ASSA ABLOY AB (publ)

Good morning and welcome to the presentation of Assa Abloy's 2023 year-end report. My name is Björn Tebella. I'm heading investor relations. And joining me here are Assa Abloy's CEO, Nico Delvaux, and our CFO, Erik Peder. We will now start with the summary of the results before we open up for your questions. And with that, I'd like to hand over to you, Nico.

Thanks, Bjorn, and good morning also from my side. Q4 report, I can say that we had a good end of a very strong 2023 for Assa Abloy. And I would say Q4 results very similar to Q3 results, as well percent-wise as absolute value-wise. We had a low positive organic growth of 0.5% in the quarter. It was slightly below 0.5%, therefore rounded off to 0% in the quarter, where it was slightly above 0.5% in Q3, and therefore rounded off to 1%. We have a strong sales growth in Americas, a good sales growth in entrance systems, and then sales decline in the other divisions. But then also this quarter, good to see that a lower organic growth is overcompensated by growth through acquisitions, 11% net in the quarter. In total, top line up 12%, 1% held by currency at 37 billion SEX. And then a very strong operational execution with an operating leverage on that 0.5% growth of more than 330%. giving a very strong underlying margin if we exclude HHI of 16.8%, if we include HHI 15.5%. And then a record strong operating cash flow in the quarter of 7.3 billion SEC. We also continue high acquisition pace with six acquisitions signed in the quarter. It was a record year when it comes to number acquisitions and obviously also when it comes to value of acquisitions. If you look in the numbers, like I said, 37 billion SEC top line, 12% up, half a percent organic growth. 11% net acquisition and then halved by currency 1%. And EBITDA margin of high 17.5% if we exclude HHI and HHI-related costs. And then the EBIT margin, like I mentioned, at 16.8%. EBIT at 5.7 billion SEC, also 12% up. If you look a little bit in the different regions, starting with North America, an organic growth of minus two percent where we should make difference because the minus two is mainly explained by global technologies, HID. Well, you know that last year, same quarter, we were recovering on the backlog that we built up because of the electronic component shortages. And that backlog is gone in Q4 last year. Therefore, we had a more important negative growth for the PECs, business in HID, explaining the minus 2%. If you take the Americas division, we still see a good, strong momentum on the commercial side. Perhaps not as hot anymore as 18 months ago, but still very good market conditions. Where on the residential side, also in North America, obviously the market remains challenging. But where we also said in Q3, we believe that the residential market is bottoming out. And from here on... we should start to see improvement also on the residential side in North America. We see that also in our HHI business, which was in the quarter only 1% down organically. If we then go to South America, plus 17%, where we continue to see good momentum in our traditional business, and where the figure is a little bit inflated because of a bigger citizen ID order for HID in that continent. And the same is true for Africa, plus 28%. It's mainly explained by a bigger citizen ID project for HIV. Going to Europe, 0%. Definitely Europe is the most challenging country. continent so far because of challenging conditions on the residential side. Nothing has changed really compared to Q3. I will not say that it's getting worse, but it's definitely not improving yet. We see a new build in residential down a bit everywhere. In Europe, we see also R&R down, and especially in the Nordics. which obviously also has a negative mix effect on our bottom line because the Nordics is also the part of Europe where we make the better margins. If we then go to Australia and New Zealand, plus three, very similar, I would say, to U.S. and Europe with still good momentum on the commercial side, but also more challenging market conditions on the residential side. And then last but not least, Asia plus five, where we see a strong Middle East, a strong India, and where for the first time since many quarters in China, we had positive, slight positive, 1% organic growth if we exclude intercompany and if we exclude or correct for the divestments we made related to the HHI acquisition. We believe that the recovery in China will be slow, but we are convinced that the market has bottomed out in China. Therefore, also good to see the 10% growth in emerging markets. Some highlights in the quarter, some project wins for a German energy company, more than 100,000 master key system cylinders. Very nice project. Then some docking solutions and high-speed doors for two large electrical vehicle battery plants in the U.S. Also here reference projects for us. And NHID that has been awarded the contract in Finland for new high-security driver license cards. And we were able also to secure 15 megawatt reservoir sites in the Middle East and equip them with TESA smart air solutions. Product launches, very excited about our new internal developed SpeedGate product line in entrance system in close collaboration with HID using biometric technology from HID. We had a new range of high-end, high-secure doors, mainly for government and diplomatic facilities applications. And then we launched a new product range of smart digital door locks. Smart digital door locks that have fingerprint reading, face recognition and also digital door view capabilities all integrated in the product. These products are launched in Asia, in Southeast Asia and China in particular. And I'm good to see that we are now for the third year in a row named as one of the companies in the Dow Jones Sustainability Index, also giving us credit for all the sustainability efforts we are making as a group. Look at the growth. So it's now 12 consecutive quarters with positive organic growth, smaller positive organic growth in the last two quarters, like I mentioned, but then overcompensated by strong growth through acquisitions. And obviously the strong growth through acquisitions will also now continue this year. Then a good margin improvement on a running rate at 16.8% if we exclude HHI. If we include HHI at 15.8, so very close to the band which we aim for. So good top line, improved margin, therefore also strong operating profit, 20% up in 2023. Acquisitions, like I mentioned earlier, six acquisitions signed in the quarter, 24 in the year. That's a record in number. It's a record also in value. They represent sales of around 20 billion SEC. If I highlight two, Leon Fence, complementing our perimeter security business in North America. They are a strong player in the Canadian market and have a sales of around 300 million SEC. And then Ghost Controls, an acquisition in Entrance Systems, a supplier of automated residential gate openers, also having a sales of around 300 million SEC. If I go into the different divisions, EMEA, I would say an organic sales decline of only 2%. I think it's a good result if we take into account market conditions in general and residential market conditions in the Nordics in particular. We've seen strong growth in Middle East, India, and Africa. We've seen good growth still in South Europe, stable growth in Central Europe, but then clearly a sales decline in the UK and Ireland and the Nordics. And especially the Nordics also explains then the operating margin because it gave us also an important negative mix. Despite that, still an operating margin of 14.4%. I think on the minus 2% organic sales, a good volume leveraged. M&A has done a very good job in adapting the cost to the lower top line. I think in the last six months they took out around 450 million sec of costs, therefore limiting the operating dilution to 50 base points. They did good price management and other operational gains. They were also hit by FX, 20 base points, and then M&A was a creative 10 base points. When I go to America, it's another very strong quarter with an organic sales growth of 5%, with good growth in our commercial business in North America, good growth also in Latin America. Sales declined in U.S. residential, but that's obviously organically now a very small part of our business here. For residential, we should look at HHI, and like I mentioned, HHI was having an organic growth of minus 1% in the quarter. Very strong operating margin of 23.8% if we exclude HHI and HHI-related costs. 17.6% if we include HHI. Very strong operating leverage, good price versus cost execution and good operational efficiency realization. Helped by VEX 30 base points and then, of course, the dilution of HHI. HHI was having an EBIT of 8.9%, but then we had also a one-off closing and integration costs for HHI around 180 million SEC. When it comes to Closing and integration costs, we are, you could say, almost done in that aspect that this year you should not expect significant cost anymore. And then we reversed some of the PPA. Eric will come back on that later in the presentation. If we then go to APAC, an organic sales of minus 1% with very strong sales growth in Southeast Asia. Stable sales growth in China. As a matter of fact, if you take only external sales into account, you take intercompany out and you correct for the divestment with it linked to the HHI acquisition, we had a slight 1% positive organic growth in China. So clearly market bottoming out and and from here we will see gradual improvement. But then we saw sales decline in South Korea. I think South Korea also on the residential side challenging. And then sales decline in Pacific, and that's mainly explained by our fenestration business in the U.S., the window hardware business in the U.S., which had still a very difficult comparison and is, of course, directly linked to OEM residential business. But where we also see, I would say, a lower sales decline is And where the comparison now going forward will also become easier. Another sign that gives us confidence on the fact that we believe the residential market is bottoming out in North America. An operating margin of 4.3%, a strong improvement compared to a COVID quarter a year ago. Good operating, very strong operating leverage actually. But then a strong dilution of FX, 90 base points because of the weaker Australian dollar. And also 40 base points dilution of M&A related to the divestment in Vietnam linked to the HHI acquisition. If we then go to global tech, an organic sales decline of minus 7%. We had a very strong sales growth in Citizen ID. It's now several quarters in a row that we see Citizen ID coming back top line-wise. I think we have done also a very good job on the cost side, and we are back in black numbers with Citizen ID. And then you can read yourself for the other business areas from global technologies. I would highlight again PECS, physical access control, which had an important sales decline compared to the same quarter a year ago. And that is again explained by the fact that a year ago we were eating up and invoicing the backlog that we built up because of semiconductor shortages. And that backlog was not there now in Q4 last year. We also saw strong sales growth in global solutions in all the different business areas. But obviously the fact that we grew faster in citizen ID and had more negative growth in impacts also had an important negative mix effect on the operating margin. Therefore, only an operating margin of 15.5%. We saw operating dilution of 40 base points, FX flat, and then an important dilution of M&A, 120 base points. I would say that's mainly one of acquisition costs related to the closing and the acquisition of Avalis. So those costs should not come back in the coming quarters. And then last but not least, entrance systems, a good, strong end of a very strong year for entrance systems and organic sales of 3%. Very strong sales growth in perimeter security, strong sales growth in industrial and pedestrian, and then continued sales decline, but less decline on the residential side, mainly our garage door business in North America. And you see there a little bit that industrial and pedestrian growth compensates for sales decline in residential. The comparison for residential will also become now easier as of the second part of this quarter. And also very good, so strong growth in service, above 10%. So delivering on our ambition to grow the service business high single digit for the coming years. That growth in service also helps us in the mix and explains a very strong operating margin of 17.4% because we know that we make better margins on service than on equipment. We did a very good job on the pricing side, price versus material cost, and very good operational efficiency gains again in the quarter. VEX dilute is 10 basepoints. NM&A dilute is 30 basepoints. And with that, I give the work to Erik for some more details on the financial numbers.

Thank you, Nico. And a very good morning from my side as well. You've heard the numbers, the sales numbers on the quarter. So let's zoom in a bit on the full year where we actually in value reached above 140 billion SEK. We were close to 141 billion. billion for the full year which was an increase of 16% where if you do the split 3% came through organic growth, 8% came through acquisitions and 5% was related to currency. If we then move back to the quarter, and these numbers are including HHI, operating income was up with 11%. If you look on EBITDA, we are at the same level, Q4 2023, as what we were the same quarter in 2022 at 16.2%. The EBIT margin is slightly lower, 20 base points, and we ended at 15.5. If you look then just on the full year on the EBIT margin, we're actually 50 base points better in 2023 than what we were in 2022 and ended at 15.8. Income before tax, there, yes, I mean, interest rates have gone up. We have also paid a bunch of money then, I would say, for HHI, which has increased our debt. So in the quarter, roughly 840 million SEK increased. were related to interest costs, which is an increase of roughly 450 million compared to the year before. If we then look for 2024, our estimate is that our interest rates cost, we are providing that the interest rate stays at this level that they are right now, roughly on 3.5 billion SEK. Net income and earnings per share in the quarter was up with 6%. If you look on the full year, they were up with 13% and the earnings per share ended for the full year at 13.54. As mentioned before by Nico, we had a record cash flow in Q4. above 7.3 billion, up with 11%. And if you look in the full year, we actually generated more than 25 billion SEC, which is 60% up compared to the year before. And finally, on this slide, return on capital employed ended on 15.6%. If we dissect a bit and look a bit on the bridge... The 40 base points organic growth, if we then divide it a bit, we had a little bit more than plus 2% in price, which sort of consequently means that we were about minus 2% when it comes to volume. Nico mentioned before, you can see that the flow through on 337%. I think we had a very good, let's say, price versus cost when it comes to material. We have also done, if you take the MFB together with the short-term cost measures, it's a little bit more than half a billion SEC, of which 40% of that comes from MFB, and the rest is related to short-term cost measures. No real material effect from the currencies. On the M&A, excluding HHI, It had no negative impact, and I think considering also that we talked before about Everlist had a negative impact, we have quite a few on the acquisitions that we did last year, which is actually performing really, really well. If we then take the next slide and zoom a bit in on HHI. As mentioned before by Nico, we start to, let's say, be more confident also that we see signs of stabilization on the residential market, where you can see that the sales were actually only 1% lower than the same quarter last year. The EBITDA margin is up with 2.5 points and ended in the quarter at 14.9%. If you then take the adjusted EBIT also, I'm just repeating what Nico said before. We ended on 8.9, which is 130 base points better than what we had in Q3. Here I'm excluding the... the closing and integration cost of 180 million in Q4. We've also finalized the PPA evaluation, where we would then end up on a number, if you look on the Goodwill versus the PPA, of about 15%, which means that going forward, the PPA for the full year impact on the result will be about $60 million per year. We should, however, when we talk about that, we start to see improvements. Keep in mind that Q4 and Q1 are the seasonal more weaker quarters for HHI, but we still sort of confirm that HHI will have a positive impact on our EPS for 2024. And the cost breakdown and direct material is significant. is 240 base points better than the same period last year. Of this, roughly 90 base points is related to mix, where we had a stronger Americas, a weaker EMEA, as well as a weaker APAC, but then also we have within Entrance, we have the, let's say, interdivision mix, as talked before by Nico, that we also see a strong growth in service, which also helps us on the direct material part. Conversion is 100 base points lower. There we are hit by the lower volumes, by the higher wage costs, but we have been able to offset it by what I mentioned before, the MFP and other short-term cost measures. SG&A is about at the same level. It's slightly higher at 20 base points. As highlighted before, we had record cash flow in the quarter. We have a record cash flow in the year. I think that there we've had a strong EBIT and EBT contribution. You can see the cash conversion rate for the full year. was at 128%. If you look in the quarter, it was above 150%. I think I talked about EBIT, but we also sort of have seen good work done in reducing our inventory. This has sort of generated then that we have been able to reduce our net debt with 4.6 billion SEC. There, of course, yes, we've also had some help on the currency, but we are continuously being able to Lower it despite that we are continuing acquiring companies. Net debt to EBITDA ended at the quarter at 2.3. Part of it why it goes down is also, of course, purely mathematics because we get more EBITDA in every quarter than from HHI. But I think that we sort of with these numbers, we can continue our acquisition strategy because we have a very sound financial situation. Earnings per share, as mentioned before, ended at 13.54, which sort of is a record, I would say, for the group. And with that comment, I hand it back to the CEO again.