page 18. This Report was prepared in accordance with IAS 34 'Interim Financial Reporting' and the Annual Accounts Act. The Interim Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2 'Reporting by a Legal Entity'.

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 19 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 2017 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 2017 Annual Report.

Review

The Company's Auditors have not carried out any review of this Report for the third quarter of 2018.

Stockholm, 19 October 2018

Nico Delvaux

President and CEO

Financial information

The Year-end Report and Quarterly Report for the fourth quarter will be published

on 5 February 2019.

A capital markets day will be held on 14 November 2018 in Stockholm, Sweden.

Further information can be obtained from:

Nico Delvaux,

President and CEO, Tel: [phone]

Carolina Dybeck Happe,

Chief Financial Officer, Tel: [phone]

ASSA ABLOY is holding a telephone and web conference at 10.00 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 19 October 2018. 
 
ASSA ABLOY AB (publ)        Tel [phone] 
 Box 703 40                  00 
 107 23 Stockholm            Fax [phone] 
 Visiting address            85 
 Klarabergsviadukten         www.assaabloy.com                   No. 22/2018 
 90, Stockholm, Sweden 
                             Corporate identity number: 
                             556059-3575 
 

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Financial information - Group

Financial information - Group

Financial information - Group

Financial information - Parent company

Quarterly information - Group

Reporting by division

Reporting by division

Financial information - Notes

Financial information - Notes

New accounting standards and standards not yet effective

Definitions of financial performance measures

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October 19, 2018 02:30 ET (06:30 GMT)