ASSA ABLOY AB (publ)

Good morning everyone and welcome to the presentation of Assa Abloy's third interim report in 2022. My name is Björn Tebell, I'm heading investor relations and joining me here in the studio is our CEO Nico Delvaux. Erik Peder, our CFO, he is unwell and not here today. As usual, we will now start this conference with a presentation and 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. Our Q3 results, very strong performance in the quarter. with an organic sales growth of 14%, with, again, entrance systems and Americas contributing in a very strong way, but perhaps also the difference this quarter, also global technologies contributing in an important way to the top line. Also good sales growth in EMEA and then the sales declining in APAC. Strong EBIT margin improvement at 15.6%, 60 base points, better than the comparable figure a year ago. Very active on the acquisition side, growth to acquisitions of 3%, net and six acquisitions signed in the quarter. And also, as said earlier and predicted earlier, strong cash flow with a 95% cash conversion in the quarter. If you look at the numbers, sales of almost 32 billion SEC, 33% up, 14% organic, 3% net acquisition, and then helped also by currency 16%. an EBITDA margin of 16.2% within that bandwidth we aim for, and an EBIT margin of 15.6% versus 15% corrected for the Certigo divestment last year in the quarter. An EBIT of almost 5 billion SEC, 39% up, and earnings per share 3.2 SEC per share. If we comment a little bit on the different regions, a very strong continued North America with a 22% organic growth, where we saw strong growth as well on the residential side as on the commercial side, slightly higher on the commercial side than on the residential side, despite, I would say, a difficult comparison with Q3 last year. We still see good momentum, good market dynamics in the market today. Again, as well on the residential side as on the commercial side. And our spec business was up in the quarter, high double digits. Also very good South America with a 12% organic growth also here despite a very strong quarter a year ago and also here we still see good market dynamics. Africa plus 22, also here a strong quarter. And then Europe plus 6. In Europe, we have seen a little bit more mixed picture. I would say in general still very strong market dynamics, also here on the commercial side and on the residential side. Also in Europe, our spec business was up double-digit. There are some markets where for some channels to market on the residential side and on the more direct consumer related side, I would say we have seen some weaknesses. That's for France, for the UK and for the Benelux where the DIY channel has been weaker and where our channel partners, our distributors have also done some destocking activities in the quarter. But overall, still good momentum also in Europe, with a plus 6. Australia, Oceania, strong quarter, plus 12. Also here, still strong momentum on the commercial and the residential side. And also here, perhaps if you want to notice a weakness, it's also more on the DIY channel, something we see a little bit in general, in the Home Depots in the US, in the Bauhaus in Europe, and in the Bunnings in Oceania. If we then take Asia minus one, I think a very different picture between Greater China and the rest of Asia. The rest of Asia has shown very nice positive high growth. And then in Greater China, we have seen a significant double digit negative growth. And in Greater China, we continue to suffer from the construction crisis and then are also not helped by the continued zero tolerance when it comes to COVID in that country. But overall, I think still a very positive picture. If you look at some of the market highlights in the quarter, also this quarter, nice big project wins. A leading US retail chain upgrading their loading dock equipment in 20 of their distribution centers. We secured a public transport ticketing system in Australia, including more than 7 million contactless cards. A big win for a resort in South Korea with delivery of more than 9,000 locksets, door closers and cylinders. And then a nice senior care project in North America. As you know, every quarter we launch, I would say, more than 100 new products. We just picked a couple of them this quarter. The launch of the Yale Assure Lock, our newest US flagship for smart locks in the US. Very excited about that new product launch. We have here in Sweden signed a partnership with DHL for e-commerce in-home delivery. launch of a new innovative smart air wireless electronic lock, and then the extension of our software solution around Abloy Beat for critical infrastructure in global solutions. So a strong accelerated organic growth in the quarter. That's now again seven consecutive quarters with strong positive organic growth. And then a margin that is slightly slowly improving back towards the 16-17% bandwidth. We are now on a 12-month moving trend at 15.3%. So an accelerated top line with a better margin means also a strong acceleration of our operating profit on a record level and 61% higher compared to the same quarter five years ago. The acquisitions, we continue to be very active. Six acquisitions signed in the quarter. Eleven acquisitions closed year-to-date, representing sales of around 3.3 billion SEC, so adding almost 3.5% to the bottom line. And then we have four additional acquisitions that we closed now in the beginning of Q4. if we zoom in on two of them a little bit more in detail doorbird a german manufacturer of high quality ip door intercom very excited about this acquisition for our emea division they represent the sales of around 220 million sec last years And then Control ID in Brazil, which will be integrated in the Americas division, developer of hardware and software for access control and time and attendance, reinforcing our current access control and biometric offering. Very nice company, very excited about this one as well. They had the sales of 250 million SEC last year. And then you have seen, of course, that DOJ has tried to block our HHI acquisition. We, together with Spectrum Brands, are now contesting that DOJ position in court. We will have our case in court somewhere second quarter next year. And as a result of the concerns DOJ had on the acquisition, we have also initiated a sales process to divest our Emtech business in the US and our Smart Resi business in US and Canada. Together they represent a sales of around 350 million US last year. It's very nice businesses. It's unfortunate we have to divest them, of course, condition on approval by the judge of our HHI acquisition. But also with that divestment, we still are very convinced on the HHI acquisition and the strategic rationale behind it. And we reconfirm the $100 million acquisition EBIT synergies in year five after the acquisition. That figure remains valid also after the potential divestment of these businesses. If we then go into the different divisions, a little bit more in detail, starting with EMEA, an organic sales of 4%. Very strong sales growth in Scandinavia, Middle East, Africa, India. Also good sales growth in East Europe. And then, like I mentioned, a bit weaker UK, France, and Benelux on the residential side with the distributor channel and the DIY channel. And in those three markets, for those channels to market, we have initiated some contingency actions to protect the bottom line. An operating margin of 14.3% versus 11.3% last year. But of course, last year, we booked a capital loss related to the Cetigo divestment. The comparable figure is slightly above 15%. We saw good operating leverage, 40 base points in the quarter, and I would say despite continued significant higher inflation, continued material inflation, labor inflation, logistic inflation, energy cost inflation, and general inflation. FX was strongly dilutive, 110 base points, that is because of the weaker SEC, obviously. And then the M&A 317 base point, a creative link to the Cetigo capital loss booked last year. America's another very strong quarter with an organic sales of 17% and all countries and all business areas contributing in a very strong way. Good performance on the residential side as well as on the commercial side. An operating margin of 20.9% versus 20.6% a year ago. Very strong operating leverage, 170 base points up. Very strong operational execution and good strong price realization. FX dilute if 30 base points. And M&A diluted 110 base points, that is mainly or only acquisition-related costs for HHI, which amounted to around 80 million SEC in the quarter. And then go to APEC, an organic sales decline of 2% and a very mixed or different picture between Greater China and the rest of Asia Pacific. The rest of Asia Pacific showed very strong sales growth, is performing on a good level, as well in Southeast Asia, South Korea specific. And then a strong double-digit sales decline in China, like I mentioned, because of the weak construction market and the continued zero tolerance when it comes to COVID. An operating margin of 4.5% versus 5.8% a year ago. And also here you should make a difference between the rest of APAC, where we see strong operating leverage, good margins, and good execution. And then we see a loss in Greater China with a strong negative operating leverage for the division of 200 base points due to, I would say, subdued volumes in Greater China. FX accreted 60 base points, M&A accreted 10 base points, where we consolidated the call 12 acquisition in Australia in the quarter. If we then go to the global division, starting with global technologies, a very strong quarter with an organic sales growth of 19%, with all business areas in HID and all business areas in global solution contributing in a strong way to the top line. What I think is different this quarter to previous quarters is that PECs, our physical access control business, came back. and we were able to invoice part of the backlog that we build up because of shortages in the past on ships for our readers and our controllers. You might remember that we redesigned some of our readers and our controllers. to be able to use chips that were more readily available and that production started at the end of q2 and now full speed q3 giving a good recovery of the packs business which is important top line wise and also bottom line wise because it's also an important margin contributor The second difference is in global solutions where we saw a good hospitality business, which is also a good citizen ID business, by the way, so the travel-related sectors coming back from a low level. And that hospitality recovery is obviously also important bottom line-wise, and therefore we can show a strong operating margin of 17.3% versus 15.8% a year ago with a good operating leverage of 50 base points. And FX helped 120 base points because of the stronger US dollar. And then M&A diluted 20 base points. And then last but not least, Antrim Systems, another very strong quarter. Organic sales up 20% with all four segments contributing in a strong way. And as well on the equipment side, as on the service side, showing nice growth. Service had... good double digit growth in the quarter very good operating margin of 15.7 versus 14.8 a year ago very strong operating leverage of 110 base points fx neutral and then m a dilutive 20 base points If we then go a little bit more into detail on the financial numbers, I already talked about the 14% organic growth, about the 3% net acquisition growth, and the 16% growth because of currency. And EBITDA margin of 16.2%, 140 base points up. And then the EBIT margins for a 15.6 versus reported 14.2 a quarter ago. But again, corrected for Citigo 15%, 60 base point improvement. EPS 3.2, 48% up. Operating cash flow very strong, 25% up compared to a strong quarter a year ago. Cash conversion, like I mentioned, of 95%. And then the rose on a 12-month moving trend at 16.8%. 220 base points better than the same quarter a year ago. We also give you the run rate effects for Q4 now on FX and acquisitions. For FX, 17% accretive and then M&A, 3%. If we then look a little bit at the bridge, 14% organic growth where we have, I would say, a high 5% price and then an 8% volume. A very strong volume leverage of 23%, giving us 100 base point growth. Accretion, 30 base points positive currency and 10 base point positive acquisition. Again, it's the net between on one side the CETIGO comparison with last year and then the 80 million SEC we had to book for HHI related costs in the quarter, giving us the 15.6 EBIT in this quarter. quarter if you look at the cost breakdown good progress on the direct material side where we continue to compensate through price increases for the higher inflationary cost we have still 110 base point dilution That is partly because of the negative mix 70 base points and then the higher material cost 40 base points. You might remember that in Q2 that was 80 base points. So we are really bridging that gap. We are confident that that will continue now. Price versus cost and somewhere towards the end of the year, we should then be able to get tailwind from price versus cost and work away that 40 base points dilution. Good operational efficiencies seen on the conversion cost, 150 base points. We continue to execute on our MFP program where we had the saving of around 130 million SEC in the quarter. We estimate to do around 500 million SEC for the full year. And I believe we have around 300 million SEC still to go with the existing programs for next year. and we will then launch like we mentioned earlier the mfp9 program now in q1 next year we are still further consolidating all the different projects will be similar project than the earlier ones most probably a little bit lower in in total amount but a little bit better probably in in payback And then the conversion cost, of course, we have also seen very good efficiency gains in our operations through VAV activities and further negotiations in the supply chain. And then SG&A, also here good operating leverage on the sales and admin side, 90 base points gain compared to the same quarter a year ago. Operating cash flow, like I mentioned, 95% cash conversion on the 12-month trend, now 76%. We see that recovery from a weaker Q1 into a good Q2 and a very good Q3. And we are confident that that cash flow recovery will now continue going into Q4. gearing and adapt equity ratio of 35% coming from 38% a year ago and adapt versus EBITDA 1.4 versus 1.5 a year ago. So strong balance sheet that we can continue to execute on our acquisition strategy. And last but not least, earnings per share significantly up in the quarter on a very high level. So as a conclusion, it was a good quarter, very strong sales growth, organic sales up 14%, complemented with growth through acquisitions of 3%. A strong EBIT margin improvement from 15% to 15.6% comparable. And then our operating profit up 47%. And if we correct for the Cetigo divestment up 39%. Strong cash flow with a cash conversion of 95%. So overall, I think very good financial result. But then it's clear that we live in an uncertain economic climate. Again, in general, we still see good momentum in our markets apart from some slight weakness in some markets in Europe on the residential side in some channels, but overall still good momentum as well on the commercial side as on the residential side. It's clear that we are not immune to what's happening around us. And therefore we have to make sure that we are agile and stay alert and that we can react fast if and when the market goes down. And that's what we do. We have updated contingency plans. We are ready to push the button if needed. And the fact that we are very decentralized in our setup is, we believe, also a very strong advantage because if downtime comes, obviously, it will not hit us everywhere at the same extent. And therefore, being able to take those decisions locally in the different local markets is a strong, I would say, competitive advantage. And last but not least, just to remind you that we have our Capital Markets Day now on November the 16th in London. And we look forward to meet many of you there again face to face. And with that, I want to give the word back to Bjorn for Q&A.

Thank you, Nico. Well, we'll start the Q&A now. Just a quick reminder before there are more than 10 people who are in the queue. So please limit yourself to one question and one follow up so we can allow as many as possible to ask questions. So with that operator, we're ready to kick off the Q&A session. Please go ahead.