ASSA ABLOY AB (publ)

Good morning everyone from Stockholm and welcome to the presentation of Assa Abloy's first half year report in 2024. My name is Björn Tebell, I'm heading investor relations and joining me here in the studio are Assa Abloy's CEO Nico Delvaux and our CFO Erik Peder. As usual, we will now start this conference with a presentation and summary of the report before we open up for your questions. So over to you, Nico.

Thank you, Bjorn. Also, good morning from my side. Q2, a top line growth of 10% with a negative organic sales development of minus 1% due to, in the first place, a continued challenging market on the residential side. I would say global challenging market on the residential side. Good sales growth in EMEA and Americas from an organic perspective. Stable sales growth in entrance systems, but then sales decline in APAC and global technologies. But then again this quarter, good to see that a lower organic sales development is overcompensated with very good growth through acquisitions, plus 11% in the quarter. We continue to be very active on the acquisition side with eight acquisitions completed in the quarter, 11 year to date. And I would say very strong operational execution in the quarter. We have a strong operating margin of 16%, and it is now including the full HHI, leading also to a record operating profit for the quarter above 6 billion SEC. Also very good cash conversion with a cash conversion rate of 107% in the quarter. If we look at numbers, sales of 38 billion SEC, 10% up. An EBITDA margin of 16.9% and an EBIT margin like mentioned at 16%. EBIT above 6 billion SEC, 11% up. If we comment a bit on the different regions, I would say it's a very similar story to tell as in previous quarters. We continue to see challenging market conditions on the residential side in general in our main markets in North America, in Europe and in Australia and New Zealand. Whereas mentioned also in previous quarters, we believe that US North America is more ahead in that cycle. As a matter of fact, we continue to see recovery on the new build side for residential in North America where we have a positive growth of the market. But unfortunately, R&R is still bottoming out. We believe that Australia and New Zealand is somewhere in the middle of the cycle and EMEA later in the cycle. So definitely in EMEA, it will take some more quarters to start to see that recovery. But obviously, now all the talks around the interest rates going down will help us on the residential market condition side. For commercial, non-residential, same story as previous quarters, not as hot anymore as 18 months ago, but still on a very good level, as well in North America as in Europe, as in Australia and in New Zealand. If you then look perhaps at entrance systems, the retail side, on a good solid level, giving us mid-single-digit growth for our pedestrian business. Then, obviously, entrance systems are very industrial GDP-related, which is, I would say, on an okay level. And particularly this quarter, we were suffering a little bit in North America. On the loading dock side, where, as you know, the Amazons of the world have reduced their investments in warehouses some six, nine months ago, and as we have a lead time of around six to nine months for our loading docks, that has affected now our top line in entrance systems. north america minus two that's mainly linked to still the difficult comparison for packs in hid cards and readers with same quarter a year ago where you remember we had two years ago challenges with semiconductor components build up a huge backlog and then started to recover on that backlog last year and therefore difficult comparison this quarter that will continue a little bit now also in the beginning of q3 And then towards the end of Q3 and in Q4, we should then see, again, a more normalized business for PECs and HID. South America strong, plus 6%. Europe, I think, good, plus 2%. Definitely, if we take into consideration that we are very exposed to the residential market in Europe. Africa, plus 8%. Australia, New Zealand minus four, where on the residential side, I explained, and where on the commercial side, we see that we have very good order backlog, but where our customers, the construction companies, find difficulties to find people to execute on the project. And in Asia, minus 11, where we had a double-digit negative growth in Southeast Asia, mainly against a very difficult comparison a quarter, same quarter a year ago. It was a record quarter a year ago. And there, unfortunately, we continue to see very challenging market conditions in China. I said several quarters ago that we were convinced that China had bottomed out. We still believe that this is the case, but it takes obviously much longer to start to see recovery in China than we anticipated some quarters ago. The interesting to notice also is that if you take our geographical divisions, our LMEK business grew 14%, so we continue to deliver on that strategic ambition to move from mechanical to electromechanical and digital. We also have seen our service business in entrant systems growing high, single digit in line with our ambition. And if we look at emerging markets and exclude China, we were up plus 16%. So also there, that growth driver is delivering. So market highlights, also this quarter, some interesting project wins. We delivered 1,200 hurricane-approved garage doors made of recycled steel for a new residential development in Florida. One of perhaps the largest Dutch bank selected also our revolving doors, swing doors, and security lanes for the new headquarters. So interesting, exciting win for our new security line product range. And then we delivered a package of high-rated doors and door hardware for a new data center in Sweden. Several product launches. We only mentioned one here. HID's mobile credentials are now also available in Google Wallet, and therefore allowing users to access buildings, spaces, and systems now not only with Apple devices but also with Android devices. And then good to see that also this quarter we continue to be rewarded for our innovation efforts. We won two Red Dot Product Design Awards, one for the Expression Speedgate product range in entrance systems and the other one for the Traka Touch Pro intelligent key cabinets in global solutions. If we look at sales growth, so now unfortunately two quarters with negative organic growth, but then again overcompensated in a strong way by growth through acquisitions. It's now four quarters in a row that our acquisitions growth has been above 10%. And then the margins going back in that 16% to 17% bandwidth, 16% for the quarter, 15.7% run rate on a 12-month moving trend. and EBITDA margin on a high 16.6% level if you look at the run rate. So higher top line, improved margin, therefore also accelerated operating profit, record profit, like I mentioned, in the quarter above 6 billion SEC. And you can see the run rate there for the last five years on EBIT up 63%. Another quarter where we have been very active on the acquisitions side, with eight acquisitions completed in the quarter, like I mentioned, 11 year-to-date, and they represent an annualized sales of around $3 billion. If I pick two of the acquisitions this quarter, Wesco Locks, An acquisition in the core, a mechanical core, a Canadian manufacturing supplier of electronic and specialty locks, complementing our high-security products and solutions in the Americas division. They had a sales of 170 million SEC in 2023. And then Nomadics and Global Reach, further extending our ecosystem for hospitality customers in global solutions. They are a U.S. and U.K.-based provider of Wi-Fi access and engagement platform solutions for that hospitality industry. And they had a sales of 300 million SEC last year. If we then go a little bit into the different divisions, for EMEA and organic sales of plus 1%, I would say if you consider that EMEA is exposed to residential market around 45% of their sales, a good top-line achievement. We have a strong growth in Central Europe, a good growth in Nordics, I would say against the easy comparison last year. I think in Nordics we are not out of the woods yet. It will take a little bit longer before we see the residential business really recovering in Nordics, but we are convinced that it has bottomed out and from here on we should see improvement, which is also obviously important from a profitability perspective. and stable sales in the other regions. A good improvement of the operating margin to 13.6% with very strong operating leverage, 70 base points held by currency and M&A, 2 times 20 base points accretive. So a good result for EMEA in the quarter. We see a very good result for Americas in the quarter with an organic sales growth of 3%, with strong sales as well in North America, non-residential as in Latam. On the equivalent side, also a good growth of HHI, high single-digit growth for HHI. and an operating margin of 19% now, including HHI, and stable operating leverage, and then dilutive M&A 140 base points and dilutive FX10 base points. M&A, HSI, like I said, sales up high single digit and a continued EBIT margin improvement, better EBIT margin than the previous quarter and a much better EBIT margin than the same quarter a year ago. So delivering there also on our ambition as synergies are kicking in. So very good. America's more challenging APEC with an organic sales decline of 5%. with sales declining in all the different regions, like I mentioned in Southeast Asia against a very tough comparison a year ago. In Pacific, obviously linked to the residential market and the fact that it's difficult for our customers to invoice on the non-residential side. And then China clearly market conditions still very depressed and therefore also affecting our overall business. What is good is to see the operating margin improvement at 8.3% despite an organic sales decline of 5%. Also good to notice that we are back to positive margins in China, even with a double-digit negative growth in China. Thanks to strong volume leverage, helped by FX, and then M&A 10 base points by Lutif. If we then go to the global division and start with global tech, organic sales minus 7%, where we have seen a strong sales growth in global solutions in most, if not all, verticals, but where we then were hit in HID mainly by the PECS business, as explained earlier, a difficult comparison with last year. Here, global tech and operating margin of 15.8%, obviously because of the lower top line, and then definitely also the mix in the sense that we had more citizen ID with much lower margins and much less PACs with much better margins. FX neutral and then M&A also dilutive in a more important way, 100 base points. That is because we did four acquisitions in the quarter with a lot of related acquisition costs. But also because we bought some time ago Messerschmitt, which is an acquisition in the hospitality space in Global Solutions in Germany, giving us now also stronger market leadership in In Germany, unfortunately, that is a turnaround case and therefore it will take some quarters before we can bring a margin up in that business and therefore that will remain dilutive from bottom line perspective for some more quarters to come. And last but not least, entrance systems, a flat top line, 0% organic sales, with strong sales growth in pedestrian, sales decline in the other three. Parameter security, I would say just the timing effect, no drama at all. Parameter security, if you look on a longer term, is performing on a very high level. Residential, obviously linked to the residential R&R site in North America. And then industrial decline, mainly because of the loading dock business in North America. Good to see that we continue to see, like I mentioned earlier, very strong sales growth in service, very high single digit. And then strong execution and operating margin of 17%, with very good operating leverage of 80 base points, halved by currency, 20 base points, and then M&A dilutive. 20 base points. So I would say overall also good quarter for entrance systems. And with that, I give the word to Erik for some more details on the financial numbers.

Thank you, Nico. And also very good morning from my side. I think you've heard a lot, but I'll repeat a couple of things here. I mean, sales were up with 10% in the quarter, of course, very much driven by the acquisition growth of 11%. Now, we have actually been the proud owner of HHI for more than a year, which means that as from next quarter, they of course will be a part of our organic growth. But still, you heard also before that we are being quite active on the acquisition front, so we will still have in the quarters to come a good contribution from our recent acquired companies. Operating income is up with 11% and we reached above the 6 billion SEK in the quarter. Margins is the same as what it was a year ago on EBIT level at 16%, but this of course includes for the full quarter then HHI. Upper income before taxes is lower. We have roughly in the quarter about 850 million in interest cost. This is about 400 million higher than the same period last year. And of course, that comes from that we have now a higher debt, as well as we sort of also encountered the higher interest rates that is now out in the market. Net income and earnings per share is up with 5%. Operating cash flow is still very strong to be a Q2. We had, of course, an exceptionally strong quarter last year. But as mentioned before by Nico, the cash conversion in the quarter was at a good level of 107%. And last but not least on this slide, return on capital employed ended up on 14%. for the quarter if we dissect and go a bit into the bridge the minus one on the organic sales side consists of a positive two percent price which means that you know the volume was actually down with minus three percent You can see in the bridge that we have a negative top line on organic, but we have a positive contribution then on the income side, which is driven, and we have been able to offset the lower sales with pricing, lower material cost. We had savings of roughly 180 million from MFP, and then we have other strong, let's say, cost control measures that has also helped us in a positive way in the quarter. Currency, you see the same in the bridge that you see on the organic. You have a negative top line, but then you have a positive bottom line. The bottom line comes from, let's say, small positive transaction effects on various currencies that we had in the quarter. And acquisitions, as mentioned before, it sort of contributes to the 11% on the top line. It has a slight negative dilution effect on our bottom line. I think you have heard before HHI, the divestment a year ago of Emtek in the U.S., the acquisition cost, and also I think some of the acquisition, one of the acquisitions then that was before mentioned by Nikko. If you look on the cost breakdown, direct material is positive with 270 base points. Roughly half of that comes from the positive mix where we had a stronger Americas, we had a weaker APAC, but then also we have the interdivisional mix you saw before that like in entrance that we were stronger on the service side than what we were on the equipment. And for those ones who can count, half of, let's say, of the 2.7, 270 base points is roughly 135 base points, which comes from, let's say, the pure price versus cost. On both conversion cost as well as SG&A, we're impacted by the lower sales, as well as the high inflation, as well as the higher wage cost. which sort of has a negative impact. But also, if you look on SG&A, we have continued to invest in R&D as well as into our sales organization. But if you look for like, we are 40 base points better than the same quarter a year ago. Operating cash flow, mentioned before, it's strong. This is driven by, let's say, the earnings. If you look on our working capital, it's more or less on the same level as what it was before. We talked about in the quarter, the cash conversion rate was 107%. And if you look on the 12-month rolling, it's 118%. The gearing, we ended up on the same level on net debt versus EBITDA at 2.4%. That's what we had in Q1. The net debt to equity is much lower than what it was a year ago. We were at 75% last year. This year, we're at 68%. In value, the borrowings went up with roughly 700 million SECs. We've heard before that we had a very good cash flow, but then it's then offset by sort of the eight acquisitions that we have done, as well as we have paid dividend during the quarter. All in all, I think that we have a very strong financial position and can continue our acquisition strategy. The last slide from my side, you've heard the number before that earnings per share went up in the quarter with 5%. And with that, I hand it back to Nico for some concluding remarks.