ASSA ABLOY: Continued high profit level in a slightly improved market
(Thomson Reuters ONE) - Fourth quarter· Sales amounted to SEK 8,799 M (9,444), a decrease by 7%, comprising of-8% organic growth, 3% acquired growth and a negative currency effect of -2%.· Europe stabilized, Asia grew and North America remained negative.· Operating income (EBIT) amounted to SEK 1,398 M* (1,469*), a decrease by5%. The EBIT margin increased to 15.9%* (15.6*).· Net income amounted to SEK 200 M** (92**).· Earnings per share decreased by 2% and amounted to SEK 2.41* (2.45*).· Continued investments in product development led to strengthened marketleadership through a number of important product launches.· The 2009 restructuring program was fully expensed during the fourthquarter, totaling SEK 930 M.· Significant savings were achieved from the on-going restructuring andefficiency programs during the quarter.· Strongest-ever operating cash flow, totaling SEK 2,296 M (1,916).Full year· Sales were unchanged and totaled SEK 34,963 M (34,829), comprising -12%organic growth, 3% acquired growth and exchange-rate effects of 9%.· Operating income (EBIT) amounted to SEK 5,413 M* (5,526*), a decrease by2%. The EBIT margin was 15.5%* (15.9*).· Net income amounted to SEK 2,659 M** (2,438**).· Earnings per share were unchanged and amounted to SEK 9.22* (9.21*).· Strongest-ever operating cash flow, totaling SEK 6,843 M (4,769).· Total restructuring costs during the year amounted to SEK 1,039 M.· The Board of Directors proposes a dividend of SEK 3.60 per share (3.60).* Excluding restructuring and non-recurring costs in 2008 amounting to SEK1,010 M for the quarter and to SEK 1,257 M for the year. Excluding restructuringand non-recurring costs in 2009 amounting to SEK 930 M for the quarter and toSEK 1,039 M for the year.** In 2008, excluding restructuring and non-recurring costs, net income for thequarter wasSEK 918 M and for the year SEK 3,451 M. In 2009, excluding restructuring andnon-recurring costs, net income for the quarter was SEK 905 M and for the yearSEK 3,474 M.SALES AND INCOME Fourth quarter Full year --------------------------------------------- 2008 2009 Change 2008 2009 Change---------------------------------------------------------------------------- Sales, SEK M 9,444 8,799 -7% 34,829 34,963 +0% of which, Organic growth - 8% -12% Acquisitions +3% + 3% Exchange-rate effects -185 - 2% +3,491 + 9% Operating income (EBIT), SEK M 1,469* 1,398* -5% 5,526* 5,413* -2% Operating margin (EBIT), % 15.6* 15.9* 15.9* 15.5* Income before tax, SEK M 1,286* 1,292* +0% 4,756* 4,779* +0% Net income, SEK M 92** 200** - 2,438** 2,659** - Operating cash flow, SEK M 1,916 2,296 +20% 4,769 6,843 +43% Earnings per share (EPS), SEK 2.45* 2.41* -2% 9.21* 9.22* +0%* Excluding restructuring and non-recurring costs in 2008 amounting to SEK1,010 M for the quarter and to SEK 1,257 M for the year. Excluding restructuringand non-recurring costs in 2009 amounting to SEK 930 M for the quarter and toSEK 1,039 M for the year.** In 2008, excluding restructuring and non-recurring costs, net income for thequarter was SEK 918 M and for the year SEK 3,451 M. In 2009, excludingrestructuring and non-recurring costs, net income for the quarter was SEK 905 Mand for the year SEK 3,474 M.COMMENTS BY THE PRESIDENT AND CEO "Even though 2009 was in market terms the most challenging year in the Group'shistory, I can proudly conclude that ASSA ABLOY achieved its highest sales yet,with continued strong earnings and its strongest-ever cash flow," said JohanMolin, President and CEO."It was especially pleasing that investments in product development continued ata high level, which has strengthened the Group's market leadership and laid theground for good organic growth as the economic situation progressively improves."During the year our work on the Group's production structure and adjustment tothe demand situation was successfully carried through. This has resulted in atotal workforce reduction by 25% since the market decline started."The financial crisis meant that we stopped the acquisition activity at thebeginning of the year. The situation gradually improved and several importantacquisitions were completed. I look forward to a continued high activity in2010."For 2010 the organic growth is expected to be about zero percent. This ismainly because the turnaround of the American market will take at least anothersix months. Our focus will therefore be on selective investments in growth wherethe market is good and continued cost control where market remains weak."FOURTH QUARTERThe Group's sales totaled SEK 8,799 M (9,444), a fall of 7% compared with 2008.Organic growth for comparable units was -8% (-4). Acquired units contributed 3%(4). Exchange-rate effects had a negative impact of SEK 185 M on sales, i.e. -2%(9).Operating income before depreciation, EBITDA, excluding restructuring costs,amounted to SEK 1,648 M (1,703). The corresponding EBITDA margin was 18.7%(18.0). The Group's operating income, EBIT, excluding restructuring costs,amounted to SEK 1,398 M (1,469), a fall of 5%. The operating margin, excludingrestructuring costs, was 15.9% (15.6).Net financial items amounted to SEK 106 M (184), which corresponds to an averageinterest rate of 4%. The Group's income before tax, excluding restructuringcosts, amounted to SEK 1,292 M (1,286), effectively unchanged from the previousyear. Exchange-rate effects had a positive impact of SEK 18 M on the Group'sincome before tax. The profit margin, excluding restructuring costs, was 14.7%(13.6). The Group's tax charge totaled SEK 162 M (184). Earnings per share,excluding restructuring costs, amounted to SEK 2.41 (2.45), a decrease of 2%.FULL YEARSales for 2009 totaled SEK 34,963 M (34,829), unchanged compared with 2008.Organic growth was -12% (0). Acquired units contributed 3% (4). Exchange-rateeffects affected sales positively by SEK 3,491 M.Operating income before depreciation, EBITDA, amounted to SEK 6,426 M (6,447)excluding restructuring and non-recurring costs. The corresponding margin was18.4% (18.5). The Group's operating income, EBIT, excluding restructuring andnon-recurring costs, amounted to SEK 5,413 M (5,526), a fall of 2%. Thecorresponding operating margin (EBIT) was 15.5% (15.9).Earnings per share, excluding restructuring and non-recurring costs, wereunchanged and amounted to SEK 9.22 (9.21). Operating cash flow amounted to SEK6,843 M (4,769).RESTRUCTURING MEASURESPayments related to the restructuring programs amounted to SEK 161 M in thequarter.Progress of the 2006 and 2008 restructuring programsThe two restructuring programs launched in 2006 and 2008 have surpassed theexpected cost savings and have led to reductions in personnel of respectively2,718 and 1,913 people since the projects began, a total of 4,631 people. Afurther 347 people will leave during 2010.The 2009 restructuring programThe two successful restructuring programs of 2006 and 2008 have been followed upby a new project launched in the fourth quarter of 2009. The program has beenexpanded compared to earlier communication and will lead to the closing of 11production units and the conversion of 4 to final assembly. In addition, 11mainly administrative units will be closed. The total cost is SEK 930 M, whichwas expensed against earnings during the quarter. The program started during thequarter and will achieve a reduction of 1,200 employees in high-cost countries.ProvisionsFor all three programs described above, provisions of SEK 1,577 were made in thebalance sheet at year-end for the remaining parts of the programs.Total personnel reductionsThe world economy began to weaken towards the end of 2007 and adjustments of theworkforce were initiated at that time. From the fourth quarter of 2007 up to theend of 2009 a total of 8,174 people (including 3,898 people during 2009) - thatis, 25% of the total number of employees - left the Group as a result of thecapacity changes made and the restructuring programs carried out. Of the8,174, 3,598 arose from the restructuring programs described above and 4,576from other efficiency programs and ongoing capacity changes.COMMENTS BY DIVISIONEMEASales in EMEA division during the quarter totaled SEK 3,544 M (3,614), withorganic growth of -3%. Demand improved markedly throughout the region during thequarter, with the UK, Scandinavia and Africa moving to positive growth whileItaly, Spain and eastern Europe remained weak. Acquired growth amounted to 0%.Operating income amounted to SEK 595 M (562), which represents an operatingmargin (EBIT) of 16.8% (15.5). The effects of the restructuring programs andother efficiency measures made a very substantial contribution to the rise inincome. Return on capital employed, excluding restructuring and non-recurringcosts, amounted to 21.2% (17.5). Operating cash flow before interest paidtotaled SEK 1,133 M (938).AMERICASThe quarter's sales in Americas division totaled SEK 2,108 M (2,886), with -21%organic growth. All units were affected by the continuing low activity in thenon-residential construction sector, and security doors were especiallyhard-hit. Canada, Mexico and South America were affected to a rather lesserextent. Acquired growth amounted to 0%. By means of restructuring and capacitychanges, the operating margin was maintained at a very strong level and amountedto 19.5% (19.9). Operating income totaled SEK 412 M (574). Return on capitalemployed amounted to 19.6% (23.1). Operating cash flow before interest paidtotaled SEK 545 M (707).ASIA PACIFICSales for the quarter totaled SEK 1,044 M (881), with 10% organic growth. Themajor markets in Australia, New Zealand and China all showed growth. Acquiredgrowth amounted to 4%. Operating income totaled SEK 144 M (92), which representsan operating margin (EBIT) of 13.8% (10.4). The quarter's return on capitalemployed amounted to 20.6% (13.8). Operating cash flow before interest paidtotaled SEK 231 M (194).GLOBAL TECHNOLOGIESSales for the quarter totaled SEK 1,145 M (1,310), with organic growth of -9%.The division was affected by the downturn in construction on the North Americanmarket, and all units showed negative growth. Acquired growth amounted to 0%.The division's operating income amounted to SEK 186 M (203), giving an operatingmargin (EBIT) of 16.2% (15.5). Return on capital employed, excludingrestructuring costs, amounted to 13.3% (13.8). Operating cash flow beforeinterest paid totaled SEK 361 M (275).ENTRANCE SYSTEMSEntrance Systems division reported sales of SEK 1,152 M (952) for the quarter,representing organic growth of -4%. Continued good sales on the service sidecompensated for much of the reduction in new-product sales. Acquired growthamounted to 29%. Operating income totaled SEK 196 M (150), giving an operatingmargin (EBIT) of 17.0% (15.8). Acquisitions, principally Ditec, affected theoperating margin negatively by 2.8%. Return on capital employed amounted to19.1% (18.1). Operating cash flow before interest paid totaled SEK 189 M (104).ACQUISITIONSDuring the year eight acquisitions were consolidated and payment was made forthe last minority shares in iRevo in Korea. The combined acquisition price forthese acquisitions amounts to SEK 1,107 M, and preliminary acquisition analysesindicate that goodwill and other intangible assets with indefinite useful lifeamount to SEK 800 M. The acquisition price is adjusted for acquired net debt andestimated earn?outs. During the year also, three operations were sold off aspart of the ongoing restructuring.On 13 November 2009 the acquisition of the Swedish company Portsystem 2000 wasreported. Portsystem has annual sales of SEK 125 M and supplies industrial doorsand docking systems.On 17 December 2009 the acquisition of the Colombian company Cerracol wasreported. Cerracol has annual sales of SEK 140 M and is a leader on the CentralAmerican lock market.On 20 January 2010 it was reported that the competition authority has approvedthe acquisition of the Chinese company Pan Pan and that consolidation will takeplace as soon as the necessary business license has been obtained. This isexpected to happen during the first quarter.SUSTAINABLE DEVELOPMENTSustainable development also affects workplace conditions and responsibilities -for example in terms of health and safety - and these issues form part of theCompany's long-term sustainability program. In order to obtain continualfeedback in this area, ASSA ABLOY regularly has so-called independent workplacereviews carried out with the help of an external party.In 2009 reviews were carried out in South Africa and Mexico. These wereperformed in accordance with internationally accepted procedures and involvedmeetings with the local company managements and key personnel, visits tofactories, interviews with senior officers, reviews of documentation, interviewswith employees and follow-up meetingswith management. The reviews were carried out independently by the externalparty and no-one from Head Office was present on site.The reviews yielded valuable information and suggestions for improvements aswell as a good overview of ASSA ABLOY's work and the commitment shown by thelocal managements in their work on these issues.The 2009 Sustainability Report, reporting on the Group's targets and givingother information about sustainable development, will be published at the timeof the Annual General Meeting in April 2010.PARENT COMPANY'Other operating income' for the Parent company ASSA ABLOY AB totaled SEK 1,398M (1,775) for the full year. Income before tax amounted to SEK 1,694 M (1,589).Investments in tangible and intangible assets totaled SEK 1 M (0). Liquidity isgoodand the equity ratio was 55.6% (39.8).DIVIDEND AND ANNUAL GENERAL MEETINGThe Board of Directors proposes a dividend of SEK 3.60 (3.60) per share for the2009 financial year. The Annual General Meeting will be held on 22 April 2010.ACCOUNTING PRINCIPLESASSA ABLOY applies International Financial Reporting Standards (IFRS) asendorsed bythe European Union. Significant accounting and valuation principles are detailedon pages 56-60 of the 2008 Annual Report. ASSA ABLOY has implemented the revisedInternational Accounting Standard 1, which came into force on 1 January 2009.The change means that additional items are now included in total income in theGroup's income statement. These items were previously reported in changes toshareholders' equity. ASSA ABLOY has also implemented IFRS 8, which containsrules about segment reporting. ASSA ABLOY reports the same operating segments asbefore. The Group's Quarterly Reports are prepared in accordance with IAS 34.The Parent company applies RFR 2.2.The Group has made a reclassification that affects direct distribution costs anddepreciation on capitalized product development expenditure. The reason is togive a true and fair view of the allocation between direct and indirect costs aswell as for product development expenses. In order to maintain comparability,the financial statements for 2008 and 2009 have been adjusted. Thereclassification involves the transfer of direct distribution costs from Sellingexpenses and Administrative expenses, and where appropriate from Sales, to Costof goods sold. In addition, depreciation on product development has been movedfrom Cost of goods sold to Selling expenses and Administrative expenses. Boththese adjustments affect Gross income. The effects are reported in the attachedfinancial statements. Operating income is not affected.TRANSACTIONS WITH RELATED PARTIESNo transactions that significantly affected the company's position and incomehave taken place between ASSA ABLOY and related parties.RISKS AND UNCERTAINTY FACTORSAs an international Group with a wide geographic spread, ASSA ABLOY is exposedto a number of business and financial risks. The business risks can be dividedinto strategic, operational and legal risks. The financial risks are related tosuch factors as exchange rates, interest rates, liquidity, the giving of credit,raw materials and financial instruments. Risk management in ASSA ABLOY aims toidentify, control and reduce risks. This work begins with an assessment of theprobability of risks occurring and their potential effect on the Group. For amore detailed description of risks and risk management, see the 2008 AnnualReport. No significant risks other than the risks described there are judged tohave occurred.OUTLOOKLong-term outlookLong term, ASSA ABLOY expects an increase in security-driven demand. Focus onend-user value and innovation as well as leverage on ASSA ABLOY's strongposition will accelerate growth and increase profitability.Organic sales growth is expected to continue at a good rate. The operatingmargin (EBIT) and operating cash flow are expected to develop well.Outlook for 2010The organic growth is expected to be about 0 percent.Stockholm, 12 February 2010Johan MolinPresident and CEOThe End-of-year Report has not been reviewed by the Company's Auditor.FINANCIAL INFORMATIONThe Quarterly Report for the first quarter will be published on 21 April 2010.The Annual General Meeting will be held on 22 April at the Museum of Modern Artin Stockholm.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
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