ASSA ABLOY AB (publ) (ASSAB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the presentation of ASSA ABLOY's Q2 report in 2026. My name is Bjorn Tibell. I'm heading Investor Relations. And joining me here in the studio are ASSA ABLOY's CEO, Nico Delvaux; and our CFO, Erik Pieder. We have set aside about 1 hour for this call, and we will now start with a summary of the results before we open up for your questions. So with that, I'd like to hand over to you, Nico.

Thanks, Bjorn, and also good morning from my side. Q2 results for us. We can report strong numbers for where we have seen an accelerated organic sales growth, an organic growth of 4% with strong sales growth in EMEA, in Americas, Global Technologies and Entrance Systems, and a decline in APAC related to market conditions in Greater China. Then also a good growth. Complementary growth through acquisitions of net plus 2% and then a very strong operational execution with a record high EBIT and a record high EBIT margin of 17%, with an excellent operating leverage of 51%. And also, good balance sheet management with a very strong cash flow improvement, cash flow 16% up and a cash conversion of 106% in the quarter. And then we continue our transition from mechanical to electromechanical. Our electromechanical products had an organic sales growth of 8% in the regional divisions. And then we completed acquisitions in the quarter. So if you look into the numbers, sales of almost SEK 39.5 billion, 3% up, as I mentioned, 4% organic growth, 2% net go through acquisitions and then a minus 3% negative currency effect. A very strong record EBITDA margin of 18.1%, 90 bps up. The EBIT margin of 17%. We had some onetime items in the quarter. Erik will come back on the details. If you correct for that, the EBIT margin was 16.5%, so still a record for Q2. And then the EBIT at SEK 6.7 billion, 9% up and EPS at 3.98%, 12% up, also a record. If you look a little bit into the different regions, starting with North America, plus 4 foreign market conditions have remained very similar to previous quarters where everyone is residential, if we talk about opening Solutions America has been strong market conditions. And then in residential, we see continued more challenging conditions, especially on newbuild side where the newbuild market continues to show a negative trend where the R&R side is perhaps flat, perhaps slightly up. Also, the logistic vertical is important in North America for Entrance Systems. There, we have seen also a more flat development of the market. If we go to LatAm, good market conditions, I would say, despite some challenging political situations in some of the markets. plus 2 for us where we have seen for the opening solutions, Americas division, positive growth in all the different countries in LatAm. Again, I go to Europe, a strong plus for us. We have seen very similar market conditions as in previous quarters and very similar, I would say, to North America. I think that is nonresidential, very strong. And then residential also in Europe still more challenging. Perhaps a little bit better than in North America, but definitely on the renewable side, also still no improvement, but perhaps a little bit better on the R&R side. And also in Europe, the logistics vertical, very important for Entrance Systems, where we have continued to see a negative market development. We then go to Africa, minus 12%, you see Africa is a very small part of our business. It's all project related, and it's timing on those projects for HID, so nothing significant. If we go down to Oceania, a strong plus 5%, where we have seen very strong development in our core markets as well in Australia as in New Zealand. And then in Asia, minus 2%, I think we should make a distinction between Greater China and South Korea on one side and all the rest. All the rest has shown very good result with good market conditions and also strong positive development for us. Whereas on the negative side, South Korea has been more challenging to give you an idea on the residential side. Housing completion in main South Korea was down 50% compared to a year ago. It's a very tough market conditions. And then Greater China continues to be also very challenging with the market double digits down and also our results strongly double digits down. Some highlights from around the world. Very excited about our new product lines of backlogs for the North America market under the [ Weiser ] brand for Canada and the QuickSet brand for the U.S., very nice comprehensive full new range of bad logs. And then a new partnership for Yale that partnership with Logify to integrate Smart logs across Europe with this leading vacation rental platform. And then as a soccer fan, also a very nice application. We provided access solutions for several stages for the world soccer tournament in the U.S. and in Canada. If we look at the numbers, so you see an acceleration of our organic growth and then, like I said, complemented with good growth acquisitions. Our sales 49% up if you compare with SEK 21 million our operating margin now on a 12-month moving trend in the middle of the band, which we aim for and moving further up in that bandwidth. So at 16.5% 12-month moving trend EBITDA at 17.6% on a very high level. So better top line and better margin, therefore, also acceleration of our operating income to a record level and 76% up compared to [ 21 ] In the acquisitions, we remain very active on the acquisition side with 5 acquisitions completed in the quarter, 8 acquisitions year-to-date, they represent an annualized sales of around SEK 2.5 billion. We also completed our 400 acquisition in Q2. That was the acquisition of Rollerdoor, a sectional door manufacturer in Portugal. Strengthening our position in South Europe for sectional doors. They had a sales of around SEK 640 million last year. And then another highlight of an acquisition, Sentinental Dock &Door, very excited about this acquisition. It's a commercial dock and door service company based in Canada, strengthening our direct channel presence, including our service business in Canada. We had sales of close to SEK 1 billion last year. If we then zoom in into the different divisions, starting with EMEA, we see a very strong performance of EMEA with an organic sales of plus growth of plus 5% with very strong sales growth in Central Europe and in the Middle East, India and Africa, a strong sales growth in the Nordics, small growth in South Europe and a stable development in U.K. and Ireland. And then excellent operating leverage [indiscernible] basis points, giving us an EBIT margin of 16.5%. And then you can see the effect of FX and M&A. So overall, we continue to see the positive trend in EMEA. It's not 3, 4 quarters in a row that we see an acceleration of that organic growth and therefore, also very strong margin improvement. Also America continues the successful journey. They had an organic sales growth of 4%. We have a strong sales growth in North America, nonresidential segment and in Latin America and then a small sales growth in the North America Residential segment, I would say, despite very tough market conditions. Then a good EBIT margin at 18.7% with an excellent operating leverage. And also you can see then the FX and M&A effects. We then go to Opening Solutions APAC. An organic sales decline of 4% with good sales growth in the Pacific Northeast subdivision and a significant sales decline in the Greater China, Southeast Asia subdivision. Like I mentioned earlier, that's because of Greater China where we have seen high double-digit negative growth. We on the other hand, in Southeast Asia, we have seen very good double-digit positive growth. An EBIT margin of 9.2%, we have a stable operating leverage despite the negative organic sales growth, so good cost management. And also here, we have done the effects of FX and M&A. If we then go to the global division, starting with Global Tech and organic sales growth of plus 4% with a strong sales growth in Global Solutions and a good sales growth in HID and a strong EBIT margin of 19.7% with excellent operating leverage here, more important dilution of FX, 60 bps. That's the dollar [indiscernible] related and then the 20 bps on M&A. And then last but not least, Entrance Systems, with, I would say, a very good organic sales growth of 4% despite also tough market conditions here on the logistics vertical. We had a strong sales growth in perimeter security and in pedestrian, a good sales growth in industrial, a small sales growth in doors and automation and then also good sales growth in service. And also a good EBIT margin of 16.7% also in this division, excellent operating leverage, 60 bps up and then dilution from FX and M&A, both 20 bps. And with that, I think I give the word to Erik, our CFO, for some more details on the financial numbers.

Thank you, Nico. And a very good morning from my side as well. As mentioned before, the sales in the quarter were up with 3% and of which organic was 4%. The net from acquisitions was 2% and then we have a negative currency effect of 3%, but it's much more, as you remember from the Q1 where it was minus 10. Now if we look into Q3, we estimate today that it's going to be flat. However, it's going to be a slight negative dilutive impact on the margin. EBIT at almost SEK 6.7 billion. It's up with 9%. EBIT is at 17%, 80 basis points up. However, already Nico mentioned that we have a few onetime items. If you would exclude from this, it would be 6.5%. And let's say, in order of magnitude, the 3 ones that we have: One is earn-out reversals, two is the divestment gain within Global Tech. And then we have a little bit of tariff refunds as well. Income from before tax, net income and EPS are all up with 12%. As mentioned before, we had a very strong cash flow at SEK 6.3 billion. It's up 6% versus the same period last year. Return on capital employed improved with 40 basis points and operational value added increased with 5% and is now for the first time above SEK 11 billion. If we then go to the bridge, if you look on the organic part, if you look on the sales there, roughly 2% of the 4% is price, and consequentially then about 2% is the volume. The organic flow-through is strong at 51%. However, as mentioned before, the onetime items, if we would exclude the onetime items from the organic column, it would land at 38%. Currency due to the weakening the weaker, let's say, U.S. dollars, it was minus 3% on the top line, and it has a 30 basis points negative impact on bottom line. Acquisitions there, it was 2% on top line. On the bottom line there, of course, we have the divestment gain. The divestment gain was roughly SEK 50 million. If you exclude from that I look on the rest then on the acquisition, you can see that obviously, the margin is a bit lower, and that is affected then by the integration costs that we have had for the recent acquisitions. Go to the cost breakdown on direct material, it's 30 basis points better than what it was last year. We have a slight positive mix, but that is offset by that we had a reclassification of a cost item, which sort of impacted negatively. So if you take, let's say, the true direct material price versus cost, that impact is 40 basis points for the quarter. Conversion cost remains flat versus last year. So the inflationary pressures has been taken off by sort of efficiency improvements. As an example, I mean, we have MFP savings in the quarter of about SEK 130 million. SG&A is 70 basis points better than the same period last year. And there you can see that our good cost control has sort of managed to keep -- to make that a positive number. Operating cash flow, as mentioned before, very strong in the quarter. Cash conversion is at 106%. This comes from that we have, I mean, a strong earning as well as we have been able to continue to do a very good work when it comes to working capital management. Then go to the gearing, net debt to equity at 61%. Net debt is at 2.2%. If you remember, Q1, it was 2.1%. But then during the quarter, despite that we have had a very strong operating cash flow, we have, of course, paid half of the dividend as well as we have been busy on the acquisition front as well. If you compare our net debt a year ago versus today, we are down with about SEK 25 billion. So we can sort of continue to see that our good cash generation also makes it feasible for us to continue our acquisition strategy also going forward. Last but not least, I already mentioned the number before. Earnings per share was up with 12%. And with that, I hand it back to Nico for some concluding remarks.

Thanks, Erik. So a good Q2 for ASSA ABLOY, with accelerated sales, I would say, despite challenging market conditions, a good organic sales development of plus 4%, complemented with growth acquisitions of net 2%. A very strong operational execution with a strong record EBIT and a strong record EBIT margin with excellent operating leverage of 51%, good working capital management with very strong cash flow improvement, 106% up and a cash conversion of 106%. And then okay, it's clear that we continue to operate in uncertain and swiftly changing operating environment, but we have proven in the past that our decentralized and empowered organization is ready to as those changing market conditions and that would also be the case going forward, whatever market conditions come to us, we are confident that we will be able to continue to deliver good results. And with that, I give back the word to Bjorn for Q&A.

Thank you, Nico. Yes, it means it's time to open up for your questions. [Operator Instructions]

[Operator Instructions] And today's first question comes from Daniela Costa from Goldman Sachs.

It's [indiscernible] speaking for Daniela Costa. I just wanted to ask a quick question on whether you could give us some color on the 3Q start so far. And also on any commentary on pricing in 2H that you expect?

So yes, Q2, as we mentioned, Q2 started on a similar level as Q1 for the first couple of weeks. But then we have seen a drop towards the end of April and also May was weaker. And then we had a very strong June. Okay, June had 1.5 working days more. But even if we correct for the working days, June was much stronger than the first 2 months. And then now July, it's a little bit difficult to say where July is because July and August are holiday months and Q3 is normally made in September, not in July and August. But you could say that July started on a similar level as June. And then pricing, we have said that at the beginning, we said that we should calculate 1.5% or so for the year. We had then revised that upwards in a previous call to something around 2%, perhaps slightly north of 2%. So I think that is still a good number for the full year. You have seen what we announced as price increases for Q1 and Q2. So if it's a strong 2% for the full year, that means that also in the second half, you should expect something around that 2%.

And the next question comes from Vivek Midha from Citi.

Thank you very much, everyone. I hope you can hear me well. My main question is around entrance zooming in on the industrial business. that was slower in the first quarter. You've now said that's shown good organic growth. I was wondering if you might be able to give us more color on how you saw that developing through the quarter by region and so on.

Yes. So the Industrial segment is a segment that is most exposed to the logistics vertical. Like I mentioned, logistics vertical, I think market conditions are still not good. in North America market conditions, I think, are flattish, you could say. Whereas if you look in Europe and you look at the bigger projects, I think the market is done. So we're not really helped by stronger market conditions. It was more that we had still some projects in the pipeline that we then invoiced in the quarter. And then we also had a better service performance in the quarter. And then also the smaller projects and the nondirectly big warehouse vertical-related projects were better in the quarter. That explains the growth for the industrial segment.

And my follow-up is, unless I missed it, I don't believe you commented on how your specification activity developed through the quarter. I was wondering if you could give us some color around that.

Yes. So the specification value was up high single digits on group level. I would say, similar in the different geographical divisions. If you take year-to-date in all 3 geographical divisions, our spec activity is up either high single digit or low double digit for the respective divisions.

And the next question comes from Andre Kukhnin from UBS.

Can I just start with a follow-up on pricing. You implied around plus 2% for the second half. But did you implement price increases during Q2?

Yes. Yes, we did. As one basic materials at least at the beginning of Q2, continue to go up. We have, of course, still all the tariffs we have also important logistics inflation. So we did that. I mean what you should not forget is, of course, is that you should compare with last year. And in Q2, we started to see some compensation for the tariffs and that came in full effect into Q3 last year. So Q3 from that aspect is, say, the biggest or the most challenging comparison with last year.

Right. Enhance the last 2 post. Great. And can I just ask on the Americas or U.S. residential market, what are the trends you're seeing there? And especially, you mentioned, I think, before that there were some signs of maybe life emerging in the R&R where people started to take a view that they won't leave any time soon with the current rates and hence, starting to maybe go ahead with a bit more renovation activity on existing homes. Is that something that is kind of picking up as a trend? Or is that just a blue?

So yes, we had a small low single-digit positive growth of our residential business in North America in Q2. I think we should -- if you first look at new build, new build for single houses, we don't see an improvement. As a matter of fact, we see the market further down. We don't expect the market to come back this year. Hopefully, that will be something for next year. You see some more activity on the multifamily side, but the multifamilies is obviously a much smaller part of the business and single houses. On the R&R side, if you can believe economists that forecast the future, they believe that R&R could grow a couple of percent in the second half of the year. If that's true, that would, of course, be good news for us because we are more exposed to R&R than we are to new build. Clear that interest rates stay very high. They are at that 6.5% level. So we will not be helped by interest rates. It has more to come from people that start to do refurbishments on their house because at the moment, if your house ages, it's time to refurbish and perhaps people start to think, let's refurbish the house. If I don't have to consolidate in a year and 2 years, I will have a better resale value my house. But we don't really see a significant improvement of the market. It's perhaps a little bit different in Europe where we believe the R&R side is a little bit in better shape than in the U.S.

And the next question comes from Aaron Ceccarelli from Bank of America.

The first one is on organic growth. It was nice to see volumes coming back, 2% up in the quarter. Perhaps can you talk a little bit in terms of confidence, what confidence do you have for volumes to continue to grow perhaps in the second half?

Yes, we should perhaps comment on the different divisions. If you take the geographical divisions, like I mentioned earlier, we see still very good momentum on the nonresidential side, commercial side, where we have had a higher single-digit growth in our different divisions and we -- we are confident that, that continues. We have our spec indicator. There was also some external indicators that we believe that should continue. And then like I said, on the residential side, although market conditions remain challenging in the U.S. and remain to a certain extent, also challenging in Europe. The comparison, of course, becomes easier. And at least on the R&R side in Europe, we are a bit more optimistic. I think also we should see further acceleration of the organic growth on the global tech side, where in Q2, we still have seen like in Q1 that noncritical CapEx related industrial investments are a little bit being delayed. People have this wait-and-see attitude. But of course, you build up a pipeline and sell at the moment that pipeline starts to roll, and we are confident that, that will happen in the second half of the year. We also had a bit lower hospitality business in Q2, which is just a timing issue. And there also we should see an acceleration now in the second half of the year. Then, I mean, growth will not come from Greater China that will continue to be challenging in the second half of the year. And I already commented on the challenging market conditions in the warehouse vertical.

And my follow-up would be on the 50 basis points on EBIT one-off. Could you split out the impact from tariffs refund?

So like Erik mentioned, we had 3 items and the biggest item was an earn-out -- reversal, sorry. The second biggest item was a capital gain on a small divestments we did in Global Tech. And the tariffs also the smallest one of the three. It was in the single-digit million-dollar range.

And the next question comes from Alexander Virgo from Evercore ISI.

I wonder if you could talk a little bit about the EMEA margins. 16.5% is a great number to see after such a long time. So you're obviously showing real benefits from MFP. Operating margins were, what, close to 70%. Again, really encouraging to see. So I wondered if you could just talk a little bit about structurally where we are here? Is there something now we can think about as sustainable? And then as the market recovers, actually recovers maybe at some point, then those margins can move higher still? And then as a follow-up, I wondered if you could just -- if I could just check where those gains fell divisionally and making sure we're not seeing anything in those margins in EMEA in particular that might have been supported by the earn-out or the divestment.

Yes. So it's correct that EMEA was -- it was mainly in Global Tech and in EMEA that we have had the onetime item effects. So if you correct for the onetime items effect in EMEA, our EBIT margin was...

15% flat.

15 flat, and we had a volume leverage on the on the 5% organic growth of 38%. So I think underlying still a very strong performance and a very strong improvement compared to the same quarter a year ago. But we have always said is that EMEA over time should come to that 16% EBIT level. We've said that for that 2 things had to happen. We had to have a stronger SEK because they had a lot of dilution from the SEK over recent years. Obviously, that problem is solved because the SEK became stronger since 9 months or so. And then we have said they need some kind of organic volume growth to get that volume leverage efficiency. You've seen now since 3 quarters or so that EMEA has accelerated and continues to accelerate that organic volume growth. That was again, the case in this quarter. And then you see that you get very good volume leverage and therefore, very good margin accretion. We are confident that, that will continue in the coming quarters and that they will continue confidently the EBIT margin trajectory upwards.

And the next question comes from Gael de-Bray from Deutsche Bank.

Yes. The first question and how is and sorry to labor the point, but just a clarification on the one-offs, once again. So you said that it should be around SEK 100 million for the EMEA division for the reversal of the earn-out provision. And then I heard SEK 50 million for the divestment gain within Global Tech, which leaves about SEK 50 million for the tariff refunds, right? But then you talked about a single-digit number there. So I'm just trying to reconcile all these numbers. So that's the first question.

In total, it's around SEK 200 million, the one-offs. And we also had some -- an out reversal in Global Tech. So that's what you're missing in your calculation.

Perhaps if I go through, I mean, Gael, you're absolutely right when it comes to the SEK 100 million in EMEA. So you go from, as I said before, SEK 65 million in EBIT down to SEK 15 million go from an organic leverage from above 50 down to 38%. The other one where you will have an impact is in Global Tech, and you have sort of 2 impacts. One is the divestment gain of -- I mean, first, start with the numbers. If you look on their EBIT is, if you look on -- without anything, the margin [indiscernible] is 18 flat. And then you already know the SEK 50 million, sorry, that goes into the divestment gain. But then you have also earn-out reversals within Global Tech. So there, if you look sort of their operating flow-through ends up at 32%. So which means that you have, okay, Nico is always rounding a bit. if you want to have the true number, it's actually SEK 70 million that you should put in there. So if you add this all together, you are about SEK 220 million, that was sort of those effects. And then as mentioned before, the tariffs is marginal when it comes to this

Okay. Understood. And what are the 2 businesses related to the earn-out reversals.