Promising opportunities despite weak market

One year after Group companies from Germany, the Netherlands, Switzerland and Austria formed a new Central European organization, prospects for organic growth and expansion by acquisition look promising despite the general slump in economic growth. Eero Leskinen, Group Vice President responsible for Central Europe, explains how he’s streamlining his operations to compete more effectively in this challenging hardware arena.

“The current market situation in central Europe, characterized by slower than expected growth in most sectors, particularly new construction, favors those companies who have streamlined their organizations to reduce costs while maintaining an aggressive sales and marketing posture. We have succeeded in doing both. Costs are still in process of being reduced by as much as eur 10 m by relocating our lock manufacturing to lower-cost countries, by integrating component production for some of our main product lines in the region, and by slimming our work force by some 15 percent. Thanks to these and other measures we are well positioned to meet current market conditions. We see 2003 as a transitional year characterized by stable sales leading to stronger growth in 2004.”

On the sales and marketing fronts, a number of important initiatives have been taken to ensure stable growth and better profitability in the challenging economic climate. Eero Leskinen says:
“Generally speaking we are moving closer to the customer on a variety of levels. We have created integrated product packages that are specifically tailored to meet the security and safety requirements of our main customer categories. We have created dedicated sales teams for the commercial, residential, oem and door industry market segments to ensure better service and support leading to higher customer satisfaction. We have developed a new distribution concept making better and more effective use of our various locksmith and dealer partnerships. And we have also committed more resources to r&d to bring new products to the market faster.”

The more market-oriented organization and a widening product range generated through more aggressive product development initiatives offer good potential for future growth. It is also felt that there are a number of opportunities for expansion through strategic acquisitions on all markets in the region. The industry’s high degree of fragmentation, with many small to medium-sized family-owned lock companies operating in the region, generates many possibilities for future restructuring and harmonization. ASSA ABLOY has the size, scope and financial strength to make the most of this market situation.

Higher security demands
Germany, the Netherlands, Switzerland and Austria all continue to show an increased interest in greater security. This is true for both the commercial and residential segments. This demand for higher security is likely to continue and to grow for the foreseeable future. The system product lines, which include exit door and masterkey systems and electromechanical cylinders, are well placed to meet this demand. These greater security concerns will translate into higher sales value per door due to the rise in demand for electromechanical solutions which offer higher security, greater flexibility, and more convenience and peace of mind for customers.

This applies to the residential market as well as the upper end of the commercial market. All the ASSA ABLOY companies in the region continue to work closely with police and fire authorities, insurance companies and their various partners throughout the area to agree on and improve specifications which meet changing customer requirements for increased safety and security.

Size matters
Eero Leskinen says the many benefits of being a part of the ASSA ABLOY Group are becoming increasingly apparent. “A growing number of crossselling opportunities will help to increase our sales within the region and on export markets like the UK. Crossbuying has helped to broaden our product range to include multipoint locks and panic doors, to name two. We have also exploited the advantages of synergy more effectively by integrating production of components for ikon and KESO and consolidated our branding strategy for the region as a whole.”

Harald Briks, responsible for locking at the Technische Universität in Berlin, searched for a system that could provide a high level of mechanical security while coping flexibly with lost keys and organizational changes. He found the ideal solution in the VERSO CLIQ lock cylinder from IKON, which combines electronic coding with mechanical security. “The problem of walk-about keys is solved since it’s easy to log the key out of the system instead of changing the lock. This gives the system a far longer life expectancy than traditional systems.”

Market developments
In Germany, new construction continues to be weak. The retrofit market, however, is stable and the situation is expected to continue through 2003. Overall market volumes have not increased and are expected to stagnate until the second half of 2004.

Deliveries of electromechanical CLIQ cylinders began in the fall of 2002 and very good sales growth in this highvalue segment due to the sophistication of the German market and the demand for high-security locking solutions bodes well for future sales.

In 2003, the best chance for sales growth is seen in system products such as exit door and masterkey systems and electromechanical locks rather than standard products which include electric strikes, cylinders and hardware. Sales in the residential segment were stable in 2002. These sales are expected to show good growth in the coming year.

In the Netherlands the recent takeover of vema, which specializes in electromechanical products, provides a strong base by which to lead this market. The major restructuring program for Lips is complete and has seen a rise in sales and significant improvements in both delivery times and service overall. Ambouw, which sells locks and building hardware in the Netherlands, mostly made by ikon and other sister companies, has begun to see the results of its new business redesign plan adopted in 2000. It has reduced stocks, dramatically speeded up deliveries and generated a rapid increase in sales to customers.

In Switzerland the integration of KESO, which produces high-security cylinders, has gone according to plan and resulted in stable sales growth. Steps to further rationalize the business continue. The Swiss operation expects to see good profit growth in this market in 2003 and 2004.

In Austria, ASSA ABLOY operations have been integrated into one operation which will become one of the leading lock companies in this market.