ASSA ABLOY AB (publ) Half-year Report (5664E)

TIDM77BL

RNS Number : 5664E

ASSA ABLOY AB (publ)

19 July 2016

 
Organic growth 
+4% 
 
 
Operating income 
+6% 
 
 
Earnings per share 
+7% 
 
 

Strong growth in mature markets

Second quarter

-- Net sales increased by 5% to SEK 17,894 M (17,082), of which 4% (4) was organic growth and 4% (3) was acquired growth

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

   --       Negative growth in Asia Pacific owing to weak demand in China 

-- Contracts have been signed for the acquisition of six companies with combined expected annual sales of about SEK 950 M

-- Operating income (EBIT) increased by 6% to SEK 2,910 M (2,742). The operating margin was 16.3% (16.1)

   --       Net income amounted to SEK 2,026 M (1,888) 
   --       Earnings per share rose by 7% and amounted to SEK 1.82 (1.70) 
   --       The quarter's operating cash flow increased by 27% to SEK 2,519 M (1,991). 

Sales and income

 
                               Second quarter               First half-year 
                             =================  ========  ==================  ======== 
 
                                 2015     2016   <DELTA>      2015      2016   <DELTA> 
---------------------------  --------  -------  --------  --------  --------  -------- 
 Sales, SEK M                  17,082   17,894        5%    32,334    33,785        4% 
 Of which: 
 Organic growth                   656      650        4%     1,336     1,099        4% 
 Acquisitions                     453      593        4%       829     1,083        3% 
 Exchange-rate effects          2,008     -431       -3%     3,900      -730       -3% 
 Operating income (EBIT), 
  SEK M                         2,742    2,910        6%     5,071     5,321        5% 
 Operating margin (EBIT), 
  %                             16.1%    16.3%               15.7%     15.7% 
 Income before tax, SEK 
  M                             2,551    2,729        7%     4,735     4,938        4% 
 Net income, SEK M              1,888    2,026        7%     3,504     3,664        5% 
 Operating cash flow, 
  SEK M                         1,991    2,519       27%     2,511     3,017       20% 
 Earnings per share (EPS), 
  SEK                            1.70     1.82        7%      3.15      3.30        5% 
 

Comments by the President and CEO

"The second quarter of the year showed strong demand for ASSA ABLOY," says Johan Molin, President and CEO. "The mature markets in general produced strong growth, something we have not seen since the financial crisis, at the same time as the emerging markets continued their slowdown. Sales increased by 5% during the quarter, of which 4% was organic growth. Operating income outstripped sales growth and increased by 6%.

"Organic growth during the quarter was affected by a positive calendar effect of approximately one day. In Americas, EMEA and Global Technologies an encouraging sales growth continued, while Entrance Systems showed a rather weaker growth. The downturn in Asia Pacific continued because of a weak demand situation, especially in China. The emerging markets also remained weak, but with some bright points in eastern Europe and in Latin America apart from Brazil.

"ASSA ABLOY has once again been named as one of the world's one hundred most innovative companies by Forbes magazine. It is pleasing to see that our innovative new products are growing strongly. During the quarter a so-called multi-family solution was launched, whereby ASSA ABLOY for the first time offers a total solution for multi-family buildings where all lock units are both electronic and connected. The electronic content is growing steadily on the market, and there is great potential for the future.

"A further six companies were acquired during the quarter. Consolidation of the market for entrance automation continued with the acquisition of Nassau, which is a regional leader primarily in Denmark. Another interesting acquisition was the company Mauer, the market leader in locks in Bulgaria. ASSA ABLOY has been building a market leadership in eastern Europe for a number of years, which Mauer complements very well.

"Operating income for the quarter increased by 6%. At the same time the operating margin rose to 16.3% in spite of negative effects from both acquisition dilution and exchange-rate effects. The improvement in the margin was mainly due to good organic growth of 4% and lower raw-material costs.

"My judgment is that the global economic trend remains weak, but with a positive trend in America and parts of Europe. Elsewhere, many of the emerging markets are stagnating. However, our strategy of expanding on the emerging markets remains unchanged, since in the long term they are expected to achieve very good economic growth. We are also continuing our investments in new products, especially in the growth area of electromechanics."

Second quarter

The Group's sales totaled SEK 17,894 M (17,082). Organic growth for comparable units was 4% (4). Acquired units contributed 4% (3). Exchange-rate effects had an impact of SEK -431 M (2,008) on sales, that is -3% (15). Operating income before depreciation and amortization, EBITDA, amounted to SEK 3,305 M (3,117). The corresponding EBITDA margin was 18.5% (18.2). The Group's operating income, EBIT, amounted to SEK 2,910 M (2,742). The operating margin was 16.3% (16.1).

Net financial items amounted to SEK -181 M (-191). The Group's income before

tax was SEK 2,729 M (2,551), an improvement of 7% compared with last year. Exchange-rate effects had an impact of SEK -77 M (278) on income before tax. The profit margin was 15.2% (14.9). The estimated underlying effective tax rate on an annual basis was 26% (26). Earnings per share amounted to SEK 1.82 (1.70), an increase of 7% compared with last year.

First half-year

The Group's sales for the first half of 2016 totaled SEK 33,785 M (32,334), representing an increase of 4%. Organic growth was 4% (4). Acquired units contributed 3% (3). Exchange-rate effects had an impact of SEK -730 M (3,900)

on sales, that is -3% (16), compared with the first half of 2015.

Operating income before depreciation and amortization, EBITDA, for the half-year amounted to SEK 6,092 M (5,776). The corresponding margin was 18.0% (17.9). The Group's operating income, EBIT, amounted to SEK 5,321 M (5,071), which was an increase of 5% compared with last year. The corresponding EBIT operating margin was 15.7% (15.7).

Earnings per share for the first half-year increased to SEK 3.30 (3.15), a rise of 5% compared with last year. Operating cash flow totaled SEK 3,017 M (2,511).

Restructuring measures

Payments related to all existing restructuring programs amounted to SEK 50 M in the quarter. The restructuring programs proceeded according to plan and led to a reduction in personnel of 149 people during the quarter and 11,356 people since the projects began in 2006.

At the end of the second quarter provisions of SEK 395 M remained in the balance sheet for carrying out the programs.

Comments by division

EMEA

Sales for the quarter in EMEA division totaled SEK 4,234 M (4,068), with organic growth of 6% (5). The markets in Scandinavia, Finland, Africa, Germany, Iberia and eastern Europe showed strong growth. Britain, Benelux, France, Italy and Israel showed good growth. The positive trend for electromechanical products continued. Acquired growth amounted to 1% (2). Operating income totaled SEK 649 M (614), which represented an operating margin (EBIT) of 15.3% (15.1). Return on capital employed amounted to 18.4% (17.4). Operating cash flow before interest paid totaled SEK 581 M (355).

Americas

Sales for the quarter in Americas division totaled SEK 4,291 M (3,953),

with organic growth of 8% (5). Growth was strong for Security doors, Electromechanical products, the Residential market, Mexico and South America, apart from Brazil which was negative. Traditional lock products, High-security products and Canada showed good growth. Acquired growth amounted to 3% (2). Operating income totaled SEK 949 M (870), which represented an operating margin (EBIT) of 22.1% (22.0). Return on capital employed amounted to 26.0% (24.5). Operating cash flow before interest paid totaled SEK 1,127 M (955).

Asia Pacific

Sales for the quarter in Asia Pacific division totaled SEK 2,518 M (2,793), with organic growth of -6% (-2). Sales in the Pacific showed strong growth, while

the trend was good in South-East Asia and Korea. China continued to show a negative sales trend due to low domestic demand. Acquired growth amounted to 1% (9). Operating income totaled SEK 355 M (403), which represented an operating margin (EBIT) of 14.1% (14.4). Return on capital employed amounted to 11.5% (14.0). Operating cash flow before interest paid totaled SEK 362 M (261).

Global Technologies

Sales for the quarter in Global Technologies division totaled SEK 2,424 M (2,315), with organic growth of 5% (10). Access Control (PACS), Government ID and Quantum Secure showed strong growth within HID Global. Identification Technology (IDT) and AdvanIDe showed growth. IAM Solutions showed weakening sales. Hospitality showed stable performance. Acquired growth amounted to 2% (3). Operating income amounted to SEK 447 M (417), which represented an operating margin (EBIT) of 18.5% (18.0). Return on capital employed amounted to 17.4% (16.9). Operating cash flow before interest paid totaled SEK 320 M (155).

Entrance Systems

Sales for the quarter in Entrance Systems division totaled SEK 4,767 M (4,325), with organic growth of 4% (5). Sales for Door automation, High-speed doors and European industrial doors increased strongly while growth for 4Front,

Amarr and Ditec was good. Sales weakened for the Residential market

in Europe. Acquired growth amounted to 8% (0). Operating income totaled SEK 628 M (556), which represented an operating margin (EBIT) of 13.2% (12.9). Return on capital employed amounted to 13.7% (13.1). Operating cash flow before interest paid totaled SEK 632 M (603).

Acquisitions and disposals

A total of three minor acquisitions were consolidated during the quarter. The combined acquisition price for the companies acquired in the first half-year amounted to SEK 1,450 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 1,043 M. The acquisition price is adjusted for acquired net debt and estimated deferred considerations. Estimated deferred considerations amount to SEK 178 M.

The contract for the sale of the Group's Car Locks business was signed with the Japanese company Alpha Corporation in March. The transaction is expected to be completed in the third quarter of 2016 and is dependent on approval by the appropriate authorities. From 1 January the business has been reclassified under 'Assets held for sale' in accordance with IFRS 5. As a result, net sales for the half-year fell by SEK 287 M compared with the previous year.

Organization

Christophe Sut has been appointed Executive Vice President and Head of the Hospitality business unit within Global Technologies from 10 July 2016. He succeeds Tim Shea, who is retiring. Christophe Sut has worked in several different posts at ASSA ABLOY since 2001 and was most recently Head of Business Development and Technology in the Hospitality business unit. Christophe Sut has an M.Sc. in Marketing and Sales and a Bachelor's degree

in Language and Mathematics.

Sustainable development

Reduced quantities of waste are an important part of ASSA ABLOY's long--term work to reduce the Group's total environmental impact. The Group's manufacturing plants are responsible for the greater part of the waste material. More and more plants are working with the principle that no waste should go

to landfill. In the EMEA division, 15 plants have recently been certified by the Carbon Trust as achieving 'Zero Waste to Landfill'. The certification means that at least 95% of the total amount of waste is separated into a number of different fractions and recycled. Other ASSA ABLOY divisions are evaluating similar certification of their plants.

In parallel with a more effective sorting of waste, other activities to reduce amounts of waste are in hand, for example through the use of returnable packaging for purchased components. The Group's target is to reduce the amount of waste relative to the size of the business by 20% by the end of 2020.

Parent company

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 1,963 M (1,518) for the first half-year. Operating income for the first half--year amounted to SEK 875 M (524). Investments in tangible and intangible assets totaled SEK 7 M (7). Liquidity is good and the equity ratio was 42.9% (41.4).

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 92-97 of the 2015 Annual Report. This Interim 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 18 of this Quarterly 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 2015 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 2015 Annual Report.

Certification

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, 18 July 2016

 
 
 
    Lars Renström           Carl Douglas          Ulf Ewaldsson 
        Chairman                Vice Chairman          Board member 
 
 
 
       Eva Karlsson          Birgitta Klasén      Eva Lindqvist 
      Board member              Board member           Board member 
 
 
 
        Johan Molin              Jan Svensson          Ulrik Svensson 
    President and CEO           Board member           Board member 
 
 
 
       Bert Arleros              Mats Persson 
 Employee representative   Employee representative 
 

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Report of Review of Interim Financial Information

Introduction

We have reviewed the condensed interim financial information (interim report) of ASSA ABLOY (publ.) as of 30 June 2016 and the six-month period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial information 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.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 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 International Standards on Auditing, ISA, 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.

Conclusion

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, 18 July 2016

PricewaterhouseCoopers

   Bo Karlsson                                          Linda Corneliusson 
   Authorized Public Accountant               Authorized Public Accountant 

Auditor in charge

Financial information

The Interim Report for the third quarter will be published on 21 October 2016.

A capital markets day will be held on 16 November 2016 in Stockholm, Sweden.

Further information can be obtained from:

Johan Molin,

President and CEO, Tel: [phone]

Carolina Dybeck Happe,

Chief Financial Officer, Tel: [phone]

ASSA ABLOY is holding an analysts' meeting at 10.00 today

at Operaterrassen in Stockholm, Sweden.

The analysts' meeting can also 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 and the Securities 
      Markets Act. The information was submitted for publication, through 
      the agency of the contact persons set out above, at 08.00 CET on 19 
                                                               July 2016. 
 
ASSA ABLOY AB (publ)       Tel [phone] 
 Box 703 40                 00 
 107 23 Stockholm           Fax [phone] 
 Visiting address           85 
 Klarabergsviadukten        www.assaabloy.com                No. 11/2016 
 90, Stockholm, Sweden 
                            Corporate identity number: 
                            5560593575 
 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

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July 19, 2016 03:29 ET (07:29 GMT)