ASSA ABLOY AB (publ) Half-year Report (0154V)

TIDM77BL

RNS Number : 0154V

ASSA ABLOY AB (publ)

18 July 2018

 
 
Organic growth 
+5% 
 
 
Operating income 
 (1) 
-6% 
 
 
Earnings per share 
 (1) 
-6% 
 
 

Solid underlying performance for ASSA ABLOY

Second quarter

-- Net sales increased by 9% to SEK 21,140 M (19,387), with organic growth of 5% (2) and acquired net growth of 2% (2)

-- Strong growth was shown by Americas, Global Technologies and Entrance Systems and stable growth by Asia Pacific and EMEA

-- One-off costs in Asia Pacific during the quarter amounted to SEK -5,595 M for impairment of goodwill and other intangible assets and SEK -400 M for write-downs of operating assets

-- Contracts have been signed for the acquisition of eight companies with expected combined annual sales of about SEK 1,200 M. The Wood Door business in the USA, with annual sales of about SEK 600 M, has been divested

-- Operating income (EBIT) (1) amounted to SEK 2,911 M (3,114), with an operating margin of 13.8% (16.1)

   --       Net income (1) amounted to SEK 2,049 M (2,179) 
   --       Earnings per share (1) amounted to SEK 1.84 (1.96) 
   --       Operating cash flow increased by 11% to SEK 2,855 M (2,575). 

Sales and income

 
                                  Second quarter               First half-year 
                                =================  ========  ==================  ======== 
 
                                    2017     2018   <DELTA>      2017      2018   <DELTA> 
------------------------------  --------  -------  --------  --------  --------  -------- 
 Sales, SEK M                     19,387   21,140        9%    37,529    39,690        6% 
 Of which: 
 Organic growth                      344      954        5%     1,366     1,659        5% 
 Acquisitions and divestments        451      366        2%       900       633        2% 
 Exchange-rate effects               698      433        2%     1,478      -131       -1% 
 Operating income (EBIT) 
  (1) , SEK M                      3,114    2,911       -6%     5,901     5,740       -3% 
 Operating margin (EBITA) 
  (1) , %                          16.3%    14.2%               16.0%     14.9% 
 Operating margin (EBIT) 
  (1) , %                          16.1%    13.8%               15.7%     14.5% 
 Income before tax (1) 
  , SEK M                          2,944    2,720       -8%     5,537     5,374       -3% 
 Net income (1) , SEK 
  M                                2,179    2,049       -6%     4,097     4,013       -2% 
 Operating cash flow, 
  SEK M                            2,575    2,855       11%     3,399     3,431        1% 
 Earnings per share (1) 
  , SEK                             1.96     1.84       -6%      3.69      3.61       -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 second quarter continued with strong organic growth of 5%. Organic growth was strong in Americas (9%), Global Technologies (6%) and Entrance Systems (6%), while Asia Pacific and EMEA reported stable organic sales growth of 2%.

The second quarter's operating income declined by 6% year-on-year to

SEK 2,911 M, corresponding to an operating margin of 13.8%. The Group's adjusted operating income, excluding write-downs of operating assets of SEK

-400 M, was SEK 3,311 M corresponding to a stable operating margin of 15.7%.

Operating cash flow was strong in the second quarter and increased by 11% to SEK 2,855 M. We are continuing with full focus on our current restructuring programs and, as previously announced, we expect to launch a new program by the end of 2018.

Strategic overview in China

Since the peak in 2014 we have been exposed to a general market decline in China. This decline has been particularly evident in the regions where we had our strongest market presence and we have had to adapt to the challenging market conditions.

The market situation in China continues to be difficult, as previously reported. We expect the operating margin to remain low in the Chinese market for the next few years and this has resulted in a required write-down of SEK 5,595 M for impairment of goodwill and other intangible assets. We also made provisions of SEK 400 M for receivables and inventory in the quarter.

After the events of 2016, our focus was internal and directed to stabilizing the organization. We are now building a focused China organization around our main brands: PanPan, Yale and ASSA ABLOY. China will remain very important to us, and we remain firmly committed to the market. In China we are now seeing continued urbanization, a growing aftermarket for our products, and increasing demand for more advanced security solutions. We are convinced that with our new business strategy in place China will give us good returns in the longer term.

Our innovation recognized

I am very proud and pleased to see that ASSA ABLOY is again on the Forbes list of the top 100 most innovative companies in the world. I am convinced that our strong focus on innovation in both products and processes is the best way for us to continue to be the leader in our industry.

We have the right people and the right culture to make a difference and the organization's ability to innovate is clearly reflected in the strong demand for our new products.

Stockholm, 18 July 2018

Nico Delvaux

President and CEO

Second quarter

The Group's sales increased by 9% to SEK 21,140 M (19,387). Organic growth amounted to 5% (2). Acquisitions and disposals were 2% (2), of which 4% (2) were acquisitions and -2% (0) were disposals. Exchange-rates affected sales by 2% (4).

The Group's operating income, EBIT excluding impairment of intangible assets amounted to SEK 2,911 M (3,114) a decrease of 6%. The operating result was impacted by a write-down of operating assets in Asia Pacific amounting to SEK

-400 M. The operating margin was 13.8% (16.1).

Operating income before amortizations from acquisitions, EBITA, excluding impairment of intangible assets, amounted to SEK 3,007 M (3,168). The corresponding EBITA margin was 14.2% (16.3).

Net financial items amounted to SEK -191 M (-170). The Group's income

before tax, excluding impairment of intangible assets, was SEK 2,720 M (2,944), a decrease of 8% compared with last year. The corresponding profit margin was 12.9% (15.2). Exchange-rates had an impact of SEK 42 M (96) on income before tax.

The estimated effective tax rate, excluding impairment of goodwill, was 26% (26) on an annual basis. Earnings per share excluding impairment of intangible assets amounted to SEK 1.84 (1.96), a decrease of 6% compared to last year.

First half-year

The Group's sales for the first half of 2018 totaled SEK 39,690 M (37,529), representing an increase of 6%. Organic growth was 5% (4). Acquisitions and disposals were 2% (3), of which 4% (3) were acquisitions and -2% (0) were disposals. Exchange-rate effects affected sales by -1% (4).

The Group's operating income, EBIT excluding impairment of intangible assets amounted to SEK 5,740 M (5,901), a decrease of 3% compared with last year. The operating margin was 14.5% (15.7). Operating income before amortizations from acquisitions, EBITA, excluding impairment of intangible assets, amounted to SEK 5,928 M (6,006). The corresponding EBITA margin was 14.9% (16.0).

Earnings per share for the first half-year excluding impairment of intangible assets amounted to SEK 3.61 (3.69), a decrease of 2% compared with last year. Operating cash flow totaled SEK 3,431 M (3,399).

Restructuring measures

Payments related to all restructuring programs amounted to SEK 166 M (136)

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

led to a reduction in personnel of 163 people during the quarter and 14,235 people since the projects began in 2006. At the end of the quarter provisions of SEK 619 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 cost of the restructuring is estimated to be in line with previous programs, with an expected payback time of around three years.

Organization

Carolina Dybeck Happe, Executive Vice President and Chief Financial Officer (CFO) has decided to leave ASSA ABLOY at year-end 2018 after six years' service as Group CFO to take up a post elsewhere. Recruitment of a successor has begun.

Neil Vann has been appointed Executive Vice President and Head of the EMEA Division. Neil Vann joined ASSA ABLOY with the Group's acquisition of Yale in 2000 and for the past four years has served as Market Region Manager for ASSA ABLOY UK within EMEA. He succeeds Tzachi Wiesenfeld who has decided to leave ASSA ABLOY after 12 years' service as Head of the EMEA Division.

Comments by division

EMEA

Sales for the quarter in EMEA division totaled SEK 5,069 M (4,529), with organic sales growth of 2% (2). Growth was strong in Finland, Scandinavia, Germany and Eastern Europe, and was good in Southern Europe. The UK and Africa/ Middle East also showed growth while Benelux and France had negative sales development. Electromechanical products showed strong growth, and demand was especially strong for smart door locks for the residential market. Acquired growth net was 5%. Operating income totaled SEK 807 M (713), which represents an operating margin (EBIT) of 15.9% (15.7). Return on capital employed amounted to 19.0% (19.0). Operating cash flow before interest paid totaled SEK 607 M (461).

Americas

Sales for the quarter in Americas division totaled SEK 5,078 M (4,704), with organic sales growth of 9% (3). Growth was strong for Architectural Hardware, Perimeter Protection, Electromechanical and High-security products and the Residential market in the USA and in Canada, Mexico and for South America apart from Colombia. Security Doors showed stable growth. The demand for smart door locks for the residential market in the USA was very high. Acquired growth net was 0%. Operating income totaled SEK 1,022 M (1,041), which represents an operating margin (EBIT) of 20.1% (22.1). Return on capital employed amounted to 23.7% (26.1). Operating cash flow before interest paid totaled SEK 1,245 M (1,163).

Asia Pacific

Sales for the quarter in Asia Pacific division totaled SEK 2,608 M (2,445), with organic sales growth of 2% (-6). Strong growth was achieved in South Korea, Pacific and Japan, while South Asia had negative sales development. Sales in China were weak and declined for both lock products and security doors. Smart door-locks grew strongly in the region. Acquired growth was 1%. Operating income, including write-down of operating assets of SEK 400 M, totaled SEK

-168 M (274), which represents an operating margin (EBIT) of -6.5% (11.2). Return on capital employed amounted to -6.6% (9.0). Operating cash flow before interest paid totaled SEK 244 M (116).

Global Technologies

Sales for the quarter in Global Technologies division totaled SEK 2,871 M (2,640), with organic sales growth of 6% (3). Physical Access control, Citizen ID, Extended Access and Identity & Access Solutions showed strong sales growth, while Secure Issuance and Identification Technology had stable sales development. Hospitality showed continued strong growth. Sales of mobile key solutions continued to grow strongly. Acquired growth net was 2%. Operating income totaled SEK 564 M (486), which represents an operating margin (EBIT) of 19.6% (18.4). Return on capital employed amounted to 13.5% (17.0). Operating cash flow before interest paid totaled SEK 642 M (511).

Entrance Systems

Sales for the quarter in Entrance Systems division totaled SEK 5,914 M (5,381), with organic growth of 6% (3). Pedestrian doors, Industrial doors, US Garage doors and Logistic solutions in the USA showed strong growth while High-speed doors showed growth. EU residential doors and Door Components showed negative sales development. Acquired growth was 1%. Operating income totaled SEK 819 M (720), which represents an operating margin (EBIT) of 13.8% (13.4). Return on capital employed amounted to 15.7% (14.7). Operating cash flow before interest paid totaled SEK 577 M (638).

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 2,691 M. The acquisition price for these companies on a cash and debt free basis amounted to SEK 2,710 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 2,042 M. Estimated deferred considerations amounted to SEK 741 M.

On July 13 it was announced that ASSA ABLOY had signed a contract to acquire Planet GDZ, a leading Swiss supplier of drop down seals and finger protection covers for doors. The acquisition is expected to be completed during the third quarter. The company has approximately 55 employees and its sales in 2018 are expected to amount to SEK 160 M.

On July 3 it was announced that ASSA ABLOY had acquired Door Systems, an American distributor in industrial doors, residential sectional doors, high speed doors and docking solutions. The company has approximately 100 employees and its sales in 2018 are expected to amount to SEK 230 M.

On June 11 it was announced that ASSA ABLOY had acquired HKC, a leading Irish manufacturer of alarms and cloud based monitoring solutions. The company has approximately 45 employees and its sales in 2018 are expected to amount to SEK 180 M.

On June 4 it was announced that ASSA ABLOY had sold its Wood Door business in the USA to Masonite. The business has approximately 275 employees and its sales in 2017 totaled approximately SEK 600 M. The disposal will have a positive effect on ASSA ABLOY's future operating margin.

On May 9 it was announced that ASSA ABLOY had signed a contract to acquire Pioneer Industries, an American supplier of steel doors and frames for commercial applications. The acquisition was completed during the second quarter. The company has approximately 100 employees and its sales in 2018 are expected to amount to SEK 180 M.

On May 9 it was announced that ASSA ABLOY had acquired Brüken, a leading Mexican company in glass- and aluminum hardware. It has approximately 80 employees and its sales in 2018 are expected to amount to SEK 260 M.

Sustainable development

In the USA, Entrance Systems Division has converted a production line for manufacturing door panels, making use of more environmentally friendly materials. The new process will reduce the Group's total greenhouse gas emissions by 16 000 tons of CO2 equivalents during 2018, which represents an improvement across the Group of about 5%. The Entrance Systems Division plans to convert another similar production line in the same way early in 2019.

Parent company

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 2,272 M (2,113) for the first half-year. Operating income for the same period amounted to SEK 878 M (950). Investments in tangible and intangible assets totaled SEK 16 M (12). Liquidity is good and the equity ratio is 36.4% (41.8).

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 20. 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 21 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.

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, 17 July 2018

 
 
 
    Lars Renström           Carl Douglas              Nico Delvaux 
        Chairman                Vice Chairman            President and 
                                                               CEO 
 
 
 
       Ulf Ewaldsson             Eva Karlsson          Birgitta Klasén 
      Board member              Board member              Board member 
 
 
 
        Lena Olving          Sofia Schörling          Jan Svensson 
                                 Högberg 
      Board member              Board member              Board member 
 
 
 
      Rune Hjälm            Mats Persson 
 Employee representative   Employee representative 
 

Report of Review of Interim Financial Information

Introduction

We have reviewed the condensed Interim Financial Information (interim report) of ASSA ABLOY AB (publ.) as of 30 June 2018 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, 17 July 2018

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 19 October 2018

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

on 5 February 2019.

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

the analysts' meeting can be followed on the Internet at www.assaabloy.com.

It is possible to submit questions by telephone on:

[phone], [phone] or [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/0154V_1-2018-7-18.pdf

 
    This 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 CEST on 18 July 2018. 
 
ASSA ABLOY AB (publ)         Tel [phone] 
 Box 703 40                   00 
 107 23 Stockholm             Fax [phone] 
 Visiting address             85 
 Klarabergsviadukten          www.assaabloy.com                   No.19/2018 
 90, Stockholm, Sweden 
                              Corporate identity number: 
                              556059-3575 
 

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

IR EAXXPFSDPEEF

(END) Dow Jones Newswires

July 18, 2018 04:04 ET (08:04 GMT)