ASSA ABLOY AB (publ)

Good morning and welcome to the presentation of Assa Abloy's first half-year report in 2022. My name is Björnt Bell, I'm heading investor relations and joining me here in the studio are Assa Abloy's CEO, Nico Delvaux, and our CFO, Erik Peder. We have set aside about one hour for the call today. And as usual, we will now start with the summary of the report before we open up for your questions. So with that, over to you, Nico.

Thanks, Bjorn. And also good morning from my side. I can present good results for Q2 and therefore also good results for the first half of the year. We had a strong growth in the quarter with an organic growth of 13%, a total growth of 25%. Also a strong profit with an EBIT of around 4.4 billion SEC. A good EBIT margin of 15%, and I would say that despite all the significant operating challenges, challenges around material shortages in general, chip shortages in particular, labor shortages, and then, of course, all the inflationary pressure, inflationary pressure around labor, around material, around logistics, around energy. So a good result on the income statement side. I think also a good result on the cash flow side. Strong cash flow, record cash flow for Q2 with a good cash conversion rate of 90%. We also completed six acquisitions in the quarter. If you look at the numbers, sales of 29.5 billion SEC, 25% up, 13% organic growth, net acquisition growth of 0%, and then helped by currency in an important way, plus 12%. An EBITDA margin of 15.5% and an EBIT margin, like I mentioned, of 15% versus 15.2% a year ago. An EBIT of 4.4 billion SEC, 23% up, EPS 2% down. But if you adjust for a positive one-time tax effect in Q2 last year, our EPS growth was strong, 24%. If we now look a little bit into the different regions, a very strong North America with organic growth of 22%, strong momentum and continuous momentum as well on the commercial side as on the residential side. A continued strong South America with an organic growth of 17% on top of a high double-digit growth a year ago and a high double-digit growth two years ago. So I think also very strong performance in South America. Very good. Europe plus 9. We also hear strong market conditions as well on the residential side as on the commercial side. Africa plus 10. And Oceania plus 4. And then the only weak part with a negative growth of minus 10% Asia. And that is mainly or only because of the very challenging situation that continues to be very challenging in greater China. So overall, I think most of the regions post very good, continued positive organic growth in the quarter. Some market highlights. The first one, definitely very excited about that one. 1,500 loading base and doors for the largest logistic center in Europe. Very nice win. Access control upgrade for one of the biggest airports in Asia. And I would say it's also interesting and good and positive to see that despite the challenging situations in China, we also win there a nice project. And also good to see that the... The cruise ship business is coming back with several wins in that vertical. Our R&D efforts continue to pay off and are awarded. Gateman in Korea is again recognized as the number one digital door lock brand now for the 17th consecutive year. It's quite impressive. Asable Pulse won an award in Denmark. And we continue to launch new products. We have launched a new machine protection door and entrance systems. We also launched a new family of products with a new coating and antimicrobial finish to avoid the spread of bacterias. If we look a little bit at sales growth, so now again six consecutive quarters with strong positive organic growth. I would also say accelerated organic growth compared to pre-pandemic times. Of course, we had four quarters during the pandemic in 2020 with negative growth. But therefore an accelerated sales growth curve. Operating margins flat at 15%. So flat margins, increased top line, therefore also accelerated operating profit, record profit in the quarter. We continue to be very active on the acquisition side. We have seven acquisitions completed in the year, six in the quarter. The seven acquisitions represent an annualized sales of around 2.8 billion SECs. And if we zoom in on two of them, we finally got the approval from the antitrust authorities in UK and Ireland to complete the Arenile acquisition, complementing very nicely our door and window hardware in the UK. That company represents a sales of almost 1.5 billion SEC, and they will be accretive to EPS as from the start. And then Coldwell, also a nice acquisition, strengthening our position in the fenestration segment. Coldwell has a sales of around 1 billion SEC and also they will be accretive to EPS as from the start. If we then zoom in in the different divisions, a good performance of EMEA in the quarter with an organic sales of 8%, good strong contribution from all countries with the exception of South Europe where we had stable sales growth and that was mainly due to the fact that we had a very difficult comparison with last year. They had very high growth last year coming out of the pandemic in that part of Europe a year ago. A good operating margin of 14.4%. We have a strong operating leverage of 40 base points, and that despite high material, high logistics, and high energy costs, and of course all operational challenges linked to material shortages in general and ship shortages in particular. So a very good job well done by our operations team in that division. FX very dilutive 110 base points and M&A a creative 20 base points that was mainly thanks to the divestment of Certigo. We also took acquisitions costs related to the Aranile acquisition in the quarter. If we then go to Americas, very strong, excellent performance again in Americas with an organic sales of plus 20%, with all countries, all business areas performing and contributing in a very strong way. a very good operating margin of 20.6 percent with a very good operating leverage of 160 base points obviously same challenges as i mentioned in a mayor when it comes to operations good strong price realization fx 20 base points dilutive and mna 120 base points dilutive That's only related to acquisition costs for HHI. Acquisition costs for HHI in the quarter were around 75 million SEC. You've also seen the announcement that we have now extended the agreement with Spectrum Brands until the end of the first half next year because we continue to discuss with the antitrust authorities and we see that there is potential some further delay in closing the HHI acquisitions. If we then go to Asia Pacific, the vision more challenging with an organic sales decline of 5%. Very different picture between Greater China and the rest of the division. The rest of the division is performing on a good high level, a good strong sales growth. Where obviously in China, the market conditions remain very challenging. Construction industry is still depressed in China. And also the zero tolerance when it comes to COVID definitely does not help. So we have seen significant sales decline in China. and therefore also an operating margin of only 1.9 percent clearly because in a too low top line giving us a negative operating leverage of 640 base points and of course we have the same challenges when it comes to material inflation shortages and and so on and on top of that we had the lockdowns in in China, mainly in April and in May. FX accreted 10 base points and M&A diluted 80 base points. That is again only related to acquisition costs for the Coldwell acquisition in Australia. If we then go to the global division, starting with global technologies, a good organic sales of plus 6%, where most of the business areas in HID and all the business areas in global solutions performed in a strong way, with the exception of PECs, physical access control mainly, and also identity and access solutions and extended access, where we saw a sales decline. For our PEX business, we continue to see challenges around ship shortages, and we estimate here also that we lost around 300 million SEC top line for PEX in the quarter. As you know, PEX is also very important for the overall profit for the division. Therefore, also an operating margin of 15.3%, with a negative leverage of 90 base points. Mainly due to that negative mix in the sense more citizen ID and less PECS gives us an important negative mix. But also here all the other operating challenges and on top of that we had the lockdowns in China which affected our global solutions, hospitality business in particular. In an important way, our factory for locks for hospitality was completely closed in April and was working at 50% capacity in May. FX helped 80 base points and M&A diluted 30 base points. And then last but not least, entrance systems also here. Again, a very strong performance in the quarter and organic sales of 19% with all segments and as well equipment as service contributing in a strong positive way. A good strong operating margin of 15.5% versus 14.9% a year ago. with a strong operating leverage of 40 base points despite again here all all the similar challenges i mentioned earlier also here strong price realization again in the quarter fx helped 20 base points and mna was neutral and with that i give the word to eric for some more details on the financials

Thank you, Nico, and also a very good morning from my side. As mentioned before, we ended up on a sale of 29.5 billion SEC, up 25%, of which organic stands for plus 13%. The FX is roughly 12%. Operating income ended on 4.4 billion SEC, up with 23%. EBIT margin is 20 base points lower than the same period last year and ended at 15%. And as mentioned before by Nico, if you look on the net income and in the EPS, it's 2% lower than the same period last year. But then we need to take into account that last year we had a one-time tax impact. which affected the EPS and the net income positively. If we exclude for that one, the EPS and net income was actually up with 24%. Cash flow strong at 3.8 billion SEK, up with 4%. We see that the increased sales, as well as I would say that we have been able to I would say lower the increase in working capital if you look on receivables and payables it's following I would say the sales and with we have an increase in inventory but it's not let's say to the same extent as what we have seen in the quarters prior return on capital employed ended at 16 it's up from 14.9 the same period last year If we then sort of look now into Q3, you can see the numbers we estimate in for the FX as well as for the M&A. But I would also like to remind that last year, we took a capital loss from the divestment of Certego of roughly 195 million SEK. If we then go into the bridge, the 13%, if we dissect it, 7% is volume, 6% is price increases that we've done in the quarter. That is on top of the price increases that we did a year ago. So despite, you've heard Nico talk about all the operational challenges, despite this, we have an operating flow through of 15.5%. where we can, of course, see that we have been able to, let's say, be more efficient and also use, I would say, the increased sales leverage in order then to still being able to perform on a 15.5% on the organic currency. Yeah, you have seen it shifts a bit between the different divisions where EMEA is, let's say, having a currency, negative currency impact coming from the strengthening of the dollar as well as the weakening of the SEC. You can also see on the other ones like global technologies where they sort of have a help from the dollar. And if you look in total, it's marginal neutral, the currency, in fact. Acquisitions, the negative one on the sales is related to the divestment of Certego. The negative part on the operating margin are related to acquisition costs from the three acquisitions, HHI, Caldwell, as well as Arenile. It is more than 100 million SEC in the quarter. If we take the cost breakdown, direct material is 1.8 points negative versus the same period last year. If we dissect it, roughly 100 base points come from the negative mix, where we have the division mix, where I would say a weaker global technologies and the stronger Americas, as well as we have the inter-divisional mix, like for instance an entrance with a stronger parameter, but also that we have for the opening solutions division a stronger electromechanical or digital lock sales the higher material cost and as you know now it's not only the raw material it's also electronic components as well as source components had a negative impact of a minus 80 base points we see of course that the raw material is coming up but we don't see any improvements like on the electronic components But with the price increases that we're doing, we still expect that during the later part of the year that we will be able to flatten this impact out. Conversion cost is positive with 140 base points compared to the same period last year. where of course we get help from the volume, but we've also been able to do operating efficiencies. The positive impact from the manufacturing footprint savings are 130 million SEK in the quarter. You can also see that we have a positive impact from the leverage as well as efficiencies within our sales and administration. In total, you can see it's 50 base points, but we continue to invest in R&D in order then to be on the technology forefront. Cash flow, as mentioned before, almost 3.8 billion SEK, plus four versus the same period last year. The cash conversion improved from the first quarter, as we said, now to the second quarter and ended at 90%. And we expect this to continue to improve. The gearing, net debt versus equity is down from 45% to 42%. This is despite that we have done the acquisition of Caldwell as well as Erin Isle. If you look in value, the debt is up with 4.9 billion SEK. Partly, of course, related to the acquisitions that I just mentioned, but we've also paid dividend. as well as we have a negative currency impact due to the weakening of the SEC. Net debt versus EBITDA is slightly up from 1.6 last year to 1.7 this year, but despite this we have a very strong financial position and can continue our acquisition strategy. as well as being, let's say, ready from a financial point of view when we will close the HHI acquisition. Last but not least, from my side, I mentioned before the earnings per share down in actual with minus two. If we take the tax effect out last year, it's actually up with 24%. And with that, I hand back to Nico for some closing remarks.