ASSA ABLOY: A Strong Finish to the Year

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ASSA ABLOY (STO:ASSAB)

Fourth quarter

· Sales increased by 20% in the quarter, with 3% organic growth, and totaled SEK 15,847 M (13,242).

· Strong growth in Americas, Global Technologies and Entrance Systems. ·

A stable development in EMEA and negative growth in Asia Pacific.

· Ten acquisitions made during the quarter, including Digi Electronic Lock (China) and Silvana (Brazil), with expected annual sales totaling SEK 1,400 M.

· Operating income (EBIT) amounted to SEK 2,681 M (2,2021)), an increase of 22%. The operating margin was 16.9% (16.61)).

· Net income amounted to SEK 1,889 M (1,5102)).

· Earnings per share rose by 25% to SEK 5,10 (4.082)).

· Operating cash flow increased by 37% to SEK 3,469 M (2,541).

Full year

· Sales increased by 17%, including 3% organic growth, and totaled SEK 56,843 M (48,481).

· 20 acquisitions made with expected annual sales totaling SEK 2,600 M.

· Operating income (EBIT) amounted to SEK 9,257 M (7,9231)), representing an increase of 17%. The operating margin was 16.3% (16.31)).

· Net income amounted to SEK 6,436 M (5,4962)).

· Earnings per share rose by 17% and amounted to SEK 17.38 (14.842)).

· Operating cash flow increased by 21% to SEK 8,238 M (6,803).

· The Board of Directors proposes a dividend of SEK 6.50 per share (5.70).

· The Board of Directors proposes a stock split of 3:1.

1) Excluding items affecting comparability in 2013 amounting to SEK -1,000 M for both the quarter and the full year.

2) Excluding items affecting comparability in 2013 amounting after tax to SEK -721 M for both the quarter and the full year.

SALES AND INCOME

    Fourth quarter   Full year
  2013   2014   Change 2013  

2014

  Change

Sales, SEK M

13,242

15,847

+20%

48,481

  56,843  

+17%

of which,                        
Organic growth    

+3%

         

+3%

Acquisitions    

+8%

         

+9%

Exchange-rate effects -­134

+1,129

 

+9%

  -1,156  

+2,138

 

+5%

Operating income (EBIT), SEK M 2,202 1)

2,681

 

+22%

  7,923 1)   9,257  

+17%

Operating margin (EBIT), % 16.6 1)

16.9

 

    16.3 1)   16.3    
Income before tax, SEK M 2,050 1)

2,552

 

+24% 1)   7,381 1)   8,698   +18% 1)
Net income, SEK M 1,510 2)

1,889

 

+25% 2)   5,496 2)   6,436   +17% 2)
Operating cash flow, SEK M 2,541

3,469

 

+37%

  6,803   8,238  

+21%

Earnings per share (EPS), SEK 4.08 2)

5.10

 

+25% 2)   14.84 2)   17.38   +17% 2)

1) Excluding items affecting comparability in 2013 amounting to SEK -1,000 M for both the quarter and the full year.

2) Excluding items affecting comparability in 2013 amounting after tax to SEK -721 M for both the quarter and the full year.

COMMENTS BY THE PRESIDENT AND CEO

“The fourth quarter gave ASSA ABLOY a strong finish to the year, with a rise in sales of a full 20% and a 22% improvement in operating income,” says Johan Molin, President and CEO. “It is pleasing to see that growth in North America is continuing to accelerate, although the trend to weaker growth in the Emerging Markets is also continuing.

“Organic growth during the quarter was 3%, driven by a very strong performance in the USA. The Americas, Global Technologies and Entrance Systems divisions all showed strong growth, while EMEA maintained its stable but lower growth of 2%. All regions in Asia Pacific produced strong growth except China. The weak market in China, in combination with the enforcement of ASSA ABLOY’s strict credit policy led to declining sales.

Once again I can report that sales of new products reached a new record and made up 32% of sales value. I note in particular that the Group has seen an extremely satisfactory advance in electromechanical products. Another area that made strong progress this year was e-government, where ASSA ABLOY received many new orders.

The pace of acquisitions intensified during the fourth quarter, with many acquisitions made in the Emerging Markets. Especially strategic for the Group are the digital lock manufacturer Digi Electronic Lock in China and three acquisitions in South America. A total of 20 companies were acquired during 2014, bringing added sales of around 5%.

Operating income continued to improve in a very satisfactory manner this quarter, rising by a full 22%. Major contributory factors were good savings and efficiency gains in production and administration, strong contributions to income from the acquired companies, and also exchange-rate gains.

“My judgment is that the global economic trend is moving sideways, with America showing a positive trend while Europe and 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.”

FOURTH QUARTER

The Group’s net sales totaled SEK 15,847 M (13,242), an increase of 20% compared with the fourth quarter of 2013. Organic growth for comparable units was 3% (4). Acquired units contributed 8% (5). Exchange-rate effects had an impact of SEK 1,129 M (-134) on sales, that is 9% (–1).

Operating income before depreciation, EBITDA, amounted to SEK 2,990 M (2,440). The corresponding EBITDA margin was 18.9% (18.4). The Group’s operating income, EBIT, excluding items affecting comparability, amounted to SEK 2,681 M (2,202), an increase of 22%. The operating margin excluding items affecting comparability was 16.9% (16.6).

Net financial items amounted to SEK –129 M (–152). The Group’s income before tax, excluding items affecting comparability, amounted to SEK 2,552 M (2,050), an improvement of 24% compared with the previous year. Exchange-rate effects had an impact of SEK 196 M (-42) on the Group’s income before tax. The profit margin, excluding items affecting comparability, was 16.1% (15.5). The effective tax rate on an annual basis amounted to 26% (25). Earnings per share, excluding items affecting comparability, amounted to SEK 5.10 (4.08), an increase of 25%. Operating cash flow was SEK 3,469 M (2,541).

FULL YEAR

Net sales for the full year 2014 totaled SEK 56,843 M (48,481), representing an increase of 17%. Organic growth was 3% (2). Acquired units contributed 9% (4). Exchange-rate effects affected sales by SEK 2,138 M (-1,156), representing 5% (-2), compared with 2013.

Operating income before depreciation, EBITDA, for the full year, excluding items affecting comparability, amounted to SEK 10,419 M (8,917). The corresponding margin was 18.3% (18.4). The Group’s operating income, EBIT, excluding items affecting comparability, amounted to SEK 9,257 M (7,923), which was an increase of 17%. The corresponding operating margin was 16.3% (16.3).

Earnings per share for the full year, excluding items affecting comparability, amounted to SEK 17.38 (14.84), an increase of 17%. Operating cash flow totaled SEK 8,238 M (6,803).

RESTRUCTURING MEASURES

Payments related to all existing restructuring programs amounted to SEK 119 M in the quarter and SEK 453 M for the full year. The restructuring programs proceeded according to plan and led to a reduction in personnel of 459 people during the quarter and 9,414 people since the projects began.

At the end of the year provisions of SEK 941 M remained in the balance sheet for carrying out the programs.

COMMENTS BY DIVISION

EMEA

Sales for the quarter in EMEA division totaled SEK 3,979 M (3,546), with organic growth of 2% (1). The markets in Germany, Spain, Africa and eastern Europe showed strong growth. Scandinavia produced good growth, while sales were stable in Britain, Italy and Israel. Sales growth was negative in Benelux, France and Finland. Acquired growth amounted to 6% (1). Operating income, excluding items affecting comparability, totaled SEK 694 M (631) and the corresponding operating margin was 17.5% (17.8). Return on capital employed amounted to 22.2% (22.9). Operating cash flow before interest paid totaled SEK 1,011 M (944).

AMERICAS

Sales for the quarter in Americas division totaled SEK 3,283 M (2,558), with organic growth of 8% (6). The sales trends for traditional lock products, the door segment, electromechanical products, the private residential market and South America were strong. High-security products, Canada and Mexico showed good growth. Acquired growth amounted to 5% (6). Operating income, excluding items affecting comparability, totaled SEK 690 M (525) and the corresponding operating margin was 21.0% (20.5). Return on capital employed amounted to 23.0% (22.3). Operating cash flow before interest paid totaled SEK 795 M (656).

ASIA PACIFIC

Sales for the quarter in Asia Pacific division totaled SEK 2,327 M (2,066), with organic growth of -7% (4). Australia, New Zealand, South-East Asia and South Korea showed strong growth. China showed a strong negative trend due to weak domestic demand and ASSA ABLOY’s enforcement of a strict credit policy in China. Acquired growth amounted to 8% (0). Operating income, excluding items affecting comparability, totaled SEK 340 M (281), and the corresponding operating margin was 14.6% (13.6). The quarter’s return on capital employed amounted to 14.5% (14.8). Operating cash flow before interest paid totaled SEK 553 M (450).

GLOBAL TECHNOLOGIES

Sales for the quarter in Global Technologies division totaled SEK 2,076 M (1,690), with organic growth of 5% (13). At HID Global, Government ID, biometry and identification technology (IDT) had strong growth. Access control and logical access showed good growth while project sales were stable. Hospitality showed continued strong growth. Acquired growth amounted to 5% (0). The division’s operating income, excluding items affecting comparability, amounted to SEK 415 M (312), and the corresponding operating margin was 20.0% (18.4). Return on capital employed amounted to 21.2% (20.3). Operating cash flow before interest paid totaled SEK 554 M (258).

ENTRANCE SYSTEMS

Sales for the quarter in Entrance Systems division totaled SEK 4,440 M (3,615), with organic growth of 4% (3). Growth was strong for the division’s American operations and in the segments of door automation, door components and high-speed doors. European industrial doors, doors for the private residential market in Europe and Ditec had negative growth. Acquired growth amounted to 12% (15). Operating income, excluding items affecting comparability, totaled SEK 685 M (587) and the corresponding operating margin was 15.4% (16.2). Dilution due to acquisitions was 0.6 of a percentage point. Return on capital employed amounted to 16.7% (16.3). Operating cash flow before interest paid totaled SEK 805 M (594).

ACQUISITIONS

During the quarter ENOX (India), Jiawei (China), Digi Electronics (China) and another seven minor acquisitions were consolidated. The combined acquisition price for the 20 companies acquired during the whole year amounted to SEK 4,568 M, and preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 4,151 M. The acquisition price is adjusted for acquired net debt and estimated earn‑outs. Estimated earn-outs amount to SEK 2,191 M.

SUSTAINABLE DEVELOPMENT

Increasing the efficiency of energy use in the Group’s manufacturing plants and sales companies is a prioritized area for achieving a reduced environmental impact and lower costs. The improvement work is pursued locally in the Group’s units, often with support from the kaizen method for identifying and prioritizing different activities. Several different activities that together produce significant savings are often identified in a single project.

As an example, ASSA ABLOY’s factory in Bucharest can be cited, where energy-measuring instruments at different sites in the plant indicated where further improvements could be achieved. Maintenance and start-up procedures for the factory’s surface-treatment plant were subsequently optimized and the start-up process was automated, which minimized idle time when the plant was running. Equipment was installed to balance the factory’s energy consumption more efficiently. Light-fittings were changed to modern energy-efficient solutions and efforts were made to use daylight for illumination as much as possible. The fixtures used to hold the products during the painting process were also modified to hold more products at the same time. These changes produced a 9% improvement in the factory’s energy efficiency.

ASSA ABLOY’s Sustainability Report for 2014 will be available from 27 March 2015 on the company’s website, www.assaabloy.com.

PARENT COMPANY

Other operating income for the Parent company ASSA ABLOY AB totaled SEK 3,085 M (2,261) for the full year. Income before tax amounted to SEK 5,553 M (2,896). Investments in tangible and intangible assets totaled SEK 11 M (992). Liquidity is good and the equity ratio was 46.4% (45.1).

DIVIDEND, STOCK SPLIT AND ANNUAL GENERAL MEETING

The Board of Directors proposes a dividend of SEK 6.50 (5.70) per share for the 2014 financial year. In addition, the Board of Directors proposes a stock split of 3:1. The Annual General Meeting will be held on 7 May 2015. The Annual Report for 2014 will be available from 27 March 2015 on the company’s website, www.assaabloy.com.

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 90-95 of the 2013 Annual Report.

This Year-end Report was prepared in accordance with IAS 34 ‘Interim Financial Reporting’ and the Annual Accounts Act. The Year-end Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2 ‘Reporting by a Legal Entity’.

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 the 2013 Annual Report.

REVIEW

The Company’s Auditors have not carried out any review of the Report for the fourth quarter of 2014.

OUTLOOK*

Long-term outlook 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 published on 23 October 2014:

Long-term outlook 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.

Stockholm, 5 February 2015

Johan Molin President and CEO

FINANCIAL INFORMATION

The Interim Report for the first quarter will be published on 28 April 2015. The Annual General Meeting will be held on 7 May 2015 at the Museum of Modern Art in Stockholm.

ASSA ABLOY is holding an analysts’ meeting at 10.00 today at Operaterrassen 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 5055 6476, +44 203 364 5371 or +1 877 679 2993.

This information is that which ASSA ABLOY is required to disclose under the Swedish Securities Exchange and Clearing Operations Act and/or the Swedish Financial Instruments Trading Act. The information is released for publication at 08.00 on 5 February.

This information was brought to you by Cision http://news.cision.com

Contacts

ASSA ABLOY
Johan Molin
President and CEO
Tel: +46 8 506 485 42
or
ASSA ABLOY
Carolina Dybeck Happe
Chief Financial Officer
Tel: +46 8 506 485 72

Contacts

ASSA ABLOY
Johan Molin
President and CEO
Tel: +46 8 506 485 42
or
ASSA ABLOY
Carolina Dybeck Happe
Chief Financial Officer
Tel: +46 8 506 485 72