REG - ASSA ABLOY AB - 3rd Quarter Results <Origin Href="QuoteRef">ASSAb.ST</Origin>

Assa Abloy ABAnnouncement

21/10/2016 10:20

RNS Number : 1714N
ASSA ABLOY AB (publ)
21 October 2016
Organic growth
+2%
Operating income
+2%
Earnings per share
+3%
Stable progress for ASSA ABLOY during the quarter
Third quarter
 Sales totaled SEK 18,025 M (17,465), with 2% (3) organic growthand 2% (4) acquired growth
 Strong growth for Global Technologies and Americas
 Good growth for Entrance Systems and growth for EMEA
 Negative growth for Asia Pacific due to weak demand in China
 Trojan in the UK was acquired, with expected annual sales of SEK220 M
 Operating income (EBIT) was SEK 3,020 M (2,970). The operating margin was 16.8% (17.0)
 Net income amounted to SEK 2,122M (2,069)
 Earnings per share amounted to SEK 1.91(1.86)
 Operating cash flow increased by 1% to SEK 2,830 M (2,816)
Sales and income
Third quarter
January-September
2015 
2016 
2015 
2016 
Sales, SEK M
17,465
18,025 
3%
49,799 
51,809 
4%
Of which:
Organic growth
471 
307 
2%
1,807 
1,308 
3%
Acquisitions and divestments
606 
429 
2%
1,435
1,512 
3%
Exchange-rate effects
1,661 
-176 
-1%
5,561 
-810 
-2%
Operating income (EBIT), SEK M
2,970 
3,020 
2%
8,041 
8,340 
4%
Operating margin (EBIT), %
17.0% 
16.8% 
16.1% 
16.1% 
Income before tax, SEK M
2,796 
2,844 
2%
7,531 
7,782 
3%
Net income, SEK M
2,069 
2,122 
3%
5,573 
5,786 
4%
Operating cash flow, SEK M
2,816 
2,830 
1%
5,327 
5,846 
10%
Earnings per share (EPS), SEK
1.86 
1.91
3%
5.02 
5.21 
4%
Comments by the President and CEO
"The third quarter of the year showed satisfactory growth for ASSA ABLOY generally, with the exception of Asia Pacific," says Johan Molin, President and CEO. "In general the mature markets made good progress while the growth markets continued to show subdued demand, apart from Latin America and India.
"In Global Technologies and Americas there was strong growth during the quarter, driven by successful marketing efforts and the launch of innovative
new products. Entrance Systems showed good growth. EMEA showed growth despite some impact from a negative calendar effect. Growth in Asia Pacific remained negative because of the weak demand in China.
"The organic growth was rather weaker this quarter and amounted to 2%. Operating income remained strong and the operating margin was 16.8% (17.0).
"A number of major exhibitions have taken place during the quarter, with gratifying results. The Group's innovations have once again been honored by
the award of several prestigious prizes. The launches of The Security Continuum (a platform-independent series of commercial electronic locks) and Accentra
(a cloud-based electronic system for multi-family buildings) were especially acclaimed. Another interesting new series of products that was launched was HID Global's virtual authentication and identification solutions, by which, for example, future driver's licenses can be securely stored on an ordinary smartphone.
"The English company Trojanwas acquired during the quarter. The company is a typical example of a complementary acquisition providing high synergies, by which the company's specialized door and window products allow us to offer the British market complete lock and fittings solutions with good profitability.
"Operating income for the quarter amounted to SEK 3,020 M, with an operating margin of 16.8%, mainly due to positive organic growth, lower raw-material costs and other significant savings. Operating cash flow remained strong.
"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."
Third quarter
The Group's sales totaled SEK 18,025 M (17,465). Organic growth amounted to 2% (3). Acquired units contributed 2% (4). Exchange-rate effects had an impact of SEK -176 M (1,661) on sales, equivalent to -1% (12). Operating income before depreciation and amortization, EBITDA, amounted to SEK 3,425 M (3,330). The corresponding EBITDA margin was 19.0% (19.1).
The Group's operating income, EBIT, amounted to SEK3,020 M (2,970) a rise of 2%. The operating margin was 16.8% (17.0). Adjustment of financial reporting from prior periods for the Chinese operations affected operating income by SEK
-260 M. The reversal of deferred acquisition payments in primarily China has been recognized as income of SEK 268 M since the payments are not expected to take place.
Net financial items amounted to SEK -175 M (-174). The Group's income before
tax was SEK2,844 M (2,796), an increase of 2% compared with last year. Exchange-rate effects had an impact of SEK1M (220) on income before tax. The profit margin was 15.8% (16.0). The estimated underlying effective tax rate on an annual basis was 26% (26). Earnings per share amounted to SEK 1.91 (1.86), an increase of 3% compared with last year.
First nine months of the year
The Group's sales for the first nine months of 2016 totaled SEK 51,809 M (49,799), representing an increase of 4%. Organic growth was 3% (4). Acquired units contributed 3% (3). Exchange-rate effects affected sales by SEK -810 M (5,561), equivalent to -2% (14), compared with last year.
Operating income before depreciation and amortization, EBITDA, amounted to SEK 9,517 M (9,106). The corresponding margin was 18.4% (18.3). The Group's operating income, EBIT, amounted to SEK8,340 M (8,041), which was an increase of 4% compared with last year. The corresponding EBIT operating margin was 16.1% (16.1).
Earnings per share amounted to SEK 5.21 (5.02), a rise of 4% compared with last year. Operating cash flow totaled SEK 5,846 M (5,327).
Restructuring measures
The planning of a new restructuring program has proceeded during the year. The launch is scheduled for the fourth quarter. The closing of about fifty offices and factories is expected to take place over a period of three years. The cost
of the restructuring is estimated to amount to just over SEK 1,500 M, with a payback time (inclusive of investments) of less than three years. 
Payments related to all currently existing restructuring programs amounted
to SEK 61 M in the quarter. The restructuring programs proceeded according to plan and led to a reduction in personnel of 560 people during the quarter and 11,916 people since the projects began in 2006. At the end of the quarter provisions of SEK 339 M remained in the balance sheet for carrying out the programs.
Comments by division
EMEA
Sales for the quarter in EMEA division totaled SEK 4,042 M (4,100), with organic growth of 2% (5). The markets in Scandinavia, Britain and Israel showed strong growth. Germany, Iberia, Benelux and Italy showed good growth. France, Finland, eastern Europe and Africa showed negative growth. The positive trend for electromechanical products continued. Acquired/disposedgrowth amounted to 2% (5). Operating income totaled SEK673M (676), which represented an operating margin (EBIT) of 16.7% (16.5). Return on capital employed amounted to 18.5% (18.3). Operating cash flow before interest paid totaled SEK 402 M (642).
Americas
Sales for the quarter in Americas division totaled SEK 4,422 M (4,064),
with organic growth of 5% (6). Growth was strong for Security doors, Electromechanical products, Mexico and South America, apart from Brazil which showed negative growth. The Residential market, High-security products and Canada showed good growth. Traditional lock products showed growth. Acquired growth amounted to 3% (2). Operating income totaled SEK 959 M (884), which represented an operating margin (EBIT) of 21.7% (21.8). Return on capital employed amounted to 25.9% (25.5). Operating cash flow before interest paid totaled SEK1,018 M (944).
Asia Pacific
Sales for the quarter in Asia Pacific division totaled SEK2,486 M (2,951), with organic growth of -7% (-3). The Pacific showed good growth, while the trend was positive in Korea and stable in South-East Asia. In China demand diminished, with organic growth of -12%. Acquired growth amounted to 0% (10). Operating incometotaled SEK306M (464), which represented an operating margin (EBIT) of 12.3% (15.7). Return on capital employed amounted to 9.8% (15.1). Operating cash flow before interest paid totaled SEK653 M (317).
Global Technologies
Sales for the quarter in Global Technologies division totaled SEK 2,439 M (2,210), with organic growth of 7% (0). IAM Solutions, Government ID, AdvanIDe and Identification Technology (IDT) showed strong growth within HID Global. Access Control (PACS) showed good growth. Hospitality showed a stable sales level. Acquired growth amounted to 5% (0). Operating income amounted to SEK442 M (410), which represented an operating margin (EBIT) of 18.1% (18.6). Return on capital employed amounted to 16.6% (16.3). Operating cash flow before interest paid totaled SEK517 M (566).
Entrance Systems
Sales for the quarter in Entrance Systems division totaled SEK 4,960 M (4,494), with organic growth of 4% (6). Door automation, Amarr, High-speed doors and FlexiForce showed strong growth while growth for Industrial doors and 4Front was good. Sales weakened for Ditec and Private residential doors in Europe. Acquired growth amounted to 6% (1). Operating income totaled SEK709 M (623), which represented an operating margin (EBIT) of 14.3% (13.9). Return on capital employed amounted to 15.2% (14.7). Operating cash flow before interest paid totaled SEK617 M (590).
Acquisitions and disposals
A total of two minor acquisitions were consolidated during the quarter. The combined acquisition price for the companies acquired in the first nine months
of the year amounted to SEK 1,687 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK1,196 M. The acquisition price is adjusted for acquired net debt and estimated deferred considerations. Estimated deferred considerations amount to SEK203 M.
On 20October it was announced that ASSA ABLOY acquired Trojan in the UK, a leading company in the door and window segment for the residential market. The company has 65 employees and its sales in 2016 are expected to amount to SEK 220 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 was completed in September 2016 after approval by the appropriate authorities. From 1 January the business was reclassified under 'Assets held for sale' in accordance with IFRS 5. As a result, sales for the year fell by SEK 424 M compared with the previous year. The disposal involves a small capital gain, which is reported as net income of disposal group classified as held for sale.
Sustainable development
Reduced energy consumption in the Group's factories and sales companies is a prioritized 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.
Several units have introduced improved systems to measure and control the temperature of their buildings. At the beginning of 2015 a new control system was installed at EMEA's factory in Portobello in the UK. Accurate measurement
of both indoor and outdoor temperatures produces control by means of many small adjustments towards the target values for each section of the factory.
The system reuses warm air in the ventilation system and automatically reduces
the temperature when the factory is not in operation. The system is aware
when external doors or shutters are open, and closes down the heating temporarily in order to minimize energy losses. The new system has reduced energy consumption for heating by over 30%.
A similar system was installed in February 2016 at ASSA ABLOY's factory in Cheltenham in the UK. The energy usage for heating the 5,500-square-meter premises has been reduced by over 30% this year.
Parent company
Other operating income for the Parent company ASSA ABLOY AB totaled SEK2,428 M (1,980) for the first nine months of the year. Operating income
for the same period amounted to SEK 787 M (508). Investments in tangible and intangible assets totaled SEK 196 M (18). Liquidity is good and the equity ratio was 42.3% (41.6).
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 17 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.
Review
The Company's Auditors have not carried out any review of this Report for the third quarter of 2016.
Stockholm, 21October 2016
Johan Molin
President and CEO
Financial information
The Year-end Report and Quarterly Report for the fourth quarter will be published on 2 February 2017.
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: +46 8 506 485 42
Carolina Dybeck Happe,
Chief Financial Officer, Tel: +46 8 506 485 72
ASSA ABLOY is holding an analysts' meeting at10.00 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:
+46 8 5055 6476, +44 203 364 5371 or +1877 679 2993.
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 CET on 21 October 2016.
ASSA ABLOY AB (publ)
Box 703 40
107 23 Stockholm 
Visiting address
Klarabergsviadukten 90, Stockholm, Sweden
Tel +46 (0)8506485 00
Fax +46 (0)8506485 85
www.assaabloy.com
Corporate identity number: 556059-3575
 No. 14/2016 
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