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ASSA ABLOY
YEAR-END
REPORT JANUARY - DECEMBER 2001
Highlights:
*
Sales increased by 56% to SEK 22,510 M (14,394)
* Organic growth for comparable units was 3%
* Income before tax increased by 17% to SEK 1,642 M (1,402)
* Earnings per share (EPS) increased by 9% to SEK 2.98 (2.73)
* Earnings per share before goodwill amortization increased by 39% to
SEK 5.39 (3.88)
* Operating cash flow amounted to SEK 2,338 M (1,756)Successful integration
of 30 new companies with 12 000 employees) excluding provision for the
Merrimac dispute, USD 12.5 M plus interest (SEK 166 M)
SALES AND EARNINGS JANUARY - DECEMBER 2001
Sales for the year 2001 amounted to SEK 22,510 M (14,394) which represents
an increase of 56%. In local currencies the increase amounted to 43%,
of which organic growth for comparable units contributed 3%. The Yale
companies, showing zero growth, are not included in the organic growth
calculation. Acquired units accounted for 40%. Exchange-rate effects affected
sales positively by SEK 1,297 M.
The Group’s income before tax increased by 17% to SEK 1,642 M (1,402).
Translation of the foreign subsidiaries’ results affected this figure
positively by SEK 42 M due to exchange-rate variations.
Earnings per share after tax and full conversion increased by 9% to SEK
2.98 (2.73). The tax burden increased due to non-deductible goodwill and
to a higher proportion of earnings in countries with high tax rates. Earnings
per share before goodwill amortization increased by 39% to SEK 5.39 (3.88).
Operating cash flow before tax and acquisitions amounted to SEK 2,338
M (1,756).
INTEGRATION OF NEWLY ACQUIRED COMPANIES
2001 has been the Group’s most challenging and interesting year so
far. Sales increased by 56%, and the Group’s participation in the
Volvo Ocean Race has proven to be an extremely important and successful
tool in the work of integrating 30 new companies and their 12,000 employees.
The Race passes through almost all of ASSA ABLOY’s important markets.
At each stopover local management meetings are being held to build networks
and to make sure that everybody understands the Group’s overall strategy
and quickly adopts its way of working. The stopovers also provide an opportunity
to meet and inform partners and customers about important future ideas,
and to show people all round the world that behind each famous local brand
there stands a strong global leader.
In total, approximately 1,000 employees are participating in these management
meetings to create a deep-rooted commitment to the organization. Attitude
surveys are being carried out regularly to assess progress. The results
so far are significantly better than expected, and when the boat crosses
the finish line at the beginning of June, the work of integration should
have reached a stage that would otherwise have taken several more years.
DEVELOPEMENT OF THE SUBSIDIARIES
Scandinavia showed growth of 2% during the fourth quarter and for the
year as a whole. Growth for the Swedish operation has been good. Exports
of the Scandinavian cylinder concept are increasing, and targeted efforts
in the Do-It-Yourself segment with security-focused products are successful.
Cost reductions in the Norwegian organization have been carried out as
planned, with increasing margins in the latter part of the year. Growth
in the Danish market weakened towards the end of the year.
Finnish exports are continuing to develop well, with especially gratifying
successes in the door closer sector. The Finnish domestic market remains
weak and overall organic growth for the year was 2%. After years of strong
growth, an extensive investment program with focus on workflows has been
carried out in order to increase capacity and efficiency. The program
will have positive effects on earnings during the coming year.
Central Europe has been strengthened by the acquisition of KESO in Switzerland.
The restructuring of Lips in the Netherlands is continuing according to
plan. Costs are decreasing, order fill rate has improved significantly
and the organization has been focused on the market and made more efficient.
The German market remains weak, but the Group is progressively strengthening
its position through increased customer focus and coordination of marketing
activities. Overall growth for the region was 3%.
South Europe achieved organic growth of 4%. For a great part of the year
sales showed a good growth rate, but the end of the year was weaker than
expected, especially in France. Belgium and Spain showed strong growth.
In Spain, TESA is an interesting acquisition, which strengthens the Group’s
position in the region. In Italy, Yale is increasing its focus on efficiency
and the home market, and significantly better margins can be noted. The
integration of MAB in Italy is proceeding according to plan.
In the United Kingdom the old units continued to show good growth. The
restructuring of Yale is continuing according to plan. Reorganization
of the company into clearly defined Profit Centers is increasing focus
on products and productivity. Major efforts are being made to develop
the product portfolio, and new products focusing on security are being
launched at an increasing rate. The distribution strategy is being redeveloped
at the same time, with more and more builder’s merchants and major
ironmongers buying directly from the company.
The Group’s old units in North America continued to show a stable
growth rate of 4% during the fourth quarter in spite of the general economic
situation and September incidents. The Yale organization’s operation
to raise security and quality and eliminate its low-end products is proceeding.
The measures taken are achieving the desired results of increasing margins
but have a negative effect on growth. Emtek, which manufactures locks
and hardware for the residential market with emphasis on security and
design, is continuing to show strong growth. The newly formed Door Group
contains major synergies, which are given extra priority at a time when
economic growth is weaker. In Mexico the work of integrating the newly
acquired units Phillips and TESA has begun. The potential for growth in
this large and fast-growing market is significant.
Sales growth in Australia amounted to 3% after a strong second half, which
compensated for the weaker start. The Group has won market shares, and
the companies are continuing to improve efficiency and margins. The acquisition
of Interlock in New Zealand is a strong addition in the region. The company
has a very competitive product range and employs state-of-the-art production
technology.
New Markets continued to show strong growth of 18%. The South African
operation is developing well, with the Yale company producing good sales
and earnings growth and the integration with Viro achieving the results
expected. Mul-T-Lock’s strong export growth has slowed somewhat.
It came in large part from Japan, where a temporary surge in demand has
now weakened. The Asian market has softened during the fall but the integration
work is proceeding well, with increasing margins.
Sales of Hotel Locks were hit hard by the reduced demand for hotel rooms
following the incidents in the USA, and fell by 15% in the fourth quarter.
To adapt the business to this downturn, significant cuts are currently
being made which are expected to restore margins during 2002.
In contrast to Hotel Locks, the Identification sector has seen a marked
increase in demand during the fourth quarter of the year. Focus on security
has increased after the incidents during September, and questions of access
are getting greater attention. In addition there are significant synergies
between HID and the newly acquired Indala, which showed low margins at
the time of acquisition, is expected to reach HID’s high level relatively
quickly.
ACQUISITIONS DURING THE YEAR
The acquisitions made during the year represent significant additions
to the Group and add geographical and product strengths. The companies
acquired during 2001 have a turnover, pro forma, of SEK 4,5 billion, whereof
SEK 2,0 billion have been consolidated. Total acquisition price amounts
to SEK 4,0 billion. Goodwill amount to SEK 2,0 billion, whereof SEK 1,4
billion will be tax deductible.
RIS, Czech Republic – annual sales CZK 58 M
RIS was Abloy’s and VingCard’s local distributor in the Czech
Republic and Slovakia. The acquisition complements FAB well and strengthens
the Group’s position in the electromechanical sector.
Joint venture in North America with UDP – increases the Group’s
sales by USD 180 M
UDP manufactures security doors that are often sold with Yale’s door
products. A joint venture has been set up between UDP and the Group’s
door companies. ASSA ABLOY has management responsibility, an 80% shareholding
and an option to acquire the outstanding shares after two years. There
are significant production synergies and the acquisition has been EPS-positive
from the start.
KESO, Switzerland – sales CHF 50 M
KESO is a leading Swiss cylinder manufacturer, with significant exports.
KESO’s unique cylinder concept strengthens the Group’s product
portfolio. The current shareholding is 65% and the outstanding shares
will be acquired in 2003.
Phillips, Mexico – sales SEK 600 M
Phillips is Mexico’s leading lock manufacturer, with good growth
and profitability. Mexico, with its 100 million inhabitants is showing
good economic growth and the demand for housing and security is rising.
The acquisition is expected to contribute to EPS from 2002.
MAB, Italy – sales EUR 18 M
MAB is Italy’s leading manufacturer of floor-mounted door closers.
The acquisition strengthens the Group’s product range, especially
in South Europe, and creates significant opportunities for cross-selling.
Viro, South Africa – sales SEK 130 M
Viro is a leading South African lock manufacturer, strong in padlocks,
industrial locks and cylinders. Significant synergies are being exploited
when merging the company with Yale, South Africa.
Indala, USA – sales USD 25 M
Indala is a leading manufacturer of RFID (Radio-Frequency Identification)
cards and card readers for access control, with an installed base of 60
million cards and one million readers. Current profitability is low but
there are significant synergies with HID. The acquisition has contributed
to EPS from the start.
Interlock, New Zealand – sales NZD 60 M
Interlock is New Zealand’s leading lock manufacturer. The company
has developed well over a period of many years. The acquisition strengthens
the Group’s position in the region and contributes to EPS from the
start.
Acquisition of TESA completed – sales EUR 100 M
TESA is Spain’s leading lock manufacturer and was part of the Yale
group acquired in 2000. The company manufactures locks and lock products,
security doors and advanced electromechanical products and has substantial
exports to Latin America and the rest of Europe. Its growth and profitability
have been good for many years.
Approval for the acquisition by the US regulators was first received at
the end of 2001 after the manufacture of components for hotel locks was
discontinued. The protracted approval process and the closedown of the
hotel-locks-related production have impaired profitability, and necessary
corrective measures have been taken. The acquisition will initially lead
to a modest dilution of EPS but is expected to contribute from 2003.
OTHER INFORMATION
Ratings
Standard & Poor’s has given ASSA ABLOY an ‘A-minus’
long-term and an ‘A-2’ short-term rating. The ratings are based
on the Group’s strong position in the stable lock market, its geographical
spread, its strong cash flow and the company’s financial profile.
Incentive program for employees
An incentive program for the group’s employees has been introduced.
The program, which is based on convertible bonds, has a total value of
EUR 100 M. The program was heavily oversubscribed and over 4,500 employees
are taking part.
EUR 600 M bond loan issued
An EMTM-based bond loan was issued during the fall with the object of
diversifying the Group’s borrowings and extending borrowing durations.
The loan, which runs for five years, was 200% oversubscribed.
VingCard’s appeal
The Texas Court of Appeal has confirmed the earlier judgment concerning
VingCard’s liability to pay damages of USD 12.5 M plus interest (SEK
166 M) to Merrimac, a development company in Texas, in connection with
a terminated sub-supply contract. On the advice of VingCard’s American
lawyers, the judgment has been appealed to the court of next instance,
the Texas Supreme Court, which has not yet heard the case. The potential
cost has been provided for as a non-recurring item in the financial statements
for 2001.
EMPLOYEES
The number of employees at year-end had increased to more than 24,000
as a result of the various acquisitions.
DIVIDEND AND ANNUAL GENERAL MEETING
The Board of Directors proposes a dividend of SEK 1.00 (0.90) per share
for the 2001 financial year. The Annual General Meeting will be held on
29 April 2002.
OUTLOOK FOR 2002
The major acquisitions made in recent years have considerably strengthened
the Group. The first and most critical part of the integration process
has been completed successfully and the task of realizing synergies is
now being intensified. The Group will be able to take advantage of its
world-leading Research and Development and its global distribution strength
to meet people’s increasing needs for security. There are opportunities
for higher margins in both old and newly acquired companies. In addition,
the restructuring of the lock industry is continuing and creates opportunities
for further acquisitions. All in all we therefore look forward to continued
good sales and profit development.
Stockholm, 7 February 2002
Carl-Henric Svanberg
President and CEO
Quarterly Reports for 2002 from ASSA ABLOY will be published on 29 April,
9 August and 6 November 2002. The Year-End Report for 2002 will be published
on 6 February 2003.
Further information can be obtained from
Carl-Henric Svanberg, President and CEO, tel: +46 8 506 485 52 or +46
70 510 05 51
Göran Jansson, Chief Financial Officer, tel: +46 8 506 485 72 or
+46 70 698 85 72
ASSA ABLOY AB (publ)
Box 70340, SE-107 23 Stockholm
Tel: +46 8 506 485 00, Fax: + 46 8 506 485 85
www.assaabloy.com
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