72458 Albstadt, de
High profitability at ASSA ABLOY, and stabilization on markets outside the USA
- Sales totaled SEK 8,425 M (8,722), a fall of 3%, comprising -13% organic growth, 2% acquired growth and exchange-rate effects of 8%.
- Asia returned to growth during the quarter and the downturn in Europe was less negative. The North American market continued to weaken.
- Continuing major efficiency benefits from restructuring programs and capacity adjustments throughout the Group contributed to good earnings and a very strong cash flow.
- Operating income (EBIT) amounted to SEK 1,346 M (1,435), a fall of 6%, representing a margin of 16.0% (16.5).
- A new revision of the remaining production units has begun. The total cost is estimated at SEK 800 M (see details below).
- Net income amounted to SEK 888 M (709).
- Earnings per share amounted to SEK 2.36 (2.38), a decrease of 1%.
COMMENTS BY THE PRESIDENT AND CEO
"Positive trends during the quarter were that Asia returned to growth and that the downturn in Europe was less negative. However, the North American market continued to weaken as a result of falling non-residential construction activity," said Johan Molin, President and CEO.
"Especially pleasing are the sustained high level of profit and the extremely strong cash flow, which are the fruits of the rapid streamlining of production, working capital and our highly successful restructuring program.
"To exploit the power of rapid change and strengthen the Group's future competitiveness, I have initiated a new review of the production base this quarter, which will involve the reorganization or closing of a further 15 units.
"I am also very pleased that we have succeeded in carrying through the strategic acquisition of the Chinese company Pan Pan, which gives us a very good position for growth on the strongly expanding Chinese market.
"Our expectation remains that the fourth quarter of 2009 will be challenging for both sales and earnings, especially because the important US market is predicted to weaken further."
The Group's sales totaled SEK 8,425 M (8,722), a fall of 3% compared with 2008. Organic growth for comparable units was -13% (1), while acquired units contributed 2% (6). Exchange-rate effects had a positive impact of SEK 783 M on sales, i.e. 8% (-2).
Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 1,584 M (1,669). The corresponding EBITDA margin was 18.8% (19.1). The Group's operating income, EBIT, amounted to SEK 1,346 M (1,435), a fall of 6%. The operating margin, excluding restructuring costs, was 16.0% (16.5).
Net financial items amounted to SEK 159 M (207), which corresponds to an average net interest rate of 4%. The Group's income before tax, excluding restructuring costs, amounted to SEK 1,187 M (1,227), representing a fall of 3%. Exchange-rate effects had a positive impact of SEK 187 M on the Group's income before tax. The profit margin, excluding restructuring costs, was 15.4% (14.1). The Group's tax charge totaled SEK 300 M (271). Earnings per share, excluding restructuring costs, amounted to SEK 2.36 (2.38), a decrease of 1%.
THE PERIOD JANUARY TO SEPTEMBER
Sales for the period totaled SEK 26,228 M (25,451), which represents an increase of 3% compared with 2008. Organic growth was -13% (2). Acquired units contributed 3% (4). Exchange-rate effects affected sales positively by SEK 3,676 M, i.e. 13%, compared with 2008.
Operating income before depreciation, EBITDA, excluding restructuring costs, amounted to SEK 4,779 M (4,744). The corresponding margin was 18.2% (18.6). The Group's operating income, EBIT, excluding restructuring costs, amounted to SEK 4,014 M (4,056). The corresponding operating margin (EBIT) was 15.3% (15.9).
Earnings per share, excluding restructuring costs, amounted to SEK 6.81 (6.76). Operating cash flow amounted to SEK 4,547 M (2,852).
Payments related to the two restructuring programs amounted to SEK 147 M in the quarter.
Progress of the 2006 and 2008 restructuring programs
The two restructuring programs launched in 2006 and 2008 have surpassed the expected cost savings and have led to reductions in personnel of respectively 2,583 and 1,657 people since the projects began, a total of 4,240 people. A further 925 people will leave by the end of 2010. A sum of SEK 955 M has been set aside in the balance sheet to cover the whole remainder of the program.
The forthcoming 2009 restructuring to exploit positive momentum
The two restructuring programs of 2006 and 2008 have been highly successful and have resulted in substantial savings. A new revision of the Group's remaining units has been initiated. Its aim is to convert the remaining production units in the Group to assembly or to dispose of them completely. The preliminary estimate of the total cost is SEK 800 M and 15 plants will be involved. Half of these will be closed and the rest converted to final assembly plants. The program is expected to start during the fourth quarter of 2009 and to achieve a reduction of 1,100 employees in high-cost countries. The cost is expected to be expensed in its entirety during the fourth quarter of 2009.
Total personnel reductions
The world economy began to weaken towards the end of 2007 and adjustments of the workforce were initiated at that time. From the fourth quarter of 2007 through the third quarter of 2009 a total of 7,692 people (including 3,415 people during the first three quarters of 2009) - that is, 24% of the total number of employees - left the Group as a result of the capacity changes made and the restructuring programs carried out. Of the 7,692, 3,205 arose from the restructuring programs described above and 4,487 from other efficiency programs and ongoing capacity changes.
COMMENTS BY DIVISION
Sales in EMEA division during the quarter totaled SEK 3,169 M (3,308), with organic growth of -11%. The recession slowed on the most important markets in north and central Europe but continued in Italy, Spain and eastern Europe. Acquired growth amounted to 1%. Operating income amounted to SEK 476 M (552), which represents an operating margin (EBIT) of 15.0% (16.7). The effects of the restructuring programs and other efficiency measures compensated for many of the effects of the falling sales volume. Return on capital employed, excluding restructuring and non-recurring costs, amounted to 16.5% (19.6). The return was impacted chiefly by the lower income. Operating cash flow before interest paid totaled SEK 779 M (543).
The quarter's sales in Americas division totaled SEK 2,418 M (2,737), with -22% organic growth. All units were impacted by the downturn in the economy and the reduced activity in the construction sector. Canada, Mexico and South America were affected to a lesser extent than the units in the USA. Acquired growth amounted to 1%. By means of restructuring and capacity changes, the operating margin was maintained at a very strong level and amounted to 19.7% (20.6). Operating income amounted to SEK 475 M (563). Return on capital employed, excluding restructuring costs, amounted to 21.7% (26.7). Operating cash flow before interest paid totaled SEK 789 M (593).
Sales for the quarter totaled SEK 1,023 M (892), with 0% organic growth. The market units in Australia and New Zealand showed stabilization, while there was positive growth on the Chinese market. Production for export to Europe and North America decreased significantly. Acquired growth amounted to 3%. Operating income totaled SEK 139 M (107), which represents an operating margin (EBIT) of 13.6% (12.0). The quarter's return on capital employed, excluding restructuring costs, amounted to 19.6% (16.4). Operating cash flow before interest paid totaled SEK 124 M (141).
Sales for the quarter totaled SEK 1,117 M (1,254), with organic growth of -19%. The division was affected to an increasing extent by the downturn in construction on the North American market, and all units reported negative growth. The net effect of acquisitions and disposals amounted to 0%. The division's operating income amounted to SEK 187 M (208), giving an operating margin (EBIT) of 16.7% (16.6). Return on capital employed, excluding restructuring costs, amounted to 12.8% (15.7). Operating cash flow before interest paid totaled SEK 321 M (173).
Entrance Systems division reported sales of SEK 896 M (766) for the quarter, representing organic growth of -2%. Continued good sales on the service side compensated for much of the reduction in new-product sales. Acquired growth amounted to 12%. Operating income amounted to SEK 135 M (110), giving an operating margin (EBIT) of 15.0% (14.3). Return on capital employed, excluding restructuring costs, amounted to 14.6% (13.5). Operating cash flow before interest paid totaled SEK 101 M (61).
During the first nine months of the year five acquisitions were consolidated and payment was made for the last minority shares in iRevo in Korea. The combined acquisition price for these acquisitions amounts to nearly SEK 900 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 600 M. The acquisition price is adjusted for acquired net debt and estimated earn-outs.
A contract has been signed for the acquisition of the Chinese company Pan Pan - see separate release. Pan Pan is expected to have sales of SEK 1,200 M in 2009 and has more than 4,000 employees. The acquisition will be completed during the fourth quarter of 2009.
ASSA ABLOY's US subsidiary CURRIES in Iowa has won the 2008 Governor's Environmental Excellence Award in special recognition of its energy efficiency and use of renewable energy.
The Governor's Environmental Excellence Awards are Iowa's highest environmental honor and are given to organizations, companies and individuals who have shown leadership, innovation and environmental awareness in using natural resources responsibly.
CURRIES has introduced a new process for drying door panels that achieves a 33 percent reduction in the plant's annual consumption of natural gas. As a result, 349 tons less carbon dioxide are now emitted each year.
'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 834 M (1,231) for the nine-month period. Income before tax amounted to SEK 1,209 M (1,361). Investments in tangible and intangible assets totaled SEK 1 M (0). Liquidity is good and the equity ratio was 58.3% (47.1).
During the quarter Jonas Persson was appointed Executive Vice President and Head of Asia Pacific division and a member of the Executive Team. Jonas moves from the Swedish company Scancoin and his career includes posts at Nolato and Alfa Laval.
ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. Significant accounting and valuation principles are detailed on pages 56-60 of the 2008 Annual Report. ASSA ABLOY has implemented the revised International Accounting Standard IAS 1, which came into force on 1 January 2009. The change means that additional items are now included in total income in the Group's income statement. These items were previously reported in changes to shareholders' equity. ASSA ABLOY has also implemented IFRS 8, which contains rules about segment reporting. ASSA ABLOY reports the same operating segments as before. The Group's Interim Reports are prepared in accordance with IAS 34. The Parent company applies RFR 2.2.
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 and financial 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 risks and risk management, see pages 41-43 of the 2008 Annual Report. No significant risks other than the risks described there are judged to have occurred.
Long term, ASSA ABLOY expects an increase in security-driven demand. Focus on end-user value and innovation as well as leverage on ASSA ABLOY's strong position will accelerate growth and increase profitability.
Organic sales growth is expected to continue at a good rate. The operating margin (EBIT) and operating cash flow are expected to develop well.
Outlook for the year
2009 will be a challenging year since the financial crisis has had a strongly negative effect on investments in construction, and negative organic growth for the year is therefore expected for ASSA ABLOY.
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