Assa Abloy Falls After Fourth-Quarter Margins Weaken

  • Profit margin lower than analysts' forecast on currencies, M&A
  • CEO says many customers in China are likely to go bankrupt

Assa Abloy AB, the world’s largest lockmaker, fell the most in more than seven years, weighed down by concern about weakening margins and slower revenue growth.

Fourth-quarter profitability at the maker of Yale locks narrowed to 16.6 percent from 16.9 percent, hurt by currency moves and the acquisition of companies with lower margins, the company said in a statement Monday. Analysts predicted 17 percent. Assa Abloy also forecast revenue growth of 2 percent to 4 percent this year, excluding acquisitions and currency effects, down from a 5 percent rate in the fourth quarter.

“It was a good report, but the market chose to focus on the slightly weaker growth outlook and, mainly, a lower margin,” said Anders Roslund, an analyst at Swedbank.

Assa Abloy shares sank 7.7 percent to 154.10 kronor at 4:10 p.m. in Stockholm, where the company is based. The intraday decline of 8.4 percent was the biggest since November 2008.

Currencies and acquisitions are likely to weigh further on Assa Abloy in the first half of this year, Ben Maslen, an analyst at Morgan Stanley, said in a report.

Chief Executive Officer Johan Molin said he’s not concerned about the margin development, as exchange-rate effects will fade in the second half and the company will continue to improve profitability at newly bought businesses, as it has done with more than 130 acquisitions during his tenure.

“It has always been difficult,” he said in a phone interview. “I believe in our ability. We will continue to work in the same way.”

Customers in Distress

Assa Abloy also booked provisions of 250 million kronor ($29 million) to cover the risk of customers defaulting on payments in China, a country that has been a focus of the company’s strategy to expand in emerging markets. With new construction activity in decline in the world’s most populous country, many companies there are under pressure. Assa Abloy’s sales in China declined by 11 percent.

“We need to be careful not to hope too much,” Molin said on a conference call. “Many customers are in distress and many customers will go bankrupt over time.”

Molin said the company will continue to expand in emerging markets, as it most recently did in late December with the acquisition of two Brazilian companies expected to add revenue of some 450 million kronor this year.

Fourth-quarter operating profit increased 13 percent to 3.04 billion kronor, Assa Abloy said. Analysts surveyed by Bloomberg had on average predicted 3.05 billion kronor.

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