ASSA ABLOY AB (publ)

Hi, everyone, and welcome to the presentation of Assa Abloy's Q1 report in 2024. 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. Good morning. Good morning. We will start this conference as usual with a presentation of the report before we open up for your questions. And then we will round up in about one hour's time. So with that little introduction, I'd like to hand over to you, Nico.

Thank you, Bjorn, and also good morning from my side. Q1 result, I would say, very similar to our Q3 and Q4 results of last year, with a tough comparison compared to the same quarter a year ago, with continued challenging market conditions on the residential side, and definitely also with three fewer working days in March. We posted a negative organic growth of 2% for the quarter. But then also this quarter, good to see that lower, in this case, negative organic growth is overcompensated by very strong growth through acquisitions, 11% in the quarter. Neutral currency effect, so a top-line growth of 9%. And I would say a very good operational execution because despite an important volume drop, we have posted 15.4% EBIT for the quarter. That is including HHI and all related costs, 16.3%. EBITDA and a record EBIT margin for Q1 in absolute value. Thanks to good price realization, lower direct material cost, and then also good short and long-term cost accents, giving us a good volume leverage on that negative organic growth. Also, seasonally strong cash with a very good cash conversion of 67%, so around double of what we normally expect for Q1. And then we continue our acquisition pace with three acquisitions signed in the quarter. If you look at the numbers... A sales of 35 billion SEC, 9% up. Like I mentioned, 2% negative organic growth, 11% positive net acquired growth. An EBITDA margin of 16.3% and an EBIT margin of 15.4%. EBIT at 5.4 billion SEC, 5% up. If you look a little bit at the world map, unfortunately, we see a lot of negative numbers when it comes to organic growth for the reasons I mentioned earlier. And perhaps rather than commenting continent by continent, I can repeat what I said in previous quarters. We continue to see a weak residential market. as well for new build as for R&R. That is true in North America, that's true in Europe, it's true in Oceania, our main markets. Perhaps we see a bit faster recovery on the new build and on the R&R side, and where geographically definitely North America stays ahead in the curve. We still expect the residential market in the U.S. to turn first. We see more challenging continued residential market conditions in Europe definitely for the coming quarters. On the other side, we see still very good momentum on the non-residential side, perhaps not as hot anymore as 18 months ago, but still very good market conditions. Again, as well in North America, in Europe, as in Oceania, where our spec business is still up mid-single digit. If we then go a little bit to the different market highlights and project wins, also this quarter, several bigger project wins. Loading dock solutions delivered to three large distribution and logistic facilities in the U.S. and in Europe. A milestone when it comes to our Yale doorman, with one million Yale doormen sold in the Nordic countries since the launch back in 2011. And then a very nice win of a large U.S. public university, one of the biggest universities in the U.S., selecting our electronic access control package for their professors and their students. Different new product launches in the quarter, Yale Duras, a smart lock that you can fit on whatever door, adapting to the different door styles launched here in Sweden. TwinX, a keying system for high security environment in Australia. And then HID's identification system with facial recognition integrated with self-check in kiosks for using airports, hospitals, hotels, also integrated in the gate solution, speed gate solution from entrance systems. Then also this quarter, good to see that Our innovation efforts are recognized in the market. We won the design awards for our expression speed gate series and for our Yale Smart Video doorbell smart outdoor and indoor camera solutions. And then at IC West, the biggest security exhibition in the world, we also won two important awards. Control ID won the ID Phase, with their ID Phase product, won the biometrics category. And then Centrios, our access solution for small and medium enterprises, won the best access control software award. So very proud about those two awards as well. Unfortunately, 13 is for us an unlucky number. We had 12 consecutive quarters with positive organic growth. Now the 13th is negative organic growth. But then, like I mentioned, good to see that it's overcompensated with very strong growth through acquisitions. A good continued operating margin execution, 16.5% EBITDA margin run rate and 15.6 EBIT margin run rate on a 12-month moving trend. Operating profit strong, a record operating profit for Q1. And then on the acquisition side, we continue to be very active. We had three acquisitions signed in the quarter. They represent together an annualized sales of $2 billion. SEC, the highlight in the quarter, definitely integrated warehouse solutions. A U.S. manufacturer of loading dock equipment, really complementing our product offering and also bringing us several new strong brands here. into the North America market, helping us further strengthen our position for loading docks and loading dock solutions. They had a sales of 1.9 billion SEC last year. If we then zoom in a little bit into the different divisions, starting with EMEA, an organic sales decline of 3%, where, like I mentioned earlier, we continue to see challenging residential market conditions that has mainly a negative effect on our Nordics sales and our UK sales. Of course, we continue to see strong growth in Middle East, India, and Africa. We saw stable sales in South Europe, but then sales declined in the other regions. Despite a more important negative volume growth, I would say strong operating margin of 13.7%, with limited operating dilution of only 50 base points. Very good actions done in EMEA on the cost side as well, short as long-term cost actions, price versus raw material kicking in, helped by FX and M&A, both 20 base points accretive. America's organic sales decline of 1% with a stable commercial. North America's sales are slightly negative, sales in Latin America. Significant sales decline on the organic side of U.S. residential, but that is a very small part of what has remained on the residential side in the Americas. More important to look at HHI. where HHI had sales down mid-single digit, what I think is a good result, taking into account residential market conditions in North America. A good operating margin of 18.1% now, including HHI and all related. costs where also on the hhi side we we see a continuous ebit margin improvement as well as compared to last year as well as compared to q4 which i think is is very good if we take into account the fact that q1 is always seasonally top line wise a weaker quarter diluted with X20 base points. And okay, you see the dilution of M&A, which is mainly HHI related. Opening solutions, Asia-Pacific, an organic sales decline of 3%, where we had good sales growth in Southeast Asia, but sales decline in the other regions. Again, same story linked to the residential market conditions. And of course, like I mentioned earlier, for all divisions, also the fact of the three working days less in March. Very good operating margin improvement, 5.1%. Very strong operating leverage, 40 base points accretive. Hub by AVEX, 60 base points due to the weaker Vietnamese currency. And then a dilution of M&A of 50 base points that's linked to the advisement of the smart residential factory in Vietnam to Fortune Brand linked to the HHI acquisition. If we then go to the global divisions, starting with global technologies, an organic sales decline of 9%, where in HID we had strong sales growth for citizen ID and identity and access solutions, but then sales decline in the others and a significant sales decline in PACs. You will remember that we have had a very tough comparison with the same quarter last year where we built up 18 months, two years ago, a big backlog because we had challenges with semiconductor shortages. We were then finally able to invoice that backlog last year. and therefore the difficult comparison Q1, which will continue to be a tough comparison also now in Q2 by the way, affecting top line in a negative way, affecting also bottom line because Pax is a very profitable business area in HID. Strong sales growth in global solutions for the different verticals we focus on. And an operating margin of 15.4%, what I believe is a good result if we take the negative mix into account, the PEX story I explained, and a strong sales growth in Citizen ID where we make lower margins. An operating dilution of 110 base points dilution from FX and 20 base points dilution from M&A. And then last but not least, entrance systems, flat organic sales development, where we see very strong sales growth in perimeter security. Perimeter security is traditionally the first one in the cycle, and we see perimeter security really coming back now. Strong sales or continued strong sales growth in pedestrian. And then a sales decline in industrial, which is perhaps later in the cycle. And residential, where we also are convinced that residential has bottomed out and we should start to see gradual improvement from here onwards. Good growth in service, so a positive mix, service versus equipment, leading also to a very good operating margin, again, I would say, of 17%, with very strong operating leverage, 17 base points. held by currency 20 base points and then dilution from M&A, 10 base points that's mainly linked to the IWS acquisition I mentioned earlier and related integration cost to that acquisition. And with that, I give the word to Eric for some more details on the financial numbers.

Thank you, Nico, and also a very good morning from my side. The sales, as we mentioned before, was in total up with 9%. If you look on the acquired growth, the 11%, that's predominantly related to HHI as well as the new acquisition that Nico talked about, the IWS. You see very little impact of the currencies. Operating income was at a record high level for a Q1. It was up with 5%. EBIT margin for being a Q1 and also including HHI ended at 15.4%, which is considered, I think, to be strong in a Q1. The operating income was up with, as I said, with 5%. You see the income before tax has a minus in front of it. That's minus 5%. That's related to the higher interest rates cost that we have. If you look in the quarter, it was slightly above 800 million SEK compared to around 340 a year ago. If you look for the full year, we expect the interest rate cost to be roughly around 3.5 billion SEK, providing, of course, that the interest rates remain on this level. This, of course, also has an impact on EPS, which was down with 6%. Operating cash flow is in value, is down with roughly 1 billion SEK, but we compare it to an exceptionally strong Q1 of last year. If you look from a historical perspective, as Nico mentioned before, It is very strong and we have a cash conversion rate of 67%, which is also a strong number. Finally, on this slide, not surprising, our return on capital employed goes down with 2.8 points and that 14.6, which is of course related to the acquisition of HHI. If we dissect a bit and look on the bridge, the minus 2, there we have a positive 2% of price, which means that we have a negative 4% in volume. The flow-through is still at 23%, where we can sort of see a strong operational execution where... We have a good price versus cost when it comes to the direct material. We have done a lot of MFP. The total impact of MFP in Q1 on the positive savings side is $210 million. And then also we have impact from the short-term cost measures that were implemented last year that we can also see in Q1. If you look on the currencies, as I mentioned on the top line before, it's negative. It's positive on the bottom line. That's due to positive transaction effects on different currencies. And finally, you see on the M&A a negative dilution, which... predominantly come from HHI as well as the divestments of Emtek and SmartRES. If we then go even further and look on the cost breakdown, direct material is positive of 2.6 points. Out of that, roughly 110 base points comes from the mix where we have stronger Americas and we have a weaker APAC but then also we have a mix within divisions like for instance if you look into entrance systems where they had a stronger service versus equipment. Both conversion costs as well as SG&A are negative. They are impacted by, let's say, the lower sales as well as the higher wage cost. We have been able to offset that partially with the MFP and the short-term cost savings, but it's still negative for the quarter as well as we have continued our investments in R&D. Operating cash flow, as mentioned before, a little bit more than 3 billion SEK for the quarter. We see that it's seasonally strong with the exception of the even stronger that we have a year ago. We, of course, see here that we have the impact of increased net working capital, predominantly with inventory, as well as we're impacted by the higher interest rate, interest costs that we have had. Cash conversion, as I mentioned before, is at 67%. And if you look on the 12-month rolling, we are at 125%. The gearing net debt to EBITDA went up from 2.3% end of last year to 2.4% in this quarter. The debt as such went up with 3.4 billion SEK. Out of that, roughly 3 billion is related to GDP. currencies. But then also in the quarter, we have also been active on the acquisition side with IWS and the other two that you saw before, which meant that our debt went up then, as I mentioned before, with 3.4. Still, I think that we have a very strong balance sheet and can continue our acquisition strategy also going forward. Last slide for me, the earnings per share. I mentioned it before. It's down with 6% versus the same period last year. The main impact on this is coming from the higher interest cost. And with that, I hand back to Nico for some concluding remarks.