ASSA ABLOY AB (publ)

Hello everyone and welcome to the presentation of Assa Abloy's 2022 year-end report. My name is Björn Tobel, I'm heading investor relations and joining me here are Assa Abloy's CEO Nico Delvaux and our CFO Erik Pieder. We will stick to the normal format today and start now with a summary of the report before we open up for your questions. So with that, over to you, Nico.

Thank you, Bjorn, and also good morning from my side. We can report a very good Q4, a very good end to, I think, a very good 2022 for Assembloj. We had a strong organic growth of 9% in the quarter, with all divisions contributing in a strong way, with the exception of APEC. In APEC, it's mainly Greater China, where we continue to see challenging market conditions, COVID-19 related, and of course, construction issues.

market crisis in digital real estate. Also, good complementary growth requisitions of 5% in the quarter. A strong EBIT margin of 15.7%. And a strong EBIT improvement.

Very active in the quarter when it comes to acquisitions, with eight acquisitions signed in the quarter. And then a strong cash flow, almost double of a year ago at 6.6 billion SEC. So if you look in the numbers... Top line close to 33 billion SEC, 28% up, 9% organic, 5% acquisition, and then also helped by currency in an important way. An EBIT margin of 15.7% on the same level as the same quarter a year ago, and an EBIT of almost 5.2 billion SEC, 28% up.

And our share, 23% up. If we look a little bit into the different regions, Continued very strong North America. market conditions on the the commercial side, but I would say also on the residential side. Through that new-built residential It's done, but as you know, we are not so affected by new-built residential in North America. It affects a little bit our garage door business in entrance systems. It also affects a little bit our OEM business in general. or window hardware business in particular. We still see very strong momentum on the residential side. auto market and like I said on the commercial

So I would say for North America, the market is perhaps not our biggest concern. It's perhaps more the high comparison with a year ago. If I go to South America, minus nine. If you look at our core businesses, our core markets there, it was only down very low single digit and that was against a very difficult comparison a year ago you know that in South America we were growing very high double digit now for many quarters a couple of years in a row so at a certain moment it becomes difficult to further grow against that high comparison and of course we have some

challenges, political challenges in Brazil, in Peru, but the minus nine was mainly because project in Brazil a year ago. Euro plus three. Think good. Quarter in Europe. Press. market conditions are a bit less clear than in north america we still see very good on the commercial side. Also, with our spec business still up double-digit. We are on the residential The residential side is a bit more afflictive. Africa plus five. um all the floods and all the challenges in australia new zealand And then AZ, the only one, or the other one,

One negative minus five. And like I mentioned, mainly because of a continued challenging situation in greater China, where COVID-19 was still very much around in Q4, and where the construction market continues to be very depressed. We also had some challenges in the quarter in Southeast Asia, but it was mainly because of a very high comparison with a year ago in Southeast Asia. Some market highlights for the people that were interested in the FIFA World Cup. Eric, I know that your country was not there.

We were... Back home very fast. But we... We provided all the paper tickets for the World Cup. More than 2 million paper tickets. time in a row that we do that service so definitely very high profile type of project important critical infrastructure wind for our electronics solutions for European gas network and then some energy systems saving solutions for mental systems for a global multinational for its manufacturing plants in Mexico. It's also good to see that our R&D effort continues to be rewarded in the market our Yale Unity screen doors.

...won the Good Design Award in Australia. And then also this quarter, several new products, products around green sustainability, this thermal guard glass for our entrance system products, increasing energy efficiency in the doors. And then we further extended our Insido Cloud offering, where we now integrated also the battery-less Pulse digital cylinders on that platform.

So now eight consecutive quads. with strong organic growth and the last couple of quarters also complemented with very strong growth through acquisitions So you could see an acceleration of our top line. Our margin still below the band. 15.7% for the year at 15.3%. So working hard to get back within that 16 to 17% bandwidth. Operating margin accelerated top line. Operating profit, record profit in the quarter. for the first time in both five years. Very active quarter when it comes to Acquisitions with eight acquisitions signed in the quarter.

21 acquisitions completed for the full year. That's also a record. And those 21 acquisitions represent an annualized sales of around 7 billion SEC. An update on HHI. We are still preparing for the court case, which will take place in April this year. And as part of mitigating the concerns DOJ has raised, we then also came to an agreement to conditionally...

sell our antique and small residential businesses in the U.S. to Fortune and brands, of course, conditionally based on closing the HHI transaction. interesting acquisitions dnd technologies in australia again it's hardware with sales of around 475 million stack and then a leading provider of handheld mobile computers and readers They used those readers also at the FIFA World Cup to control people entering... a perimeter around the stadiums.

make sure that people have the right ticket they have a sales of around 200 million sec in 2021 if i then zoom in into the different divisions starting with emea an organic sales of two percent with very strong sales growth in Middle East, Africa, and India, the more emerging part of EMEA. Strong growth in Benelux, good sales in East Europe, UK, DAC, and Scandinavia, but then a sales decline in Finland, South Europe, and France. An operating margin of 15%, with a very strong operating

leverage dilution of effects because of the weak SEC and also a stronger dilution of M&A mainly linked to acquisition cost integration costs for import important acquisitions in the MAF for Robert and Aaron Isle We then go to America's another very strong quarter and I would say a very good excellent year year for America's organic sales in the quarter of 11% with all business areas, all real regions contributing in a strong way with the exception of a small sales decline in Latin America, like I mentioned earlier. and then electromechanical solutions mainly linked to some shortages on

electronic chips and also a very high comparison with a year ago. an operating margin of 21.3%, very strong operating leverage, 200 base points, FX neutral, and also here M&A strongly dilutive, 90 base points. That's related to acquisition costs for HHI, which amounted to 90 million SEC in the quarter. And then go to Asia-Pacific division, the more challenging division with an organic sales decline of 10%.

Good growth in South Korea. Slight sales decline in the Pacific, and then a significant sales decline in Southeast Asia because of a difficult comparison. with a year ago, and also in China, because of continued very difficult market conditions. And that's... Therefore, we don't have the necessary volume. China, we also proposed an operating model. Again, because... And then effects slightly positive M&A supply.

and that's linked to integration costs to bigger acquisitions as we did in Australia, Coldwell and D&D technologies. Then go to the global division, starting with global technologies, a very good quarter, strong end of the year, organic sales of 24%, where I would say all business areas and as well HID as global solutions were contributing in a strong way, with the exception of extended access, where we were also able to further reduce the backlog buildup on physical access control.

Because we get now the chips in for our redesigned products. working away at that backlog. We also saw a good return of the travel related businesses and hospitality in particular. An operating margin of 17.2%. one percent what's the level where we want to be what we aim for good volume leverage 140 base points helped by FX 50 base points because of the stronger dollar. And then 50 base points dilution. mainly because of acquisition integrated related. Last but not least, systems, strong end over strong year with organic sales of plus 10%.

with three of the four segments contributing in a strong way, residential, industrial, and pedestrian, and a sales decline in perimeter security against a very high comparison a year ago. Also, very strong double-digit growth in service, where we deliver on our ambition to grow the service business high single-digit. An operating margin at 16.5%, good operating, leveraged 30 base points, slight help of FX, and an M&A dilutive 40 base points. And with that, I give the word to Eric for some more details on the financials.

Thank you, Nico. And also from my side, very good Friday morning. As you all know, our target is to reach 150 billion sec by 2026 in sales and if you look fully year I think that we have done good progress in order to reach that target. The full year ended at almost 121 In SEC, yes, we are held by currency, but you can also see that the organic as well as the acquisition growth was 14%. The volume is similar to what we had in the quarter. It's a different mix where you get The organic piece was 9% and the acquired part was 5%. Low-pricing income previously explained by Niko was record high above the 5 billion SEC and increased with 28%.

Income before tax, you see that one is slightly lower with an increase of 25%, and that is that we also experience the higher interest rate cost that is now all over the world. One of the highlights, operational cash flow. almost doubled from a rather weak Q4 last year, but still is the best cash flow that we have had in a quarter ever. And then I would say also another highlight is the return on capital employed, which almost reached 17% for the full year of 2022.

Let's take a look at the bridge. Price of the 9% is 5%. volume is 4. We have a good operating leverage of 22.3%. If you take in to account that we still have supply chain issues. We are suffering from higher inflation as well as higher energy costs. But we have been able to mitigate that by operational efficiencies, like, for instance, in the footprint program had a saving in the quarter of 200 million. We're now in Q1. We will launch the ninth program with a total... ...restruction cost of 1.2 billion SEC... and have an annual saving at the end of the program of 700 million. The payback period is about two years.

On the currency, we are helped a bit by the stronger dollar, so that's a 20 base points improvement. And acquisitions, I think, I mean, there you've heard Nico talk about acquisitions and integration costs. For HHI, it's 90 million SEC, but if it also would add the other ones, the dilutive impact would have been 30 base points instead of the 80 base points that you see here on the slide. On the cost breakdown, we see that the direct material is improving with 40 basis.

where we have a stronger global technologies and the week back but over the full quarter the cost versus price with the material was actually flat. On the conversion side, we were up with or let's say we had the better performance of 70 base points where i mean i talked before about the operation and also the higher volumes. On the STNA, slightly lower. We have continued to invest in R&D. But we have been able to offset this by efficiency within our sales and admin cost.

As I said before, this is once again one of the highlights of the report, the operational cash flow, almost 6.6 billion, where we had high EBIT and an EBITDA, but we have also been able to manage our working capital with the reduction in receivables as well as in inventory. The cash conversion on the quarter was 138%. We have seen especially good performance within entrants and Americas in the quarter.

And net debt to equity A is now at 1.4 versus 1.5 last year. The net debt to equity is also down from 39 to 37 in the quarter we increased the debt with roughly 1.1 billion yes we have been quite active on the acquisition front as well as we have paid dividends. If you look on the full year, 2021 versus 2022, we're up with We have increased the debt with 4.6 billion. Out of that, 3.4 is related to cuts. And then, yes, we have also done 21 acquisitions. But on and on. Flip slides. It's no problem.

All in all, I think that we have a very solid balance sheet and therefore we are ready to absorb the HHI acquisition as well as continue our acquisition strategy. Now you can flip the slide, Nico. Thank you. Earnings per share ended at 3.36 for the quarter and is up, as you've seen before on the slide, with 23%. And with that, I hand back to the one who was actually with his team in Doha.

So as a conclusion, a strong quarter, strong end of the quarter. Good year for us. And organic sales. 9% compliment in a good way. strong way with quote-unquote acquisitions of 5%. A strong EBIT margin of 15.7%. Almost a double compared to a year ago. so overall financially good result then it's clear that we live in an uncertain economic climate talking before we are still quite optimistic of what we see in the But as you know, we should be ready for whatever economic situation comes to us. We have our decentralized organization that has helped us.

in the past to be very agile, which will help us also now this time to be very agile, even when a possible downturn would come. But the agility will also help us to continue to profit from those markets where we see a strong momentum. And last but not least, the board proposes a dividend of 4.8 SEC per share, split like in recent years into equal payments. And with that, I give the word back to Bjorn for Q&A.

Thank you very much, Nico. It's time to open up for Q&A now.

I know that there are many in the queue, so please remember to restrict yourself to one. Ready to kick off the Q&A session, please go ahead. question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have sent the cue. If you wish to remove your phone, you can do so. So from the question cue, you may press star and tune. The questions are requested to use only handsets while asking a question. In the interest of time, please limit yourself to two questions only. Anyone with a question? Thank you. Good morning. Nico, if I can... Start with Europe and India media. Are you calling out commercial? Strong specs. Encouraging.

Wonder whether you can talk a bit about what you see in the European residential market. I noticed that you have seen strong growth in Benelux and good growth in the UK organically at least. I presume that might also mean stable volumes. But those were two of the three markets you called out, I think, in the third quarter as a concern together with France. So maybe you could talk about what you see there and the exit rates perhaps versus the 2% organic in Q4 overall for EMEA. And specifically, if I can, sorry, just on the contingency plans that you initiated in the third quarter, have they indeed been executed or are they ongoing? Thank you.

I can reconfirm that we continue to see good momentum on the quarter. commercial side, I would say no, no slowdown. Translated in the level of our on the residential side most probably we must make the distinction between a new build and an R&R, so an aftermarket from the aftermarket in north america but we're definitely new built in It's more challenging. We see that a little bit in our OEM channel, where we see things slowing down and of course you always get the double effect because if you run people's start with the stock and the market goes down, you have this bubble.

When it comes specifically to the markets you asked, yes, Benelux, we have seen growth, but that was mainly against a very weak comparison a year ago. So I would say that Benelux, the situation is still similar as I explained in Q3, like it is for France because we saw negative growth in France. Then it's true that the channel to market can only destock so much after a couple of months that destocking is over because there's nothing left to destock.

I think we are on that level now. It will be now more in line with how the market evolves. It's very difficult or more difficult to read in Europe than in the US, but also in In Europe, perhaps we are a little bit more positive than what you read in the newspapers or what you hear on the news. Thank you. A helpful follow-up, if I can. I think I heard you say... We want to be, if I'm wrong, that sounds a bit un- I mean, you're calling out very strong brain leverage. That's true, but that's obviously a very depressed comparison from last year. No volumes and high components cost back then. can help us a little bit with your thoughts on 2023 global tech market. It should be better operating average coming through mixed particularly as

Packs recover, price-cost tailwinds, decent volumes. I'm hoping we can do better than what we saw in the fourth quarter.

Yeah, I know that some of you were dreaming, hoping of EBIT margins closer to 20%. I think I've always said that that is not the case, that that is not realistic for global technologies. I've always said that global technologies should have margins above the 17% in that 17-18% range. So we consider this as a good level. You can judge if it's ambitious or not.

or not i think what is important for good margins is on a good level in the mix, which that is again the case today as they are working away that backlog and then what is also important is that hospitality business is on a good level and although hospitality is coming back and showing good double digits. They are still lower than the levels we expected. experience prior to 2019 so that definitely brings it down and then The other aspect is that we see very good, strong growth on the other verticals in global I would say that we have to grow a volume in those to make them margin accretive on the division level.

So these margins above 17% in that 17, perhaps 18% level, that is something you should consider going forward.

Understood. Thank you, Nico.

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead. Hi, good morning. Thank you for taking the question. I wanted to start out just with pricing trends and what have you done with pricing lists in the beginning of the year and sort of what is the plan and the trends you're seeing in the market given

And now we have the offsetting moves, I guess, of raw materials and labor costs. And then just a follow-up from that. you can talk through how big the potential to win from cost inflation coming down. in things like raw materials. Is that enough to get you X DHA? Should I deal into the 16% to 17% margin range this year? do you think? Like we said in Q3, we were a little bit afraid with still prices going down that there would come more strong pressure on prices and eventually negative It's good to see that steel is up. Again, in the last six weeks or so. As a matter of fact, if you look at steel prices today in the US,

100% above the steel prices two years ago. And that's good because that means that we can keep prices for our steel-related products on a solid level. Apart from that, we have continued to increase prices in Q4 and now also in Q1 because we also see other materials going up again. If you take copper, nickel, zinc, you name it, they're also still 40% or so higher than two years ago. And next to material inflation, we have, of course, general inflation, energy inflation, logistic inflation.

and labour inflation in particular. We have seen higher labour inflation last year and we will see definitely higher labor inflation is here as well so we continue to increase prices on an ongoing base. There's also why in Q4 we were perhaps a bit earlier than anticipated neutral cost versus price because for the Q4 we were so it's uh good to consider I would say a tailwind now going into Q1 this year and that they should

should continue under the condition that markets stay where they are, indexes stay where they are. So that should definitely help us also on the bottom line and our ambition to bring our bottom line as soon as possible back within that 16% to 17% bandwidth.

Thank you. The next question comes from Andre Kuknin from Credit Suisse. Please go ahead.

Good morning. Thank you very much for taking my question. Can we talk about Asia-Pac? And I wonder if you could quantify at all how much of that kind of drop-off in performance in Q4 was due to China specifically?

That kind of Jacob effect of the lockdowns, I'm sure he has some impact from absenteeism as the country went through the lockdowns. pandemic. If you could start with that, please. We started Top line, we had high double-digit negative growth in Greater China. But you've seen in the deck also that still has performance for the... The rest of the division, top line-wise, was not... It's so good. If you take us back to the beginning, we had, of course, continued problems with floods. Disturbing a little bit. And then we have in Australia also...

window hardware business to OEMs. I also explained in the presentation that we have seen there a negative trend. We also have Southeast Asia, which had a challenging quarter. And that translates, obviously, in the bottom line. I've always said that You should take APAC two parts. You should take Greater China with, in the good old days, very low single-digit positive margins, and then the rest of APAC margins in line, you could say, with EMEA.

As we had lower volumes on the rest of the division, obviously, that had the negative effect on the overall margin for the division. I would say the biggest contributor was definitely Greater China. Now, we are subcritical today. We get a higher negative rate margin, double digit negative margin for the quarter. And we have chosen there not to further cut into the muscle because we see a good opportunity to deliver on our strategy and grow that business again. We are a little bit more positive now because COVID-19 is clearly also behind in greater China. change their policy in a very important way.

Construction market is still in a way depressed, but also there is some early positive signs. Too early to see strong improvement now in Q1 because also Q1 is a Chinese New Year quarter. But definitely going into the second half of the year, we believe we should see improvement on the greater China market conditions and therefore definitely also on our results. I think you should see the bottom line where we are today as really a low for that division. We are confident that from now we should see improvement.

That's helpful, thank you. Yeah, I was just trying to get an idea of how much of that one-off effect is in there, but I think we can work with what you said on the high double-digit negative margin of China. And as a follow-up, just on the North America and America's division, Do you have an idea of how you specify the activities trending in North America or across the division? spec business in old work was only low single digit it up it was also very difficult comparison but like I said earlier I'm not so concerned with that as an indicator I'm and also concerned with ABI indexes now down for a couple of months.

I think what it does, it perhaps reduces a little bit the backlog on projects we have. What I think is important is that those indexes in the coming months start to go up again, and then activity can and will remain strong on the commercial side. Our biggest challenge in the U.S. is definitely our very high comparison now in Q1 compared to Q1 a year ago.

Got it. Thank you very much.

The next question comes from Vivek Nida from Citigroup.

Please go ahead. Thanks very much, everyone. Good morning. I just want to follow up on the last question around the channel. we talked about destocking in areas like Panama, in Q3. In terms of the bigger picture, Are you concerned with where channels or inventories are, or do you see any signs of overstocking. Thank you. Obviously, if I slow down that happens, you will, you know, see that in your OEM channel, where, you know, your OEM customers will start to destock, postpone orders, and that comes on top of then the slowdown that they see in the market. Definitely the OM channel is something to

watch out for that's something we have seen a little bit in in q4 like i mentioned earlier in in the us mainly for window hardware a little bit for garage doors because you know they also sell that hardware or those garage doors for for new builds But like I explained on the R&R side, on the aftermarket side, we still see very good, strong momentum. Apart from that, we don't see it as a big concern. Everything depends, of course, if the market would turn and how fast the market would.

Because that we have seen in France, Benelux. and the UK but again I think in France and the UK we are through Thank you very much. Thank you. Good morning, everyone. Can I start with China? Where are you exactly?