Assa Abloy AB (ASAZF) Q3 2024 Earnings Call Highlights: Record EBIT and Strategic Acquisitions ...

• Revenue: SEK37.5 billion, 1% increase, 5% up currency adjusted.
• EBIT: SEK6.3 billion, 8% increase, record high for Q3.
• EBIT Margin: 16.7%, highest for Q3 in seven years.
• EBITA Margin: 17.7%, record high since reporting began.
• Cash Conversion: 118%, excellent performance.
• Earnings Per Share (EPS): 10% increase.
• Organic Growth: Slight positive growth, currency adjusted sales growth of 5%.
• Acquisitions: Seven acquisitions in Q3, 18 in the first nine months, representing annualized sales of SEK7 billion.
• Operating Cash Flow: SEK6.3 billion, strong cash conversion.
• Net Debt: Reduced by SEK1.3 billion, net debt at 2.3 times EBITDA.
• Regional Performance: Organic growth of 1% in North America, 2% in Europe, 13% in Africa; declines in Oceania (-5%) and Asia (-18%).
• Operating Margin by Division: Americas at 19.2%, Asia Pacific at 7.9%, Global Tech at 18.9%, Entrance Systems at 17.1%.

• Warning! GuruFocus has detected 5 Warning Sign with ASAZF.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Assa Abloy AB (ASAZF) reported a record high EBIT of SEK6.3 billion, with an EBIT margin of 16.7%, the highest for Q3 in seven years.
• The company achieved a strong cash conversion rate of 118%, indicating efficient management of working capital.
• Assa Abloy AB (ASAZF) completed seven acquisitions in Q3, contributing to a 4% net acquired growth, and 18 acquisitions in the first nine months of 2024.
• The EBITA margin reached a record high of 17.7%, showcasing improved profitability.
• Positive organic growth was reported in key regions such as North America and Europe, with North America showing a 1% organic growth and Europe 2%.

Negative Points

• The residential market remains challenging across all major regions, impacting overall growth potential.
• Asia, particularly Greater China, experienced a significant decline with an 18% drop in organic growth due to deteriorating market conditions.
• The company faced a negative currency impact of 3%, primarily due to SEK versus the dollar.
• Organic sales in the Asia Pacific region declined by 6%, with negative sales growth in most parts of the division.
• Entrance Systems saw a 2% decline in organic sales, affected by challenging conditions in the logistics vertical and the residential market.

Q & A Highlights

Q: Can you comment on the start of the current quarter and any signs of recovery mentioned in your outlook? A: It's difficult to judge the run rate due to holiday months, but September and October have shown similar run rates. We haven't seen significant changes up or down.

Q: What prompted the divestment of the Citizen ID business, and are you actively reviewing other parts of the portfolio? A: We regularly review our portfolio. Citizen ID was divested because we were not a market leader, and it was challenging to meet our financial ambitions. The business model was also different from our core operations.

Q: How do you see your major end markets evolving in Europe and North America in 2025? A: It's difficult to predict due to political and economic uncertainties. However, we expect to continue operating in a higher inflationary environment, with potential interest rate reductions in Europe and North America positively impacting the market.

Q: Can you provide insights on the SKIDATA acquisition and its margin improvement potential? A: We aim to bring SKIDATA to double-digit margins within three years. The business currently operates at low single-digit margins, and we expect significant margin improvements as part of the payback.

Q: Could you discuss the pricing dynamics and regional differences, particularly in light of slowing price increases? A: Pricing remains strong, with a focus on non-steel-related products. We continue to implement price increases where possible, except in China and certain channels. We expect to maintain at least a 2% price increase for the full year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.