Segment Access Solutions AMER

Lower sales, higher profitability

Operational performance

The segment AS AMER reported total sales of CHF 816.7 million in the period under review (previous year CHF 828.4 million). Organic sales declined 1.8% compared to the previous year.

The segment continued to focus on profitability which is reflected in the improved EBITDA and EBITDA margin. EBITDA increased by 2.9% to CHF 168.1 million (previous year CHF 163.4 million), the EBITDA margin improved from 19.7% to 20.6%. This improvement was driven by a positive mix effect, cost efficiencies, and higher sales prices, which more than compensated for raw material inflation, higher tariffs, lower volumes, and increased IT costs for the roll-out of global applications.

In addition, the segment already benefited from its ongoing production adjustments, which will lead to an improved cost base. This manufacturing footprint transformation is realized by consolidating various smaller locations into major production hubs, i.e. Indianapolis (USA) for Door Hardware, Montreal (Canada) for Hospitality and Electronic Solutions, Nogales (Mexico) for high-volume assembly products, and Reamstown (USA) for Entrance Systems and Interior Glass Systems. Since the dormakaba merger in September 2015, the segment has closed seven of its production sites due to operational synergies and economies of scale, another two sites have already been announced.

Market development

Organic sales growth in North America was negatively impacted by a weaker Lodging Systems business. After four years of double-digit growth driven by upgrades to mobile access solutions for major hotel chains, the Lodging Systems business was for the first time below previous year when a major project was finalized. Strong demand for access solutions for multi-housing in North America and orders from hotels outside North America partially compensated for this development.

Sales were impacted as well by a weak business environment in Latin America, which was partly compensated by moderate growth in Canada. In addition, there was a negative impact from the North American manual door business (Mesker). Due to operational challenges while implementing a new ERP system, delivery times of products did not meet customers’ requirements for a period of time. These issues impacted the second half of financial year 2018/19. The segment is currently in the process to solve the technical issues.

There was strong growth for Safe Locks and Interior Glass Systems, and double-digit growth for the Electronic Access & Data, and the Entrance Systems business. The Entrance Systems business will be further strengthened by the acquisition of Alvarado Manufacturing based in Chino (CA/USA). The acquisition offers a good strategic fit to dormakaba as Alvarado is a leading North American manufacturer of physical access solutions such as speed gates, turnstiles, and other admission devices. Its offering focuses on office, commercial and government buildings as well as sports, leisure and entertainment facilities. The acquisition was closed on 31 July 2019 and will be accretive to EBITDA margin and earnings per share from day one.

AS AMER divested the unprofitable parts of the US Door Hardware Service Business in December 2018 which had a positive effect on its EBITDA margin (sales affected CHF 10 million). Going forward, the Product Cluster Services will focus on more profitable opportunities like the service business for Entrance Systems.

Outlook

AS AMER expects no major change in the economic environment in the financial year 2019/20 with good underlying demand in North America but continued weakness in Latin America.

The business is expected to return to organic sales growth based on a solid order book. Growth will be supported by the Lodging Systems business which is expected to return to growth as it will not be impacted by the abovementioned base effect anymore. On top it will benefit from new innovative products and solutions like Ambiance, a state-of-the-art lodging access management software solution for hospitality and commercial use, which consolidates different legacy software applications and will be available as a cloud version as well. The segment expects, however, that the challenges with its manual door business will have an impact on the Door Hardware Product Cluster in the first half of financial year 2019/20 as the sales management has to shift resources to rebuild customer trust.

Key figures - segment AS AMER

 
Segment sales (in CHF million) - AS AMER