Assa Abloy : Q1 report 2021.pdf

Quarterly Report

Q1 2021

28 April 2021

Experience a safer and more open world

Back to good organic growth

First quarter

• Net sales decreased by 2% to SEK 21,805 M (22,173), with good organic growth of 4% (-3) and acquired net growth of 4% (3). Currency effects amounted to -10% (3)
• Very strong organic sales growth was reported by Asia Pacific, Entrance Systems and EMEIA1. Organic sales development was stable in Americas, while Global Technologies reported a sales decline
• Three acquisitions with combined annual sales of about SEK 200 M were signed
• Operating income (EBIT) increased by 16% and amounted to SEK 3,187 M (2,751), corresponding to an operating margin of 14.6% (12.4)
• Net income amounted to SEK 2,253 M (1,864)
• Earnings per share amounted to SEK 2.03 (1.68)
• Operating cash flow increased by 118% to SEK 2,636 M (1,206).

Organic growth

4%

Operating income

16%

Earnings per share

21%

Sales and income

			Full year			First quarter
			2019	2020		2020	2021
	Sales, SEK M	94,029	87,649	-7%	22,173	21,805	-2%
	Of which:
	Organic growth	2,652	-7,150	-8%		-759	827	4%
	Acquisitions and divestments	3,063	3,328	4%	648	866	4%
	Exchange-rate effects	4,265	-2,558	-3%	780	-2,060	-10%
	Operating income (EBIT)2 3, SEK M	14,920	11,916	-20%	2,751	3,187	16%
	EBITA margin2 3, %	16.4%	14.3%		13.0%	15.3%
	Operating margin (EBIT)2 3 , %	15.9%	13.6%		12.4%	14.6%
	Income before tax2 3, SEK M	13,883	11,133	-20%	2,519	3,045	21%
	Net income2 3, SEK M	10,243	8,375	-18%	1,864	2,253	21%
	Operating cash flow, SEK M	14,442	14,560	1%	1,206	2,636	118%
	Earnings per share2 3, SEK	9.22	7.54	-18%	1.68	2.03	21%

1. EMEIA is an abbreviation for the division Europe, Middle East, India and Africa. The change of name of the division is due to the transfer of the India region from Asia Pacific to EMEIA, at the start of 2021. No external restatement of the divisional financial statements was made.
2. Excluding costs before income tax for restructuring programs in Q4 2020 and Q4 2019, totalling SEK -1,366 M and SEK -312 M respectively. The corresponding costs after tax are SEK -1,112 M and SEK -246 M
3. Excluding non-cash operating income in Q3 2020 from revaluation at fair value of 39% ownership in agta record, totaling SEK 1,909 M for the year. The operating income had no tax impact.

Comments by the President and CEO

Back to good organic growth

The world continued to be affected by Covid-19 restrictions in the first quarter, and in that context, I am very pleased that we can report good organic growth in the quarter. Asia Pacific division has been recovering from the trough of last year, resulting in a very strong organic sales growth of 23%. Entrance Systems has accelerated and reported a very strong organic sales growth of 11%. Organic sales growth in EMEIA was strong at 5% and Americas was stable despite a strong comparable, but sales in Global Technologies were down significantly.

Operating income increased by 16% to SEK 3,187 M and the operating margin was 14.6%. Despite restrictions that affected our operations in many of our core markets, we generated a very strong operating leverage of 80%. Operating cash flow improved significantly and totaled SEK 2,636 M, up 118%.

Well positioned for profitable growth

With the world now expected to gradually reopen, we will start to shift our focus more to growth again with innovation as an enabler. Our investments in R&D have resulted in the recent launch of several new products and solutions, including a new door-operator range with smart mobile functions from Entrance Systems, and Incedo, a cloud based access control platform for commercial applications.

In parallel, our cost-saving measures are continuing with temporary savings now being replaced by permanent savings. Our ongoing restructuring programs and other efficiency measures have supported our very strong operating leverage. As volumes start to increase, we will gradually ramp up capacity and make the investments needed to support the growth.

Entrance Systems, our biggest division, has developed very well and the division's new organization is making progress, with all segments reporting strong sales growth. The investments in growth and product development in the EMEIA division have generated strong growth despite the continued negative effect of Covid-19 restrictions. In the Americas division we have seen a continued strong growth in South America. In the US we are starting to see positive signs from eased restrictions and, next to a strong residential demand, we expect our aftermarket in the non-residential segment to gradually normalize from current low levels. The market conditions for parts of Global Technologies division continue to be very challenging and we do not expect the travel-exposed segments to return to pre- pandemic volumes in the near future.

I am confident that we are now moving out of this pandemic as an even stronger Group, well positioned as a global industry leader to bounce forward and re-accelerate profitable growth.

Stockholm, 28 April 2021

Nico Delvaux

President and CEO

		Sales by quarter and
				last 12 months
SEK M
26,000																		100,000
24,000																		90,000
22,000
															80,000
20,000
18,000																70,000
															60,000
16,000
																50,000
14,000
															40,000
12,000
																30,000
10,000
																20,000
8,000
6,000																10,000
	Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2019	2020					2021

Sales, quarter

Sales, 12 months

Operating cash flow by quarter

and last 12 months

SEK M
6,000						18,000
5,000
					16,000
												14,000
4,000
												12,000
3,000														10,000
2,000													8,000
												6,000
1,000													4,000
0													2,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2019 2020 2021

Operating cash flow, quarter Operating cash flow, 12 months

© ASSA ABLOY - Quarterly Report Q1 2021

2 (18)

First quarter

The Group's sales decreased by 2% to SEK 21,805 M (22,173). Organic growth amounted to 4% (-3). Growth from acquisitions and divestments was 4% (3), of which 5% (3) came from acquisitions and -1%(-) from divestments. Exchange- rates affected sales by -10% (3).

The Group's operating income (EBIT) amounted to SEK 3,187 M (2,751), an increase of 16%. The corresponding operating margin was 14.6% (12.4). Exchange-rates had an impact of SEK -261 M (76) on EBIT. Operating income before amortizations from acquisitions (EBITA) amounted to SEK 3,341 M (2,884). The corresponding EBITA margin was 15.3% (13.0).

Net financial items amounted to SEK -142 M (-232). The Group's income before tax was SEK 3,045 M (2,519), an increase of 21% compared with last year. Exchange-rates had an impact of SEK -247 M (69) on income before tax. The profit margin was 14.0% (11.4).

The estimated effective tax rate on an annual basis excluding items affecting comparability was 26% (25). Earnings per share amounted to SEK 2.03 (1.68), an increase of 21% compared with last year. Operating cash flow totaled SEK 2,636 M (1,206), an increase of 118% compared with last year.

Restructuring measures

Payments related to all restructuring programs amounted to SEK 138 M (83) in the quarter. The restructuring programs proceeded according to plan and led to a reduction in personnel of 372 Full-Time Equivalents during the quarter. At the end of the quarter provisions of SEK 1,119 M remained in the balance sheet for carrying out the programs.

Comments by division

Opening Solutions EMEIA

Sales for the quarter in EMEIA totaled SEK 5,058 M (5,044), with organic growth of 5% (-4). Sales growth was very strong in the UK, France, Eastern Europe and Middle East/Africa/India. Sales growth was good in Finland and South Europe, stable in Germany and Benelux, but declined in Scandinavia. Net sales growth from acquisitions, divestments and internal segment transfers was 1%. Operating income totaled SEK 755 M (607), which represents an operating margin (EBIT) of 14.9% (12.0). Return on capital employed, on an annualized basis, amounted to 12.9% (15.8). Operating cash flow before non-cash items and interest paid totaled SEK 587 M (132).

Opening Solutions Americas

Sales for the quarter in Americas totaled SEK 4,604 M (5,271), with organic growth of 0% (1). Sales growth was very strong in US Residential, US Smart Residential and Latin America and was stable in Electromechanical Solutions and Canada. Sales growth declined in Security Doors and Architectural Hardware and declined significantly in Access & High Security. Net sales growth from acquisitions and internal segment transfers was 1%. Operating income totaled SEK 955 M (1,048), which represents an operating margin (EBIT) of 20.7% (19.9). Return on capital employed, on an annualized basis, amounted to 25.3%

(24.2). Operating cash flow before non-cash items and interest paid totaled SEK 727 M (580).

Earnings per share by quarter and

last 12 months

SEK
3.00												10.00
2.50
2.00											9.00
														8.00
1.50
													7.00
1.00
													6.00
0.50
0.00															5.00
	Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2019			2020	2021

Earnings per share, quarter Earnings per share, 12 months

© ASSA ABLOY - Quarterly Report Q1 2021

3 (18)

Opening Solutions Asia Pacific

Sales for the quarter in Asia Pacific totaled SEK 1,773 M (1,588), with organic growth of 23% (-34). Sales growth was very strong in China, South Korea and South East Asia, but declined in Pacific. Net sales growth from acquisitions and internal segment transfers was -4%. Operating income totaled SEK 78 M (-152), which represents an operating margin (EBIT) of 4.4% (-9.6). Return on capital employed, on an annualized basis, amounted to 7.2% (6.7). Operating cash flow before non-cash items and interest paid totaled SEK -94 M (-293).

Global Technologies

Sales for the quarter in Global Technologies totaled SEK 3,301 M (3,933), with organic growth of -9% (0). Sales growth was good in Secure Issuance, but declined in Identification Technology and Physical Access Control and declined significantly in all other business areas as well as in Global Solutions. Net sales growth from acquisitions and internal segment transfers was 3%. Operating income totaled SEK 472 M (563), which represents an operating margin (EBIT) of 14.3% (14.3). Return on capital employed, on an annualized basis, amounted to 8.6% (12.8). Operating cash flow before non-cash items and interest paid totaled SEK 630 M (362).

Entrance Systems

Sales for the quarter in Entrance Systems totaled SEK 7,499 M (6,727), with organic growth of 11% (0). Sales growth was very strong in Perimeter Security and Residential and strong in Industrial and Pedestrian. Net sales growth from acquisitions and divestments was 12%. Operating income totaled SEK 1,096 M (821), which represents an operating margin (EBIT) of 14.6% (12.2). Return on capital employed, on an annualized basis, amounted to 14.3% (15.0). Operating cash flow before non-cash items and interest paid totaled SEK 1,058 M (855).

Acquisitions and divestments

Three acquisitions were consolidated during the quarter. The combined acquisition price for the businesses acquired during the year, including adjustments from prior-year acquisitions, amounted to SEK 196 M. The acquisition price on a cash and debt free basis totaled SEK 205 M. Preliminary acquisition analyses indicate that goodwill and other intangible assets with indefinite useful life amount to SEK 70 M. Estimated deferred considerations for acquisitions made during the year amounted to SEK 53 M.

On March 3 it was announced that ASSA ABLOY has acquired the textile services business of Invengo Information Technology Co., Ltd, a leading real-time inventory management platform combining software, RFID tags, equipment and services to efficiently identify, track and monitor linen and textile assets. The business has about 45 employees with its head office located in La Ciotat, France. Sales for 2020 amounted to around SEK 110 M.

On February 8 it was announced that ASSA ABLOY has acquired Technology Solutions (TSL) in the UK, a leading provider of radio frequency identification (RFID) handheld readers. The business has about 25 employees with its head office located in Loughborough, UK. Sales for 2020 amounted to around SEK 30 M.

Traka Iberia was also acquired during the quarter. Global Technologies division acquired all three businesses.

Divestment of Gardesa's shutter business was concluded during the first quarter.

© ASSA ABLOY - Quarterly Report Q1 2021

4 (18)

Sustainable development

ASSA ABLOY's Sustainability Report for 2020 was published on 8 March 2021. As our 5-year sustainability program from 2016 to 2020 was concluded, the Report shows that the majority of our sustainability targets were exceeded:

Energy intensity was reduced by 30%, against a target of 20%. Improved water conservation and efficiency in our production processes has resulted in a water intensity reduction of 50%, where the target was 20%. The projects focused on reducing organic solvents resulted in a 68% reduction, where the target was 50%.

The Health & Safety program has resulted in reduction of the injury rate by 58% against a target of 55%.

During 2020 we carried out 940 sustainability audits of suppliers. The Group had 348 Environmental Product Declarations verified and published by the end of 2020.

ASSA ABLOY has launched a new 5-year sustainability program running from 2021 to 2025, with increased ambition levels across all indicators; this complements the Group's commitment to science-based targets.

Parent company

Other operating income for the Parent company ASSA ABLOY AB totaled

SEK 554 M (790) for the first quarter of 2021. Operating income for the same period amounted to SEK -366 M (-181). Investments in tangible and intangible assets totaled SEK 0 M (6). Liquidity is good and the equity ratio is 43.0% (41.1).

Accounting principles

ASSA ABLOY applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. The same accounting and valuation principles as in the latest Annual Report have been applied. This Report was prepared in accordance with IAS 34 'Interim Financial Reporting' and the Annual Accounts Act. The Report for the Parent company was prepared in accordance with the Annual Accounts Act and RFR 2 'Reporting by a Legal Entity'.

ASSA ABLOY makes use of a number of financial performance measures that are not defined in the reporting rules that the company uses - so-called 'alternative performance measures'. For definitions of financial performance measures, refer to Page 18 of this Report and to the company's latest Annual Report.

As from 2021 ASSA ABLOY has changed its definition of the financial performance measure "Return on capital employed". The measure is now calculated as Operating income (EBIT), excluding Items Affecting Comparability, for the last twelve months as a percentage of average capital employed excluding restructuring provisions for the same period.

The calculation of the performance measure "Return on equity" has also been adjusted. The new definition reads Net income attributable to parent company´s shareholders for the last twelve months as a percentage of average parent company´s shareholders equity for the same period.

© ASSA ABLOY - Quarterly Report Q1 2021

5 (18)