ASSA ABLOY AB (publ)

Hi, everyone, and welcome to the presentation of Assa Abloy's third interim report in 2023. My name is Björn Tiberla. I'm heading investor relations. And joining me here in the studio are our CEO, Nico Delvaux, and our CFO, Erik Pieder. We will stick to the usual format today and start now with the presentation of the quarterly result and then open up for your questions. So with that, over to you, Nico.

Thank you, Bjorn, and also good morning from my side. Q3 results, we can show you good results for Q3. I would say despite very difficult market conditions on the residential side, And despite the fact that we had a difficult comparison with last year and one working day less in this quarter, we're still able to post positive organic growth of 1%. And also good to see that if we have lower organic growth that we can overcompensate with growth through acquisitions, net plus 11% in the quarter. And then very strong operational execution with a record underlying EBIT margin if we exclude HHI and related divestment of 17.4% record in Assa Abloy history. Thanks to strong operational execution and also thanks to good cost savings in the quarter. 250 million SEC of MFP and 300 million SEC additional one-off short-term related cost savings. So good bottom line, also good management of the working capital leading to a record strong operating cash flow of 7.2 billion SEC in the quarter. And a very high pace on acquisitions with 10 acquisitions signed in the quarter. If you look at the numbers, sales almost 37 billion SEC, 16% up, 1% organic, 11% net acquisition, and 4% helped by currency. And EBITDA margin also at the record level of 18.4%, significantly up compared to the same quarter a year ago. The EBIT margin, if we exclude again HHI and Related divestment of 17.4% versus 15.6% a year ago. And then EBIT, close to 6 billion SEC, 19% up. If you look down a little bit at the different regions... A flat development in North America where we should make a distinction between the Americas division that posted a mid-single-digit positive growth, but what brought it down is the residential business for entrance systems, our garage door business where we saw double-digit negative growth, and our window hardware business that resides under the APAC division where we also saw double digit negative growth. In North America we see and we continue to see challenging situation on the residential side. We mentioned in Q2 that we are confident that residential market is bottoming out and that slowly we should start to see improvement. Of course, what happened in recent weeks with interest rates, long-term interest rates, most probably will make that recovery a bit more challenging, still be believed. We are bottoming out on residential and we should start to see slow recovery in the coming quarters. We still see good momentum on the commercial side and there, like in previous quarters, the market is not our biggest challenge. Our biggest challenge is there really the high comparison with previous quarters. Strong South America plus 8%, strong performance for America and then also helped by very good performance of HID. Africa plus 15% and then Europe minus 2%. I would say Europe is affected most by the lower residential market activity. In Europe around 45% of our business is residential related and we see there residential in general as well for new build as for R&R still on a, I would call it even depressed level in general and in particular in the Nordics we have seen a high single digit decline of our business in in Finland and continued decline also in Sweden and those markets are also important for us from a profitability perspective. Same thing here in Europe, we still see good momentum on the commercial side. Strong Australia and New Zealand plus 9%, very strong momentum on the commercial side. Same story on the residential side, I would say, as in Europe or as in the Americas. If you look at the cycle, residential cycle, most probably America is most ahead in that negative cycle. Australia, New Zealand is a little bit in between, and then Europe is lagging. If you take Indonesia plus two, very strong India, very strong Southeast Asia, a flattish South Korea. And then I would say a good improvement in Greater China, where we only have seen very low single-digit negative growth if we look only at final customer sales. What brought it down a little bit more in Greater China was our intercompany sales to mainly Europe. So I would say good improvement in Greater China. We see the market also slowly, very slow, recovered. And like I mentioned earlier, we should be able, if that recovery takes place, start to see positive growth numbers again in the near future for Greater China. If we then look a bit at market highlights, also this quarter, several project wins. We got a large automatic sliding door. package order for a big nationwide retail chain in the U.S. We unfortunately cannot mention the name of the company. We also had diesel access and workforce management solution for Europe's largest construction site, H2S, in the U.K., doing time and attendance access control for 16,000 workers. And then we have the employee batch in Apple Wallet, for an important American multinational pharmaceutical and biotechnology company. We cannot mention the name, but they are a market leader in their field. Several new product launches in the quarter. Definitely the first one I'm very excited about is this is really breakthrough innovation and you will drive technology industrial door for entrance systems and finger protection solutions for inside of doors and then you get a man-smart door lock with fingerprint reader and voice guidance for the South Korean market. And then we continue to get good awards for our R&D efforts. Our E-Click electronic locking system won the Plus X Award, world's largest innovation award for technology. And Sargent & Company Ruswin won the Security Today's New Product of the Year Award for their new generation of exit devices. So now 11 consecutive quarters with positive organic growth. And this quarter organic growth complemented with very strong growth through acquisition, like I mentioned earlier. Our margins coming back within the 16 to 17% bandwidth. If we exclude HHI and the related divestment, our EBIT marginal 12 month moving trend is 16.6%. But even if we include all the costs, we are close to the 16% bandwidth, we are at 15.8%. So we are really coming back in the bandwidth where we want to be. Strong top line, improved margin, therefore also accelerated operating profit, record operating profit in the quarter. Acquisitions has been a very active quarter with 10 acquisitions signed in Q3, 18 acquisitions signed year-to-date. They represent an annualized sales of almost 20 billion SEG. HHI integration, we have the integration team in place. We started to realize the first synergies as well on the sales as on the cost side. And then we have also decided to accelerate our investment in the innovation team as well on the mechanical as on the digital side to come faster with new products. If we zoom in on two acquisitions, Evolis in France, leading manufacturer of ID card printers and consumables, reinforcing our current offering within the secure issuance business in HRD. They had a sales of 1.2 billion SEC last year. Very interesting company with very good synergies. And the same is true for Forte in Peru, a leading residential door lock and padlock manufacturer in Peru. strengthening our position in emerging markets. And they had a sales of around 200 million SEC last year. If we then go into the different divisions and start with EMEA, the division that was hit most by the downturn on the residential side, an organic sales of minus 3%, with strong growth in Middle East, India and Africa, stable growth in South Europe, but then sales decline in UK, Ireland, Central Europe and mainly in the Nordics. And that growth in the Middle East, in the Africa and important sales decline in the Nordics also gave us an important negative mix. Therefore, we are happy with the operating margin of 13.8%. Kamea has done a very good job in adapting the cost structure. to that lower volume and try to compensate for that negative mix. So good operating efficiency gains, extra cost cutting leading to an operating dilution of only 80 base points. FX helped this quarter, 30 base points mainly because of the weaker Chinese renminbi and then M&A flat. We go to Americas, another very strong quarter for Americas with an organic sales growth of plus 3%. We have good growth in North America, non-residential, a stable growth in Latin America, and then a significant sales decline in U.S. residential, but that's, of course, a small business. That's only the organic part. But Eric will show later that we have seen very similar decline for HHI in the quarter. Very strong operating margin, 16.9% if we include HHI. If we also include separation and integration costs related to HHI, if we take out those integration-related costs, they would be at 18.4%. And if you take the whole HHI out, they would have been at a record 24.2%. So even 10 base points higher than the record of Q2, where they were at 24.1%. So very good execution in the Americas with very strong operational efficiency, very good leverage from price versus cost, helped by... and then of course strong dilution from the HHI acquisition. If we then go to APAC, an organic sales decline of 7% with a strong sales growth in Southeast Asia, a small sales decline in China, almost flat in South Korea. And then sales declined in Pacific, where we should make distinction between the local market in Australia and New Zealand, where we saw good growth. But what brings Pacific down is the window hardware business that they export to the US that goes to OEMs in the residential field. And there we saw double-digit negative growth. An operating margin of 8.7%, strong improvement versus same quarter a year ago. Also here, very strong operating leverage. Good price versus cost, also good cost measures to compensate for the lower volumes in the window hard business in the US. FX dilute is 10 base points and then strong accretion from M&A, 110 base points. That's the acquisition of D&D Technologies in Australia. We then go to the global divisions, global technologies. A good quarter with now a normalized PEX business. and organic sales of growth of 4% with good contribution from all business areas with the exception of extended access and identification technologies. Also strong sales growth in global solutions and in hospitality in particular, leading to a very strong operating margin of 18.5% as we have very strong execution. and then helped 40 base points on currency and M&A dilutive 40 base points. Antron Systems, a stable organic sales, but a very different picture between the different segments where we saw strong sales growth in industrial and pedestrian segments, good growth in parameter security, But what brought it down is our residential business, mainly in the Americas, where we saw, again, double-digit negative growth for our residential garage door business. Very good to see a continued strong growth in service. Service was up high single-digit, delivering on our ambition to grow our service business high single-digit for the coming years. An operating margin of 17%. Also here, very strong price versus cost, a very good mix in the sense that we grow faster in service than equipment and I would say all stars aligned in the quarter for entrance systems when it comes to operating margin. AVIX and M&A both slightly dilutive with 10 base points. And with that, I give the word to Eric for some more details on the financials and also some more details on the HHI performance.

Thank you, Nico. And also from my side, a very good morning. The numbers that you see now, as mentioned before, also includes HHI. Obviously, on the sales, on the different pieces, organic acquired growth, as well as FX, you have heard it before from Nico. If you look on the EBIT margin in value, it's up with 16% and ended at roughly 5.8 billion SEK. EBITDA margin is up with 50 base points. If you look on a year basis, we're up with 80 base points. The EBIT margin was slightly up, 10 base points. And then you see that we have a higher part of interest. interest cost which is sort of widening income before taxes at 3%. Roughly in the quarter we had 900 million SEC in interest cost and if you look on the full year we expect to be somewhere around 2.5 billion for the full year. Operating cash flow I think one of the highlights in the quarter where we ended 59% better than last year And in actual value was almost 7.2 billion SEC in positive cash flow. And finally, on this slide, you see the return on capital employed now ended at 16.3, obviously lower than last year due to the, let's say, the capital employed that we received from HHI. If we then go more into the bridge, the organic part, if you split it, price is low three. which sort of means that we have roughly minus 2% in volume. It looks, of course, a bit strange if you look into the organic column here with an operating margin coming out of the flow-through of 336%. This is, of course, related to that we have a very strong leverage, which is due to lower material costs. We have been able to continue with price realization, And then, as Nico mentioned before, we have roughly 250 million coming from MFP savings. And then we have, as we talked about in the last quarter, the short-term cost measures that we have done contributed with roughly 300 million SEK. Currency is also positive this month due to the stronger dollar as well as the weakening Chinese currency. And then if we take HHI aside, you can see that we have good contribution from the acquisitions where the two main drivers would be D&D technology, as Nico mentioned before, as well as Control ID, which was an acquisition that we did last year in Brazil. If we then sort of zoom in a bit on the next slide on HHI, Nico mentioned before that we sort of also here see on the sales that it's lower than it was in the same period last year. It's roughly down with 16%. The EBIT margin ended on 77.6, which is 330 base points better than what we had in Q2 if we then exclude the closing and integration costs that we had in Q3 of roughly 205 million. We expect to have roughly the same number for Q4. If we then just add on the EBITDA, we ended up for HHI With an EBITDA margin just slightly below 15%, the actual number was 14.9. We expect from EBIT percent that it will sort of continue to improve, but we would also just like to highlight that normally for HHI, Q4 and Q1 are seasonally weaker. We sort of maintain what we have said before is that HHI will have a negative EPS impact for 2023, but should be accretive as from 2024. Then you heard also from Nico before when we talked about that we sort of see a lower activity level on the residential, but we believe that it is bottling out and that it should sort of not get any worse than what it is right now. The cost breakdown on the direct material, the 2.8 points, 120 base points of that is related to positive mix where we had a stronger global technologies, a stronger Americas, and then a weaker EMEA, and then a weaker APAC, which sort of means that that's why we have a positive effect. The other one, the 160 base points, is due to the lower material as well as lower logistic cost. Conversion cost, as well as SG&A, you see they are negative. Conversion cost is negative with 70 base points. SG&A is negative with 50 base points. There it's so that, I mean, the lower volumes as well as inflation, as well as higher wage costs, we have been partly been able to offset that with what we talked about before, the operational efficiencies. And on the SG&A, we continue to invest in R&D, but we can only partly offset that by, let's say, savings coming out of the sales as well as the administration costs. Cash flow, as I mentioned before, it's a record. It's one of the real highlights, I would say, in this quarter, having a cash flow for the quarter above 7 billion. This comes from that we had, of course, a good contribution from the EBITDA, as well as we have been able to maintain a good control, I would say, on receivables as well as payables. And then we have been able to work our inventory down. And if you look on the cash conversion cycle for the quarter, it was almost 150%. It was actually 147% to be more exact. On the gearing net debt to EBITDA, it went down from the 2.8 last quarter to 2.6. One, of course, I would call is purely mathematics because if we had the full net debt, but now also we start to see the contribution from HHI on EBITDA. But besides that, I think that also the cash flow has helped us and despite that we have done a lot of acquisitions in the quarter, we were actually able to reduce the actual debt with 1 billion SEC in the quarter. I think that the balance sheet is continuously strong enough to support our acquisition strategy also going forward. Last slide for me is the earnings per share, which is up with 3% if you compare to the same period last year. And with that, I hand back to Nico for some concluding remarks.