REG - ASSA ABLOY AB - Half-year Report <Origin Href="QuoteRef">ASSAb.ST</Origin>

Assa Abloy ABAnnouncement

19/07/2017 10:05

RNS Number : 4845L
ASSA ABLOY AB (publ)
19 July 2017
Organic growth
+2%


Operating income
+7%


Earnings per share
+8%

Another good quarter for ASSA ABLOY
Second quarter
 Net sales increased by 8% to SEK 19,387 M (17,894), with organic growth
of 2% (4) and acquired growth of 2% (4)
 Good growth was shown by EMEA, Americas, Global Technologies andEntrance Systems and negative growth by Asia Pacific
 Contracts have been signed for the acquisition of five companies with expected combined annual sales of about SEK 900 M
 Operating income (EBIT) increased by 7% to SEK 3,114 M (2,910). The operating margin was 16.1% (16.3) 
 Net income amounted to SEK 2,179M (2,026)
 Earnings per share increased by 8% and amounted to SEK 1.96(1.82)
 Operating cash flow increased by 2% to SEK 2,575 M (2,519).
Sales and income

Second quarter



First half-year











2016 
2017 


2016 
2017 
Sales, SEK M
17,894
19,387 

8%

33,785 
37,529 
11%
Of which:








Organic growth1)
602
344 

2%

1,002
1,366 
4%
Acquisitions
593
451 

2%

1,083
900
3%
Exchange-rate effects1)
-383
698 

4%

-633
1,478 
4%
Operating income (EBIT), SEK M
2,910 
3,114 

7%

5,321 
5,901 
11%
Operating margin (EBIT), %
16.3% 
16.1% 



15.7% 
15.7% 

Income before tax, SEK M
2,729 
2,944 

8%

4,938 
5,537 
12%
Net income, SEK M
2,026 
2,179 

8%

3,664 
4,097 
12%
Operating cash flow, SEK M
2,519 
2,575 

2%

3,017 
3,399 
13%
Earnings per share (EPS), SEK
1.82 
1.96

8%

3.30 
3.69 
12%
1) The sales components Organic growth and Exchange-rate effects have been restated for the first half-year of 2016. No effect on sales figures.

Comments by the President and CEO
"The second quarter was another good quarter for ASSA ABLOY," says Johan Molin, President and CEO. Organic growth was 2% because of the fewer working days resulting from Easter during the quarter. This means that we have an organic growth of 4% for the first half-year. Sales in North America continued to develop well. In Europe the underlying demand is good but we have not seen any appreciable improvement. Sales in China fell once again, and disappointingly they also continued to decrease in Brazil and in the Middle East.
"Entrance Systems, Global Technologies and Americas all produced 3% organic growth, while EMEA grew by 2%. However, Asia Pacific showed negative growth because of weak demand in China.
"It is pleasing to see that our investments in software solutions to support architects and others who specify door solutions are leading to more inquiries and increased sales. It is also very gratifying that we are launching so many new and exciting products, primarily electronic and digital solutions. One example is a new smart handle for inner doors which provides full RFID compatibilityand can be installed and integrated cost-effectively with virtually all access control systems on the market, but can also be used as a freestanding unit.
"During the quarter contracts were signed for the acquisition of five companies, including Arjo, a leading supplier of physical and digital identity solutions for
national ID documents. The company strengthens our present offering of secure identity solutions and offers complementary growth opportunities.
"Operating income for the quarter increased by 7% and amounted to SEK3,114M, with an operating margin of 16.1% (16.3). The margin increasedin EMEA and Entrance Systems divisions and remained stable for Americas and Global Technologies, but as expected Asia Pacific was weak. The operating cash flow improved by 2%. 
"My judgment is that the global economic trend has improved to some degree compared with last year. On most markets in North and South America and in parts of Europe there is a positive trend, but on some markets, chiefly in Asia and the Middle East, the trend is weak. However, our strategy of expanding our market presence, even on the emerging markets, remains unchanged. We are also continuing our investments in new products, especially in the growth area of electromechanics."


Second quarter
The Group's sales amounted to SEK 19,387 M (17,894). Organic growth for comparable units was 2% (4). Acquired units contributed 2% (4). Exchange-rate effects affected sales by SEK 698 M (-383), equivalent to 4% (-3). Operating income before depreciation and amortization, EBITDA, amounted to SEK 3,543 M (3,305). The corresponding EBITDA margin was 18.3% (18.5). The Group's operating income, EBIT, amounted to SEK3,114 M (2,910). The operating margin was 16.1% (16.3).
Net financial items amounted to SEK -170 M (-181). The Group's income
before tax was SEK2,944 M (2,729), an increase of 8% compared with last year. Exchange-rate effects had an impact of SEK96M (-77) on income before tax. The profit margin was 15.2% (15.2). The underlying estimated effective
tax rate on an annual basis was 26% (26). Earnings per share amounted to SEK1.96 (1.82), an increase of 8% compared with last year.
First half-year
The Group's sales for the first half of 2017 totaled SEK 37,529 M (33,785), representing an increase of 11%. Organic growth was 4% (3). Acquired
units contributed 3% (3). Exchange-rate effects affected sales positively by
SEK 1,478 M (-633), equivalent to 4% (-2), compared with the first half of 2016.
Operating income before depreciation and amortization, EBITDA, for the half-year amounted to SEK 6,752 M (6,092). The corresponding margin was 18.0% (18.0). The Group's operating income, EBIT, amounted to SEK5,901 M (5,321), which was an increase of 11% compared with last year. The operating margin was 15.7% (15.7).
Earnings per share for the first half-year increased to SEK 3.69 (3.30), an increase of 12% compared with last year. Operating cash flow totaled SEK3,399M (3,017).
Restructuring measures
Payments related to all current restructuring programs amounted to SEK 136 M (50) in the quarter. The restructuring programs proceeded according to plan and
led to a reduction in personnel of 158 people during the quarter and 12,477 people since the projects began in 2006. 
At the end of the half-year provisions of SEK 1,342 M remained in the balance sheet for carrying out the programs.


Organization
Magnus Kagevik, Executive Vice Presidentand Head of Asia Pacific Division, has decided to leave ASSA ABLOY after ten years' service in various management positions in the Group. Recruitment of a replacement has begun. Magnus Kagevik will remain in his present job until a successor is in post.
Juan Vargues, Executive Vice President and Head of Entrance Systems Division, has after a long and successful service time decided to leave ASSA ABLOY for a new positon as CEO of a Swedish listed company. Juan Vargues will remain in his position until the beginning of 2018 and the process of finding his successor has been initiated.
Tax matters
The Stockholm Administrative Court of Appealdecided in June 2017 not to allow tax deductions for interest expenses relating to one of the Group's subsidiaries for the years 2008-2012 on the grounds that the deductions were wrongly allocated. The decision will be appealed.
Including additional tax and other charges, the judgment involves a total tax payment of SEK 847 M. The judgment will have no impact on ASSA ABLOY's net income for the second quarter or for the full year 2017, but will affect cash flow negatively in the third quarter by the same sum as the payment made. 
Comments by division
EMEA
Sales for the quarter in EMEA division totaled SEK 4,529 M (4,234), with organic growth of 2% (6). Growth was strong in Great Britain and in eastern Europe. Southern Europe and Israel had good growth. Scandinavia, Finland, Germany, France and Benelux were stable, while Africa and the Middle East had negative sales growth. The positive trend for electromechanical products continued. Acquired growth was 2%. Exchange-rate effects on sales were 3%. Operating income totaled SEK713M (649), which represented an operating margin (EBIT) of 15.7% (15.3). Return on capital employed amounted to 19.0% (18.4). Operating cash flow before interest paid totaled SEK 461 M (581).
Americas
Sales for the quarter in Americas division totaled SEK 4,704 M (4,291), with organic growth of 3% (8). Growth was strong for Security doors, Security fencing and High-security products in the USA, and also for Mexico and Latin America apart from Brazil. Sales growth was good for Electromechanical products and in Canada, and stable for Traditional lock products and for the Private residential market in the USA. Brazil continued to show a negative sales development. Acquired growth was 1%. Exchange-rate effects on sales were 6%. Operating income totaled SEK1,041M (949), which represented an operating margin (EBIT) of 22.1% (22.1). Return on capital employed amounted to 26.1% (26.0). Operating cash flow before interest paid totaled SEK 1,163 M (1,127).
Asia Pacific
Sales for the quarter in Asia Pacific division totaled SEK2,445 M (2,518), with organic growth of -6% (-8). Strong growth was achieved in Japan and South Asia. Sales growth was good in South Korea and in Pacific. Digital door locks grew strongly in the region. However, sales in China fell, mainly because of a strong decline for fire and security doors. Acquired growth was 0%. Exchange-rate effects on sales were 3%. Operating incometotaled SEK274M (355), which represented an operating margin (EBIT) of 11.2% (14.1). Return on capital employed amounted to 9.0% (11.5). Operating cash flow before interest paid totaled SEK116 M (362).
Global Technologies
Sales for the quarter in Global Technologies division totaled SEK 2,640 M (2,424), with organic growth of 3% (5). Access control, Identification technology and Project business had strong growth within HID Global. However, Secure issuance, Logical access and Government ID all had a negative development. Hospitality showed continued strong growth. Acquired growth was 2%. Exchange-rate effects on sales were 4%. Operating income amounted to SEK486 M (447), which represented an operating margin (EBIT) of 18.4% (18.5). Return on capital employed amounted to 17.0% (17.4). Operating cash flow before interest paid totaled SEK511 M (320).
Entrance Systems
Sales for the quarter in Entrance Systems division totaled SEK 5,381 M (4,767), with organic growth of 3% (4). Door components had strong growth, as did Industrial and garage doors in the USA. Door automation, High-speed doors and Gate automation showed good growth, while sales of Industrial doors in Europe were stable. Acquired growth was 5%. Exchange-rate effects on sales were 5%. Operating income totaled SEK720M (628), which represented an operating margin (EBIT) of 13.4% (13.2). Return on capital employed amounted to 14.7% (13.7). Operating cash flow before interest paid totaled SEK638 M (632).
Acquisitions and disposals
A total of two minor acquisitions were consolidated during the quarter. The combined acquisition price for the seven companies acquired during the half-year amounted to SEK671 M, and preliminary acquisition analyses indicate
that goodwill and other intangible assets with indefinite useful life amount to SEK535 M. The acquisition price is adjusted for acquired net debt and estimated deferred considerations. Estimated deferred considerations amounted to SEK157 M.
On 29 May it was announced that ASSA ABLOY had signed a contract to acquire IDS, the leading South African manufacturer and distributor of electronic security solutions. Its sales in 2017 are expected to amount to SEK 210 M and the acquisition is expected to be completed during the third quarter of 2017.
On 4 July it was announced that ASSA ABLOY had acquired Arjo Systems SAS,
a leading supplier of physical and digital identity solutions for national ID documents. The company has 100 employees and its sales in 2017 are expected to amount to SEK 550 M. 
Sustainable development
The demand for sustainable products is increasing. For ASSA ABLOY this provides a commercial opportunity since customers are choosing energy-efficient solutions and environmentally labeled products to an ever increasing extent. The Group is continuing to develop and launch environmentally friendly products at a rapid pace. During the second quarter Entrance Systems division launched a new energy-efficient version of its '1042' overhead door. The product is one of the division's big sellers and is used in environments with frequent openings, where at the same time a door with a high insulation effect is required. The new overhead door opens and closes four times as fast as the standard model. The increased speed means that the door is open for a shorter time which, together with improved insulation, is calculated to reduce customers' energy consumption by up to 12% compared with a traditional overhead door. The faster opening and closing sequence also produces less draught and thus improves comfort for the people occupying the building.
Parent company
Other operating income for the Parent company ASSA ABLOY AB totaled SEK2,113 M (1,963) for the first half-year. Operating income for the first halfyear amounted to SEK 950 M (875). Investments in tangible and intangible assets totaled SEK 12 M (7). Liquidity is good and the equity ratio was 41.8% (42.9).
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 68-73 of the 2016 Annual Report. 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'.
The new standards IFRS 9 (Financial instruments) and IFRS 15 (Revenue from Contracts with Customers) are to be applied from the financial year beginning
1 January 2018, while IFRS 16 (Leases) takes effect on 1 January 2019. Earlier application is allowed for all standards. 
The project that began last year because of the introduction of IFRS 15 has proceeded according to plan during the first half-year of 2017 with evaluation and analysis of possible effects on each division. The Group's judgment is that the standard will have little or no impact on the Group's income or financial position.
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 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 2016 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 2016 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 2017
Lars Renstrm
Carl Douglas
Ulf Ewaldsson
Chairman
Vice Chairman
Board member



Eva Karlsson
Birgitta Klasn
Eva Lindqvist
Board member
Board member
Board member



Johan Molin
Sofia Schrling Hgberg
Jan Svensson
President and CEO
Board member
Board member



Rune Hjlm
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 2017 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 2017
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 20 October 2017.
A capital markets day will be held on 15 November 2017 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 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 19 July 2017.



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. 12/2017



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