ASSA ABLOY: Continued weak market but strong earnings
(Thomson Reuters ONE) - * Sales totaled SEK 8,921 M (8,526), an increase of 5%, with -14% organic growth, 4% acquired growth and exchange-rate effects of 15%. * The downturn in construction continued on all the world's major markets. * Sustained and substantial efficiency gains from restructuring programs and capacity adjustments throughout the Group contributed to good earnings and produced a very strong cash flow. * Operating income (EBIT) amounted to SEK 1,340 M (1,378), a fall of 3%, representing a margin of 15.0% (16.2). * Net income amounted to SEK 852 M (865). * Earnings per share amounted to SEK 2.25 (2.30), a decrease of 2%.SALES AND INCOME Second quarter First half-year 2008 2009 Change 2008 2009 ChangeSales, SEK M 8,526 8,921 +5% 16,728 17,803 +6% of which, Organic growth -14% -13% Acquisitions +4% +4% Exchange-rate effects -386 1,433 +15% -661 2,893 +15%Operating income (EBIT),SEK M 1,378 1,340 -3% 2,621 2,668* +2%Operating margin (EBIT), % 16.2 15.0 15.7 15.0*Income before tax, SEK M 1,188 1,176 -1% 2,243 2,299* +2%Net income, SEK M 865 852 -2% 1,637 1,571** -4%Operating cash flow, SEK M 1,081 1,584 +47% 1,663 2,422 +46%Earnings per share (EPS),SEK 2.30 2.25 -2% 4.38 4.45* +2%* Excluding restructuring costs amounting to SEK 109 M in 2009.** Excluding restructuring costs, net income was SEK 1,680 M for thefirst half of 2009.COMMENTS BY THE PRESIDENT AND CEO"The negative trend on the market continued during the secondquarter. In spite of this, profit and cash flow were maintained atvery high levels as a result of the fast capacity adjustments ofproduction combined with the successful restructuring program. Ourexpectation is still that the remainder of 2009 will be extremelychallenging for both sales and earnings. During the second half ofthe year the important US market will weaken further owing to asevere cutback in commercial construction projects.Investments in improved market coverage and in new products areproceeding on an undiminished scale, in parallel with continuingadaptation of the organization to the current market situation. It isalso very pleasing that we have succeeded in boosting our leadingposition in the fast-growing and profitable door automation segmentthrough the July agreement to acquire Ditec," said Johan Molin,President and CEO.SECOND QUARTERThe Group's sales totaled SEK 8,921 M (8,526), representing growth of5% compared with 2008. Organic growth for comparable units was -14%(5). Acquired units accounted for 4% (3) of the increase.Exchange-rate effects had a positive impact of SEK 1,433 M on sales,i.e. 15% (-5).Operating income before depreciation, EBITDA, amounted to SEK 1,601 M(1,599), unchanged from 2008. The EBITDA margin was 17.9% (18.8). TheGroup's operating income, EBIT, amounted to SEK 1,340 M (1,378), afall of 3%, after positive currency effects of SEK 268 M. Theoperating margin was 15.0% (16.2).Net financial items amounted to SEK 165 M (190), which corresponds toan average net interest rate of just under 5%. The Group's incomebefore tax amounted to SEK 1,176 M (1,188), corresponding to adecrease of 1%. Exchange-rate effects had a positive impact ofSEK 252 M on the Group's income before tax. The profit margin was13.2% (13.9). The Group's tax charge totaled SEK 323 M (323).Earnings per share amounted to SEK 2.25 (2.30), a decrease of 2%.During the second quarter a refinancing of all long-term loansmaturing in 2009 was carried out. In total, SEK 3.3 billion wasborrowed on the capital market, split into seven facilities withdurations of between two and five years. No long-term loans mature in2010, which means that the next refinancing will be in 2011. Inaddition, the back-up facility of SEK 12 billion, which matures in2014, is unused.FIRST HALF-YEARSales for the first half of 2009 totaled SEK 17,803 M (16,728), whichrepresents an increase of 6% compared with 2008. Organic growth was-13% (3). Acquired units contributed 4% (3). Exchange-rate effectsaffected sales positively by SEK 2,893 M, i.e. 15%, compared with thefirst half of 2008.Operating income before depreciation, EBITDA, excluding restructuringcosts, amounted to SEK 3,195 M (3,075) for the half-year. Thecorresponding margin was 17.9% (18.4). The Group's operating income,EBIT, excluding restructuring costs, amounted to SEK 2,668 M (2,621),representing a small increase after positive exchange-rate effects ofSEK 493 M. The corresponding operating margin (EBIT) was 15.0%(15.7).Earnings per share, excluding restructuring costs, for the firsthalf-year increased to SEK 4.45 (4.38). Operating cash flow for thehalf-year amounted to SEK 2,422 M (1,663).RESTRUCTURING MEASURESPayments related to the two restructuring programs amounted to SEK224 M in the quarter.Progress of the 2006 and 2008 restructuring programsThe two restructuring programs, initiated in 2006 and 2008, havesurpassed the expected cost savings and have led to reductions inpersonnel of respectively 2,387 and 1,442 people since the projectsbegan, a total of 3,829 people. A further 1,085 people will leaveduring the second half of 2009 and in 2010.Total personnel reductionsThe world economy began to weaken towards the end of 2007 andadjustments of the workforce were initiated at this time. From thefourth quarter of 2007 through the second quarter of 2009 a total of7,462 people (including 3,184 people during the first half of 2009) -that is, 23% of the total number of employees - left the Group as aresult of the capacity changes made and the restructuring programscarried out.COMMENTS BY DIVISIONEMEASales in EMEA division during the quarter totaled SEK 3,459 M(3,578), with organic growth of -18%. The weakening on all marketscontinued, apart from the UK which seems to be bottoming out.Acquired growth amounted to 5%. Operating income amounted toSEK 489 M (608), which represents an operating margin (EBIT) of 14.1%(17.0). The effects of the restructuring programs and otherefficiency measures compensated for many of the effects of thereduced sales volume. Return on capital employed excludingrestructuring and non-recurring costs amounted to 15.9% (22.4). Thereturn was impacted mainly by the lower income. Operating cash flowbefore interest paid totaled SEK 597 M (672).AMERICASThe quarter's sales in Americas division totaled SEK 2,618 M (2,419),with -17% organic growth. All units were impacted by the downturn inthe economy and showed negative growth, although the units in Canada,Mexico and South America were less affected than those in the USA.Acquired growth amounted to 3%. By means of restructuring andcapacity adjustments, the operating margin was maintained at a verystrong level and amounted to 19.6% (20.5). The operating incometotaled SEK 512 M (497). Return on capital employed amounted to 20.9%(24.1). Operating cash flow before interest paid totaled SEK 857 M(564).ASIA PACIFICSales for the quarter totaled SEK 963 M (856), with -9% organicgrowth. The market regions in Australia and New Zealand continued toshow negative growth, while the Chinese market showed a stable trend.Production for export to Europe and North America fell backsignificantly. Acquired growth amounted to 9%. Operating incometotaledSEK 123 M (104), which represents an operating margin (EBIT) of 12.7%(12.2). The quarter's return on capital employed amounted to 16.4%(16.1). Operating cash flow before interest paid totaled SEK 221 M(55).GLOBAL TECHNOLOGIESSales for the quarter totaled SEK 1,239 M (1,157), with organicgrowth of -10%. The division has only commercial customers and theweakened market situation affected all units and regions. The neteffect of acquisitions and disposals amounted to -1%. The division'soperating income amounted to SEK 194 M (159), giving an operatingmargin (EBIT) of 15.6% (13.7). Return on capital employed excludingrestructuring costs amounted to 12.1% (12.6). Operating cash flowbefore interest paid totaled SEK 234 M (183).ENTRANCE SYSTEMSEntrance Systems division reported sales of SEK 863 M (758) for thequarter, representing organic growth of -5%. Continued good sales onthe service side compensated to some extent for the reduction innew-product sales. Acquired growth amounted to 6%. Operating incomeamounted to SEK 128 M (105), giving an operating margin (EBIT) of14.9% (13.8). Return on capital employed amounted to 15.1% (13.5).Operating cash flow before interest paid totaled SEK 149 M (65).ACQUISITIONSDuring the first half-year four acquisitions were consolidated andpayment was made for the last minority shares in iRevo in Korea. Thecombined acquisition price for these acquisitions amounts to SEK 217M, and preliminary acquisition analyses indicate that goodwill andother intangible assets with indefinite useful life amount toSEK 74 M. The acquisition price is adjusted for acquired net debt andestimated earn-outs.In July a contract was signed for the acquisition of the Italiancompany Ditec. Ditec has annual sales of EUR 80 M and has 550employees. The acquisition is expected to be completed during thethird quarter. See separate press release.SUSTAINABILITYAs communicated in the Sustainability Report the Group's move towater-based washing and degreasing systems with very lowenvironmental impact is proceeding at a rapid pace.As a result, ASSA ABLOY reduced the amount of chlorinated organicsolvents (perchloroethylene and trichloroethylene) used in 2008 by55%, to 42 tonnes.The program has continued at undiminished pace in 2009 and willresult in annual consumption falling by a further 80%, to less than10 tonnes, which compares with the 189 tonnes used in 2005.PARENT COMPANY'Other operating income' for the Parent company ASSA ABLOY AB totaledSEK 685 M (1,036) for the half-year. Income before tax amounted toSEK 1,228 M (1,310). Investments in tangible and intangible assetstotaled SEK 1 M (0). Liquidity is good and the equity ratio was 56.8%(47.3).ACCOUNTING PRINCIPLESASSA ABLOY applies International Financial Reporting Standards (IFRS)as endorsed by the European Union. Significant accounting andvaluation principles are detailed on pages 56-60 of the 2008 AnnualReport. ASSA ABLOY has subsequently implemented the revisedInternational Accounting Standard IAS 1, which came into force on 1January 2009. The change means that additional items are now includedin Other comprehensive income in the Group's income statement. Theseitems were previously reported in changes to shareholders' equity.ASSA ABLOY has also implemented IFRS 8, which contains rules aboutsegment reporting. ASSA ABLOY reports the same operating segments asbefore. The Group's Interim Reports are prepared in accordance withIAS 34. The Parent company applies RFR 2.2.TRANSACTIONS WITH RELATED PARTIESNo transactions that significantly affected the company's positionand income have taken place between ASSA ABLOY and related parties.RISKS AND UNCERTAINTY FACTORSAs an international Group with a wide geographic spread, ASSA ABLOYis exposed to a number of business and financial risks. The businessrisks can be divided into strategic, operational and legal risks. Thefinancial risks are related to such factors as exchange rates,interest rates, liquidity, the giving of credit, raw materials andfinancial instruments. Risk management in ASSA ABLOY aims toidentify, control and reduce risks. This work begins with anassessment of the probability of risks occurring and their potentialeffect on the Group. For a more detailed description of risks andrisk management, see pages 41-43 of the 2008 Annual Report. Nosignificant risks other than the risks described there are judged tohave occurred.OUTLOOK*Long-term outlookLong term, ASSA ABLOY expects an increase in security-driven demand.Focus on end-user value and innovation as well as leverage on ASSAABLOY's strong position will accelerate growth and increaseprofitability.Organic sales growth is expected to continue at a good rate. Theoperating margin (EBIT) and operating cash flow are expected todevelop well.Outlook for the year2009 will be a challenging year since the financial crisis has had astrongly negative effect on investments in construction, and negativeorganic growth for the year is therefore expected for ASSA ABLOY.*) The Outlooks published on 22 April 2009 were:Long-term outlookLong term, ASSA ABLOY expects an increase in security-driven demand.Focus on end-user value and innovation as well as leverage on ASSAABLOY's strong position will accelerate growth and increaseprofitability.Organic sales growth is expected to continue at a good rate. Theoperating margin (EBIT) and operating cash flow are expected todevelop well.Outlook for the year2009 will be a challenging year since the financial crisis has had astrongly negative effect on investments in construction, and negativeorganic growth for the year is therefore expected for ASSA ABLOY.Easter is expected to have a negative impact on sales and earnings inthe second quarter.The Board of Directors and the President and CEO declare that thishalf-year report gives an accurate picture of the Parent company'sand the Group's operations, position and income and describessignificant risks and uncertainty factors faced by the Parent companyand the companies making up the Group. Stockholm, 29 July 2009 Gustaf Douglas Carl Douglas Jorma Halonen Chairman Board member Board member Birgitta Klasén Eva Lindqvist Johan Molin Board member Board member President and CEO Sven-Christer Nilsson Lars Renström Ulrik Svensson Board member Board member Board member Seppo Liimatainen Mats PerssonEmployee representative Employee representativeREVIEW REPORTWe have reviewed this Report for the period 1 January 2009 to 30 June2009 for ASSA ABLOY AB (publ). The Board of Directors and the CEO areresponsible for the preparation and presentation of this InterimReport in accordance with IAS 34 and the Swedish Annual Accounts Act.Our responsibility is to express a conclusion on this Interim Reportbased on our review.We conducted our review in accordance with the Swedish Standard onReview Engagements SÿG 2410, Review of Interim Report Performed bythe Independent Auditor of the Entity. A review consists of makinginquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an auditconducted in accordance with Standards on Auditing in Sweden, RS, andother generally accepted auditing standards in Sweden. The proceduresperformed in a review do not enable us to obtain assurance that wewould become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an auditopinion.Based on our review, nothing has come to our attention that causes usto believe that the Interim Report is not prepared, in all materialrespects, in accordance with IAS 34 and the Swedish Annual AccountsAct, regarding the Group, and with the Swedish Annual Accounts Act,regarding the Parent company.Stockholm, 29 July 2009PricewaterhouseCoopers ABPeter Nyllinge Bo KarlssonAuthorized Public Accountant Authorized Public AccountantAuditor in chargeFINANCIAL INFORMATIONThe Interim Report for the third quarter will be published on 28October 2009.FURTHER INFORMATION CAN BE OBTAINED FROM:Johan Molin, President and CEO, Tel: +46 8 506 485 42Tomas Eliasson, Chief Financial Officer, Tel: +46 8 506 485 72 ASSA ABLOY is holding an analysts' meeting at 10.00 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 1226This information is that which ASSA ABLOY is required to discloseunder the Swedish Securities Exchange and Clearing Operations Actand/or the Swedish Financial Instruments Trading Act. The informationis released for publication at 08.30 on 29 July.http://hugin.info/1014/R/1331334/314973.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 29.07.2009 - 08:30 Uhr
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