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Earnings

Assa Abloy's profit falls as coronavirus impact spreads beyond Asia

STOCKHOLM (Reuters) - Swedish lockmaker Assa Abloy's ASSAb.ST profit fell steeply in the first quarter as the fallout from the new coronavirus hit its Asian business hard and began to dent profitability elsewhere.

FILE PHOTO: Assa Abloy locks are displayed in a shop in Riga, Sept.19, 2013. REUTERS/Ints Kalnins/File Photo

The world’s biggest lockmaker said late on Tuesday its business in Asia, China in particular, suffered throughout the quarter and organic sales at the Asia Pacific division were down 34%.

Elsewhere, production was affected by supply chain disruptions from February followed by country lockdowns.

The result was significant sales drops in March, including a 4% fall in the Europe, Middle East and Africa division where Europe accounts for the bulk of business.

The extent of the impact took analysts by surprise and Assa Abloy's shares were down 5% at 0947 GMT, underperforming the wider market in Stockholm .OMXSPI.

“In March, in EMEA at first, but later also in other parts of the world, and towards the end of March also in the U.S., suddenly this supply issue became a topline issue with one country after the other closing down, starting with Italy,” CEO Nico Delvaux told analysts and media in a call.

“From one day to the next, the topline would go from 100% to close to zero.”

Operating profit in January through March fell to 2.75 billion crowns ($274 million) from 3.25 billion a year ago, while like-for-like sales contracted 3%.

Analysts had forecast a 3.01 billion profit, according to Refinitiv SmartEstimate. Results were preliminary, with a quarterly report due on April 29.

“To address the situation that has arisen due to the COVID-19 outbreak, several cost measures and cash flow initiatives are being taken across the group,” Assa Abloy said in a statement.

Steps would include reduced working hours, temporary and permanent layoffs, travel bans, less use of consultants and delays to projects, it said.

Delvaux said in the call measures were both long- and short-term, and substantial.

“We are also negotiating with our suppliers to see if we can do something on payment terms. But it’s fair to say also that we get similar requests from our customers,” he said.

Some analysts were surprised at the extent of the earnings impact beyond Asia, with Jefferies pointing to large profitability drops in EMEA and the Global Technologies division.

“We thought COVID-19 would primarily impact the company’s operations in Asia Pacific in (the first quarter) but to our surprise it did have an impact on the entire group,” Jefferies said in a note.

Delvaux said factories had resumed full production in China. In Europe most were closed or running at reduced capacity while in the United States they were all still operating.

Assa Abloy lowered its proposed dividend payout last month because of the uncertainty created by the pandemic.

Reporting by Niklas Pollard, Johannes Hellstrom and Anna Ringstrom; editing by David Holmes, Edmund Blair and Barbara Lewis

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